20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended March 31, 2020

OR

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

For the transition period from _________ to _____________.

OR

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

Date of event requiring this shell company report:

Commission file number: 001-38773

China SXT Pharmaceuticals, Inc.

(Exact name of Registrant as Specified in its Charter)

British Virgin Islands

(Jurisdiction of Incorporation or Organization)

178 Taidong Rd North, Taizhou

Jiangsu, China

(Address of Principal Executive Offices)

Feng Zhou

178 Taidong Rd North, Taizhou

Jiangsu, China

+86- 523-86298290

(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
Ordinary shares, par value US$0.001 per share	NASDAQ Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of March 31, 2020 was: 34,667,707 ordinary shares, par value $0.001 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐   No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐   No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒   No ☐

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Emerging growth company ☒

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

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☒ U.S. GAAP ☐ International Financial Reporting Standards as issued by the
International Accounting Standards Board ☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

CHINA SXT PHARMACEUTICALS, INC.

FORM 20-F ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Identity of Directors, Senior Management and Advisers	1
Item 2.	Offer Statistics and Expected Timetable	1
Item 3.	Key Information	2
Item 4.	Information On The Company	22
Item 4A.	Unresolved Staff Comments	41
Item 5.	Operating And Financial Review And Prospects	42
Item 6.	Directors, Senior Management And Employees	53
Item 7.	Major Shareholders And Related Party Transactions	60
Item 8.	Financial Information	61
Item 9.	The Offer And Listing	61
Item 10.	Additional Information	62
Item 11.	Quantitative And Qualitative Disclosures About Market Risk	88
Item 12.	Description Of Securities Other Than Equity Securities	88
PART II
Item 13.	Defaults, Dividend Arrearages And Delinquencies	89
Item 14.	Material Modifications To The Rights Of Security Holders And Use Of Proceeds	89
Item 15.	Controls And Procedures	89
Item 16.	[Reserved]	90
Item 16A.	Audit Committee Financial Expert	90
Item 16B.	Code Of Ethics	90
Item 16C.	Principal Accountant Fees and Services	91
Item 16D.	Exemptions From The Listing Standards For Audit Committees	91
Item 16E.	Purchases Of Equity Securities By The Issuer And Affiliated Purchasers	91
Item 16F.	Change In Registrant’s Certifying Accountant	91
Item 16G.	Corporate Governance	91
Item 16H.	Mine Safety Disclosure	91
PART III
Item 17.	Financial Statements	92
Item 18.	Financial Statements	92
Item 19.	Exhibits	92

i

PART I

CERTAIN INFORMATION

In this annual report on Form 20-F, unless otherwise indicated, “we,” “us,” “our,” the “Company” and “China SXT” refer to China SXT Pharmaceuticals, Inc., a company organized in the British Virgin Islands, its predecessor entities and its subsidiaries.

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, 2020, the cash buying rate announced by the People’s Bank of China was RMB7.0808 to $1.00.

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 or 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 “Risk Factors”, “Operating and Financial Review and Prospects,” and elsewhere in this report.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

1

ITEM 3. KEY INFORMATION

3.A. Selected Financial Data

The following table presents the selected consolidated financial information of our company. The selected consolidated statements of operations data for the years ended March 31, 2020, 2019 and 2018 and the selected consolidated balance sheets data as of March 31, 2020 and 2019 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1. Our audited consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our historical results do not necessarily indicate results expected for any future period. You should read the following selected financial data in conjunction with the consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this report.

	For the years ended March 31,
	2020			2019			2018
Summary Consolidated Statements of Operations:
Operating revenue	$	5,162,268		$	7,012,026		$	7,019,243
Cost of revenue		(2,458,566	)		(2,400,491	)		(3,617,748	)
Gross Profit		2,703,702			4,611,535			3,401,495
Operating expense
Selling		1,583,284			1,605,497			512,482
General and administrative		2,461,535			1,236,546			1,256,747
Total operating expenses		4,044,819			2,842,043			1,769,229
Other income (expense)
Other income (expense), net		(9,048,477	)		21,967			(4,582	)
(Loss) income before income taxes (benefits)		(10,389,594	)		1,791,459			1,627,684
Provision (benefit) for income taxes		(101,722	)		252,232			440,103
Net income (loss)		(10,287,872	)		1,539,227			1,187,581
Net income (loss) attributable to China SXT Pharmaceuticals, Inc.	$	(10,287,872	)	$	1,539,227		$	1,187,581

The following table presents our summary consolidated balance sheet data as of March 31, 2020 and 2019.

	March 31,		March 31,
	2020		2019
Summary Consolidated Balance Sheet Data:
Cash and cash equivalents	$	7,287,032	$	9,130,849
Other assets		14,415,146		8,339,984
Total assets	$	21,702,178	$	17,470,833
Total liabilities		12,300,825		6,363,078
Total shareholders’ equity	$	9,401,353	$	11,107,755

3.B. Capitalization and Indebtedness

Not Applicable.

3.C. Reasons For The Offer And Use Of Proceeds

Not Applicable.

2

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 “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.

Risks Related to the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic.”   Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures, which have caused material disruption to businesses globally resulting in an economic slowdown. These measures, though temporary in nature, may continue and increase depending on developments in the COVID-19’s outbreak.

Jiangsu Province, where we conduct a substantial part of our business, was materially impacted by the COVID-19. We have been following the recommendations of local health authorities to minimize exposure risk for our employees, including the temporary closures of our offices and production, and having employees work remotely. Our on-site work was not resumed until mid-March, 2020 upon the approval from the local government. Due to the extended lock-down and self-quarantine policies in China, we have experienced significant business disruption for the past two and a half months. Some of our employees in other provinces are still subject to the lock-down policy implemented by the local governments and could not return to work. Our production was resumed in mid-March, 2020. Due to the material impacts of COVID-19 on our logistics, our production was picking up slowly and returned to the normal level in May, 2020. 

The extent to which the COVID-19 continues to impact the Company’s business, sales, and results of operations will depend on future developments, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus, but is likely to result in a material impact on our business operations at least for the near term.

Risks Related to the May 2019 Private Placement and the Forbearance Agreement

The Company completed a private placement on May 2, 2019 (the “May 2019 Private Placement”) with two unaffiliated institutional investors (each, a “Investor” or “Holder”, collectively, “Investors” or “Holders”) pursuant to certain Securities Purchase Agreement dated April 16, 2019, as amended on May 2, 2019 (the “Purchase Agreement”). The securities sold by the Company in the May 2019 Private Placement consisted of (1) Senior Convertible Notes in the aggregate principal amount of $15 million (each, a “Note” and collectively, the “Notes”), consisting of (i) Series A Senior Convertible Notes (“Series A Notes”) and (ii) Series B Senior Secured Convertible Notes (“Series B Notes”) and (2) Warrants (“Series A Warrants”) to purchase 596,658 of the Company’s ordinary shares, and (3) Warrants (“Series B Warrants”, collectively with Series A Warrants, “Warrants”) to purchase 298,330 of the Company’s ordinary shares. The Purchase Agreement, the Notes, Series A Warrants and Series B Warrants and other transaction documents in connection with the May 2019 Private Placement are referred to as “Transaction Documents”.

On July 23, and July 29, 2019 the Company received event of default redemption notices from two Holders claiming that the Company failed to timely make the payment for the Installment Amount (as defined in the Notes) due under the terms of Series A Note, therefore, the Holders elected to effect the redemption of Series A Notes.

If the Company fails to fulfill its obligation under the forbearance agreements with its investors in May 2019 private placement, it will cause significant dilution of to existing shareholders when the Holders elect to convert shares under the Notes or exercise the Warrants, and cause material adverse effect on the Company’s cash flow, financial conditions and operation results if the Holders require us to repay in cash.

The Company completed a private placement on May 2, 2019 (the “May 2019 Private Placement”) with two unaffiliated institutional investors (each, a “Investor” or “Holder”, collectively, “Investors” or “Holders”) pursuant to certain Securities Purchase Agreement dated April 16, 2019, as amended on May 2, 2019 (the “Purchase Agreement”). The securities sold by the Company in the May 2019 Private Placement consisted of (1) Senior Convertible Notes in the aggregate principal amount of $15 million (each, a “Note” and collectively, the “Notes”), consisting of (i) Series A Senior Convertible Notes (“Series A Notes”) and (ii) Series B Senior Secured Convertible Notes (“Series B Notes”) and (2) Warrants (“Series A Warrants”) to purchase 596,658 of the Company’s ordinary shares, and (3) Warrants (“Series B Warrants”, collectively with Series A Warrants, “Warrants”) to purchase 298,330 of the Company’s ordinary shares. The Purchase Agreement, the Notes, Series A Warrants and Series B Warrants and other transaction documents in connection with the May 2019 Private Placement are referred to as “Transaction Documents”.

3

On July 23, and July 29, 2019the Company received event of default redemption notices from two Holders claiming that the Company failed to timely make the payment for the Installment Amount (as defined in the Notes) due under the terms of Series A Note, therefore, the Holders elected to effect the redemption of Series A Notes.

Upon negotiation with the Investors, on December 13, 2019, the Company entered into certain Forbearance and Amendment Agreements (each a “Forbearance Agreement”, collectively with other ancillary agreements, as amended from time to time, the “Forbearance Agreements”) with each Investor. Concurrently with the execution of the Forbearance Agreement, the Investors and the Company have entered into the Lock-Up Agreements, Leak-Out Agreements and Mutual Releases.

Due to the Company’s failure to obtain timely approval from State Administration of Foreign Exchange in People’s Republic of China to redeem Series A Notes in cash as previously contemplated, we separately amended and restated the Leak-Out Agreements (each an “Amended Leak-Out Agreement”) with each Investor on March 3, 2020.

Any failure by us to meet our payment and other obligations under the Forbearance Agreements, including failure to timely convert the shares under Series A Note per Holders’ conversion notices, could lead to defaults under our Forbearance Agreement. In the event of a default that we cannot remedy, the Holders may require us to redeem all or portion of the outstanding principal of the Notes with unpaid and accrued interests, make-whole amount, liquidated damages and late charges, if any. Payment of redemption price may negatively impact our liquidity, financial condition and results of operations of the Company.

The conversion of the Series A Notes will dilute the ownership interest of existing shareholders or may otherwise depress the price of our ordinary shares.

The conversion of some or all of the Series A Notes will dilute the ownership interests of existing shareholders to the extent we deliver shares of our ordinary shares upon conversion of the Notes. The Notes are convertible at the option of the holders of the Series A Notes prior to October 15, 2020 under certain circumstances as provided in the indenture governing the Notes. Any sales in the public market of the ordinary shares issuable upon such conversion could adversely affect prevailing market prices of our ordinary shares. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our ordinary shares could depress the price of our ordinary shares.

The terms of Transaction Documents and Forbearance Agreements could impede our ability to enter into certain transactions or obtain additional financing and could result in our paying premiums or penalties to the holders of the Notes and Warrants.

The terms of the Notes and other Transaction Documents, prohibit us from entering into a “fundamental transaction” (as defined in the Notes and such Transaction Documents) (including generally, a merger, sale of all or substantially all of our assets, or permitting a purchase tender or exchange offering resulting in a person or group of persons owning at least 50% of the outstanding shares of our Ordinary Shares) unless, among other things, the successor resulting from the fundamental transaction assumes all of our obligations under the Notes, the applicable warrants and the associated transaction documents.

The Notes and Warrants require us to deliver the number of Ordinary Shares issuable upon conversion or exercise within a specified time period. If we are unable to deliver such shares within the timeframe required, we may be obligated to reimburse the Holder for the cost of purchasing the Ordinary Shares in the open market or pay them the profit they would have realized upon the conversion or exercise and sale of such shares.

We may also be obligated to redeem the Notes at a premium upon the occurrence of an event of default (as defined in the Notes) or a change of control (as defined in the Notes). The Warrants also contain features that may require us to repurchase such warrants upon the occurrence of a change of control or other event of default.

The payments we may be obligated to make as described above may adversely affect our results of operations and cash flows.

4

Failure to maintain effectiveness of the registration statement could materially adversely affect our company.

We have agreed, at our expense, to prepare a registration statement covering the Conversion Shares and Warrant Shares in connection with the Offering pursuant to our recent Private Placement with certain buyers (“the May 2019 Private Placement”). The May 2019 Private Placement was closed on May 2, 2019 (“Closing Date”). We are obligated to file the registration statement with the SEC within certain period after the Closing Date and maintain such registration statement effective until the Investors have sold all Registrable Securities as defined in the Registration Right Agreement, including but not limited to, all the Ordinary Shares issuable upon conversion of the Notes and exercise of the Warrants. The registration statement was declared effective on June 27, 2019. However, if we fail to maintain its effectiveness, such failure will be deemed as an event of default under the Transaction Documents and resulting in Holders’ right to convert at the alternative conversion price. Such failure could materially adversely affect us.

The exercise prices of the warrants and conversion prices of the convertible notes are not indications of our value.

The exercise prices of the warrants and the conversion prices of the convertible notes may not necessarily bear any relationship to the book value of our assets, past operations, cash flows, losses, financial condition or any other established criteria for value. You should not consider the exercise price or the conversion price as an indication of the value of the Ordinary Shares underlying the warrants. After May 30, 2019, the Ordinary Shares may trade at prices above or below such exercise prices.

Risks Related to Our Business

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.

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. At March 31, 2020, we had cash and cash equivalents of $7,287,032, total current assets of $19,636,313 and total current liabilities of $12,264,314. At March 31, 2019, we had cash and cash equivalents of $9,130,849, total current assets of $15,588,100 and total current liabilities of $6,321,372. 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.

5

Although we were incorporated 15 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 TCMP and After-Soaking-TCMP as our principal products three 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 investment in Huangshan Panjie Investment LLP Fund may not be successful.

In June 2019 the Company entered into a limited partnership agreement with Huangshan Panjie Investment Management Co., Ltd. (the “GP”), one of the general partner of Huangshan Panjie Investment LLP Fund (“the Fund”), to join the Fund as a limited partner. Pursuant to the limited partnership agreement and its supplements and the Company is committed to contribute $7 million (RMB50 million) into the Fund in two installments, with one installment of $3.5 million (RMB 25 million) made on June 14, 2019, and the second installment of $3.5 million (RMB 25 million) to be made no later than October 31, 2019. The GP will take 20% carried interest.

The Company’s investment in the Fund is to leverage the Fund’s capacity to incubate TCM, pharmaceutical or bio-tech start-ups so as to give the Company a steady line of acquisition candidates complementary to its core business. However, there is no guarantee that the start-ups incubated by the Fund will be suitable acquisition target or, if the Company was able to identify suitable target, it will be able to execute the acquisition or consolidate the acquisition target into the Company’s business.

In June 2020, the Company agreed with the Fund, the GP and other limited partners to withdraw the installment of $3.5 million (RMB 25 million) made on June 14, 2019. The Company received payment of $2.8 million (RMB 20 million) on June 30, 2020 and expects to receive the rest within 3 months after the issuance date of these financial statements. If we are unsuccessful in collecting the rest of the investment, 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. For additional information regarding Suxuantang’s customer concentrations, see “Consolidated Financial Statements - Note 2 (v) 4). Concentration Risks.” 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, 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. Additionally, Jingzhen Deng, our Chief Scientific Officer (R&D team leader) and Chief Operation Officer, performs key functions in the operation of our business. 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 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.

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.

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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.

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We face risks related to research and the ability to develop new TCMP products.

Our growth and survival depends 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 in order to carry on their business.

Pharmaceutical companies in China are required to obtain certain permits and licenses from various PRC governmental authorities, including Good Manufacturing Practice (“GMP”) certification. 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. We are required to renew the GMP every five years and our current GMP expires in 2019. There is no guarantee we will be able to renew the GMP when it next expires.

We cannot assure you that we can maintain all required licenses, permits and certifications 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 certifications. Moreover, these licenses, permits and certifications 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 certifications when required by then applicable laws and regulations. Any failure by us to obtain and maintain all licenses, permits and certifications 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 certifications 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 certifications, 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 certifications that were previously not required to operate our existing businesses, we cannot assure you that we will successfully obtain such licenses, permits or certifications.

Our innovative Directly-Oral-TCMP and After-Soaking-Oral-TCMP in China are subject to continuing regulation by the CFDA. If the labeling or manufacturing process of an approved medicine is significantly modified, the CFDA 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 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 11 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 rely on contractual arrangements with our variable interest entities in China for our business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests.

We rely on and expect to continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Taizhou Suxuantang and its respective shareholders to operate business. These contractual arrangements may not be as effective in providing us with control over Taizhou Suxuantang as ownership of controlling equity interests would be in providing us with control over, or enabling us to derive economic benefits from the operations of Taizhou Suxuantang. Under the current contractual arrangements, as a legal matter, if Taizhou Suxuantang or any of their shareholders fails to perform its, his or her respective obligations under these contractual arrangements, 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.

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 entities 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.

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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.

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.

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

In April 2012, President Obama signed into law the JOBS Act. We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

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

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. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. 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. 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, 2020. 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, 2021, 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. Despite recent reforms made possible by the JOBS Act, 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, particularly after we are no longer an “emerging growth company.” 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.

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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.

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.

All of our executive officers and directors and all of our shareholders have agreed not to sell shares of our Ordinary Shares for a period of six months following our initial public offering, subject to extension under specified circumstances. See “Lock-Up Agreements.” Ordinary shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended. If our shareholders 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. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

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Risks Related to Doing Business in China

Recent scrutiny and potential tightened regulation of public companies with majority of its operation in China may have adverse impact on our share performance and even our listing on the Nasdaq Capital Market.

At various times in recent years, the United States and China have had significant disagreements over political and economic issues. Controversies may arise in the future between the two countries. Any political or trade controversies between the United States and China, whether or not directly related to our business, could reduce the price of our ordinary shares.

In June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, and passed requiring the SEC to maintain a list of issuers for which the Public Company Accounting Oversight Board, or the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges of issuers included on the SEC’s list for three consecutive years. On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act, or HFCA Act, which in effect would prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded “over-the-counter” if registrant’s financial statements have, for a period of three years, been audited by an accounting firm branch or office that is not subject to PCAOB inspection. Although our independent registered public accounting firm is located in the United States and subject to the regular inspection of PCAOB to assess its compliance with the applicable professional standards, enactment of any of such legislations or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected Chin-based issuers, and our share price could be adversely affected. There is uncertainty as to whether and when these bills or legislations will be enacted in the proposed form, or at all. 

Furthermore, Nasdaq has proposed changes to its rules to allow it to consider whether the auditor of a company has been inspected by the PCAOB in considering whether to allow the new or continued listing of that company. The proposed Nasdaq rule changes are subject to approval by the SEC. Enactment of either the EQUITABLE Act or HFCA Act, implementation of the proposed Nasdaq rule changes, or other efforts to increase U.S. regulatory access to audit information could cause uncertainty for affected issuers, including us; the market price of our ordinary shares could be adversely affected, and the trading of our ordinary shares on Nasdaq Capital Market may be prohibited if our auditors fail to be inspected by the PCAOB for three consecutive years. It is unclear if the proposed acts of Congress or Nasdaq rule changes will be enacted. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to lead to legislation, the resulting legislation may have adverse impact on the share performance of China-based issuers listed in the U.S like us. 

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 China’s Ministry of Commerce (“MOFCOM”), 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.

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.

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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.

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.

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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.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct all of our business through our subsidiaries and variable interests entities in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries and variable interests 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.

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An offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.

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.

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 MOFCOM 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.

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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We are a holding company and we rely for funding on dividend payments from our subsidiaries, 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 various variable interest entities, or VIEs, agreements with third parties. 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 VIEs. If our subsidiaries and VIEs 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.

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.

Substantial uncertainties exist with respect to the enactment timetable and final content of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 (the “Draft FIL”) aiming to, upon its enactment, 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 Draft FIL 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. The Ministry of Commerce is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, final content, interpretation and implementation.

Among other things, the Draft FIL expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. The Draft FIL specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,” to be separately issued by the State Council later. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE. Under the Draft FIL, VIEs that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is on the “negative list” the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, the VIEs will be treated as FIEs and any operation in the industry category on the “negative list” without market entry clearance may be considered as illegal.

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The provision of services, which we conduct through our VIEs, is currently subject to foreign investment restrictions set forth in the Catalogue of Industries for Guiding Foreign Investment, or the Catalogue, issued by the National Development and Reform Commission and the Ministry of Commerce that was amended on June 28, 2017 and became effective On July 28 2017. The Draft FIL, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

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.

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.

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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 China SXT Group Limited (“SXT HK”) was incorporated in Hong Kong on July 21, 2017. China SXT Group Limited in turn holds all the capital stocks of Taizhou Suxantang Biotechnology Co. Ltd. (“WFOE”), a wholly foreign owned enterprise incorporated in China on October 13, 2017. WFOE controls Jiangsu Taizhou Suxantang Pharmaceutical Co., Ltd. (“Taizhou Suxuantang”) through a series of VIE agreements. See” Business — Contractual Agreements with 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.

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.

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 innovative pharmaceutical company based in China that focuses on the research, development, manufacture, marketing and sales of TCMP. TCMP is a type of 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.

 We recently reconstructed and assembled a 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), a classification of health-supporting food used traditionally in China as TCM but which are also consumed as food. The scope of production includes “Substitute Teas,” made of TCMHS plants, and “Solid Beverages,” a kind of granule produced through extraction of TCMHS materials.

We have successfully developed 4 solid beverage products which were commercially launched in April 2019.

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We currently produce 19 Advanced TCMPs and market 13 of them, 15 Fine TCMPs, 430 Regular TCMPs and 4 TCMHS solid beverages. Advanced TCMP has gradually become our principal product due to its quality and greater market potential. For the fiscal year ended March 31, 2020, Advanced TCMP brought in 30.6% of the total revenue, whereas Fine TCMP and Regular TCMP each brought in 20.0% and 44.2% of the total revenue respectively. For the fiscal year ended March 31, 2019, Advanced TCMP brought in 51.8% of the total revenue, whereas Fine TCMP and Regular TCMP each brought in 7.5% and 40.7% of the total revenue respectively. Our Advanced TCMP segment includes nineteen products, which can be further divided into eight Directly-Oral TCMP products, and eleven 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 “Business – Our Products.”

Taizhou Suxuantang, our VIE entity, was founded in 2005 and has grown significantly in recent years. Our net revenues decreased from $7,012,026 in fiscal year ended March 31, 2019 to $5,162,268 in fiscal year ended March 31, 2020, representing a decrease of 26%. Our net income decreased from $1,539,227 in fiscal year ended March 31, 2019 to a net loss of $10,287,872 in fiscal year ended March 31, 2020, representing a decrease of 768% during this period. Our net revenues decreased from $7,019,243 in fiscal year ended March 31, 2018 to $7,012,026 in fiscal year ended March 31, 2019, representing a decrease of 0%. Our net income increased from $1,187,581 in fiscal year ended March 31, 2018 to $1,539,227 in fiscal year ended March 31, 2019, representing an increase of 29.6% during this period.

We own twelve Chinese registered trademarks related to our brand “Suxuantang.” Our TCMP products received the prestigious award of Jiangsu Taizhou Famous Product, and Well-known Brand Trademark in December 2016, and 2017, respectively. The awards were granted by the Government of Taizhou City, Jiangsu, China. 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. Dr. Jingzhen Deng, who has over 36 years of experience in the TCMP research and development field, joined our Company in June 2013 as Vice President and Director of research and development. Under his leadership, we established a research center in December 2013. We submitted eight invention patent applications regarding Advanced TCMP to the State Intellectual Property Office of the PRC in the Spring of 2017. We also submitted five additional invention patent applications to the State Intellectual Property Office of PRC afterward. All of these patents have been under the substantive examination stages, which do not involve new products.

Our major customers are hospitals, especially TCM hospitals, primarily in the Jiangsu province in China. Another substantial part of our sales are made to pharmaceutical distributors, which then sell our products to hospitals and other healthcare distributors. As of May 2, 2020, our end-customer base includes 116 pharmaceutical companies, 56 pharmacies and 76 hospitals in 10 provinces and municipalities in China including Jiangsu, Hubei, Shandong, Hebei, Jiangxi, Guangdong, Anhui, Henan, Liaoning, and Fujian.

Our Products

We currently sell three types of TCMP products: Advanced TCMP, Fine TCMP, Regular TCMP, and TCMHS Solid Beverages.

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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 2015) Part 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 CFDA and provincial FDA, 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 2015) Part 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 CFDA and local FDA, as well as retain the principles of Chinese Traditional Medicine (“TCM”). Like Directly-Oral TCMP, our After-Soaking-Oral-TCMP provide the special features of being non-decocting, such as keeping CFDA-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 currently produce over 15 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.

Regular TCMP

We currently manufacture almost 430 Regular TCMP products listed on China Pharmacopoeia (version 2015) Part I for hospitals and drug stores for the treatment of various diseases or serving as dietary supplements.

TCMHS Solid Beverages

We developed and commercially launched four solid beverage products in April 2019, as part of the Company’s TCM Homologous Supplements (“TCMHS”) products, a classification of health-supporting food used traditionally in China as TCM but which are also consumed as food. The solid beverages are a kind of granules produced through extraction of TCMHS materials.

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We currently have a product-marketed portfolio of 19 Directly-Oral-TCMP and After-Soaking-Oral-TCMP products, 15 Fine TCMP products, and almost 430 Regular TCMP products 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 FDA 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 and TCMHS products and the year in which each such product was first marketed to our distributors.

Product	Ingredients	Indication	Year of Commercial Launch
ChenXiang (powders)	Powders of timbers of Aquilaria sinensis containing chromone, triterpenoid, volatile constituents.	Hiccups, vomit; chest distension, abdominal pain; urethral syndrome; prostatitis; atrophic gastritis, gastric ulcer; irritable bowel syndrome; and chronic pulmonary heart disease.	2015
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

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Product Ingredients Indication Year of
Commercial
Launch

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
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”中成药) 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 in Bozhou city of Anhui province in China, which is one of the largest TCM markets in China, Shilu Group in Jilin province of China, and other major suppliers in Anhui, Qinghai, Gansu and Yunnan Province. 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 and Liaoning provinces in China and pharmaceutical wholesalers. The wholesalers distribute our products to hospitals and other healthcare distributors such as Liaoning Jiuzhoutong Pharmaceutical Co. Ltd. and Shandong Luoxin Pharmaceutical Co. Ltd. As of June 30, 2020, our end-customer base includes 116 pharmaceutical companies, 56 pharmacies and 76 hospitals in 10 provinces and municipalities in China including Jiangsu, Hubei, Shandong, Guangdong, Liaoning, Anhui, Henan, Jiangxi, Heilongjiang and Hainan.

We currently have 4 sales offices covering 10 of China’s major provinces/municipalities, including Jiangsu, Hubei, Shandong, Liaoning, Anhui, Henan, Jiangxi, Guangdong, Hebei and Fujian, and over 62 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.

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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 PTCMs. We have submitted 13 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.

Dr. Jingzhen Deng, a veteran in the TCM industry, joined the company as a vice president in June 2013 and rebuilt our R&D team. Since 2013, he has been our Chief Scientific Officer. Dr. Deng has 16 years of experiences at university and pharmaceutical companies specializing in natural products in the USA and more than 14 years at TCM related universities and institutes and a pharmaceutical company in China. He established our general R&D strategy 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.

Recently, 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±1^oC (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 Drug Administration (JSDA) 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 19 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 CFDA, a new TCMP product is subject to GMP requirements to comply with corresponding standards of Chinese Pharmacopeia (Version 2015) Part I and Part IV before it can be sold commercially without clinic trails and any additional approval from the CFDA. Since 2014, we have developed 8 Directly-Oral TCMP and 11 After-Soaking-Oral TCMP products and commercially marketed all of those to pharmaceutical distributors/hospitals.

We recently 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 have successfully developed 42 substitute tea and four solid beverage products. The four solid beverage products were commercially launched in April 2019.

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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”

Each patent application we have submitted is an invention patent in which we are seeking patent protection of our prepared process. 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. We have submitted the following 8 patent applications:

Name	Patent Type	Patent Application No.	Expiration Date (if granted)
SanQiFen Directly-Oral TCMP	Invention	CN 201710234868.1	2037.4.11
ChenXiangFen After-Soaking-Oral TCMP	Invention	CN 201710234867.7	2037.4.11
XiaTianWu Directly-Oral TCMP	Invention	CN 201710345663.0	2037.5.16
CuYanHuSuo Directly-Oral TCMP	Invention	CN 201710355312.8	2037.5.18
HuangShuKuiHua Directly-Oral TCMP	Invention	CN 201710345688.0	2037.5.16
JiangXiangFen After-Soaking-Oral TCMP	Invention	CN 201710388685.5	2037.5.26
SuMu After-Soaking-Oral TCMP	Invention	CN 201710388696.3	2037.5.26
HongQi After-Soaking-Oral TCMP	Invention	CN 201710377191.7	2037.5.24

We submitted five additional invention patent applications as follows:

Name	Patent Type	Patent Application No.	Expiration Date
			(if granted)
XueJie Directly-Oral TCMP	Invention	CN 201810058409.7	2039.1.2
ChuanBeiMu Directly-Oral TCMP	Invention	CN 201810058566.8	2039.1.22
LuXueJing Directly-Oral TCMP	Invention	CN 201810058553.0	2039.1.22
ChaoSuanZaoRen After-Soaking TCMP	Invention	CN 201810058914.1	2039.1.22
HongQuMi After-Soaking-Oral TCMP	Invention	CN 201810058924.5	2039.1.22

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

Electron beam (“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.

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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 CFDA 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 CFDA 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 Drug Administration Law of PRC, and was effective as of December 1, 2019. National Medical Products Administration (“NMPA”) is the new agency that replaced CFDA. The pharmaceutical GMP requirements has replaced the “Pharmaceutical Certificate”. As a result, pharmaceutical manufacturers are required to obtain a “Pharmaceutical Product manufacturing Permit”.

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 product manufacturing permit with the product manufacturing scopes covering all 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 31, 2020. Generally, we will file a renewal request 3 months before the expiration date.

Good Manufacturing Practice. A pharmaceutical manufacturer must meet the Good Manufacturing Practice (“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 retirements and standards in the NMPA non-scheduled inspection, it may be suspended the pharmaceutical product manufacturing Permit by the NMPA. 

A new GMP Certificate for our manufacturing facility had been issued and is effective from August 5, 2019 to August 4, 2024, before the new Drug Administration Law was in effeteness as of December 1, 2019. 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 this Certificate.

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 good manufacturing practices (“GMP”) Certificates, both the Permit and the Certificate with the scope of Directly-Oral TCMP authorized by Jiangsu provincial FDA, 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 Traditional Chinese Patent Medicine (“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 18 dedicated researchers as of June 30, 2020. 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.

We believe that our research and development capabilities allow us to create innovative TCMP, and TCMHS products that fulfill our customers’ needs. Although all of our TCMP products are generic drugs and we did not change their medical effects in any significant way, these products are innovative in terms of their physical properties. Our advance TCMPs come in the form of powder or sachet, which make oral administration easier for our customers. This improvement is significant because otherwise TCMP have to be prepared through decoction, which has proven to be both ineffective 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 new TCMP products with innovative features that lend us an edge over our major competitors. We have established a strong research and development team of 18 dedicated researchers as of June 30, 2020. Our R& D Team has successfully developed multiple modernized TCMPs and TCMHS products, many of which have already been directly commercialized with our Pharmaceutical Manufacturing Permit and the Food Manufacturing Permit without the need for additional approvals or registrations by the regulatory authorities.

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Experienced and accomplished leadership team with a proven track record.

We have an experienced management team. Almost all of our members, except our 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.

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 2015). 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 143 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.

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Employees

As of March 31, 2020, we had a total of 97 full-time employees and no part-time employee. The following table sets forth the breakdown of our employees as of March 31, 2020 by function:

	Number of Employees		% of Total
Function
Technology and Development		20		21	%
Risk Management		3		3	%
Operations, Sales and Marketing		15		15	%
Product Development		37		38	%
General and Administrative		22		23	%
Total		97		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 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. See “Item 3.D. Risk Factors — Risks Related to Doing Business in China — Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.” 

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.

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.

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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 “The Drug Administration Law of PRC”, “Good Manufacturing Practice (“GMP”) for drugs”, and “Good Supply Practice (“GSP”) for drugs”. Companies manufacturing and selling TCMP products must have two licenses: “Pharmaceutical Manufacturing Permit” and “TCM GMP certificate” (“License Requirement”). TCMP companies that met the License Requirement 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.

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.

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.

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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 requires 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, it will issue a new medicine certificate to the manufacturer and impose a monitoring period for one to five years. During the monitoring period, the NMPA will monitor the safety of the new medicine, and will neither accept new medicine certificate applications 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 regulations, the holder of a new medicine certificate 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 product manufacturing permit and GMP certification before they can be manufactured and sold. A TCMP manufacturer manufactures only the TCMP products of scope approved by NMPA described on both pharmaceutical product 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 both the permit and the GMP requirements and standards. The TCMP production and quality standard must comply with corresponding TCM and sections on the Pharmacopeia of the PRC.

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.

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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 CFDA, will expire on December 31, 2020.

A pharmaceutical manufacturer must meet the Good Manufacturing Practice 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. If a manufacturer meets the GMP standards, the CFDA will issue to the manufacturer a Good Manufacturing Practice certificate, or a GMP certificate, with a five-year validity period. However, for a newly-established pharmaceutical manufacturer that meets the GMP standards, the CFDA will issue a GMP certificate with only a one-year validity period. The New GMP Standards became effective on March 1, 2011 and pharmaceutical manufacturers (except manufacturers of injectables, blood products or vaccines, which have a three-year grace period) have a five-year grace period to upgrade existing facilities to comply with the revisions.

We obtained a pharmaceutical GMP certificate for our manufacturing facility in respect of scope of TCMP and directly oral TCMP and valid until August 4, 2024. While we are required to implement certain upgrades to our manufacturing facilities to comply with the new GMP standards, we do not currently anticipate any difficulty in renewing these certificates when we finish the facility upgrading.

China National People’s Congress promulgated a new Drug Administration Law of PRC, and was effective as of December 1, 2019. National Medical Products Administration (“NMPA”) is the new agency that replaced CFDA. The pharmaceutical GMP requirements has replaced the “Pharmaceutical Certificate”. As a result, pharmaceutical manufacturers are required to obtain a “Pharmaceutical Product 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 two product not listed on national Medicare Insurance Catalogue, which are Directly-Oral products LuXueJing and XueJie (powders). The revenue attributable to LuXueJing were $556,629 (RMB 3,688,723), $ 1,608,062 (RMB 10,796,209) and $983,999 (RMB 6,852,276) for the years ended March 31, 2018, 2019 and 2020 respectively.  The revenue attributable to Xuejie powders is $271,320 (RMB 1,798,011), $27,224 (RMB 182,778) and $4,047 (RMB 28,179) for the years ended March 31, 2018, 2019 and 2020 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 2015) became effective on December 1, 2015 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 report:

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Contractual Arrangements between WFOE and 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. Instead, we control and receive 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.

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.

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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.

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 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.

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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.

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 new 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	2028	Leased
2.	No. 178 Taidongbei Rd., Taizhou, Jiangsu, China	900	Leased

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not Applicable

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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 Form20-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 Form20-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 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 “Cautionary Note Regarding Forward-Looking Statements.”

Key Factors Affecting Our Results of Operation

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 support and 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.

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.

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Results of Operations for the Year Ended March 31, 2020 Compared to the Year Ended March 31, 2019

	For the Years Ended March 31,						Change
	2020			2019			Amount			%
Revenues	$	5,162,268			7,012,026		$	(1,849,758	)		(26	)
Cost of revenues		(2,458,566	)		(2,400,491	)		(58,075	)		2
Gross profit		2,703,702			4,611,535			(1,907,833	)		(41	)
Selling expenses		(1,583,284	)		(1,605,497	)		22,213			(1	)
General and administrative expenses		(2,461,535	)		(1,236,546	)		(1,224,989	)		99
Total operating expenses		(4,044,819	)		(2,842,043	)		(1,202,776	)		42
Income (Loss) from operations		(1,341,117	)		1,769,492			(3,110,609	)		(176	)
Interest (expense) / income, net		(3,348,790	)		(5,174	)		(3,343,616	)		64623
Loss on debt extinguishment		(5,625,916	)		-			(5,625,916	)		100
Other income(expenses), net		(73,771	)		27,141			(100,912	)		(372	)
Total other expenses		(9,048,477	)		21,967			(9,070,444	)		(41291	)
Income (Loss) before income taxes expense		(10,389,594	)		1,791,459			(12,181,053	)		(680	)
Benefit (provision) for income taxes		101,722			(252,232	)		353,954			(140	)
Net Income	$	(10,287,872	)		1,539, 227		$	(11,827,099	)		(768	)

Revenues 

We generated revenues primarily from manufacture and sales of three types of traditional Chinese medicine pieces (the “TCMP”) products: Advanced TCMP, Fine TCMP, Regular TCMP, and TCM Homologous Supplements (“TCMHS”) products. TCMHS is a classification of health-supporting food used traditionally in China as TCM but which are also consumed as food, which recently has been developed and commercialized. As compared with the year ended March 31, 2019, our total revenues decreased by $1,849,758, or 26% for the year ended March 31, 2020. The decrease was primarily due to the decrease in sales of Advanced TCMP products and partly offset by the increase in the sales of Fine TCMP products and newly launched TCMHS products.

The following table sets forth the breakdown of revenues by revenue source for each period presented:

	For the Years Ended March 31,				Change
	2020		2019		Amount			%
Advanced TCMP	$	1,581,995		3,631,663	$	(2,049,668	)		(56	)
Fine TCMP		1,033,603		524,253		509,350			97
Regular TCMP		2,279,198		2,856,110		(576,912	)		(20	)
TCMHS		267,472		-		267,472			100
	$	5,162,268	$	7,012,026	$	(1,849,758	)		(26	)

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Advanced TCMP

Advanced TCMP is comprised of eight Directly Oral TCMP products (the “Directly-Oral-TCMP”) and eleven After-soaking-oral TCMP products (the “After-Soaking-Oral-TCMP”). Both Directly Oral TCMP and After-soaking-oral TCMP are new types of advanced TCMP.

Revenue from advanced TCMP accounted for 31% and 52% of revenue recognized during the year ended March 31, 2020 and 2019, respectively. As compared with the year ended March 31, 2019, our revenue from advanced TCMP decreased by $2,049,668 or 56% for the year ended March 31, 2020. This is primarily due to the effect of COVID-19 outbreak in China and demand adjustment product types made by some of our customers.

Fine TCMP

We currently produce over 15 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 20% and 7% of revenue recognized during the year ended March 31, 2020 and 2019. As compared with the year ended March 31, 2019, our revenue from fine TCMP increased by $509,350, or 97% for the year ended March 31, 2020. This is primarily attributable to the Company’s strategy to concentrate on fine TCMP, which was identified great advantage over others.

Regular TCMP

We currently manufacture 430 regular TCMP products listed on China Pharmacopoeia (version 2015) Part I for hospitals and drug store in treatment of various diseases or serving as dietary supplements.

Revenue from regular TCMP accounted for 44% and 41% of revenue recognized during the year ended March 31, 2020 and 2019, respectively. Revenue from regular TCMP products decreased by $576,912, or 20%, to $2,279,198 for the year ended March 31, 2020 from $2,856,110 for the year ended March 31, 2019. Decrease in revenue from Regular TCMP products is consistent with the effect of COVID-19 outbreak in China and the company’s plan to shift from low margin Regular TCMPs and to focus more on the business of high margin Fine and Advanced TCMPs.

TCMHS Solid Beverages

Four solid beverage products as part of the Company’s TCMHS products were developed and commercially launched in April 2019 and generated a revenue of $267,472 in its nascent launch with encouraging growth.

Gross Profit

Cost of revenues primarily include 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 increased by $58,075, or 2%, to $2,458,566 for the year ended March 31, 2020 from $2,400,491 for the year ended March 31, 2019. The reason that cost of revenues did not decrease comparatively with the revenue was mainly due to the changes of packaging requirements and product types combination that led to increase in production cost, and the fixed production cost incurred during the months of decreased revenue influenced by the COVID-19 outbreak.

Gross profit decreased by $1,907,833, or 41%, to $2,703,702 for the year ended March 31, 2020 from $4,611,535 for the year ended March 31, 2019. Gross margin was 52.4% for the year ended March 31, 2020, compared to 65.8% for the year ended March 31, 2019. The decrease in gross margin was mainly due to the decrease of gross margin of Regular TCMP and the decrease of revenue generated from Advanced TCMP.

Selling expenses

Selling expenses primarily consisted of sales staff payroll and welfare expenses, travelling expenses, advertisement expenses, distribution expenses. The selling expenses decrease from $1,605,497 for the year ended March 31, 2019 to $1,583,284 for the year ended March 31, 2020, representing a decrease of $22,213, or 1%.

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General and administrative expenses

General and administrative expenses primarily consisted of staff payroll and welfare expenses, research and development expenses, entertainment expenses, travelling expenses, depreciation and amortization expenses for administrative purposes, and office supply expenses. The general and administrative expenses increased from $1,236,546 for the year ended March 31, 2019 to $2,461,535 for the year ended March 31, 2020, representing an increase of $1,224,989, or 99%. The increase in general and administrative expenses was mainly due to an increase of $0.9 million in legal and investor relations fees.

Other income (expense), net

Interest income (expenses) for the year ended March 31, 2020 mainly consists of accretion of finance cost and interest expense of the issuance and forbearance of Convertible Notes issued on April 16, 2019. For the year ended March 31, 2020, the company record amortization of issuance cost and debt discount of $2,519,761 and Convertible Notes (please refer to FS, Note 12) interest expense of $902,149.

Loss on debt extinguishment of $5,625,916 represents the extinguishment loss within the amount the paid to forbear the Convertible Notes (please refer to FS, Note 12) of $11,939,410 (modified principle of the Convertible Notes of $10,939,410, initial forbearance fee of $1,000,000), in excess of its net carrying value of $6,055,648 (principal outstanding $7,886,294, unamortized issuance cost $1,830,645), at the time of the debt extinguishment.

Income tax expense

Income tax expense represented current and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the Company. As compared with the year ended March 31, 2019, the income tax expense for the year ended March 31, 2020 decreased by $353,954, or 140%. Income tax expense for the year ended March 31, 2020 consists of $101,722 deferred tax benefit. The current income tax of $0 was mainly due to the loss before corporate income taxes of the Company and its subsidiaries and the VIE entity. Income tax expense for the year ended March 31, 2019 consists of $259,955 of current income tax expense and $7,723 deferred tax benefit.

Net income

As a result of the foregoing, net loss for the year ended March 31, 2020 was $10,287,872, representing a decrease of $ 11,827,099 from net income of $1,539,227 for the year ended March 31, 2019.

Liquidity and Capital Resources

To date, we have financed our operations primarily through shareholder capital contributions, shareholder loans, and cash flow from operations. As a result of our total activities, we had cash and cash equivalents of $7,287,032 as of March 31, 2020 as compared to $9,130,849 as of March 31, 2019. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions. As of March 31, 2020, we had short-term convertible notes balance of $6,643,463, which the Company expects to repay with its common shares. With the current cash and cash equivalents and anticipated cash flows from operating activities, we believe that our cash position is sufficient to meet our liquidity needs for at least the next 12 months.

	For the years ended March 31,
	2020			2019
Net Cash Provided by Operating Activities		934,247			239,192
Net Cash Used in Investing Activities		(5,496,704	)		(610,085	)
Net Cash Provided by Financing Activities		3,024,369			9,042,083
Effect of Exchange Rate Changes on Cash		(466,813	)		(37,024	)
Cash, cash equivalents and restricted cash at Beginning of Year		9,291,933			657,767
Cash, cash equivalents and restricted cash at End of Year		7,287,032			9,291,933

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Cash Flow in Operating Activities 

For the year ended March 31, 2020 net cash provided by operating activities was $934,247, as compared to net cash provided by operating activities of $239,192 for the year ended March 31, 2019, representing an increase of $695,055. The increase in net cash provided by operating activities primarily resulted from the change of following accounts:

a) A net loss for the year ended March 31, 2020 of $10,287,872, compared with a net income of $1,539,227 for the year ended March 31, 2019. Excluding the accretion of financing cost and extinguishment loss of the Convertible Notes, the net loss for the year ended March 31, 2020 was $1,240,046, representing a decrease of $2,779,273 compared with net income for the year ended March 31, 2019.

b) Accounts receivable for the year ended March 31, 2020 decreased by $104,001 as compared with the increase of $1,811,078 for the year ended March 31, 2019.

c) Prepayments, receivables and other current assets for the year ended March 31, 2020 increased by $361,589 as compared with the decrease of $144,754 for the year ended March 31, 2019. The increase is mainly due to the increase of short-term petty cash paid to the staff of the Company.

d) Accounts payable for the year ended March 31, 2020 increased by $302,266 as compared with the decrease of $567,313 for the year ended March 31, 2019.

e) Advance from customers for the year ended March 31, 2020 increased by $247,588 as compared with the decrease of $216,518 for the year ended March 31, 2019.

f) Accrued expenses and other current liabilities for the year ended March 31, 2020 increased by $1,606,759 as compared with the increase of $310,315 for the year ended March 31, 2019.

Cash Flow in Investing Activities 

We had net cash used in investing activities of $5,496,704, for the year ended March 31, 2020, which primarily consisted of purchase of property and equipment of $130,839, capital expenditure in construction in process of $275,819, loan receivable from RH Holdings Management (HK) Limited of $1,500,000, and a receivable from Huangshan Panjie Investment Management Co., Ltd. of $3,590,046.

We had net cash used in investing activities of $610,085, for the year ended March 31, 2019, which primarily consisted of purchase of property and equipment of $535,825, Purchase of intangible assets of $11,279, capital expenditure in construction in process of $62,981.

Cash Flow in Financing Activities 

For the year ended March 31, 2020, the net cash provided by financing activities was $3,024,369, which was primarily attributable to net proceeds from the convertible notes of $8,358,950 (gross proceeds of $10,000,000 and debt issuance cost of $1,641,050), repayment of principle and interest of Convertible Notes of $1,157,376, repayment to amounts due from related parties of $3,180,171, payment of deferred financing cost of $518,362 and payment of the initial forbearance fee of Convertible Notes of $439,974.

For the year ended March 31, 2019, the net cash provided by financing activities was primarily attributable to net proceeds from our initial public offering of $6,490,494 and proceeds from related parties of $2,482,095.

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The Convertible Notes

PIPE Transaction

On April 16, 2019, the company entered into a Securities Purchase Agreement with certain unaffiliated institutional investors relating to a private placement by the company of (1) Senior Convertible Notes (the “Convertible Notes”) in the aggregate principal amount of $15 million, consisting of (i) a Series A Note in the principal amount of $ 10 million, and (ii) a Series B Note in the principal amount of $ 5 million and (2) warrants (the “Warrants”) to purchase such amount of shares of the company’s ordinary shares equal to 50% of the shares issuable upon conversion of the Notes, exercisable for a period of five years at an initial exercise price of $8.38, for consideration consisting of (i) a cash payment of $10,000,000, and (ii) a secured promissory note payable by the Investors to the Company in the principal amount of $5 million. All amounts outstanding under the Notes will mature and will be due and payable on or before October 2, 2020.

Material Terms of the Convertible Notes:

● The aggregate principal amount of the Series A Notes is $10,000,000 and the Series B Notes is $5,000,000. All of the aggregate principal amount of the Series B Notes will constitute Restricted Principal. If an Investor prepays any amount under such Investor’s Investor Note, an equal amount of the Restricted Principal becomes unrestricted principal under such Investor’s Series B Note. The amount raised by the Company upon closing of the PIPE transaction was $10,000,000 from Series A Notes.

● The expiration date of Notes and warrant shall be October 2, 2020 and May 2, 2023 respectively. The aggregate redemption amount of the Notes shall be redeemed in installments on or before the expiration date.

● The interest rate on the Convertible Notes is eight percent (8%) per annum. In the event of default, the Interest Rate shall be increased to eighteen percent (18%) per annum.

● The initial fixed conversion price will be $8.38 per share, subject to reduction and adjustment for stock splits, stock dividends, and similar events.

● During an Event of Default Redemption Right Period the Investor may convert all, or any part of, the Conversion Amount into Ordinary Shares at the Alternate Conversion Price.

● The Alternate Conversion Price is the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, (ii) 80% of the volume-weighted average price (“VWAP”) of the Ordinary Shares as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, (iii) 80% of the VWAP of the Ordinary Shares as of the Trading Day of the delivery or deemed delivery of the applicable Conversion Notice and (iv) 80% of the price computed as the quotient of (I) the sum of the VWAP of the Ordinary Shares for each of the three (3) Trading Days with the lowest VWAP of the Ordinary Shares during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (II) three (3) (such period, the “Alternate Conversion Measuring Period”).

● The aggregate number of Series A and Series B warrant shares to be converted on expiration is 596,658 and 298,330 shares respectively.

Entry into Forbearance Agreements in Connection with the Event of Default Redemption Notices

On July 23 and 29, 2019, the company received from the investors an Event of Default Redemption Notice claimed that the company failed to timely make the instalment payment and elected to effect the redemption of $14,318,462.62 comprising in aggregate the entire principal amount, accrued and unpaid Interest. In addition, demand for the company to purchase the Series A Warrant issued for the Event of Default Black Scholes Value of not less than $1,208,384.07 was made.

On December 13, 2019, after negotiation with the Investors, the company entered into certain Forbearance and Amendment Agreements with each Investor and agreed to redeem the Series A Notes for an aggregate redemption price of $10,939,410 in installments as set forth in the Forbearance Agreement. Concurrently with the execution of the Forbearance Agreement, the Investors and the Company have entered into the Lock-Up Agreements, Leak-Out Agreements and Mutual Releases.

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Material Terms of the Agreements

Upon the execution of the Forbearance Agreements, the Investor shall Net all Restricted Principal outstanding under the Series B Note against the amounts outstanding under the Investor Note, after which the Investor Note, the Series B Note and the Series B Warrant shall no longer remain outstanding.

The Investors agreed, among other things, to the following:

● to forbear from (i) taking any action to enforce their Redemption Notice with respect to certain existing defaults, and (ii) issuing any new demand for redemption of the Series A Note on the basis of certain additional defaults that the aggregate daily dollar trading volume of the Company’s ordinary shares does not exceed $1,500,000, and that the volume weighted average price of the Company’s ordinary shares on any two trading days during the thirty trading day period immediately preceding such date of determination fails to exceed $2.14;

● not to exercise the Series A Warrant during the Forbearance Period;

● to return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company’s payment of the full Forbearance Redemption Amounts;

● to execute and deliver to the Company certain lock-up agreements with respect to the Pre-Delivered Shares, certain mutual release and to execute and deliver to the Company the Leak-Out Agreement;

● not to make any hedge, swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Pre-Delivered Shares;

● to not sell, dispose or otherwise transfer, directly or any Ordinary Shares issued if such sale exceed 20% of the daily composite trading volume of the Ordinary Shares.

In consideration for the above, the Company agreed to the followings:

● the Company shall (I) pay to each Investor $500,000 on or prior to December 16, 2019, and (II) commencing on January 24th 2020, redeem the Series A Notes for an aggregate redemption price of $10,939,410;

● if the Company fails to pay any New Installment Amount within 5 days of the applicable New Installment Date, the Investor may convert the applicable New Installment Amount as an Alternate Conversion and the Leak-Out Agreement being disregarded for such conversions;

● the Company agreed to adjust the exercise price of the Series A Warrant from $8.38 to $2.50;

● the Company shall cause all restrictive legends on the Pre-Delivered Shares to be removed and delivery of un-legended Pre-Delivery Shares into the Investor’s custodian’s account pursuant to the DWAC instructions set forth therein.

Please refer to Note 12 of our Consolidated Financial Statements included in this Form 20-F for details of accounting of the Convertible Notes.

Going Concern

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying audited consolidated financial statements, the Company had a net loss of $10,287,872 for year ended March 31, 2020, and an accumulated deficit of $7,204,000, which were mainly caused by the issuance and forbearance of the Convertible Notes. On the other hand, the net cash provided by operations was $934,247 for the year ended March 31, 2020, and the Company had a cash and cash equivalents balance of $7,287,032 and a working capital of $7,371,999. It is management’s opinion that these conditions do not raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. The Company is in the process in building its customer base and expects to generate increased revenues as well as cut some of its expenses, and the Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future.

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Results of Operations for the Year Ended March 31, 2019 Compared to the Year Ended March 31, 2018

	For the Years Ended March 31,						Change
	2019			2018			Amount			%
Revenues	$	7,012,026			7,019,243		$	(7,217	)		0
Cost of revenues		(2,400,491	)		(3,617,748	)		1,217,257			(34	)
Gross profit		4,611,535			3,401,495			1,210,040			36
Selling expenses		(1,605,497	)		(512,482	)		(1,093,015	)		213
General and administrative expenses		(1,236,546	)		(1,256,747	)		20,201			(2	)
Total operating expenses		(2,842,043	)		(1,769,229	)		(1,072,814	)		61
Income from operations		1,769,492			1,632,266			137,226			8
								-
Finance cost		(5,174	)		(779	)		(4,395	)		564
Other income/(expenses)		27,141			(3,803	)		30,944			(814	)
Total other expenses		21,967			(4,582	)		26,549			(579	)
Income before income taxes expense		1,791,459			1,627,684			163,775			10
Provision for income taxes		(252,232	)		(440,103	)		187,871			(43	)
Net Income	$	1,539, 227			1,187,581		$	351,646			30	%

Revenues 

We generated revenues primarily from manufacture and sales of three types of traditional Chinese medicine pieces (the “TCMP”) products: Advanced TCMP, Fine TCMP and Regular TCMP.

The following table sets forth the breakdown of revenues by revenue source for each period presented:

	For the Years Ended March 31,				Change
	2019		2018		Amount			%
Advanced TCMP	$	3,631,663		2,388,676	$	1,242,987			52
Fine TCMP		524,253		324,563		199,690			62
Regular TCMP		2,856,110		4,306,004		(1,449,894	)		(34	)
	$	7,012,026	$	7,019,243	$	(7,217	)		0

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Advanced TCMP

Advanced TCMP is comprised of eight Directly Oral TCMP products (the “Directly-Oral-TCMP”) and eleven After-soaking-oral TCMP products (the “After-Soaking-Oral-TCMP”). Both Directly Oral TCMP and After-soaking-oral TCMP are new types of advanced TCMP.

The sales of advanced TCMP accounted for 52% and 34% of revenue recognized during the year ended March 31, 2019 and 2018, respectively. As compared with the year ended March 31, 2018, our sales of advanced TCMP increased by $1,242,987, or 52% for the year ended March 31, 2019. This is primarily attributable to combined effects of rapid growth of advanced TCMP market and our continuous efforts in the marketing and promotion of our new types of advanced TCMP as the Company identifies great advantages of advanced TCMP.

Fine TCMP

We currently produce over 20 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.

The sales of fine TCMP accounted for 7% and 5% of revenue recognized during the year ended March 31, 2019 and 2018. The small share of fine TCMP is mainly limited to its rareness of ingredients and higher selling prices. As a result of marketing and promotion and growing market acceptance of high-priced TCMP, the Company witnessed increased sales of fine TCMP by 62% from the year ended March 31, 2018 to the same period of 2019. This is primarily attributable to the Company’s strategy to concentrate on fine TCMP, which was identified great advantage over others.

Regular TCMP

We currently manufacture 427 regular TCMP products listed on China Pharmacopoeia (version 2015) Part I for hospitals and drug store in treatment of various diseases or serving as dietary supplements.

The sales of regular TCMP accounted for 41% and 61% of revenue recognized during the year ended March 31, 2019 and 2018, respectively. The company has shifted its focus towards the marketing and promotion of high-margin products, As a result, revenue recognized in regular TCMP decreased by 34% from the year ended March 31, 2018 to the same period of 2019.

Cost of revenue

Cost of revenues primarily include cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s principal operations. Cost of revenue decreased by $1,217,257, or 34%, from $3,617,748 for the year ended March 31, 2018 to $2,400,491 for the year ended March 31, 2019. The decrease of cost of revenue was primarily due to that we have significantly increased the sales of higher-margin advanced and fine TCMPs that cost less than low-margin regular TCMPs, the sale of which is 34% lower than last year, and the saving of labor costs as our workers become more skillful as well.

Selling expenses

Selling expenses primarily consisted of sales staff payroll and welfare expenses, travelling expenses, advertisement expenses, distribution expenses. The selling expenses increase from $512,482 for the year ended March 31, 2018 to $1,605,497 for the year ended March 31, 2019, representing an increase of $1,093,015, or 213%. The increase was mainly combined effects of an increase of $503,480 in distribution expenses as our new clients are more remote, an increase of $629,419 in advertisement and promotion expenses.

General and administrative expenses

General and administrative expenses primarily consisted of staff payroll and welfare expenses, research and development expenses, entertainment expenses, travelling expenses, depreciation and amortization expenses for administrative purposes, and office supply expenses. The general and administrative expenses decreased from $1,256,747 for the year ended March 31, 2018 to $1,236,546 for the year ended March 31, 2019, representing a decrease of $20,201, or 2%. The general and administration expenses remain stable compared with last year.

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Income tax expense

Income tax expense represented current and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the Company. As compared with the year ended March 31, 2018, the income tax expense for the year ended March 31, 2019 decreased by $187,871, or 43%, mainly due to the income tax rate fell from 25% in 2018 to 15% in April 2018 since the Company was qualified as a high-technology company.

Net income

As a result of the foregoing, net income for the year ended March 31, 2019 was $1,539,227 representing an increase of $351,646, or 30% from net income of $1,187,581 for the year ended March 31, 2018.

Liquidity and Capital Resources

To date, we have financed our operations primarily through shareholder capital contributions, shareholder loans, and cash flow from operations. As a result of our total activities, we had cash and cash equivalents of $9,130,849 as of March 31, 2019 as compared to $560,252 as of March 31, 2018. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions. With the proceeds from our initial public offering and anticipated cash flows from operating activities, we believe that our cash position is sufficient to meet our liquidity needs for at least the next 12 months.

	For the years ended March 31,
	2019			2018
Net Cash Provided by Operating Activities		239,192			1,920,161
Net Cash Used in Investing Activities		(610,085	)		(1,050,725	)
Net Cash Provided by/(Used in) Financing Activities		9,042,083			(314,216	)
Effect of Exchange Rate Changes on Cash		(37,024	)		36,977
Cash, cash equivalents and restricted cash at Beginning of Year		657,767			65,570
Cash, cash equivalents and restricted cash at End of Year		9,291,933			657,767

Cash Flow in Operating Activities 

For the year ended March 31, 2019, net cash provided by operating activities was $239,192, as compared to net cash provided by operating activities of $1,920,161 for the year ended March 31, 2018, representing a decrease of $1,680,969. The change in net cash provided by operating activities primarily resulted from the change of following accounts:

a) The changes of accounts receivable for the year ended March 31, 2019 decreased by $2,195,512 as compared with changes for the year ended March 31, 2018. This was primarily attributable to longer credit terms offered to higher margin fine and advanced TCMPs customers as we gained higher sales in fine and advanced TCMPs.

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b) The changes of accounts payable for the year ended March 31, 2019 decreased by $1,533,886 as compared with changes for the year ended March 31, 2018. This is primarily attributable to less costs of sales incurred in this year, and shorter credit terms granted by suppliers of high-end raw materials needed for high margin products as well.

c) The changes of prepayments, receivables and other assets for the year ended March 31, 2019 increased by $954,460 as compared with changes for the year ended March 31, 2018. This is primarily attributable to the decrease in advance to staff.

d) The changes of accrued expenses and other current liabilities for the year ended March 31, 2019 increased by $514,210 as compared with changes for the year ended March 31, 2018. This is primarily attributable to the increase in the payables to service suppliers.

Cash Flow in Investing Activities 

We had net cash used in investing activities of $610,085, for the year ended March 31, 2019, which primarily consisted of purchase of property and equipment of $535,825, Purchase of intangible assets of $11,279, capital expenditure in construction in process of $62,981.

We had net cash used in investing activities of $1,050,725 for the year ended March 31, 2018, which primarily consisted of purchase of property and equipment of $436,017, capital expenditure in construction in process of $593,676.

Cash Flow in Financing Activities 

For the year ended March 31, 2019, the net cash provided by financing activities was primarily attributable to net proceeds from our initial public offering of $6,490,494, For the year ended March 31, 2018, the net cash used in financing activities was primarily attributable to repayment of the short-term borrowing of $314,216.

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.

Inflation

We do not believe our business and operations have been materially affected by inflation.

Related Parties and Material Related Party Transactions

Please refer to Note 17 of our Consolidated Financial Statements included in this Form 20-F for details of related parties and material related party transactions.

Critical Accounting Policies

Please refer to Note 2 of our Consolidated Financial Statements included in Form 20-F or details of our critical accounting policies.

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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	28	Chief Executive Officer and Director
Jingzhen Deng	60	Chief Scientific Officer and Chief Operation Officer
Jun Zheng	43	Director
Junsong Li	56	Independent Director
Tulin Lu	57	Independent Director
Wenwei Fan	50	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. He was the CEO of Taizhou Suxuantang, our 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 stockholder.

Dr. Jingzhen Deng has been our CSO since June 2013, our COO since March 2017 and was CEO of Taizhou Suxuantang from February, 2018 to December 31, 2019. He has been the vice president of Taizhou Suxuantang in June 2013 and rebuilt its R&D team. Dr. Deng has 16 years of experience at a university (University of Virginia as a postdoctoral scientist) and various pharmaceutical companies (Pinnacle Pharmaceuticals, Inc. and Drumetix Laboratories, as directors of R&D) specializing in natural products and new drug discovery in the USA, and more than 14 years at a Traditional Chinese Medicine (“TCM”) related university (China Pharmaceutical University), institute (Jiangxi Institute of TCM), and pharmaceutical company (RCT Pharmaceuticals, Inc. as CEO in Shanghai) in China. He established the general R&D strategy of using modern technology to revolutionize TCMP production, and continue developing newly advanced and non-decocting TCMP/TCM products capable of meeting the highest quality standard at the company. Dr. Deng received his Bachelor of Science from Jiangxi University of Traditional Chinese Medicine in 1982, Master and Doctoral degrees from China Pharmaceutical University in 1989 and 1992, respectively.

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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. Junsong Li has been appointed as our independent director upon closing of our IPO on December 31, 2018. Mr. Li has over 20 year-experience in the TCM industry. Mr. Li has served as the researcher of Nanjing TCM University since 2009. From 1986 to 2003, Mr. Li worked as an associate professor of Nanjing TCM Hospital. Mr. Li graduated from Nanjing TCM University with a Bachelor of Arts in TCM in 1986 and a Master’s Degree in TCM in 2002. Mr. Li obtained his PhD from Shanghai TCM University in 2006. We believe Mr. Li is well-qualified to serve as a member of the board because of her extensive prior work experience and educational background in the TCM field.

Dr. Tulin Lu has been appointed as our independent director upon closing of our IPO on December 31, 2018. Currently, Dr. Lu is a Professor at Nanjing University of TCM. As a veteran in the TCM academia, Dr. Lu has also served as the Chief Director at the co-laboratory of TCM Processing of Ministry of Education of the P. R. China since 2012, the Deputy Director of the standard laboratory of TCM pieces at the State Administration of TCM of the P. R. China since 2008, the Deputy Director at Jiangsu Provincial Key Laboratory of the Processing of TCM since 2007, the Deputy Director of the department of Processing preparation of TCM at Nanjing University of TCM since 2016, and the Executive Deputy Director of TCM Pieces Quality Assurance Specialized Committee of China since 2014. Dr. Lu received his Ph. D, Master of Science, and Bachelor of Science degrees from Nanjing University of TCM in 1989, 1999, and 2003, respectively.

Mr. Wenwei Fan has been appointed as our independent director upon closing of our IPO on December 31, 2018. Mr. Fan currently is a Partner of a Chinese Certified Public Accountant firm, Beijing Huashen Accounting Firm, where he is in charge of supervising international auditing, including auditing financial statements for Chinese subsidiaries of several multinational companies. He started his career with ShiyongZhonghe Accounting firm, which was acquired by PricewaterhouseCoopers in 2000. Mr. Fan is a Certified Public Accountant and Certified Tax Agent in China. He graduated from Jiangsu University of Finance and Economics in 1992 with a bachelor’s degree.

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. 

For additional information see “Description of Share Capitals — Directors”.

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.

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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, 2020 and 2019 earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers in 2018 whose total compensation exceeded $100,000 (the “named executive officers”).

Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock  Awards ($)		Option Awards ($)		Non-Equity  Incentive Plan Compensation		Deferred  Compensation  Earnings		Other		Total ($)
Feng Zhou CEO and interim	2020		50,000		0		0		0		0		0		0		50,000
CFO of SXT	2019		17,859		0		0		0		0		0		0		17,859
Peter Chan(2)	2020		3,934		0		0		0		0		0		0		3,934
CFO of SXT
Yao Shi(1) CFO of SXT and	2020		46,858		0		0		0		0		0		0		46,858
CFO of Taizhou	2019		26,796		0		0		0		0		0		0		26,796
Suxuantang	2018		5,280		0		0		0		0		0		0		5,280
Jingzhen Deng	2020		50,000		0		0		0		0		0		0		50,000
COO and CSO of	2019		26,796		0		0		0		0		0		0		26,796
SXT and CEO of Taizhou Suxuantang (3)	2018		14,559		0		0		0		0		0		0		14,559

(1) Yao Shi resigned from his positions of CFO of SXT and CFO of Taizhou Suxuantang on March 8, 2020.

(2) Peter Chan assumed his positions of CFO of SXT and CFO of Taizhou Suxuantang on March 8, 2020 and resigned on July 8, 2020. Feng Zhou was appointed as the interim CFO effective on July 8, 2020.

(3) Jingzhen Deng resigned from his position of CEO of Taizhou Suxuantang on December 31, 2019.

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 terms 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.

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On December 30, 2017, we entered into an employment agreement with our COO and CSO, Mr. Jingzhen Deng, pursuant to which he shall receive an annual base salary of $50,000 Under his employment agreement, Mr. Deng is employed as our COO and CSO for a term of five years, which automatically renews for additional one year terms 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.

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.

Compensation of Directors

For the fiscal years ended March 31, 2020 and 2019, we did not compensate our directors for their services other than to reimburse them for out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors. 

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.

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.

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Audit Committee 

Mr. Wenwei Fan, Mr. Junsong Li and Mr. Tulin Lu are members of our Audit Committee, where Mr. Wenwei Fan, 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 Report on Form 20-F and Quarterly Reports on Form 6-K and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly 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. Wenwei Fan, 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. Junsong Li, Mr. Wenwei Fan, and Mr. Tulin Lu are members of our Compensation Committee and Junsong Li 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. Tulin Lu, Mr. Junsong Li, and Mr. Wenwei Fan are the members of our Nominating and Governance Committee where Mr. Tulin Lu 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 intend to adopt 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 30, 2020 by each director and our senior management executives. There were 64,136,890 Ordinary Shares issued and 60,136,890 Ordinary Shares outstanding as of July 30, 2020. 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 30, 2020
	Number		Percent
Directors and Executive Officers:
Feng Zhou (1)		8,500,000		13.253	%
Jingzhen Deng		0		-
Jun Zheng		0		-
Junsong Li		0		-
Tulin Lu		0		-
Wenwei Fan		0		-
All directors and executive officers as a group (6 persons)		8,500,000		13.253	%

(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 July 30, 2020, our authorized share capital consists of unlimited Ordinary Shares, par value US$0.001 per share. Holders of Ordinary Shares are entitled to one vote per share.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company. 

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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, Interim Chief Financial Officer and Director of the Company
Jianping Zhou	Father of major shareholders of the Company and two of Taizhou Suxuantang shareholders, controlling shareholder of Taizhou Suxuantang from its inception to May 8, 2017
Jianbin Zhou	Father of major shareholders of the Company and one of Taizhou Suxuantang shareholders
Taizhou Jiutian Pharmaceutical Co. Ltd.	An entity controlled by Jianping Zhou
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

Related party balances

a. the amounts due from related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Jiangsu Health Pharmaceutical Investment Co., Ltd.	$	768,341	$	-
Total	$	768,341	$	-

The amounts due from related parties represented unsecured, due on demand and interest free borrowings to its related parties by the Company. The Company expects full payment from Jiangsu Health Pharmaceutical Investment Co., Ltd. by the end of September 2020.

b. the amounts due to related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Feng Zhou	$	-	$	1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd.		-		939,521
Jianbin Zhou		-		745
Total	$	-	$	2,483,094

Material Transactions with Related Parties

For the years ended March 31, 2020 and 2019, the Company generated revenues of $251,749 and $8,942, respectively, from sales transactions with Taizhou Jiutian Pharmaceutical Co. Ltd.

For the years ended March 31, 2020 and 2019, the Company generated revenue of $52,643 and $24,315 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese Medicine Clinic.

For the year ended March 31, 2020 and 2019, the Company generated revenues of $26,037 and $178,898 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese hospital Co. Ltd.

For the year ended March 31, 2020, the Company repayed $3,180,171 to Feng Zhou, Jiangsu Health Pharmaceutical Investment Co., Ltd. and Jianbin Zhou.

For the year ended March 31, 2019, the Company borrowed from Feng Zhou and Jiangsu Health Pharmaceutical Investment Co., Ltd in the amount of $2,482,349, which is non-interest bearing and repaid on demand.

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The Company entered into certain financial guarantee agreements with two banks to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.’s bank borrowings. The Company is obliged to pay on behalf 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. (see FS, Note 18).

Employment Agreements

See Item 6.B “Agreements with Named Executive Officers.”

7.C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

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.

No 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 Issuer

Not Applicable.

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ITEM 10. ADDITIONAL INFORMATION

10.A. Share Capital

Not Applicable.

10.B. Memorandum and Articles of Association

China SXT Pharmaceuticals, Inc. is 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.

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. Subject to the restrictions described under the section titled “Dividend Policy” above, 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.

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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.

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.

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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.

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.

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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.

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.

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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 realised 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.

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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.”

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 chargee 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.

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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.

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.

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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
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 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

● 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

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●	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

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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.

Securities Purchase Agreement

As disclosed in the Form 6-K filed with SEC on April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Original Purchase Agreement”) with certain unaffiliated institutional investors identified therein (each an “Investor”, or “Holder” and collectively “Investors” or “Holders”) on April 17, 2019 relating to a private placement by the Company of (1) Senior Convertible Notes in the aggregate principal amount of $15 million (each, a “Note” and collectively, the “Notes”), consisting of (i) a Series A Senior Convertible Note in the principal amount of $10 million, and (ii) a Series B Senior Secured Convertible Note in the principal amount of $5 million and (2) Warrants (“Series A Warrants”) to purchase 596,658 of the Company’s ordinary shares equal to 50% of the shares issuable upon conversion of the Series A Notes, exercisable for a period of five years at an initial exercise price of $8.38, and (3) Warrants (“Series B Warrants”) to purchase 298,330 of the Company’s ordinary shares equal to 50% of the shares issuable upon conversion of the Series B Notes, exercisable for a period of five years at an exercise price of $8.38. In exchange for the above securities, the Company received consideration consisting of (i) an aggregate cash payment of $10,000,000, and (ii) secured promissory notes payable by the Investors to the Company (the “Investor Notes”) in the aggregate principal amount of $5 million. Among other terms, pursuant to the Original Purchase Agreement, at the closing, the Investors and Feng Zhou Management Limited (the “Pledgor”) will enter into a Share Pledge Agreement (the “Share Pledge Agreement”) in order to induce the Investors to purchase, severally and not jointly, the Notes and Warrants as provided for in the Original Securities Purchase Agreement, the Pledgor has agreed to grant the Investors security interest in and to four million Ordinary Shares owned by the Pledgor in order to secure the prompt and complete payment, observance and performance of all liabilities and obligations by the Company to the Investors arising out of or outstanding under, advanced or issued pursuant to, or evidenced by the Original Securities Purchase Agreement, the Notes, the Warrants or any of the other transaction documents and other secured obligations as set forth in the Share Pledge Agreement.

Registration Rights Agreement

At the closing of the Private Placement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Investors under which the Company agreed to register for resale the Ordinary Shares issuable upon conversion of the Notes and upon exercise of the Warrants plus an additional number of shares so that the total number of Ordinary Shares registered equals 200% of the sum of (i) the maximum number of shares issuable upon conversion of the Notes (using the Alternate Conversion Price (as defined in the Notes)) and (ii) the maximum number of shares issuable upon exercise of the Warrants. The Registration Rights Agreement requires the Company to file the registration statement within 20 days after the closing and to have the registration statement declared effective 75 days after the closing, or 100 days if the registration statement is subject to full review by the SEC.

Under the Registration Rights Agreement, the Company agreed to pay each Investor cash liquidated damages of 1% of the sum of the aggregate original principal amount stated in such Investor’s Notes at the closing upon the Company’s failure to (i) file the registration statement in the time required, (ii) have the registration statement declared effective in the time required, (iii) maintain the effectiveness of the registration statement, or (iv) keep current public information in the marketplace. The Company is obligated to make such liquidated damages payments upon the occurrence of one of the described events and every 30 days thereafter until cured (or, in the case of the current public information failure, until such time that such public information is no longer required pursuant to Rule 144).

The Company agreed to keep the registration statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales on a delayed or continuous basis at then-prevailing market prices at all times until the earlier of (i) the date as of which the Investors may sell all of the Common Stock issuable pursuant thereto without restriction pursuant to Rule 144, or (ii) the date on which all of the Common Stock covered by the registration statement have been sold.

The Registration Rights Agreement also provides for piggyback registration rights under certain circumstances.

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Investor Note Purchase Agreement

On May 2, 2019, pursuant to the Original Purchase Agreement, the Company and the Investors entered into enter into separate Note Purchase Agreements (each, an “NPA”) pursuant to which each Investor agreed to issue to the Company such Investor’s Investor Note.

Master Netting Agreement

On May 2, 2019, the Company and the Investors entered into a Master Netting Agreement (the “Master Netting Agreement”) for the purpose of clarifying for each party its right to offset obligations that may arise under the Purchase Agreement, the Investor Notes and the Series B Notes upon the occurrence of certain events, including as described above.

Placement Agent

FT Global Capital, Inc. acted as the exclusive placement agent for the transaction (the “Placement Agent”) pursuant to the terms of an Engagement Letter, dated March 1, 2019, between the Company and the Placement Agent (the “Engagement Letter”). At the closing of the Private Placement, the Company paid the Placement Agent an aggregate cash fee of $120,000. In connection with the transaction, the Company also reimbursed the Placement Agent’s expenses up to $30,000 and the Placement Agent’s legal expenses of up to $25,000.

At the closing of the Private Placement, the Company sold to the Placement Agent for a sum of $100 for certain warrant (the “Placement Agent Warrant”) to purchase 178,997 Ordinary Shares, pursuant to the terms of the Engagement Agreement. The Placement Agent Warrant will have substantially the same terms as the Warrants, as described above.

Additionally, the Company has agreed to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Placement Agent may be required to make because of those liabilities. The Placement Agent has the right to act as lead underwriter or lead placement agent for any future equity or debt offering the Company may undertake within six month of the closing of the transaction.

Amendment to the Original Purchase Agreement

As disclosed in our Form 6-K filed with SEC on May 3, 2019, on May 2, 2019, the Company entered into certain amendment (the “Amendment”, and the Original Purchase Agreement, as amended, the “Purchase Agreement”) to the Original Purchase Agreement in accordance with the terms of the Original Purchase Agreement. Under the Amendment, the Pledgor and the Investors will not enter into the Share Pledge Agreement. As substitute to the pledge, the Company shall pre-deliver four million Ordinary Shares of the Company (“Pre-Delivery Shares”) to the Investors issuable upon conversion of the Notes (“Conversion Shares”). Notwithstanding the foregoing, the parties also agreed that if the Notes are converted or redeemed, as applicable, in full and any Pre-Delivery Shares are not used to satisfy conversion under the Note, such remaining Pre-Delivery Shares shall be returned to the Company for cancellation. The Pre-Delivery Shares, upon issuance, shall be restricted securities that initially may not be freely traded by an Investor until and unless a resale exemption from registration becomes available to such Investor or the resale of the Pre-Delivery Shares by such Investor is registered by the Company pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission, in each case, pursuant to the rules and regulations of the Securities Act of 1933, as amended.

Forbearance Agreement

Upon negotiation with the Investors, on December 13, 2019, (the “Effective Date”) the Company entered into certain Forbearance and Amendment Agreements (each a “Forbearance Agreement”, collectively, the “Forbearance Agreements”) with each Investor.

Upon the execution of the Forbearance Agreements, the Investor shall Net (as defined in the Series B Note) all Restricted Principal (as defined in the Series B Note) outstanding under the Series B Note against the amounts outstanding under the Investor Note (as defined in the Series B Note), after which the Investor Note, the Series B Note and the Series B Warrant shall no longer remain outstanding.

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Pursuant to the Forbearance Agreement, commencing on the Effective Date till the earlier of (1) 5:00PM, New York city time on October 15, 2020, (or, if earlier, such date when all the Forbearance Redemption Amounts (as defined therein) are fully paid) and (2) the time of any breach by the Company of any term or provision of this Agreement or the occurrence of any Event of Default that is not an “Existing Default” as set forth in the Schedule I of the Forbearance Agreements or an “Additional Forborne Default” as set forth in the Schedule II of the Forbearance Agreement (such earlier date, the “Forbearance Expiration Date”, such period from the Effective Date to the Forbearance Expiration Date, the “Forbearance Period”), the Investors agreed, among other things, to the following:

(a) to forbear from (i) taking any action to enforce their Redemption Notice with respect to certain existing defaults (the “Existing Defaults”) including but not limited to such defaults as described in the Redemption Notices, and (ii) issuing any new demand for redemption of the Series A Note on the basis of certain additional defaults (the “Additional Forborne Defaults”), including but not limited to the occurrence of the event that the aggregate daily dollar trading volume of the Company’s ordinary shares does not exceed $1,500,000, and that the volume weighted average price of the Company’s ordinary shares on any two trading days during the thirty trading day period ending on the trading day immediately preceding such date of determination fails to exceed $2.14.

(b) not to effect any conversions of the Series A Note or Alternate Conversions except for conversions or Alternate Conversions of the Series A Note and/or exercises of the Series A Warrant, in each case, on any Trading Day where the trading price of the Ordinary Shares is at least $2.50 (as adjusted for share splits, share dividends, share combinations, recapitalizations and similar events on or after the date hereof) (such price, a “Forbearance Conversion Floor” and each such conversion, a “Permitted Transaction”); provided, that any Ordinary Shares issued in a Permitted Transaction (other than Applied Pre-Delivery Shares or any Ordinary Shares issued upon conversion of any Forbearance Redemption Amount that the Company has failed to pay in cash either prior to, or during, the applicable Payment Grace Period (as defined in Schedule II of the Forbearance Agreement) with respect thereto)(collectively, the “Excluded Leak-Out Shares”)) shall be subject to the Leak-Out Agreement. If the Company or its agents do not deliver conversion shares pursuant to such aforementioned conversion, the Investor may apply any remaining Pre-Delivered Shares to satisfy such obligations (on a share-for-share basis, against the Ordinary Shares not timely delivered in such aforementioned conversion)

(c) not to effect any Installment Conversion, Installment Redemption, Disclosure Delay Payments or Event of Default Redemption (as defined in the Notes, solely with respect to the Existing Defaults and Additional Forborne Defaults) prior to the Forbearance Expiration Date other than as permitted under this Agreement

(d) not to exercise the Series A Warrant during the Forbearance Period (other than exercises of the Series A Warrant in Permitted Transactions);

(e) to return the original share certificate representing the Pre-Delivered Shares (other than Applied Pre-Delivery Shares (as defined below)) to the Company for cancellation upon the Company’s payment of the full Forbearance Redemption Amounts (as defined below),

(f) to execute and deliver to the Company certain lock-up agreements with respect to the Pre-Delivered Shares (each a “Lock-Up Agreement”, collectively “Lock-Up Agreements”), certain mutual release (each a “Mutual Release”, collectively, the “Mutual Releases”) and to execute and deliver to the Company the Leak-Out Agreement (as defined below)

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In consideration for the above, the Company agreed to the followings:

(a) in lieu of the payment of the redemption price as stated in each Redemption Notices respectively, the Company shall (I) pay to each Investor $500,000 (the “Initial Forbearance Fee”) on or prior to December 16, 2019, and (II) commencing on January 24th 2020, redeem the Series A Notes for an aggregate redemption price of $10,939,410.21  (the “Forbearance Redemption Price”), in accordance with Section 8 of the Series A Note, but replacing the applicable Installment Dates and Installment Amounts (including, Principal Amounts, Interest and Make-Whole Amounts with respect thereto) with the dates (each a “New Installment Date”) and amounts (each, a “New Installment Amount”), respectively and (III) pay the aggregate amount of any payment obligations of the Company arising after the date hereof pursuant to the Sections 3(c)(ii), 20 or 24(c) of the Series A Note, 9(k) of the Securities Purchase Agreement, and/or Sections 2(e), 6 and 7 of the Registration Rights Agreement, (each such amounts, an “Ancillary Redemption Amount”, and together with the New Installment Amounts, each an “Additional Forbearance Redemption Amount”, and together with the Initial Forbearance Fee, each a “Forbearance Redemption Amount”)

(b) If the Company fails to pay any New Installment Amount within 5 days of the applicable New Installment Date pursuant to the Installment Notice (as defined in Section 8 of the Series A Note), the Investor may convert the applicable New Installment Amount in one or multiple conversion notices as an Alternate Conversion pursuant to Section 3(e) of the Series A Note with the Forbearance Conversion Floor and the Leak-Out Agreement being disregarded for such conversions and such conversions deemed a Permitted Transaction for the purposes of this Agreement and any sales of such Ordinary Shares shall not be included in the applicable Daily Limit (as defined in the Leak-Out Agreement) with respect thereto. In the event that the Company or its agents do not deliver applicable Conversion Shares pursuant to any conversion in accordance with Section 3 of the Series A Note, the Investor may apply any remaining Pre-Delivered Shares to satisfy such obligations (on a share-for-share basis, against the Ordinary Shares not timely delivered in such aforementioned conversion) (each an “Applied Pre-Delivery Share”).

(c) the Company shall cause all restrictive legends on the Pre-Delivered Shares to be removed and delivery of un-legended Pre-Delivery Shares into the Investor’s custodian’s account pursuant to the DWAC instructions set forth therein; and

Concurrently with the execution of the Forbearance Agreement, the Investors and the Company have entered into the Lock-Up Agreements, Leak-Out Agreements and Mutual Releases.

Lock-Up Agreement

Pursuant to the Lock-Up Agreement, except that investors may pledge the Pre-Delivered Shares in connection with a bona fide margin account or other loan or financing arrangement secured by the Pre-Delivered Shares, the Investors agreed not to make any hedge, swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Pre-Delivered Shares (excluding the Applied Pre-Delivery Shares, the “Locked Shares”). The investor also agreed to provide, up to three (3) times during the forbearance period, evidence reasonably satisfactory to the Company within two (2) Business Days after receipt of the Company’s written request, showing that the Locked Shares remain in the account of the Investor. In the event that prior to the expiration of the Forbearance Period, the aggregate number of Ordinary Shares held in the brokerage account of such Investor is less than the Locked Shares, the undersigned shall within one (1) Business Day of the Company’s written request, return the Locked Shares to the Company for cancellation by directing the Investors’ broker to initiate a DWAC withdrawal of the Pre-Delivered Shares and delivering duly executed cancellation instructions along with the original certificates (if any) evidencing the Pre-Delivered Shares, original stock power with medallion guaranteed and corporate resolution approving such cancellation to the Company’s transfer agent.

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Leak-Out Agreement

Pursuant to the Leak-Out Agreements, each investor (together with certain of its affiliates) has agreed to not sell, dispose or otherwise transfer, directly or indirectly (including, without limitation, any sales, short sales, swaps or any derivative transactions that would be equivalent to any sales or short positions) any Ordinary Shares issued in any Permitted Transaction (collectively, the “Restricted Securities”), on any Trading Day (as defined in Series A Notes) (each date of determination, each a “Measuring Date”), if such sale, together with all prior sales of Restricted Securities by the Investor on such Measuring Date, exceed 20% of the daily composite trading volume of the Ordinary Shares (as reported by Bloomberg, LP for such Measuring Date) (the “Daily Limit”); provided that any other sales of Restricted Shares on such Measuring Date (excluding any sales of Restricted Securities) shall not be included in the Daily Limit calculation above.

Further, this restriction will not apply to sales or transfers of any such shares of Restricted Shares in transactions with any Person (an “Assignee”); provided, that as a condition to any such sale or transfer an authorized signatory of the Company and such Assignee duly execute and deliver a leak-out agreement in the form of this Leak-Out Agreement with respect to such transferred Restricted Securities (or such securities convertible or exercisable into Restricted Securities, as applicable) (an “Assignee Agreement”) and sales of the Investor and all Assignees shall be aggregated for all purposes of this Leak-Out Agreement and all Assignee Agreements.

Mutual Release

In accordance with the Mutual Release, both parties agree not to bring any and all charges, complaints, liabilities, claims and demands of any nature whatsoever solely with respect to the Notes and the Warrants against each other effective upon the full payment of the forbearance redemption amounts.

Amended Leak-Out Agreement

Due to the Company’s failure to obtain timely approval from State Administration of Foreign Exchange in People’s Republic of China to redeem Series A Notes in cash as previously contemplated, we separately amended and restated the Leak-Out Agreements (each an “Amended Leak-Out Agreement”) with each Investor on March 3, 2020 (“Amended Leak-Out Effective Date”).

Pursuant to the Amended Leak-Out Agreements, each Investor (together with certain of its affiliates) has agreed to not sell, dispose or otherwise transfer, directly or indirectly (including, without limitation, any sales, short sales, swaps or any derivative transactions that would be equivalent to any sales or short positions) any Series A Conversion Shares converted during the period commencing on the Amended Leak-Out Effective Date and ending on the later of (x) the date the Series A Note issued to the Investor no longer remains outstanding and (y) such date as the Investor (and/or its Affiliates) shall have sold all Series A Conversion Shares, (collectively, the “Restricted Securities”), on any Trading Day (as defined in Series A Notes) (each date of determination, each a “Measuring Date”), if such sale, together with all prior sales of Restricted Securities by the Investor on such Measuring Date, exceed 20% of the daily composite trading volume of the Ordinary Shares (as reported by Bloomberg, LP for such Measuring Date) (the “Daily Limit”); provided that the sales of any other shares of Ordinary Shares (excluding any sales of Restricted Securities) on such applicable Measuring Date shall not be included in the Daily Limit calculation above.

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In addition, if the Investor on a given date desires to convert the Series A Note, in whole or in part, and the aggregate of the Conversion Amount of all conversions from December 13, 2019 through, and including, such date of determination (including the Conversion Amount of the proposed conversion) exceeds the sum of (x) the aggregate New Installment Amounts (as set forth in the Forbearance Agreement) and (y) any other unpaid amounts under the Forbearance Agreement (including, without limitation, the Initial Forbearance Fee), in the aggregate, that have become due and payable (or would have become due and payable, assuming the Forbearance Agreement remained in full force and effect through, and including, such date of determination) in accordance with the Forbearance Agreement on or prior to such date of determination, the Investor shall be prohibited from effecting such conversion (the “Conversion Limit”).

Notwithstanding the foregoing Conversion Limit, as of any time of determination, if both (x) the daily average composite trading volume of the Ordinary Share (as reported by Bloomberg, LP for such Measuring Date) exceeds 1.5 million and (y) the trading price of the Ordinary Share as of such time of determination exceeds the Closing Bid Price (as defined in the Series A Note) of the Ordinary Share as of the Trading Day immediately prior to such Measuring Date, the Investor shall be permitted to convert, in one or more conversions on such Measuring Date, up to an additional aggregate amount (which shall be excluded from the Conversion Limit) not to exceed the lesser of (i) 500,000 shares of Ordinary Share and (ii) 20% of the daily average composite trading volume of the Ordinary Shares.

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

China regulates foreign currency exchanges primarily through the following rules and regulations:

● Foreign Currency Administration Rules of 1996, as amended; and

● Administrative Rules of the Settlement, Sale and Payment of Foreign Exchange of 1996.

As we disclosed in the risk factors above, Renminbi is not a freely convertible currency at present. Under the current PRC regulations, conversion of Renminbi is permitted in China for routine current-account foreign exchange transactions, including trade and service related foreign exchange transactions, payment of dividends and service of foreign debts. Conversion of Renminbi for most capital-account items, such as direct investments, investments in PRC securities markets and repatriation of investments, however, is still subject to the approval of SAFE.

Pursuant to the above-mentioned administrative rules, foreign-invested enterprises may buy, sell and/or remit foreign currencies for current account transactions at banks in China with authority to conduct foreign exchange business by complying with certain procedural requirements, such as presentment of valid commercial documents. For capital-account transactions involving foreign direct investment, foreign debts and outbound investment in securities and derivatives, approval from SAFE is a pre-condition. Capital investments by foreign-invested enterprises outside China are subject to limitations and requirements in China, such as prior approvals from the PRC Ministry of Commerce or SAFE.

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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. See “Dividend Policy.”

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.

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.

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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 Docvit, our PRC counsel, believes that 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 “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.”

Our company pays an EIT rate of 25% for Taizhou Suxuantang, 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.

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.

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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 NYSE MKT. 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.

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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, 2020, 2019 and 2018, 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. 

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

The information contained in the Forms 6-K filed with the SEC on July 31, 2019 (File No. 001-38773) is incorporated herein by reference.

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.

Use of Proceeds 

The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number: 333-231839), or the Form F-1, in relation to our IPO of 2,500,000 to 3,750,000 ordinary shares, at an initial offering price of US$4.00 per share. The Form F-1 was declared effective by the SEC on September 28, 2018. Our IPO closed on December 31, 2019. Boustead Securities, LLC acted as sole underwriter and the book-runner for the offering.

The total expenses incurred for our company’s account in connection with our IPO, including underwriting discounts and commissions of approximately US$700,000 and other expenses of approximately US$0.9 million. None of the fees and expenses were directly or indirectly paid to the directors, officers, general partners of our company or their associates, persons owning 10% or more of our ordinary shares, or our affiliates.

After deducting the total expenses, we received net proceeds of approximately US$6.49 million from our IPO. We used the net proceeds we receive from this offering for the following purposes:

	Use of net proceeds
Expand manufacturing facility	US$	0.69 million approximately
Recruit additional employees to enhance corporate governance	US$	1.12 million approximately
Research and development of new products	US$	0.40 million approximately
General working capital	US$	4.28 million approximately

None of the net proceeds from our initial public offering were directly or indirectly paid to the directors, officers, general partners of our company or their associates, persons owning 10% or more of our ordinary shares, or our affiliates.

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, 2020, 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.

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(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, 2020. 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, 2020, 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.

To remediate the material weakness and significant deficiencies described above, the management is currently planning to undertake the following actions: 

● To continue to engage bilingual accounting consultant who is familiar with US GAAP while provide ongoing US GAAP training to in-house accounting staff.

● To retain additional accounting personnel and continue to enhance our internal finance and accounting organizational structure.

● To strengthen the direct management oversight of transactions, along with the use of legal and accounting professionals.

(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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Mr. Wenwei Fan, Mr. Junsong Li and Mr. Tulin Lu are members of our Audit Committee, where Mr. Wenwei Fan, 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. Wenwei Fan, 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.

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.

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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,  2020		Year Ended March 31,  2019
Audit fees(1)	$	176,000	$	206,000
Audit related fees(2)		-
Tax fees(3)		-		-
All other fees(4)		-		-
TOTAL	$	176,000	$	206,000

(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.

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.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

The consolidated financial statements and related notes required by this item are contained on pages F-1 through F-27.

ITEM 19. EXHIBITS 

		Incorporated by Reference
Exhibit Number	Description of Documents	Form	Exhibit No.	Filing Date	Filed Herewith
1.1	Memorandum and Articles of Association (1)	F-1/A	3.1	April 20, 2018
1.2	Amended and Restated Memorandum and Articles of Association				X
2.1	Series A Senior Convertible Note, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Alto Opportunities Master Fund, SPC – Segregated Master Portfolio B (5)	F-1/A	4.1	June 21, 2019
2.2	Series A Senior Convertible Note, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Hudson Bay Master Fund Ltd. (5)	F-1/A	4.2	June 21, 2019
2.3	Series B Senior Secured Convertible Note, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Alto Opportunities Master Fund, SPC – Segregated Master Portfolio B (5)	F-1/A	4.3	June 21, 2019
2.4	Series B Senior Secured Convertible Note, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Hudson Bay Master Fund Ltd. (5)	F-1/A	4.4	June 21, 2019
2.5	Secured Promissory Notes, dated May 2, 2019, issued from Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B to the Company under the Note Purchase Agreement (5)	F-1/A	4.5	June 21, 2019
2.6	Secured Promissory Notes, dated May 2, 2019, issued from Hudson Bay Master Fund Ltd. to the Company under the Note Purchase Agreement (5)	F-1/A	4.6	June 21, 2019
2.7	Series A Investor Warrant, dated May 2, 2019 issued to Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (5)	F-1/A	4.7	June 21, 2019
2.8	Series A Investor Warrant, dated May 2, 2019 issued to Hudson Bay Master Fund Ltd. (5)	F-1/A	4.8	June 21, 2019
2.9	Series B Investor Warrant, dated May 2, 2019 issued to Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (5)	F-1/A	4.9	June 21, 2019
2.10	Series B Investor Warrant, dated May 2, 2019 issued to Hudson Bay Master Fund Ltd. (5)	F-1/A	4.10	June 21, 2019

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2.11	Series A Placement Agent Warrant, dated May 2, 2019 issued to FT Global Capital, Inc. (5)	F-1/A	4.11	June 21, 2019
2.12	Series B Placement Agent Warrant, dated May 2, 2019 issued to FT Global Capital, Inc. (5)	F-1/A	4.12	June 21, 2019
4.1	Exclusive Business Cooperation Agreement, dated October 13, 2017, between WFOE and Suxuantang (2)	F-1	10.6	December 4, 2017
4.2	Share Pledge Agreement dated October 13, 2017, between WFOE, Di Zhou, Ziquan Zhou, Feng Zhou and Suxuantang (2)	F-1	10.7	December 4, 2017
4.3	Exclusive Option Agreement dated October 13, 2017, between WFOE, Di Zhou, Ziquan Zhou, Feng Zhou and Suxuantang (2)	F-1	10.8	December 4, 2017
4.4	Form of Power of Attorney dated October 13, 2017, between WFOE, Di Zhou, Ziquan Zhou, Feng Zhou and Suxuantang (2)	F-1	10.9	December 4, 2017
4.5	Form of Escrow Agreement (1)	F-1/A	10.10	April 20, 2018
4.6	Securities Purchase Agreement, dated April 15, 2019, among China SXT Pharmaceuticals, Inc. and the investor parties thereto (5)	F-1/A	10.1	June 21, 2019
4.7	Amendment No. 1 to Securities Purchase Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and the investors thereto (5)	F-1/A	10.2	June 21, 2019
4.8	Registration Rights Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and the investors under the Securities Purchase Agreement (5)	F-1/A	10.3	June 21, 2019
4.9	Note Purchase Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B under the Securities Purchase Agreement (5)	F-1/A	10.4	June 21, 2019
4.10	Note Purchase Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Hudson Bay Master Fund Ltd. under the Securities Purchase Agreement (5)	F-1/A	10.5	June 21, 2019
4.11	Master Netting Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B under the Securities Purchase Agreement (5)	F-1/A	10.6	June 21, 2019
4.12	Master Netting Agreement, dated May 2, 2019, by and among China SXT Pharmaceuticals, Inc. and Hudson Bay Master Fund Ltd. under the Securities Purchase Agreement (5)	F-1/A	10.7	June 21, 2019
4.13	Limited Partnership Agreement, dated June 10, 2019, by and among China SXT Pharmaceuticals, Inc. and certain partners thereto*	20-F/A	4.13	August 19, 2019
4.14	Supplement Agreement No.1 to the Limited Partnership Agreement, dated June 10, 2019, by and among China SXT Pharmaceuticals, Inc. and certain partners thereto*	20-F/A	4.14	August 19, 2019
4.15	Supplement Agreement No.2 to the Limited Partnership Agreement, dated June 10, 2019, by and among China SXT Pharmaceuticals, Inc. and certain partners thereto*	20-F/A	4.15	August 19, 2019

93

4.16	Supplement Agreement No.3 to the Limited Partnership Agreement, dated June 10, 2019, by and between China SXT Pharmaceuticals, Inc. and Huangshan Panjie Investment Management Co., Ltd.*	20-F/A	4.16	August 19, 2019
4.17	Form of Forbearance Agreement enter dated December 13, 2019, by and between China SXT Pharmaceuticals, Inc. and investors	6-K	10.1	December 16, 2019
4.18	Form of Lock-Up Agreement, dated December 13, 2019, by and between China SXT Pharmaceuticals, Inc. and investors	6-K	10.2	December 16, 2019
4.19	Form of Leak-Out Agreement, dated December 13, 2019, by and between China SXT Pharmaceuticals, Inc. and investors	6-K	10.3	December 16, 2019
4.20	Form of Mutual Release, dated December 13, 2019, by and between China SXT Pharmaceuticals, Inc. and investors	6-K	10.4	December 16, 2019
4.21	Form of Amended Leak Out Agreement, dated March 3, 2020, by and between China SXT Pharmaceuticals, Inc. and investors	6-K	10.1	March 4, 2020
8.1	List of Subsidiaries and Consolidated Variable Interest Entities	F-1	21.1	December 4, 2017
12.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
12.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
13.1	CEO and CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
23.1	Consent of Independent Auditors				X
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Document				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				X

*	Filed as an exhibit hereto.
(1)	Incorporated by reference to our Registration Statement on Form F-1/A, filed on April 20, 2018.
(2)	Incorporated by reference to our Registration Statement on Form F-1, filed on December 4, 2017.
(3)	Incorporated by reference to our Form 6-K, filed on April 17, 2019.
(4)	Incorporated by reference to our Form 6-K, filed on May 3, 2019.
(5)	Incorporated by reference to our Form F-1/A, filed on June 21, 2019.

94

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	China Pharmaceuticals, Inc.
	/s/ Feng Zhou
	Name: Feng Zhou
	Title: Chief Executive Officer
Date: July 31, 2020

95

CHINA SXT PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Consolidated Financial Statements	Pages
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of March 31, 2020 and 2019	F-3
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended March 31, 2020, 2019 and 2018	F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2020, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7 – F-36

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

China SXT Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of China SXT Pharmaceuticals, Inc. and subsidiaries and variable interest entities (the “Company”) as of March 31, 2020 and 2019, and the related statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years period ended March 31, 2020, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 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 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 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 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

July 31, 2020

F-2

CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In US$, except for number of shares data)

	As of March 31,
	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	7,287,032		$	9,130,849
Restricted cash		-			161,084
Accounts receivable, net		3,819,437			4,180,559
Notes receivable		17,744			81,265
Inventories		892,767			1,007,918
Advance to suppliers		154,135			319,088
Loan receivable and accrued interest		1,567,500			-
Deferred cost		510,617			-
Amounts due from related parties		768,341			-
Prepayments, receivables and other current assets		4,618,740			707,337
Total Current Assets		19,636,313			15,588,100
Property, plant and equipment, net		1,574,602			1,158,898
Construction in progress		328,372			649,235
Intangible assets, net		50,052			61,096
Deferred tax assets, net		112,839			13,504
Total Non-current Assets		2,065,865			1,882,733
TOTAL ASSETS	$	21,702,178		$	17,470,833
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Bank loans – current portion	$	43,902		$	27,817
Short-term convertible note		6,643,463			-
Notes payable		-			233,336
Accounts payable		1,941,151			1,685,419
Refund liabilities		113,611			78,317
Advance from customers		298,042			57,553
Amounts due to related parties		-			2,483,094
Accrued expenses and other liabilities		2,237,305			691,522
Income tax payable		986,840			1,064,314
Total Current Liabilities		12,264,314			6,321,372
Bank loans – non-current portion		36,511			41,706
Total Non-current Liabilities		36,511			41,706
TOTAL LIABILITIES		12,300,825			6,363,078
COMMITMENTS AND CONTINGENCIES		-			-
SHAREHOLDERS’ EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)		34,667			22,706
Additional paid-in capital		17,161,346			7,950,782
Retained earnings/(Deficits)		(7,204,000	)		3,083,872
Accumulated other comprehensive Income/(loss)		(590,660	)		50,395
Total Shareholders’ Equity		9,401,353			11,107,755
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	21,702,178		$	17,470,833

The accompanying notes are an integral part of these consolidated financial statements.

F-3

CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME/(Loss) AND COMPREHENSIVE INCOME/(Loss)
(IN U.S. DOLLARS, EXCEPT SHARES DATA)

	For the years ended March 31,
	2020			2019			2018
Revenues	$	5,162,268		$	7,012,026		$	7,019,243
Revenues generated from third parties		4,831,838			6,799,871			5,702,207
Revenue generated from related parties		330,430			212,155			1,317,036
Cost of revenues		(2,458,566	)		(2,400,491	)		(3,617,748	)
Gross profit		2,703,702			4,611,535			3,401,495
Operating expenses:
Selling and marketing		(1,583,284	)		(1,605,497	)		(512,482	)
General and administrative		(2,461,535	)		(1,236,546	)		(1,256,747	)
Total operating expenses		(4,044,819	)		(2,842,043	)		(1,769,229	)
Operating Income (Loss)		(1,341,117	)		1,769,492			1,632,266
Other income (expenses):
Interest income(expense), net		(3,348,790	)		(5,174	)		(779	)
Loss on debt extinguishment		(5,625,916	)		-			-
Other income (expenses), net		(73,771	)		27,141			(3,803	)
Total other income (expenses), net		(9,048,477	)		21,967			(4,582	)
Income (Loss) before income taxes		(10,389,594	)		1,791,459			1,627,684
Income tax recovery (provision)		101,722			(252,232	)		(440,103	)
Net income (loss)		(10,287,872	)		1,539,227			1,187,581
Other comprehensive income (loss):
Foreign currency translation adjustment		(641,055	)		(206,978	)		245,548
Comprehensive income (loss)		(10,928,927	)		1,332,249			1,433,129
Earnings per ordinary share
Basic and diluted	$	(0.416	)	$	0.075		$	0.059
Weighted average number of ordinary shares outstanding
Basic and diluted		24,728,655			20,568,630			20,000,000

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED March 31, 2020 and 2019

(IN U.S. DOLLARS, EXCEPT SHARES DATA)

	Shares		Amount		Additional paid-in capital		Retained earnings (Accumulated deficits)			Accumulated other comprehensive income (loss)			Total equity
Balance at March 31, 2017		20,000,000	$	20,000	$	1,463,757	$	357,064		$	11,825		$	1,852,646
Net income		-		-		-		1,187,581			-			1,187,581
Foreign currency translation gain		-		-		-		-			245,548			245,548
Balance at March 31, 2018		20,000,000		20,000		1,463,757		1,544,645			257,373			3,285,775
Net income								1,539,227			-			1,539,227
Net Proceeds from the initial public offering		2,706,701		2,706		6,487,025		-			-			6,489,731
Foreign currency translation gain (Loss)		-		-		-		-			(206,978	)		(206,978	)
Balance at March 31, 2019		22,706,701		22,706		7,950,782		3,083,872			50,395		$	11,107,755
Net Income (Loss)		-		-		-		(10,287,872	)		-			(10,287,872	)
Equity portion and warrants of the convertible notes						2,796,868								2,796,868
Issuance of shares for convertible notes principal and interest partial settlement		11,961,006		11,961		6,413,696		-			-			6,425,657
Foreign currency translation gain		-		-		-		-			(641,055	)		(641,055	)
Balance at March 31, 2020		34,667,707	$	34,667	$	17,161,346	$	(7,204,000	)	$	(590,660	)	$	9,401,353

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)

	For the years ended March 31,
	2020			2019			2018
Cash Flows from Operating Activities:
Net income (loss) from operations	$	(10,287,872	)	$	1,539,227		$	1,187,581
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expenses		331,837			180,917			129,439
Bad debt provision		41,249			66,898			-
Inventory impairment provision		23,871			23,112			-
Deferred income taxes		(101,722	)		(7,723	)		(5,851	)
Interest accrued on loan receivable		(67,500	)		-			-
Convertible note - Accretion of financing cost		3,421,910			-			-
Convertible note - Extinguishment Loss		5,625,916			-			-
Changes in operating assets and liabilities:
Accounts receivable		104,001			(1,811,078	)		384,434
Note receivable		60,275			202,575			(287,528	)
Inventory		39,707			154,526			(274,384	)
Advance to suppliers		154,650			(106,456	)		(82,618	)
Amounts due from related parties		-			125,128			942,355
Prepayments, receivables and other assets		(361,589	)		144,754			(809,706	)
Notes payable		(224,872	)		(127,034	)		365,000
Accounts payable and accrual		302,266			(567,313	)		966,573
Refund liability		40,045			78,285			-
Advance from customers		247,588			(216,518	)		(331,693	)
Amounts due to related parties		-			-			(579,147	)
Income tax payable		(22,272	)		249,577			519,601
Accrued expenses and other current liabilities		1,606,759			310,315			(203,895	)
Net cash provided by (used in) operating activities		934,247			239,192			1,920,161
Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(130,839	)		(535,825	)		(436,017	)
Purchase of intangible assets		-			(11,279	)		(21,032	)
Construction in process		(275,819	)		(62,981	)		(593,676	)
Deposits for investment		(3,590,046	)		-			-
Loan receivable		(1,500,000	)		-			-
Net cash provided by (used in) investing activities		(5,496,704	)		(610,085	)		(1,050,725	)
Cash Flows from Financing Activities:
Bank borrowings		(38,698	)		69,494			(314,216	)
Due to related parties		(3,180,171	)		2,482,095			-
Proceeds from original convertible note		10,000,000			-			-
Payment of original convertible note issuance cost		(1,641,050	)		-			-
Repayment of original convertible notes		(1,157,376	)		-			-
Payment of the forbearance cost of original convertible note		(439,974	)		-			-
Deferred financing costs		(518,362	)
Net proceeds from initial public offering		-			6,490,494			-
Net cash provided by (used in) financing activities		3,024,369			9,042,083			(314,216	)
Effect of exchange rate changes on cash and cash equivalents		(466,813	)		(37,024	)		36,977
Net increase in cash, cash equivalents and restricted cash		(2,004,901	)		8,634,166			592,197
Cash, cash equivalents and restricted cash at the beginning of year		9,291,933			657,767			65,570
Cash, cash equivalents and restricted cash at the end of year	$	7,287,032		$	9,291,933		$	657,767
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	10,363		$	51,760		$	22,359
Cash paid for interest expense	$	287,810		$	1,489		$	-
Non-cash transactions:
11,961,006 of shares issued for settlement of $6,097,655 principal and $670,900 interest of the convertible notes	$	6,768,555		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

F-6

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 July 4, 2017. The Company focuses on the research, development, manufacture, marketing and sales of traditional Chinese medicine pieces (the “TCMP”), through its variable interest entity (“VIE”), Jiangsu Suxuantang Pharmaceutical Co., Ltd, (“Taizhou Suxuantang”) in China. The Company currently sells three types of TCMP products: Advanced TCMP, Fine TCMP and Regular TCMP, and TCM Homologous Supplements (“TCMHS”) products. We currently have a product portfolio of 18 advanced TCMPs, 20 Fine TCMPs, 430 Regular TCMPs and 4 TCMHS solid beverage products that address a wide variety of diseases and medical indications. Most of our products are sold on a prescription basis across China. The Company’s principal executive offices are located in Taizhou, Jiangsu province, China.

Restructuring and Share Issuance

On July 4, 2017, we were incorporated in the British Virgin Islands by issuance of 10,300,000 common stocks at 0.001 par value to Ziqun Zhou, Di Zhou and Feng Zhou Management Limited (“China SXT Pharmaceuticals, Inc. shareholders”). Feng Zhou Management Limited is a BVI company 100% owned by Feng Zhou. Feng Zhou, Ziqun Zhou and Di Zhou collectively hold 100% shares of Taizhou Suxuantang. Later on October 20, 2017, the 10,300,000 shares common stocks were reallocated among China SXT Pharmaceuticals, Inc. shareholders. On October 20, 2017, the Company issued 9,700,000 common stocks at 0.001 par value to ten individual shareholders (“Restructuring”).

On July 21, 2017, our wholly owned subsidiary China SXT Group Limited (“SXT HK”) was incorporated in Hong Kong. China SXT Group Limited in turn holds all the capital stocks of Taizhou Suxantang Biotechnology Co. Ltd. (“WFOE”), a wholly foreign owned enterprise incorporated in China on October 13, 2017. On the same day, Taizhou Suxuantang and its shareholders entered into such a series of contractual arrangements, also known as VIE Agreements.

Taizhou Suxuantang was incorporated on June 9, 2005 by Jianping Zhou, Xiufang Yuan (the spouse of Jianping Zhou) and Jianbin Zhou, who held 83%, 11.5% and 5.5% shares in Taizhou Suxuantang respectively. On May 8, 2017, the three shareholders transferred all shares to Feng Zhou, Ziqun Zhou and Di Zhou (collectively “Taizhou Shareholders”), who hold 83%, 11.5% and 5.5% shares in Taizhou Suxuantang, respectively, after the transfer of shares. Feng Zhou and Ziqun Zhou are the children of Jianping Zhou and Xiufang Yuan, and Di Zhou is the child of Jianbin Zhou. 

F-7

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)

The discussion and presentation of financial statements herein assumes the completion of the Restructuring, which is accounted for retroactively as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

The following diagram illustrates our corporate structure, including our subsidiary and consolidated variable interest entity as of the date of the financial statements assuming the completion of our Restructuring:

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.

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.

F-8

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)

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 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. The 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.

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.

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.

F-9

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)

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.

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.

F-10

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

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.

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.

F-11

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Risks in relation to the VIE structure (continued)

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 was unable to enforce these contractual arrangements, the Company would 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.

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, 2020		March 31, 2019		March 31, 2018
Balance sheet items, except for equity accounts		7.0808		6.7111		6.2807
Items in the statements of operations and comprehensive income(loss), and statements of cash flows		6.9637		6.7138		6.6269

F-12

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, 2020 and 2019: determinations of the useful lives of long-lived assets, estimates of allowances for doubtful accounts, sales return rate, valuation assumptions in performing asset impairment tests of long-lived assets and determinations of fair value of convertible notes (liability component, etc) and warrants. 

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, 2020 and 2019, financial instruments of the Company primarily comprised of cash and cash equivalents, restricted cash, accounts receivables, notes receivable, loan receivable and accrued interest, due from related parties, prepayments, receivables and other current assets, bank loans (current and non-current portion), notes payable, accounts payable, refund liabilities, amounts due to related parties, accrued expenses and other liabilities, and income tax payable. The carrying amounts of these financial instruments approximated their fair values because of their generally short maturities.

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 a loan the Company has entered into.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective April 1, 2018, using the retrospective transition method.

The ending balance of restricted cash presented on the face of the consolidated balance sheets as of March 31, 2020 and 2019 were Nil and $161,084, respectively.

F-13

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 on demand. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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 work in progress.

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 prepayments 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, 2020 and 2019, the Company record no allowances, respectively.

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		5	%	10 years
Electric equipment		5	%	3-5 years
Office equipment		5	%	5 years
Vehicles		5	%	4-10 years
Leasehold improvement cost		5	%	3-10 years

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, 2020 and 2019, there was no impairment of property, plant and equipment.

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.

F-14

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible assets, net

Intangible assets are stated at cost less accumulated amortization. Intangible assets represented the trade mark registered in the PRC and purchased software which are amortized on a straight-line basis over a useful life of 10 years.

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, 2020 and 2019, the Company record no impairment of intangible assets.

Construction in process

Construction in process records the cost of construction work, which is not yet completed. A construction in process item is not depreciated until the asset is placed in service.

Construction in process respects unfinished factory, workshop and retail outlet. Construction in process will be transferred to leasehold improvement when it is finished. Depreciation is recorded starting at the time when assets are ready for the intended use.

Impairment of long-lived assets

Long-lived assets primarily include property, plant and equipment 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 no impairment charge for the years ended March 31, 2020 and 2019, respectively.

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the convertible senior notes have been reflected within additional paid-in capital in our audited consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our audited consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our audited consolidated balance sheets.

F-15

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”), on April 1, 2018, using the modified retrospective method. Revenues for the years ended March 31, 2020 and 2019 were presented under ASC 606, and revenues for the year ended March 31, 2018 was not adjusted and continue to be presented under ASC Topic 605, 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, and the Company can reasonably estimates return provision for the goods. 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. As of March 31, 2020 and 2019, sales return provision recorded in Refund liabilities were $113,611 and $78,317.

For the year ended March 31, 2020 and 2019, 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.

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities 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. All contract liabilities are included in advance from customers in the Consolidated Balance Sheets. As of March 31, 2020 and 2019, the Company record advance from customers of $298,042 and $57,553, respectively.

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, 2020 and 2019, advertising expenses are $1,021,543 and $857,908, respectively, which are included in selling expenses in our consolidated statements of operations and comprehensive income.

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, 2020 and 2019.

Comprehensive income

Comprehensive income includes net income and foreign currency adjustments. Comprehensive income is reported in the 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, 2020, the balance of accumulated other comprehensive loss amounted to $590,660, and as of March 31, 2019, the balance of accumulated other comprehensive income amounted to $50,395, respectively.

F-16

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Leases 

The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) on April 1, 2019 by using the modified retrospective method and did not restate the comparable periods. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Company elected the lease exemption for all its existing contracts.

The Company determines if an arrangement is a lease or contains a lease at lease inception. For operating leases, the Company recognizes a right-of-use asset and a lease liability based on the present value of the lease payments over the lease term on the consolidated balance sheets at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.

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.

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, restricted cash, accounts receivable, notes receivable, advances to suppliers, loan receivable and accrued interest, amounts due from related parties, and prepayments, receivables and other current assets. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of March 31, 2020 and 2019 the Company held cash and cash equivalents of $7,287,032 and $9,130,849, respectively, which were primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are of high credit quality. The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other factors.

The Company conducts credit evaluations of its customers and suppliers and generally does not require collateral or other security from them. The Company establishes an accounting policy for allowance for doubtful accounts on the individual customer’s or supplier’s financial condition, credit history, and the current economic conditions. As of March 31, 2020 and 2019, the Company record allowances of $103,990 and $66,917, respectively, for accounts receivable.

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), short-term convertible note, notes payable, 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 major shareholders to obtain short-term funding to meet the liquidity shortage.

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. 

F-17

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Significant risks and uncertainties (continued)

Concentration risk

During the years ended March 31, 2020 and 2019, there are two 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,
	2020			2019
Customer A		20.23	%		17.07	%
Customer B		15.00	%		15.80	%

As of March 31, 2020 and 2019, accounts receivable due from these customers as a percentage of consolidated accounts receivable were as follows:

	As of March 31,
	2020			2019
Customer A		5.44	%		9.28	%
Customer B		8.94	%		9.81	%

Recently issued accounting standards

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

Recently adopted accounting standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) on April 1, 2019 by using the modified retrospective method. The adoption had no impact on the Company’s statement of cash flows for the year ended March 31, 2020.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied using a retrospective transition method to each period presented, which resulted in an approximately US$0.97 thousand term deposit held by the Company as of March 31, 2018 and matured during the year ended December 31, 2019 being reclassified from a cash inflow from investing activities to the beginning balance of cash, cash equivalents, and restricted cash shown on the statement of cash flows for the year ended March 31, 2019. The adoption of ASU No. 2016-18 had no impact on the Company’s statement of cash flows for the year ended March 31, 2020.

F-18

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently issued accounting standards (continued)

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)-I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. The amendments in part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this ASU do not require any transition guidance because those amendments do not have an accounting effect. The Company has adopted the amendments in this ASU on April 1, 2019, when determining whether certain financial instruments issued by the Company after April 1, 2019 should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The adoption of the amendments in this ASU did not have a material impact on the Company’s consolidated financial position and results of operations.

In February 2018, the FASB issued ASU No. 2018-02: “Income Statement—Reporting Comprehensive Income (Topic 220)- Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of the amendments in this ASU did not have a material impact on its consolidated financial position and results of operations.

Recently issued accounting standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments in this ASU require the measurement and recognition of expected credit losses for financial assets held at amortized cost. The amendments in this ASU replace the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which among other things, clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. For public entities, the amendments in these ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact on its consolidated financial position and results of operations upon adopting these amendments. 

F-19

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently issued accounting standards (continued)

In June 2018, the FASB issued ASU No. 2018-07: “Compensation—Stock Compensation (Topic 718)-Improvements to Nonemployee Share-Based Payment Accounting”. The Board is issuing this Update as part of its Simplification Initiative. The amendments in this Update expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. Disclosures required at transition include the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of equity. Based on the Company’s evaluation, the Company does not expect the adoption of the amendments in this ASU to have a material impact on its consolidated financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements. The amendments in this ASU, among other things, require public companies to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations.

F-20

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Accounts receivable – third parties	$	3,439,799		$	4,037,208
Accounts receivable – related parties		483,628			210,268
Total accounts receivable, gross		3,923,427			4,247,476
Less: allowance for doubtful accounts		(103,990	)		(66,917	)
Accounts receivable, net	$	3,819,437		$	4,180,559

For the years ended March 31, 2020 and 2019, the Company record bad debt expense of $41,249 and $66,898, respectively.

NOTE 4 – INVENTORIES

Inventories as of March 31, 2020 and 2019 consisted of the following:

	As of March 31,
	2020			2019
Raw materials	$	404,457		$	315,686
Finished goods		533,691			715,344
Provision for inventory		(45,381	)		(23,112	)
Total inventories, net	$	892,767		$	1,007,918

Impairment provision of inventories recorded for lower of cost or net realizable value adjustments were $23,871 and $23,112 for the years ended March 31, 2020 and 2019, respectively.

NOTE 5 – LOAN RECEIVABLE AND ACCRUED INTEREST

	As of March 31,
	2020		2019
Loan receivable - RH Holdings Management (HK) Limited	$	1,500,000	$	-
Accrued interest		67,500		-
Total	$	1,567,500	$	-

Short-term loan of $1.5 million at 5.4% annual interest rate was made to RH Holdings Management (HK) Limited from June 1, 2019, to May 31, 2020.

NOTE 6 – DEFERRED COST

As of March 31, 2020, deferred cost of $510,617 represents the financing costs which the Company paid to third-parties for the coming financing. 

F-21

NOTE 7 – PREPAYMENTS, RECEIVABLES AND OTHER ASSETS

Prepayments, receivables and other assets consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Receivable from a third-party company	$	3,530,675	$	-
Staff IOU		943,718		670,619
Others		144,347		36,718
Total	$	4,918,740	$	707,337

In June 2019, Taizhou Suxuantang entered into a limited partnership agreement with Huangshan Panjie Investment Management Co., Ltd. (the “Fund”). The company is committed to contribute $7 million (RMB50 million) into the Fund in two installments, with one installment of $3.5 million (RMB 25 million) made on June 14, 2019, and the second installment of $3.5 million (RMB 25 million) to be made no later than October 31, 2019.

In June 2020, the Company agreed with the Fund, the General Partner and other limited partners to withdraw the installment of $3.5 million (RMB 25 million) made on June 14, 2019. The company received payment of $2.8 million (RMB 20 million) on June 30, 2020 and expects to receive the rest by the end of October 2020.

The Staff IOU is a short-term petty cash which should be paid off within one year.

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Machinery	$	638,660		$	658,043
Electric equipment		144,436			138,338
Office equipment		74,797			78,917
Vehicles		182,563			122,969
Leasehold improvement		1,559,152			906,060
Total property plant and equipment, at cost		2,599,608			1,904,327
Less: accumulated depreciation		(1,025,006	)		(745,429	)
Total property, plant and equipment, net	$	1,574,602		$	1,158,898

Depreciation expense were $323,852 and $174,020 for year ended March 31, 2020 and 2019, respectively.

F-22

NOTE 9 – INTANGIBLE ASSETS, NET

Intangible assets consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Trademark	$	42,982		$	45,350
Software		33,768			35,629
Total intangible assets, at cost		76,750			80,979
Less: accumulated amortization		(26,698	)		(19,883	)
Total intangible assets, net	$	50,052		$	61,096

Amortization expense were $7,985 and $6,967 for year ended March 31, 2020 and 2019, respectively.

NOTE 10 – CONSTRUCTION IN PROCESS

Construction in process consist of the following the following as of March 31, 2020 and 2019:

	March 31, 2020		March 31, 2019
Factory	$	148,372	$	129,453
Workshop		-		519,782
Retail outlet		180,000		-
	$	328,372	$	649,235

NOTE 11 – BANK LOANS 

Bank loans consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Car loans – current portion	$	43,902	$	27,817

	As of March 31,
	2020		2019
Car loans – non-current portion	$	36,511	$	41,706

Two car loans of $70,613 at 12% annual interest rate and $48,017 at 9.5% annual interest rate were valid from October 1, 2018 to September 30, 2021 and from July 1, 2019 to June 30, 2022, respectively. Both cars were pledged as collateral for loans until full settlement.

F-23

NOTE 12 – CONVERTIBLE NOTES

PIPE Transaction

On April 16, 2019, the company entered into certain securities purchase agreement with certain unaffiliated institutional investors relating to a private placement of (1) Senior Convertible Notes in the aggregate principal amount of $15 million, consisting of (i) a Series A Note in the principal amount of $10 million, and (ii) a Series B Note in the principal amount of $5 million and (2) warrants to purchase such amount of shares of the company’s ordinary shares equal to 50% of the shares issuable upon conversion of the Notes, exercisable for a period of five years at an exercise price of $8.38, for consideration consisting of (i) a cash payment of $10,000,000, and (ii) a secured promissory note payable by the Investors to the Company in the principal amount of $5 million.

Material Terms of the Convertible Notes:

● The aggregate principal amount of the Series A Notes is $10,000,000 and the Series B Notes is $5,000,000. All of the aggregate principal amount of the Series B Notes will constitute Restricted Principal. If an Investor prepays any amount under such Investor’s Investor Note, an equal amount of the Restricted Principal becomes unrestricted principal under such Investor’s Series B Note. The amount raised by the Company upon closing of the PIPE transaction was $10,000,000 from Series A Notes.

● The expiration date of Notes and warrant shall be October 2, 2020 and May 2, 2023 respectively. The aggregate redemption amount of the Notes shall be redeemed in installments on or before the expiration date.

● The interest rate on the Convertible Notes is eight percent (8%) per annum. In the event of default, the Interest Rate shall be increased to eighteen percent (18%) per annum.

● The initial fixed conversion price will be $8.38 per share, subject to reduction and adjustment for stock splits, stock dividends, and similar events.

● During an Event of Default Redemption Right Period the Investor may convert all, or any part of, the Conversion Amount into Ordinary Shares at the Alternate Conversion Price.

● The Alternate Conversion Price is the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, (ii) 80% of the volume-weighted average price (“VWAP”) of the Ordinary Shares as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, (iii) 80% of the VWAP of the Ordinary Shares as of the Trading Day of the delivery or deemed delivery of the applicable Conversion Notice and (iv) 80% of the price computed as the quotient of (I) the sum of the VWAP of the Ordinary Shares for each of the three (3) Trading Days with the lowest VWAP of the Ordinary Shares during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (II) three (3) (such period, the “Alternate Conversion Measuring Period”).

● The aggregate number of Series A and Series B warrant shares to be converted on expiration is 596,658 and 298,330 shares respectively.

F-24

NOTE 12 – CONVERTIBLE NOTES (CONTINUED)

In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the equity component and warrants value representing the conversion option was $2,549,392 (equity component $436,626, warrants value $2,112,766). Equity component was determined by deducting the fair value of the liability component from the par value of the original Convertible Notes. Warrants value was determined with the Black Scholes model. Equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Convertible Notes.

Debt issuance costs related to the original Convertible Notes comprised of commissions paid to third party placement agent, lawyers, and warrants value of $3,753,816. The Company allocated the total amount incurred to the liability and equity components of the original Convertible Notes based on their relative values. Issuance costs attributable to the liability component were $3,491,413 and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were $262,403 and netted with the equity component in stockholders’ equity of $699,029 and warrant value of $2,112,766.

Entry into Forbearance Agreements in Connection with the Event of Default Redemption Notices

On July 23 and 29, 2019, the company received from the investors an Event of Default Redemption Notice claimed that the company failed to timely make the instalment payment and elected to effect the redemption of $14,318,462.62 comprising in aggregate the entire principal amount, accrued and unpaid Interest. In addition, demand for the company to purchase the Series A Warrant issued for the Event of Default Black Scholes Value of not less than $1,208,384.07 was made.

On December 13, 2019, after negotiation with the Investors, the company entered into certain Forbearance and Amendment Agreements with each Investor and agreed to redeem the Series A Notes for an aggregate redemption price of $10,939,410 in installments as set forth in the Forbearance Agreement. Concurrently with the execution of the Forbearance Agreement, the Investors and the Company have entered into the Lock-Up Agreements, Leak-Out Agreements and Mutual Releases.

F-25

NOTE 12 – CONVERTIBLE NOTES (CONTINUED)

Material Terms of the Agreements

Upon the execution of the Forbearance Agreements, the Investor shall Net all Restricted Principal outstanding under the Series B Note against the amounts outstanding under the Investor Note, after which the Investor Note, the Series B Note and the Series B Warrant shall no longer remain outstanding.

The Investors agreed, among other things, to the following:

● to forbear from (i) taking any action to enforce their Redemption Notice with respect to certain existing defaults, and (ii) issuing any new demand for redemption of the Series A Note on the basis of certain additional defaults that the aggregate daily dollar trading volume of the Company’s ordinary shares does not exceed $1,500,000, and that the volume weighted average price of the Company’s ordinary shares on any two trading days during the thirty trading day period immediately preceding such date of determination fails to exceed $2.14;

● not to exercise the Series A Warrant during the Forbearance Period;

● to return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company’s payment of the full Forbearance Redemption Amounts;

● to execute and deliver to the Company certain lock-up agreements with respect to the Pre-Delivered Shares, certain mutual release and to execute and deliver to the Company the Leak-Out Agreement;

● not to make any hedge, swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Pre-Delivered Shares;

● to not sell, dispose or otherwise transfer, directly or any Ordinary Shares issued if such sale exceed 20% of the daily composite trading volume of the Ordinary Shares.

In consideration for the above, the Company agreed to the followings:

● the Company shall (I) pay to each Investor $500,000 on or prior to December 16, 2019, and (II) commencing on January 24th 2020, redeem the Series A Notes for an aggregate redemption price of $10,939,410;

● if the Company fails to pay any New Installment Amount within 5 days of the applicable New Installment Date, the Investor may convert the applicable New Installment Amount as an Alternate Conversion and the Leak-Out Agreement being disregarded for such conversions;

● the Company agreed to adjust the exercise price of the Series A Warrant from $8.38 to $2.50;

● the Company shall cause all restrictive legends on the Pre-Delivered Shares to be removed and delivery of un-legended Pre-Delivery Shares into the Investor’s custodian’s account pursuant to the DWAC instructions set forth therein.

In connection with this forbearance, the Company accounted for as a debt extinguishment as the terms of the Convertible Notes are significantly modified. The Company modified the principle of the Convertible Notes to $10,939,410 and record an extinguishment loss of $5,625,916, within the amount the Company paid to forbear the debt of $11,939,410 (modified principle of the Convertible Notes of $10,939,410, initial forbearance fee of $1,000,000), in excess of its net carrying value of $6,055,648 (principal outstanding $7,886,294, unamortized issuance cost $1,830,645), at the time of the debt extinguishment.

In accounting for the modified Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the equity component representing the conversion option was $247,476. Equity component was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. Equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the new Convertible Notes.

Forbearance costs related to the Convertible Notes comprised of commissions paid to third party placement agent and lawyers. The Company allocated the total amount incurred to the liability and equity components of the forbearance based on their relative values. Costs attributable to the liability component were $429,604 and will be amortized to interest expense using the effective interest method over the contractual term. Costs attributable to the equity component were $10,370 and netted with the equity component in stockholders’ equity of $257,846. 

F-26

NOTE 12 – CONVERTIBLE NOTES (CONTINUED)

Net carrying amount of the liability component Convertible Notes dated as of March 31, 2020 was as follows:

	Principal outstanding		Unamortized issuance cost			Net carrying value
Convertible Notes - short-term	$	6,828,050		(184,587	)	$	6,643,463

Net carrying amount of the equity component of the Convertible Notes as of March 31, 2020 was as follows:

	Amount allocated to conversion option		Issuance cost			Equity component, net
Convertible Notes – equity portion	$	956,875		(272,773	)	$	684,102

Amortization of issuance cost, debt discount and interest cost for the year ended March 31, 2020 were as follows:

	Issuance costs and debt discount		Convertible note interest		Total
Convertible Notes	$	2,519,762		902,149	$	3,421,910

The effective interest rate to derive the liability component fair value is 26.73% for the Convertible Notes.

F-27

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 $51,125 and $27,411, respectively, were recorded in Inventory on the Consolidated Balance Sheets as of March 31, 2020 and 2019.

NOTE 14 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Accrued payroll and welfare	$	393,740	$	219,867
Other payable for leasehold improvements		1,428,073		119,535
Accrued professional service expenses		127,787		187,444
Other current liabilities		287,705		164,676
Total	$	2,237,305	$	691,522

As of March 31, 2020 and 2019, the balances of other current liabilities $287,705 and $164,676, respectively, represented amounts due to suppliers for operating expenses and to staff who paid for operating expenses on behalf of the Company.

NOTE 15 – SHAREHOLDERS’ EQUITY

Ordinary shares 

The Company is authorized to issue unlimited shares of $0.001 par value common stock. On July 4, 2017 and October 20, 2017, the Company issued common stocks of an aggregate of 20,000,000 shares of 0.001 par value to thirteen shareholders, three among whom together hold 100% shares of Suxuantang and over 50% shares of SXT.

On December 31, 2018, the Company completed the closing of its initial public offering of 2,506,300 ordinary shares at a public offering price of $4.00 per ordinary share. On January 3, 2019, the Company sold an additional 39,975 ordinary shares at the public offering price of $4.00 per share in a second closing. The total gross proceeds from the initial public offering is approximately $10.2 million before underwriting commissions and offering expenses.

On January 10, 2019, the Underwriter exercise the warrants in connection with the initial public offering and 160,426 shares were newly issued. 

Ordinary shares issued for convertible notes settlement

For the year ended March 31, 2020, 11,961,006 ordinary shares were issued with a fair value of $5,455,350 for convertible notes principal and interest partial settlement.

According to the Forbearance Agreements (see Note 12), the Company issued and delivered 4,000,000 un-legended Pre-Delivery Shares into the investor’s custodian’s account as collateral in December 2019. The investors will return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company’s payment of the full Forbearance Redemption Amounts. The Company expects to fully collect the Pre-Delivery Shares. 

F-28

NOTE 16 – 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 16.5% for the year ended March 31, 2020, 2019 and 2018. The Company’s subsidiaries and VIE incorporated in China were subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25% for the year ended March 31, 2020 and 2019, except for Taizhou Suxuantang where the applicable income tax rate is 15% for the year ended March 31, 2020 and 2019, since it was qualified as a high-technology company from January 1, 2018 to December 31, 2020. In addition, the Company is allowed to deduct additional 75% of its research and development expenses against its pre-tax income as a high-technology company.

For the year ended March 31, 2020, 2019 and 2018, income tax expenses consisted of the following: 

	For the years ended March 31,
	2020			2019			2018
Current income tax provision		-		$	259,955		$	445,954
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total income tax expense (benefit)		(101,722	)	$	252,232		$	440,103

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 15%, 15% and 25% to its income from operations before income taxes for the year ended March 31, 2020, 2019 and 2018, respectively.

	For the years ended March 31,
	2020			2019			2018
Income (Loss) before income taxes		(10,389,594	)	$	1,791,459		$	1,627,684
Income tax expense (benefit) at the PRC statutory rate		(1,558,439	)		268,719			406,921
Non-deductible expenses		1,598,226			20,334			39,033
Deductible research and development expenses		(39,787	)		(29,098	)		-
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total		(101,722	)	$	252,232		$	440,103

(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. Significant components of the Company’s deferred income tax assets and liabilities consist of follows:

	As of March 31,
	2020		2019
Tax loss carry forward	$	90,434	$	-
Allowance for doubtful account		15,598		10,038
Impairment provision for inventory		6,807		3,466
Total	$	112,839	$	13,504

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 year ended March 31, 2020, 2019 and 2018 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.

F-29

NOTE 17 – 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, Interim Chief Financial Officer and Director of the Company
Jianping Zhou	Father of major shareholders of the Company and two of Taizhou Suxuantang shareholders, controlling shareholder of Taizhou Suxuantang from its inception to May 8, 2017
Jianbin Zhou	Father of major shareholders of the Company and one of Taizhou Suxuantang shareholders
Taizhou Jiutian Pharmaceutical Co. Ltd.	An entity controlled by Jianping Zhou
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

Related party balances

a. the amounts due from related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Jiangsu Health Pharmaceutical Investment Co., Ltd.	$	768,341	$	-
Total	$	768,341	$	-

The amounts due from related parties represented unsecured, due on demand and interest free borrowings to its related parties by the Company. The Company expects full payment from Jiangsu Health Pharmaceutical Investment Co., Ltd. by the end of September 2020.

b. the amounts due to related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Feng Zhou	$	-	$	1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd.		-		939,521
Jianbin Zhou		-		745
Total	$	-	$	2,483,094

Related party transactions

For the years ended March 31, 2020 and 2019, the Company generated revenues of $251,749 and $8,942, respectively, from sales transactions with Taizhou Jiutian Pharmaceutical Co. Ltd.

For the years ended March 31, 2020 and 2019, the Company generated revenue of $52,643 and $24,315 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese Medicine Clinic.

For the year ended March 31, 2020 and 2019, the Company generated revenues of $26,037 and $178,898 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese hospital Co. Ltd.

For the year ended March 31, 2020, the Company repaid $3,180,171 to Feng Zhou, Jiangsu Health Pharmaceutical Investment Co., Ltd. and Jianbin Zhou.

For the year ended March 31, 2019, the Company borrowed from Feng Zhou and Jiangsu Health Pharmaceutical Investment Co., Ltd in the amount of $2,482,349, which is non-interest bearing and repaid on demand.

The Company entered into certain financial guarantee agreements with two banks to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.’s bank borrowings. The Company is obliged to pay on behalf 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. (see Note 18) 

F-30

NOTE 18 – GUARANTEE

On April 23, 2019, the Company entered into a financial guarantee agreement with Jiangsu Changjiang Commercial Bank to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.’s bank borrowing of $423,681 (equivalent of RMB 3,000,000) for one-year period. On May 8, 2019 the Company entered a financial guarantee agreement with Bank of Nanjing to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.’s borrowing of $494,294 (equivalent of RMB 3,500,000) for a one-year period. The Company is obliged to pay on behalf 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.

NOTE 19 – COMMITMENT

The following table sets forth the Company’s operating lease commitment as of March 31, 2020:

Office Rental	For the year ended March 31,
2021	$	70,670
2022		70,670
2023		70,670
2024		70,670
2025		70,670
Thereafter		194,342
Total	$	547,692

From time to time, 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, 2020 and 2019. As of March 31, 2020 and 2019, Company had no pending legal proceedings. 

F-31

NOTE 20 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

The Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in the PRC is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC. The Company’s subsidiaries are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory reserves account until the accumulative amount of such reserves reaches 50% of its respective registered capital. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

In addition, the Company’s operations and revenues are conducted and generated in the PRC, all of the Company’s revenues being earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into USD.

Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party. The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiary exceed 25% of the consolidated net assets of the Company.

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. The Company’s investment in subsidiary is stated at cost plus equity in undistributed earnings of subsidiaries.

F-32

NOTE 20 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)

CHINA SXT PHARMACEUTICALS, INC.

PARENT COMPANY BALANCE SHEETS (IN U.S. DOLLARS)

(Unaudited)

	As of March 31,
	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	6,988		$	3,544,162
Advance to suppliers		-			106,500
Loan receivable and accrued interest		1,567,500			-
Deferred cost		50,000			-
Amounts due from related parties		13,820,530			5,668,256
Prepayments, receivables and other current assets		230,266			133,400
Total Current Assets		15,675,284			9,452,318
Construction in progress		180,000			-
Deferred tax assets, net		1,282			1,282
Total Non-current Assets		181,282			1,282
TOTAL ASSETS	$	15,856,566		$	9,453,600
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term convertible note		6,643,463			-
Amounts due to related parties		1,530,450			1,530,450
Accrued expenses and other liabilities		134,308			-
Total Current Liabilities		8,308,221			1,530,450
TOTAL LIABILITIES		8,308,221			1,530,450
COMMITMENTS AND CONTINGENCIES		-			-
SHAREHOLDERS’ EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)		34,667			22,706
Additional paid-in capital		17,161,346			7,950,782
Retained earnings/(Deficits)		(9,647,668	)		(50,338	)
Total Shareholders’ Equity		7,548,345			7,923,150
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,856,566		$	9,453,600

F-33

NOTE 20 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)

CHINA SXT PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF INCOME/(Loss) AND COMPREHENSIVE INCOME/(Loss)
(IN U.S. DOLLARS, EXCEPT SHARES DATA)

(Unaudited)

	For the years ended March 31,
	2020			2019			2018
Operating expenses:
General and administrative		(614,495	)		(50,338	)		-
Total operating expenses		(614,495	)		(50,338	)		-
Operating Income (Loss)		(614,495	)		(50,338	)		-
Other income (expenses):
Interest income(expense), net		(3,354,301	)		-			-
Loss on debt extinguishment		(5,625,916	)		-			-
Other income (expenses), net		(2,618	)		-			-
Total other income (expenses), net		(8,982,835	)		-			-
Income (Loss) before income taxes		(9,597,330	)		(50,338	)		-
Income tax recovery (provision)		-			-			-
Net income (loss)		(9,597,330	)		(50,338	)		-
Comprehensive income (loss)		(9,597,330	)		(50,338	)		-
Earnings per ordinary share
Basic and diluted	$	(0.388	)	$	(0.002	)	$	-
Weighted average number of ordinary shares outstanding
Basic and diluted		24,728,655			20,568,630			20,000,000

F-34

NOTE 20 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)

CHINA SXT PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)

(Unaudited)

	For the years ended March 31,
	2020			2019			2018
Cash Flows from Operating Activities:
Net income (loss) from operations	$	(9,597,330	)	$	(50,338	)	$	-
Adjustments to reconcile net income to net cash provided by operating activities:
Interest accrued on loan receivable		(67,500	)		-			-
Convertible note - Accretion of financing cost		3,421,910			-			-
Convertible note - Extinguishment Loss		5,625,916			-			-
Changes in operating assets and liabilities:
Advance to suppliers		106,500			(106,500	)		-
Prepayments, receivables and other assets		(96,866	)		(133,400	)		-
Accrued expenses and other current liabilities		190,870			-			-
Net cash provided by (used in) operating activities		(416,500	)		(290,238	)		-
Cash Flows from Investing Activities:
Construction in process		(180,000	)		-			-
Loan receivable		(1,500,000	)		-			-
Net cash provided by (used in) investing activities		(1,680,000	)		-			-
Cash Flows from Financing Activities:
Amounts due from related parties		(8,152,274	)		(4,186,544	)		-
Amounts due to related parties		-			1,530,450			-
Proceeds from original convertible note		10,000,000			-			-
Payment of original convertible note issuance cost		(1,641,050	)		-			-
Repayment of original convertible notes		(1,157,376	)		-			-
Payment of the forbearance cost of original convertible note		(439,974	)		-			-
Deferred financing costs		(50,000	)
Net proceeds from initial public offering		-			6,490,494			-
Net cash provided by (used in) financing activities		(1,440,674	)		3,834,400			-
Net increase in cash, cash equivalents and restricted cash		(3,537,174	)		3,544,162			-
Cash, cash equivalents and restricted cash at the beginning of year		3,544,162			-			-
Cash, cash equivalents and restricted cash at the end of year	$	6,988		$	3,544,162		$	-

(a) Basis of presentation

The financial information has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the Company used the equity method to account for investment in its subsidiaries.

The Company records its investment in its subsidiaries under the equity method of accounting. Such investment is presented on the balance sheets as “Investment in subsidiaries” and share of their income (loss) as “Equity earnings (losses) of subsidiaries” in the statements of comprehensive income (loss).

Each of the Company’s PRC subsidiaries has restrictions on its ability to pay dividends to the Company under PRC laws and regulations. The subsidiaries did not pay any dividends to the Company for the years presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted by reference to the consolidated financial statements.

(b) Commitments

The Company does not have any significant commitments or long-term obligations as of any of the periods presented, except for those disclosed in the consolidated financial statements (notes 19).

F-35

NOTE 21 – SUBSEQUENT EVENTS

Guarantee

On April 23, 2020, the Company signed a financial guarantee agreement with Jiangsu Changjiang Commercial Bank for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $409,558 (equivalent of RMB 2,900,000) for one-year period. On May 18, 2020 the Company signed a financial guarantee agreement with Bank of Nanjing for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $480,172 (equivalent of RMB 3,400,000) for a one-year period. The Company is obliged to pay on behalf the related party the principal, interest, penalty and other expenses if Taizhou Jiutian Pharmaceutical Co. Ltd. defaults in payment.

Other receivable from Huangshan Panjie Investment Management Co., Ltd.

In June 2020, the Company agreed with Huangshan Panjie Investment Management Co., Ltd., the General Partner and other limited partners to withdraw the installment of $3.5 million (RMB 25 million) made on June 14, 2019. The company received payment of $2.8 million (RMB 20 million) on June 30, 2020 and expects to receive the rest by the end of October 2020.

Issuance of shares for convertible notes principal and interest partial settlement

From April 1, 2020 to July 30, 2020, 25,469,183 ordinary shares were issued for convertible notes principal and interest partial settlement.

Loan receivable from RH Holdings Management (HK) Limited

The Company did not renew the loan $1.5 million made to RH Holdings Management (HK) Limited upon maturity date May 31, 2020 and expects to fully collect the loan by the end of October 2020.

COVID-19

The Company’s operations are affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Company’s business has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent.

From late January 2020 to the middle of March 2020, the Company had to temporarily suspend our manufacturing activities due to government restrictions. During the temporary business closure period, our employees had very limited access to our manufacturing facilities and the shipping companies were not available and as a result, the Company experienced difficulty delivering our products to the customers on a timely basis. In addition, due to the COVID-19 outbreak, some of the customers or suppliers may experience financial distress, delay or default on their payments, reduce the scale of their business, or suffer disruptions in their business due to the outbreak. Any increased difficulty in collecting accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.

In light of the current circumstances and available information, the Company estimated that for the period from April to June 2020, the Company’s revenues could be approximately 26% lower as compared to the same period of last year.

As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to have slowed down and most provinces and cities have resumed business activities under the guidance and support of the government. However, there is still significant uncertainty regarding the possibility of a second wave of infections, and the breadth and duration of business disruptions related to COVID-19, which could continue to have material impact to the Company’s operations.

F-36

EX-1.2

Exhibit 1.2

BVI COMPANY NUMBER: 1949664

TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

Memorandum and Articles of Association of

China SXT Pharmaceuticals, Inc.

Incorporated on the 4th day of July, 2017

Amended and restated on the 30th day of March 2020

INCORPORATED IN THE BRITISH VIRGIN ISLANDS

China SXT Pharmaceuticals, Inc.

TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004

Amended and Restated
Memorandum of Association

Amended and restated on the 30th day of March 2020

1. Company Name

The name of the Company is China SXT Pharmaceuticals, Inc. (the “Company”).

2. Change of Name

2.1. The Company may by Resolution of Shareholders or Resolution of Directors resolve to change its name and make application to the Registrar of Corporate Affairs in the approved form to give effect to such change of name in accordance with section 21 of the Act.

3. Type of Company

3.1. The Company is a company limited by Shares.

4. Registered Office and Registered Agent

4.1. The first registered office of the Company will be situated at the offices of Sertus Incorporations (B VI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.

4.2. The first registered agent of the Company will be Sertus Incorporations (BVI) Limited of Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.

4.3. The Company may by Resolution of Shareholders or by Resolution of Directors, change the location of its registered office or change its registered agent.

4.4. Any change of registered office or registered agent will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal practitioner in the British Virgin Islands acting on behalf of the Company.

4.5. The registered agent shall:

(a) act on the instructions of the Directors if those instructions are contained in a Resolution of Directors and a copy of the Resolution of Directors is made available to the registered agent; and

(b) recognise and accept the appointment or removal of a Director or Directors by Shareholders.

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5. Objects

For the purposes of section 9(4) of the Act, there are no limitations on the business that the Company may carry on.

6. Capacity and Powers of Company

6.1. In accordance with section 27 of the Act, the Company is a legal entity in its own right separate from its Shareholders and continues in existence until it is dissolved.

6.2. Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective of corporate benefit:

(a) full capacity to carry on or undertake any business or activity, do any act or enter into any transaction; and

(b) for the purposes of paragraph (a), full rights, powers and privileges.

7. Limited Liability

7.1. The liability of a Shareholder to the Company, as Shareholder, is limited to:

(a) any amount unpaid on a Share held by the Shareholder;

(b) (where applicable) any liability expressly provided for in this Memorandum or the Articles; and

(c) any liability to repay a distribution under section 58(1) of the Act.

7.2. A Shareholder has no liability, as a Shareholder, for the liabilities of the Company.

8. Number and Classes of Shares

8.1. The Company is authorised to issue an unlimited number of Shares, consisting of a single Class of ordinary Shares with a par value of US$0.001 each, consisting of such numbers and such Series, as the Directors may determine.

8.2. The Company may issue Fractional Shares. A Fractional Share shall have the corresponding fractional rights, obligations and liabilities of a whole Share of the same Class. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated.

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9. Rights, Privileges, Restrictions and Conditions of Shares

9.1. All ordinary Shares shall (in addition and subject to any rights, privileges, restrictions and conditions attaching to any of the Shares as provided for elsewhere in this Memorandum or in the Articles):

(a) have the right to one vote on any Resolution of Shareholders;

(b) have equal rights with regard to dividends; and

(c) have equal rights with regard to distributions of the surplus assets of the Company.

9.2. For the purposes of section 9 of the Act, any rights, privileges, restrictions and conditions attaching to any of the Shares as provided for in the Articles are deemed to be set out and stated in full in this Memorandum.

10. Variation of Class Rights and Privileges

10.1. If at any time the Company is authorised to issue Shares of different Classes of Shares, the rights attached to any Class (unless otherwise provided by the terms of issue of the Shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of at least one third of the issued Shares of that Class or with the sanction of a resolution passed at a meeting of the holders of such Class of Shares by the holder or holders of at least one third of such Shares present in person or by proxy at such meeting. To the extent not inconsistent with this paragraph, the provisions of the Articles relating to meetings of Shareholders shall apply to every such meeting of the holders of one Class of Shares except that the necessary quorum shall be one person holding or representing by proxy at least one third of the issued Shares of the Class and that any holder of Shares of the Class present in person or by proxy may demand a poll.

10.2. The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of the issue of the Shares of that Class, be deemed to be varied by the creation or issue of further Shares, whether ordinary or preferred ranking pari passu therewith.

10.3. For the purposes of a separate Class meeting, the Directors may treat two or more or all the Classes of Shares as forming one Class of Shares if the Directors consider that such Class of Shares would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes of Shares.

11. Changes to Authorised Shares

11.1. The Company may by a Resolution of Shareholders or by a Resolution of Directors amend the Memorandum to increase or reduce the number of Shares the Company is authorised to issue.

11.2. The Company may by a Resolution of Directors or of the Shareholders:

(a) divide the Shares, including issued Shares, of a Class or Series into a larger number of Shares of the same Class or Series; or

(b) combine the Shares, including issued Shares, of a Class or Series into a smaller number of Shares of the same Class or Series,

provided, however, that where Shares with a par value are divided or combined under (a) or (b) of this Article, the aggregate par value of the new Shares must be equal to the aggregate par value of the original Shares.

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12. Registered Shares

12.1. The Company shall issue registered Shares only.

12.2. The Company is not authorised to issue bearer Shares, convert registered Shares to bearer Shares or exchange registered Shares for bearer Shares.

13. Transfer of Shares

Subject to the provisions of this Memorandum and the Articles, Shares in the Company may be transferred.

14. Amendment of Memorandum and Articles of Association

14.1. The Company may amend its Memorandum or Articles by a Resolution of Shareholders or by a Resolution of Directors except that the Directors have no power to amend the Memorandum or the Articles:

(a) to restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles;

(b) to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend the Memorandum or the Articles;

(c) in circumstances where the Memorandum or the Articles cannot be amended by the Shareholders; or

(d) to change the provisions of paragraphs 9.1 and/or 10.1 of the Memorandum.

15. Effect of Memorandum and Articles of Association

15.1. In accordance with section 11(1) of the Act, this Memorandum and the Articles are binding as between:

(a) the Company and each Shareholder of the Company; and

(b) each Shareholder of the Company.

15.2. In accordance with section 11(2) of the Act, the Company, the board of Directors, each Director and each Shareholder of the Company has the rights, powers, duties and obligations set out in the Act except to the extent that they are negated or modified, as permitted by the Act, by this Memorandum or the Articles.

15.3. In accordance with section 11(3) of the Act, this Memorandum and the Articles have no effect to the extent that they contravene or are inconsistent with the Act.

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16. Definitions

Words used in this Memorandum and not defined herein shall have the meanings set out in the Articles.

We, Sertus Incorporations (BVI) Limited of Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands in our capacity as registered agent for the Company hereby apply to the Registrar of Corporate Affairs for the incorporation of the Company this 4th day of July, 2017.

Incorporator

Sgd: Alyson Parker / Ann Penn

Alyson Parker / Ann Penn

Authorised Signatories

Sertus Incorporations (BVI) Limited

6

China SXT Pharmaceuticals, Inc.

TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004

Amended and Restated
Articles of Association

Amended and restated on the 30th day of March 2020

1. Preliminary

1.1. The following shall comprise the Articles of Association of China SXT Pharmaceuticals, Inc. (the “Company”).

1.2. In these Articles:

(a) the following terms shall have the meanings set opposite if not inconsistent with the subject context:

“Act”	means the BVI Business Companies Act, 2004, including any modification, amendment, extension, re-enactment or renewal thereof and any regulations made thereunder;
“Articles”	means these articles of association of the Company, as amended and/or restated from time to time;
“Auditors”	means the persons for the time being performing the duties of auditors of the Company;
“Chairman”	means the Chairman of the board of Directors from time to time;
“Class” or “Classes”	means any class or classes of Shares as may from time to time be issued by the Company;
“Clearing House”	means a clearing house recognised by the laws of a jurisdiction in which the Shares of the Company (or depository receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system in such jurisdiction.
“Company”	means the above-named Company;
“debenture”	includes debenture stock, mortgages, bonds and any other securities of the Company whether constituting a charge on the assets of the Company or not;”

Designated Stock Exchange”	means the Nasdaq Global Market or such other exchange or interdealer system upon which the Company’s securities are listed or quoted;
“Directors”	means the persons for the time being occupying the position of directors of the Company, or as the case may be, the directors assembled as a board or as a committee thereof, and the term a “Director” shall be construed accordingly and shall, where the context admits, include an alternate Director;
“Distribution”	means, in relation to a distribution by the Company to a Shareholder: the direct or indirect transfer of an asset, other than Shares, to or for the benefit of the Shareholder; or the incurring of a debt to or for the benefit of the Shareholder, in relation to the Shares held by the Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of Shares, a transfer of indebtedness or otherwise, and includes a dividend;
“Fractional Share”	means a fraction of a Share;
“Issue Price”	means the total consideration payable for the issue of Shares including for the avoidance of doubt both the par value and any premium payable;
“Memorandum”	means the memorandum of association of the Company, as amended and/or restated from time to time;
“Month”	means calendar month;

“NASDAQ” means the National Association of Securities Dealers Automated Quotations;

“Officer”	means any natural person or corporation appointed by the Directors as an officer of the Company and may include a Chairman of the board of Directors, a vice Chairman of the board of Directors, a president, one or more vice presidents, secretaries and treasurers and such other officers as may from time to time be deemed desirable but shall exclude any auditor appointed by the Company;
“person”	means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires;
“Register of Directors”	means the register of the Directors of the Company required to be kept pursuant to the Act;

2

“Register of Members”	means the register of the Shareholders of the Company required to be kept pursuant to the Act;
“Registered Agent”	means the registered agent of the Company from time to time, as required by the Act;
“Registered Office”	means the registered office of the Company from time to time, as required by the Act;
“Resolution of Directors”	means, subject to the provisions of this Memorandum and the Articles, a resolution:

(i) approved at a duly convened and constituted meeting of Directors or of a committee of Directors, by the affirmative vote of a simple majority of the Directors present at such meeting who voted and did not abstain; or

(ii) consented to in writing or by telex, telegram, cable, facsimile or other written electronic communications by a simple majority of the Directors (or a sole Director) or a simple majority of the members of a committee of Directors (or a sole member), as the case may be, in one or more instruments each signed by one or more of the Directors and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed,

and where a Director is given more than one vote in any circumstances, he shall in the circumstances be counted for the purposes of establishing a majority, by the number of votes he casts;

“Resolution of Shareholders” subject to the provisions of this Memorandum and the Articles, a resolution:

(i) passed by a simple majority, or such larger majority as may be specified in the Memorandum or these Articles or is required by law, of the votes attaching to the Shares of such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a meeting of Shareholders of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Shareholder is entitled; or

(ii) approved in writing by more than 50 percent, or such larger majority as may be specified in the Memorandum or these Articles, of such Shareholders entitled to vote at a meeting of Shareholders of the Company (or a sole Shareholder) in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;

3

“Seal”	means the common seal of the Company and includes every duplicate seal;
“Secretary”	includes an assistant secretary and any persons appointed to perform the duties of the secretary of the Company;
“Series”	means a division of a Class as may from time to time be issued by the Company
“Share”	means a ahare in the Company of any or all Classes or Series as the context may require, and shall, where the context so permits, includes fractions of a Share in the Company. For the avoidance of doubt in these Articles the expression “Share” shall include any Fractional Share;
“Shareholder”	means a person whose name is entered as a holder of one or more Shares in the Register of Members;
“signed”	means bearing a signature or representation of a signature affixed by mechanical means;
“Solvency Test”	means the solvency test prescribed by section 56 of the Act and set out in Articles;
“Treasury Share”	means Shares that were previously issued but were purchased, redeemed or otherwise acquired by the Company and not cancelled.

(b) words importing the singular include the plural and vice versa;

(c) words importing any gender include all genders;

(d) words importing persons include corporations as well as any other legal or natural person;

(e) reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force;

(f) expressions referring to writing shall, unless the contrary intention appears, be construed as including references to printing, lithography, photography and other modes of representing or reproducing words in a visible form and” include all modes of representing or reproducing words in visible form, including in the form of an electronic communication or record;

4

(g) references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced;

(h) reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case;

(i) any phrase commencing with the words “including”, “include”, “in particular” or any similar expression shall be deemed to be followed by the words “without limitation;

(j) reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing or partly one and partly another;

(k) headings are inserted for reference only and shall be ignored in construing the Articles;

(l) subject as aforesaid, any words or expressions defined in the Act shall, if not inconsistent with the subject or context hereof, bear the same meanings as in the Articles;

(m) the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative; and

(n) where any period to lapse under the provisions of these Articles is counted by a number of days, the first day of such period counted shall be the day immediately after the notice is given or deemed to be given and the period of such notice shall be deemed to be complete and final at the end of the last day of such period. The relevant then permitted actions shall be effected the day immediately following such last day.

2. Commencement of Business

2.1. The business of the Company may be commenced at any time after incorporation as the Directors shall see fit, notwithstanding that part only of its Shares may have been allotted.

2.2. The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company.

2.3. The Company, in addition to its Registered Office, may establish and maintain such other offices, places of business and agencies in the British Virgin Islands and elsewhere as the Directors may from time to time determine.

3. Amendment of Articles of Association

Subject to any other provision of these Articles, these Articles may be amended in the manner prescribed in the Memorandum, so long as such alteration does not disparately impact the members’ voting rights.

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4. Issue of Shares

4.1. Subject to the Act, the Memorandum and these Articles, all Shares for the time being unissued shall be under the control of the Directors who may:

(a) issue, allot and dispose of the same to such persons, in such manner, on such terms as they may from time to time determine; and

(b) grant options with respect to such Shares and issue warrants or similar instruments with respect thereto; and,

for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued.

4.2. Subject to the Memorandum and these Articles and provided that a corresponding amendment is made to paragraph 9 of the Memorandum to reflect the resulting Classes of Shares, the Directors may authorise the division of Shares into any number of Classes and Series and the different Classes and Series shall be authorised, established and designated (or re-designated as the case may be) as determined by a Resolution of Directors or by a Resolution of Shareholders.

4.3. The pre-emption rights set out in section 46 of the Act shall not apply to the Company.

4.4. The Company may insofar as may be permitted by law, pay a commission in any form to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. The Company may also pay such brokerage as may be lawful on any issue of Shares.

4.5. The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason.

4.6. The Company may treat the holder of a Share as named in the Register of Members as the only person entitled to:

(a) exercise any voting rights attaching to the Share;

(b) receive notices;

(c) receive a Distribution; and

(d) exercise other rights and powers attaching to the Share.

4.7. The Company may, subject to the terms of the Act, the rules of the applicable Designated Stock Exchange on which the Shares are then traded, and these Articles, issue bonus Shares, partly paid Shares and nil paid Shares.

4.8. Shares may, subject to the terms of the Act and these Articles, be issued for consideration in any form or a combination of forms, including money, a promissory note or other written obligation to contribute money or property, real property, personal property (including goodwill and know how), services rendered or a contract for future services. Shares may be issued for such amount of consideration paid in such manner as the Directors may from time to time by Resolution of Directors determine, except that in the case of Shares issued with a par value, the consideration paid or payable shall not be less than the par value.

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4.9. When the Issue Price in respect of the Share has been paid or the Share has been issued as a bonus Share, that Share is for all purposes fully paid, but where the Share is not fully paid on issue or is a bonus Shares, the Share is subject to forfeiture in the manner prescribed in these Articles.

4.10. Before issuing Shares for a consideration which is in whole or in part other than money, the Directors shall by a Resolution of Directors state:

(a) the amount to be credited for the issue of the Shares; and

(b) their determination of the reasonable present cash value of any non-money consideration for the issue; and

(a) that, in their opinion, the present cash value of the non-cash consideration (and cash consideration, if any) is not less than the amount to be credited for the issue of the Shares.

1.2. A Share issued by the Company upon conversion of, or in exchange for, another Share or a debt obligation or other security in the Company, shall be treated for all purposes as having been issued for cash equal to the value of the consideration received or deemed to have been received by the Company in respect of the other Share, debt obligation or security.

2. Treasury Shares

2.1. Shares that the Company purchases, redeems or otherwise acquires pursuant to these Articles shall be cancelled immediately or held as Treasury Shares in accordance with the Act and Article 2.2 below.

2.2. Shares may only be purchased, redeemed or otherwise acquired and held as Treasury Shares where, when aggregated with the number of Shares of the same Class already held by the Company as Treasury Shares, the total number of Treasury Shares does not exceed 50 percent of the Shares of that Class previously issued by the Company, excluding those Shares that have been cancelled.

2.3. Where and for so long as Shares are held by the Company as Treasury Shares, all rights and obligations attaching to such Shares are suspended and shall not be exercised by or against the Company.

2.4. Treasury Shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by Resolution of Directors determine.

3. Redemption, Purchase and Surrender of Shares

3.1. Subject to any limitations or procedures imposed by the Act, the Memorandum and these Articles, including the Solvency Test where applicable, the Company may purchase, redeem or otherwise acquire and hold its own Shares in such manner and upon such other terms as the Directors may agree with the relevant Shareholder(s) save that the Company may not purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or Articles to purchase, redeem or otherwise acquire the Shares without their consent.

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3.2. The Company may acquire its own fully paid Share or Shares for no consideration by way of surrender of the Share or Shares to the Company by the Shareholder holding the Share or Shares. Any surrender of a Share or Shares under this Article 3.2 shall be in writing and signed by the Shareholder holding the Share or Shares.

3.3. Sections 60 (Process for acquisition of own Shares), 61 (Offer to one or more Shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply to the Company.

3.4. The purchase, redemption or other acquisition by the Company of one or more of its own Shares is deemed not to be a distribution where:

(a) the Company redeems the Share or Shares pursuant to a right of a Shareholder to have his Shares redeemed or to have his Shares exchanged for money or other property of the Company;

(b) the Company purchases, redeems or otherwise acquires the Share or Shares by virtue of the provisions of section 176 or 179 of the Act ; or

(c) the company acquires its own fully paid Share or Shares pursuant to section 59(1A) of the Act.

3.5. The Directors may, when making a payment in respect of the redemption or purchase of Shares, make such payment in cash or in specie (or partly in one and partly in the other).

3.6. Upon the date of redemption or purchase of a Share, the holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive (i) the price therefor and (ii) any dividend which had been declared in respect thereof prior to such redemption or purchase being effected) and accordingly his name shall be removed from the Register of Members with respect thereto and the Share shall be cancelled.

4. Non-Recognition of Trusts

Except as required by law or otherwise provided by these Articles, no person shall be recognised by the Company as holding any Shares upon any trust, and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or any interest in any fractional part of a Share or any other rights in respect of any Share except an absolute right to the entirety thereof in the registered holder or in the case of a Share warrant or bearer Share in the bearer of the warrant or Share certificate for the time being.

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5. Certificates for Shares

5.1. Share certificates shall generally not be issued, unless the Directors determine to so issue either generally or in a specific circumstance. A certificate may be issued under Seal or executed in such other manner as the Directors may prescribe. Provided that in respect of a Share or Shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all such holders.

5.2. Certificates representing Shares shall be in such form as shall be determined by the Directors. Such certificates shall be signed by such person or persons as are authorised from time to time by the Directors or by the Articles. All certificates for Shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the Shares represented thereby are issued, with the number of Shares and date of issue, shall be entered in the Register of Members. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of Shares shall have been surrendered and cancelled. Notwithstanding the foregoing, if a Share certificate is defaced, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and the payment of out of pocket expenses of the Company incurred in investigating evidence as the Directors think fit.

6. Joint Ownership of Shares

If several persons are registered as joint holders of any Shares they shall be severally as well as jointly liable for any liability in respect of such Shares, but the first named upon the Register of Members shall, as regards service or notices, be deemed the sole owner thereof. Any of such persons may give effectual receipt for any dividend or other distribution.

7. Lien

7.1. The Company shall have a first and paramount lien and charge on every Share for all monies, whether presently payable or not, called or payable at a fixed time in respect of that Share, and the Company shall also have a first and paramount lien and charge on all Shares standing registered in the name of a Shareholder (whether solely or jointly with others) for all monies, liabilities or engagements presently owing by him or his estate to the Company either alone or jointly with any other person, whether a Shareholder or not; but the Directors may at any time declare any Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien and charge, if any, on a Share shall extend to all dividends or other monies payable in respect thereof. The registration of a transfer of any such Share shall operate as a waiver of the Company’s lien and charge (if any) thereon.

7.2. The Company may sell, in such manner as the Directors think fit, any Shares on which the Company has a lien and charge, but no sale shall be made unless a sum in respect of which the lien and charge exists is presently payable, nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien and charge exists as is presently payable, has been given to the registered holder or holders for the time being of the Share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy.

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7.3. To give effect to any such sale the Directors may authorise some person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

7.4. The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien and charge exists as is presently payable, and the residue, if any, shall (subject to a like lien and charge for sums not presently payable as existed upon the Shares before the sale) be paid to the person entitled to the Shares prior to the sale.

8. Transfer of Shares

8.1. Subject to these Articles, Shares are transferred by a written instrument of transfer, PROVIDED HOWEVER, where Shares are listed on a Designated Stock Exchange, the shares may be transferred without the need for a written instrument of transfer if the transfer is carried out in accordance with the laws, rules, procedures and other requirements applicable to shares registered on the Designated Stock Exchange and subject to the Company’s Memorandum and the Articles and the Act and any regulations thereunder.

8.2. Every instrument of transfer shall be provided to the Company by sending it to its Registered Office for registration, accompanied by the certificate (if any) covering the Shares to be transferred and such other evidence as the Directors may require to prove the title of the transferor to, or his right to transfer, the Shares.

8.3. The instrument of transfer of any Share (which need not be under Seal) shall be signed by or on behalf of the transferor and, unless the Share is fully paid up or the transferee otherwise consents or agrees thereto, by or on behalf of the transferee. The transferor shall be deemed to remain the holder of the Share until the name of the transferee is entered in the Register of Members in respect thereof.

8.4. Subject to such of the restrictions of the Articles as may be applicable, any Shareholder may transfer all or any of his Shares by instrument in writing in any usual or common form or any other form which the Directors may approve. Upon every transfer of Shares the certificate held by the transferor shall be given up to be cancelled and shall forthwith be cancelled accordingly and a new certificate shall be issued without charge to the transferee in respect of the Shares transferred to him, and if any of the Shares included in the certificate so given up shall be retained by the transferor a new certificate in respect thereof shall be issued to him without charge. The Company shall also retain the transfer.

8.5. The Directors may, in their absolute discretion and without assigning any reason therefor, refuse to register any transfer of any Share, whether or not it is a fully paid up Share as to Issue Price.

8.6. Without limitation, the Directors may decline to recognise any instrument of transfer if:

(a) the instrument of transfer is not accompanied by the certificate covering Shares to which it relates, and/or such other evidence as the Directors may require to prove the title of the transferor to, or his right to transfer, the Shares; or

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(b) the instrument of transfer is in respect of more than one class of Share.

8.7. If the Directors refuse to register a transfer they shall within two Months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal.

8.8. The registration of transfers may be suspended at such times and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than thirty days in any year.

9. Transmission of Shares

9.1. In case of the death of a Shareholder, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the Shares but nothing herein contained shall release the estate of a deceased holder from any liability in respect of any Share which had been held by him solely or jointly with other persons.

9.2. Any person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder may, upon such evidence being produced as may from time to time be properly required by the Directors to show his title to the Share, elect either to be registered himself as holder of the Share or to make such transfer of the Share to such other person nominated by him as the aforesaid Shareholder could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by that Shareholder before his death or bankruptcy, as the case may be.

9.3. A person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the Share, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by Shareholding in relation to meetings of the Company; provided always that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within fourteen days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.

10. Forfeiture of Shares

10.1. Where Shares are not fully paid or deemed fully paid on issue or have been issued subject to forfeiture, the following provisions shall apply.

10.2. Written notice of a call specifying a date for payment to be made in respect of a Share shall be served on a Shareholder who defaults in making payment in respect of that Share.

10.3. The aforesaid notice shall name a further day (not earlier than the expiration of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the Shares in respect of which the payment is was made will be liable to be forfeited.

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10.4. If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited and cancelled, by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared or other monies due in respect of the forfeited Shares and not actually paid before forfeiture.

10.5. The Company is under no obligation to refund any moneys to the member whose Shares have been forfeited and cancelled pursuant to Article 10.4 immediately above.

10.6. A person whose Shares have been forfeited and cancelled shall cease to be a Shareholder in respect of the Shares forfeited and cancelled and is discharged from any further obligation to the Company with respect to those Shares. The details of the forfeiture, with the date thereof, shall forthwith be made in the Register of Members.

11. Untraceable Members

11.1. Without prejudice to the rights of the Company in this Article Error! Reference source not found., the Company may cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two (2) consecutive occasions. However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.

11.2. The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a member who is untraceable, but no such sale shall be made unless:

(a) all cheques or warrants in respect of dividends of the shares in question, being not less than three (3) in total number, for any sum payable in cash to the holder of such shares sent during the relevant period in the manner authorized by these Articles have remained uncashed;

(b) so far as it is aware at the end of the relevant period, the Company has not at any time during the relevant period received any indication of the existence of the member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; and

(c) the Company, if so required by the rules governing the listing of the shares on the Designated Stock Exchange, has given notice to, and caused advertisement in newspapers to be made in accordance with the requirements of the Designated Stock Exchange of its intention to sell such shares in the manner required by the Designated Stock Exchange, and a period of three (3) months or such shorter period as may be allowed by the Designated Stock Exchange has elapsed since the date of such advertisement.

For the purpose of the foregoing, the “relevant period” means the period commencing twelve (12) years before the date of publication of the advertisement referred to in paragraph (c) of this Article and ending at the expiry of the period referred to in that paragraph.

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11.3. To give effect to any such sale the Board may authorize some person to transfer the said shares and an instrument of transfer signed or otherwise executed by or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and upon receipt by the Company of such net proceeds. No trust shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article 54 shall be valid and effective notwithstanding that the Member holding the Shares sold is dead, bankrupt or otherwise under any legal disability or incapacity.

12. Meetings of Shareholders

12.1. The Directors may, whenever they think fit, convene a meeting of Shareholders. An AGM shall be held at such date and time as may be determined by the directors.

12.2. Shareholders’ meetings shall also be convened on the requisition in writing of any Shareholder or Shareholders entitled to attend and vote at a meeting of the Shareholders of the Company on the matter for which the meeting is being requested holding at least thirty percent (or such lesser percentage that may be accepted by the directors in their absolute discretion) of outstanding Shares entitled to vote in the Company deposited at the Registered Office specifying the objects of the meeting for a date no later than twenty one days from the date of deposit of the requisition signed by the requisitionists, and if the Directors do not convene such meeting for a date not later than forty five days after the date of such deposit, the requisitionists themselves may convene the Shareholders’ meeting in the same manner, as nearly as possible, as that in which Shareholders’ meetings may be convened by the Directors, and all reasonable expenses. For the avoidance of doubt, in accordance with the Act the directors are not able to affix a greater percentage requirement for the purposes of a requisition of a Shareholder meeting.

12.3. If at any time there are no Directors, any two Shareholders (or if there is only one Shareholder then that Shareholder) entitled to vote at meetings of the Shareholders of the Company may convene a Shareholders’ meeting in the same manner as nearly as possible as that in which Shareholders’ meetings may be convened by the Directors.

12.4. At least seven days’ notice in writing counting from the date service is deemed to take place as provided in these Articles specifying the place, the day and the hour of the meeting and the general nature of the business to be considered at the meeting, shall be given in the manner hereinafter provided to such persons as are, under these Articles, entitled to receive such notices from the Company.

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12.5. A meeting of Shareholders held in contravention of the notice requirements set out above is valid if Shareholders holding not less than a ninety percent majority of the:

(a) total number of Shares entitled to vote on all matters to be considered at the meeting; or

(b) votes of each Class of Shares where Shareholders are entitled to vote thereon as a Class together with not less than an absolute majority of the remaining votes,

have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute a waiver.

12.6. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting.

13. Proceedings at Meetings of Shareholders

13.1. No business shall be transacted at any Shareholders’ meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. Save as otherwise provided by these Articles, a quorum shall consist of the holder or holders present in person or by proxy entitled to exercise at least one third of the voting rights of the shares of each class or series of shares entitled to vote as a class or series thereon and the same proportion of the votes of the remaining shares entitled to vote thereon. If the Company has only one Shareholder, that only Shareholder shall have full power to represent and act for the Company in all matters and in lieu of minutes of a meeting shall record in writing and sign a note of memorandum of all matters requiring a resolution of members.

13.2. If, within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholder(s), shall be dissolved.

13.3. If the Directors decide to make such facility available for a specific Shareholders’ meeting or all Shareholders’ meetings of the Company, participation in any Shareholders’ meeting may be by means of a telephone or by other electronic means provided that all Persons participating in such meeting are able to hear each other and such participation shall be deemed to constitute presence in person at the meeting.

13.4. The Chairman, if any, of the board of Directors shall preside as Chairman at every Shareholders’ meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting.

13.5. If at any meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the Shareholders present shall choose one of their number to be Chairman of the meeting.

13.6. The Chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.

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14. Votes of Shareholders

14.1. At any meeting of members 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 ten (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.

14.2. 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.

14.3. 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.

14.4. 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.

14.5. 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 be entitled to a casting vote.

14.6. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and in such manner as the Chairman of the meeting directs and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. Any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll.

14.7. In the case of joint holders:

(a) if two or more persons hold Shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member;

(b) if only one of them is present in person or by proxy, he may vote on behalf of all of them; and

(c) if two or more are present in person or by proxy, they must vote as one.

14.8. A Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote in respect of Shares carrying the right to vote held by him, whether on a show of hands or on a poll, by the person or persons appointed by that court, and any such person or persons may vote by proxy.

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14.9. No person shall be entitled to vote at any Shareholders’ meeting unless he is registered as a Shareholder in the Register of Members on the date of such meeting and unless all calls or other sums presently payable by him in respect of Shares of the Company have been paid.

14.10. No objection shall be raised to the qualifications of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the meeting, whose decision shall be final and conclusive.

14.11. On a poll or on a show of hands votes may be given either personally or by proxy. On a poll, a Shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all votes he uses the same way.

14.12. An action that may be taken by the Shareholders at a meeting may also be taken by a Resolution of Shareholders consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any such resolution is adopted otherwise than by the unanimous written consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders not consenting to such resolution. The consent may be in the form of counterparts in like form each counterpart being signed by one or more Shareholders.

14.13. The provisions of the Memorandum and the Articles as regards Shareholders’ meetings and Resolutions of Shareholders shall apply mutatis mutandis to any meeting or resolution of the holders of a Class or Series of Shares.

15. Proxies

15.1. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder of the Company. Deposit or delivery of a form of appointment of a proxy does not preclude a Shareholder from attending and voting at the meeting or at any adjournment of it.

15.2. The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting, provided that the Chairman of the meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment pursuant to this Article.

15.3. The instrument appointing a proxy may be in any form acceptable to the Directors and may be expressed to be for a particular meeting and/or any adjournment thereof or generally until revoked.

15.4. The instrument appointing a proxy shall be deemed to confer authority to demand and to join in demanding a poll.

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15.5. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed or the transfer of the Share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office before the commencement of the meeting or adjourned meeting at which the proxy is used.

16. Corporations Acting by Representatives at Meetings

Any Shareholder or Director that is a corporation or other entity may by resolution of its directors or other governing body authorise such natural person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or Series or of the Directors or of a committee of Directors, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director.

17. Directors

17.1. Except during the period from the date of incorporation until the date on which the first Directors are appointed by the first Registered Agent of the Company pursuant to Article Error! Reference source not found., the minimum number of Directors shall be one.

17.2. Subject to Article 17.1 above, the Company may by a Resolution of Shareholders or a Resolution of Directors from time to time fix the maximum and minimum number of Directors to be appointed but unless such numbers are fixed as aforesaid the minimum number of Directors shall be one and the maximum number of Directors shall be unlimited.

17.3. Subject to these Articles, the Company may appoint any natural person or corporation to be a Director. The following are disqualified from appointment as a Director:

(a) an individual who is under eighteen years of age;

(b) a person who is a disqualified person within the meaning of section 260(4) of the Insolvency Act (or any successor provision);

(c) a person who is a restricted person within the meaning of section 409 of the Insolvency Act (or any successor provision);

(d) an undischarged bankrupt; and

(e) any other person disqualified by the Memorandum and these Articles.

17.4. The Directors, or if the Shares (or depository receipts therefore) are listed or quoted on a Designated Stock Exchange, and if required by the Designated Stock Exchange, any committee thereof, may, by a Resolution of Directors, fix the emoluments of Directors with respect to services to be rendered in any capacity to the Company.

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17.5. The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors may also be paid travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the Directors or any committee of the Directors or Shareholders’ meetings of the Company or in connection with the business of the Company or the discharge of their duties as a Director, or receive a fixed allowance in respect thereof as may be determined by the Directors from time to time or a combination of partly of one such method and partly the other. The Directors may provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any existing Director or any Director who has held but no longer holds any executive office or employment with the Company or with any body corporate which is or has been a subsidiary of the Company or a predecessor in business of the Company or of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit.

17.6. A Director or alternate Director may be or become a Director or other officer of, or otherwise interested in, any company promoted by the Company or in which the Company may be interested as Shareholder or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by him as a Director or officer of, or from his interest in, such other company unless the Company otherwise directs in Shareholders’ meeting.

17.7. The Directors may by a Resolution of Directors award special remuneration to any Director undertaking any special work or services which in the opinion of the Directors are beyond his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or attorney-at-law to the Company, or otherwise serves it in a professional capacity, shall be in addition to his remuneration as a Director.

17.8. A Director or alternate Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director; provided that nothing herein obtained shall authorise a Director or alternate Director or his firm to act as Auditor of the Company.

17.9. An action that may be taken by the Directors or a committee of Directors at a meeting may also be taken by a resolution of Directors or a committee of Directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by a simple majority of the Directors or a simple majority of the members of the committee, as the case may be, without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more Directors.

18. Alternate Directors

18.1. Any Director may appoint as an alternate any other director or any other person who is not disqualified for appointment as a director to exercise the appointing director’s powers, and carry out the Director’s responsibilities, in relation to the taking of decisions by the directors in the absence of the Director. An alternate director has the same rights as the Director appointing him in relation to any Directors’ meeting and any written resolution circulated for written consent. Any exercise by the alternate director of the Director’s powers in relation to the taking of decisions by the Directors, is as effective as if the powers were exercised by the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. Where the alternate is a Director he shall be entitled to have a separate vote on behalf of the Director he is representing in addition to his own vote.

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18.2. An alternate director is liable for his own acts and omissions as an alternate director. An alternate director has no power to appoint an alternate, whether of the Director appointing him or of the alternate director; and does not act as an agent of or for the Director.

18.3. The appointment of an alternate director must be in writing and written notice of the appointment must be given by the Director appointing him to the Company as soon as reasonably practicable.

18.4. The Director may, at any time, terminate the alternate’s appointment. The termination of the appointment of an alternate director does not take effect until written notice of the termination has been given to the Company. Once termination of appointment takes effect, the former alternate directors shall not be an Officer.

19. Powers and Duties of Directors

19.1. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may exercise all the powers of the Company save where inconsistent with the Act or these Articles PROVIDED HOWEVER that no regulations made by the Company in Shareholders’ meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. The powers given by this Article shall not be limited by any special power given to the Directors by the Articles and a meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors.

19.2. Without limitation, the Directors may exercise all the powers of the Company to borrow or raise monies, and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock, and other securities whether outright or as security for any debt liability or obligation of the Company or of any third party.

19.3. Section 175 of the Act shall not apply to the Company. The Directors have the power to sell, transfer, lease, exchange or otherwise dispose of the assets of the Company, without restriction.

19.4. All cheques, promissory notes, drafts, bills of exchange or other negotiable instruments, and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Directors shall from time to time determine by resolution.

19.5. The Directors may, by a Resolution of Directors, designate one or more committees of Directors, each consisting of one or more Directors, in accordance with section 110 of the Act.

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19.6. Each committee of Directors has such powers of the Directors, including the power to affix the Seal and to appoint a sub-committee and delegate its powers to that sub-committee, as are set forth in the Resolution of Directors establishing the committee of Directors, except that no committee of Directors may be delegated any power:

(a) to amend the Memorandum or these Articles;

(b) to designate committees of Directors;

(c) to delegate powers to a committee of Directors;

(d) to appoint or remove Directors;

(e) to appoint or remove agents;

(f) to approve a plan of merger, consolidation or arrangement;

(g) to make a declaration of solvency for the purposes of section 198(1)(a) of the Act or approve a liquidation plan; or

(h) to make a determination under section 57(1) of the Act that the company will, immediately after a proposed distribution, satisfy the Solvency Test.

19.7. The Directors shall cause minutes to be made in books provided for the purpose:

(a) of all appointments of Officers made by the Directors;

(b) of the names of the Directors or their alternates present at each meeting of the Directors and of any committee of the Directors;

(c) of all resolutions and proceedings at all meetings of the Company, and of the Directors, and of committees of Directors.

19.8. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependents and make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

20. Conflict of Interest

20.1. No Director or Officer shall be disqualified by his office from contracting and/or dealing with the Company as vendor, purchaser or otherwise; nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company in which any Director or officer shall be in any way interested be or be liable to be avoided; nor shall any Director or officer so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director or officer holding that office or the fiduciary relationship thereby established; provided that disclosure of interest by the Director is made in accordance with Article 20.2.

20.2. A Director 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 Directors. Where a Director’s interest in a transaction is not disclosed in accordance with this Article prior to the transaction being entered into, unless it is not required to be disclosed in accordance with Article 20.4 below, the transaction is voidable by the Company.

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20.3. Notwithstanding the previous Article, a transaction entered into by the Company is not voidable 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, and such determination of fair value is made on the basis of the information known to the Company and the interested Director at the time that the transaction was entered into.

20.4. A Director is not required to disclose and interest pursuant to Article 20.2 above, if the transaction is between the Company and the Director and the transaction or proposed transaction is or is to be entered into in the ordinary course of the Company’s business and on usual terms and conditions.

20.5. A Director who is interested in a transaction entered into or to be entered into by the Company may:

(a) vote on or consent to a Resolution of Directors regarding the transaction or a matter relating to the transaction;

(b) attend a meeting of Directors at which the transaction or a matter relating to the transaction arises and be included among the Directors present at the meeting for the purpose 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 or a matter relating to the transaction.

21. Appointment and Removal of Directors

21.1. The first Director(s) shall be appointed by the first Registered Agent of the Company within six Months of the date of its incorporation, and thereafter, a Director may be appointed by Resolution of Shareholders or by a Resolution of Directors. Any appointment may be either to fill a casual vacancy or as an addition to the existing Directors but so that the total number of Directors (exclusive of alternate Directors) shall not at any time exceed the number fixed in accordance with these Articles.

21.2. Any Director so appointed shall, if still a Director, retire at the next annual general meeting after his appointment and be eligible to stand for election as a Director at such meeting.

21.3. For so long as shares are listed on a Designated Stock Exchange, the Directors shall include at least such number of independent directors as applicable law, rules or regulations or the Designated Stock Exchange rules require as determined by the Board.

21.4. No person shall be appointed as a director or alternate director of the Company unless he has consented in writing to be a director or alternate director.

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21.5. Each Director shall hold office for the term, if any, fixed by the Resolution of Shareholders or the Resolution of Directors, as the case may be, appointing him. In the case of a Director who is an individual the term of office of a Director shall terminate on the Director’s death, resignation or removal. In the case of a Director who is not an individual, the bankruptcy of a Director or the appointment of a liquidator, administrator or receiver of a corporate Director shall terminate the term of office of such Director.

21.6. A Director may be removed by a Resolution of Directors or by a Resolution of Shareholders. Sections 114(2) and 114(3) of the Act shall not apply to the Company.

22. Appointment at Annual General Meeting

22.1. Unless re-appointed pursuant to the provisions of Article 21 or removed from office pursuant to the provisions of Article 21.6, each Director shall be appointed for a term expiring at the next- following annual general meeting of the Company. At any such annual general meeting, Directors will be elected by Ordinary Resolution. At each annual general meeting of the Company, each Director elected at such meeting shall be elected to hold office for one-year.

23. Resignation of Directors

23.1. A Director may at any time resign office by giving to the Company notice in writing or, if permitted pursuant to the notice provisions, in an Electronic Record delivered in either case in accordance with those provisions.

23.2. Unless the notice specifies a different date, the Director shall be deemed to have resigned on the date that the notice is delivered to the Company.

24. Termination of Directors

24.1. A Director may retire from office as a Director by giving notice in writing to that effect to the Company at the registered office, which notice shall be effective upon such date as may be specified in the notice, failing which upon delivery to the registered office.

24.2. Without prejudice to the provisions in these Articles for retirement, a Director’s office shall be terminated forthwith if the Director:

(a) is prohibited by law from serving as Director;

(b) becomes bankrupt or makes any arrangement or composition with his creditors;

(c) dies or is found to be or becomes of unsound mind;

(d) resigns his office by notice in writing to the Company or otherwise pursuant to any agreement between the Company and such Director;

(e) is removed from office in accordance with Article 21.6 above;

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(f) is requested by all the other Directors (numbering at least two) to resign; or

(g) if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the Board without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office.

25. Proceedings of Directors

25.1. The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, the Chairman shall have a second or casting vote. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. Every Director shall receive notice of a board meeting.  Notice of a board meeting is deemed to be duly given to a Director if it is given to him personally or by word of mouth or by electronic communication to an address given by him to the Company for that purpose or sent in writing to him at his last known address or other address given by him to the Company for that purpose.  A Director or his alternate may waive the requirement that notice be given to the Director of a meeting of the board of Directors or committee of the Directors, either prospectively or retrospectively.

25.2. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two (2), a Director and his appointed alternate Director being considered only one person for this purpose, PROVIDED ALWAYS that if there shall at any time be only a sole Director the quorum shall be one. One person may represent more than one Director by alternate and for the purposes of determining whether or not a quorum is present and voting each appointment of an alternate shall be counted.

25.3. If the Company shall have only one Director the provisions herein contained for meetings of the Directors shall not apply but such sole Director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the Shareholders and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes

25.4. The continuing Directors or sole continuing Director may act notwithstanding any vacancy in their body but, if and so long as their number is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a Shareholders’ meeting of the Company, but for no other purpose.

25.5. The Directors may elect a Chairman of their meetings and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting.

25.6. A committee may elect a Chairman of its meetings; if no such Chairman is elected, or if at any meeting the Chairman is not present the members present may choose one of their number to be Chairman of the Meeting.

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25.7. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote.

25.8. All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be.

25.9. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (a person being an alternate Director for one or more Directors being entitled to sign such resolution on behalf of each appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held.

25.10. Any Director or Directors or any committee thereof may participate in any meeting of the board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. All business transacted in this way by the Directors or a committee of Directors is for the purpose of the Articles deemed to be validly and effectively transacted at a meeting of the Directors or of a committee of Directors although fewer than two Directors or alternate Directors are physically present at the same place.

25.11. A Director who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Company immediately after the conclusion of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

25.12. If and for so long as there is a sole Director of the Company:

(a) he may exercise all powers conferred on the Directors by the Articles by any means permitted by the Articles or the Act;

(b) the quorum for the transaction of business is one; and

(c) all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise).

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26. Managing Director

26.1. The Directors may from time to time appoint one or more of their body to the office of managing director for such period and on such terms as they think fit and, subject to the terms of any agreement entered into in any particular case, may revoke such appointment. A Director so appointed shall be subject to the same provisions as regards removal and disqualification as the other Directors and his appointment shall be automatically determined if he ceases for any cause to be a Director.

26.2. A managing director shall receive such remuneration (whether by way of salary, commission or participation in profits, or partly in one way and partly in another) as the Directors may determine.

26.3. The Directors may entrust to and confer upon a managing director any powers, authorities and discretions exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers and may from time to time revoke, alter, withdraw or vary all or any of such powers.

27. Presumption of Assent

A Director who is present at a meeting of the board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

28. Management

28.1. The Directors may from time to time provide for the management of the affairs of the Company in such manner as they think fit and the provisions contained in the three next following Articles shall be without prejudice to the general powers conferred by this Article.

28.2. The Directors from time to time and at any time may establish any committees, boards or agencies, may appoint any persons to be members of such committees or boards, may appoint any managers or agents, and may fix their remuneration. Any committee so formed shall in the exercise of powers so delegated conform to any regulations that may be imposed on it by the Directors.

28.3. The Directors from time to time and at any time may delegate to any such committee, board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such board, or any of them, to fill up any vacancy therein, and to act notwithstanding vacancies, and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit, and the Directors may at any time remove any person so appointed, and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Directors and that power, authority or discretion has been delegated by the Directors to a committee, the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee.

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28.4. The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under the Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him.

28.5. Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them.

29. Officers

29.1. The Directors may, by a Resolution of Directors, appoint any person, including a person who is a Director, to be an Officer or agent of the Company. Officers of the Company may consist of a president, one or more vice presidents, a Secretary, one or more assistant secretaries, a treasurer, one or more assistant treasurers and such other officers as the Directors may from time to time think necessary and all such officers shall perform such duties as may be prescribed by the Resolution of Directors.

29.2. Officers shall hold office until their successors are elected or appointed but any officer may be removed at any time by a Resolution Directors. If any office becomes vacant the Directors may fill the same. Any person may hold more than one of these offices and no officer need be a Shareholder or Director.

29.3. The Resolution of Directors appointing an agent pursuant to Article 29.1 above may authorise the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

29.4. Every Officer or agent of the Company has such powers and authority of the Directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the Resolution of Directors appointing the Officer or agent, except that no Officer or agent has any power or authority with respect to the matters requiring a Resolution of Directors under the Act or these Articles or are otherwise not permitted to be delegated under the Act.

30. The Seal

30.1. The Company shall have a Seal. The Directors shall provide for the safe custody of the Seal. An imprint of the Seal shall be kept at the office of the Registered Agent.

30.2. The Seal shall only be used with the authority of the Directors or a committee of the Directors authorised by a Resolution of Directors in that regard. Every instrument to which the Seal shall be affixed shall be signed by a Director or other person authorised by the Directors for that purpose. Notwithstanding the provisions hereof, a Director, Secretary or other officer may affix the Seal to returns, lists, notices, certificates or any other documents required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the British Virgin Islands or elsewhere under his signature alone.

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30.3. The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall only be used with the authority of the Directors or a committee of the Directors authorised by a Resolution of Directors in that regard.

30.4. An instrument under seal or deed may be executed by the Company in any manner permitted by the Act.

31. Distributions

31.1. The Company may, from time to time, by a Resolution of Directors authorise a Distribution by the Company at such time, and of such amount, to any Shareholders, as it thinks fit if they are satisfied, on reasonable grounds, that immediately after the Distribution, the Company satisfies the following solvency test:

(a) the value of the Company’s assets will exceed its liabilities; and

(b) the Company will be able to pay its debts as they fall due.

31.2. The Directors may, before making any Distribution, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set apart as a reserve fund upon such securities as they may select.

31.3. Notice of any Distribution that may have been authorised shall be given to each Shareholder in the manner hereinafter mentioned and all Distributions unclaimed for three years after having been declared may be forfeited by Resolution of Directors for the benefit of the Company.

31.4. No Distribution shall bear interest as against the Company and no Distribution shall be authorised or made on Treasury Shares.

31.5. If several persons are registered as joint holders of any Shares, any one of such persons may give receipt for any Distribution made in respect of such Shares.

31.6. The Directors may deduct from any distribution payable to any Shareholder all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

31.7. The Directors may declare that any distribution be paid wholly or partly by the distribution of specific assets and in particular of paid-up Shares, debentures or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Shareholders upon the footing of the value so fixed in order to adjust the rights of all Shareholders and may vest any such specific assets in trustees as may seem expedient to the Directors.

31.8. Any distribution payable in cash may be paid by cheque or warrant sent through the post directed to the registered address of the holder, or, in the case of joint holders, to the holder who is first named on the Register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, distributions, bonuses or other monies payable in respect of the Shares held by them as joint holders.

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31.9. Distributions may be paid in any currency. The Directors may determine the basis of conversion.

31.10. Any distribution which cannot be paid to a Shareholder and/or which remains unclaimed after six Months from the date on which such distribution becomes payable may, in the discretion of the Directors, be paid into a separate account in the Company’s name, provided that the Company shall not be constituted as a trustee in respect of that account and the distribution shall remain as a debt due to the Shareholder. Any distribution which remains unclaimed after a period of six years from the date on which such distribution becomes payable shall be forfeited and shall revert to the Company.

32. Corporate Records and Registers

32.1. The Company shall keep such records and underlying documentation that:

(a) are sufficient to show and explain the Company’s transactions; and

(b) will at any time, enable the financial position of the Company to be determined with reasonable accuracy.

32.2. The Directors shall also cause the following corporate records to be kept:

(a) minutes of all meetings of Directors, Shareholders, committees of Directors, committees of Officers and committees of Shareholders; and

(b) copies of all resolutions consented to by Directors, Shareholders, Classes of Shareholders, committees of Directors, committees of Officers and committees of Shareholders.

32.3. The Company shall maintain at the Registered Office or at the office of the Registered Agent a register of all charges created by the Company showing:

(a) if the charge is a charge created by the Company, the date of its creation or, if the charge is an existing charge on property acquired by the Company, the date on which the property was acquired;

(b) a short description of the liability secured by the charge;

(c) a short description of the property charged;

(d) the name and address of the trustee for the security, or if there is no such trustee, the name and address of the chargee;

(e) unless the charge is a security to bearer, the name and address of the holder of the charge; and

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(f) details of any prohibition or restriction, if any, contained in the instrument creating the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge.

32.4. The Company shall keep a Register of Directors containing:

(a) the names and addresses of the persons who are Directors or who have been nominated as reserve directors of the Company;

(b) the date on which each person whose name is entered in the Register of Directors was appointed as a Director, or nominated as a reserve director, of the Company;

(c) the date on which each person named as a Director ceased to be a Director; and

(d) the date on which the nomination of any person nominated as a reserve director ceased to have effect.

32.5. The Register of Directors or a copy of it shall be kept at the office of the Registered Agent and the Company shall file a copy of such Register of Directors with the Registrar of Corporate Affairs for registration, where required by the Act.

32.6. The Directors shall keep, or cause to be kept, the original Register of Members in accordance with the Act, at such place as the Directors may from time to time determine and, in the absence of any such determination, the original Register of Members shall be kept either at the office of the Registered Agent or the office of the Company’s transfer agent.

32.7. The books, corporate records and underlying documentation shall be kept at the office of the Registered Agent or at such other place or places, within or outside the British Virgin Islands as the Directors think fit, and shall always be open to the inspection of the Directors.

32.8. Subject to the Act, he Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the books, corporate records and underlying documentation of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right of inspecting any records or underlying documentation of the Company except as conferred by the Act or other applicable law or authorised by a Resolution of Directors or by a Resolution of Shareholders.

32.9. Audited accounts relating to the Company’s affairs shall only be prepared if the Directors so determine, in which case the financial year end and the accounting principles will be determined by the Directors.

33. Audit

33.1. The Directors may appoint an Auditor or Auditors on such terms as the Directors determine who shall hold office until otherwise resolved.

33.2. Every Auditor shall have the right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

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33.3. Auditors shall at any time during their term of office, upon request of the Directors, make a report on the accounts of the Company in Shareholders’ meeting during their tenure of office.

33.4. Any Auditors of the Company appointed shall not be deemed to be Officers.

34. Fiscal Year

The fiscal year of the Company shall end on the 31^st day of December in each year unless the Directors prescribe some other period therefor.

35. Notices

35.1. A notice may be given by the Company to any Shareholder either personally or by sending it by courier, post, cable, telex, telefax or e-mail to him or to his registered address, or (if he has no registered address) to the address, if any, within or without the British Virgin Islands supplied by him to the Company for the giving of notice to him.

35.2. Where a notice is sent by courier, service of the notice shall be deemed to be effected by delivery of the notice to a courier company, and shall be deemed to have been received on the third day (not including Saturdays or Sundays or public holidays) following the day on which the notice was delivered to the courier. Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and to have been effected in the case of a notice of a meeting at the expiration of fourteen days after the letter containing the same is posted, and in any other case at the time at which the letter would be delivered in the ordinary course of post. Any letter sent to an address outside the British Virgin Islands shall be sent by courier or airmail.

35.3. Where a notice is sent by cable, telex, telefax or e-mail, service of the notice shall be deemed to be effected by properly addressing and sending such notice and to have been effected on the day received or, if such day is not a working day, on the next working day.

35.4. A notice may be given by the Company to the person or persons where the Company has been advised are entitled to a Share in consequence of the death or bankruptcy of a Shareholder by sending it through the post in prepaid letter addressed to them by name, or by the title of representatives of the deceased or trustee of the bankrupt, or by any like description, at the address, if any, within or without the British Virgin Islands supplied for that purpose by the persons claiming to be so entitled, or (until such an address has been supplied) by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.

35.5. A notice shall be sufficiently given by the Company to the joint holders of record of a Share by giving the notice to the joint holder first named on the Register of Members in respect of the Share.

30

35.6. Notice of every Shareholders’ meeting shall be given in any manner hereinbefore authorised to:

(a) every person shown as a Shareholder in the Register of Members subject, in each case, to the immediately preceding Article; and

(b) every person upon whom the ownership of a Share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Shareholder where the Shareholder but for his death or bankruptcy would be entitled to receive notice of the meeting.

35.7. No other person shall be entitled to receive notices of Shareholders’ meetings.

35.8. A Shareholder who is present, either in person or by proxy, at any meeting of the Company or of the holders of any class of Shares in the Company shall be deemed to have received notice of the meeting, and, where requisite, of the purpose for which it was called.

35.9. Every person who becomes entitled to any Share shall be bound by any notice in respect of that Share which, before his name is entered in the Register of Members, has been given to the person from whom he derives his title.

35.10. Subject to the rights attached to Shares, the Directors may fix any date as the record date for a dividend, allotment or issue. The record date may be on or at any time before or after a date on which the dividend, allotment or issue is declared, made or paid.

36. Voluntary Liquidation and Winding Up

36.1. The Company may voluntarily commence its liquidation and dissolution by appointing a voluntary liquidator in accordance with section 199 of the Act if:

(a) it has no liabilities; or

(b) it is able to pay its debts as they fall due and the value of its assets equals or exceeds its liabilities.

36.2. A voluntary liquidator may be appointed by a Resolution of Shareholders or, if the Company has never issued Shares, by a Resolution of Directors.

36.3. If the Company is to be liquidated, the liquidator shall apply the assets of the Company in such manner and order as he thinks fit in satisfaction of creditors’ claims.

36.4. Subject to any rights and restrictions for the time being attributed to any Class or Series, the assets available for distribution among the Shareholders shall then be applied in the following priority:

(a) first, in the payment to the Shareholders a sum equal to the par value of the Shares held by them; and

(b) second, subject to the rights attaching to Shares set out in the Memorandum, in the payment of any balance to the Shareholders of whole of the paid-up capital in respect of the Shares held by them.

31

36.5. If the Company shall be wound up and the assets available for distribution amongst the Shareholder as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be, subject to the rights attaching to Shares set out in the Memorandum, distributed so that, as nearly as may be, the losses shall be borne by the Shareholder in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the Shares held by them respectively. And if in a winding up the assets available for distribution amongst the Shareholders shall be more than sufficient to repay the whole of the capital at the commencement of the winding up, the excess shall be distributed amongst the Shareholders in proportion to the capital at the commencement of the winding up paid up on the Shares held by them respectively. But this Article is to be without prejudice to the rights of the holders of Shares issued upon special terms and conditions.

36.6. If the Company shall be wound up, the liquidator may divide amongst the Shareholder in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Shareholder or different classes of Shareholder. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Shareholder as the liquidator, with the like sanction, shall think fit, but so that no Shareholder shall be compelled to accept any Shares or other securities whereon there is any liability.

37. Indemnity

37.1. Every Director, Secretary, or other officer of the Company (including alternate directors and former directors and officers), any trustee for the time being acting in relation to the Company (including any nominee Shareholder holding Shares in the Company) and their heirs and personal representatives (each an “Indemnified person”) shall be entitled to be indemnified out of the assets of the Company against all actions, proceedings, costs, damages, expenses, claims, losses or liabilities which they or any of them may sustain or incur by reason of any act done or omitted in or about the execution of the duties of their respective offices or trusts or otherwise in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgement is given in his favour or in which he is acquitted except to the extent that any of the foregoing arise through his dishonesty.

37.2. The Company may only indemnify an Indemnified person if such person acted honestly and in good faith and in what the indemnifiable person believed to be in the best interests of the Company and, in the case of criminal proceedings, the indemnifiable person had no reasonable cause to believe that his conduct was unlawful.

37.3. The decision of the Directors as to whether the Indemnified person acted honestly and in good faith and in what the indemnifiable person believed to be in the best interests of the Company and, in the case of criminal proceedings, as to whether such person had no reasonable cause to believe that his conduct was unlawful, is in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved.

32

37.4. No Indemnified person shall be liable (a) for any loss, damage or misfortune whatsoever which may happen to or be incurred by the Company in the execution of the duties, powers, authorities or discretions of his office or in relation thereto, (b) for the acts, receipts, neglects, defaults or omissions of any other such Director or person or (c) by reason of his having joined in any receipt for money not received by him personally or (d) for any loss on account of defect of title to any property of the Company or (e) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (f) for any loss incurred through any bank, broker or other agent or (g) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on his part or (h) for any other loss or damage due to any such cause as aforesaid except to the extent that any of the foregoing arise through his dishonesty.

37.5. The Company shall advance to each Indemnified person reasonable attorneys’ fees and other costs and expenses incurred in connection with the defence of any action, suit, proceeding or investigation involving such Indemnified person for which indemnity will or could be sought. In connection with any advance of any expenses hereunder, the Indemnified person shall execute an undertaking to repay the advanced amount to the Company if it shall be determined by final judgment or other final adjudication that such Indemnified person was not entitled to indemnification pursuant to this Article. If it shall be determined by a final judgment or other final adjudication that such Indemnified person was not entitled to indemnification with respect to such judgment, costs or expenses, then such party shall not be indemnified with respect to such judgment, costs or expenses and any advancement shall be returned to the Company (without interest) by the Indemnified person.

37.6. The Directors, on behalf of the Company, may purchase and maintain insurance for the benefit of any Director or other officer of the Company against any liability which, by virtue of any rule of law, would otherwise attach to such person in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the Company.

38. Registration by Way of Continuation

38.1. The Company may by Resolution of Directors or by Resolution of Shareholders resolve to be registered by way of continuation in a jurisdiction outside the British Virgin Islands in the manner provided under those laws.

38.2. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Corporate Affairs to de-register the Company in the British Virgin Islands and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

39. Merger and Consolidation

The Company shall, in accordance with the Act, have the power to merge or consolidate with one or more companies, upon such terms as the Directors may determine.

40. Disclosure

The Directors and the officers including any secretary or assistant secretary and/or any its service providers (including the registered office provider for the Company), shall be entitled to disclose to any regulatory or judicial authority, or to any stock exchange on which the Shares may from time to time be listed, any information regarding the affairs of the Company including, without limitation, any information contained in the Register of Members and books of the Company.

33

We, Sertus Incorporations (BVI) Limited of Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands in our capacity as registered agent for the Company hereby apply to the Registrar of Corporate Affairs for the incorporation of the Company this 4th day of July, 2017.

Incorporator

Sgd: Alyson Parker/Ann Penn

Alyson Parker / Ann Penn 

Authorised Signatories 

Sertus Incorporations (BVI) Limited

34

EX-12.1

Exhibit 12.1

Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Feng Zhou, certify that:

1.	I have reviewed this annual report on Form 20-F of China SXT Pharmaceuticals, Inc. (the “Company”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	July 31, 2020
	/s/ Feng Zhou
Name:	Feng Zhou
Title:	Chief Executive Officer  (Principal Executive Officer)

EX-12.2

Exhibit 12.2

Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Feng Zhou, certify that:

1.	I have reviewed this annual report on Form 20-F of China SXT Pharmaceuticals, Inc. (the “Company”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: July 31, 2020

	/s/ Feng Zhou
Name:	Feng Zhou
Title:	Interim Chief Financial Officer (Principal Financial Officer)

EX-13.1

Exhibit 13.1

Certifications Pursuant to 18 U.S.C. Section 1350

Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of China SXT Pharmaceuticals, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the year ended March 31, 2020 of the Company fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 30, 2020

/s/ Feng Zhou

Feng Zhou

Chief Executive Officer

(Principal Executive Officer)

Dated: July 31, 2020

/s/ Feng Zhou

Feng Zhou

Interim Chief Financial Officer

(Principal Financial Officer)

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

China SXT Pharmaceuticals, Inc.:

We hereby consent to the incorporation by reference in the Registration Statements on Form F-1 (file number 333-231839) with SEC of China SXT Pharmaceuticals, Inc. and its subsidiaries and variable interest entity (collectively the “Company”) of our report dated on July 30, 2020, relating to our audits of the consolidated balance sheets of the Company as of March 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for each of the three years period ended March 31, 2020, which appear in this Annual Report on Form 20-F for the year ended March 31, 2020.

/s/ ZH CPA, LLC

ZH CPA, LLC

Denver, Colorado

July 31, 2020

XML

Document and Entity Information	12 Months Ended
	Mar. 31, 2020 shares
Document and Entity Information [Abstract]
Entity Registrant Name	China SXT Pharmaceuticals, Inc.
Entity Central Index Key	0001723980
Document Type	20-F
Document Period End Date	Mar. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filer	No
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Document Annual Report	true
Document Shell Company Report	false
Document Transition Report	false
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2020
Entity Shell Company	false
Entity File Number	001-38773
Entity Incorporation, State or Country Code	D8
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding	34,667,707

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Current Assets
Cash and cash equivalents	$ 7,287,032	$ 9,130,849
Restricted cash		161,084
Accounts receivable, net	3,819,437	4,180,559
Notes receivable	17,744	81,265
Inventories	892,767	1,007,918
Advance to suppliers	154,135	319,088
Loan receivable and accrued interest	1,567,500
Deferred cost	510,617
Amounts due from related parties	768,341
Prepayments, receivables and other current assets	4,618,740	707,337
Total Current Assets	19,636,313	15,588,100
Property, plant and equipment, net	1,574,602	1,158,898
Construction in progress	328,372	649,235
Intangible assets, net	50,052	61,096
Deferred tax assets, net	112,839	13,504
Total Non-current Assets	2,065,865	1,882,733
TOTAL ASSETS	21,702,178	17,470,833
Current Liabilities
Bank loans - current portion	43,902	27,817
Short-term convertible note	6,643,463
Notes payable		233,336
Accounts payable	1,941,151	1,685,419
Refund liabilities	113,611	78,317
Advance from customers	298,042	57,553
Amounts due to related parties		2,483,094
Accrued expenses and other liabilities	2,237,305	691,522
Income tax payable	986,840	1,064,314
Total Current Liabilities	12,264,314	6,321,372
Bank loans - non-current portion	36,511	41,706
Total Non-current Liabilities	36,511	41,706
TOTAL LIABILITIES	12,300,825	6,363,078
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)	34,667	22,706
Additional paid-in capital	17,161,346	7,950,782
Retained earnings/(Deficits)	(7,204,000)	3,083,872
Accumulated other comprehensive Income/(loss)	(590,660)	50,395
Total Shareholders' Equity	9,401,353	11,107,755
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 21,702,178	$ 17,470,833

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Financial Position [Abstract]
Ordinary shares, par value	$ 0.001	$ 0.001
Ordinary shares, shares authorized	Unlimited	Unlimited
Ordinary shares, shares issued	38,667,707	22,706,701
Ordinary shares, shares outstanding	34,667,707	22,706,701

XML

Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Income Statement [Abstract]
Revenues	$ 5,162,268	$ 7,012,026	$ 7,019,243
Revenues generated from third parties	4,831,838	6,799,871	5,702,207
Revenue generated from related parties	330,430	212,155	1,317,036
Cost of revenues	(2,458,566)	(2,400,491)	(3,617,748)
Gross profit	2,703,702	4,611,535	3,401,495
Operating expenses:
Selling and marketing	(1,583,284)	(1,605,497)	(512,482)
General and administrative	(2,461,535)	(1,236,546)	(1,256,747)
Total operating expenses	(4,044,819)	(2,842,043)	(1,769,229)
Operating Income (Loss)	(1,341,117)	1,769,492	1,632,266
Other income (expenses):
Interest income(expense), net	(3,348,790)	(5,174)	(779)
Loss on debt extinguishment	(5,625,916)
Other income (expenses), net	(73,771)	27,141	(3,803)
Total other income (expenses), net	(9,048,477)	21,967	(4,582)
Income (Loss) before income taxes	(10,389,594)	1,791,459	1,627,684
Income tax recovery (provision)	101,722	(252,232)	(440,103)
Net income (loss)	(10,287,872)	1,539,227	1,187,581
Other comprehensive income (loss):
Foreign currency translation adjustment	(641,055)	(206,978)	245,548
Comprehensive income (loss)	$ (10,928,927)	$ 1,332,249	$ 1,433,129
Earnings per ordinary share
Basic and diluted	$ (0.416)	$ 0.075	$ 0.059
Weighted average number of ordinary shares outstanding
Basic and diluted	24,728,655	20,568,630	20,000,000

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($)	Common Stock	Additional paid-in capital	Retained earnings (Accumulated deficits)	Accumulated other comprehensive income (loss)	Total
Balance at Mar. 31, 2017	$ 20,000	$ 1,463,757	$ 357,064	$ 11,825	$ 1,852,646
Balance, shares at Mar. 31, 2017	20,000,000
Net income (Loss)			1,187,581		1,187,581
Foreign currency translation gain (Loss)				245,548	245,548
Balance at Mar. 31, 2018	$ 20,000	1,463,757	1,544,645	257,373	3,285,775
Balance, shares at Mar. 31, 2018	20,000,000
Net income (Loss)			1,539,227		1,539,227
Net Proceeds from the initial public offering	$ 2,706	6,487,025			6,489,731
Net Proceeds from the initial public offering, shares	2,706,701
Foreign currency translation gain (Loss)				(206,978)	(206,978)
Balance at Mar. 31, 2019	$ 22,706	7,950,782	3,083,872	50,395	11,107,755
Balance, shares at Mar. 31, 2019	22,706,701
Net income (Loss)			(10,287,872)		(10,287,872)
Equity portion and warrants of the convertible notes		2,796,868			2,796,868
Issuance of shares for convertible notes principal and interest partial settlement	$ 11,961	6,413,696			6,425,657
Issuance of shares for convertible notes principal and interest partial settlement, shares	11,961,006
Foreign currency translation gain (Loss)				(641,055)	(641,055)
Balance at Mar. 31, 2020	$ 34,667	$ 17,161,346	$ (7,204,000)	$ (590,660)	$ 9,401,353
Balance, shares at Mar. 31, 2020	34,667,707

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Cash Flows from Operating Activities:
Net income (loss) from operations	$ (10,287,872)	$ 1,539,227	$ 1,187,581
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expenses	331,837	180,917	129,439
Bad debt provision	41,249	66,898
Inventory impairment provision	23,871	23,112
Deferred income taxes	(101,722)	(7,723)	(5,851)
Interest accrued on loan receivable	(67,500)
Convertible note - Accretion of financing cost	3,421,910
Convertible note - Extinguishment Loss	5,625,916
Changes in operating assets and liabilities:
Accounts receivable	104,001	(1,811,078)	384,434
Note receivable	60,275	202,575	(287,528)
Inventory	39,707	154,526	(274,384)
Advance to suppliers	154,650	(106,456)	(82,618)
Amounts due from related parties		125,128	942,355
Prepayments, receivables and other assets	(361,589)	144,754	(809,706)
Notes payable	(224,872)	(127,034)	365,000
Accounts payable and accrual	302,266	(567,313)	966,573
Refund liability	40,045	78,285
Advance from customers	247,588	(216,518)	(331,693)
Amounts due to related parties			(579,147)
Income tax payable	(22,272)	249,577	519,601
Accrued expenses and other current liabilities	1,606,759	310,315	(203,895)
Net cash provided by (used in) operating activities	934,247	239,192	1,920,161
Cash Flows from Investing Activities:
Purchase of property, plant and equipment	(130,839)	(535,825)	(436,017)
Purchase of intangible assets		(11,279)	(21,032)
Construction in process	(275,819)	(62,981)	(593,676)
Deposits for investment	(3,590,046)
Loan receivable	(1,500,000)
Net cash provided by (used in) investing activities	(5,496,704)	(610,085)	(1,050,725)
Cash Flows from Financing Activities:
Bank borrowings	(38,698)	69,494	(314,216)
Due to related parties	(3,180,171)	2,482,095
Proceeds from original convertible note	10,000,000
Payment of original convertible note issuance cost	(1,641,050)
Repayment of original convertible notes	(1,157,376)
Payment of the forbearance cost of original convertible note	(439,974)
Deferred financing costs	(518,362)
Net proceeds from initial public offering		6,490,494
Net cash provided by (used in) financing activities	3,024,369	9,042,083	(314,216)
Effect of exchange rate changes on cash and cash equivalents	(466,813)	(37,024)	36,977
Net increase in cash, cash equivalents and restricted cash	(2,004,901)	8,634,166	592,197
Cash, cash equivalents and restricted cash at the beginning of year	9,130,849	657,767	65,570
Cash, cash equivalents and restricted cash at the end of year	7,287,032	9,130,849	657,767
Supplemental disclosures of cash flows information:
Cash paid for income taxes	10,363	51,760	22,359
Cash paid for interest expense	287,810	1,489
Non-cash transactions:
11,961,006 of shares issued for settlement of $6,097,655 principal and $670,900 interest of the convertible notes	$ 6,768,555

XML

Consolidated Statements of Cash Flows (Parenthetical)	12 Months Ended
	Mar. 31, 2020 USD ($) shares
Statement of Cash Flows [Abstract]
Shares issued settlement | shares	11,961,006
Value issued settlement	$ 6,097,655
Interest of convertible notes	$ 670,900

XML

Organization and Principal Actitivies

12 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND PRINCIPAL ACTITIVIES

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES

China SXT Pharmaceutical, Inc. ("SXT" or the "Company") is a holding company incorporated in British Virgin Islands on July 4, 2017. The Company focuses on the research, development, manufacture, marketing and sales of traditional Chinese medicine pieces (the "TCMP"), through its variable interest entity ("VIE"), Jiangsu Suxuantang Pharmaceutical Co., Ltd, ("Taizhou Suxuantang") in China. The Company currently sells three types of TCMP products: Advanced TCMP, Fine TCMP and Regular TCMP, and TCM Homologous Supplements ("TCMHS") products. We currently have a product portfolio of 18 advanced TCMPs, 20 Fine TCMPs, 430 Regular TCMPs and 4 TCMHS solid beverage products that address a wide variety of diseases and medical indications. Most of our products are sold on a prescription basis across China. The Company's principal executive offices are located in Taizhou, Jiangsu province, China.

Restructuring and Share Issuance

On July 4, 2017, we were incorporated in the British Virgin Islands by issuance of 10,300,000 common stocks at 0.001 par value to Ziqun Zhou, Di Zhou and Feng Zhou Management Limited ("China SXT Pharmaceuticals, Inc. shareholders"). Feng Zhou Management Limited is a BVI company 100% owned by Feng Zhou. Feng Zhou, Ziqun Zhou and Di Zhou collectively hold 100% shares of Taizhou Suxuantang. Later on October 20, 2017, the 10,300,000 shares common stocks were reallocated among China SXT Pharmaceuticals, Inc. shareholders. On October 20, 2017, the Company issued 9,700,000 common stocks at 0.001 par value to ten individual shareholders ("Restructuring").

On July 21, 2017, our wholly owned subsidiary China SXT Group Limited ("SXT HK") was incorporated in Hong Kong. China SXT Group Limited in turn holds all the capital stocks of Taizhou Suxantang Biotechnology Co. Ltd. ("WFOE"), a wholly foreign owned enterprise incorporated in China on October 13, 2017. On the same day, Taizhou Suxuantang and its shareholders entered into such a series of contractual arrangements, also known as VIE Agreements.

Taizhou Suxuantang was incorporated on June 9, 2005 by Jianping Zhou, Xiufang Yuan (the spouse of Jianping Zhou) and Jianbin Zhou, who held 83%, 11.5% and 5.5% shares in Taizhou Suxuantang respectively. On May 8, 2017, the three shareholders transferred all shares to Feng Zhou, Ziqun Zhou and Di Zhou (collectively "Taizhou Shareholders"), who hold 83%, 11.5% and 5.5% shares in Taizhou Suxuantang, respectively, after the transfer of shares. Feng Zhou and Ziqun Zhou are the children of Jianping Zhou and Xiufang Yuan, and Di Zhou is the child of Jianbin Zhou. 

The discussion and presentation of financial statements herein assumes the completion of the Restructuring, which is accounted for retroactively as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

The following diagram illustrates our corporate structure, including our subsidiary and consolidated variable interest entity as of the date of the financial statements assuming the completion of our Restructuring:

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.

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 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. The 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.

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.

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 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.

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.

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Significant Accounting Policies

12 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

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.

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 was unable to enforce these contractual arrangements, the Company would 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.

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, 2020		March 31, 2019		March 31, 2018
Balance sheet items, except for equity accounts		7.0808		6.7111		6.2807
Items in the statements of operations and comprehensive income(loss), and statements of cash flows		6.9637		6.7138		6.6269

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, 2020 and 2019: determinations of the useful lives of long-lived assets, estimates of allowances for doubtful accounts, sales return rate, valuation assumptions in performing asset impairment tests of long-lived assets and determinations of fair value of convertible notes (liability component, etc) and warrants. 

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, 2020 and 2019, financial instruments of the Company primarily comprised of cash and cash equivalents, restricted cash, accounts receivables, notes receivable, loan receivable and accrued interest, due from related parties, prepayments, receivables and other current assets, bank loans (current and non-current portion), notes payable, accounts payable, refund liabilities, amounts due to related parties, accrued expenses and other liabilities, and income tax payable. The carrying amounts of these financial instruments approximated their fair values because of their generally short maturities.

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 a loan the Company has entered into.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective April 1, 2018, using the retrospective transition method.

The ending balance of restricted cash presented on the face of the consolidated balance sheets as of March 31, 2020 and 2019 were Nil and $161,084, respectively.

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 on demand. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer's financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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 work in progress.

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 prepayments 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, 2020 and 2019, the Company record no allowances, respectively.

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		5	%	10 years
Electric equipment		5	%	3-5 years
Office equipment		5	%	5 years
Vehicles		5	%	4-10 years
Leasehold improvement cost		5	%	3-10 years

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, 2020 and 2019, there was no impairment of property, plant and equipment.

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 trade mark registered in the PRC and purchased software which are amortized on a straight-line basis over a useful life of 10 years.

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, 2020 and 2019, the Company record no impairment of intangible assets.

Construction in process

Construction in process records the cost of construction work, which is not yet completed. A construction in process item is not depreciated until the asset is placed in service.

Construction in process respects unfinished factory, workshop and retail outlet. Construction in process will be transferred to leasehold improvement when it is finished. Depreciation is recorded starting at the time when assets are ready for the intended use.

Impairment of long-lived assets

Long-lived assets primarily include property, plant and equipment 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 no impairment charge for the years ended March 31, 2020 and 2019, respectively.

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer's nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the convertible senior notes have been reflected within additional paid-in capital in our audited consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our audited consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our audited consolidated balance sheets.

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers ("ASC 606"), on April 1, 2018, using the modified retrospective method. Revenues for the years ended March 31, 2020 and 2019 were presented under ASC 606, and revenues for the year ended March 31, 2018 was not adjusted and continue to be presented under ASC Topic 605, 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, and the Company can reasonably estimates return provision for the goods. 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. As of March 31, 2020 and 2019, sales return provision recorded in Refund liabilities were $113,611 and $78,317.

For the year ended March 31, 2020 and 2019, 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.

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities 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. All contract liabilities are included in advance from customers in the Consolidated Balance Sheets. As of March 31, 2020 and 2019, the Company record advance from customers of $298,042 and $57,553, respectively.

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, 2020 and 2019, advertising expenses are $1,021,543 and $857,908, respectively, which are included in selling expenses in our consolidated statements of operations and comprehensive income.

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, 2020 and 2019.

Comprehensive income

Comprehensive income includes net income and foreign currency adjustments. Comprehensive income is reported in the 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, 2020, the balance of accumulated other comprehensive loss amounted to $590,660, and as of March 31, 2019, the balance of accumulated other comprehensive income amounted to $50,395, respectively.

Leases 

The Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") on April 1, 2019 by using the modified retrospective method and did not restate the comparable periods. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Company elected the lease exemption for all its existing contracts.

The Company determines if an arrangement is a lease or contains a lease at lease inception. For operating leases, the Company recognizes a right-of-use asset and a lease liability based on the present value of the lease payments over the lease term on the consolidated balance sheets at commencement date. As most of the Company's leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.

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.

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, restricted cash, accounts receivable, notes receivable, advances to suppliers, loan receivable and accrued interest, amounts due from related parties, and prepayments, receivables and other current assets. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of March 31, 2020 and 2019 the Company held cash and cash equivalents of $7,287,032 and $9,130,849, respectively, which were primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are of high credit quality. The Company's operations are carried out in Mainland China. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC's economy. In addition, the Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other factors.

The Company conducts credit evaluations of its customers and suppliers and generally does not require collateral or other security from them. The Company establishes an accounting policy for allowance for doubtful accounts on the individual customer's or supplier's financial condition, credit history, and the current economic conditions. As of March 31, 2020 and 2019, the Company record allowances of $103,990 and $66,917, respectively, for accounts receivable.

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), short-term convertible note, notes payable, 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 major shareholders to obtain short-term funding to meet the liquidity shortage.

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

During the years ended March 31, 2020 and 2019, there are two 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,
	2020			2019
Customer A		20.23	%		17.07	%
Customer B		15.00	%		15.80	%

As of March 31, 2020 and 2019, accounts receivable due from these customers as a percentage of consolidated accounts receivable were as follows:

	As of March 31,
	2020			2019
Customer A		5.44	%		9.28	%
Customer B		8.94	%		9.81	%

Recently issued accounting standards

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued.

Recently adopted accounting standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. The Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") on April 1, 2019 by using the modified retrospective method. The adoption had no impact on the Company's statement of cash flows for the year ended March 31, 2020.

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash". The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied using a retrospective transition method to each period presented, which resulted in an approximately US$0.97 thousand term deposit held by the Company as of March 31, 2018 and matured during the year ended December 31, 2019 being reclassified from a cash inflow from investing activities to the beginning balance of cash, cash equivalents, and restricted cash shown on the statement of cash flows for the year ended March 31, 2019. The adoption of ASU No. 2016-18 had no impact on the Company's statement of cash flows for the year ended March 31, 2020.

In July 2017, the FASB issued ASU No. 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)-I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception". The amendments in part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this ASU do not require any transition guidance because those amendments do not have an accounting effect. The Company has adopted the amendments in this ASU on April 1, 2019, when determining whether certain financial instruments issued by the Company after April 1, 2019 should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The adoption of the amendments in this ASU did not have a material impact on the Company's consolidated financial position and results of operations.

In February 2018, the FASB issued ASU No. 2018-02: "Income Statement—Reporting Comprehensive Income (Topic 220)- Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of the amendments in this ASU did not have a material impact on its consolidated financial position and results of operations.

Recently issued accounting standards

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The amendments in this ASU require the measurement and recognition of expected credit losses for financial assets held at amortized cost. The amendments in this ASU replace the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses", which among other things, clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. For public entities, the amendments in these ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact on its consolidated financial position and results of operations upon adopting these amendments. 

In June 2018, the FASB issued ASU No. 2018-07: "Compensation—Stock Compensation (Topic 718)-Improvements to Nonemployee Share-Based Payment Accounting". The Board is issuing this Update as part of its Simplification Initiative. The amendments in this Update expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. Disclosures required at transition include the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of equity. Based on the Company's evaluation, the Company does not expect the adoption of the amendments in this ASU to have a material impact on its consolidated financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements. The amendments in this ASU, among other things, require public companies to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations.

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Accounts Receivable

12 Months Ended

Mar. 31, 2020

Receivables [Abstract]

ACCOUNTS RECEIVABLE

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Accounts receivable – third parties	$	3,439,799		$	4,037,208
Accounts receivable – related parties		483,628			210,268
Total accounts receivable, gross		3,923,427			4,247,476
Less: allowance for doubtful accounts		(103,990	)		(66,917	)
Accounts receivable, net	$	3,819,437		$	4,180,559

For the years ended March 31, 2020 and 2019, the Company record bad debt expense of $41,249 and $66,898, respectively.

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Inventories

12 Months Ended

Mar. 31, 2020

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 4 – INVENTORIES

Inventories as of March 31, 2020 and 2019 consisted of the following:

	As of March 31,
	2020			2019
Raw materials	$	404,457		$	315,686
Finished goods		533,691			715,344
Provision for inventory		(45,381	)		(23,112	)
Total inventories, net	$	892,767		$	1,007,918

Impairment provision of inventories recorded for lower of cost or net realizable value adjustments were $23,871 and $23,112 for the years ended March 31, 2020 and 2019, respectively.

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Loan Receivable and Accrued Interest

12 Months Ended

Mar. 31, 2020

Receivables [Abstract]

LOAN RECEIVABLE AND ACCRUED INTEREST

NOTE 5 – LOAN RECEIVABLE AND ACCRUED INTEREST

	As of March 31,
	2020		2019
Loan receivable - RH Holdings Management (HK) Limited	$	1,500,000	$	-
Accrued interest		67,500		-
Total	$	1,567,500	$	-

Short-term loan of $1.5 million at 5.4% annual interest rate was made to RH Holdings Management (HK) Limited from June 1, 2019, to May 31, 2020.

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Deferred Cost

12 Months Ended

Mar. 31, 2020

Revenue Recognition and Deferred Revenue [Abstract]

DEFERRED COST

NOTE 6 – DEFERRED COST

As of March 31, 2020, deferred cost of $510,617 represents the financing costs which the Company paid to third-parties for the coming financing.

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Prepayments, Receivables and Other Assets

12 Months Ended

Mar. 31, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAYMENTS, RECEIVABLES AND OTHER ASSETS

NOTE 7 – PREPAYMENTS, RECEIVABLES AND OTHER ASSETS

Prepayments, receivables and other assets consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Receivable from a third-party company	$	3,530,675	$	-
Staff IOU		943,718		670,619
Others		144,347		36,718
Total	$	4,918,740	$	707,337

In June 2019, Taizhou Suxuantang entered into a limited partnership agreement with Huangshan Panjie Investment Management Co., Ltd. (the “Fund”). The company is committed to contribute $7 million (RMB50 million) into the Fund in two installments, with one installment of $3.5 million (RMB 25 million) made on June 14, 2019, and the second installment of $3.5 million (RMB 25 million) to be made no later than October 31, 2019.

In June 2020, the Company agreed with the Fund, the General Partner and other limited partners to withdraw the installment of $3.5 million (RMB 25 million) made on June 14, 2019. The company received payment of $2.8 million (RMB 20 million) on June 30, 2020 and expects to receive the rest by the end of October 2020.

The Staff IOU is a short-term petty cash which should be paid off within one year.

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Property, Plant and Equipment

12 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Machinery	$	638,660		$	658,043
Electric equipment		144,436			138,338
Office equipment		74,797			78,917
Vehicles		182,563			122,969
Leasehold improvement		1,559,152			906,060
Total property plant and equipment, at cost		2,599,608			1,904,327
Less: accumulated depreciation		(1,025,006	)		(745,429	)
Total property, plant and equipment, net	$	1,574,602		$	1,158,898

Depreciation expense were $323,852 and $174,020 for year ended March 31, 2020 and 2019, respectively.

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Intangible Assets, Net

12 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS, NET

NOTE 9 – INTANGIBLE ASSETS, NET

Intangible assets consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020			2019
Trademark	$	42,982		$	45,350
Software		33,768			35,629
Total intangible assets, at cost		76,750			80,979
Less: accumulated amortization		(26,698	)		(19,883	)
Total intangible assets, net	$	50,052		$	61,096

Amortization expense were $7,985 and $6,967 for year ended March 31, 2020 and 2019, respectively.

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Construction In Process

12 Months Ended

Mar. 31, 2020

Notes to Financial Statements

CONSTRUCTION IN PROCESS

NOTE 10 – CONSTRUCTION IN PROCESS

Construction in process consist of the following the following as of March 31, 2020 and 2019:

	March 31, 2020		March 31, 2019
Factory	$	148,372	$	129,453
Workshop		-		519,782
Retail outlet		180,000		-
	$	328,372	$	649,235

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Bank Loans

12 Months Ended

Mar. 31, 2020

Brokers and Dealers [Abstract]

BANK LOANS

NOTE 11 – BANK LOANS 

Bank loans consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Car loans – current portion	$	43,902	$	27,817

	As of March 31,
	2020		2019
Car loans – non-current portion	$	36,511	$	41,706

Two car loans of $70,613 at 12% annual interest rate and $48,017 at 9.5% annual interest rate were valid from October 1, 2018 to September 30, 2021 and from July 1, 2019 to June 30, 2022, respectively. Both cars were pledged as collateral for loans until full settlement.

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Convertible Notes

12 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

CONVERTIBLE NOTES

NOTE 12 – CONVERTIBLE NOTES

PIPE Transaction

On April 16, 2019, the company entered into certain securities purchase agreement with certain unaffiliated institutional investors relating to a private placement of (1) Senior Convertible Notes in the aggregate principal amount of $15 million, consisting of (i) a Series A Note in the principal amount of $10 million, and (ii) a Series B Note in the principal amount of $5 million and (2) warrants to purchase such amount of shares of the company's ordinary shares equal to 50% of the shares issuable upon conversion of the Notes, exercisable for a period of five years at an exercise price of $8.38, for consideration consisting of (i) a cash payment of $10,000,000, and (ii) a secured promissory note payable by the Investors to the Company in the principal amount of $5 million.

Material Terms of the Convertible Notes:

● The aggregate principal amount of the Series A Notes is $10,000,000 and the Series B Notes is $5,000,000. All of the aggregate principal amount of the Series B Notes will constitute Restricted Principal. If an Investor prepays any amount under such Investor's Investor Note, an equal amount of the Restricted Principal becomes unrestricted principal under such Investor's Series B Note. The amount raised by the Company upon closing of the PIPE transaction was $10,000,000 from Series A Notes.

● The expiration date of Notes and warrant shall be October 2, 2020 and May 2, 2023 respectively. The aggregate redemption amount of the Notes shall be redeemed in installments on or before the expiration date.

● The interest rate on the Convertible Notes is eight percent (8%) per annum. In the event of default, the Interest Rate shall be increased to eighteen percent (18%) per annum.

● The initial fixed conversion price will be $8.38 per share, subject to reduction and adjustment for stock splits, stock dividends, and similar events.

● During an Event of Default Redemption Right Period the Investor may convert all, or any part of, the Conversion Amount into Ordinary Shares at the Alternate Conversion Price.

● The Alternate Conversion Price is the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, (ii) 80% of the volume-weighted average price ("VWAP") of the Ordinary Shares as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, (iii) 80% of the VWAP of the Ordinary Shares as of the Trading Day of the delivery or deemed delivery of the applicable Conversion Notice and (iv) 80% of the price computed as the quotient of (I) the sum of the VWAP of the Ordinary Shares for each of the three (3) Trading Days with the lowest VWAP of the Ordinary Shares during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (II) three (3) (such period, the "Alternate Conversion Measuring Period").

● The aggregate number of Series A and Series B warrant shares to be converted on expiration is 596,658 and 298,330 shares respectively.

In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the equity component and warrants value representing the conversion option was $2,549,392 (equity component $436,626, warrants value $2,112,766). Equity component was determined by deducting the fair value of the liability component from the par value of the original Convertible Notes. Warrants value was determined with the Black Scholes model. Equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the Convertible Notes.

Debt issuance costs related to the original Convertible Notes comprised of commissions paid to third party placement agent, lawyers, and warrants value of $3,753,816. The Company allocated the total amount incurred to the liability and equity components of the original Convertible Notes based on their relative values. Issuance costs attributable to the liability component were $3,491,413 and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were $262,403 and netted with the equity component in stockholders' equity of $699,029 and warrant value of $2,112,766.

Entry into Forbearance Agreements in Connection with the Event of Default Redemption Notices

On July 23 and 29, 2019, the company received from the investors an Event of Default Redemption Notice claimed that the company failed to timely make the instalment payment and elected to effect the redemption of $14,318,462.62 comprising in aggregate the entire principal amount, accrued and unpaid Interest. In addition, demand for the company to purchase the Series A Warrant issued for the Event of Default Black Scholes Value of not less than $1,208,384.07 was made.

On December 13, 2019, after negotiation with the Investors, the company entered into certain Forbearance and Amendment Agreements with each Investor and agreed to redeem the Series A Notes for an aggregate redemption price of $10,939,410 in installments as set forth in the Forbearance Agreement. Concurrently with the execution of the Forbearance Agreement, the Investors and the Company have entered into the Lock-Up Agreements, Leak-Out Agreements and Mutual Releases.

Material Terms of the Agreements

Upon the execution of the Forbearance Agreements, the Investor shall Net all Restricted Principal outstanding under the Series B Note against the amounts outstanding under the Investor Note, after which the Investor Note, the Series B Note and the Series B Warrant shall no longer remain outstanding.

The Investors agreed, among other things, to the following:

● to forbear from (i) taking any action to enforce their Redemption Notice with respect to certain existing defaults, and (ii) issuing any new demand for redemption of the Series A Note on the basis of certain additional defaults that the aggregate daily dollar trading volume of the Company's ordinary shares does not exceed $1,500,000, and that the volume weighted average price of the Company's ordinary shares on any two trading days during the thirty trading day period immediately preceding such date of determination fails to exceed $2.14;

● not to exercise the Series A Warrant during the Forbearance Period;

● to return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company's payment of the full Forbearance Redemption Amounts;

● to execute and deliver to the Company certain lock-up agreements with respect to the Pre-Delivered Shares, certain mutual release and to execute and deliver to the Company the Leak-Out Agreement;

● not to make any hedge, swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Pre-Delivered Shares;

● to not sell, dispose or otherwise transfer, directly or any Ordinary Shares issued if such sale exceed 20% of the daily composite trading volume of the Ordinary Shares.

In consideration for the above, the Company agreed to the followings:

● the Company shall (I) pay to each Investor $500,000 on or prior to December 16, 2019, and (II) commencing on January 24th 2020, redeem the Series A Notes for an aggregate redemption price of $10,939,410;

● if the Company fails to pay any New Installment Amount within 5 days of the applicable New Installment Date, the Investor may convert the applicable New Installment Amount as an Alternate Conversion and the Leak-Out Agreement being disregarded for such conversions;

● the Company agreed to adjust the exercise price of the Series A Warrant from $8.38 to $2.50;

● the Company shall cause all restrictive legends on the Pre-Delivered Shares to be removed and delivery of un-legended Pre-Delivery Shares into the Investor's custodian's account pursuant to the DWAC instructions set forth therein.

In connection with this forbearance, the Company accounted for as a debt extinguishment as the terms of the Convertible Notes are significantly modified. The Company modified the principle of the Convertible Notes to $10,939,410 and record an extinguishment loss of $5,625,916, within the amount the Company paid to forbear the debt of $11,939,410 (modified principle of the Convertible Notes of $10,939,410, initial forbearance fee of $1,000,000), in excess of its net carrying value of $6,055,648 (principal outstanding $7,886,294, unamortized issuance cost $1,830,645), at the time of the debt extinguishment.

In accounting for the modified Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the equity component representing the conversion option was $247,476. Equity component was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. Equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the new Convertible Notes.

Forbearance costs related to the Convertible Notes comprised of commissions paid to third party placement agent and lawyers. The Company allocated the total amount incurred to the liability and equity components of the forbearance based on their relative values. Costs attributable to the liability component were $429,604 and will be amortized to interest expense using the effective interest method over the contractual term. Costs attributable to the equity component were $10,370 and netted with the equity component in stockholders' equity of $257,846.

Net carrying amount of the liability component Convertible Notes dated as of March 31, 2020 was as follows:

	Principal outstanding		Unamortized issuance cost			Net carrying value
Convertible Notes - short-term	$	6,828,050		(184,587	)	$	6,643,463

Net carrying amount of the equity component of the Convertible Notes as of March 31, 2020 was as follows:

	Amount allocated to conversion option		Issuance cost			Equity component, net
Convertible Notes – equity portion	$	956,875		(272,773	)	$	684,102

Amortization of issuance cost, debt discount and interest cost for the year ended March 31, 2020 were as follows:

	Issuance costs and debt discount		Convertible note interest		Total
Convertible Notes	$	2,519,762		902,149	$	3,421,910

The effective interest rate to derive the liability component fair value is 26.73% for the Convertible Notes.

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Refund Liability

12 Months Ended

Mar. 31, 2020

Refund Liability

REFUND LIABILITY

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 $51,125 and $27,411, respectively, were recorded in Inventory on the Consolidated Balance Sheets as of March 31, 2020 and 2019.

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Accrued Expenses and Other Liabilities

12 Months Ended

Mar. 31, 2020

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER LIABILITIES

NOTE 14 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following as of March 31, 2020 and 2019:

	As of March 31,
	2020		2019
Accrued payroll and welfare	$	393,740	$	219,867
Other payable for leasehold improvements		1,428,073		119,535
Accrued professional service expenses		127,787		187,444
Other current liabilities		287,705		164,676
Total	$	2,237,305	$	691,522

As of March 31, 2020 and 2019, the balances of other current liabilities $287,705 and $164,676, respectively, represented amounts due to suppliers for operating expenses and to staff who paid for operating expenses on behalf of the Company.

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Shareholders' Equity

12 Months Ended

Mar. 31, 2020

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 15 – SHAREHOLDERS' EQUITY

Ordinary shares 

The Company is authorized to issue unlimited shares of $0.001 par value common stock. On July 4, 2017 and October 20, 2017, the Company issued common stocks of an aggregate of 20,000,000 shares of 0.001 par value to thirteen shareholders, three among whom together hold 100% shares of Suxuantang and over 50% shares of SXT.

On December 31, 2018, the Company completed the closing of its initial public offering of 2,506,300 ordinary shares at a public offering price of $4.00 per ordinary share. On January 3, 2019, the Company sold an additional 39,975 ordinary shares at the public offering price of $4.00 per share in a second closing. The total gross proceeds from the initial public offering is approximately $10.2 million before underwriting commissions and offering expenses.

On January 10, 2019, the Underwriter exercise the warrants in connection with the initial public offering and 160,426 shares were newly issued. 

Ordinary shares issued for convertible notes settlement

For the year ended March 31, 2020, 11,961,006 ordinary shares were issued with a fair value of $5,455,350 for convertible notes principal and interest partial settlement.

According to the Forbearance Agreements (see Note 12), the Company issued and delivered 4,000,000 un-legended Pre-Delivery Shares into the investor's custodian's account as collateral in December 2019. The investors will return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company's payment of the full Forbearance Redemption Amounts. The Company expects to fully collect the Pre-Delivery Shares. 

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Income Taxes

12 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 16 – 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 16.5% for the year ended March 31, 2020, 2019 and 2018. The Company's subsidiaries and VIE incorporated in China were subject to PRC Enterprise Income Tax ("EIT") on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25% for the year ended March 31, 2020 and 2019, except for Taizhou Suxuantang where the applicable income tax rate is 15% for the year ended March 31, 2020 and 2019, since it was qualified as a high-technology company from January 1, 2018 to December 31, 2020. In addition, the Company is allowed to deduct additional 75% of its research and development expenses against its pre-tax income as a high-technology company.

For the year ended March 31, 2020, 2019 and 2018, income tax expenses consisted of the following: 

	For the years ended March 31,
	2020			2019			2018
Current income tax provision		-		$	259,955		$	445,954
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total income tax expense (benefit)		(101,722	)	$	252,232		$	440,103

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 15%, 15% and 25% to its income from operations before income taxes for the year ended March 31, 2020, 2019 and 2018, respectively.

	For the years ended March 31,
	2020			2019			2018
Income (Loss) before income taxes		(10,389,594	)	$	1,791,459		$	1,627,684
Income tax expense (benefit) at the PRC statutory rate		(1,558,439	)		268,719			406,921
Non-deductible expenses		1,598,226			20,334			39,033
Deductible research and development expenses		(39,787	)		(29,098	)		-
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total		(101,722	)	$	252,232		$	440,103

(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. Significant components of the Company's deferred income tax assets and liabilities consist of follows:

	As of March 31,
	2020		2019
Tax loss carry forward	$	90,434	$	-
Allowance for doubtful account		15,598		10,038
Impairment provision for inventory		6,807		3,466
Total	$	112,839	$	13,504

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 year ended March 31, 2020, 2019 and 2018 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.

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Related Party Transactions

12 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 17 – 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, Interim Chief Financial Officer and Director of the Company
Jianping Zhou	Father of major shareholders of the Company and two of Taizhou Suxuantang shareholders, controlling shareholder of Taizhou Suxuantang from its inception to May 8, 2017
Jianbin Zhou	Father of major shareholders of the Company and one of Taizhou Suxuantang shareholders
Taizhou Jiutian Pharmaceutical Co. Ltd.	An entity controlled by Jianping Zhou
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

Related party balances

a. the amounts due from related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Jiangsu Health Pharmaceutical Investment Co., Ltd.	$	768,341	$	-
Total	$	768,341	$	-

The amounts due from related parties represented unsecured, due on demand and interest free borrowings to its related parties by the Company. The Company expects full payment from Jiangsu Health Pharmaceutical Investment Co., Ltd. by the end of September 2020.

b. the amounts due to related parties as of March 31, 2020 and 2019 were as follows: 

	As of March 31,
	2020		2019
Feng Zhou	$	-	$	1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd.		-		939,521
Jianbin Zhou		-		745
Total	$	-	$	2,483,094

Related party transactions

For the years ended March 31, 2020 and 2019, the Company generated revenues of $251,749 and $8,942, respectively, from sales transactions with Taizhou Jiutian Pharmaceutical Co. Ltd.

For the years ended March 31, 2020 and 2019, the Company generated revenue of $52,643 and $24,315 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese Medicine Clinic.

For the year ended March 31, 2020 and 2019, the Company generated revenues of $26,037 and $178,898 respectively, from sales transactions with Taizhou Su Xuan Tang Chinese hospital Co. Ltd.

For the year ended March 31, 2020, the Company repaid $3,180,171 to Feng Zhou, Jiangsu Health Pharmaceutical Investment Co., Ltd. and Jianbin Zhou.

For the year ended March 31, 2019, the Company borrowed from Feng Zhou and Jiangsu Health Pharmaceutical Investment Co., Ltd in the amount of $2,482,349, which is non-interest bearing and repaid on demand.

The Company entered into certain financial guarantee agreements with two banks to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.'s bank borrowings. The Company is obliged to pay on behalf 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. (see Note 18)

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Guarantee

12 Months Ended

Mar. 31, 2020

Insurance [Abstract]

GUARANTEE

NOTE 18 – GUARANTEE

On April 23, 2019, the Company entered into a financial guarantee agreement with Jiangsu Changjiang Commercial Bank to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.'s bank borrowing of $423,681 (equivalent of RMB 3,000,000) for one-year period. On May 8, 2019 the Company entered a financial guarantee agreement with Bank of Nanjing to be the guarantor of Taizhou Jiutian Pharmaceutical Co. Ltd.'s borrowing of $494,294 (equivalent of RMB 3,500,000) for a one-year period. The Company is obliged to pay on behalf 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.

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Commitment

12 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENT

NOTE 19 – COMMITMENT

The following table sets forth the Company's operating lease commitment as of March 31, 2020:

Office Rental	For the year ended March 31,
2021	$	70,670
2022		70,670
2023		70,670
2024		70,670
2025		70,670
Thereafter		194,342
Total	$	547,692

From time to time, 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, 2020 and 2019. As of March 31, 2020 and 2019, Company had no pending legal proceedings.

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Condensed Financial Information of the Parent Company

12 Months Ended

Mar. 31, 2020

Condensed Financial Information Disclosure [Abstract]

CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

NOTE 20 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

The Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in the PRC is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC. The Company’s subsidiaries are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory reserves account until the accumulative amount of such reserves reaches 50% of its respective registered capital. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

In addition, the Company’s operations and revenues are conducted and generated in the PRC, all of the Company’s revenues being earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into USD.

Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party. The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiary exceed 25% of the consolidated net assets of the Company.

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. The Company’s investment in subsidiary is stated at cost plus equity in undistributed earnings of subsidiaries.

CHINA SXT PHARMACEUTICALS, INC.

PARENT COMPANY BALANCE SHEETS (IN U.S. DOLLARS)

(Unaudited)

	As of March 31,
	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	6,988		$	3,544,162
Advance to suppliers		-			106,500
Loan receivable and accrued interest		1,567,500			-
Deferred cost		50,000			-
Amounts due from related parties		13,820,530			5,668,256
Prepayments, receivables and other current assets		230,266			133,400
Total Current Assets		15,675,284			9,452,318
Construction in progress		180,000			-
Deferred tax assets, net		1,282			1,282
Total Non-current Assets		181,282			1,282
TOTAL ASSETS	$	15,856,566		$	9,453,600
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term convertible note		6,643,463			-
Amounts due to related parties		1,530,450			1,530,450
Accrued expenses and other liabilities		134,308			-
Total Current Liabilities		8,308,221			1,530,450
TOTAL LIABILITIES		8,308,221			1,530,450
COMMITMENTS AND CONTINGENCIES		-			-
SHAREHOLDERS’ EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)		34,667			22,706
Additional paid-in capital		17,161,346			7,950,782
Retained earnings/(Deficits)		(9,647,668	)		(50,338	)
Total Shareholders’ Equity		7,548,345			7,923,150
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,856,566		$	9,453,600

CHINA SXT PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF INCOME/(Loss) AND COMPREHENSIVE INCOME/(Loss)
(IN U.S. DOLLARS, EXCEPT SHARES DATA)

(Unaudited)

	For the years ended March 31,
	2020			2019			2018
Operating expenses:
General and administrative		(614,495	)		(50,338	)		-
Total operating expenses		(614,495	)		(50,338	)		-
Operating Income (Loss)		(614,495	)		(50,338	)		-
Other income (expenses):
Interest income(expense), net		(3,354,301	)		-			-
Loss on debt extinguishment		(5,625,916	)		-			-
Other income (expenses), net		(2,618	)		-			-
Total other income (expenses), net		(8,982,835	)		-			-
Income (Loss) before income taxes		(9,597,330	)		(50,338	)		-
Income tax recovery (provision)		-			-			-
Net income (loss)		(9,597,330	)		(50,338	)		-
Comprehensive income (loss)		(9,597,330	)		(50,338	)		-
Earnings per ordinary share
Basic and diluted	$	(0.388	)	$	(0.002	)	$	-
Weighted average number of ordinary shares outstanding
Basic and diluted		24,728,655			20,568,630			20,000,000

CHINA SXT PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)

(Unaudited)

	For the years ended March 31,
	2020			2019			2018
Cash Flows from Operating Activities:
Net income (loss) from operations	$	(9,597,330	)	$	(50,338	)	$	-
Adjustments to reconcile net income to net cash provided by operating activities:
Interest accrued on loan receivable		(67,500	)		-			-
Convertible note - Accretion of financing cost		3,421,910			-			-
Convertible note - Extinguishment Loss		5,625,916			-			-
Changes in operating assets and liabilities:
Advance to suppliers		106,500			(106,500	)		-
Prepayments, receivables and other assets		(96,866	)		(133,400	)		-
Accrued expenses and other current liabilities		190,870			-			-
Net cash provided by (used in) operating activities		(416,500	)		(290,238	)		-
Cash Flows from Investing Activities:
Construction in process		(180,000	)		-			-
Loan receivable		(1,500,000	)		-			-
Net cash provided by (used in) investing activities		(1,680,000	)		-			-
Cash Flows from Financing Activities:
Amounts due from related parties		(8,152,274	)		(4,186,544	)		-
Amounts due to related parties		-			1,530,450			-
Proceeds from original convertible note		10,000,000			-			-
Payment of original convertible note issuance cost		(1,641,050	)		-			-
Repayment of original convertible notes		(1,157,376	)		-			-
Payment of the forbearance cost of original convertible note		(439,974	)		-			-
Deferred financing costs		(50,000	)
Net proceeds from initial public offering		-			6,490,494			-
Net cash provided by (used in) financing activities		(1,440,674	)		3,834,400			-
Net increase in cash, cash equivalents and restricted cash		(3,537,174	)		3,544,162			-
Cash, cash equivalents and restricted cash at the beginning of year		3,544,162			-			-
Cash, cash equivalents and restricted cash at the end of year	$	6,988		$	3,544,162		$	-

(a) Basis of presentation

The financial information has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the Company used the equity method to account for investment in its subsidiaries.

The Company records its investment in its subsidiaries under the equity method of accounting. Such investment is presented on the balance sheets as “Investment in subsidiaries” and share of their income (loss) as “Equity earnings (losses) of subsidiaries” in the statements of comprehensive income (loss).

Each of the Company’s PRC subsidiaries has restrictions on its ability to pay dividends to the Company under PRC laws and regulations. The subsidiaries did not pay any dividends to the Company for the years presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted by reference to the consolidated financial statements.

(b) Commitments

The Company does not have any significant commitments or long-term obligations as of any of the periods presented, except for those disclosed in the consolidated financial statements (notes 19).

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Subsequent Events

12 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 21 – SUBSEQUENT EVENTS

Guarantee

On April 23, 2020, the Company signed a financial guarantee agreement with Jiangsu Changjiang Commercial Bank for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $409,558 (equivalent of RMB 2,900,000) for one-year period. On May 18, 2020 the Company signed a financial guarantee agreement with Bank of Nanjing for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $480,172 (equivalent of RMB 3,400,000) for a one-year period. The Company is obliged to pay on behalf the related party the principal, interest, penalty and other expenses if Taizhou Jiutian Pharmaceutical Co. Ltd. defaults in payment.

Other receivable from Huangshan Panjie Investment Management Co., Ltd.

In June 2020, the Company agreed with Huangshan Panjie Investment Management Co., Ltd., the General Partner and other limited partners to withdraw the installment of $3.5 million (RMB 25 million) made on June 14, 2019. The company received payment of $2.8 million (RMB 20 million) on June 30, 2020 and expects to receive the rest by the end of October 2020.

Issuance of shares for convertible notes principal and interest partial settlement

From April 1, 2020 to July 30, 2020, 25,469,183 ordinary shares were issued for convertible notes principal and interest partial settlement.

Loan receivable from RH Holdings Management (HK) Limited

The Company did not renew the loan $1.5 million made to RH Holdings Management (HK) Limited upon maturity date May 31, 2020 and expects to fully collect the loan by the end of October 2020.

COVID-19

The Company's operations are affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Company's business has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent.

From late January 2020 to the middle of March 2020, the Company had to temporarily suspend our manufacturing activities due to government restrictions. During the temporary business closure period, our employees had very limited access to our manufacturing facilities and the shipping companies were not available and as a result, the Company experienced difficulty delivering our products to the customers on a timely basis. In addition, due to the COVID-19 outbreak, some of the customers or suppliers may experience financial distress, delay or default on their payments, reduce the scale of their business, or suffer disruptions in their business due to the outbreak. Any increased difficulty in collecting accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.

In light of the current circumstances and available information, the Company estimated that for the period from April to June 2020, the Company's revenues could be approximately 26% lower as compared to the same period of last year.

As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to have slowed down and most provinces and cities have resumed business activities under the guidance and support of the government. However, there is still significant uncertainty regarding the possibility of a second wave of infections, and the breadth and duration of business disruptions related to COVID-19, which could continue to have material impact to the Company's operations.

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Significant Accounting Policies (Policies)

12 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of presentation and principles of consolidation

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.

Risks in relation to the VIE structure

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 was unable to enforce these contractual arrangements, the Company would 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

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.

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, 2020		March 31, 2019		March 31, 2018
Balance sheet items, except for equity accounts		7.0808		6.7111		6.2807
Items in the statements of operations and comprehensive income(loss), and statements of cash flows		6.9637		6.7138		6.6269

Use of estimates

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, 2020 and 2019: determinations of the useful lives of long-lived assets, estimates of allowances for doubtful accounts, sales return rate, valuation assumptions in performing asset impairment tests of long-lived assets and determinations of fair value of convertible notes (liability component, etc) and warrants. 

Fair values of financial instruments

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, 2020 and 2019, financial instruments of the Company primarily comprised of cash and cash equivalents, restricted cash, accounts receivables, notes receivable, loan receivable and accrued interest, due from related parties, prepayments, receivables and other current assets, bank loans (current and non-current portion), notes payable, accounts payable, refund liabilities, amounts due to related parties, accrued expenses and other liabilities, and income tax payable. The carrying amounts of these financial instruments approximated their fair values because of their generally short maturities.

Cash and cash equivalents

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

Restricted cash is cash held as collateral for transactions and a loan the Company has entered into.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective April 1, 2018, using the retrospective transition method.

The ending balance of restricted cash presented on the face of the consolidated balance sheets as of March 31, 2020 and 2019 were Nil and $161,084, respectively.

Accounts receivable

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 on demand. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer's financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories

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 work in progress.

Advance to suppliers

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 prepayments 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, 2020 and 2019, the Company record no allowances, respectively.

Property, plant and equipment

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		5	%	10 years
Electric equipment		5	%	3-5 years
Office equipment		5	%	5 years
Vehicles		5	%	4-10 years
Leasehold improvement cost		5	%	3-10 years

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, 2020 and 2019, there was no impairment of property, plant and equipment.

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

Intangible assets, net

Intangible assets are stated at cost less accumulated amortization. Intangible assets represented the trade mark registered in the PRC and purchased software which are amortized on a straight-line basis over a useful life of 10 years.

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, 2020 and 2019, the Company record no impairment of intangible assets.

Construction in process

Construction in process

Construction in process records the cost of construction work, which is not yet completed. A construction in process item is not depreciated until the asset is placed in service.

Construction in process respects unfinished factory, workshop and retail outlet. Construction in process will be transferred to leasehold improvement when it is finished. Depreciation is recorded starting at the time when assets are ready for the intended use.

Impairment of long-lived assets

Impairment of long-lived assets

Long-lived assets primarily include property, plant and equipment 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 no impairment charge for the years ended March 31, 2020 and 2019, respectively.

Convertible note, net

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer's nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the convertible senior notes have been reflected within additional paid-in capital in our audited consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our audited consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our audited consolidated balance sheets.

Revenue recognition

Revenue recognition

The Company adopted ASC Topic 606 Revenue from Contracts with Customers ("ASC 606"), on April 1, 2018, using the modified retrospective method. Revenues for the years ended March 31, 2020 and 2019 were presented under ASC 606, and revenues for the year ended March 31, 2018 was not adjusted and continue to be presented under ASC Topic 605, 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, and the Company can reasonably estimates return provision for the goods. 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. As of March 31, 2020 and 2019, sales return provision recorded in Refund liabilities were $113,611 and $78,317.

For the year ended March 31, 2020 and 2019, 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.

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities 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. All contract liabilities are included in advance from customers in the Consolidated Balance Sheets. As of March 31, 2020 and 2019, the Company record advance from customers of $298,042 and $57,553, respectively.

Cost of revenue

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

Market development fees relate mainly to market development and advertisements of our pharmaceutical products. For the years ended March 31, 2020 and 2019, advertising expenses are $1,021,543 and $857,908, respectively, which are included in selling expenses in our consolidated statements of operations and comprehensive income.

Income taxes

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, 2020 and 2019.

Comprehensive income

Comprehensive income

Comprehensive income includes net income and foreign currency adjustments. Comprehensive income is reported in the 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, 2020, the balance of accumulated other comprehensive loss amounted to $590,660, and as of March 31, 2019, the balance of accumulated other comprehensive income amounted to $50,395, respectively.

Leases

Leases 

The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) on April 1, 2019 by using the modified retrospective method and did not restate the comparable periods. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Company elected the lease exemption for all its existing contracts.

The Company determines if an arrangement is a lease or contains a lease at lease inception. For operating leases, the Company recognizes a right-of-use asset and a lease liability based on the present value of the lease payments over the lease term on the consolidated balance sheets at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.

Segment reporting

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.

Significant risks and uncertainties

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, restricted cash, accounts receivable, notes receivable, advances to suppliers, loan receivable and accrued interest, amounts due from related parties, and prepayments, receivables and other current assets. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of March 31, 2020 and 2019 the Company held cash and cash equivalents of $7,287,032 and $9,130,849, respectively, which were primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are of high credit quality. The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other factors.

The Company conducts credit evaluations of its customers and suppliers and generally does not require collateral or other security from them. The Company establishes an accounting policy for allowance for doubtful accounts on the individual customer’s or supplier’s financial condition, credit history, and the current economic conditions. As of March 31, 2020 and 2019, the Company record allowances of $103,990 and $66,917, respectively, for accounts receivable.

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), short-term convertible note, notes payable, 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 major shareholders to obtain short-term funding to meet the liquidity shortage.

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

During the years ended March 31, 2020 and 2019, there are two 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,
	2020			2019
Customer A		20.23	%		17.07	%
Customer B		15.00	%		15.80	%

As of March 31, 2020 and 2019, accounts receivable due from these customers as a percentage of consolidated accounts receivable were as follows:

	As of March 31,
	2020			2019
Customer A		5.44	%		9.28	%
Customer B		8.94	%		9.81	%

Recently issued accounting standards

Recently issued accounting standards

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued.

Recently adopted accounting standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. The Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") on April 1, 2019 by using the modified retrospective method. The adoption had no impact on the Company's statement of cash flows for the year ended March 31, 2020.

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash". The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied using a retrospective transition method to each period presented, which resulted in an approximately US$0.97 thousand term deposit held by the Company as of March 31, 2018 and matured during the year ended December 31, 2019 being reclassified from a cash inflow from investing activities to the beginning balance of cash, cash equivalents, and restricted cash shown on the statement of cash flows for the year ended March 31, 2019. The adoption of ASU No. 2016-18 had no impact on the Company's statement of cash flows for the year ended March 31, 2020.

In July 2017, the FASB issued ASU No. 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)-I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception". The amendments in part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this ASU do not require any transition guidance because those amendments do not have an accounting effect. The Company has adopted the amendments in this ASU on April 1, 2019, when determining whether certain financial instruments issued by the Company after April 1, 2019 should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The adoption of the amendments in this ASU did not have a material impact on the Company's consolidated financial position and results of operations.

In February 2018, the FASB issued ASU No. 2018-02: "Income Statement—Reporting Comprehensive Income (Topic 220)- Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU also require certain disclosures about stranded tax effects. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of the amendments in this ASU did not have a material impact on its consolidated financial position and results of operations.

Recently issued accounting standards

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The amendments in this ASU require the measurement and recognition of expected credit losses for financial assets held at amortized cost. The amendments in this ASU replace the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses", which among other things, clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. For public entities, the amendments in these ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact on its consolidated financial position and results of operations upon adopting these amendments. 

In June 2018, the FASB issued ASU No. 2018-07: "Compensation—Stock Compensation (Topic 718)-Improvements to Nonemployee Share-Based Payment Accounting". The Board is issuing this Update as part of its Simplification Initiative. The amendments in this Update expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. Disclosures required at transition include the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of equity. Based on the Company's evaluation, the Company does not expect the adoption of the amendments in this ASU to have a material impact on its consolidated financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements. The amendments in this ASU, among other things, require public companies to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations.

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Significant Accounting Policies (Tables)

12 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Schedule of translation of amounts exchange rates

	March 31, 2020		March 31, 2019		March 31, 2018
Balance sheet items, except for equity accounts		7.0808		6.7111		6.2807
Items in the statements of operations and comprehensive income(loss), and statements of cash flows		6.9637		6.7138		6.6269

Schedule of useful life of property, plant and equipment

	Residual value rate			Useful Lives
Machinery		5	%	10 years
Electric equipment		5	%	3-5 years
Office equipment		5	%	5 years
Vehicles		5	%	4-10 years
Leasehold improvement cost		5	%	3-10 years

Schedule of concentration risk

	For the years ended,
	2020			2019
Customer A		20.23	%		17.07	%
Customer B		15.00	%		15.80	%

	As of March 31,
	2020			2019
Customer A		5.44	%		9.28	%
Customer B		8.94	%		9.81	%

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Accounts Receivable (Tables)

12 Months Ended

Mar. 31, 2020

Receivables [Abstract]

Schedule of accounts receivable

	As of March 31,
	2020			2019
Accounts receivable – third parties	$	3,439,799		$	4,037,208
Accounts receivable – related parties		483,628			210,268
Total accounts receivable, gross		3,923,427			4,247,476
Less: allowance for doubtful accounts		(103,990	)		(66,917	)
Accounts receivable, net	$	3,819,437		$	4,180,559

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Inventories (Tables)

12 Months Ended

Mar. 31, 2020

Inventory Disclosure [Abstract]

Schedule of inventories

	As of March 31,
	2020			2019
Raw materials	$	404,457		$	315,686
Finished goods		533,691			715,344
Provision for inventory		(45,381	)		(23,112	)
Total inventories, net	$	892,767		$	1,007,918

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Loan Receivable and Accrued Interest (Tables)

12 Months Ended

Mar. 31, 2020

Receivables [Abstract]

Schedule of Loan receivable and accrued interest

	As of March 31,
	2020		2019
Loan receivable - RH Holdings Management (HK) Limited	$	1,500,000	$	-
Accrued interest		67,500		-
Total	$	1,567,500	$	-

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Prepayments, Receivables and Other Assets (Tables)

12 Months Ended

Mar. 31, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of prepayments, receivables and other assets

	As of March 31,
	2020		2019
Receivable from a third-party company	$	3,530,675	$	-
Staff IOU		943,718		670,619
Others		144,347		36,718
Total	$	4,918,740	$	707,337

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Property, Plant and Equipment (Tables)

12 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of property, plant and equipment

	As of March 31,
	2020			2019
Machinery	$	638,660		$	658,043
Electric equipment		144,436			138,338
Office equipment		74,797			78,917
Vehicles		182,563			122,969
Leasehold improvement		1,559,152			906,060
Total property plant and equipment, at cost		2,599,608			1,904,327
Less: accumulated depreciation		(1,025,006	)		(745,429	)
Total property, plant and equipment, net	$	1,574,602		$	1,158,898

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Intangible Assets, Net (Tables)

12 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets net

	As of March 31,
	2020			2019
Trademark	$	42,982		$	45,350
Software		33,768			35,629
Total intangible assets, at cost		76,750			80,979
Less: accumulated amortization		(26,698	)		(19,883	)
Total intangible assets, net	$	50,052		$	61,096

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Construction In Process (Tables)

12 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Schedule of construction in progress

	March 31, 2020		March 31, 2019
Factory	$	148,372	$	129,453
Workshop		-		519,782
Retail outlet		180,000		-
	$	328,372	$	649,235

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Bank Loans (Tables)

12 Months Ended

Mar. 31, 2020

Brokers and Dealers [Abstract]

Schedule of bank loans

	As of March 31,
	2020		2019
Car loans – current portion	$	43,902	$	27,817

	As of March 31,
	2020		2019
Car loans – non-current portion	$	36,511	$	41,706

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Convertible Notes (Tables)

12 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Schedule of unaudited net carrying amount

	Principal outstanding		Unamortized issuance cost			Net carrying value
Convertible Notes - short-term	$	6,828,050		(184,587	)	$	6,643,463

Schedule of net carrying amount of the equity component

	Amount allocated to conversion option		Issuance cost			Equity component, net
Convertible Notes – equity portion	$	956,875		(272,773	)	$	684,102

Schedule of amortization of issuance cost, debt discount and interest cost

	Issuance costs and debt discount		Convertible note interest		Total
Convertible Notes	$	2,519,762		902,149	$	3,421,910

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Accrued Expenses and Other Liabilities (Tables)

12 Months Ended

Mar. 31, 2020

Payables and Accruals [Abstract]

Schedule of accrued expenses and other liabilities

	As of March 31,
	2020		2019
Accrued payroll and welfare	$	393,740	$	219,867
Other payable for leasehold improvements		1,428,073		119,535
Accrued professional service expenses		127,787		187,444
Other current liabilities		287,705		164,676
Total	$	2,237,305	$	691,522

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Income Taxes (Tables)

12 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Schedule of income tax expenses

	For the years ended March 31,
	2020			2019			2018
Current income tax provision		-		$	259,955		$	445,954
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total income tax expense (benefit)		(101,722	)	$	252,232		$	440,103

Schedule of income from operations before income taxes

	For the years ended March 31,
	2020			2019			2018
Income (Loss) before income taxes		(10,389,594	)	$	1,791,459		$	1,627,684
Income tax expense (benefit) at the PRC statutory rate		(1,558,439	)		268,719			406,921
Non-deductible expenses		1,598,226			20,334			39,033
Deductible research and development expenses		(39,787	)		(29,098	)		-
Deferred income tax provision		(101,722	)		(7,723	)		(5,851	)
Total		(101,722	)	$	252,232		$	440,103

Schedule of deferred income tax assets and liabilities

	As of March 31,
	2020		2019
Tax loss carry forward	$	90,434	$	-
Allowance for doubtful account		15,598		10,038
Impairment provision for inventory		6,807		3,466
Total	$	112,839	$	13,504

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Related Party Transactions (Tables)

12 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Schedule of nature of relationships with related parties

Name of related parties	Relationship with the Company
Feng Zhou	Major shareholder of the Company, Chief Executive Officer, Interim Chief Financial Officer and Director of the Company
Jianping Zhou	Father of major shareholders of the Company and two of Taizhou Suxuantang shareholders, controlling shareholder of Taizhou Suxuantang from its inception to May 8, 2017
Jianbin Zhou	Father of major shareholders of the Company and one of Taizhou Suxuantang shareholders
Taizhou Jiutian Pharmaceutical Co. Ltd.	An entity controlled by Jianping Zhou
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

Schedule of amount due from a related party

	As of March 31,
	2020		2019
Jiangsu Health Pharmaceutical Investment Co., Ltd.	$	768,341	$	-
Total	$	768,341	$	-

Schedule of amount due to related party

	As of March 31,
	2020		2019
Feng Zhou	$	-	$	1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd.		-		939,521
Jianbin Zhou		-		745
Total	$	-	$	2,483,094

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Commitment (Tables)

12 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Schedule of operating lease commitment

Office Rental	For the year ended March 31,
2021	$	70,670
2022		70,670
2023		70,670
2024		70,670
2025		70,670
Thereafter		194,342
Total	$	547,692

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Organization and Principal Actitivies (Details) - $ / shares		12 Months Ended
	May 08, 2017	Mar. 31, 2019	Mar. 31, 2020	Oct. 20, 2017	Jul. 04, 2017
Organization and Principal Actitivies (Textual)
Issuance of common stocks		22,706,701	38,667,707
Common stock par value		$ 0.001	$ 0.001
Exclusive Business Cooperation Agreement [Member]
Organization and Principal Actitivies (Textual)
Agreement Description		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.
Share Pledge Agreement [Member]
Organization and Principal Actitivies (Textual)
Percentage of hold shares		100.00%
Feng Zhou [Member]
Organization and Principal Actitivies (Textual)
Percentage of shares	83.00%
Ziqun Zhou [Member]
Organization and Principal Actitivies (Textual)
Percentage of shares	11.50%
Di Zhou [Member]
Organization and Principal Actitivies (Textual)
Percentage of shares	5.50%
Individual [Member]
Organization and Principal Actitivies (Textual)
Issuance of common stocks				9,700,000
Common stock par value				$ 0.001
BVI [Member]
Organization and Principal Actitivies (Textual)
Percentage of owned interest					100.00%
British Virgin Islands [Member]
Organization and Principal Actitivies (Textual)
Issuance of common stocks					10,300,000
Common stock par value					$ 0.001
Taizhou Suxuantang [Member]
Organization and Principal Actitivies (Textual)
Issuance of common stocks				10,300,000
Percentage of hold shares					100.00%
Related party transaction, Description		Taizhou Suxuantang was incorporated on June 9, 2005 by Jianping Zhou, Xiufang Yuan (the spouse of Jianping Zhou) and Jianbin Zhou, who held 83%, 11.5% and 5.5% shares in Taizhou Suxuantang respectively. On May 8, 2017, the three shareholders transferred all shares to Feng Zhou, Ziqun Zhou and Di Zhou (collectively “Taizhou Shareholders”), who hold 83%, 11.5% and 5.5% shares in Taizhou Suxuantang, respectively, after the transfer of shares. Feng Zhou and Ziqun Zhou are the children of Jianping Zhou and Xiufang Yuan, and Di Zhou is the child of Jianbin Zhou.

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Significant Accounting Policies (Details)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Accounting Policies [Abstract]
Balance sheet items, except for equity accounts	7.0808	6.7111	6.2807
Items in the statements of operations and comprehensive income (loss), and statements of cash flows	6.9637	6.7138	6.6269

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Significant Accounting Policies (Details 1)	12 Months Ended
	Mar. 31, 2020
Machinery [Member]
Residual value rate	5.00%
Useful life	10 years
Electric equipment [Member]
Residual value rate	5.00%
Electric equipment [Member] | Maximum [Member]
Useful life	5 years
Electric equipment [Member] | Minimum [Member]
Useful life	3 years
Office equipment [Member]
Residual value rate	5.00%
Useful life	5 years
Vehicles [Member]
Residual value rate	5.00%
Vehicles [Member] | Maximum [Member]
Useful life	10 years
Vehicles [Member] | Minimum [Member]
Useful life	4 years
Leasehold improvement cost [Member]
Residual value rate	5.00%
Leasehold improvement cost [Member] | Maximum [Member]
Useful life	10 years
Leasehold improvement cost [Member] | Minimum [Member]
Useful life	3 years

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Significant Accounting Policies (Details 2)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Total revenues [Member]
Concentration risk, Percentage	10.00%	10.00%
Total revenues [Member] | Customer A [Member]
Concentration risk, Percentage	20.23%	17.07%
Total revenues [Member] | Customer B [Member]
Concentration risk, Percentage	15.00%	15.80%
Accounts receivable [Member] | Customer A [Member]
Concentration risk, Percentage	5.44%	9.28%
Accounts receivable [Member] | Customer B [Member]
Concentration risk, Percentage	8.94%	9.81%

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Significant Accounting Policies (Details Textual)	12 Months Ended
	Mar. 31, 2020 USD ($) customers	Mar. 31, 2019 USD ($) customers	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Restricted cash		$ 161,084
Advertising expenses	1,021,543	857,908
Accumulated other comprehensive income	(590,660)	50,395
Allowances for bad debts
sales return provision recorded in Refund liabilities	113,611	78,317
Advance from customers	$ 298,042	57,553
Intangible assets amortized useful life	Intangible assets represented the trade mark registered in the PRC and purchased software which are amortized on a straight-line basis over a useful life of 10 years.
Cash and cash equivalents	$ 7,287,032	9,130,849	$ 657,767	$ 65,570
Allowance for accounts receivable	$ 103,990	$ 66,917
Sales Revenue, Net [Member]
Concentration risk, Percentage	10.00%	10.00%
Number of customers | customers	2	2

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Accounts Receivable (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Receivables [Abstract]
Accounts receivable - third parties	$ 3,439,799	$ 4,037,208
Accounts receivable - related parties	483,628	210,268
Total accounts receivable, gross	3,923,427	4,247,476
Less: Allowance for doubtful accounts	(103,990)	(66,917)
Accounts receivable, net	$ 3,819,437	$ 4,180,559

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Accounts Receivable (Details Textual) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Accounts Receivable (Textual)
Bad debt expense	$ 41,249	$ 66,898

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Inventories (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 404,457	$ 315,686
Finished goods	533,691	715,344
Provision for inventory	(45,381)	(23,112)
Total inventories, net	$ 892,767	$ 1,007,918

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Inventories (Details Textual) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Inventories (Textual)
Impairment provision of inventories	$ 23,871	$ 23,112

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Loan Receivable and Accrued Interest (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Receivables [Abstract]
Loan receivable - RH Holdings Management (HK) Limited	$ 1,500,000
Accrued interest	67,500
Total	$ 1,567,500

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Loan Receivable and Accrued Interest (Details Textual) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Receivables [Abstract]
Short-term loan	$ 43,902	$ 27,817
Annual interest rate	5.40%

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Deferred Cost (Details)	Mar. 31, 2020 USD ($)
Deferred Cost (Textal)
Deferred financing costs	$ 510,617

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Prepayments, Receivables and Other Assets (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Receivable from a third-party company	$ 3,530,675
Staff IOU	943,718	670,619
Others	144,347	36,718
Total	$ 4,918,740	$ 707,337

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Prepayments, Receivables and Other Assets (Details Textual)	1 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2020 CNY (¥)	Oct. 31, 2019 USD ($)	Oct. 31, 2019 CNY (¥)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 CNY (¥)	Jun. 14, 2019 USD ($)	Jun. 14, 2019 CNY (¥)
Taizhou Suxuantang [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | $					$ 7,000,000
Taizhou Suxuantang [Member] | One Installment [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | $							$ 3,500,000
Taizhou Suxuantang [Member] | Second Installment [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | $			$ 3,500,000
Taizhou Suxuantang [Member] | RMB [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | ¥						¥ 50,000,000
Taizhou Suxuantang [Member] | RMB [Member] | One Installment [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | ¥								¥ 25,000,000
Taizhou Suxuantang [Member] | RMB [Member] | Second Installment [Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | ¥				¥ 25,000,000
General Partner and Other Limited partners [Member] | Subsequent Event [Member]
Prepayments, Receivables and Other Asset (Textual)
Installment payment received | $	$ 2,800,000
General Partner and Other Limited partners [Member] | Withdraw Installment[Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | $							$ 3,500,000
General Partner and Other Limited partners [Member] | RMB [Member] | Subsequent Event [Member]
Prepayments, Receivables and Other Asset (Textual)
Installment payment received | ¥		¥ 20,000,000
General Partner and Other Limited partners [Member] | RMB [Member] | Withdraw Installment[Member]
Prepayments, Receivables and Other Asset (Textual)
Partnership contribution | ¥								¥ 25,000,000

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Property, Plant and Equipment (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Total property plant and equipment, at cost	$ 2,599,608	$ 1,904,327
Less: accumulated depreciation	(1,025,006)	(745,429)
Total property, plant and equipment, net	1,574,602	1,158,898
Machinery [Member]
Total property plant and equipment, at cost	638,660	658,043
Electric equipment [Member]
Total property plant and equipment, at cost	144,436	138,338
Office equipment [Member]
Total property plant and equipment, at cost	74,797	78,917
Vehicles [Member]
Total property plant and equipment, at cost	182,563	122,969
Leasehold improvement [Member]
Total property plant and equipment, at cost	$ 1,559,152	$ 906,060

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Property, Plant and Equipment (Details Textual) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Property, Plant and Equipment (Textual)
Depreciation expense	$ 323,852	$ 174,020

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Intangible Assets, Net (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Total intangible assets, at cost	$ 76,750	$ 80,979
Less: accumulated amortization	(26,698)	(19,883)
Total intangible assets, net	50,052	61,096
Software [Member]
Total intangible assets, at cost	33,768	35,629
Trademark [Member]
Total intangible assets, at cost	$ 42,982	$ 45,350

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Intangible Assets, Net (Details Textual) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Intangible Assets, Net (Textual)
Amortization expense	$ 7,985	$ 6,967

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Construction in Process (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Construction in progress	$ 328,372	$ 649,235
Retail outlet [Member]
Construction in progress	180,000
Factory [Member]
Construction in progress	148,372	129,453
Workshop [Member]
Construction in progress		$ 519,782

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Bank Loans (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Brokers and Dealers [Abstract]
Car loans - current portion	$ 43,902	$ 27,817
Car loans - non-current portion	$ 36,511	$ 41,706

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Bank Loans (Details Textual)	12 Months Ended
	Mar. 31, 2020 USD ($)
Bank Loans (Textual)
Bank loans , description	Two car loans of $70,613 at 12% annual interest rate and $48,017 at 9.5% annual interest rate were valid from October 1, 2018 to September 30, 2021 and from July 1, 2019 to June 30, 2022, respectively. Both cars were pledged as collateral for loans until full settlement.
Original car loan [Member]
Bank Loans (Textual)
Car loan	$ 70,613
Annual interest rate	12.00%
New car loan [Member]
Bank Loans (Textual)
Car loan	$ 48,017
Annual interest rate	9.50%

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Convertible Notes (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Convertible notes Net carrying value, Short-term	$ 6,643,463
Convertible Notes [Member]
Convertible notes Principal outstanding, Short-term	6,828,050
Convertible notes unamortized issuance cost, short-term	(184,587)
Convertible notes Net carrying value, Short-term	$ 6,643,463

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Convertible Notes (Details 1)	12 Months Ended
	Mar. 31, 2020 USD ($)
Debt Disclosure [Abstract]
Amount allocated to conversion option	$ 956,875
Issuance cost	(272,773)
Equity component, net	$ 684,102

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Convertible Notes (Details 2)	12 Months Ended
	Mar. 31, 2020 USD ($)
Debt Disclosure [Abstract]
Amortization, Issuance costs and debt discount	$ 2,519,762
Amortization, Convertible note interest	902,149
Amortization, Total	$ 3,421,910

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Convertible Notes (Details Textual) - USD ($)	1 Months Ended				12 Months Ended
	Dec. 13, 2019	Jul. 29, 2019	Jul. 23, 2019	Apr. 16, 2019	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Convertible Notes (Textual)
Effective interest rate					26.73%
Material terms of convertible notes, description					● The aggregate principal amount of the Series A Notes is $10,000,000 and the Series B Notes is $5,000,000. All of the aggregate principal amount of the Series B Notes will constitute Restricted Principal. If an Investor prepays any amount under such Investor’s Investor Note, an equal amount of the Restricted Principal becomes unrestricted principal under such Investor’s Series B Note. The amount raised by the Company upon closing of the PIPE transaction was $10,000,000 from Series A Notes. ● The expiration date of Notes and warrant shall be October 2, 2020 and May 2, 2023 respectively. The aggregate redemption amount of the Notes shall be redeemed in installments on or before the expiration date. ● The interest rate on the Convertible Notes is eight percent (8%) per annum. In the event of default, the Interest Rate shall be increased to eighteen percent (18%) per annum. ● The initial fixed conversion price will be $8.38 per share, subject to reduction and adjustment for stock splits, stock dividends, and similar events. ● During an Event of Default Redemption Right Period the Investor may convert all, or any part of, the Conversion Amount into Ordinary Shares at the Alternate Conversion Price. ● The Alternate Conversion Price is the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, (ii) 80% of the volume-weighted average price (“VWAP”) of the Ordinary Shares as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, (iii) 80% of the VWAP of the Ordinary Shares as of the Trading Day of the delivery or deemed delivery of the applicable Conversion Notice and (iv) 80% of the price computed as the quotient of (I) the sum of the VWAP of the Ordinary Shares for each of the three (3) Trading Days with the lowest VWAP of the Ordinary Shares during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (II) three (3) (such period, the “Alternate Conversion Measuring Period”). ● The aggregate number of Series A and Series B warrant shares to be converted on expiration is 596,658 and 298,330 shares respectively.
Equity component in stockholders equity and warrants value					$ 684,102
Equity component					436,626
Warrants value					2,112,766
Debt extinguishment loss					(5,625,916)
Paid to forbear debt					$ 11,939,410
Forbearance Agreements [Member]
Convertible Notes (Textual)
Material terms of convertible notes, description					● to forbear from (i) taking any action to enforce their Redemption Notice with respect to certain existing defaults, and (ii) issuing any new demand for redemption of the Series A Note on the basis of certain additional defaults that the aggregate daily dollar trading volume of the Company’s ordinary shares does not exceed $1,500,000, and that the volume weighted average price of the Company’s ordinary shares on any two trading days during the thirty trading day period immediately preceding such date of determination fails to exceed $2.14; ● not to exercise the Series A Warrant during the Forbearance Period; ● to return the original share certificate representing the Pre-Delivered Shares to the Company for cancellation upon the Company’s payment of the full Forbearance Redemption Amounts; ● to execute and deliver to the Company certain lock-up agreements with respect to the Pre-Delivered Shares, certain mutual release and to execute and deliver to the Company the Leak-Out Agreement; ● not to make any hedge, swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Pre-Delivered Shares; ● to not sell, dispose or otherwise transfer, directly or any Ordinary Shares issued if such sale exceed 20% of the daily composite trading volume of the Ordinary Shares. In consideration for the above, the Company agreed to the followings: ● the Company shall (I) pay to each Investor $500,000 on or prior to December 16, 2019, and (II) commencing on January 24th 2020, redeem the Series A Notes for an aggregate redemption price of $10,939,410; ● if the Company fails to pay any New Installment Amount within 5 days of the applicable New Installment Date, the Investor may convert the applicable New Installment Amount as an Alternate Conversion and the Leak-Out Agreement being disregarded for such conversions; ● the Company agreed to adjust the exercise price of the Series A Warrant from $8.38 to $2.50; ● the Company shall cause all restrictive legends on the Pre-Delivered Shares to be removed and delivery of un-legended Pre-Delivery Shares into the Investor’s custodian’s account pursuant to the DWAC instructions set forth therein.
Equity component in stockholders equity and warrants value					$ 247,476
Equity component					10,370
Warrants value					2,549,392
Issuance costs attributable to liability component					429,604
Debt instrument, redemption, description		The company received from the investors an Event of Default Redemption Notice claimed that the company failed to timely make the instalment payment and elected to effect the redemption of $14,318,462.62 comprising in aggregate the entire principal amount, accrued and unpaid Interest. In addition, demand for the company to purchase the Series A Warrant issued for the Event of Default Black Scholes Value of not less than $1,208,384.07 was made.	The company received from the investors an Event of Default Redemption Notice claimed that the company failed to timely make the instalment payment and elected to effect the redemption of $14,318,462.62 comprising in aggregate the entire principal amount, accrued and unpaid Interest. In addition, demand for the company to purchase the Series A Warrant issued for the Event of Default Black Scholes Value of not less than $1,208,384.07 was made.
Redemption price	$ 10,939,410
Debt principal amount					10,939,410
Debt extinguishment loss					5,625,916
Modified principle of the convertible notes					10,939,410
Initial forbearance fee					1,000,000
Net carrying value					6,055,648
Principal outstanding					7,886,294
Unamortized issuance cost					1,830,645
Net of equity component					257,846
Third Party Placement Agent and Lawyers [Member]
Convertible Notes (Textual)
Equity component in stockholders equity and warrants value					699,029
Equity component					262,403
Warrants value					2,112,766
Debt issuance costs					3,753,816
Issuance costs attributable to liability component					$ 3,491,413
Securities Purchase Agreement [Member]
Convertible Notes (Textual)
Conversion of stock, description				(1) Senior Convertible Notes in the aggregate principal amount of $15 million, consisting of (i) a Series A Note in the principal amount of $10 million, and (ii) a Series B Note in the principal amount of $5 million and (2) warrants to purchase such amount of shares of the company’s ordinary shares equal to 50% of the shares issuable upon conversion of the Notes, exercisable for a period of five years at an exercise price of $8.38, for consideration consisting of (i) a cash payment of $10,000,000, and (ii) a secured promissory note payable by the Investors to the Company in the principal amount of $5 million.

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Refund Liability (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Refund Liability (Textual)
Inventory	$ 51,125	$ 27,411

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Accrued Expenses and Other Liabilities (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Payables and Accruals [Abstract]
Accrued payroll and welfare	$ 393,740	$ 219,867
Other payable for leasehold improvements	1,428,073	119,535
Accrued professional service expenses	127,787	187,444
Other current liabilities	287,705	164,676
Total	$ 2,237,305	$ 691,522

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Accrued Expenses and Other Liabilities (Details Textual) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Payables and Accruals [Abstract]
Balances of other current liabilities	$ 287,705	$ 164,676

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Shareholders' Equity (Details) - USD ($)			1 Months Ended	12 Months Ended
	Jan. 10, 2019	Jan. 03, 2019	Dec. 31, 2018	Mar. 31, 2020	Mar. 31, 2019
Common Stocks (Textual)
Common stock, par value				$ 0.001	$ 0.001
Common stock, shares authorized				Unlimited	Unlimited
Ordinary shares issued				11,961,006
Fair value for convertible debt				$ 5,455,350
Description of ordinary shares issued				On July 4, 2017 and October 20, 2017, the Company issued common stocks of an aggregate of 20,000,000 shares of 0.001 par value to thirteen shareholders, three among whom together hold 100% shares of Suxuantang and over 50% shares of SXT.
Pre-delivery shares				4,000,000
Initial Public Offering [Member]
Common Stocks (Textual)
Ordinary shares of public offering		39,975	2,506,300
Public offering price		$ 4.00	$ 4.00
Gross proceeds initial public offering		$ 10,200,000
Newly shares issued	160,246

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Income Taxes (Details) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Current income tax provision		$ 259,955	$ 445,954
Deferred income tax provision	(101,722)	(7,723)	(5,851)
Total income tax expense (benefit)	$ (101,722)	$ 252,232	$ 440,103

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Income Taxes (Details 1) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income (Loss) before income taxes	$ (10,389,594)	$ 1,791,459	$ 1,627,684
Income tax expense (benefit) at the PRC statutory rate	(1,558,439)	268,719	406,921
Non-deductible expenses	1,598,226	20,334	39,033
Deductible research and development expenses	(39,787)	(29,098)
Deferred income tax provision	(101,722)	(7,723)	(5,851)
Total	$ (101,722)	$ 252,232	$ 440,103

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Income Taxes (Details 2) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Tax Disclosure [Abstract]
Tax loss carry forward	$ 90,434
Allowance for doubtful account	15,598	10,038
Impairment provision for inventory	6,807	3,466
Total	$ 112,839	$ 13,504

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Income Taxes (Details Textual)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Income Taxes (Details Textual)
Effective income tax rate	75.00%
Effective statutory income tax rate	15.00%	15.00%	25.00%
Taizhou Suxuantang [Member]
Income Taxes (Details Textual)
Effective income tax rate	15.00%	15.00%
HONG KONG [Member]
Income Taxes (Details Textual)
Effective income tax rate	16.50%	16.50%	16.50%
PRC [Member]
Income Taxes (Details Textual)
Effective income tax rate	25.00%	25.00%

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Related Party Transactions (Details)	12 Months Ended
	Mar. 31, 2020
Jianping Zhou [Member]
Nature of relationships with related parties	Father of major shareholders of the Company and two of Taizhou Suxuantang shareholders, controlling shareholder of Taizhou Suxuantang from its inception to May 8, 2017
Jianbin Zhou [Member]
Nature of relationships with related parties	Father of major shareholders of the Company and one of Taizhou Suxuantang shareholders
Taizhou Jiutian Pharmaceutical Co. Ltd.[Member]
Nature of relationships with related parties	An entity controlled by Jianping Zhou
Taizhou Su Xuan Tang Chinese Medicine Clinic [Member]
Nature of relationships with related parties	An entity controlled by Jianping Zhou
Jiangsu Health Pharmaceutical Investment Co., Ltd.[Member]
Nature of relationships with related parties	An entity controlled by Jianping Zhou
Taizhou Su Xuan Tang Chinese hospital Co., Ltd [Member]
Nature of relationships with related parties	An entity controlled by Jianping Zhou
Feng Zhou [Member]
Nature of relationships with related parties	Major shareholder of the Company, Chief Executive Officer, Interim Chief Financial Officer and Director of the Company

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Related Party Transactions (Details 1) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Due from related parties balances	$ 768,341
Jiangsu Health Pharmaceutical Investment Co., Ltd. [Member]
Due from related parties balances	$ 768,341

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Related Party Transactions (Details 2) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Due to related parties		$ 2,483,094
Feng Zhou [Member]
Due to related parties		1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd. [Member]
Due to related parties		939,521
Jianbin Zhou [Member]
Due to related parties		$ 745

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Related Party Transactions (Details Textual) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Related Party Transactions (Textual)
Amounts due from related party	$ 768,341
Revenue from sales transactions	5,162,268	7,012,026	$ 7,019,243
Due to related parties		2,483,094
Taizhou Jiutian Pharmaceutical Co. Ltd.[Member]
Related Party Transactions (Textual)
Revenue from sales transactions	251,749	8,942
Taizhou Su Xuan Tang Chinese Medicine Clinic [Member]
Related Party Transactions (Textual)
Revenue from sales transactions	52,643	24,315
Taizhou Su Xuan Tang Chinese hospital Co., Ltd [Member]
Related Party Transactions (Textual)
Revenue from sales transactions	26,037	178,898
Feng Zhou [Member]
Related Party Transactions (Textual)
Amounts due from related party		2,482,349
Due to related parties		1,542,828
Jiangsu Health Pharmaceutical Investment Co., Ltd.[Member]
Related Party Transactions (Textual)
Amounts due from related party	768,341
Due to related parties		$ 939,521

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Guarantee (Details) - Taizhou Jiutian Pharmaceutical Co. Ltd.[Member]			1 Months Ended
	May 08, 2019 USD ($)	May 08, 2019 CNY (¥)	Apr. 23, 2019 USD ($)	Apr. 23, 2019 CNY (¥)
Guarantee (Textual)
Bank borrowing | $	$ 494,294		$ 423,681
RMB [Member]
Guarantee (Textual)
Bank borrowing | ¥		¥ 3,500,000		¥ 3,000,000

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Commitment (Details)	Mar. 31, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2021	$ 70,670
2022	70,670
2023	70,670
2024	70,670
2025	70,670
Thereafter	194,342
Total	$ 547,692

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Condensed Financial Information of the Parent Company (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2017
Current Assets
Cash and cash equivalents	$ 7,287,032	$ 9,130,849	$ 657,767	$ 65,570
Advance to suppliers	154,135	319,088
Loan receivable and accrued interest	1,567,500
Deferred cost	510,617
Amounts due from related parties	768,341
Prepayments, receivables and other current assets	4,618,740	707,337
Total Current Assets	19,636,313	15,588,100
Construction in progress	328,372	649,235
Deferred tax assets, net	112,839	13,504
Total Non-current Assets	2,065,865	1,882,733
TOTAL ASSETS	21,702,178	17,470,833
Current Liabilities
Short-term convertible note	6,643,463
Amounts due to related parties		2,483,094
Accrued expenses and other liabilities	2,237,305	691,522
Total Current Liabilities	12,264,314	6,321,372
TOTAL LIABILITIES	12,300,825	6,363,078
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)	34,667	22,706
Additional paid-in capital	17,161,346	7,950,782
Retained earnings/(Deficits)	(7,204,000)	3,083,872
Total Shareholders' Equity	9,401,353	11,107,755	3,285,775	1,852,646
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	21,702,178	17,470,833
Parent Company [Member]
Current Assets
Cash and cash equivalents	6,988	3,544,162
Advance to suppliers		106,500
Loan receivable and accrued interest	1,567,500
Deferred cost	50,000
Amounts due from related parties	13,820,530	5,668,256
Prepayments, receivables and other current assets	230,266	133,400
Total Current Assets	15,675,284	9,452,318
Construction in progress	180,000
Deferred tax assets, net	1,282	1,282
Total Non-current Assets	181,282	1,282
TOTAL ASSETS	15,856,566	9,453,600
Current Liabilities
Short-term convertible note	6,643,463
Amounts due to related parties	1,530,450	1,530,450
Accrued expenses and other liabilities	134,308
Total Current Liabilities	8,308,221	1,530,450
TOTAL LIABILITIES	8,308,221	1,530,450
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Ordinary shares, $0.001 par value, unlimited shares authorized, 38,667,707 shares issued and 34,667,707 shares outstanding as of March 31, 2020; 22,706,701 shares issued and outstanding as of March 31, 2019)	34,667	22,706
Additional paid-in capital	17,161,346	7,950,782
Retained earnings/(Deficits)	(9,647,668)	(50,338)
Total Shareholders' Equity	7,548,345	7,923,150
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 15,856,566	$ 9,453,600

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Condensed Financial Information of the Parent Company (Details) (Parenthetical) - $ / shares	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	Unlimited	Unlimited
Common stock, shares issued	38,667,707	22,706,701
Common stock, shares outstanding	34,667,707	22,706,701
Parent Company [Member]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	Unlimited	Unlimited
Common stock, shares issued	38,667,707	22,706,701
Common stock, shares outstanding	34,667,707	22,706,701

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Condensed Financial Information of the Parent Company (Details 1) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Operating expenses:
General and administrative	$ (2,461,535)	$ (1,236,546)	$ (1,256,747)
Total operating expenses	(4,044,819)	(2,842,043)	(1,769,229)
Operating Income (Loss)	(1,341,117)	1,769,492	1,632,266
Other income (expenses):
Interest income(expense), net	(3,348,790)	(5,174)	(779)
Loss on debt extinguishment	(5,625,916)
Other income (expenses), net	(73,771)	27,141	(3,803)
Total other income (expenses), net	(9,048,477)	21,967	(4,582)
Income (Loss) before income taxes	(10,389,594)	1,791,459	1,627,684
Income tax recovery (provision)	101,722	(252,232)	(440,103)
Net income (loss)	(10,287,872)	1,539,227	1,187,581
Comprehensive income (loss)	$ (10,928,927)	$ 1,332,249	$ 1,433,129
Earnings per ordinary share
Basic and diluted	$ (0.416)	$ 0.075	$ 0.059
Weighted average number of ordinary shares outstanding
Basic and diluted	24,728,655	20,568,630	20,000,000
Parent Company [Member]
Operating expenses:
General and administrative	$ (614,495)	$ (50,338)
Total operating expenses	(614,495)	(50,338)
Operating Income (Loss)	(614,495)	(50,338)
Other income (expenses):
Interest income(expense), net	(3,354,301)
Loss on debt extinguishment	(5,625,916)
Other income (expenses), net	(2,618)
Total other income (expenses), net	(8,982,835)
Income (Loss) before income taxes	(9,597,330)	(50,338)
Income tax recovery (provision)
Net income (loss)	(9,597,330)	(50,338)
Comprehensive income (loss)	$ (9,597,330)	$ (50,338)
Earnings per ordinary share
Basic and diluted	$ (0.388)	$ (0.002)
Weighted average number of ordinary shares outstanding
Basic and diluted	24,728,655	20,568,630	20,000,000

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Condensed Financial Information of the Parent Company (Details 2) - USD ($)	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018
Cash Flows from Operating Activities:
Net income (loss) from operations	$ (10,287,872)	$ 1,539,227	$ 1,187,581
Adjustments to reconcile net income to net cash provided by operating activities:
Interest accrued on loan receivable	(67,500)
Convertible note - Accretion of financing cost	3,421,910
Convertible note - Extinguishment Loss	5,625,916
Changes in operating assets and liabilities:
Advance to suppliers	154,650	(106,456)	(82,618)
Prepayments, receivables and other assets	(361,589)	144,754	(809,706)
Accrued expenses and other current liabilities	1,606,759	310,315	(203,895)
Net cash provided by (used in) operating activities	934,247	239,192	1,920,161
Cash Flows from Investing Activities:
Construction in progress	(275,819)	(62,981)	(593,676)
Loan receivable	(1,500,000)
Net cash provided by (used in) investing activities	(5,496,704)	(610,085)	(1,050,725)
Cash Flows From Financing Activities:
Proceeds from original convertible note	10,000,000
Payment of original convertible note issuance cost	(1,641,050)
Repayment of original convertible notes	(1,157,376)
Payment of the forbearance cost of original convertible note	(439,974)
Deferred financing costs	(518,362)
Net proceeds from initial public offering		6,490,494
Net cash provided by (used in) financing activities	3,024,369	9,042,083	(314,216)
Net increase in cash, cash equivalents and restricted cash	(2,004,901)	8,634,166	592,197
Cash, cash equivalents and restricted cash at the beginning of year	9,130,849	657,767	65,570
Cash, cash equivalents and restricted cash at the end of year	7,287,032	9,130,849	657,767
Parent Company [Member]
Cash Flows from Operating Activities:
Net income (loss) from operations	(9,597,330)	(50,338)
Adjustments to reconcile net income to net cash provided by operating activities:
Interest accrued on loan receivable	(67,500)
Convertible note - Accretion of financing cost	3,421,910
Convertible note - Extinguishment Loss	5,625,916
Changes in operating assets and liabilities:
Advance to suppliers	106,500	(106,500)
Prepayments, receivables and other assets	(96,866)	(133,400)
Accrued expenses and other current liabilities	190,870
Net cash provided by (used in) operating activities	(416,500)	(290,238)
Cash Flows from Investing Activities:
Construction in progress	(180,000)
Loan receivable	(1,500,000)
Net cash provided by (used in) investing activities	(1,680,000)
Cash Flows From Financing Activities:
Amounts due from related parties	(8,152,274)	(4,186,544)
Amounts due to related parties		1,530,450
Proceeds from original convertible note	10,000,000
Payment of original convertible note issuance cost	(1,641,050)
Repayment of original convertible notes	(1,157,376)
Payment of the forbearance cost of original convertible note	(439,974)
Deferred financing costs	(50,000)
Net proceeds from initial public offering		6,490,494
Net cash provided by (used in) financing activities	(1,440,674)	3,834,400
Net increase in cash, cash equivalents and restricted cash	(3,537,174)	3,544,162
Cash, cash equivalents and restricted cash at the beginning of year	3,544,162
Cash, cash equivalents and restricted cash at the end of year	$ 6,988	$ 3,544,162

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Subsequent Events (Details)					1 Months Ended								4 Months Ended	12 Months Ended
	Jun. 14, 2019 USD ($)	Jun. 14, 2019 CNY (¥)	May 08, 2019 USD ($)	May 08, 2019 CNY (¥)	Jun. 30, 2020 USD ($)	Jun. 30, 2020 CNY (¥)	May 18, 2020 USD ($)	May 18, 2020 CNY (¥)	Apr. 23, 2020 USD ($)	Apr. 23, 2020 CNY (¥)	Apr. 23, 2019 USD ($)	Apr. 23, 2019 CNY (¥)	Jul. 30, 2020	Mar. 31, 2020
Subsequent Event (Textual)
Subsequent event, description														The Company did not renew the loan $1.5 million made to RH Holdings Management (HK) Limited upon maturity date May 31, 2020 and expects to fully collect the loan by the end of October 2020.
Revenue, percentage														26.00%
Forecast [Member]
Subsequent Event (Textual)
Subsequent event, description													From April 1, 2020 to July 30, 2020, 25,469,183 ordinary shares were issued for convertible notes principal and interest partial settlement.
Taizhou Jiutian Pharmaceutical Co. Ltd.[Member]
Subsequent Event (Textual)
Bank borrowing | $			$ 494,294								$ 423,681
Taizhou Jiutian Pharmaceutical Co. Ltd.[Member] | RMB [Member]
Subsequent Event (Textual)
Bank borrowing | ¥				¥ 3,500,000								¥ 3,000,000
Huangshan Panjie Investment LLP Fund [Member] | Withdraw Installment[Member]
Subsequent Event (Textual)
Other receivables | $	$ 3,500,000
Huangshan Panjie Investment LLP Fund [Member] | RMB [Member] | Withdraw Installment[Member]
Subsequent Event (Textual)
Other receivables | ¥		¥ 25,000,000
Subsequent Event [Member] | Taizhou Jiutian Pharmaceutical Co. Ltd.[Member]
Subsequent Event (Textual)
Bank borrowing | $							$ 480,172		$ 409,558
Subsequent Event [Member] | Taizhou Jiutian Pharmaceutical Co. Ltd.[Member] | RMB [Member]
Subsequent Event (Textual)
Bank borrowing | ¥								¥ 3,400,000		¥ 2,900,000
Subsequent Event [Member] | Huangshan Panjie Investment LLP Fund [Member] | Withdraw Installment[Member]
Subsequent Event (Textual)
Other receivables | $					$ 2,800,000
Subsequent Event [Member] | Huangshan Panjie Investment LLP Fund [Member] | RMB [Member] | Withdraw Installment[Member]
Subsequent Event (Textual)
Other receivables | ¥						¥ 20,000,000