ADDENTAX GROUP CORP. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the years ended March 31, 2026 and 2025 should be read in conjunction with the Financial Statements and corresponding notes included in this annual report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements. Overview Our Business We are a Nevada holding company with no material operations of our own. We conduct substantially all of our operations through our operating companies established in the PRC, primarily YX, our wholly-owned subsidiary and its subsidiaries. We are not a Chinese operating company. We are a holding company and do not directly own any substantive business operations in China. Therefore, our investors will not directly hold any equity interests in our operating companies. Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our operating structure, which would likely result in a material change in our operations and/or the value of our Common Stock, including that it could cause the value of such securities to significantly decline or become worthless. Our holding company, Addentax Group Corp., is listed on the Nasdaq Capital Market under the symbol of “ATXG”. During the fiscal year ended March 31, 2026, our continuing operations primarily consisted of garment manufacturing, logistics services and consulting services. Our garment manufacturing business consists of sales made principally to wholesalers located in the PRC. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and delivery requirements for our customers. We conduct our garment manufacturing operations through three wholly-owned subsidiaries, namely YX and YS, which are located in Guangdong province, China. Our logistics business consists of delivery and courier services covering 45 cities in 10 provinces and 2 municipalities in China. Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through two wholly-owned subsidiaries, namely XKJ and PF, which are located in Guangdong province, China. We provide business consulting and coordination services to customers seeking overseas wealth planning, insurance-related information and related cross-border service support. Our services primarily include customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. We conduct our consulting service business through our wholly owned subsidiary, Yingxi HK, which is located in Hong Kong, China. On March 30, 2026, we completed the acquisition of KMFG, a Nevada corporation with headquarters in Shenzhen, China. KMFG operates two core business segments: (i) an apparel and garment trading business focused on the wholesale distribution of men’s and women’s apparel to distributors primarily in China, sourcing directly from manufacturers without maintaining its own production facilities; and (ii) a digital publishing business conducted through its wholly owned subsidiary, GW Reader Sdn. Bhd. in Malaysia, which operates a mobile-based online fiction platform utilizing a pay-per-chapter microtransaction model for global readers. As of March 31, 2026, KMFG’s revenue contribution was not significant, and management does not currently present KMFG as a separate business line or reportable segment. Management will continue to monitor KMFG’s operations, revenue contribution and business development and will reassess the related disclosure and segment presentation as necessary in future periods. Dispositions of Subsidiaries and Discontinued Operations During the fiscal year ended March 31, 2026, we disposed of Dongguan Aotesi Garments Co., Ltd., a PRC company (“AOT”), and Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”). AOT was previously engaged in the garment manufacturing business and was disposed of to the local management of AOT on May 6, 2025. After the disposition, AOT became a third party to the Company. The Company carries on the garment manufacturing business through its remaining subsidiaries, and the disposition of AOT did not qualify as discontinued operations. HX was previously engaged in the property management and subleasing business and was disposed of to the local management of HX on July 1, 2025. After the disposition, HX became a third party to the Company. Following the disposition, the Company no longer conducts the property management and subleasing business through HX or any other subsidiary. The property management and subleasing business has been classified as discontinued operations in the Company’s consolidated financial statements. AOT and HX were no longer subsidiaries of the Company as of March 31, 2026 and as of the date of this annual report. 44 Business Objectives Garment Manufacturing Business We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit. Logistics Services Business The business objective and future plan for our logistics services segment is to establish an efficient logistics system and to build a nationwide delivery and courier network in China. As of March 31, 2026, we provided logistics services to over 45 cities in approximately 10 provinces and 2 municipalities. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s profit in the year 2026. Consulting Services Business The business objective of our consulting service line is to provide advisory, referral, coordination and administrative support services in connection with overseas insurance configuration, wealth management planning, identity planning, education planning and related cross-border service needs. We intend to develop this business as an asset-light service business with an emphasis on high-value consulting services, digital tools and private-domain customer management. Seasonality of Business Garment Manufacturing Business We generally receive more purchase orders during our second and third quarters and fewer manufacture orders during May and June. Logistics Services Business We generally receive more delivery orders in our third and fourth quarters and are more vulnerable to shipping delays in the PRC during Chinese New Year due to traffic and port congestion, border crossing delays and customs clearance issues. Consulting Services Business Management expects relatively stronger customer activity during June to September, October to December, holidays and weekends, while January to March is generally expected to be a traditional slower season due to the Chinese New Year period. Actual seasonality may vary based on customer demand, market conditions, regulatory developments and the availability of third-party service providers. Collection Policy Garment manufacturing Business For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished goods. Logistics Services Business For logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registration of our receipt of packages. 45 Consulting Services Business For consulting services, the credit period is generally 30 to 60 days, depending on the service arrangement, customer relationship, settlement cycle with third-party service providers and internal credit review. We do not directly collect customer insurance premiums. Premiums must be paid by customers directly to the relevant insurance company’s designated bank account or official payment gateway. Economic Uncertainty Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters. Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow. Critical Accounting Estimates The preparation of our 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, revenues and expenses, and related disclosures in the consolidated financial statements and accompanying notes. Management evaluates its estimates on an ongoing basis based on historical experience, current conditions and other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates. Management believes that the following accounting estimates involve a significant level of judgment or estimation uncertainty and are important to an understanding of our financial condition and results of operations. Management has discussed significant audit matters, including accounting estimates and related financial statement disclosures, with the Audit Committee in connection with the annual audit process. Goodwill and Impairment Assessment As a result of the acquisition of KMFG during the fiscal year ended March 31, 2026, the Company recognized goodwill in its consolidated financial statements. Goodwill represents the excess of the purchase consideration over the estimated fair value of identifiable net assets acquired and liabilities assumed in a business combination. The determination of goodwill requires management to make judgments and assumptions regarding the fair value of assets acquired and liabilities assumed, including assumptions related to future cash flows, discount rates, useful lives, market conditions and other valuation inputs. The Company evaluates goodwill for impairment at least annually, and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The impairment assessment requires management to make estimates and assumptions regarding future operating results, cash flows, discount rates, market conditions and the Company’s ability to execute its business plans. If actual results are lower than management’s expectations, or if there are adverse changes in business, market or economic conditions, the Company may be required to recognize impairment charges, which could materially affect the Company’s results of operations and financial condition. Going Concern Assessment The Company has incurred net losses and has used cash in operating activities. Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions. Management’s going concern assessment involves significant judgment, including assumptions regarding the Company’s ability to improve operating results, manage operating costs, collect receivables, obtain additional financing if necessary, and execute its business plans. Changes in these assumptions or the Company’s ability to execute its plans could affect management’s going concern assessment and related disclosures. 46 Results of Operations for the years ended March 31, 2026 and 2025 The following tables summarize our results of operations for the years ended March 31, 2026 and 2025. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. 2026 2025 Changes in 2026 compared to 2025 % Change (In U.S. dollars, except for percentages) Revenue $ 5,371,183 100.0 % $ 4,180,914 100 % $ 1,190,269 28.5 % Cost of revenues (4,613,578 ) (85.9 )% (3,546,657 ) (84.8 )% (1,066,921 ) 30.1 % Gross profit (loss) 757,605 14.1 % 634,257 15.2 % 123,348 19.4 % Operating expenses (2,286,825 ) (42.6 )% (2,451,227 ) (58.6 )% 164,402 (6.7 )% Loss from operations (1,529,220 ) (28.5 )% (1,816,970 ) (43.5 )% 287,750 (15.8 )% Other income, net 519,367 9.7 % 212,391 5.1 % 306,976 144.5 % Fair value gain or loss (3,309,419 ) (61.6 )% (2,339,448 ) (56.0 )% (969,971 ) 41.5 % Net finance cost (613,642 ) (11.4 )% (1,145,522 ) (27.4 )% 531,880 (46.4 )% Income tax expense (4,106 ) (0.1 )% (4,649 ) (0.1 )% 543 (11.7 )% Loss from continuing operations $ (4,937,020 ) (91.9 )% $ (5,094,198 ) (121.8 )% $ 157,178 (3.1 )% Income from discontinued operations 467,855 8.7 % - - 467,855 Net loss (4,469,165 ) (83.2 )% (5,094,198 ) (121.8 )% 625,033 (12.3 )% Revenue Total revenue for the year ended March 31, 2026 significantly increased by approximately $1.2 million, or approximately 28.6%, as compared with the year ended March 31, 2025. The increase was mainly due to revenue generated from the newly established business segment of consulting services. Revenue generated from our garment manufacturing business contributed approximately $0.04 million, or approximately 0.8%, of our total revenue for the year ended March 31, 2026. Revenue generated from the segment contributed approximately $0.3 million, or approximately 6.8%, of our total revenue for the year ended March 31, 2025. The relatively low level of sales was mainly due to insufficient customer base. In addition, order volumes from the remaining customers were lower than in prior periods, while newly developed customers remained in the early stages of business development and had not yet generated significant sales. Revenue generated from our logistics services business contributed approximately $3.2 million, or approximately 59.1%, of our total revenue for the year ended March 31, 2026. Revenue generated from the segment contributed approximately $3.0 million, or approximately 72.2%, of our total revenue for the year ended March 31, 2025. The increase of approximately $0.2 million was mainly due to market volatility. Revenue generated from our property management and subleasing business was Nil for the year ended March 31, 2026. The segment was disposed of on July 1, 2025. The revenue from this segment before disposal has been reclassified as discontinued operations. Revenue generated from our property management and subleasing business contributed approximately $0.9 million, or approximately 21.0%, of our total revenue for the year ended March 31, 2025. Revenue generated from our newly established business segment of consulting service contributed approximately $2.2 million, or 40.1% of our total revenue for the year ended March 31, 2026. 47 Cost of revenue 2026 2025 Increase (decrease) in 2026 compared to 2025 % Change (In U.S. dollars, except for percentages) Net revenue for garment manufacturing $ 40,911 100.0 % $ 283,042 100.0 % $ (242,131 ) (85.5 )% Raw materials 20,252 49.5 % 140,507 49.6 % (120,255 ) (85.6 )% Labor 8,162 20.0 % 72,134 25.5 % (63,972 ) (88.7 )% Other and Overhead 1,237 3.0 % 16,522 5.8 % (15,285 ) (92.5 )% Total cost of revenue for garment manufacturing 29,651 72.5 % 229,163 81.0 % (199,512 ) (87.1 )% Gross profit for garment manufacturing 11,260 27.5 % 53,879 19.0 % (42,619 ) (79.1 )% Net revenue for logistics services 3,176,771 100.0 % 3,018,325 100.0 % 158,446 5.2 % Fuel, toll and other cost of logistics services 2,158,428 67.9 % 1,801,302 59.7 % 357,126 19.8 % Subcontracting fees 286,792 9.1 % 166,488 5.5 % 120,304 72.3 % Total cost of revenue for logistics services 2,445,220 77.0 % 1,967,790 65.2 % 477,430 24.3 % Gross Profit for logistics services 731,551 23.0 % 1,050,535 34.8 % (318,984 ) (30.4 )% Net revenue for property management and subleasing - - 879,547 100.0 % (879,547 ) (100 )% Total cost of revenue for property management and subleasing - - 1,349,704 153.5 % (1,349,704 ) (100 )% Gross (loss) Profit for property management and subleasing - - (470,157 ) (53.5 )% 470,157 (100 )% Net revenue for consulting 2,153,501 100 % - 2,153,501 Total cost of consulting 2,138,707 99.3 % - 2,138,707 Gross profit for consulting 14,794 0.7 % - 14,794 Total cost of revenue $ 4,613,578 85.9 % $ 3,546,657 84.8 % $ 1,066,921 30.1 % Gross profit $ 757,605 14.1 % $ 634,257 15.2 % $ 123,348 19.4 % 48 For our garment manufacturing business, we purchased the majority of our raw materials directly from numerous local fabric and accessories suppliers. Raw materials cost for our garment manufacturing business was approximately 49.5% of our total garment manufacturing business revenue in the year ended March 31, 2026, as compared with approximately 49.6% in the year ended March 31, 2025. The decrease in percentage was mainly due to a reduction in the costs of the raw materials. This decrease was driven by our shift to purchasing finished garments amid lower order volumes during the year ended March 31, 2026. At smaller scale, direct sourcing is more cost-efficient than in-house manufacturing. Additionally, our small-batch, diversified product mix resulted in lower average unit costs, which reduced the overall ratio. Labor costs for our garment manufacturing business were approximately 20.0% of our total garment manufacturing business revenue in the year ended March 31, 2026, as compared with 25.5% in the year ended March 31, 2025. We maintained a sustainable level in wages. The decrease in portion of labor cost against revenue was mainly due to the decrease in revenue. Overhead and other expenses for our garment manufacturing business accounted for approximately 3.0% and 5.8% of our total garment manufacturing business revenue for the years ended March 31, 2026 and 2025, respectively. For our logistic services business, we outsource some of the business to our subcontractors. Our subcontractors are contract logistic service providers. The Company relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately 7.2% and 5.2% of total cost of revenues for our logistics services segment for the years ended March 31, 2026 and 2025, respectively. The increase in subcontracting fees paid to the largest contractor was mainly due to the Company’s increased utilization of subcontractors. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistic service provider. Fuel, toll and other costs for our logistics business for the year ended March 31, 2026 was approximately $2.2 million, as compared with $1.8 million for the year ended March 31, 2025. Fuel, toll and other costs for our logistics business accounted for approximately 67.9% of our total service revenue for the year ended March 31, 2026, as compared with approximately 59.7% for the year ended March 31, 2025. Subcontracting fees for our logistics business for the year ended March 31, 2026 increased to approximately $0.3 million from $0.2 million for the year ended March 31, 2025, representing an increase of approximately 72.3%. Subcontracting fees accounted for 9.0% and 5.5% of our total logistics business revenue in the years ended March 31, 2026 and 2025, respectively. For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The cost of revenue for property management and subleasing business for the year ended March 31, 2026 was $Nil as the business segment was disposed of on July 1, 2025. The revenue from this segment has been reclassified as discontinued operations. As compared, the revenue was $1.3 million, approximately 153.5% of total property management and subleasing business revenue for the year ended March 31, 2025. For consulting service business, the cost of revenue was mainly attributable to referral fees, channel service fees and other service fulfillment costs paid or payable to third-party referral partners and cooperating service providers. The cost of revenue for consulting service for the year ended March 31, 2026 was $2.1 million, representing approximately 99.3% of total consulting service revenue. 49 Gross profit Gross profit of garment manufacturing business for the year ended March 31, 2026 was approximately $11,260, as compared with approximately $53,879 for the year ended March 31, 2025. Gross profit ratio was approximately 27.5% of revenue of the segment, as compared with approximately 19.0% for the year ended March 31, 2025. Gross profit of our logistics services business for the year ended March 31, 2026 was approximately $0.7 million and gross profit ratio was approximately 23.0%. Gross profit of the segment for the year ended March 31, 2025 was approximately $1.1 million and gross profit ratio was approximately 34.8%. The decrease in gross profit ratio was mainly due to a combination of cost and market factors: significantly higher toll expenses; and a competitive “low-margin, high-volume” pricing strategy adopted to maintain market share amid intense economic competition, despite year-over-year revenue growth in the 2026 period. Gross profit of our consulting service business for the year ended March 31, 2026 was $14,794, and gross profit ratio was approximately 0.7%. Cost of revenue for consulting service represented approximately 99.3% of consulting service revenue for the year ended March 31, 2026. The relatively low gross profit ratio was primarily due to referral fees, channel service fees and other service fulfillment costs paid or payable to third-party referral partners and cooperating service providers in connection with the Company’s consulting service arrangements during the initial stage of operation of the consulting service business. Gross profit of our property management and subleasing business for the year ended March 31, 2026 was reclassified to discontinued operations as it was disposed of on July 1, 2025. Gross loss in our property management and subleasing business for the year ended March 31, 2025 was $0.5 million, or (53.5)% of our total property management and subleasing business revenue. 2026 2025 Changes in 2026 compared to 2025 (In U.S. dollars, except for percentages) Gross profit $ 757,605 100 % $ 634,257 100 % 123,348 19.4 % Operating expenses: Selling expenses (24,433 ) (3.2 )% (393,226 ) (62.0 )% 368,793 (93.8 )% General and administrative expenses (2,262,392 ) (298.6 )% (2,058,001 ) (324.5 )% (204,391 ) 9.9 % Total $ (2,286,825 ) (301.8 )% $ (2,451,227 ) (386.5 )% 164,402 (6.7 )% Loss from operations $ (1,529,220 ) (201.8 )% $ (1,816,970 ) (286.5 )% 287,750 (15.8 )% Selling, General and administrative expenses Our selling expenses were mainly incurred for our garments manufacturing business. It was $23,729 for garments manufacturing business for the year ended March 31, 2026. It was approximately $264,270 for property management and subleasing business and $128,956 for garments manufacturing business for the year ended March 31, 2025. Selling expenses consist primarily of local transportation, unloading charges and product inspection charges. 50 Our general and administrative expenses in our garment manufacturing segment for the years ended March 31, 2026 and 2025 were approximately $35,991 and $25,638, respectively. Our general and administrative expenses in our logistics services segment for the year ended March 31, 2026 and 2025 was approximately $695,013 and $800,820, respectively. The general and administrative expenses in our consulting business were approximately $81,228 and $Nil for the years ended March 31, 2026 and 2025. Our general and administrative expenses in our corporate office for the years ended March 31, 2026 and 2025 were approximately $1,449,880 and $1,011,522, respectively. General and administrative expenses consist primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues. Total general and administrative expenses for the year ended March 31, 2026 increased approximately 9.9% to approximately $2.26 million from approximately $2.06 million for the year ended March 31, 2025. Loss from operations Loss from operations for the years ended March 31, 2026 and 2025 was approximately $1.5 million and $1.8 million, respectively. Loss from operations of approximately $48,459 and $100,715 was attributed from our garment manufacturing segment for the years ended March 31, 2026 and 2025, respectively. Income from operations of approximately $35,833 and $249,160 was attributed from our logistics services segment for the years ended March 31, 2065 and 2025, respectively. Loss from operations of $66,434 was attributed from our consulting business for the years ended March 31, 2026. Loss from operations from our corporate office for the years ended March 31, 2026 and 2026 was $1,449,880 and $1,010,967, respectively. Income Tax Expenses Income tax expense for the years ended March 31, 2026 and 2025 was $4,106 and $4,649, respectively. The Company operates in the PRC and files tax returns in the PRC jurisdictions. YICG was incorporated in the Republic of Seychelles and, under the current laws of Seychelles, is not subject to income taxes. Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the years ended March 31, 2026 and 2025. WFOE and YX were incorporated in the PRC and are subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as WFOE and YX had no taxable income for the years ended March 31, 2026 and 2025. PRC operating companies are governed by the Income Tax Laws of the PRC and subject to progressive EIT rate from 5% to 15% in year ended March 31, 2026. The preferential tax rates will be expired at the end of year 2026. Income taxes of the PRC companies were $4,106 and $4,649 for the year ended March 31, 2026 and 2025, respectively. The Company’s parent entity, Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the years ended March 31, 2026 and 2025. Net Loss We incurred a net loss of approximately $4.0 million and a net loss of approximately $5.1 million for the years ended March 31, 2026 and 2025, respectively. Our basic and diluted loss per share were $5.55 and $12.75 for the year ended March 31, 2026 and 2025, respectively. 51 Summary of cash flows Summary cash flows information for the years ended March 31, 2025 and 2024 is as follows: 2026 2025 (In U.S. dollars) Net cash (used in) provided by operating activities $ (603,603 ) $ 816,001 Net cash (used in) provided by investing activities $ (296,852 ) $ (205,811 ) Net cash provided by (used in) financing activities $ 1,154,255 $ (1,102,141 ) Net cash provided by operating activities in the year ended March 31, 2026 decreased by approximately $1.4 million compared with that of the year ended March 31, 2025. It was mainly because the net loss adjusted to cash used in operating activities of fiscal year ended March 31, 2026 was approximately $0.2 million less than the amount of the fiscal year ended March 31, 2025. The movement of operating assets and liabilities of the year ended March 31, 2026 resulted in cash outflow of approximately $0.4 million compared to cash inflow of approximately $0.8 million in the movement of operating assets and liabilities for the year ended March 31, 2025. We aim to improve our operating cash flow by closely monitoring the timely collection of accounts and other receivables. We generally do not hold any significant inventory for more than ninety days, as we typically manufacture upon customers’ order. Net cash used in investing activities increased by approximately $0.1 million for the year ended March 31, 2026, compared to the year ended March 31, 2025. The increase was mainly due to the net effect of the disposals of AOT and HX, including cash deconsolidated upon the disposals, partially offset by the reduction of investing cash outflows from the disposed subsidiaries after the disposal dates and cash acquired from KMFG upon acquisition. Net cash provided by financing activities increased by approximately $2.2 million for the year ended March 31, 2026 compared to the year ended March 31, 2025. In the year ended March 31 2026, the Company paid $1.2 million net cash advance to related parties, paid $0.4 million for redemption of convertible debt, and received cash of $2.7 million from released restricted cash. In the year ended March 31 2025, the Company received the proceeds of $0.6 million from issuance of Common Stock, payment of $0.5 million for redemption of convertible debt, net cash advance of $1.4 million to related parties and net cash from bank loans of $0.2 million. Financial Condition, Liquidity and Capital Resources As of March 31, 2026, we had cash on hand of approximately $0.6 million and restricted cash of approximately $0.01 million, total current assets of approximately $23.0 million and current liabilities of approximately $3.0 million. We presently finance our operations primarily through cash flows from revenue, existing cash resources, capital contributions or financial support from our chief executive officer, Mr. Hong Zhida, and, if necessary, potential future financing activities, including equity financing, debt financing, private placements or other financing arrangements. There can be no assurance that additional financing will be available to us on commercially acceptable terms, or at all. Foreign Currency Translation Risk Our operations are located in mainland China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In last year, RMB depreciated against the U.S. dollar. As of March 31, 2026, the market foreign exchange rate had increased to RMB6.91 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the years ended March 31, 2026 and 2025 was $(171,577) and $48,134, respectively. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of March 31, 2026 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not applicable to smaller reporting companies. 52