UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/AFORM 10-Q
(Amendment No. 1)
(Mark One)
[X] |
For the quarterly period ended ended:December 31, 20172018
[ ] |
For the transition period from _______________________ to ___________________________
Commission file number:File No.333-206097
ADDENTAX GROUP CORP.
(Exact name of registrant as specified in its charter)
Nevada | 35-2521028 | |
(State or other jurisdiction of | ( | |
incorporation or formation) | Identification |
Kingkey 100, Block A, Room 5403,
Luohu District, Shenzhen City, China 518000
(Address of principal executive offices)
+ (86) 755 86961 405
(Registrant’s telephone number)
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Actact of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [X] No [ ] 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). [X]
[X] 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“large accelerated filer,” “accelerated filer,” “smaller“accelerated filer” and “smaller reporting company,”company” and “emerging“emerging growth company”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 [ ] Yes [X] No [X]
State the numberAs of February 13, 2019, there were 506,920,000 shares outstanding of each of the issuer’s classes ofregistrant’s common equity, as of the latest practicable date: 506,920,000 common shares issued and outstanding as of April 16, 2018.stock.
EXPLANATORY NOTE
Addentax Group, Corp. (“Addentax”, the “Company”, “we” or “us”) is filing this Amendment No. 1 to our quarterly report on Form 10-Q (“Form 10-Q/A”) for the period ended December 31, 2017, which was originally filed with the Securities and Exchange Commission (SEC) on April 16, 2018 (the “Original Filing”), to restate the Company’s unaudited consolidated financial statements as of March 31, 2017 and unaudited condensed consolidated financial statements as of December 31, 2017, as well as the related notes included in the Original Filing (“Restatement”).
This Form 10-Q/A contains only Item 1 (Financial Statements), Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 4 (Controls and Procedures) of Part I and Item 6 (Exhibits) of Part II, and items including information not affected by the Restatement have not been repeated in this Form 10-Q/A.
The Restatement corrects accounting errors related to:
Note 2, Restatement of Previously Issued Consolidated Financial Statements, in the Company’s condensed consolidated financial statements included in Item 1 below provides further information regarding the Restatement. “Item 4 – Controls and Procedures” to this Form 10-Q/A discloses the material weaknesses in the Company’s internal controls associated with the Restatement, as well as management’s conclusion that the Company’s internal controls over financial reporting were not effective as of December 31, 2017. Management is currently evaluating the changes needed in the Company’s internal controls over financial reporting to remediate these material weaknesses.
This Form 10-Q/A does not reflect events occurring after the filing of the Original Filing and does not substantively modify or update the disclosures therein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, set forth in Item 1 of this Form 10-Q/A, for additional information. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing.
We are also filing currently dated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1 and 31.2 to this Form 10-Q/A.
Unless the context otherwise requires, references to “we,” “us,” “our,” “ATXG”, or the “Company,” are to Addentax Group Corp. and its subsidiaries.
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the three and Supplementary Datanine months ended December 31, 2018 and 2017
TABLE OF CONTENTS
3 |
ADDENTAX GROUP CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF DECEMBER 31, 20172018 (UNAUDITED) AND MARCH 31, 20172018 (AUDITED)
December 31, 2017 | March 31, 2017 | |||||||||||||||
(Restated) | (Restated) | December 31, 2018 | March 31, 2018 | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 146,365 | $ | 176,905 | $ | 356,969 | $ | 264,806 | ||||||||
Accounts receivables, net | 4,626,213 | 4,776,878 | 1,887,702 | 3,416,618 | ||||||||||||
Inventories, net | 465,589 | 445,442 | 391,646 | 239,229 | ||||||||||||
Other receivables | 1,927,410 | 1,105,320 | 195,740 | 2,005,112 | ||||||||||||
Advances to suppliers | 939,604 | 322,556 | 221,843 | 266,377 | ||||||||||||
Amounts due from related parties | 289,210 | 127,552 | 80,149 | 202,426 | ||||||||||||
Total current assets | 8,394,391 | 6,954,653 | 3,134,049 | 6,394,568 | ||||||||||||
NON-CURRENT ASSETS | ||||||||||||||||
Plant and equipment, net | 655,457 | 663,203 | 651,353 | 648,540 | ||||||||||||
Goodwill | 929,662 | 929,662 | 475,003 | 475,003 | ||||||||||||
Total non-current assets | 1,585,119 | 1,592,865 | 1,126,356 | 1,123,543 | ||||||||||||
TOTAL ASSETS | $ | 9,979,510 | $ | 8,547,518 | $ | 4,260,405 | $ | 7,518,111 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 3,468,618 | $ | 1,610,643 | $ | 1,211,121 | $ | 1,549,847 | ||||||||
Amount due to related parties | 5,076,803 | 2,907,283 | 4,060,259 | 5,319,418 | ||||||||||||
Advances from customers | 820,981 | 1,047,817 | 121,188 | 1,561,861 | ||||||||||||
Accrued expenses and other payables | 991,571 | 199,283 | 256,700 | 185,855 | ||||||||||||
Payable for acquisition of business | - | 3,025,751 | ||||||||||||||
Bank borrowings | 159,922 | - | ||||||||||||||
Income tax payable | 6,108 | 723 | 2,113 | 6,064 | ||||||||||||
Total current liabilities | 10,364,081 | 8,791,500 | 5,811,303 | 8,623,045 | ||||||||||||
TOTAL LIABILITIES | $ | 10,364,081 | $ | 8,791,500 | $ | 5,811,303 | $ | 8,623,045 | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
EQUITY | ||||||||||||||||
Common stock ($0.001 par value, 506,920,000 shares issued and outstanding for the period ended December 31, 2017 and $0.001 par value, 500,000,000 shares issued and outstanding for the year ended March 31, 2017) | $ | 506,920 | $ | 500,000 | ||||||||||||
Common stock ($0.001 par value, 506,920,000 shares issued and outstanding for the three months ended June 30, 2018 and the year ended March 31, 2018 ) | $ | 506,920 | $ | 506,920 | ||||||||||||
Additional paid-in capital | (420,523 | ) | (413,604 | ) | (420,524 | ) | (420,524 | ) | ||||||||
Retained earnings | (412,984 | ) | (371,802 | ) | (1,650,784 | ) | (1,081,198 | ) | ||||||||
Statutory reserve | 21,539 | 21,539 | 21,539 | 21,539 | ||||||||||||
Accumulated other comprehensive income | (79,523 | ) | 19,884 | (8,049 | ) | (131,671 | ) | |||||||||
Total equity | (384,571 | ) | (243,983 | ) | (1,550,898 | ) | (1,104,934 | ) | ||||||||
TOTAL LIABILITIES AND EQUITY | $ | 9,979,510 | $ | 8,547,517 | $ | 4,260,405 | $ | 7,518,111 |
See accompany notes to the condensed consolidated financial statements.
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOMELOSS AND COMPREHENSIVE (LOSS) INCOMELOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 20172018 AND 20162017 (UNAUDITED)
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | Three months ended December 31, | Nine months ended | |||||||||||||||||||||||||||
(Restated) | (Restated) | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||
REVENUES | $ | 3,063,211 | $ | 2,413,505 | $ | 10,677,416 | $ | 2,413,505 | $ | 2,541,803 | $ | 3,063,211 | $ | 8,108,408 | $ | 10,677,416 | ||||||||||||||||
COST OF REVENUES | (2,702,415 | ) | (2,053,447 | ) | (9,472,377 | ) | (2,053,447 | ) | 2,495,740 | 2,702,415 | 7,086,149 | 9,472,377 | ||||||||||||||||||||
GROSS (LOSS) PROFIT | 360,796 | 360,058 | 1,205,039 | 360,058 | ||||||||||||||||||||||||||||
GROSS PROFIT | 46,063 | 360,796 | 1,022,259 | 1,205,039 | ||||||||||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
Selling and marketing | (4,106 | ) | (736 | ) | (21,643 | ) | (736 | ) | (4,770 | ) | (4,106 | ) | (14,480 | ) | (21,643 | ) | ||||||||||||||||
General and administrative | (419,057 | ) | (292,537 | ) | (1,216,486 | ) | (292,537 | ) | (586,310 | ) | (419,057 | ) | (1,589,906 | ) | (1,216,486 | ) | ||||||||||||||||
Total operating expenses | (423,163 | ) | (293,273 | ) | (1,238,129 | ) | (293,273 | ) | (591,080 | ) | (423,163 | ) | (1,604,386 | ) | (1,238,129 | ) | ||||||||||||||||
(LOSS) INCOME FROM OPERATIONS | (62,367 | ) | 66,785 | (33,090 | ) | 66,785 | ||||||||||||||||||||||||||
LOSS FROM OPERATIONS | (545,017 | ) | (62,367 | ) | (582,127 | ) | (33,090 | ) | ||||||||||||||||||||||||
OTHER INCOME, NET | 7,204 | 2,677 | 5,621 | 2,677 | 2,142 | 7,204 | 19,132 | 5,621 | ||||||||||||||||||||||||
(LOSS) INCOME BEFORE INCOME TAX EXPENSE | (55,163 | ) | 69,462 | (27,469 | ) | 69,462 | ||||||||||||||||||||||||||
LOSS BEFORE INCOME TAX EXPENSE | (542,875 | ) | (55,163 | ) | (562,995 | ) | (27,469 | ) | ||||||||||||||||||||||||
INCOME TAX EXPENSE | (5,976 | ) | (13,191 | ) | (13,713 | ) | (13,191 | ) | (2,102 | ) | (5,976 | ) | (6,591 | ) | (13,713 | ) | ||||||||||||||||
NET (LOSS) INCOME | (61,139 | ) | 56,271 | (41,182 | ) | 56,271 | ||||||||||||||||||||||||||
Foreign currency translation (loss) gain | (29,568 | ) | 6,907 | (99,407 | ) | 6,907 | ||||||||||||||||||||||||||
TOTAL COMPREHENSIVE (LOSS) INCOME | $ | (90,707 | ) | $ | 63,178 | $ | (140,589 | ) | $ | 63,178 | ||||||||||||||||||||||
NET LOSS | (544,977 | ) | (61,139 | ) | (569,586 | ) | (41,182 | ) | ||||||||||||||||||||||||
Foreign currency translation gain (loss) | (445 | ) | (29,568 | ) | 123,622 | (99,407 | ) | |||||||||||||||||||||||||
TOTAL COMPREHENSIVE LOSS | $ | (545,422 | ) | $ | (90,707 | ) | $ | (445,964 | ) | $ | (140,589 | ) | ||||||||||||||||||||
EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||
Basic and diluted | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||||||||
Weighted average number of shares outstanding – Basic and diluted | 506,920,000 | 500,000,000 | 506,920,000 | 500,000,000 | 506,920,000 | 506,920,000 | 506,920,000 | 506,920,000 |
See accompany notes to the condensed consolidated financial statements.
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE NINE MONTHS ENDED DECEMBER 31, 20172018 AND 20162017 (UNAUDITED)
2017 | 2016 | |||||||
(Restated) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (41,182 | ) | $ | 56,271 | |||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 84,535 | 7,484 | ||||||
Loss from disposal of plant and equipment | - | 4,502 | ||||||
Allowance for obsolete inventories | - | 155,722 | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Accounts receivable | 150,665 | (915,615 | ) | |||||
Inventories | (20,147 | ) | 192,636 | |||||
Advances to suppliers | (617,048 | ) | 260,362 | |||||
Amounts due from related parties | - | (39,354 | ) | |||||
Other receivables | (822,090 | ) | (681,413 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payables | 1,857,974 | 712,153 | ||||||
Amounts due to related parties | - | (28,878 | ) | |||||
Accrued expenses and other payables | 385,254 | 64,516 | ||||||
Advances from customers | (226,836 | ) | (113,579 | ) | ||||
Taxes payable | 5,385 | 34,672 | ||||||
Net cash provided by (used in) operating activities | 756,510 | (290,521 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of plant and equipment | (76,788 | ) | - | |||||
Proceeds from sale of plant and equipment | 5,871 | |||||||
Payment for acquisition of subsidiaries | (3,025,751 | ) | - | |||||
Acquisition of businesses net of cash acquired | - | 221,840 | ||||||
Net cash provided by investing activities | (3,102,539 | ) | 227,711 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from related party borrowings | 4,778,063 | - | ||||||
Repayment of related party borrowings | (2,770,201 | ) | - | |||||
Proceeds from third party borrowings | 829,081 | 547,051 | ||||||
Repayment of third party borrowings | (525,978 | ) | (254,401 | ) | ||||
Net cash provided by financing activities | 2,310,965 | 292,650 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | (35,064 | ) | 229,840 | |||||
Effect of exchange rate changes on cash and cash equivalents | 4,524 | (1,891 | ) | |||||
Cash and cash equivalents, beginning of year | 176,905 | - | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 146,365 | $ | 227,949 |
December 31, 2018 | December 31, 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (569,586 | ) | $ | (41,182 | ) | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 88,434 | 84,535 | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Accounts receivable | 1,528,916 | 150,665 | ||||||
Inventories | (152,416 | ) | (20,147 | ) | ||||
Advances to suppliers | 44,533 | (617,048 | ) | |||||
Other receivables | 1,809,372 | (822,090 | ) | |||||
Increase (decrease) in: | ||||||||
Accounts payables | (338,726 | ) | 1,857,974 | |||||
Accrued expenses and other payables | 117,169 | 385,254 | ||||||
Advances from customers | (1,440,672 | ) | (226,836 | ) | ||||
Taxes payable | (3,950 | ) | 5,385 | |||||
Net cash provided by operating activities | 1,083,074 | 756,510 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of plant and equipment | (91,246 | ) | (76,788 | ) | ||||
Payment for acquisition of subsidiaries | - | (3,025,751 | ) | |||||
Net cash used in investing activities | (91,246 | ) | (3,102,539 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from related party borrowings | 4,251,157 | 4,778,063 | ||||||
Repayment of related party borrowings | (5, 388,040 | ) | (2,770,201 | ) | ||||
Proceeds from third party borrowings | 596,628 | 829,081 | ||||||
Repayment of third party borrowings | (3,507,077 | ) | (525,978 | ) | ||||
Proceeds from bank borrowings | 159,922 | - | ||||||
Net cash provided by (used in) financing activities | (887,410 | ) | 2,310,965 | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 104,418 | (35,064 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (12,255 | ) | 4,524 | |||||
Cash and cash equivalents, beginning of year | 264,806 | 176,905 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 356,969 | $ | 146,365 |
See accompany notes to the condensed consolidated financial statements.
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 20172018 AND 2016 (UNAUDITED)2017
1. | ORGANIZATION AND BUSINESS ACQUISITIONS |
Addentax Group Corp. (“ATXG”) was incorporated in Nevada on October 28, 2014, and before the transaction described below, ATXG iswas engaged in the field of producing images on multiple surfaces using heat transfer technology.
On December 28, 2016, ATXG acquired 250,000,000 shares of the issued and outstanding stock of Yingxi Industrial Chain Group Co., Ltd. (“Yingxi”). The 250,000,000 shares of Yingxi were acquired from the members of Yingxi in a share exchange transaction in return for the issuance of 500,000,000 shares of common stock of ATXG. The 250,000,000 shares of Yingxi constitute 100% of its issued and outstanding stock, and as a result of the transaction, Yingxi became a wholly-owned subsidiary of ATXG. And followingFollowing the consummation of the reverse acquisition effective on September 25, 2017, and giving effect to the securities exchanged in the offering, the members of Yingxi will beneficially ownowned approximately ninty-nineninety-nine (99%) of the issued and outstanding common stock of ATXG. For accounting purposes, the Company was treated as an acquiree and Yingxi as an acquirer, as a result, the business and financial information contained in this report is that of the acquirer prior to the consummation date and that of the combined entity after that date.
Yingxi was incorporated in the Republic of Seychelles on August 4, 2016. ATXG, together with Yingxi and its subsidiaries (the “Company”) operates primarily in the People’s Republic of China (“PRC” or “China”) and is engaged in the business of garments manufacturing and providing logistic services.
On December 15, 2016, Yingxi entered into an equity transfer agreement with the shareholder of Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”) under which Yingxi agreed to pay total consideration of RMB21,008,886 (approximately $3,048,936) in cash in exchange for a 100% ownership interest in Yingxi HK. Yingxi HK was incorporated in Hong Kong in 2016. Yingxi HK is a holding company with no assets other than a 100% equity interest ofin the following subsidiaries:
● | Qianhai Yingxi Textile & Garments Co., Ltd (“QYTG”), a wholly-owned subsidiary of Yingxi HK, was incorporated in the PRC in 2016.
The The accompanying consolidated financial statements are presented on the The Company incurred net loss of $544,977, $61,139, $569,586 and
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. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be 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 CEO. 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.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on the Company’s ability to meet obligations as they become due and to obtain additional equity or alternative financing required to fund operations until sufficient sources of recurring revenues can be generated. There can be no assurance that the Company will be successful in its plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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.
The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date and revenue and expenses are translated at the average yearly exchange rates and equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of equity.
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. 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.
Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset.
This ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
At December 31,
The Company’s financial instruments include cash, accounts receivable, advances to suppliers, other receivables, accounts payable, other payables, taxes payables and related party receivables or payables. Management estimates that the carrying amounts of financial instruments approximate their fair values due to their short-term nature. The fair value of amounts with related parties is not practicable to estimate due to the related party nature of the underlying transactions.
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had no cash equivalents at December 31,
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit to its customers in the normal course of business and generally does not require collateral. The Company’s credit terms are dependent upon the segment, and the customer. The Company assesses the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.
Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables
Accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful accounts was made for the three and nine months ended December 31, 2018 and 2017. The following customers had an accounts receivable balance greater than 10% of total accounts receivable at December 31,
Manufacturing segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No allowance for obsolete finished goods was made for the three and nine months ended December 31,
During the three and nine months ended December 31, 2018 and 2017, approximately 76%, 51%, 62% and 57% of total inventory purchases were from the Company’s five largest suppliers, respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers are available that could provide similar products to the Company on comparable terms.
Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized.
Goodwill represents the excess of the purchase price over the net fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in acquisitions. ASC350-30-50 “Goodwill and Other Intangible Assets”, requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter of each year.
Under applicable accounting guidance, the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment.
The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.
$454,659 was impaired.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
There was no impairment of long-lived assets as of December 31,
Revenue is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and 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:
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
The Company reports earnings per share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital structure.
The Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number of the Company’s
The Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the
The Company does not have any material unrecognized tax benefits.
The Company is governed by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25%. The Company files income tax returns with the relevant government authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the three and nine months ended December 31, 2018 and 2017. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatment.
New U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit nor expense relating to the U.S. Tax
A related party is generally defined as: (i) any person that holds the Company’s securities including such person’s immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
“In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements. In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard has been effective for the Company on September 1, 2018. The adoption of this standard does not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. 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 September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date (“ASU 2015-14”), which
In February 2016, the FASB issued ASU 2016-02,“Lease (Topic 842)”, which amends recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. This standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The
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.
On December 10, 2016, the Company entered into an equity transfer agreement relating to the acquisition of 100% of the equity of Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”) and subsidiaries. The acquisition was financed with proceeds from the Company’s borrowings from a third party. The acquisition was closed on December 15, 2016. The results of operations of Yingxi HK are included in the Company’s consolidated financial statements beginning on December 15, 2016.
The following represents the purchase price allocation at the dates of the acquisition:
The
No allowance for doubtful accounts was made for the
Other receivables primarily represent rental deposit; refundable security deposits to customers for quality assurance on the provision of logistic service; and unsecured and non-interest bearing short-term advances that the Company makes from time-to-time to employees and third-party entities. These advances are unsecured and due on demand.
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
The Company had the following related party balances
The balances with related parties are unsecured, non-interest bearing and repayable on demand.
Inventories consist of the following as of December 31,
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.
Plant and equipment consists of the following as of December 31,
Depreciation expense for the three and nine months ended December 31, 2018 and 2017 was $28,391, $88,434, $28,646 and $84,535, respectively.
In September 2018, HSW entered into a bank loan agreement with Dongguan Agricultural Commercial Bank to borrow up to approximately $159,922 (RMB1,100,000) for daily operations with an annual interest rate of 5.8% and due on September 2019.
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 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 and nine months ended December 31,
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, QYTG, HSW, HPF and DT were subject to an EIT rate of 25% in
The
No deferred taxes were recognized for the three and nine months ended December 31,
The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows:
In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 17%, which is levied on the invoiced value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects 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 11% under the relevant tax category for logistic company, except the branch of HPF enjoyed the preferential VAT rate of 3% in
Segment information is consistent with how management 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 two segments:
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
Selected information in the segment structure is presented in the following tables:
Revenues by segment for the three and nine months ended December 31, 2018 and 2017 are as follows:
Income from operations by segment for the three and nine months ended December 31, 2018 and 2017 are as follows:
Depreciation and amortization by segment for the three and nine months ended December 31, 2018 and 2017 are as follows:
Total assets by segment at December 31,
Goodwill by segment at December 31,
The recoverable amounts of reporting units are determined based on discounted cash flow calculations. The calculations use budget for the first year and cash flow projections based on financial forecasts prepared by management covering the remaining 4-year operating period. The key assumptions include revenue, cost of sales and operating expenses which were determined by management based on the past performance and its expectations on market development. Based on the impairment test of goodwill, the recoverable amount was lower than the carrying amount of the goodwill recorded and it was concluded that carrying amount of goodwill of $454,659 was impaired as of March 31, 2018.
Accrued expenses and other payables consist of the following as of December 31,
In accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company established in the PRC is required to transfer 10% of its profit after taxation prepared in accordance with the accounting regulations of the PRC to the statutory reserve until the reserve balance reaches 50% of the subsidiary’s paid-up capital. Such reserve may be used to offset accumulated losses or increase the registered capital of the subsidiary, subject to the approval from the PRC authorities, and are not available for dividend distribution to the shareholders. At December 31,
The currency translation reserve represents translation differences arising from translation of foreign currency financial statements into the Company’s functional currency.
Leases
Future minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Forward Looking Statements
The following discussion This Report contains statements that we believe are, or may be considered to be, “forward-looking statements”. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report. You should read the matters described in “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. Critical Accounting Policies and Estimates The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, convertible promissory notes and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in the Company’s annual report on Form 10-K/A as filed with the Securities and Exchange Commission on September 21, 2018 (as amended) are those that depend most heavily on these judgments and estimates. As of December 31, 2018, there had been no material changes to any of the critical accounting policies contained therein. Definitions: Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Addentax” and “Addentax Group Corp.” refer specifically to Addentax Group Corp. and its consolidated subsidiaries including Dongguan Heng Sheng Wei Garments Co., Ltd, which is wholly-owned; Shantou Chenghai Dai Tou Garments Co., Ltd, which is wholly-owned; Shenzhen Xin Kuai Jie Transportation Co., Ltd, which is wholly-owned; Shenzhen Hua Peng Fa Logistic Co., Ltd, which is wholly-owned; and ingxi Industrial Chain Group Co., Ltd., which is wholly-owned. In addition, unless the context otherwise requires and for the purposes of this report only:
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”. Corporate History Addentax Group Corp., was incorporated in the State of Nevada on October 28, 2014. We were originally incorporated to produce images on multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others using a 3D sublimation vacuum heat transfer machine. We no longer pursue opportunities related to 3D printing positioning. We have a fiscal year-end of March 31. On July 12, 2016, we filed an amendment to our
After the Share Exchange, YICG’s business became our business. We are a garment manufacturer and logistic service provider based in China.
Our garment manufacturing business consists of sales made principally to
Our logistic business consists of delivery and courier services covering approximately 20 provinces in China. Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through two Business Objectives Garment Manufacturing Business
We believe the
Logistic Business
The business objective and future plan for our logistic service segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31,
Seasonality of Business
Our business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistic service revenue in our third and fourth fiscal quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistic segment.
Garment manufacturing business
For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished goods.
Logistic business
For logistic service, we generally receive payments from the customers between 30 to 90 days following the date of the register of our receipt of packages.
In addition to our garment manufacturing business, we also want to kick start our supply chain management consulting service. Our supply chain management consulting service is still under development with no active clients. However, due to the uniqueness of our business model, we have attracted over 30 potential clients strongly interested in our proposed service. All of those potential clients are located in China. We plan to put our proposed service into operation in the second or third quarter of calendar 2018. To help ensure the quality of our business, we conduct strict rules for our potential clients. Client Qualifications: To sign a servicing contract with the Company, a potential client must:
Medium and small-sized enterprises all over the world can search for our service, but our current focus is on helping clients in China. Many medium-small sized enterprises in China experience the problem of business maintenance or expansion in the textile and garments industry where increasing operational costs cause decreasing profit. Most seek to employ new business models that can increase a company’s competitive advantage and increase sales. We have found that due to the limitation of resources and information, management of these enterprises find it hard to design a suitable plan for their company’s sustainable development. To assist these enterprises, we set up a research team to carry out extensive investigation and integrate necessary industry information and resources which can help us to work out the best plan for our clients. The research will include:
We developed a multi-task Industrial Chain Service System which we call “Adden Chain” not only for providing business solutions to clients, but also assisting the clients to fully realize their business plan and potential.
Our Consulting & Plan Design There are four main services within this part: Promotion Service We will design a “Promotion Plan” for our clients depending on their requirements to improve their marketing plans. Operation Assistance Service We can help clients to sort out all the individual parts (i.e., Raw Materials Supply, Manufacturing, Product Design and Marketing) within the whole operation chain, and assist them to fix weaknesses. We can also help clients to reallocate the resources they own and improve their operational efficiency. Logistics and International Trading Service We develop and apply our “YX logistics system” to improve our client’s transportation efficiency. Our YX logistics system mainly provides three services to our clients: transportation service; storage & distribution service; and bulk purchasing service. We also work with qualified international trading companies to help expand our clients’ global market share. Currently we build trading routes to various areas like America, Australia, and Africa which can help clients lower international trading costs. Financial Services We will offer financial services to selected clients. These services include long term & short term loans which we provide to clients, financing services, and inventory pledge services. Also, we plan to build a third party payment center which can improve clients’ capital turnover. Clients will be able to employ the third party payment center to process transactions and accept the payment terms and payment period we set. As the third party guarantor, we could help our clients to pay or receive payments on time. Plan implementation Assistance: We have already built strategic cooperative relationships with over 40 textile and garments industry related entities. We are available to assist our clients to deal with various issues and problems. Additional Services Team Establishment: We will assist clients to establish an organizational structure and a management team best suited for their business plan.
Headhunting Services: We work with headhunting companies, i.e., companies that provide employment or recruiting services to find the most qualified managers and professionals to meet the specific needs of our clients. Follow-up Service: We provide clients with continuous consultancy and follow-up services throughout the entire startup and service period. Markets Currently, our market focuses on small and medium-sized enterprises in China who have business expansion plans. Sufficiency of Cash Flows Because current cash balances and our projected cash generated from operations are not sufficient to meet our cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, we may be unable to raise additional capital upon terms acceptable to us. The sale of additional equity will result in additional dilution to our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses or products
Summary of Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation 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
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 For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an
Concentrations of Credit Risk
Cash held in banks: We maintain cash balances at the financial institutions in China. We have not experienced any losses in such accounts.
Accounts Receivable: Customer accounts typically are collected within a short period of time, and based on its assessment of current conditions and its experience collecting such receivables, management believes it has no significant risk related to its concentration within its accounts receivable.
Recently issued and adopted accounting pronouncements
“In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its financial statements. In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard has been effective for the Company on September 1, 2018. The adoption of this standard does not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. 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 September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date (“ASU 2015-14”), which
In February 2016, the FASB issued ASU 2016-02,
Results of Operations for the three months ended December 31,
The following tables summarize our results of operations for the three months ended December 31,
Revenue
Revenue generated from our garment manufacturing business contributed $731,310 or 28.8% of our total revenue for the three months ended December 31, 2018. Revenue generated from our garment manufacturing business contributed $717,618 or 23.4% of our total revenue for the three months ended December 31, 2017. The increase was due to we actively promote our business and attracted new customers. Revenue generated from our 2018. Revenue generated from our logistic business contributed $2,345,593 or 76.6% of our total revenue for the three months ended December 31, 2017. Total revenue for the three months ended December 31,
Cost of revenue
Cost of revenue for our manufacturing segment for the three months ended December 31, 2018 and 2017 was $662,107 and
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Aggregate purchases from our five largest raw material suppliers represented approximately
For our logistic business, we outsource some of the business to our contractors. The Company relied on three subcontractors, in which the subcontracting fees to our largest contractor represented approximately 30.2% and 60% of total cost of revenues for our service segment for the three months ended December 31,
Raw material costs for our manufacturing business were
Labor costs for our manufacturing business were
Overhead and other expenses for our manufacturing business accounted for
Fuel and toll costs for our service business for the three months ended December 31,
Subcontracting fees for our service business for the three months ended December 31,
Total cost of revenue for the three months ended December 31, Gross profit
Manufacturing business gross profit for the three months ended December 31,
Gross (loss) in our service business for the three months ended December 31, 2018 was ($23,140) and gross (loss) margin was (1.3%). Gross profit in our service business for the three months ended December 31, 2017 was $271,421 and gross margin was 11.6%.
Selling, General and administrative expenses
Our selling expenses in our manufacturing segment for the three months ended December 31, 2018 and 2017 were $4,770 and
Our general and administrative expenses in our manufacturing segment for the three months ended December 31, 2018 and 2017 were $98,017 and
Selling expenses for the three months ended December 31,
General and administrative expenses for the three months ended December 31,
Income (Loss) from operations
Income Tax Expenses
Income tax expense for the three months ended December 31, 2018 and 2017 was $2,102 and
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 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,
QYTG and YX were incorporated in the PRC and
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in calendar year of 2018 and 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in calendar year of 2018 and 2017.
The
Net
We incurred a net
Results of Operations for the nine months ended December 31,
The following tables summarize our results of operations for the nine months ended December 31,
Revenue
Revenue generated from our garment manufacturing business contributed $2,760,966 or 34.1% of our total revenue for the nine months ended December 31, 2018. Revenue generated from our garment manufacturing business contributed $3,779,595 or 35.4% of our total revenue for the nine months ended December 31, 2017. The decrease was due to we terminated business with certain customers with low profit margin during the nine months ended December 31, 2018. We have begun to implement control on reviewing and monitoring profit margin with each customer to increase profitability. Revenue generated from our 2018. Revenue generated from our logistic business contributed $6,897,821 or 64.6% of our total revenue for the nine months ended December 31, 2017.
Total revenue for the nine months ended December 31, Cost of revenue
Cost of revenue for our manufacturing segment for the nine months ended December 31, 2018 and 2017 was $2,521,429 and
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Aggregate purchases from our five largest raw material suppliers represented approximately
For our logistic business, we outsource some of the business to our contractors. The Company relied on three subcontractors, in which the subcontracting fees to our largest contractor represented approximately 15.19% and 60% of total cost of revenues for our service segment for the nine months ended December 31,
Raw material costs for our manufacturing business were 2017. The increase was mainly due to the increase in raw materials price. Labor costs for our manufacturing business were
Overhead and other expenses for our manufacturing business accounted for
Fuel and toll costs for our service business for the nine months ended December 31, Subcontracting fees for our service business for the nine months ended December 31,
Total cost of revenue for the nine months ended December 31,
Gross profit
Manufacturing business gross profit for the nine months ended December 31,
Gross profit in our service business for the nine months ended December 31, 2018 was $782,722 and gross margin was 14.6%. Gross profit in our service business for the nine months ended December 31, 2017 was $953,208 and gross margin was 13.8%. The increase in gross margin was due to the implementation of cost-cutting measures and the effective control on our
Selling, General and administrative expenses
Our selling expenses in our manufacturing segment for the nine months ended December 31, 2018 and 2017 were $14,480 and Our general and administrative expenses in our manufacturing segment for the nine months ended December 31, 2018 and 2017 were $237,514 and
Selling expenses for the nine months ended December 31,
General and administrative expenses for the nine months ended December 31, Income (loss) from operations
(Loss)
Income Tax Expenses
Income tax expense for the nine months ended December 31, 2018 and 2017 was $6,591 and
Yingxi Industrial Chain Group Co., Ltd was incorporated in the
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the nine months ended December 31,
QYTG and YX were incorporated in the PRC and
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in calendar year of 2018 and 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in calendar year of 2018 and 2017.
The
Net
We incurred a net (loss)
Summary of cash flows
Summary cash flows information for the nine months ended December 31,
Net cash
Net cash used in investing activities
Net cash provided by financing activities
Financial Condition, Liquidity and Capital Resources
As of December 31,
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. We have very limited financial resources. We will need to raise substantial additional capital to support the on-going operation and increased market penetration of our services, until such time as we generate revenues sufficient to support our operations, if ever. Our failure to obtain additional capital to finance our working capital needs on acceptable terms, or at all, will negatively impact our business, financial condition and liquidity. As of December 31, 2018, we had $5,811,303 of current liabilities. We currently do not have the resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business, our ability to continue as a going concern, and the value of our securities. 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, 2018 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 3.Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Translation Risk
Our operations are located in
Item 4.Controls and Procedures
Disclosure Controls and Procedures
As of December 31, Limitations on the Our disclosure controls and procedures and
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any pending legal proceedings to which we are a party or of which any of our properties or assets is the subject, nor are we aware of any such proceedings that are contemplated by There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K/A for the year ended March 31, 2018, filed with the Commission on September 21, 2018 (as amended from time to time), under the heading “Risk Factors”, and investors should review the risks provided in the Form 10-K (as amended from time to time), prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K/A for the year ended March 31, 2018 (as amended from time to time), under “Risk Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially Item 2. None. Item 3.Defaults Upon Senior Securities None. Item 4.Mine Safety Disclosures Not Applicable. There is no other information required to be disclosed under this item, which was not previously disclosed.
SIGNATURES
EXHIBIT INDEX * Filed herewith. ** Furnished herewith.
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