UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: December 31, 2021
or
| TRANSITION REPORT |
For the transition period from _____________ to _________________
Commission File No. 333-206097
ADDENTAX GROUP CORP.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or |
Identification |
Kingkey 100, Block A, Room 4805,
Luohu District, Shenzhen City, China518000
(Address of principal executive offices)
+ (86)755 8233 0336
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Name of each exchange on which registered | ||||
| OTC Markets |
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 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 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 such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| Large accelerated filer ☐ | Accelerated filer | |||
| Non-accelerated filer ☒ | Smaller reporting company | |||
| Emerging growth |
If an emerging growth company, 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)As of, the Exchange Act after the distribution of securities under a plan confirmed by a court.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of February 14, 2022, there were shares outstanding of each of the issuer’s classes ofregistrant’s common stock, as of the latest practicable date. 506,920,000 common shares, par value $0.001, issued and outstanding as of November 20, 2017.stock.
TABLE OF CONTENTS
| PART I | ||
| Item 1. | Financial Statements (Unaudited) | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. | Controls and Procedures | |
| PART II | ||
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | |
| Item 4. | Mine Safety Disclosures | |
| Item 5. | Other Information | |
| 18 | ||
| 2 |
PART I -– FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the nine months ended December 31, 2021 and 2020
TABLE OF CONTENTS
Index to the interim Unaudited Condensed Consolidated Financial Statements
| F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(In U.S. Dollars, except share data or otherwise stated)
| September 30, 2017 | March 31, 2017 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 378,557 | $ | 176,929 | ||||
| Accounts receivable | 4,476,085 | 4,709,476 | ||||||
| Note receivable | 1,613,812 | 1,057,437 | ||||||
| Due from related parties | 74,922 | 130,001 | ||||||
| Inventory | 530,799 | 602,123 | ||||||
| Prepaid expenses | 983,780 | 318,938 | ||||||
| Other current assets | 200,942 | 48,483 | ||||||
| Total Current Assets | 8,258,897 | 7,043,387 | ||||||
| Property and equipment, net | 632,896 | 663,359 | ||||||
| TOTAL ASSETS | $ | 8,891,793 | $ | 7,706,746 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | 2,447,418 | 2,133,683 | ||||||
| Loan payable | 4,284,572 | 1,627,228 | ||||||
| Deferred revenue | 492,553 | 290,099 | ||||||
| Due to related parties | 2,613,458 | 2,878,924 | ||||||
| Tax payable | 17,372 | 4,630 | ||||||
| Other current liabilities | 56,269 | 104,065 | ||||||
| Total Current Liabilities | 9,911,642 | 7,038,629 | ||||||
| TOTAL LIABILITIES | 9,911,642 | 7,038,629 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock: 100,000,000 authorized; $0.0001 par value 0 and 0 shares issued and outstanding | - | - | ||||||
| Common stock, par value $0.001; 1,000,000,000 shares authorized, 506,920,000 shares issued and outstanding | 506,920 | 506,920 | ||||||
| Capital deficiency | (1,554,441 | ) | (32,421 | ) | ||||
| Accumulated other comprehensive loss | (160,350 | ) | (114,073 | ) | ||||
| Retained earnings | 188,022 | 307,691 | ||||||
| Total Stockholders’ Deficit | (1,019,849 | ) | 668,117 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 8,891,793 | $ | 7,706,746 | ||||
(UNAUDITED)
The accompanying
| December 31, 2021 | March 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 506,342 | $ | 1,845,077 | ||||
| Accounts receivables, net | 1,718,991 | 4,757,518 | ||||||
| Inventories | 298,196 | 270,434 | ||||||
| Prepayments and other receivables | 610,621 | 684,161 | ||||||
| Advances to suppliers | 1,522,370 | 355,454 | ||||||
| Amount due from related party | 171,364 | 84,838 | ||||||
| Total current assets | 4,827,884 | 7,997,482 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | 869,603 | 793,977 | ||||||
| Long-term prepayments | 9,348 | - | ||||||
| Operating lease right of use asset | 7,307,883 | 9,632,625 | ||||||
| Total non-current assets | 8,186,834 | 10,426,602 | ||||||
| TOTAL ASSETS | $ | 13,014,718 | $ | 18,424,084 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term loan | $ | 157,354 | $ | 152,607 | ||||
| Accounts payable | 1,221,731 | 3,121,373 | ||||||
| Amount due to related parties | 3,536,615 | 4,913,964 | ||||||
| Advances from customers | 34,683 | 3,029 | ||||||
| Accrued expenses and other payables | 778,260 | 681,984 | ||||||
| Operating lease liability current portion | 3,701,925 | 3,555,458 | ||||||
| Total current liabilities | 9,430,568 | 12,428,415 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liability | 3,605,958 | 6,077,167 | ||||||
| TOTAL LIABILITIES | $ | 13,036,526 | $ | 18,505,582 | ||||
| EQUITY (deficit) | ||||||||
| Common stock ($ par value, shares authorized, shares issued and outstanding at December 31, 2021 and March 31, 2021) | $ | 26,693 | $ | 26,693 | ||||
| Additional paid-in capital | 6,815,333 | 6,815,333 | ||||||
| Accumulated Deficit | (6,711,641 | ) | (6,834,228 | ) | ||||
| Statutory reserve | 13,821 | 13,821 | ||||||
| Accumulated other comprehensive loss | (166,014 | ) | (103,117 | ) | ||||
| Total deficit | (21,808 | ) | (81,498 | ) | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 13,014,718 | $ | 18,424,084 | ||||
See accompany notes are an integral part of theseto the unaudited condensed consolidated financial statements.
| F-2 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive LossUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)(In U.S. Dollars, except share data or otherwise stated)
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | $ | 2,791,470 | $ | 3,411,552 | $ | 9,835,733 | $ | 21,014,064 | ||||||||
| COST OF REVENUES | (2,323,716 | ) | (2,950,124 | ) | (8,314,149 | ) | (22,776,087 | ) | ||||||||
| GROSS PROFIT (LOSS) | 467,754 | 461,428 | 1,521,584 | (1,762,023 | ) | |||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling and marketing | (43,118 | ) | (217,942 | ) | (135,310 | ) | (376,975 | ) | ||||||||
| General and administrative | (452,312 | ) | (532,012 | ) | (1,375,513 | ) | (1,454,017 | ) | ||||||||
| Total operating expenses | (495,430 | ) | (749,954 | ) | (1,510,823 | ) | (1,830,992 | ) | ||||||||
| (LOSS) INCOME FROM OPERATIONS | (27,676 | ) | (288,526 | ) | 10,761 | (3,593,015 | ) | |||||||||
| Interest income | 72 | 102 | 2,135 | 102 | ||||||||||||
| Interest expenses | (2,526 | ) | (646 | ) | (5,375 | ) | (6,586 | ) | ||||||||
| Other income (expense), net | 43,958 | 1,273 | 132,959 | 62,489 | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAX EXPENSE | 13,828 | (287,797 | ) | 140,480 | (3,537,010 | ) | ||||||||||
| INCOME TAX EXPENSE | (2,209 | ) | (15,784 | ) | (17,893 | ) | (23,196 | ) | ||||||||
| NET INCOME (LOSS) | 11,619 | (303,581 | ) | 122,587 | (3,560,206 | ) | ||||||||||
| Foreign currency translation loss | (28,755 | ) | (85,728 | ) | (62,897 | ) | (173,879 | ) | ||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | (17,136 | ) | $ | (389,309 | ) | $ | 59,690 | $ | (3,734,085 | ) | |||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||||||
| Basic and diluted | 0.00 | (0.01 | ) | 0.00 | (0.14 | ) | ||||||||||
| Weighted average number of shares outstanding – Basic and diluted | 26,556,566 | 25,712,713 | 26,556,566 | 25,712,713 | ||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | 3,729,840 | 2,433,559 | $ | 8,046,794 | $ | 5,927,072 | |||||||||
| Cost of revenue | 3,366,742 | 2,047,859 | 7,403,721 | 5,083,084 | ||||||||||||
| Gross Profit | 363,098 | 385,700 | 643,073 | 843,988 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administration | 374,505 | 401,552 | 755,548 | 789,188 | ||||||||||||
| Total operating expenses | 374,505 | 401,552 | 755,548 | 789,188 | ||||||||||||
| Operating Income (Loss) | (11,407 | ) | (15,852 | ) | (112,475 | ) | 54,800 | |||||||||
| Other Income (Expense) | ||||||||||||||||
| Other income | 81 | 7,640 | 669 | 12,586 | ||||||||||||
| Other expense | (41 | ) | (213 | ) | (1,735 | ) | (689 | ) | ||||||||
| Total other income (expense) | 40 | 7,427 | (1,066 | ) | 11,897 | |||||||||||
| Net loss before taxes | (11,367 | ) | (8,425 | ) | (113,541 | ) | 66,697 | |||||||||
| Income tax | (3,912 | ) | (5,081 | ) | (6,128 | ) | (15,326 | ) | ||||||||
| Loss from Continuing Operations | (15,279 | ) | (13,506 | ) | (119,669 | ) | 51,371 | |||||||||
| Net income (loss) | $ | (15,279 | ) | (13,506 | ) | $ | (119,669 | ) | $ | 51,371 | ||||||
| Other comprehensive income (loss) | (16,175 | ) | (11,122 | ) | (46,160 | ) | (73,411 | ) | ||||||||
| Comprehensive Loss | (31,454 | ) | (24,628 | ) | (165,829 | ) | (22,040 | ) | ||||||||
| Net Loss Per Common Share – Basic and Diluted | $ | (0.00 | ) | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | ||||||
| Weighted Average Common Shares Outstanding | 506,920,000 | 506,920,000 | 506,920,000 | 506,920,000 | ||||||||||||
The accompanyingSee accompany notes are an integral part of theseto the unaudited condensed consolidated financial statements.
| F-3 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)(In U.S. Dollars, except share data or otherwise stated)
| For the Six Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | (119,669 | ) | $ | 51,371 | |||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Depreciation | 56,797 | 49,719 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 398,010 | (119,031 | ) | |||||
| Inventory | 92,289 | (189,515 | ) | |||||
| Prepaid expenses | (646,507 | ) | 3,554 | |||||
| Other receivable | (150,455 | ) | 237,450 | |||||
| Accounts payable | 231,203 | (36,326 | ) | |||||
| Deferred revenue | 191,881 | 310,445 | ||||||
| Tax payable | 12,554 | 18,270 | ||||||
| Other payable | (51,348 | ) | (18,559 | ) | ||||
| Net cash provided by operating activities | 14,755 | 307,378 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisition of subsidiary | (1,500,000 | ) | - | |||||
| Purchase of property and equipment | (3,142 | ) | (101,255 | ) | ||||
| Note receivable | (854,795 | ) | (621,926 | ) | ||||
| Collection of note receivable | 336,597 | - | ||||||
| Loan to related parties | 189,283 | - | ||||||
| Collection of loan to related parties | (29,940 | ) | 618,557 | |||||
| Net cash used in investing activities | (1,861,997 | ) | (104,624 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceed from borrowings | 4,275,000 | - | ||||||
| Repayment of loans | (1,680,000 | ) | - | |||||
| Loans from related parties, net | 150 | 56,196 | ||||||
| Repayment of loans from related parties | (549,380 | ) | - | |||||
| Net cash provided by financing activities | 2,045,770 | 56,196 | ||||||
| Effects on changes in foreign exchange rate | 3,116 | (5,116 | ) | |||||
| Net increase in cash and cash equivalents | 201,644 | 253,834 | ||||||
| Cash and cash equivalents - beginning of period | 176,913 | 158,558 | ||||||
| Cash and cash equivalents - end of period | $ | 378,557 | $ | 412,392 | ||||
| Supplemental Cash Flow Disclosures | ||||||||
| Cash paid for interest and income tax | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
| Common Stock | Additional | Retained earnings (accumulated deficit) | Accumulated other | |||||||||||||||||||||||||
| Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
| BALANCE AT OCTOBER 31, 2020 | 25,346,004 | $ | 26,093 | $ | 3,795,303 | $ | (6,489,747 | ) | $ | 23,514 | $ | (31,663 | ) | $ | (2,676,500 | ) | ||||||||||||
| Paid in capital | ||||||||||||||||||||||||||||
| Paid in capital, shares | ||||||||||||||||||||||||||||
| Movement of Statutory reserve | - | - | 20,630 | (10,779 | ) | (9,851 | ) | - | - | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (85,728 | ) | (85,728 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | (303,581 | ) | - | - | (303,581 | ) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | 26,093,004 | $ | 26,093 | $ | 3,815,933 | $ | (6,804,107 | ) | $ | 13,663 | $ | (117,391 | ) | $ | (3,065,809 | ) | ||||||||||||
| BALANCE AT OCTOBER 31, 2021 | 26,693,004 | $ | 26,093 | $ | 6,815,333 | $ | (6,723,260 | ) | $ | 13,821 | $ | (137,259 | ) | $ | (4,672 | ) | ||||||||||||
| Foreign currency translation | (28,755 | ) | (28,755 | ) | ||||||||||||||||||||||||
| Net income for the period | - | - | - | 11,619 | - | - | 11,619 | |||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,711,641 | ) | $ | 13,821 | $ | (166,014 | ) | $ | (21,808 | ) | ||||||||||||
| BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | (3,233,122 | ) | 23,514 | 56,488 | (3,066,724 | ) | |||||||||||||||||
| Paid in capital | 747,000 | 747 | 3,734,253 | - | - | - | 3,735,000 | |||||||||||||||||||||
| Movement of Statutory reserve | - | - | 20,630 | (10,779 | ) | (9,851 | ) | - | - | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (173,879 | ) | (173,879 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | (3,560,206 | ) | - | - | (3,560,206 | ) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | 26,093,004 | 26,093 | 3,815,933 | (6,804,107 | ) | 13,663 | (117,391 | ) | (3,065,809 | ) | ||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,834,228 | ) | $ | 13,821 | $ | (103,117 | ) | $ | (81,498 | ) | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (62,897 | ) | (62,897 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | 122,587 | - | - | 122,587 | |||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,711,641 | ) | $ | 13,821 | $ | (166,014 | ) | $ | (21,808 | ) | ||||||||||||
The accompanyingSee accompany notes are an integral part of theseto the unaudited condensed consolidated financial statementsstatements.
| F-4 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NotesUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
| 2021 | 2020 | |||||||
| Nine Months Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 122,587 | $ | (3,560,206 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 115,561 | 83,210 | ||||||
| Loss on disposal of plant and equipment | - | 1,472 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 3,038,527 | 1,367,371 | ||||||
| Inventories | (27,762 | ) | 174,487 | |||||
| Advances to suppliers | (1,166,916 | ) | (320,771 | ) | ||||
| Other receivables | 73,540 | (65,150 | ) | |||||
| Accounts payables | (1,899,642 | ) | (1,688,272 | ) | ||||
| Accrued expenses and other payables | 96,276 | 173,582 | ||||||
| Advances from customers | 31,654 | 52,161 | ||||||
| Net cash provided by (used in) operating activities | $ | 383,825 | $ | (3,782,116 | ) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment and other assets | (176,268 | ) | (392,108 | ) | ||||
| Proceeds from sale of property and equipment | - | 2,243 | ||||||
| Cash decreased in disposal of subsidiaries | - | (704,479 | ) | |||||
| Net cash used in investing activities | $ | (176,268 | ) | $ | (1,094,344 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stocks | - | 3,735,000 | ||||||
| Proceeds from related party borrowings | 3,797,473 | 7,697,827 | ||||||
| Repayment of related party borrowings | (5,341,046 | ) | (6,605,044 | ) | ||||
| Proceeds from bank borrowings | - | 86,886 | ||||||
| Repayment of bank borrowings | - | (196,456 | ) | |||||
| Net cash (used in) provided by financing activities | $ | (1,543,573 | ) | $ | 4,718,213 | |||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,336,016 | ) | (158,247 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (2,719 | ) | (16,706 | ) | ||||
| Cash and cash equivalents, beginning of the period | 1,845,077 | 531,681 | ||||||
| CASH AND CASH EQUIVALENTS, END OF THE PERIOD | $ | 506,342 | $ | 356,728 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year for interest | $ | - | $ | 4,523 | ||||
| Cash paid during the year for income tax | $ | 17,893 | $ | 23,196 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 342,457 | $ | 10,404,962 | ||||
| Net assets of subsidiaries disposed of recorded as Other Receivables | $ | - | $ | 118,454 | ||||
See accompany notes to the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements.
September 30, 2017
(Unaudited)
| F-5 |
NOTE 1 - ORGANIZATION
ADDENTAX GROUP CORP. AND NATURE OF BUSINESSSUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Addentax Group Corp. (“the Company”, “we”, “us” or “our”
| 1. | ORGANIZATION AND BUSINESS ACQUISITIONS |
ATXG and its subsidiaries (the “Company”) was incorporated in Nevada on October 28, 2014, and the Company wasare engaged in the fieldbusiness of producing images on multiple surfaces using heat transfer technology.
Duringgarments manufacturing, providing logistic services, property leasing and management service in the reporting period, the Company was mainly engaged in textilePeople’s Republic of China (“PRC” or “China”) and garmentepidemic prevention supplies manufacturing and providing logistics services to its customers. The Company also provides business consultancy to their customersdistribution both in assisting them to identify weaknesses in their operation in order to optimize their efficiency. The Company also assists their customers in improving their supply chainChina and overseas markets.
| 2. | BASIS OF PRESENTATION |
In the opinion of management, which involves the movement and storage of raw materials, of work in progress inventory, and of finished goods from point of origin to point of consumption.
Share Exchange and Reorganization
As of the Effective Date and pursuant to a Securities Purchase Agreement dated September 25, 2017, the Company and Yingxi Industrial Chain Group Co., Ltd.(“Yingxi”), have determined that all conditions necessary to close the Share Exchange Agreement have been satisfied and therefore as of the date hereof, the Share Exchange Agreement was closed and as such Yingxi has become a wholly-owned subsidiary of the Company. As per the Share Exchange Agreement, the Company acquired 250,000,000 shares of Yingxi, representing 100% of the issued and outstanding equity of Yingxi, from the Yingxi shareholders and in exchange the Company issued to Yingxi an aggregate of 500,000,000 shares of common stock.
Recapitalization
For financial accounting purposes, this transaction was treated as a reverse acquisition by Yingxi, and resulted in a recapitalization with Yingxi being the accounting acquirer and Addentax Group Corp. as the acquired company. The consummation of this reverse acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, Yingxi and have been prepared to give retroactive effect to the reverse acquisition completed on September 25, 2017, and represent the operations of Yingxi. Theunaudited condensed consolidated financial statements afterreflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the acquisition date, September 25, 2017 includeresults for the balance sheets of both companies at historical cost, the historical results of Yingxiinterim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.
The Company uses the Company from the acquisition date. All sharesame accounting policies in preparing quarterly and per shareannual financial statements. Certain information and footnote disclosures normally included in the accompanyingannual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes has been retroactively restated to reflectnotes thereto included in the recapitalization.Company’s Annual Report on Form 10-K for the year ended March 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on June 29, 2021 (“2020 Form 10-K.”).
NOTE 2 - GOING CONCERN UNCERTAINTY
The accompanying unaudited interimcondensed consolidated financial statements have been prepared assumingare presented on the basis that the Company will continue asis a going concern. The going concern whichassumption contemplates the realization of assets and the liquidationsatisfaction of liabilities in the normal course of business. For
| F-6 |
The Company incurred net income of $11,619 and net loss of $303,581 for the 6three months ended September 30, 2017,December 31, 2021 and 2020, respectively, and net income of $122,587 and net loss of $3,560,206 for the nine months ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and March 31, 2021, the Company has sufferedhad net current liability of $4,602,684 and $4,430,933, respectively, and a loss from operationsdeficit on total equity of $119,669. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital$21,808 and other cash requirements for the year ended March 31, 2018.
The ability of the Company to emerge from an early stage is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
$81,498, respectively. These factors, among others,conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying unaudited interimability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might resultbe necessary should the Company be unable to continue as a going concern.
The Company expects to finance operations primarily through cash flow from revenue and capital contributions from the outcomeCEO. During the year, the CEO has provided financial support for the operations of this uncertainty.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Regulation S-X.
Company. In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statementevent that the Company requires additional funding to finance the growth of the periods presented for: (a)Company’s current and expected future operations as well as to achieve our strategic objectives, the financial position; (b)CEO has indicated the result of operations;intent and (c) cash flows, have been made in orderability to make the consolidated financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year.provide additional equity financing.
Basis of Consolidation
These consolidated financial statements include the accounts of Yingxi Industrial Chain Group Co., Ltd and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Principal of subsidiaries
The details of the principal subsidiaries of the Company are set out as follows:
| ||||||
Use of Estimates
The preparation of the consolidated financial statements is in conformity with theUS GAAP that requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires theliabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amountamounts of revenues and expenses during the reporting period. Actualperiods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
There is no change on the accounting policies for the three months ended December 31, 2021.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
| F-7 |
| 4. | RELATED PARTY TRANSACTIONS |
SCHEDULE OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY
| Name of Related Parties | Relationship with the Company | |
| Zhida Hong | President, CEO, and a director of the Company | |
| Zhongpeng Chen | A legal representative of HPF, became not a related party when HPF was disposed of in November, 2020 | |
| Bihua Yang | A legal representative of XKJ | |
| Zhiyong Zhou | General Manager of XKJ | |
| Dewu Huang | A legal representative of YBY | |
| Jinlong Huang | A spouse of legal representative of HSW |
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
The Company had the following related party balances as of December 31, 2021 and March 31, 2021:
SCHEDULE OF RELATED PARTY TRANSACTION
| Amount due from related party | December 31, 2021 | March 31, 2021 | ||||||
| Hongye Financial Consulting (Shenzhen) Co., Ltd. | $ | 154,210 | $ | 84,838 | ||||
| Zhiyong Zhou (1) | 17,154 | - | ||||||
| $ | 171,364 | $ | 84,838 | |||||
| Related party borrowings | December 31, 2021 | March 31, 2021 | ||||||
| Zhida Hong (2) | $ | 3,208,463 | $ | 3,727,371 | ||||
| Bihua Yang (3) | - | 370,523 | ||||||
| Dewu Huang (4) | 177,755 | 712,064 | ||||||
| Jinlong Huang | 150,397 | 104,006 | ||||||
| $ | 3,536,615 | $ | 4,913,964 | |||||
| (1) | Being cash advance to Zhiyong Zhou to pay for daily operating expenditures of XKJ. | |
| (2) | The decrease was due to net repayment of debt due to Zhida Hong. During the three and nine months ended December 31, 2021, the Company received financial support of $0.03 million and 0.27 million from Zhida Hong and repaid $0.3 million and $0.9 million of debts due to him. | |
| (3) | Being financial support from Bihua Yang for XKJ’s daily operation. | |
| (4) | The decrease was due to net repayment of debt due to Dewu Huang. During the nine months ended December 31, 2021, the company received interest free advanced loan as financial support of approximately $1.5 million from Dewu Huang and repaid approximately $2.0 million of debts due to him. The related party debt was additional financial support provided by Dewu Huang for YBY’s daily operation. |
The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand.
| 5. | INVENTORIES |
Inventories consist of the following as of December 31, 2021 and March 31, 2021:
SCHEDULE OF INVENTORIES
| December 31, 2021 | March 31, 2021 | |||||||
| Raw materials | $ | 242,644 | $ | 234,870 | ||||
| Work in progress | 3,916 | - | ||||||
| Finished goods | 51,636 | 35,564 | ||||||
| Total inventories | $ | 298,196 | $ | 270,434 | ||||
There is no inventory write-off for the three and nine months ended December 31, 2021 and 2020.
| F-8 |
| 6. | ADVANCES TO SUPPLIERS |
The Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand.
The Company reviews a supplier’s credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expense in the period they are considered unlikely to be collected.
| 7. | PREPAYMENTS AND OTHER RECEIVABLES |
Prepayments and other receivables consist of the following as of December 31, 2021 and March 31, 2021:
SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES
| December 31, 2021 | March 31, 2021 | |||||||
| Prepayment | 34,248 | - | ||||||
| Deposit | 79,447 | 155,830 | ||||||
| Receivable of consideration on disposal of subsidiaries | 269,057 | 258,929 | ||||||
| Other receivables | 227,869 | 269,402 | ||||||
| Total Prepayment | $ | 610,621 | $ | 684,161 | ||||
Foreign Currency Translation
| 8. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consists of the following as of December 31, 2021 and March 31, 2021:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| December 31, 2021 | March 31, 2021 | |||||||
| Production plant | $ | 73,871 | $ | 71,642 | ||||
| Motor vehicles | 1,189,673 | 1,020,893 | ||||||
| Office equipment | 28,129 | 14,073 | ||||||
| 1,291,673 | 1,106,608 | |||||||
| Less: accumulated depreciation | (422,070 | ) | (312,631 | ) | ||||
| Plant and equipment, net | $ | 869,603 | $ | 793,977 | ||||
| F-9 |
Depreciation expense for the three and nine months ended December 31, 2021 and 2020 was $44,164 and $32,051, $115,561 and $83,210, respectively.
| 9. | SHORT-TERM BANK LOAN |
In August 2019, HSW entered into a facility agreement with Agricultural Bank of China and obtained a line of credit, which allows the Company to borrow up to approximately $153,172 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of December 31, 2021, the Company has borrowed $157,354 (RMB1,000,000) (March 31, 2021: $152,607) under this line of credit with various annual interest rates from 4.84% to 4.9%. The outstanding loan balance was due on September 30, 2021. The Company was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable. In January 2022, Ding Yinping, underwriter of the loan, partly repaid $6,596 (RMB41,921) on behalf of the Company.
| 10. | INCOME TAXES |
| (a) | Enterprise Income Tax (“EIT”) |
The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three and nine months ended December 31, 2021 and 2020.
YX were incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the three and nine months ended December 31, 2021 and 2020.
The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies were subject to progressive EIT rates from 5% to 15% in 2021 and 2020. The preferential tax rate will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
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 three and nine months ended December 31, 2021 and 2020.
| F-10 |
The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| Three months ended | Nine months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| PRC statutory tax rate | 25 | % | 25 | % | 25 | % | 25 | % | ||||||||
| Computed expected benefits (expense) | 3,457 | (71,949 | ) | 35,120 | (884,253 | ) | ||||||||||
| Temporary differences | (30,951 | ) | 29,440 | (87,797 | ) | 629,954 | ||||||||||
| Permanent difference | 1,444 | 6,640 | 1,691 | 131,595 | ||||||||||||
| Changes in valuation allowance | 28,259 | 51,654 | 68,879 | 145,900 | ||||||||||||
| Income tax expense | $ | 2,209 | $ | (15,784 | ) | 17,893 | 23,196 | |||||||||
| (b) | Value Added Tax (“VAT”) |
In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 13%, which is levied on the invoiced value of sales and is payable by the purchaser. The subsidiaries HSW, DT and YS enjoyed preferential VAT rate of 13%. The Companies are required to remit the VAT they collect to the tax authority. A credit is available whereby VAT paid on purchases can be used to offset the VAT due on sales.
For services, the applicable VAT rate is 9% under the relevant tax category for logistic company, except the branch of HPF enjoyed the preferential VAT rate of 3% in 2021 and 2020. The Company is required to pay the full amount of VAT calculated at the applicable VAT rate of the invoiced value of sales as required. A credit is available whereby VAT paid on gasoline and toll charges can be used to offset the VAT due on service income.
| 11. | CONSOLIDATED SEGMENT DATA |
Segment information is consistent with how chief operating decision maker reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following 4 segments:
| (a) | Garment manufacturing. Including manufacturing and distribution of garments; | |
| (b) | Logistics services. Providing logistic services; and |
| (c) | Epidemic prevention supplies. Including manufacturing, distribution and trading of epidemic prevention supplies. |
| (d) | Property management and subleasing. Providing shops subleasing and property management services for garment wholesalers and retailers in garment market. |
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
Selected information for period ended December 31, 2021 in the segment structure is presented in the following tables:
SCHEDULE OF SEGMENT REPORTING
| F-11 |
| Garment | Logistics Services | Property management and leasing | Epidemic prevention supplies | Corporate and other | Totals | |||||||||||||||||||
| Revenue from external customers | 2,488,173 | 4,144,604 | 3,202,956 | - | - | 9,835,733 | ||||||||||||||||||
| Intersegment revenue | - | - | - | - | - | - | ||||||||||||||||||
| Interest income | 1,925 | 63 | 140 | - | 6 | 2,135 | ||||||||||||||||||
| Interest expense | 4,181 | 506 | 456 | - | 232 | 5,375 | ||||||||||||||||||
| Depreciation and amortization | 1,981 | 90,655 | 18,443 | 4,482 | - | 115,561 | ||||||||||||||||||
| Operating income (loss) | 96,275 | 210,878 | 47,935 | - | (344,327 | ) | 10,761 | |||||||||||||||||
| Segment assets | 1,833,807 | 2,433,062 | 7,770,529 | 87,597 | 947,253 | 13,072,248 | ||||||||||||||||||
| Expenditures for segment assets | - | 148,604 | 27,664 | - | - | 176,268 | ||||||||||||||||||
Geographical Information
The Company operates predominantly in China. In presenting information on the basis of geographical location, revenue is based on the geographical location of customers and long-lived assets are based on the geographical location of the assets.
SCHEDULE OF GEOGRAPHICAL INFORMATION
Geographic Information
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| United States | - | 4,787 | - | 11,868,854 | ||||||||||||
| China | 2,791,470 | 3,406,766 | 9,835,733 | 9,145,210 | ||||||||||||
| Total | 2,791,470 | 3,411,552 | 9,835,733 | 21,014,064 | ||||||||||||
| December 31, 2021 | March 31, 2020 | |||||||
| Long-Lived Assets | ||||||||
| China | 8,186,834 | 10,426,602 | ||||||
| F-12 |
| 12. | LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES |
The Company recognized right-of-use asset as well as lease liability according to the ASC 842, Leases (with the exception of short-term leases). Lease liabilities are measured at present value of the sum of remaining rental payments as of December 31, 2021, with discounted rate of 4.75%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows.
The Company leases its head office. The lease period is 5 years with an option to extend the lease. The Company leases its plant and dormitory for 4.5 years with an option to extend the lease. The Company leased several floors in a commercial building for its sublease business for 3 years with an option to extend the lease.
The Following table summarizes the components of lease expense:
SCHEDULE OF LEASE COST
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost | 968,170 | 444,162 | 2,878,730 | 668,883 | ||||||||||||
| Short-term lease cost | 20,955 | - | 62,799 | - | ||||||||||||
| Lease Cost | $ | 989,125 | $ | 444,162 | 2,941,529 | 668,883 | ||||||||||
The following table summarizes supplemental information related to leases:
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
| Operating cash flow from operating leases | $ | 989,170 | $ | 444,162 | 2,941,529 | 668,883 | ||||||||||
| Right-of-use assets obtained in exchange for new operating leases liabilities | (3,390 | ) | 10,378,042 | 3,42,457 | 10,404,962 | |||||||||||
| Weighted average remaining lease term - Operating leases (years) | 2.0 | 3.1 | 2.0 | 3.1 | ||||||||||||
| Weighted average discount rate - Operating leases | 4.75 | % | 4.35 | % | 4.75 | % | 4.35 | % | ||||||||
The following table summarizes the maturity of operating lease liabilities:
SCHEDULE OF OPERATING LEASE LIABILITY
| Years ending December 31 | Lease cost | |||
| 2022 | $ | 3,877,767 | ||
| 2023 | 3,857,516 | |||
| 2024 | 103,853 | |||
| Total lease payments | 7,839,136 | |||
| Less: Interest | (531,253 | ) | ||
| Total | $ | 7,307,883 | ||
| 13. | RISKS AND UNCERTAINTIES |
| (a) | Economic and Political Risks |
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.
| (b) | Foreign Currency Translation |
The Company’s reporting currency is the U.S. Dollars (“USD”).dollar. The functional currency of the Companyparent company is the U.S. dollar and itsthe functional currency of the Company’s operating subsidiaries is the Chinese Yuan Renminbi (“RMB”). All transactions initiated inFor the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated into USDat exchange rates at the balance sheet date, which was 6.355 and 6.553 as of December 31, 2021 and March 31, 2021, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.442 and 6.779 for the nine months ended December 31, 2021 and 2020, respectively. Equity is translated at historical exchange rates. Any translation adjustments resulting are not included in accordance with ASC 830,“Foreign Currency Matters,”as follows:
Adjustments arising from such translationsdetermining net income but are included in accumulatedforeign exchange adjustments to other comprehensive income in shareholders’loss, a component of equity.
| (c) | Concentration Risks |
The followings are the percentages of accounts receivable balance of the top customers over accounts receivable for each segment as of December 31, 2021 and March 31, 2021.
SCHEDULE OF CONCENTRATION RISKS
| F-13 |
| September 30, 2017 | March 31, 2017 | September 30, 2016 | ||||||||||
| Spot CNY: USD exchange rate | $ | 0.1503 | $ | 0.1452 | $ | 0.15 | ||||||
| Average CNY: USD exchange rate | $ | 0.1458 - 0.1500 | $ | 0.1487 | $ | 0.1500 - 0.1531 | ||||||
| Spot HKD: USD exchange rate | $ | 0.1289 | $ | 0.1289 | $ | 0.1289 | ||||||
| Average HKD: USD exchange rate | $ | 0.1289 | $ | 0.1289 | $ | 0.1289 | ||||||
Garment manufacturing segment
Accounts Receivable
| December 31, 2021 | March 31, 2021 | |||||||
| Customer A | 87.0 | % | 98.4 | % | ||||
| Customer B | 13.0 | % | 1.6 | % | ||||
The high concentration as of December 31, 2021 was mainly due to business development of a large distributor of garments.
The Company’s
Logistics services segment
| December 31, 2021 | March 31, 2021 | |||||||
| Customer A | 12.2 | % | 16.6 | % | ||||
| Customer B | 11.0 | % | Nil | % | ||||
| Customer C | 10.0 | % | 30.2 | % | ||||
| Customer D | 7.3 | % | Nil | % | ||||
| Customer E | 6.5 | % | 12.7 | % | ||||
Property management and subleasing
No accounts receivable consistsreceivables in this segment.
Epidemic prevention supplies segment
No accounts receivables in this segment.
For the three months ended December 31, 2021, there was no single customer provided more than 10% of trade receivables from customers. The Company maintains an allowance for doubtful accounts based on the Company’s assessment of collectabilitytotal revenue of the Company. For nine months ended December 31, 2021, one customer receivable. Thefrom garment segment provided more than 10% of total revenue of the Company, analyzes past history with a customer, customer credit, collection history, and financial condition when evaluatingrepresented 24.8% for the collectability of customer accounts. Uncollectible accounts are charged off to the allowance when it is deemed probable that the receivable will not be recovered.
| September 30, 2017 | March 31, 2017 | |||||||
| Within 1 year | $ | 2,132,179 | $ | 2,335,027 | ||||
| 1 - 2 year | 2,343,906 | 2,372,796 | ||||||
| 2 - 3 year | 1,653 | |||||||
| $ | 4,476,085 | $ | 4,709,476 | |||||
nine months. For the three months ended December 31, 2020, there was no customer provided more than 10% of total revenue of the Company. For nine months ended December 31, 2020, one customer from garment segment and one customer from epidemic prevention supplies segment provided more than 10% of total revenue of the Company.
The high concentration risk disclosure, please refer to Note 10.
Financial Instruments
The Company’s consolidated financial instruments consist primarily of cash, accounts receivable, prepaid expenses, inventory and other assets, accounts payable and accrued expenses and other payables. The carrying amounts of such financial instruments approximate their respective estimated fair valuein nine months ended December 31, 2021 was mainly due to their short-term maturities.concentration of distributors in garment segment. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
ConcentrationsThe following tables summarized the purchases from five largest suppliers of Credit Riskseach of the reportable segment for the three and nine months ended December 31, 2021 and 2020.
SCHEDULE OF PURCHASES FROM SUPPLIERS
| Three months ended | Nine months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Garment manufacturing segment | 100.0 | % | 100.0 | % | 99.8 | % | 97.7 | % | ||||||||
| Logistics services segment | 100.0 | % | 79.1 | % | 92.2 | % | 99.7 | % | ||||||||
| Property management and subleasing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Epidemic prevention supplies | Nil | % | 100.0 | % | Nil | % | 100 | % | ||||||||
| (d) | Interest Rate Risk |
The Company’s exposure to concentrations of creditinterest rate risk primarily relatedrelates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of December 31, 2021, the total outstanding borrowings amounted to $157,354 (RMB1,000,000) with various interest rate from 4.84% to 6.96% p.a. (Note 10)
| (e) | COVID-19 |
The Coronavirus Disease (COVID-19) outbreak and the measures taken to contain the spread of the pandemic have created a high level of uncertainty to global economic prospects and this has impacted the Company’s operations and its cashfinancial performance in the last three quarters of the financial year and cash equivalents.subsequent to the financial year end.
As the situation continues to evolve with significant level of uncertainty, the Company is unable to reasonably estimate the full financial impact of the COVID-19 outbreak. The Company places its cashis monitoring the situation closely and cash equivalents with financial institutions of high credit worthiness. The Company’s management assessto mitigate the financial strengthimpact, it is conscientiously managing its cost by adopting an operating cost reduction strategy and credit worthiness of any partiesconserving liquidity by working with major creditors to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.align repayment obligations with receivable collections.
Inventory
Inventory is stated at the lower of cost (weighted average) or net realizable value. The Company’s inventory is constantly monitored for obsolescence. This is based on the management’s estimates and they have taken into considerations factors such as turnover, technical obsolescence, right of return status to suppliers and price protection offered by suppliers. These estimates are necessarily subject to a degree of measurement uncertainty. Reserves for slow-moving and obsolete inventory at September 30, 2017 were $0 and at March 31, 2017were $0.
| F-14 |
Related PartiesItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company follows ASC 850,“Related Party Disclosures,”following discussion and analysis of our financial condition and results of operations for the identificationthree and nine months ended December 31, 2021 and 2020 should be read in conjunction with the Financial Statements and corresponding notes included in this Report on Form 10-Q. 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 related partiesevents 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 disclosure of related party transactions seeSpecial Note 9.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.
PropertyOverview
Our Business
We are a garment manufacturer and Equipment
Property and equipmentlogistics services provider based in China. We are carried at cost less accumulated depreciation. Cost includes all direct costs necessary to acquire and prepare assets for use.
The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are retired or sold, the asset’s cost and related accumulated depreciation are eliminated with any remaining gain or loss recognized in net earnings.
Depreciation of plant and equipment, is recordedlisted on the straight-line method over estimated useful lives, generally as follows:OTCQB under the symbol of “ATXG”. We classify our businesses into four segments: Garment manufacturing, Logistics services, Property management and subleasing, and Epidemic prevention supplies.
ImpairmentOur garment manufacturing business consists of long-lived assets
sales made principally to wholesaler located in the People’s Republic of China (“PRC”). We evaluatehave 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 timely delivery requirement for our customers. We conduct our garment manufacturing operations through five wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd (“YBY”) which are located in the Guangdong province, China. In October 2020, the Company disposed of DT to a third party at fair value, which was also its carrying value of long-lived assets whenever events or changes in circumstances would indicate that it is more likely than not their carrying values may exceed their realizable values, and records impairment charges when considered necessary.
When circumstances indicate that impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amount. In estimating these future cash flows, assets and liabilities are grouped at a lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, is recognized. Fair values are determined based on discounted cash flows, quoted market values or external appraisals as applicable.
Revenue Recognition
The Company recognizes revenue only when all of the following criteria have been met:
Deferred Revenue
Deferred revenue are services billed to customers for which the services have not been fully performed. As of September 30, 20172020.
Our logistic business consists of delivery and March 31, 2017, deferred revenuecourier services covering approximately 79 cities in approximately seven provinces and two 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 logistics services operations through four wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), Shenzhen Yingxi Peng Fa Logistic Co., Ltd., which was incorporated in November 2020, and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), Shenzhen Yingxi Tongda Logistic Co., Ltd (“TD”), which are located in the Guangdong province, China. In November 2020, the Company disposed of HPF to a third party at fair value, which was also its carrying value as of November 30, 2020.
The business operations, customers and suppliers of DT and HPF were $492,553retained by the Company; therefore, the disposition of the two subsidiaries did not qualify as discontinued operations.
Our property management and $290,099, respectively.subleasing provides shops subleasing and property management services for garment wholesalers and retailers in garment market. We conduct our property management and subleasing operation through a wholly owned subsidiary, namely Dongguan Yingxi Daying Commercial Co., Ltd (“DY”).
Income TaxesOur epidemic prevention supplies business consists of manufacturing and distribution of epidemic prevention products and resale of epidemic prevention supplies purchased from third party in both domestic and overseas markets. We conduct our manufacturing of the epidemic prevention products in Dongguan Yushang Clothing Co., Ltd (“YS”). We conduct the trading of epidemic prevention suppliers through Addentax Group Corp. (“ATXG”) and Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), a wholly owned subsidiary of the Company.
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740,“Accounting for Income Taxes.” The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
| 3 |
Uncertain Tax PositionsBusiness 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 of our products. 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 logistic system and to build a nationwide delivery and courier network in China. As of December 31, 2021, we provide logistics services to over 79 cities in approximately seven provinces and two municipalities. We expect to develop an additional 20 logistics points in existing serving cities and improve the Company’s profit in the year end of 2022.
Property Management and Subleasing Business
The business objective of our property management and subleasing segment is to integrate resources in shopping mall, develop e-commerce bases and the Internet celebrity economy together to drive to increase the value of the stores in the area. The short-term goal for the year is to increase the occupancy rate of stores in the mall to more than 70%.
Epidemic Prevention Supplies Business
The primary objective of our epidemic prevention supplies business is to take the advantage of our resource in supply chain from the garment manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in order to increase our revenue base and improve our net profit.
Seasonality of Business
Our business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistics services revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistics services segment.
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 their acknowledgement of receipt of 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.
Property management and subleasing business
For property management and subleasing business, we generally collect rental and management fees of the following month each month in advance.
Epidemic prevention supplies business
For Epidemic prevention supplies business, we generally receive payment from the customers within 30 days following the delivery of finished goods. We would also give our long-term customers with a 12 months long credit term policy to maintain a good business relationship.
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The Company follows guidance issued by
Economic Uncertainty
Our business is dependent on consumer demand for our products and services. We believe that the FASB regarding accounting forsignificant uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribingeconomy in China has increased our clients’ sensitivity to the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statementscost of our products and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities.services. We have experienced continued pricing pressure. If the income tax position is expected to meeteconomic environment becomes weak, the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.
The Company records income tax related interest and penalties aseconomic conditions could have a component of the provision for income tax expense. As of September 30, 2017 and March 31, 2017, the Company determined there were no uncertain tax provisions.
Earnings (Loss) Per Share
The Company has adopted ASC 260,“Earnings Per Share,” (“EPS”) which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying consolidated statements of operations and comprehensive loss, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
The Company had no potentially dilutive securities, such as convertible debt, options or warrants, issued and outstanding during the six months ended September 30, 2017 and 2016.
Recent Accounting Pronouncements
The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a materialnegative impact on our consolidatedsales 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 statements.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.
In September 2017,Despite the FASB has issuedvarious 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.
Summary of Critical Accounting Standards Update (ASU) No. 2017-13,“Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),Policies
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Bothcomplexities of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In May 2014, the FASB issued anunderlying accounting standards update and introducedoperation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.
Estimates and Assumptions
We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Revenue Recognition
Revenue is generated through sale of goods and delivery services. Revenue is recognized when a 5-step approach which modifiescustomer obtains control of promised goods or services and is recognized in an amount that reflects the requirementsconsideration that the Company expects to receive in exchange for identifying, allocating, and recognizing revenue related tothose goods or services. In addition, the achievementstandard requires disclosure of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized underand cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount:
| (i) | identification of the promised goods and services in the contract; | |
| (ii) | determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; | |
| (iii) | measurement of the transaction price, including the constraint on variable consideration; | |
| (iv) | allocation of the transaction price to the performance obligations; and | |
| (v) | recognition of revenue when (or as) the Company satisfies each performance obligation. |
| 5 |
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Leases
Lessee
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Lessor
As a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight line basis over the lease term.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidancestandard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for fiscal and interim periods beginning after December 15, 2017 andthe Company on April 1, 2023. The Company is required to be applied retrospectively to all revenue arrangements. Thecurrently evaluating the impact the adoption of this guidance isASU will have on its consolidated financial statements.
The Company reviews new accounting standards as issued. Management has not expected toidentified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
In December 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” The amendments affect narrow aspectsResults of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date and transition requirementsOperations for the amendments are the same as the effective datethree months ended December 31, 2021 and transition requirements for FASB Accounting Standards Codification Topic 606. Public entities should apply Topic 606 (and related amendments) for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein.
NOTE 4 – INVENTORY
Inventory at September 30, 2017 and March 31, 2017consist of the following:
| September 30, 2017 | March 31, 2017 | |||||||
| Raw material | $ | 166,240 | $ | 300,662 | ||||
| Work in progress | 94,267 | 40,340 | ||||||
| Finished goods | 270,292 | 261,121 | ||||||
| $ | 530,799 | $ | 602,123 | |||||
NOTE 5 – NOTES RECEIVABLE
Note receivable at September 30, 2017 and March 31, 2017amounted to $1,613,812 and $1,057,437, respectively.2020
The amounts are interest free, unsecured and have no fixed termsfollowing tables summarize our results of repayment. As at September 30, 2017 and March 31, 2017, there were no interest due and outstanding and no provision had been made for non-repayment of the loan or interest.
Notes receivables consisted mainly of interest-free loan due from unrelated third parties, social insurance and housing provident fund, and input Value Added Tax to be credited.
| September 30, 2017 | March 31, 2017 | |||||||
| Interest-free loan | $ | 1,590,142 | $ | 1,039,401 | ||||
| Social insurance and housing provident fund | 23,670 | 18,036 | ||||||
| Input Value Added Tax to be credited | - | - | ||||||
| $ | 1,613,812 | $ | 1,057,437 | |||||
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2017 and March 31, 2017, consist of the following:
| September 30, 2017 | March 31, 2017 | |||||||
| Cost: | ||||||||
| Production equipment | $ | 148,168 | $ | 141,713 | ||||
| Means of transport | 851,122 | 822,242 | ||||||
| office equipment | 13,451 | 11,381 | ||||||
| 1,012,741 | 975,336 | |||||||
| Less: accumulated depreciation | (379,845 | ) | (311,977 | ) | ||||
| $ | 632,896 | $ | 663,359 | |||||
Depreciation expenseoperations for the sixthree months ended September 30, 2017December 31, 2021 and 2016 amounted to $56,797 and $49,719, respectively.
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2017 and March 31, 2017, consist of the following:
| September 30, 2017 | March 31, 2017 | |||||||
| Accounts payable | $ | 2,294,591 | $ | 2,042,221 | ||||
| Accrued payroll | 152,827 | 91,462 | ||||||
| Total | $ | 2,447,418 | $ | 2,133,683 | ||||
| September 30, 2017 | March 31, 2017 | |||||||
| Accounts payable outstanding: | ||||||||
| Within 1 year | $ | 1,839,754 | $ | 1,343,926 | ||||
| 1 - 2 year | 454,837 | 698,295 | ||||||
| Total | $ | 2,294,591 | $ | 2,042,221 | ||||
NOTE 8 – LOAN PAYABLE
2020. The components of our short-term debttable and the associated interest rates, were as follows as of September 30, 2017 and March 31, 2017:
| September 30, 2017 | March 31, 2017 | |||||||
| Loan payable with no interest and 1-year maturity | $ | 4,284,572 | $ | 1,627,228 | ||||
| 4,284,572 | 1,627,228 | |||||||
| Current portion of loans payable | 4,284,572 | 1,627,228 | ||||||
| Long-term loans payable | $ | - | $ | - | ||||
During the six months ended September 30, 2017 and 2016, the Company borrowed $4,275,000 and $0, and repaid $1,680,000 and $0, respectively.
NOTE 9 – RELATED PARTY TRANSACTIONS
Due from related parties
Due from related parties at September 30, 2017 and March 31, 2017consist of as follows:
| Related Party Name | September 30, 2017 | March 31, 2017 | Relationship with the Company | |||||||
| Hong Zhida | $ | - | $ | 11,616 | CEO | |||||
| Yang Bihua | 74,922 | 118,385 | Company’s legal representative | |||||||
| $ | 74,922 | $ | 130,001 | |||||||
The amounts were interest free, unsecured and had no fixed terms of repayment.
Due to related parties
Due to related parties at September 30, 2017 and March 31, 2017consist of as follows:
| Related Party Name | September 30, 2017 | March 31, 2017 | Relationship with the Company | |||||||
| Hong Zhida | $ | 41,852 | $ | - | CEO | |||||
| Ding Yinping | 291,997 | 983,682 | Company’s legal representative | |||||||
| Huang Jinlong | 1,564,762 | 1,219,132 | Company’s supervisor | |||||||
| Chen Zhongpeng | 657,198 | 554,287 | Company’s legal representative | |||||||
| Huang Dewu | 57,649 | 121,823 | Company’s legal representative | |||||||
| $ | 2,613,458 | $ | 2,878,924 | |||||||
The amounts were interest free, unsecured and had no fixed terms of repayment.
NOTE 10 – CONCENTRATION OF CREDIT RISKS
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, or whose accounts payable balances individually represented 10% or more of the Company’s total accounts payable, the details of which are set out as follows:
For the six months ended September 30, 2017 and the year ended March 31, 2017, 5 customers accounted for 53% and 5 customer accounted for 55% of the revenue of the Company, respectively.
At September 30, 2017 and March 31, 2017, 2 customers accounted for 58% and 3 customers accounted for 55% of the accounts receivable of the Company, respectively.
NOTE 11 – INCOME TAX
The Company is subject to U.S. Income taxes. For the 6 months ended September 30, 2017 and the year ended March 31, 2017, the Company does not have to pay any U.S. income tax.
The Company’s subsidiary, Yingxi was incorporated on August 4, 2016 in the Republic of Seychelles. Yingxi’s subsidiary YICI was incorporated on July 28, 2016 in Hong Kong China. YICI’s subsidiaries DHSW, QYTG, SCDT, SHPF, SQYI and SXKJ were incorporated on May 15, 2009, November 29, 2016, May 13, 1982, July 6, 2006, January 29, 2016, and September 28, 2001 respectively in China.
The Company has subsidiaries operate in China and they file their tax returns in accordance with China’s laws and regulations.
Provision for income taxes in China for the six months ended September 30, 2017 and the year ended March 31, 2017 were $6,128 and $15,326 respectively. The income tax rate for the years 2017 and 2016 are 25% in China. However, DHSW and SHPF enjoyed a preferential income tax rate at 10% for the year 2016. Whereas SHPF enjoyed a preferential income tax rate at 10% for the year 2016.
The Company’s subsidiaries do not generate any income in Hong Kong or Seychelles for the 6 months ended September 30, 2017 and the years ended March 31, 2017 and hence does not have to pay any Hong Kong Profits tax or Seychelles income tax.
NOTE 12 – SHAREHOLDERS’ EQUITY
Common Stock
The Company has 1,000,000,000, $0.001 par value shares of common stock authorized.
On September 25, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 500,000,000 shares of common stock to the stockholders of Yingxi in exchange for 250,000,000 shares of Yingxi’s common stock, representing 100% of its issued and outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Yingxi stockholders are treated as being outstanding from the date of issuance of the Insight shares.
There were 506,920,000 shares of common stock outstanding as of September 30, 2017.
The Company has no stock option plan, warrants or other dilutive securities.
NOTE 13 –SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to September 30, 2017, through the date these financials were approved to be issued, and has determined that it does not have any material events.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our consolidated unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion below should be read in conjunction with our consolidated financial statements and the related notes that appearthereto appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
| Three Months Ended December 31, | Changes in 2021 | |||||||||||||||||||||||
| 2021 | 2020 | compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 2,791,470 | 100.0 | % | $ | 3,411,552 | 100 | % | $ | (620,082 | ) | (18.2 | )% | |||||||||||
| Cost of revenues | (2,323,716 | ) | (83.2 | )% | (2,950,124 | ) | (86.5 | )% | 626,408 | 21.2 | % | |||||||||||||
| Gross profit (loss) | 467,754 | 16.8 | % | 461,428 | 13.5 | % | 6,326 | 1.4 | % | |||||||||||||||
| Operating expenses | (495,430 | ) | (17.8 | )% | (749,954 | ) | (22.0 | )% | 254,524 | ) | 33.9 | % | ||||||||||||
| Loss from operations | (27,676 | ) | (1.0 | )% | (288,526 | ) | (8.5 | )% | 260,850 | 90.4 | % | |||||||||||||
| Other income, net | 43,958 | 1.6 | % | 1,273 | 0.0 | % | 42,685 | 3,353.4 | % | |||||||||||||||
| Net finance cost | (2,454 | ) | (0.1 | )% | (544 | ) | (0.0 | )% | 1,910 | 262.0 | % | |||||||||||||
| Income tax expense | (2,209 | ) | (0.1 | )% | (15,784 | ) | (0.4 | )% | 13,575 | 86.0 | % | |||||||||||||
| Net income (loss) | $ | 11,619 | 0.4 | % | $ | (303,581 | ) | (8.9 | )% | $ | 315,200 | 103.8 | % | |||||||||||
Unless otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to shares of our common stock.
Revenue
As usedTotal revenue for the three months ended December 31, 2021 decreased by approximately $0.6 million, or 18.2%, as compared with the three months ended December 31, 2020. The significant decrease was mainly because of the decrease in this quarterly report, the terms “we”, “us”, “our company”, mean Addentax Group Corp., a Nevada corporationgarment manufacturing business offset by increases in logistics services business and our wholly-owned subsidiary Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles corporation, unless otherwise indicated.property management and leasing business.
Corporate Overview
Addentax Group Corp. was incorporated in the StateRevenue generated from our garment manufacturing business contributed approximately $0.03 million (0.9%) and $2.3 million (67.1%) of Nevada on October 28, 2014 and established a fiscal year-end of March 31. We are in the development stage and were incorporated to produce images on multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others using a 3D sublimation vacuum heat transfer machine. Our business office is located at Floor 13th, Building 1, Block B, Zhihui Square, Nanshan District, Shenzhen City, China 518000. Our telephone number is +(86) 755 86961 405.
On December 28, 2016, the Company executed a Sale & Purchase Agreement (“Agreement”)total revenue for the acquisitionthree months ended December 31, 2021 and 2021, respectively. The decrease of 100% of$2.3 million was mainly due to factory re-decoration, remaining factories cannot provide as much capacity as before, we estimate the shares and assets of Yingxi Industrial Chain Group Co., Ltd., (YICG”) a company incorporated under the laws of the Republic of Seychelles. The Company agreed to issue five hundred million (500,000,000) shares to Yingxi Industrial Chain Group Co., Ltd. to acquire the shares and assets for a cost of US$0.30 per share or a total cost of US$150,000,000. The closing of the Agreement occurred on September 25, 2017.capacity will recover in early 2022.
As a result of the closing, the Company has terminated its previous business plan, and is now pursuing the historical business of Yingxi Industrial Chain Group Co., Ltd., an international industry chain service provider specializing in textile & garments industry.
We have never declared bankruptcy, been in receivership, or involved in any kind of legal proceeding.
| 6 |
ResultsRevenue generated from our logistics services business contributed approximately $1.7 million or 61.6% of Operations
For the three months ended September 30, 2017 compared to 2016
| For the Three Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2017 | 2016 | Amount | % | |||||||||||||
| Revenue | $ | 3,729,840 | $ | 2,433,559 | $ | 1,296,281 | 53 | % | ||||||||
| Cost of goods sold | (3,366,742 | ) | (2,047,859 | ) | 1,318,883 | 64 | % | |||||||||
| Gross profit | 363,098 | 385,700 | (22,602 | ) | (6 | %) | ||||||||||
| Operating expenses | (374,505 | ) | (401,552 | ) | (27,047 | ) | (7 | %) | ||||||||
| Other income (expenses) | 40 | 7,427 | (7,387 | ) | (99 | %) | ||||||||||
| Income tax | (3,912 | ) | (5,081 | ) | (1,169 | ) | (23 | %) | ||||||||
| Net loss | $ | (15,279 | ) | $ | (13,506 | ) | $ | 1,773 | 13 | % | ||||||
Revenue
Net revenues totaled $3,729,840our total revenue for the three months ended September 30, 2017, an increaseDecember 31, 2021. Revenue generated from our logistic business contributed approximately $0.8 million or 24.2% of $1,296,281 compared to 2016. The increase was primarily a result of regular increase of business.
Cost ofour total revenue
Cost of revenue totaled $3,366,742 for the three months ended December 31, 2020. YXPF, the new subsidiary has developed the business to replace the business of HPF, which was disposed of in September 30, 2017, an increase of $1,318,883 compared to 2016. Our cost of revenues consisted mainly of the labor cost, raw material cost, manufacturing cost, transportation cost and operation tax. The increase was primarily a result of an increase in transportation fee caused by increasing toll charge and the third-party cost from new business.2020.
Gross profit
Gross profit was 10% ($363,098)Revenue generated from our property management and 16% ($385,700)subleasing business contributed approximately $1.0 million or 37.5% of our total revenue for the three months ended September 30, 2017 and 2016, respectively. The decreaseDecember 31, 2021. This is a new business segment developed in gross profit was primarily a resultcurrent period. Revenue of unprofitable new business.
Operating expense
General and administrative expenses totaled $374,505the segment contributed approximately $0.3 million, or 8.6% of our total revenue for the three months ended September 30, 2017, a decrease of $27,047, compared to 2016. Operating expenses consisted of sales expense, administration expense and financial expense. The decrease in operating expenses was primarily a result of a decrease in administration expenses due to a decrease of staff.December 31, 2020.
Other income
Total other income totaled $40There was no revenue generated from our epidemic prevention supplies business for the three months ended September 30, 2017, a decreaseDecember 31, 2021 because no orders were obtained in the quarter. The Company accepted sales orders very cautiously to make sure the sales orders can be matched with stable suppliers to secure profitability of $7,387 compared to 2016. Other income consisted mainlyeach order. Revenue generated from our epidemic prevention supplies business contributed approximately $0.01 million, or 0.1% of a government subsidy.
Net loss
Net loss totaled $15,279our total revenue for the three months ended September 30, 2017, an increase from net loss of $1,773, compared to net loss of $13,506 for the three months ended September 30, 2016, primarily as the result of a decrease in gross profit.December 31, 2020.
Cost of revenue
| Three months ended December 31, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 25,641 | 100.0 | % | $ | 2,287,981 | 100 | % | $ | (2,262,340 | ) | (98.9 | )% | |||||||||||
| Raw materials | 8,829 | 34.4 | % | 1,620,775 | 70.8 | % | (1,611,946 | ) | (99.5 | )% | ||||||||||||||
| Labor | 12,783 | 49.9 | % | 467,478 | 20.5 | % | (454,695 | ) | (97.3 | )% | ||||||||||||||
| Other and Overhead | 6,306 | 24.6 | % | 16,747 | 0.7 | % | (10,441 | ) | (62.3 | )% | ||||||||||||||
| Total cost of revenue for garment manufacturing | 27,918 | 108.9 | % | 2,105,000 | 92.0 | % | (2,077,082 | ) | (98.7 | )% | ||||||||||||||
| Gross profit for garment manufacturing | (2,277 | ) | (8.9 | )% | 182,981 | 8.0 | % | (185,258 | ) | (101.2 | )% | |||||||||||||
| Net revenue for logistics services | 1,719,202 | 100.0 | % | 824,025 | 100.0 | % | 895,177 | 108.6 | % | |||||||||||||||
| Fuel, toll and other cost of logistics services | 568,726 | 33.1 | % | 482,568 | 58.6 | % | 86,158 | ) | 17.9 | % | ||||||||||||||
| Subcontracting fees | 842,510 | 49.0 | % | 85,766 | 10.4 | % | 756,744 | 882.3 | % | |||||||||||||||
| Total cost of revenue for logistics services | 1,411,236 | 82.1 | % | 568,334 | 69.0 | % | 842,902 | 148.3 | % | |||||||||||||||
| Gross Profit for logistics services | 307,967 | 17.9 | % | 255,691 | 31.0 | % | 52,276 | 20.4 | % | |||||||||||||||
| Net revenue for property management and subleasing | 1,046,627 | 100.0 | % | 294,759 | 100.0 | % | 751,868 | 255.1 | % | |||||||||||||||
| Total cost of revenue for property management and subleasing | 884,556 | 84.5 | % | 272,759 | 92.5 | % | 611,797 | 224.3 | % | |||||||||||||||
| Gross Profit for property management and subleasing | 162,071 | 15.5 | % | 22,000 | 7.5 | % | 140,071 | 636.7 | % | |||||||||||||||
| Net revenue for epidemic prevention supplies | $ | - | $ | 4,786 | 100.0 | % | (4,786 | ) | (100.0 | )% | ||||||||||||||
| Merchandise/Finished goods/Raw materials | 6 | 4,030 | 84.2 | % | (4,024 | ) | (99.9 | )% | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 6 | 4,030 | 84.2 | % | (4,024 | ) | (99.9 | )% | ||||||||||||||||
| Gross (loss) income for epidemic prevention supplies | (6 | ) | 756 | 15.8 | % | (762 | ) | (100.8 | )% | |||||||||||||||
| Total cost of revenue | $ | 2,323,716 | 83.2 | % | $ | 2,950,123 | 86.5 | % | $ | (626,407 | ) | (21.2 | )% | |||||||||||
| Gross profit | $ | 467,754 | 16.8 | % | $ | 461,428 | 13.5 | % | $ | 6,326 | 1.4 | % | ||||||||||||
| 7 |
For our garment manufacturing business, we purchase the sixmajority of our raw materials directly from numerous local fabric and accessories suppliers.
Raw material costs for our garment manufacturing business were 34.4% of our total garment manufacturing business revenue in the three months ended September 30, 2017December 31, 2021, compared with 70.8% in the three months ended December 31, 2020. The decreased in percentages was mainly due to 2016
| For the Six Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2017 | 2016 | Amount | % | |||||||||||||
| Revenue | $ | 8,046,794 | $ | 5,927,072 | $ | 2,119,722 | 36 | % | ||||||||
| Cost of goods sold | (7,403,721 | ) | (5,083,084 | ) | 2,320,637 | 46 | % | |||||||||
| Gross profit | 643,073 | 843,988 | (200,915 | ) | (24 | %) | ||||||||||
| Operating expenses | (755,548 | ) | (789,188 | ) | (33,640 | ) | (4 | %) | ||||||||
| Other income (expenses) | (1,066 | ) | 11,897 | (12,963 | ) | (109 | %) | |||||||||
| Income tax | (6,128 | ) | (15,326 | ) | (9,198 | ) | (60 | %) | ||||||||
| Net income (loss) | $ | (119,669 | ) | $ | 51,371 | $ | (171,040 | ) | (333 | %) | ||||||
Revenuethe purchase cost of the raw materials dropped.
Net revenues totaled $8,046,794Labor costs for our garment manufacturing business were 49.9% of our total garment manufacturing business revenue in the three months ended December 31, 2021, compared with 20.5% in the three months ended December 31, 2020. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our garment manufacturing business accounted for 24.6% of our total garment business revenue for the sixthree months ended September 30, 2017, an increaseDecember 31, 2021, compared with 0.7% of $2,119,722 compared to 2016. The increase was primarily a result of regular increase of business.total garment business revenue for the three months ended December 31, 2020.
CostFor our logistic business, we outsource some of revenue
Costthe business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest contractor represented approximately 29.9% and 10.4% of revenue totaled $7,403,721 for the six months ended September 30, 2017, an increase of $2,320,637 compared to 2016. Ourtotal cost of revenues consisted mainly offor our service segment for the labor cost, raw material cost, manufacturing cost, transportation costthree months ended December 31, 2021 and operation tax.2020, respectively. The increasepercentage increased as we used more subcontractors than our own logistics when COVID-19 epidemic was primarily a result of an increase in transportation fee caused by increasing toll chargeunder controlled and aggregated subcontracting service to the third-party cost from new business.largest supplier. We have not experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistics services provider.
Gross profit
Gross profit was 8% ($643,073)Fuel, toll and 14% ($843,988)other costs for our service business for the sixthree months ended September 30, 2017December 31, 2021 were approximately $0.6 million compared with $0.5 million for the three months ended December 31, 2020. Fuel, toll and 2016, respectively.other costs for our service business accounted for 33.1% of our total service revenue for the three months ended December 31, 2021, compared with 58.6% for the three months ended December 31, 2020. The decrease in gross profitpercentages was primarily a resultattributable to decrease of unprofitable new business.use of our own logistics.
Operating expense
General and administrative expenses totaled $755,548Subcontracting fees for our service business for the sixthree months ended September 30, 2017, a decreaseDecember 31, 2021 increased 8.8 times to approximately $0.8 million from $0.1 million for the three months ended December 31, 2020. Subcontracting fees accounted for 49.0% and 10.4% of $33,640, compared to 2016. Operating expenses consisted of sales expense, administration expenseour total service business revenue in the three months ended December 31, 2021 and financial expense.2020, respectively. The decreasesignificant increase in operating expensespercentages was primarily a result of a decrease in administration expenses due to a decrease of staffs.because the Company used more subcontractors when the epidemic was getting controlled.
Other income (expense)
Total other expenses totaled $1,066 for the six months ended September 30, 2017, a decrease of $12,963, compared to 2016. Other income consisted mainly of government subsidy.
Net income (loss)
Net loss totaled $119,669 for the six months ended September 30, 2017, a decrease from net income of $171,040, compared to net income of $51,371 for the six months ended September 30, 2016, primarily as the result of a decrease in gross profit.
Liquidity and Capital Resources
Working Capital
| Change | ||||||||||||||||
| September 30, 2017 | March 31, 2017 | Amount | % | |||||||||||||
| Cash | $ | 378,557 | $ | 176,929 | $ | 201,628 | 114 | % | ||||||||
| Current Assets | $ | 8,258,897 | $ | 7,043,387 | $ | 1,215,510 | 17 | % | ||||||||
| Current Liabilities | 9,911,642 | 7,038,629 | 2,873,013 | 41 | % | |||||||||||
| Working Capital (deficiency) | $ | (1,652,745 | ) | $ | 4,758 | $ | (1,657,503 | ) | (34,836 | %) | ||||||
| 8 |
The change in working capital deficiency duringFor property management and subleasing business, the period ended September 30, 2017cost of revenue was primarily from an increase in short-term loan payablemainly the amortization of $2,657,344 and reduced by an increase in note receivable of $556,375 and prepaid expenses of $664,842.
Cash Flows
| September 30, | ||||||||||||
| 2017 | 2016 | Change | ||||||||||
| Net cash provided by operating activities | $ | 14,755 | $ | 307,378 | $ | (292,623 | ) | |||||
| Net cash used in investing activities | $ | (1,861,997 | ) | $ | (104,624 | ) | $ | (1,757,373 | ) | |||
| Net cash provided by financing activities | $ | 2,045,770 | $ | 56,196 | $ | 1,989,574 | ||||||
| Effects on changes in foreign exchange rate | $ | 3,116 | $ | (5,116 | ) | $ | 8,232 | |||||
| Net increase in cash and cash equivalents | $ | 201,644 | $ | 5,625 | $ | 196,019 | ||||||
Cash Flows from Operating Activitiesoperating lease assets for the subleasing business.
For epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise and cost of our own products. The other cost of the sixquarter represented depreciation of machinery.
Gross profit
Garment manufacturing business gross loss for the three months ended September 30, 2017,December 31, 2021 was approximately $0.002 million, or -8.9% of our total Garment manufacturing business revenue, as compared with gross profit of approximately $0.2 million, or 8.0% of our total Garment manufacturing business revenue for the three months ended December 31, 2020. The gross margin was 16.9% lower due to higher raw material cost in the quarter ended December 31, 2021.
Gross profit in our logistics services business for the three months ended December 31, 2021 was approximately $0.3 million and gross margin was 17.9%. Gross profit in our logistics services business for the three months ended December 31, 2020 was approximately $0.3 million and gross margin was 31.0%. The decrease of gross profit ratio was mainly because of the increased cost of subcontractors in recent period.
Gross profit in our property management and subleasing business for the three months ended December 31, 2021 was approximately $0.2 million, or 15.5% of our total property management and subleasing business revenue. Gross profit of the segment for the three months ended December 31, 2020 was approximately $0.02 million, or 7.5% of the revenue of the segment.
| Three months ended December 31, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 467,754 | 100 | % | $ | 461,428 | 100 | % | 6,326 | 1.4 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (43,118 | ) | (9.2 | )% | (217,942 | ) | (47.2 | )% | 174,824 | 80.2 | % | |||||||||||||
| General and administrative expenses | (452,312 | ) | (96.7 | )% | (532,012 | ) | (115.3 | )% | 79,700 | 15.0 | % | |||||||||||||
| Total | $ | (495,430 | ) | (105.9 | )% | $ | (749,954 | ) | (162.5 | )% | 254,524 | 33.9 | % | |||||||||||
| Loss from operations | $ | (27,676 | ) | (5.9 | )% | $ | (288,526 | ) | (62.5 | )% | 260,850 | 90.4 | % | |||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the three months ended December 31, 2021 and 2020 was approximately $0.001 million and $0.001 million, respectively. Our selling expenses in our logistics services segment was nil for the three months ended December 31, 2021 and 2020, respectively. Selling expenses in our property management and subleasing business was approximately $0.04 million and $0.02 million for the three months ended December 31, 2021 and 2020, respectively. Selling expenses in our epidemic prevention supplies segment was nil and approximately $0.2 million for the three months ended December 31, 2021 and 2020, respectively. Selling expenses consist primarily of advertisement, local transportation, unloading charges and product inspection charges. Total selling expenses for the three months ended December 31, 2021 decreased 80.2% to approximately $0.04 million from $0.2 million for the three months ended December 31, 2020. It was mainly due to decrease of marketing expenses of epidemic prevention supplies business.
Our general and administrative expenses in our Garment manufacturing business segment for the three months ended December 31, 2021 and 2020 was approximately $0.03 million and $0.08 million, respectively. Our general and administrative expenses in our logistics services segment, for the three months ended December 31, 2021 and 2020 was both approximately $0.2 million. The general and administrative expenses in our property management and subleasing business was approximately $0.1 million and $0.001 million for the three months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our epidemic prevention supplies segment was nil and approximately $0.001 million for the three months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the three months ended December 31, 2021 and 2020 was approximately $0.1 million and $0.2 million, 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.
| 9 |
Total general and administrative expenses for the three months ended December 31, 2021 decreased by 15.0% to approximately $0.45 million from $0.53 million for the three months ended December 31, 2020.
Loss from operations
Loss from operations for the three months ended December 31, 2021 and 2020 was approximately $0.03 million and $0.3 million, respectively. Loss from operations of approximately $0.03 million and income of $0.1 million was attributed from our garment manufacturing segment for the three months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.1 million and $0.06 million was attributed from our logistics services segment for the three months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.01 million and $0.006 million was attributed from our newly developed property management and subleasing business for the three months ended December 31, 2021 and 2020, respectively. Income (loss) from operations of nil and approximately ($0.2) million was attributed from our epidemic prevention supplies segment for the three months ended December 31, 2021 and 2020, respectively. We incurred a loss from operations in corporate office of approximately $0.1 million and $0.2 million for the three months ended December 31, 2021 and 2020, respectively. The loss from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.
Income Tax Expenses
Income tax expense for the three months ended December 31, 2021 and 2020 was approximately $0.002 million and $0.016 million, respectively, 86.0% decrease compared to 2020. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive 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 three months ended December 31, 2021 and 2020.
QYTG and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the three months ended December 31, 2021 and 2020.
The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2021. The preferential tax rates will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
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 three months ended December 31, 2021 and 2020.
Net Income (Loss)
We incurred a net cash flows provided by operating activities consistedincome of approximately $0.01 million and a net loss of $119,669$0.3 million for the three months ended December 31, 2021 and was2020, respectively. Our basic and diluted earnings per share were $0.00 and ($0.01) for the three months ended December 31, 2021 and 2020, respectively.
| 10 |
Results of Operations for the nine months ended December 31, 2021 and 2020
The following tables summarize our results of operations for the nine months ended December 31, 2021 and 2020. 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.
| Nine months Ended December 31, | Changes in 2021 | |||||||||||||||||||||||
| 2021 | 2020 | compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 9,835,733 | 100.0 | % | $ | 21,014,064 | 100.0 | % | $ | (11,178,331 | ) | (53.2 | )% | |||||||||||
| Cost of revenues | (8,314,149 | ) | (84.5 | )% | (22,776,087 | ) | (108.4 | )% | 14,461,938 | 63.5 | % | |||||||||||||
| Gross profit (loss) | 1,521,584 | 15.5 | % | (1,762,023 | ) | (8.4 | )% | 3,283,607 | (186.4 | )% | ||||||||||||||
| Operating expenses | (1,510,823 | ) | (15.4 | )% | (1,830,992 | ) | (8.7 | )% | 320,169 | 17.5 | % | |||||||||||||
| Income (loss) from operations | 10,761 | 0.1 | % | (3,593,015 | ) | (17.1 | )% | 3,603,776 | 100.3 | % | ||||||||||||||
| Other income, net | 132,959 | 1.3 | % | 62,489 | 0.3 | % | 70,470 | 112.8 | % | |||||||||||||||
| Net finance cost | (3,240 | ) | (0.0 | )% | (6,484 | ) | 0.0 | % | 3,244 | 50.0 | % | |||||||||||||
| Income tax expense | (17,893 | ) | (0.2 | )% | (23,196 | ) | (0.1 | )% | 5,303 | ) | 22.9 | % | ||||||||||||
| Net income (loss) | $ | 122,587 | 1.2 | % | $ | (3,560,206 | ) | (16.9 | )% | $ | 3,682,793 | 103.4 | % | |||||||||||
Revenue
Total revenue for the nine months ended December 31, 2021 decreased by approximately $11.2 million, or 53.2%, as compared with the nine months ended December 31, 2020. The significant decrease was mainly because of the decrease of epidemic supply business and garment manufacturing business offset by increases in logistics services business and property management and leasing business.
Revenue generated from our garment manufacturing business contributed approximately $2.5 million (25.3%) and $5.2 million (24.7%) of total revenue for the nine months ended December 31, 2021 and 2020, respectively. The decrease of approximately $2.7 million mainly due to factory re-decoration which caused a capacity decrease. We estimate the capacity will recover in the first quarter of 2022.
| 11 |
Revenue generated from our logistics services business contributed approximately $4.1 million or 42.1% of our total revenue for the nine months ended December 31, 2021. Revenue generated from our logistic business contributed approximately $3.7 million or 17.4% of our total revenue for the nine months ended December 31, 2020. The increase of $0.4 million was because YXPF, the new subsidiary was developing the business to replace the business of HPF, which was disposed of in September 2020.
Revenue generated from our property management and subleasing business contributed approximately $3.2 million or 32.6% of our total revenue for the nine months ended December 31, 2021.
There was no revenue generated from our epidemic prevention supplies business for the nine months ended December 31, 2021 because no profitable orders were obtained in the period. The Company accepted sales orders very cautiously to make sure the sales orders can be matched with stable suppliers to secure profitability of each order. Revenue generated from our epidemic prevention supplies business contributed approximately $11.9 million, or 56.5% of our total revenue for the nine months ended December 31, 2020.
Cost of revenue
| Nine months ended December 31, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 2,488,173 | 100.0 | % | $ | 5,186,042 | 100.0 | % | $ | (2,697,869 | ) | (52.0 | )% | |||||||||||
| Raw materials | 1,719,420 | 69.1 | % | 3,709,275 | 71.5 | % | (1,989,855 | ) | (53.6 | )% | ||||||||||||||
| Labor | 542,118 | 21.8 | % | 1,030,350 | 19.9 | % | (488,232 | ) | (47.4 | )% | ||||||||||||||
| Other and Overhead | 23,124 | 0.9 | % | 30,918 | 0.6 | % | (7,794 | ) | (25.2 | )% | ||||||||||||||
| Total cost of revenue for garment manufacturing | 2,284,662 | 91.8 | % | 4,770,543 | 92.0 | % | (2,485,881 | ) | (52.1 | )% | ||||||||||||||
| Gross profit for garment manufacturing | 203,511 | 8.2 | % | 415,499 | 8.0 | % | (211,988 | ) | (51.0 | )% | ||||||||||||||
| Net revenue for logistics services | 4,144,604 | 100.0 | % | 3,664,409 | 100.0 | % | 480,195 | 13.1 | % | |||||||||||||||
| Fuel, toll and other cost of logistics services | 1,410,231 | 34.0 | % | 1,367,753 | 37.3 | % | 42,478 | 3.1 | % | |||||||||||||||
| Subcontracting fees | 1,868,648 | 45.1 | % | 1,576,228 | 43.0 | % | 292,420 | 18.6 | % | |||||||||||||||
| Total cost of revenue for logistics services | 3,278,879 | 79.1 | % | 2,943,981 | 80.3 | % | 334,898 | 11.4 | % | |||||||||||||||
| Gross Profit for logistics services | 865,725 | 20.9 | % | 720,428 | 19.7 | % | 145,297 | 20.2 | % | |||||||||||||||
| Net revenue for property management and subleasing | 3,202,956 | 100.0 | % | 294,759 | 100 | % | 2,908,197 | 986.6 | % | |||||||||||||||
| Total cost of revenue for property management and subleasing | 2,749,114 | 85.8 | % | 272,759 | 92.5 | % | 2,476,355 | 907.9 | % | |||||||||||||||
| Gross Profit for property management and subleasing | 453,842 | 14.2 | % | 22,000 | 7.5 | % | 431,842 | 1,962.9 | % | |||||||||||||||
| Net revenue for epidemic prevention supplies | $ | - | $ | 11,868,854 | 100.0 | % | (11,868,854 | ) | (100.0 | )% | ||||||||||||||
| Merchandise/Finished goods/Raw materials | - | 14,684,284 | 123.7 | % | (14,684,284 | ) | (100.0 | )% | ||||||||||||||||
| Labor | - | 64,946 | 0.5 | % | (64,946 | ) | (100.0 | )% | ||||||||||||||||
| Other and Overhead | 1,494 | 39,574 | 0.3 | % | (38,080 | ) | (96.2 | )% | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 1,494 | 14,788,804 | 124.6 | % | (14,787,310 | ) | (100.0 | )% | ||||||||||||||||
| Gross loss for epidemic prevention supplies | (1,494 | ) | (2,919,950 | ) | (24.6 | )% | 2,918,456 | (99.9 | )% | |||||||||||||||
| Total cost of revenue | $ | 8,314,149 | 84.5 | % | $ | 22,776,087 | 108.4 | % | $ | (14,461,938 | ) | (63.5 | )% | |||||||||||
| Gross profit | $ | 1,521,584 | 15.5 | % | $ | (1,762,023 | ) | (8.4 | )% | $ | 3,283,607 | 186.4 | % | |||||||||||
| 12 |
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers.
Raw material costs for our garment manufacturing business were 69.1% of our total garment manufacturing business revenue in the nine months ended December 31, 2021, compared with 71.5% in the nine months ended December 31, 2020. The decreased in percentages was mainly due to the purchase cost of the raw materials dropped.
Labor costs for our garment manufacturing business were 21.8% of our total garment manufacturing business revenue in the nine months ended December 31, 2021, compared with 19.9% in the nine months ended December 31, 2020. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our garment manufacturing business accounted for 8.2% of our total garment business revenue for the nine months ended December 31, 2021, compared with 8.0% of total garment business revenue for the nine months ended December 31, 2020.
For our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest contractor represented approximately 30.3% and 43.0% of total cost of revenues for our service segment for the nine months ended December 31, 2021 and 2020, respectively. The percentage decreased as we used our own logistics more than the subcontractors under COVID-19 epidemic. We have not experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistics services provider.
Fuel, toll and other costs for our service business for the nine months ended December 31, 2021 were approximately $1.4 million compared with $1.4 million for the nine months ended December 31, 2020. Fuel, toll and other costs for our service business accounted for 34.0% of our total service revenue for the nine months ended December 31, 2021, compared with 37.3% for the nine months ended December 31, 2020.
Subcontracting fees for our service business for the nine months ended December 31, 2021 increased 18.6% to approximately $1.9 million from $1.6 million for the nine months ended December 31, 2020. Subcontracting fees accounted for 45.1% and 43.0% of our total service business revenue in the nine months ended December 31, 2021 and 2020, respectively.
| 13 |
For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business.
For epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise and cost of our own products. The other cost of the quarter represented depreciation of $56,797,machinery.
Gross profit
Garment manufacturing business gross profit was approximately $0.2 million, accounted for 8.2% of our total Garment manufacturing business revenue for the nine months ended December 31, 2021 and increasedapproximately $0.4 million, accounted for 8.0% of our total Garment manufacturing business revenue for the nine months ended December 31, 2020. The gross margin was 0.2% higher due to lower raw material cost in the months ended December 31, 2021.
Gross profit in our logistics services business for the nine months ended December 31, 2021 was approximately $0.9 million and accounted for 20.9% of our total Logistics services business revenue. Gross profit in our logistics services business for the nine months ended December 31, 2020 was approximately $0.7 million and accounted for 19.7% of our total Logistics services business revenue. The increase of gross profit ratio was mainly because of a decrease of operating expenses due to replacement of old vehicles and shifting our strategic focus on high margin customers.
Gross profit in our property management and subleasing business for the nine months ended December 31, 2021 was approximately $0.5 million, or 14.2% of our total property management and subleasing business revenue. Gross profit in our property management and subleasing business for the nine months ended December 31, 2020 was $0.02 million, or 7.5% of our total property management and subleasing business revenue.
| Nine months ended December 31, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 1,521,584 | 100 | % | $ | (1,762,023 | ) | (100 | )% | 3,283,607 | 186.4 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (135,310 | ) | (8.9 | )% | (376,975 | ) | (21.4 | )% | 241,665 | 64.1 | % | |||||||||||||
| General and administrative expenses | (1,375,513 | ) | (90.4 | )% | (1,454,017 | ) | (82.5 | )% | 78,504 | ) | 5.4 | % | ||||||||||||
| Total | $ | (1,510,823 | ) | (99.3 | )% | $ | (1,830,992 | ) | (103.9 | )% | 320,169 | 17.5 | % | |||||||||||
| Income from operations | $ | 10,761 | (0.7 | )% | $ | (3,593,015 | ) | (203.9 | )% | 3,603,776 | 100.3 | % | ||||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the nine months ended December 31, 2021 and 2020 was $0.0003 million and approximately $0.003 million, respectively. Our selling expenses in our logistics services segment was nil for the nine months ended December 31, 2021 and 2020, respectively. Selling expenses in our property management and subleasing business was $0.1 million for the nine months ended December 31, 2021. Selling expenses in our epidemic prevention supplies segment was nil and approximately $0.4 million for the nine months ended December 31, 2021 and 2020, respectively. Selling expenses consist primarily of advertisement, local transportation, unloading charges and product inspection charges. Total selling expenses for the nine months ended December 31, 2021 decreased 64.1% to $0.1 million from $0.4 million for the nine months ended December 31, 2020. It was mainly due to decrease of marketing expenses of epidemic prevention supplies business.
Our general and administrative expenses in our Garment manufacturing business segment for the nine months ended December 31, 2021 and 2020 was approximately $0.1 million and $0.2 million, respectively. Our general and administrative expenses in our logistics services segment, for the nine months ended December 31, 2021 and 2020 was approximately $0.7 million and $0.6 million. The general and administrative expenses in our property management and subleasing business was approximately $0.3 million and $0.001 million for the nine months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our epidemic prevention supplies segment was nil and approximately $0.02 million for the nine months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2021 and 2020 was approximately $0.3 million and $0.6 million, 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.
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Total general and administrative expenses for the nine months ended December 31, 2021 and 2020 was approximately $1.4 million and $1.5 million, respectively.
Income (loss) from operations
Income from operations for the nine months ended December 31, 2021 was approximately $0.01 million and loss from operations for the nine months ended December 31, 2020 was approximately $3.6 million. Income from operations of approximately $0.1 million and $0.2 million was attributed from our garment manufacturing segment for the nine months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.2 million and $0.1 million was attributed from our logistics services segment for the nine months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.05 million and $0.006 million was attributed from our property management and subleasing business for the nine months ended December 31, 2021 and 2020, respectively. Income (loss) from operations of nil and approximately ($3.3) million was attributed from our epidemic prevention supplies segment for the nine months ended December 31, 2021 and 2020, respectively. We incurred a loss from operations in corporate office of approximately $0.3 million and $0.6 million for the nine months ended December 31, 2021 and 2020, respectively. The loss from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.
Income Tax Expenses
Income tax expense for the nine months ended December 10, 2021 and 2020 was approximately $0.018 million and $0.023 million, respectively, 22.9% decrease compared to 2020. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive 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 nine months ended December 31, 2021 and 2020.
QYTG and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the nine months ended December 31, 2021 and 2020.
The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2021. The preferential tax rates will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
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 nine months ended December 31, 2021 and 2020.
Net Income (Loss)
We incurred a net increaseincome of approximately $0.1 million and a net loss of $3.6 million for the nine months ended December 31, 2021 and 2020, respectively. Our basic and diluted earnings per share were $0.00 and ($0.14) for the nine months ended December 31, 2021 and 2020, respectively.
Summary of cash flows
Summary cash flows information for the nine months ended December 31, 2021 and 2020 is as follow:
| Nine months ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash provided by (used in) operating activities | $ | 383,825 | $ | (3,782,116 | ) | |||
| Net cash used in investing activities | $ | (176,268 | ) | $ | (1,094,344 | ) | ||
| Net cash (used in) provided by financing activities | $ | (1,543,573 | ) | $ | 4,718,213 | |||
Net cash used in changeoperating activities in the nine months ended December 31, 2021 was approximately $4.2 million more than that of the nine months ended December 31, 2020. It was mainly because the net income of the nine months ended December 31, 2021 was approximately $0.1 million while it was a net loss of approximately $3.6 million for the nine months ended December 31, 2020. The movement of operating assets and liabilities of $77,627. For the sixnine months ended September 30, 2016, netDecember 31, 2021 resulted in cash flows provided by operating consistedinflow of a net income of $51,371 and was increased by depreciation of $49,719 and a net increase inapproximately $0.1 million, while the changemovement of operating assets and liabilities of $206,288. Cash flows from operating activities decreased mainly due to a decrease in net income.
Cash Flows from Investing Activities
For the sixnine months ended September 30, 2017,December 31, 2020 resulted in cash outflow of approximately $0.3 million. We will continue 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 collected loans of $336,597 and loans to related parties of $189,283 and used $1,500,000 for acquisition of subsidiary and $3,142 for purchases of equipment, provided loans of $854,795 and loans to related parties of $29,940. For the six months ended September 30, 2016, we collected loan to related parties of $618,557 and used $101,225 for purchases of equipment, and provided loans of $621,926.typically manufacture upon customers’ order.
Cash Flows from Financing Activities
For the six months ended September 30, 2017, we received $4,275,000 from loan payable and $150 from loan payable from related parties and used $1,680,000 for repayments of loans and $549,380 for repayment of loans to related parties. For the six months ended September 30, 2016, we received loans from related parties of $56,196.
Critical Accounting Policy and Estimates
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
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Net cash used in investing activities for the nine months ended December 31, 2021 was approximately $0.9 million less than that of the nine months ended December 31, 2020. It was mainly because the purchase of plant and equipment and other assets in the nine months ended December 31, 2021 was approximately $0.2 million less than the purchase of plant and equipment in the nine months ended December 31, 2020. Moreover, there was a cash decrease of approximately $0.7 million due to disposal of two subsidiaries in the nine months ended December 31, 2020.
Net cash of financing activities for the nine months ended December 31, 2021 was approximately $6.2 million less than the nine months ended December 31, 2020. It was mainly because there was proceeds of $3.7 million from issue of ordinary shares in the nine months ended December 31, 2020; the net repayment of related party borrowings in current period was approximately $2.6 million more than that of the nine months ended December 31, 2020; and there was repayment of bank borrowing of $0.1 million in the nine months ended December 31, 2020.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2021, we had cash on hand of approximately $0.5 million, total current assets of approximately $4.8 million and current liabilities of approximately $9.5 million. We presently finance our operations by using the cash flows borrowed from related parties and third parties. We aim to improve our operating cash flows and anticipate that cash flows from our operations and borrowings from related parties and third parties will continue to be our primary source of funds to finance our short-term cash needs. The Company’s financial conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company expects to finance operations primarily through cash flow from revenue and capital contributions from the CEO. During the year, the CEO has provided financial support for the operations of the Company. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing.
The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
Foreign Currency Translation Risk
Our operations are located in 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 the past years, RMB continued to appreciate against the U.S. dollar. As of December 31, 2021, the market foreign exchange rate was RMB 6.355 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 loss for the nine months ended December 31, 2021 and 2020 was approximately $0.06 million and $0.2 million 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 December 31, 2021 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 that is material to stockholders.resources.
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As a “smaller reporting company”, we are not required to provide the information required by this Item.Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a15(e)13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information 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.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2017.December 31, 2021. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). The Company’s 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 accounting principles generally accepted in the United States of America. 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 that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017 using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2017, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
1. We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
2. We did not maintain appropriate cash controls – As of September 30, 2017, the Company has not maintained sufficient internal controls over financial reporting for cash, including failure to segregate cash handling and accounting functions, and did not require dual signatures on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in its bank accounts.
3. We did not implement appropriate information technology controls – As at September 30, 2017, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2017 based on criteria established in Internal Control- Integrated Framework issued by COSO.
Changes in Internal Controls over Financial Reporting
There has beenwas no change in ourthe Company’s internal control over financial reporting occurred duringour first fiscal quarterperiod covered by this report that has materially affected, or is reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
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This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report.
We know of no material, existing or pendingItem 1. Legal Proceedings
From time to time, we may become involved in legal proceedings against our Company, nor are we involved as a plaintiffor be subject to claims arising in any material proceeding or pending litigation. There are no proceedings in which anythe ordinary course of our directors, officersbusiness. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would individually or affiliates, or any registered or beneficial shareholder, is an adverse party or hastaken together have a material interest adverse toeffect on our interest.business, operating results, financial condition, or cash flows.
Item 1A. Risk Factors
As a “smallersmaller reporting company” ascompany (as defined by Item 10in Rule 12b-2 of Regulation S-K,the Exchange Act), we are not required to provide the information requiredcalled for by this Item.Item 1A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
None.Item 5. Other Information
There is no other information required to be disclosed under this item, which was not previously disclosed.
The following exhibits are included as part of this report:Item 6. Exhibits
Exhibit Number | Description | |
| (31) | Rule 13a-14 (d)/15d-14d) Certifications | |
| Section 302 Certification | ||
| 31.2* | Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| (32) | Section 1350 | |
| Section 906 Certification | ||
| 32.2* | Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| 101* | Interactive Data | |
| XBRL Instance Document | ||
| XBRL Taxonomy Extension Schema Document | ||
| XBRL Taxonomy Extension Calculation Linkbase Document | ||
| XBRL Taxonomy Extension Definition Linkbase Document | ||
| XBRL Taxonomy Extension Label Linkbase Document | |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 ofFiled herewith.
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SIGNATURES
Pursuant to the Securities Act of 1933, as amended, is deemed not filed for purposesrequirements of Section 1813 or 15(d) of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ Hong Zhida | ||
| Hong Zhida | |||
| President, Chief Executive Officer | |||
| (Principal Executive | |||
| Date: February 14, 2022 | By: | /s/ Huang Chao | |
| Huang Chao | |||
| Chief Financial Officer and Treasurer | |||
| (Principal Financial and Accounting Officer) | |||
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