As filed with the Securities and Exchange Commission on August 5, 2015
Registration No. 333-_____333-230943
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
(Amendment No. 8)
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ADDENTAX GROUP CORP.
(NameExact name of small business issuerregistrant as specified in its charter)
Nevada | 3990 | 35-2521028 | ||
(State or incorporation or | (Primary Standard Industrial Classification Code Number) | ( Identification Number) |
Kingkey 100, Block A, Room 4805
Luohu District, Shenzhen City, China 518000
+(86) 755 8696 1405
including area code, of registrant'sregistrant’s principal executive offices)
Business Filings Incorporation
701 S DivisionCarson Street, Suite 200
Carson City, NV 89703
Tel: 1- 608-827-5300
(Address,Name, address, including zip code, and telephone number,
including area code, of agent for service)service of process)
Copies To:
Mitchell S. Nussbaum, Esq. Lawrence Venick, Esq. Loeb & Loeb LLP 345 Park Avenue New York, NY 10154 Telephone: (212) 407-4000 | Fang Liu, Esq. |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomesis declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 please check the following box: [X]
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [ ]
If this formForm is a post-effective registration statementamendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [ ]
If this formForm is a post-effective registration statementamendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated filer”“accelerated filer,” “smaller reporting company” and “smaller reporting company”“emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company [X] |
Securities to be Registered | Amount to be Registered | Offering Price Per Share (1) | Aggregate Offering Price | Registration Fee | ||||||||||||
Common Stock | 3.000 000 | $ | 0.03 | $ | 90.000 | $ | 10.46 |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the purpose of calculating the registration fee pursuantcomplying with any new or revised financial accounting standards provided to Rule 457(a)Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Security Being Registered | Amount to be Registered | Proposed Maximum Offering Price | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee | ||||||||||||
Common Stock, $0.001 par value (2) | 5,750,000 | 5.00 | $ | 28,750,000 | $ | 3,136.63 | ||||||||||
Common Stock, $0.001 par value (3) | 987,000 | $ | 7.00 | $ | 6,909,000 | $ | 753.77 | |||||||||
Underwriter Warrants (4) (5) | — | — | — | — | ||||||||||||
Common Stock Underlying Underwriter Warrants (6) | 575,000 | 6.50 | $ | 3,737,500 | $ | 407.76 | ||||||||||
Total | — | — | $ | 39,396,500 | $ | 4,298.16 | (7) |
(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
(2) | Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price, includes 750,000 shares of Common Stock issuable upon exercise of a 45-day option granted to the Underwriter to cover over-allotments, if any. |
(3) | This Registration Statement also covers the resale under a separate resale prospectus (the “Resale Prospectus”) by selling stockholders of the Registrant of up to 987,000 shares of common stock previously issued to the selling stockholders as named in the Resale Prospectus. Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, using the average of the high and low prices of the Registrant’s common stock reported by the OTCQB Marketplace on May 17, 2021. |
(4) | No fee is required pursuant to Rule 457(g) under the Securities Act. Resales of the underwriter warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act are registered hereby. |
(5) | We have agreed to issue to the underwriter warrants to purchase the number of common stock (the “Underwriter Warrants”) in the aggregate equal to 10% of the common stock sold at closing of the offering, including any shares that may be sold as result of the Underwriter exercising the over-allotment option. The Underwriter Warrants will be exercisable from time to time from 6 months after the closing of the offering and will expire after five years from the effective date of this registration statement, in whole or in part, but may not be transferred nor may the shares underlying the warrants be sold until 180 days from the beginning on the date of commencement of sales of the offering. The exercise price of the Underwriter Warrants is equal to 130% the public offering price per share in the offering. |
(6) | Resales of shares of common stock issuable upon exercise of the underwriter warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act are also registered hereby. |
(7) | Previously paid. |
The registrant hereby amends this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statementRegistration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement contains two prospectuses, as set forth below.
● | Public Offering Prospectus. A prospectus to be used for the public offering of 5,000,000 shares of common stock of the Registrant (the “Public Offering Prospectus”) through the underwriter named on the cover page of the Public Offering Prospectus. |
● | Resale Prospectus. A prospectus to be used for the resale by the selling stockholders set forth therein of 987,000 shares of common stock of the Registrant (the “Resale Prospectus”). |
The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:
● | they contain different outside and inside front covers and back covers; |
● | they contain different Offering sections in the Prospectus Summary section beginning on page 2; |
● | they contain different Use of Proceeds sections on page 21; |
● | a Selling Stockholder section is included in the Resale Prospectus; |
● | the Plan of Distribution section from the Public Offering Prospectus on page 61 is deleted from the Resale Prospectus and a Selling Stockholder Plan of Distribution is inserted in its place; and |
● | the Legal Matters section in the Resale Prospectus on page 67 deletes the reference to counsel for the underwriter. |
The Registrant has included in this Registration Statement a set of alternate pages after the back cover page of the Public Offering Prospectus (the “Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the selling stockholders.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 17, 2021
PRELIMINARY PROSPECTUS
Addentax Group Corp.
5,000,000 Shares of Common Stock
This is the initial public offering of common stock of Addentax Group Corp. and no public market currently exists for the securities being offered. We are offering for sale a total of 3,000,0005,000,000 shares of common stock, atpar value $0.001 per share on a fixedfirm commitment basis. We currently expect the public offering price to be $5.00 per share.
We are an “emerging growth company”, as that term is used in the Jumpstart Our Business Startups Act of $0.032012, and will be subject to reduced public company reporting requirements.
We are a reporting company under Section 15(d) of the Securities Exchange Act of 1934, as amended. Our common stock is currently quoted on the OTCQB Marketplace (the “OTCQB”) under the symbol “ATXG.” The closing price for our common stock on May 17, 2021, was $7.50 per share. There is no minimum numbera limited public trading market for our common stock. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “ATXG.”
Investing in our securities involves risks. You should carefully consider the risk factors beginning on page 8 of shares that must be soldthis prospectus and set forth in the documents incorporated by us for the offeringreference herein before making any decision to proceed, and we will retain the proceeds from the sale of any of the offered shares. The offering is being conducted oninvest in our securities.
Per share | Total | |||||||
Public offering price | $ | 5.00 | $ | 25,000,000 | ||||
Underwriting discounts and commissions (1) | $ | 0.35 | $ | 1,750,000 | ||||
Offering proceeds to us, before expenses | $ | 4.65 | $ | 23,250,000 |
(1) | Does not include additional items of compensation payable to Network 1 Financial Securities, Inc., the underwriter, which includes warrants to purchase 10% of the aggregate number of shares issued in this offering, with an exercise price equal to 130% of the price per share sold in this offering. We have also agreed to reimburse the underwriter for certain accountable expenses incurred by them. See “Underwriting.” |
We have also granted a self-underwritten, best efforts basis, which means our President, Otmane Tajmouati, will attempt to sell the shares. This Prospectus will permit our President to sell the shares directly45-day option to the public,underwriter to purchase up to 750,000 additional shares of common stock solely to cover over-allotments, if any.
The underwriter expects to deliver our shares of common stock to purchasers in this offering on or about [●], 2021.
The date of this prospectus is , 2021
TABLE OF CONTENTS
This prospectus is part of a registration statement that we filed with no commission or other remuneration payable to him for any shares he may sell. In offering the securities on our behalf, he will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities and Exchange ActCommission (the “SEC” or the “Commission”). You should rely only on the information contained in this prospectus or any supplement or amendment hereto. Neither we, nor the underwriter have authorized any person to provide you with different information. Neither we, nor the underwriter are offering to sell, or seeking an offer to buy, our common stock in any jurisdiction where such offer or sale is not permitted. You should assume that the information contained in this prospectus and any supplement or amendment hereto is accurate only as of 1934.
You should read this prospectus, together with additional information described under “Where You Can Find More Information”, beginning on page 61, before making an investment decision.
The offering shall terminatemarket data and certain other statistical information used throughout this prospectus is based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors. Some market and other data included herein, as well as the data of competitors as they relate to Addentax Group Corp., is also based on our good faith estimates.
Unless the context otherwise requires, all references in this prospectus to:
● | “we,” “us,” “our,” the “Registrant”, the “Company,” and “Addentax” refer to Addentax Group Corp. and its subsidiaries; | |
● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; | |
● | “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; | |
● | “Securities Act” refers to the Securities Act of 1933, as amended; | |
● | “China,” “Chinese” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan; | |
● | all references to “RMB” or “Chinese Yuan” is to the legal currency of the People’s Republic of China; and | |
● | all references to “U.S. dollars,” “dollars,” “USD” or “$” are to the legal currency of the United States; |
Unless otherwise noted, all translations from Chinese Yuan to U.S. dollars using the exchange rate refers to the exchange rate quoted on http://www.oanda.com on March 31, 2020, which was RMB 7.10 to USD$1.00. We make no representation that the Chinese Yuan amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all.
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This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, especially the risks of investing in our securities as discussed under “Risk Factors” and the financial statements and notes thereto herein. The following summary is qualified in its entirety by the detailed information appearing elsewhere in this prospectus.
Overview
Our Business
We are a garment manufacturer and logistics service provider based in China. We are listed on the earlierOTCQB under the symbol of “ATXG”. We classified our businesses into two revenue segments for the fiscal year ended 2020 and in previous fiscal years: (i) whengarment manufacturing and (ii) logistics services. During the offering period ends (240 days from the effective datefiscal year 2021, we developed a new business segment: epidemic prevention supplies.
Our garment manufacturing business consists of this prospectus), (ii) the date when the sale of all 3,000,000 shares is completed, (iii) when the Board of Directors decidessales made principally to wholesalers located in China. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that it is in the best interestwe meet our high quality control standards and timely delivery requirements for our customers. We conduct our garment manufacturing operations through five indirect wholly owned subsidiaries of the Company, to terminatenamely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), Dongguan Yingxi Daying Commercial Co., Ltd (“DY”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd (“YBY”) which are located in the offering prior the completionGuangdong province, China.
Our logistics services business consists of delivery and courier 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 salebusiness to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of all 3,000,000 shares registered underkeeping drivers during slow seasons. We conduct our logistic operations through two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), which are located in the Registration StatementGuangdong province, China.
Our epidemic prevention supplies business consists of which this Prospectus is part.
Business Objectives
Garment Manufacturing Business
We believe the strength of our garment manufacturing business segment is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing business segment is to expand our customer base and improve our profit.
Logistics Services Business
The business objective and future plan for our logistics services business segment is to establish an efficient logistic system and to build a development stage company that has limited operations. To datenationwide delivery and courier network in China. As of December 31, 2020, 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 for the fiscal year ending 2021.
Epidemic Prevention Supplies Business
The primary business objective of our epidemic prevention supplies business segment is to take the advantage of our resources in supply chain from our garment manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in order to increase our revenue and improve our net profit.
Competitive Strengths
We believe we have been involved primarilythe following competitive strengths:
Cost-effective production. We have adopted a vertical integration production process. We produce garments in organizational activities. We do not have sufficient capital for operations. Forour own production facilities and employ our in-house transport teams to deliver garments to our customers. This one-stop service optimizes production efficiency and saves costs by lowering the period from October 28, 2014 (inception) to Marchcost per unit, thereby achieving economies of scale.
Stringent quality control process. As of December 31, 20152020, we had generated limited revenues7 employees in the production department that are responsible for conducting our quality control process. We implement a stringent quality control process which monitors various stages of $1,080our garment manufacturing business, including sampling checks of semi-finished products and nominal incomefinished products. We prepare inspection reports to address the quality problems and make recommendations to improve the quality of $161. Anyour products. During final product inspection, we pay special attention to the measurements, workmanship, ironing and packaging of our products to help best ensure that the quality of our products comply with the specifications, standards and requirements of our customers.
Strong design capabilities. Our design team works closely with our customers to understand their needs and make recommendations to them. Our design team also conducts market research and attend industry exhibitions to understand the latest market trends. As of December 31, 2020, our design team consisted of five members.
Extensive delivery network. Our logistics services business has nine routes and covers 79 cities in approximately seven provinces and two municipalities in the PRC.
Stable Production Supply Chain. We integrated various epidemic prevention suppliers located in China & Malaysia and established strategic cooperation relationship with them, which can help us to purchase the epidemic prevention products in competitive lower price and stable supply. We also received mask production license from relevant governance and some of the products we manufactured passed the inspection of quality inspection agency.
Our Strategies
Key elements of our business and growth strategies include the following:
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Sales of raw materials. We intend to enter into exclusive agreements with textile and garment suppliers in Southeast China to be their exclusive agent and supply their textiles and garments to our customers. To execute this plan, we intend to set up several retailers for the sales of textiles and garments to retail customers and supply the textiles and garments exclusively to various high-end fashion brands.
Develop our own brands. We intend to develop our own brands that focus on fast fashion with teenagers being our primary target customers. We plan to adopt a low cost strategy at the early stage and improve the quality of our products after increasing our market share. We are in the process of registering a trademark for our own brand and intend to start our advertising campaign after the registration of this trademark. We plan to distribute our products in different channels, including our own retailers, co-operative retailers and franchisees.
Expand our delivery network. As of December 31, 2020, we provide logistics service 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 for the fiscal year ending 2021.
Develop our logistics services management application. We intend to develop our own mobile application and integrate with to replace our old internal system. We expect this mobile application to improve our routes optimization, courier goods tracking, security of courier goods, booking time required by our customers, and customer care.
Develop international logistics services and warehousing services. We intend to develop international logistics services for customers located all over the world and international warehousing services.
Develop our epidemic prevention supply chain. We intend to develop our own epidemic prevention supply chain as we see the potential and opportunity of medical and health industry. We expect to establish a one-step epidemic prevention supply chain from product manufacturing line establishment to sales networking construction. Currently, we are focusing on the civil mask market in China and provide cost-effective masks to customers. We will improve our product quality constantly and develop oversee markets.
Our Corporate Structure
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Risks Related to Our Business
Our ability to implement our business strategy is subject to numerous risks and uncertainties that you should be aware of before making an investment decision. We face many risks inherent in our business and our industry generally. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading “Risk Factors,” prior to making an investment in the shares offered herein involves a high degree of risk. You should only purchase shares if you can afford a loss of your investment. Our independent registered public accountant has issued an audit opinion for Addentax Group Corp., which includes a statement expressing substantial doubt as to our ability to continue as a going concern.
Our success depends on our customer’s ability to market and sell their products manufactured by us. | ||
Our future expansion plans are subject to uncertainties and risks. | ||
Future price increases in raw materials or changes in the supply of raw materials may materially and adversely affect our business, financial condition and results of operations. | ||
Future increases in cost of epidemic prevention supplies or changes in the demand and supply may materially and adversely affect our business, financial condition and results of operations. | ||
Any labor shortages, increased labor costs or other factors affecting labor supply for our production materials may materially and adversely affect our business operations. | ||
Corporate Information
Addentax Group Corp. was incorporated in the State of Nevada on October 28, 2014. We intend to use the net proceeds from this offering to develop our business operations (See “Descriptionhave a fiscal year-end of Business” and “Use of Proceeds”). To implement our plan of operations we require a minimum of $30,000 for the next twelve months as described in our Plan of Operations. The amount of funds necessary to implement our plan of operations cannot be predicted with any certainty and may exceed any estimates we set forth. However, there is no assurance that we will generate significant revenue in the first twelve months after completion our offering.
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Shares of common stock offered by us: | ||
31,093,004 shares of common stock will be outstanding after this offering is completed, 31,843,004 shares if the underwriter exercises the over-allotment option in full. | ||
Underwriter’s warrants: | We will issue to Network 1 Financial Securities, Inc., upon closing of this offering, compensation warrants, or the Underwriter’s Warrants, entitling the underwriter to purchase 10% of the | aggregate number of shares of common stock issued in this offering, including shares issued pursuant to the exercise of the over-allotment option, at an exercise price of $6.50 per share. The |
Our proceeds from this offering are expected to be approximately $25,000,000, before payment of | ||
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “ATXG”. There can be no assurance that our application will be approved. The closing of | ||
Lock-Up Agreements: | “See “Plan of | |
Risk | |
OTCQB Market Symbol | “ATXG”. |
(1) | The number of |
Unless otherwise indicated, all information in this prospectus gives effect to a 1-for-20 reverse stock split of our common stock effected on February 27, 2019.
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The following tables set forth our summary historical financial data for the periods presented. The following summary financial data for the years ended March 31, 2020 and information below2019 are derived from our audited financial statements appearing elsewhere in this prospectus. The following summary financial data for the periodnine-month periods ended December 31, 2020 and 2019 and the selected balance sheet data as of December 31, 2020 are derived from October 28, 2014 (Inception)our unaudited financial statements appearing elsewhere in this prospectus.
This summary financial data should be read together with the historical financial statements and related notes to March 31, 2015:
As of March 31, | As of December 31, | |||||||||||
2019 | 2020 | 2020 | ||||||||||
Balance Sheet Data: | ||||||||||||
Cash and cash equivalents | $ | 277,264 | $ | 531,681 | $ | 356,728 | ||||||
Prepayments, Deposits and Other Receivable | 2,525,148 | 5,469,561 | 4,422,722 | |||||||||
Total Assets | 3,496,843 | 8,421,978 | 17,278,364 | |||||||||
Total Current Liabilities | 5,674,393 | 10,096,528 | 12,661,861 | |||||||||
Total Liabilities | 5,674,393 | 11,488,702 | 20,344,173 | |||||||||
Total Stockholders’ equity (deficit) | (2,177,550 | ) | (3,066,724 | ) | (3,065,809 | ) |
Years Ended March 31, | Nine Months Ended December 31, | |||||||||||||||
2019 | 2020 | 2019 | 2020 | |||||||||||||
Statements of Operations Data: | ||||||||||||||||
Revenues | $ | 10,026,920 | $ | 10,172,379 | $ | 8,182,396 | $ | 21,014,064 | ||||||||
Gross (Loss) Profit | 1,282,694 | 1,385,361 | 960,713 | (1,762,023 | ) | |||||||||||
Total operating expenses | (1,965,821 | ) | (2,249,679 | ) | (1,869,113 | ) | (1,830,992 | ) | ||||||||
Loss from Operations | (683,127 | ) | (864,318 | ) | (908,400 | ) | (3,593,015 | ) | ||||||||
Loss before provision for income taxes | (685,774 | ) | (964,547 | ) | (935,399 | ) | (3,537,010 | ) | ||||||||
Net Loss | $ | (694,329 | ) | $ | (980,617 | ) | (947,485 | ) | (3,560,206 | ) | ||||||
Net loss per common share | ||||||||||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.14 | ) |
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This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our 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.
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and those documents which we have filed with the SEC as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.
You should also consider carefully the statements under “Risk Factors” and other sections of this prospectus, which address additional facts that could cause our actual results to differ from those set forth in the forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this prospectus. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as otherwise required by law.
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You should carefully consider the risks described below and the other informationelsewhere in this prospectus, before investing inwhich could materially and adversely affect our common stock.business, results of operations or financial condition. Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may materially affect our business, results of operations, or financial condition. If any of the followingthese risks occur, our business, operating results and financial condition could be seriously harmed. Thethe trading price of our common stock when and if we trade at a later date, could decline, due to any of these risks, and you may lose all or part of your investment.
Risks Associated with Our Company
Our success depends on our customer’s ability to market and sell their products manufactured by us.
All of our customers in our garment manufacturing business are garment wholesalers and retailers. Consequently, our business and results of operations are directly affected by the demand of their end customers for their products supplied by us. Drastic changes in consumer preferences are beyond our control and will affect the demand for certain products supplied by us. We may not be able to anticipate and respond to such changes in consumer preferences in a timely manner. If the sales of our customers’ products decrease or do not grow as we expect, our customers may decrease the volume or purchase price of their orders, which could materially and adversely affect our business, financial condition and results of operations.
Our future expansion plans are subject to uncertainties and risks.
We have set out our future business plans in the “Business – Business Strategies” section in this prospectus. The implementation of such future plans requires us to effectively manage our sales, procurement, new logistics points and other aspects of our operations. If we fail to effectively and efficiently implement our future plans, we may not be successful in achieving desirable and profitable results. Even if we effectively and efficiently implement our future plans, there may be other unexpected events or factors that prevent us from achieving the desirable and profitable results from the implementation of our future plans, such as changes in our ability to comply with local rules and regulations or any delays or difficulties in obtaining the necessary licenses and approvals from local governments. Our business, financial condition, results of operations and growth prospects may be materially and adversely affected if our future expansion plans fail to achieve positive results.
If we are unable to create brand influence, we may face difficulties in attracting new business partners and clients.
Our brand is still being nurtured. It is of critical importance that we create and develop brand awareness in our industry in order to attract new clients and business partners. Our major competitors have built well-known brands and continue to increase their influence. Our failure to create and develop brand awareness for any reason may result in a material adverse effect on our business, operational results, and financial position.
Our ability to adequately protect our trade names, trademarks and patents could have an impact on our brand images and ability to penetrate new markets.
We believe that our trade names, trademarks and patents are important assets and an essential element of our strategy. We have applied the registration of these trade names, trademarks and patents in China and Hong Kong, and these registrations are currently pending approval from the corresponding departments. There can be no assurance that we will obtain such registrations or that the registrations we obtain will prevent the imitation of our products or infringement of our intellectual property rights by others. In particular, the laws of certain foreign countries may not protect proprietary rights to the same extent as the laws of the U.S. If any third-party copies our products or our stores in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect on our brand image and reputation as well as our results of operations, financial condition and cash flows.
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We may be impacted by our ability to adequately source, distribute and sell merchandise and other materials in China.
We face a variety of other risks generally associated with doing business in China. For example:
● | political instability, significant health hazards, environmental hazards or natural disasters which could negatively affect international economies, financial markets and business activity; |
● | imposition of new or retaliatory trade duties, sanctions or taxes and other charges on imports or exports; |
● | evolving, new or complex legal and regulatory matters; |
● | volatility in currency exchange rates; |
● | local business practice and political issues (including issues relating to compliance with domestic or international labor standards) which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts; |
● | potential delays or disruptions in shipping and transportation and related pricing impacts; |
● | disruption due to labor disputes; and |
● | changing expectations regarding product safety due to new legislation or other factors. |
We also rely upon third-party transportation providers for certain of our product shipments, including shipments to and from our distribution centers, to our customers. Our utilization of these delivery services for shipments is subject to risks, including increases in labor costs and fuel prices, which would increase our shipping costs, and associate strikes and inclement weather, which may impact our transportation providers’ ability to provide delivery services that adequately meet our shipping needs.
Future price increases in raw materials or changes in the supply of raw materials may materially and adversely affect our business, financial condition and results of operations.
The purchase of raw materials accounted for a substantial amount of our total purchases. The price of finished fabric and yarns can be volatile and affected by factors such as weather, industry demand and supply. We cannot assure you that we can fully pass on the increased cost in raw materials to our customers. Future price increases in raw materials or changes in the supply of raw materials may materially and adversely affect our business, financial condition and results of operations.
Future increases in cost of epidemic prevention supplies or changes in the demand and supply may materially and adversely affect our business, financial condition and results of operations.
The purchase of epidemic prevention supplies accounted for a substantial amount of our total purchases for the fiscal year 2021. The price of finished face masks and nitrile gloves can be volatile and affected by factors such as COVID-19 outbreak condition, weather, industry demand and supply. We cannot assure you that we can fully pass on the increased cost to our customers. Future increases in cost of epidemic prevention supplies or changes in the demand and supply may materially and adversely affect our business, financial condition and results of operations.
The company’s revenue increased in the first nine months of fiscal 2021 due to a new business segment of epidemic prevention supplies business. The company made a significant net loss despite of its overall revenue increase and the addition of a new business segment. During first nine months of fiscal 2021, we accepted a nitrile glove purchase order from a customer. However, due to significant price increase in nitrile glove due to the COVID-19 driven demand surge and the shortage of raw materials, the Company incurred a significant loss during this period.
Our top customers accounted for a major portion of our total revenue for the years ended March 31, 2020 and 2019 and may materially adversely affect our financial condition and results of operations.
For the year ended March 31, 2020, two customers accounted for approximately 85.5%, and 10.2% of the Company’s total garment manufacturing revenues. For the year ended March 31, 2019, one customer accounted for approximately 28.7% of the Company’s total garment manufacturing revenues. For the year ended March 31, 2020, three customers accounted for approximately 22.4%, 18.3% and 17.8% of the Company’s total logistic services revenues. For the year ended March 31, 2019, three customers accounted for approximately 27.4%, 18.8% and 17.6% of the Company’s total logistic services revenues. However, our top customers are not obligated in any way to continue to provide us with new businesses in the future at a level similar to that in the past or at all. If any of our top customers reduce their orders with us or terminate the business relationship with our Group and if we are not able to secure orders of a comparable size from other customers as replacement, our business operations and financial performance may be materially and adversely affected.
We are exposed to concentration risk of heavy reliance on our major supplier for the supply of our products, and any shortage of, or delay in, the supply may significantly impact on our business and results of operation.
During the years ended March 31, 2020 and 2019, approximately 92.7% and 39% of total inventory purchases were from the Company’s five largest suppliers. Our business, financial condition and operating results depend on the continuous supply of products from our major supplier and our continuous supplier-customer relationship with it. Our heavy reliance on our major supplier for the supply of our products will have significant impact on our business and results of operation in the event of any shortage of, or delay in the supply.
Any labor shortages, increased labor costs or other factors affecting labor supply for our production materials may materially and adversely affect our business operations.
We rely on skilled workers to a significant extent as our production process in our garment manufacturing business is labor intensive in nature. Our business performance relies on the steady supply of relatively low cost labor in the PRC. There is no guarantee that our supply of labor will not be disrupted or that our labor costs will not increase. If we fail to retain our existing labor resources and/or recruit sufficient labor in a timely manner, we may not be able to accommodate sudden increases in demand for our products.
Labor costs are affected by the demand for and supply of labor and economic factors, such as the inflation rate and costs of living. Labor costs may further increase in the future due to a shortage of skilled labor and growing industry demands. The failure to identify and recruit replacement personnel,staff immediately following the unexpected loss of skilled workers could reduce our competitiveness. In addition, we expect continued increases in labor costs in the PRC. In these circumstances, our business, financial condition, results of operations and prospects could be materially and adversely affected.
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We may be impacted by our ability to attract, develop and retain qualified associates and manage labor-related costs.
We believe our competitive advantage is providing a positive, engaging and satisfying experience for each customer, which requires us to have highly trained and engaged associates. Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified associates, including skill intensive labor. The turnover rate in the textile industry is generally high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in our operations. Competition for such qualified individuals or changes in labor laws could require us to incur higher labor costs. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned delivery of finished products or affect the speed with which we expand. Delayed deliveries, significant increases in associate turnover rates or significant increases in labor-related costs could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our vendors’ ability to manufacture and deliver raw materials in a timely manner, meet quality standards and comply with applicable laws and regulations.
We purchase raw materials from third-party vendors. Factors outside our control, such as production or shipping delays or quality problems, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns.
In addition, quality problems could result in a product liability judgment or a widespread product recall that may negatively impact our sales and profitability for a period of time depending on product availability, competition reaction and consumer attitudes. Even if the product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any will helpassertions could adversely impact our reputation with existing and potential customers and our brand image.
Our business could also suffer if our third-party vendors fail to comply with applicable laws and regulations. While our internal and vendor’s operating guidelines promote ethical business practices and our associates visit and monitor the Companyoperations of our third-party vendors, we do not control these vendors or their practices. The violation of labor, environmental or other laws by third-party vendors used by us, or the divergence of a third-party vendor’s or partner’s labor or environmental practices from those generally accepted as ethical or appropriate, could interrupt or otherwise disrupt the shipment of finished products to operate profitably. The Company doesus or damage our reputation.
Large and similar sized competitors could steal our market share by offering lower prices.
We endeavor to provide the highest possible quality service to our clients at the best possible price, however, large and similar sized competitors might steal some of our market share by offering lower prices, causing us to lose some of our clients. If this happens, we might not maintain key person life insurance on its sole officerbe able to generate adequate revenues and director
If we are unable to attract additional customers and maintain disclosure controlsclients to purchase our services (and future products we may develop or sell), it will have a negative effect on our ability to generate the revenue.
We currently have a limited number of clients and procedurescustomers. We have identified additional potential clients, but we cannot guarantee that we will be able to secure them as clients. Even if we obtain additional clients and internal control overcustomers, there is no guarantee that we will be able to develop products and/or services that our clients and customers will want to purchase. If we are unable to attract enough customers and clients to purchase services (and any products we may develop or sell) it will have a negative effect on our ability to generate the revenue that is necessary to operate or expand our business. The lack of sufficient revenue will have a negative effect on the ability of our company to continue operations and could force us to cease operations.
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We may be adversely affected by the performance of third-party contractors.
We engaged third-party contractors to carry out logistics services. We endeavor to engage third-party companies with a strong reputation and track record, high performance reliability and adequate financial reporting. Asresources. However, any such third-party contractor may still fail to provide satisfactory logistics services at the level of quality or within the timeframe required by us or our customers. While we generally require our logistics contractors to fully reimburse us for any losses arising from delay in delivery or non-delivery, our results of operation and financial condition may be adversely affected if any of the losses are not borne by them. If the performance of any third-party contractor is not satisfactory, we may need to replace such contractor or take other remedial actions, which could adversely affect the cost structure and delivery schedule of our products and thus have a negative impact on our reputation, financial position and business operations. In addition, as we are expanding our business into other geographical locations in the PRC, there may be a shortage of third-party contractors that meet our quality standards and other selection criteria in such locations and, as a result, we may not be able to operate successfully asengage a public company, even if our operations are successful. We plan to comply with allsufficient number of the various rules and regulations, which are required for a public company that is reporting company with the Securities and Exchange Commission. However, if we cannot operate successfully as a public company, your investment may be materially adversely affected.
Our insurance may not be sufficient.
We will import raw materialscarry insurance that we consider adequate in regard to the nature of the covered risks and equipmentthe costs of coverage. We are not fully insured against all possible risks, nor are all such risks insurable.
Our business depends on the continued contributions made by Mr. Hong Zhida, as our key executive officer, the loss of who may result in a severe impediment to our business.
Our success is dependent upon the continued contributions made by our CEO and President, Mr. Hong Zhida. We rely on his expertise in business operations when we are developing new products and services. The Company has no “Key Man” insurance to cover the resulting losses in the event that any of our officer or directors should die or resign.
If Mr. Hong Zhida cannot serve the Company or is no longer willing to do so, the Company may not be able to find alternatives in a timely manner or at all. This would likely result in a severe damage to our business operations and would have an adverse material impact on our financial position and operational results. To continue as a viable operation, the Company may have to recruit and train replacement personnel at a higher cost.
Additionally, if Mr. Hong Zhida joins our competitors or develops similar businesses that are in competition with our Company, our business may also be negatively impacted.
Our future success depends on our ability to attract and retain qualified long-term staff to fill management, technology, sales, marketing, and customer services positions. We have a great need for qualified talent, but we may not be successful in attracting, hiring, developing, and retaining the talent required for our productionsuccess.
We may be adversely impacted by certain compliance or legal matters.
We, along with third parties we do business with, are subject to complex compliance and litigation risks. Actions filed against us from China. Because we keeptime to time include commercial, tort, intellectual property, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. The cost of defending against these types of claims against us or the ultimate resolution of such claims, whether by settlement or adverse court decision, may harm our business. Further, potential claimants may be encouraged to bring lawsuits based on a minimum stocksettlement from us or adverse court decisions against us. We cannot currently assess the likely outcome of raw materials at our place, we believe that disruptions in shipping deliveries maysuch suits, but if the outcome were negative, it could have a greatermaterial adverse effect on us than on competitors who keep a greater stockour reputation, results of raw materials and/or warehouse supplies. Deliveries of our raw materials may be disrupted through factors such as:
In addition, we may be impacted by litigation trends, including class action lawsuits involving consumers and shareholders, that could have a material adverse effect on our reputation, the market price of our common stock, results of operations, financial condition and cash flows.
Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where they operate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. As of December 31, 2020, we have made adequate employee benefit payments in strict compliance with the relevant PRC regulations for and on behalf of our employees.
There is no guarantee that we will not fail in making adequate employee benefit payments in strict compliance with applicable PRC labor related laws and regulations in the future. Our failure in making contributions to various employee benefits plans in strict compliance with applicable PRC labor related laws and regulations may subject us to late payment penalties, and we could also be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
A recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and the newly enacted “Holding Foreign Companies Accountable Act” all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, the SEC and the PCAOB released a joint statement highlighting the risks associated with investing in companies based in or having substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditor.
On December 18, 2020, the “Holding Foreign Companies Accountable Act” was signed by previous President of the United States and became law. This legislation requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer's public accounting firm for three consecutive years, the issuer's securities are banned from trade on a national exchange or through other methods.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our Ordinary Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Our auditor, BF Borgers CPA PC, is an independent registered public accounting firm with the PCAOB, and as an auditor of publicly traded companies in the U.S., is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor has been inspected by the PCAOB on a regular basis. If we were to be found out of compliance with the existing or future guidelines discussed above, it may impair or halt the ability to trade our shares on Nasdaq or other applicable trading market within the US.
There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC.
On December 28, 2019, the newly amended Securities Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article 177 of the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese entities or individuals shall provide documents and information in connection with securities business activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177.
As advised by our PRC counsel, Article 177 is only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities within the territory of the PRC. Our principal business operation is conducted in the PRC. In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177 is a recently promulgated provision and, as the date of this prospectus, there have not been implementing rules or regulations regarding the application of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from Nasdaq or other applicable trading market within the US.
We are exposed to liabilities relating to environmental protection and safety laws and regulations.
Our operations are subject to comprehensive and frequently changing laws and regulations relating to environmental protection and health and safety. The discharge of waste and pollutants from our manufacturing operations into the environment may give rise to liabilities that may require us to incur costs to remedy such discharge. If we violate such laws or regulations, we may be required to implement corrective actions and could be subject to civil or criminal fines or penalties or other sanctions.
However, we cannot assure you that any environmental laws adopted in the future will not materially increase our operating costs and other expenses. We cannot assure you that we will not have to make significant capital or operating expenditures in the future in order to comply with existing or new laws and regulations or that we will comply with applicable environmental laws at all times. Such violations or liability could have a material adverse effect on our business, financial condition and results of operations.
If our employees do not maintain a strong work ethic and comply with our code of ethics, including our confidentiality requirements, their actions may negatively influence our business and reputation.
Employees with good professional ethics are important for any company’s development. An employee might, either intentionally or unintentionally, disclose confidential information about our Company or our clients and particularly unscrupulous employees might endeavor to sell material information to industry competitors. Furthermore, our employees will develop relationships with our business partners and clients, and may acquire information that could be used to harm their business interests. If this should happen, our partners and clients might lose faith in our company. While we can never eliminate these ethical risks entirely, we will attempt to reduce the likelihood of breaches of trust and mitigate their impacts of it by hiring highly professional employees and establishing strong internal information management systems.
We also plan to establish a series of policies to reduce the likelihood of such events.
However, in the event that any employee discloses confidential information about our Company or our clients or sells material information to industry competitors, it could have a material adverse effect on our reputation, operations and cash flow.
We face risks associated with future Chinese regulations.
Currently there are no government regulations in China regarding our type of services. The Chinese government encourages small-medium sized traditional industry companies to conduct business model transformation and technology updates, which may help companies gain more competitive advantages in international markets.
Other than the required adherence to general business laws and regulatory disclosures, our services are not affected by any specific additional Chinese government regulations. However, this does not preclude the possibility that China may institute regulations that will make it difficult or impossible for us to operate successfully, if at all, in the future. If that occurs, we may have to focus our business on companies located outside China. This could cause our results of operations to be materially adversely effected, reduce our revenues and cause the value of our securities to decline in value.
We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.
We may need to obtain additional debt or equity financing to fund future capital expenditures. While we do not anticipate seeking additional financing in the immediate future, any additional equity may result in dilution to the holders of our competitors warehouse large quantitiesoutstanding shares of raw materials they import from overseas, which allow themcapital stock. Additional debt financing may include conditions that would restrict our freedom to continue delivering their products for the near term, despite overseas shipping disruptions. Ifoperate our competitors arebusiness, such as conditions that:
● | limit our ability to pay dividends or require us to seek consent for the payment of dividends; | |
● | increase our vulnerability to general adverse economic and industry conditions; | |
● | require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and | |
● | limit our flexibility in planning for, or reacting to, changes in our business and our industry. |
We cannot guarantee that we will be able to deliver products when we cannot,obtain any additional financing on terms that are acceptable to us, or at all.
Natural disasters and other events beyond our reputationcontrol could materially adversely affect us.
Natural disasters or other catastrophic events may be damaged and we may lose customerscause damage or disruption to our competitors.
AS AN “EMERGING GROWTH COMPANY” UNDER THE JOB’S ACT, WE ARE PERMITTED TO RELY ON EXEMPTIONS FROM CERTAIN DISCLOSURE REQUIREMENTS.
We are an emerging“emerging growth company, we will not be required to:
General Risks Associated with Business Operations in China
You may have difficulty enforcing judgments against us.
We must raise additional capital in order forare a Nevada corporation and most of our business plan to succeed. Our most likely sources of additional capitalassets are and will be through saleslocated outside of the United States. Almost all of our printed products and through the sale additional shares of the common stock. Such stock issuances will cause stockholders' interests in our company to be diluted. Such dilution will negatively affect the value of an investor's shares.
Foreign exchange fluctuations may affect our business.
We accept the payment for services in Chinese Yuan (CNY), Hong Kong Dollars (HKD), and U.S. Dollars (USD). Therefore, foreign exchange fluctuations may influence our business in unpredictable ways.
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The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. For instance, in August 2015, the People’s Bank of China, or PBOC, changed the way it calculates the mid-point price of Renminbi against the U.S. dollar, requiring the market-makers who submit for reference rates to consider the previous day’s closing spot rate, foreign-exchange demand and supply as well as changes in major currency rates. In fiscal year 2019 and 2020, the value of the Renminbi depreciated by approximately 6.9% and 5.5% against the U.S. dollar, respectively. From the fiscal year ended March 31, 2020 through the end of December 2020, the value of the Renminbi appreciated by approximately 7.8% against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy, including any interest rate increases by the Federal Reserve, may impact the exchange rate between the Renminbi and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, including from the U.S. government, which has threatened to label China as a “currency manipulator,” which could result in greater fluctuation of the Renminbi against the U.S. dollar.
A substantial percentage of our revenues and costs are denominated in Renminbi, and a significant portion of our assets are also denominated in Renminbi. We are a holding company and we rely on dividends, loans and other distributions on equity paid by our operating subsidiaries in China. Any significant fluctuations in the value of the Renminbi may materially and adversely affect our liquidity and cash flows. Appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount we would receive. Conversely, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive.
Inflation could pose a risk to our business.
Inflation is an important factor that must be considered as we move forward. A change in the rate of inflation could influence the profits that we generate from our business. When the rate of inflation rises, the operational costs of running our company would increase, such as labor costs, raw materials and public utilities, affecting our ability to provide our services at competitive prices. An increase in the rate of inflation would force our clients to search for other service providers, causing us to lose business and revenue.
We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.
The PRC’s economy is in a transition from a planned economy to a market oriented economy subject to five-year and annual plans adopted by the central government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions of the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, we cannot assure you that this will be the case. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, we cannot assure you that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social environment.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
Most of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
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In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degree of interpretation by PRC regulatory agencies and courts. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. Therefore, it is possible that our existing operations may be found not to be in full compliance with relevant laws and regulations in the future. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.
PRC regulations regarding acquisitions impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions.
Under the PRC Anti-Monopoly Law, companies undertaking acquisitions relating to businesses in China must notify the anti-monopoly enforcement agency, in advance of any transaction where the parties’ revenues in the China market exceed certain thresholds and the buyer would obtain control of, or decisive influence over, the other party. In addition, on August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or the CSRC, and the State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and was amended on June 22, 2009. Under the M&A Rules, the approval of MOFCOM must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire domestic companies affiliated with such PRC enterprises or residents. Applicable PRC laws, rules and regulations also require certain merger and acquisition transactions to be subject to security review.
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
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We have notified substantial beneficial owners of shares of common stock who we know are PRC residents of their filing obligation, and pursuant to SAFE Circular 37, we have periodically filed and updated the above-mentioned foreign exchange registration on behalf of certain employee shareholders who we know are PRC residents. However, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject the beneficial owners or our PRC subsidiaries to fines and legal sanctions. On February 13, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, entities and individuals are required to apply for foreign exchange registration of foreign direct investment and overseas direct investment, including those required under the SAFE Circular 37, with designated domestic banks, instead of SAFE. The designated domestic banks will directly review the applications and conduct the registration.
Furthermore, since it is unclear how those new SAFE regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.
We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.
Under the PRC Enterprise Income Tax Law and its implementing rules, both of which came into effect on January 1, 2008, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the basis of de facto management bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
Restrictions on currency exchange may limit our ability to utilize our PRC revenue effectively.
Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but requires approval from or registration with appropriate government authorities or designated banks under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase if at all. Also, ifforeign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions.
-17- |
Since 2016, PRC governmental authorities have imposed more stringent restrictions on outbound capital flows, including heightened scrutiny over “irrational” overseas investments for certain industries, as well as over four kinds of “abnormal” offshore investments, which are:
● investments through enterprises established for only a few months without substantive operation;
● investments with amounts far exceeding the registered capital of onshore parent and not supported by its business performance shown on financial statements;
● investments in targets which are unrelated to onshore parent’s main business; and
● investments with abnormal sources of Renminbi funding suspected to be involved in illegal transfer of assets or illegal operation of underground banking.
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, which tightened the authenticity and compliance verification of cross-border transactions and cross-border capital flow, including requiring banks to verify board resolutions, tax filing forms and audited financial statements before wiring foreign invested enterprises’ foreign exchange dividend distribution of over US$50,000. In addition, the Outbound Investment Sensitive Industry Catalogue (2018) lists certain sensitive industries that are subject to NDRC pre-approval requirements prior to remitting investment funds offshore, which subjects us to increased approval requirements and restrictions with respect to our overseas investment activity. Since a significant amount of our PRC revenue is denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC, make investments, service any debt we may incur outside of China or pay dividends in foreign currencies to our shareholders.
The disclosures in our reports and other filings with the SEC and our other public pronouncements are not ablesubject to pay the expenses associatedscrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our reporting obligationsSEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.
Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business.
The PRC legal system is a codified legal system made up of written laws, regulations, circulars, administrative directives and internal guidelines. Unlike common law jurisdictions like the U.S., decided cases (which may be taken as reference) do not form part of the legal structure of the PRC and thus have no binding effect on subsequent cases with similar issues and fact patterns. Furthermore, in line with its transformation from a centrally-planned economy to a more free market-oriented economy, the PRC government is still in the process of developing a comprehensive set of laws and regulations. As the legal system in the PRC is still evolving, laws and regulations or the interpretation of the same may be subject to further changes. For example, the PRC government may impose restrictions on the amount of service fees that may be payable by municipal governments to wastewater and sludge treatment service providers. Also, the PRC central and municipal governments may impose more stringent environmental regulations which would affect our ability to comply with, or our costs to comply with, such regulations. Such changes, if implemented, may adversely affect our business operations and may reduce our profitability.
-18- |
Risks Related to this Offering and our Common Stock
Prior to this offering, we willhad a limited public market for our shares of common stock and you may not be able to applyresell our shares at or above the price you paid, or at all.
Prior to this offering, there was a limited public market for quotation onour common stock in the OTC Bulletin BoardOTCQB. We cannot assure you that an active public market for our common stock will develop or other quotation service.that the market price of our shares will not decline below the public offering price. The public offering price of our shares may not be indicative of prices that will prevail in the trading market following the offering.
Future sales of substantial amounts of the shares of common stock by existing shareholders could adversely affect the price of our common stock.
If our existing shareholders sell substantial amounts of the shares following this offering, the market price of our common stock could fall. Such sales by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a “shell company” within the meaningtime and place we deem appropriate. Up to 5,000,000 shares of Rule 405, promulgated pursuant to Securities Act of 1933, as amended (the “Securities Act”), because we have nominal assets and nominal operations. Accordingly, the securities soldcommon stock offered in this offering can onlywill be resold through registrationeligible for immediate resale in the public market without restrictions. All remaining shares, which are currently held by our existing shareholders, may be sold in the public market in the future subject to the lock-up agreements and the restrictions contained in Rule 144 under Section 5 the Securities Act, Section 4(1),Act. If any existing shareholders sell a substantial number of shares, the prevailing market price for our shares could be adversely affected.
The market price of our shares is likely to be highly volatile and subject to wide fluctuations in response to factors such as:
● | variations in our actual and perceived operating results; |
● | news regarding gains or losses of customers or partners by us or our competitors; |
● | news regarding gains or losses of key personnel by us or our competitors; |
● | announcements of competitive developments, acquisitions or strategic alliances in our industry by us or our competitors; |
● | changes in earnings estimates or buy/sell recommendations by financial analysts; |
● | potential litigation; |
● | the imposition of fines or penalties related to our activities in the PRC and failure to comply with applicable rules and regulations; |
● | general market conditions or other developments affecting us or our industry; and |
● | the operating and stock price performance of other companies, other industries and other events or factors beyond our control. |
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the shares.
-19- |
We may never be able to pay dividends and are unlikely to do so.
To date, we have not paid, nor do we intend to pay in the foreseeable future, dividends on our common stock, even if available,we become profitable. Earnings, if any, are expected to be used to advance our activities and for non-affiliatesworking capital and general corporate purposes, rather than to make distributions to stockholders. Since we are not in a financial position to pay dividends on our common stock and future dividends are not presently being contemplated, investors are advised that return on investment in our common stock is restricted to an appreciation in the share price. The potential or likelihood of an increase in share price is uncertain.
In addition, under Nevada law, we may only pay dividends subject to our ability to service our debts as they become due and provided that our assets will exceed our liabilities after the dividend. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits. Further, because of the various rules applicable to our operations in China and the regulations on foreign investments as well as the applicable tax law, we may be subject to further limitations on our ability to declare and pay dividends to our shareholders.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of securities.
Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our common stock, warrants to purchase shares of our common stock or other securities. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock or warrants to purchase such shares of common stock. In addition, we may attempt to raise capital by meetingselling shares of our common stock, possibly at a discount to market in the conditionsfuture. These actions will result in dilution of Rule 144 (i), whichthe ownership interests of existing shareholders and may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities committed to supporting existing management.
In the event that our shares are traded, they may trade under $5.00 per share and thus will potentially reducebe a penny stock. Trading in penny stocks has many restrictions and these restrictions could severely affect the price and liquidity of our shares.
In the event that our shares are traded, and our stock trades below $5.00 per share, our stock would be known as a “penny stock”, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our common stock could be considered to be a “penny stock”. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established Members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. Another implicationIn addition, he must receive the purchaser’s written consent to the transaction prior to the purchase. He must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of us beingbroker/dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to resell them. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks are low priced securities that do not have a shell company is that we cannot file registration statements under Section 5very high trading volume. Consequently, the price of the Securities Act usingstock is often volatile and you may not be able to buy or sell the stock when you want to.
We will have discretion in applying a Form S-8, a short form of registration to register securities issued to employees and consultants under an employee benefit plan. Additionally, though exemptions, such as Section 4(1)portion of the Securities Actnet proceeds of this offering and may not use these proceeds in ways that will enhance the market value of our common stock.
Our management will have considerable discretion in the application of the proceeds received by us from this offering. Such proceeds may be availableused to purchase and sell raw materials, grow our brand and for non-affiliate holders our sharesworking capital and general corporate purposes. You will not have the opportunity, as part of your investment decision, to resell their shares, because weassess whether the proceeds are a shell company, a holder of our securities may notbeing used appropriately. You must rely on the safe harbor from being deemed statutory underwriter under Section 2(11)judgment of our management regarding the application of the Securities Act,net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase our common stock price. The net proceeds from this offering may also be placed in investments that do not produce income or that lose value. Future issuances of capital stock may depress the trading price of our common stock. Any issuance of shares of our common stock after this offering could dilute the interests of our existing stockholders and could substantially decrease the trading price of our common stock. We may issue additional shares of common stock in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions).
Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.
-20- |
After deducting the estimated underwriting commissions and estimated offering expenses payable by us, we expect to receive net proceeds of $22,424,292 from this offering. We anticipate that the proceeds will be applied as providedfollows:
Planned Actions | Amount | |||
Working capital and general corporate purposes | $ | 6,127,285 | ||
Fund existing businesses operation (garment manufacturing and logistic) | 2,000,000 | |||
Expansion of garment manufacturing business | - | |||
Branding and marketing | 3,063,644 | |||
Retailer set-up | 1,021,215 | |||
Expansion of logistics services business | - | |||
Expand delivery network | 1,021,215 | |||
Establish warehouse | 1,021,215 | |||
Research and development | 1,021,215 | |||
Marketing | 3,063,644 | |||
Expansion of epidemic prevention supplies business | - | |||
Lab and factory set-up | 1,021,215 | |||
Research and development | 3,063,644 | |||
Offering expenses | 575,708 | |||
Underwriting commissions and expenses | 2,000,000 | |||
TOTAL | $ | 25,000,000 |
The amount and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by Rule 144, to resell his or her securities. Only afterour operations and the rate of growth, if any, of our business.
Although we (i) are notmay use a shell company, and (ii) have filed all reports and other materials required to be filed by section 13 or 15(d)portion of the Exchange Act, as applicable, duringproceeds for the preceding 12 months (or for such shorter periodacquisition of, or investment in, companies, technologies, products or assets that we may be required to file such reports and materials, other than Form 8-K reports); and have filed current “Form 10 information” with the SEC reflectingcomplement our status as an entity that is no longer a shell company for a period of not less than 12 months, can our securities be resold pursuant to Rule 144.
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The following table sets forth our capitalization as of December 31, 2020:
● | On an actual basis; and | |
● | On a pro forma, as adjusted basis to give effect to the sale of the shares of common stock by us in this offering at the public offering price of $5.00 per share, which is set forth on the cover page of this prospectus, and after deducting the estimated underwriter commissions and estimated offering expenses payable by us. |
You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this prospectus.
December 31, 2020 | ||||||||
Actual | Pro Forma | |||||||
(unaudited) | (unaudited) | |||||||
Cash and cash equivalents | $ | 356,728 | $ | 22,781,020 | ||||
Accounts receivable, net | 3,024,627 | 3,024,627 | ||||||
Inventories | 163,233 | 163,233 | ||||||
Other receivables | 1,026,538 | 1,026,538 | ||||||
Advances to suppliers | 208,324 | 208,324 | ||||||
Total current assets | 4,779,450 | 27,203,742 | ||||||
Plant and equipment, net | 894,388 | 894,388 | ||||||
Lease right of use asset | 11,604,526 | 11,604,526 | ||||||
Total non-current assets | 12,498,914 | 12,498,914 | ||||||
Total Assets | 17,278,364 | 39,702,656 | ||||||
Total Current Liabilities | 12,661,861 | 12,661,861 | ||||||
Total Non-current Liabilities | 7,682,312 | 7,682,312 | ||||||
Total Liabilities | 20,344,173 | 20,344,173 | ||||||
Stockholders’ Equity: | ||||||||
Common stock, $.001 par value, 50,000,000 shares authorized; 26,093,004 shares issued and outstanding, actual; 31,093,004 shares issued and outstanding, pro forma | 26,093 | 31,093 | ||||||
Additional paid-in capital | 3,815,933 | 26,235,225 | ||||||
Accumulated deficits | (6,804,107 | ) | (6,804,107 | ) | ||||
Statutory reserve | 13,663 | 13,663 | ||||||
Accumulated other comprehensive income | (117,391 | ) | (117,391 | ) | ||||
Total stockholders’ (deficit) equity | (3,065,809 | ) | 19,358,483 | |||||
Total Liabilities and stockholders’ equity | 17,278,364 | 39,702,656 |
-22- |
If you invest in our common shares understock, your interest will be diluted immediately to the Exchange Act if we have, afterextent of the last daydifference between the public offering price per share you will pay in this offering and the pro forma as adjusted net tangible book value per share of our fiscal year, more than either (i) 2000 persons;common stock after this offering. Our net tangible book value as of December 31, 2020 was ($3,065,809), or (ii) 500($0.12) per share of common stock. Our pro forma net tangible book value per share set forth below represents our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding on December 31, 2020.
If the shares are sold at the public offering price of $5.00 per share, which is set forth on the cover page of this prospectus, after deducting the estimated underwriter commissions and offering expenses payable by us, the pro forma as adjusted net tangible book value as of December 31, 2020 would have been $19,358,483, or $0.61 per share. This represents an immediate increase in net tangible book value to existing shareholders of record$0.73 per share. The public offering price per share will significantly exceed the net tangible book value per share. Accordingly, new investors who are not accreditedpurchase shares of common stock in this offering will suffer an immediate dilution of their investment of $4.39 per share. The following table illustrates this per share dilution to the new investors purchasing shares of common stock in this offering:
Offering(1) | Full Over- allotment Post-offering(2) | |||||||
Assumed offering price per share | $ | 5.00 | $ | 5.00 | ||||
Net tangible book value per share as of December 31, 2020 | $ | (0.12 | ) | $ | (0.12 | ) | ||
Increase in net tangible book value per share after this offering | $ | 0.73 | $ | 0.82 | ||||
Net tangible book value per common stock after the offering | $ | 0.61 | $ | 0.70 | ||||
Dilution per common stock to new investors | $ | 4.39 | $ | 4.18 |
(1) | Assumes gross proceeds from offering of 5,000,000 shares. |
(2) | Assumes gross proceeds from offering of 5,750,000 shares, if over-allotment option is exercised in full. |
A $1.00 increase (decrease) in the public offering price of $5.00 per share would increase (decrease) the pro forma net tangible book value by $4,600,159, the pro forma net tangible book value per share after this offering by $0.14 per share and the dilution in pro forma net tangible book value per share to investors in accordance with Section 12(g)this offering by $0.86 per share, assuming that the number of shares offered by us, as set forth on the Exchange Act. As a result, although, upon the effectivenesscover page of the registration statement of which this prospectus, forms a part, we will be required to file annual, quarterly,remains the same and current reports pursuant to Section 15(d) ofafter deducting the Exchange Act, as long as our common shares are not registered under the Exchange Act, we will not be subject to Section 14 of the Exchange Act, which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or consents from shareholders without furnishing to shareholdersunderwriter commissions and filing with the Securities and Exchange Commission a proxy statement and form of proxy complying with the proxy rules.estimated offering expenses payable by us.
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MARKET FOR COMMON STOCK IS NOT REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OUR REPORTING OBLIGATIONS UNDER SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY BE SUSPENDED AUTOMATICALLY IF WE HAVE FEWER THAN 300 SHAREHOLDERS OF RECORD ON THE FIRST DAY OF OUR FISCAL YEAR.
Our common stock is not registeredcurrently quoted on the OTCQB under the Exchange Act,symbol “ATXG.”
Trading in stocks quoted on the OTCQB is often thin and weis characterized by wide fluctuations in trading prices due to many factors that may have little to do not intend to registerwith a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock under the Exchange Act for the foreseeable future (provided that, we will register our common stock under the Exchange Act if we have, after the last day of our fiscal year, $10,000,000 in total assets and either more than 2,000 shareholders of record or 500 shareholders of record who are not accredited investors (as such term is defined by the Securities and Exchange Commission), in accordance with Section 12(g) of the Exchange Act). As long as our common stock is not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension is automatic and does not require any filing with the SEC. In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial information, may not be available with respect to our results of operations.
We received our trading symbol on September 12, 2016 and elsewhere in this prospectus.
The following table sets forth the useshigh and low trading prices of proceeds assumingone share of our common stock for each fiscal quarter over the sale of one-third, two-thirdpast two fiscal years, and 100%, respectively, ofApril 1, 2019 to the securities offered for sale by the Company. There is no assurance that we will raise the full $90,000 as anticipated.
Gross proceeds | $ | 30,000 | $ | 60,000 | $ | 90,000 | ||||||
Offering expenses | $ | 7,000 | $ | 7,000 | $ | 7,000 | ||||||
Net proceeds | $ | 23,000 | $ | 53,000 | $ | 83,000 | ||||||
Website development | $ | 1,500 | $ | 3,000 | $ | 3,000 | ||||||
Leasing premises and equipment | $ | 5,980 | $ | 9,680 | $ | 14,460 | ||||||
Raw materials | $ | 1,520 | $ | 17,320 | $ | 30,540 | ||||||
Employees’ salary | $ | - | $ | 6,000 | $ | 12,000 | ||||||
Miscellaneous expenses | $ | 1,000 | $ | 2,000 | $ | 3,000 | ||||||
Marketing and advertising | $ | 3,000 | $ | 5,000 | $ | 10,000 | ||||||
SEC reporting and compliance | $ | 10,000 | $ | 10,000 | $ | 10,000 |
Fiscal Year 2022 | High Bid | Low Bid | ||||||
First Quarter (through May 17, 2021) | $ | 7.50 | $ | 7.00 | ||||
Second Quarter | $ | - | $ | - | ||||
Third Quarter | $ | - | $ | - | ||||
Fourth Quarter | $ | - | $ | - |
Fiscal Year 2021 | High Bid | Low Bid | ||||||
First Quarter | $ | 7.00 | $ | 7.00 | ||||
Second Quarter | $ | 7.00 | $ | 7.00 | ||||
Third Quarter | $ | 7.00 | $ | 7.00 | ||||
Fourth Quarter | $ | 7.00 | $ | 7.00 |
Fiscal Year 2020 | High Bid | Low Bid | ||||||
First Quarter | $ | 89.75 | $ | 89.75 | ||||
Second Quarter | $ | 89.75 | $ | 89.75 | ||||
Third Quarter | $ | 89.75 | $ | 89.75 | ||||
Fourth Quarter | $ | 89.75 | $ | 89.75 |
Holders of the shares arbitrarily. The price does not bear any relationship to our assets, book value, earnings, or other established criteria for valuing a privately held company. In determining the number of shares to be offered and the offering price, we took into consideration our cash on hand and the amount of money we would need to implement our business plan. Accordingly, the offering price should not be considered an indication of the actual value of the securities.
26,693,004 shares of common stock he purchased from the Companywere issued and outstanding as of May 17, 2021. They were held by a total of 580 shareholders of record. The holders of common stock are entitled to one vote for each share held of record on December 26, 2014.
Dividend Policy
No cash dividends were paid on our shares of common stock was $3,161 or approximately $0.001 per share based upon 3,000,000 shares outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are sold, the net tangible book value of the 6,000,000 shares to be outstanding will be $86,161 or approximately $0.0144 per share. The net tangible book value per share prior to the offering is $0.001. The net tangible book value of the shares held by our existing stockholders will be increased by $0.0134 per share without any additional investment on his part. Investors in the offering will incur an immediate dilution from $0.03 per share to $0.0144 per share.authorized.
-24- |
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table comparestables set forth our summary historical financial data for the differencesperiods presented.
The following summary financial data for the years ended March 31, 2020 and 2019 are derived from our audited financial statements appearing elsewhere in this prospectus. The following summary financial data for the nine-month periods ended December 31, 2020 and 2019 and the selected balance sheet data as of your investmentDecember 31, 2020 are derived from our unaudited financial statements appearing elsewhere in our sharesthis prospectus.
This summary financial data should be read together with the investmenthistorical financial statements and related notes to those statements, as well as “Management’s Discussion and Analysis of our existing stockholders.
As of March 31, | As of December 31, | |||||||||||
2019 | 2020 | 2020 | ||||||||||
(Restated) | (Unaudited) | |||||||||||
Balance Sheet Data: | ||||||||||||
Cash and cash equivalents | $ | 277,264 | $ | 531,681 | $ | 356,728 | ||||||
Prepayments, Deposits and Other Receivable | 2,525,148 | 5,469,561 | 4,422,722 | |||||||||
Total Assets | 3,496,843 | 8,421,978 | 17,278,364 | |||||||||
Total Current Liabilities | 5,674,393 | 10,096,528 | 12,661,861 | |||||||||
Total Liabilities | 5,674,393 | 11,488,702 | 20,344,173 | |||||||||
Total Stockholders’ equity (deficit) | (2,177,550 | ) | (3,066,724 | ) | (3,065,809 | ) |
Years Ended March 31, | Nine Months Ended December 31, | |||||||||||||||
2019 | 2020 | 2019 | 2020 | |||||||||||||
(Restated) | (Unaudited) | (Unaudited) | ||||||||||||||
Statements of Operations Data: | ||||||||||||||||
Revenues | $ | 10,026,920 | $ | 10,172,379 | $ | 8,182,396 | $ | 21,014,064 | ||||||||
Gross (Loss) Profit | 1,282,694 | 1,385,361 | 960,713 | (1,762,023 | ) | |||||||||||
Total operating expenses | (1,965,821 | ) | (2,249,679 | ) | (1,869,113 | ) | (1,830,992 | ) | ||||||||
Loss from Operations | (683,127 | ) | (864,318 | ) | (908,400 | ) | (3,593,015 | ) | ||||||||
Loss before provision for income taxes | (685,774 | ) | (964,547 | ) | (935,399 | ) | (3,537,010 | ) | ||||||||
Net Loss | $ | (694,329 | ) | $ | (980,617 | ) | $ | (947,485 | ) | $ | (3,560,206 | ) | ||||
Net loss per common share | ||||||||||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.14 | ) |
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Existing Stockholder if all of the Shares are Sold: | ||||
Price per share | $ | 0.001 | ||
Net tangible book value per share before offering | $ | 0.001 | ||
Potential gain to existing shareholder | $ | 90,000 | ||
Net tangible book value per share after offering | $ | 0.0144 | ||
Increase to present stockholders in net tangible book value per share after offering | $ | 0.0134 | ||
Capital contributions | $ | 3,000 | ||
Number of shares outstanding before the offering | 3,000,000 | |||
Number of shares after offering assuming the sale of 50% of shares | 6,000,000 | |||
Percentage of ownership after offering | 50 | % | ||
Existing Stockholder if two-third of Shares are Sold: | ||||
Price per share | $ | 0.001 | ||
Net tangible book value per share before offering | $ | 0.001 | ||
Potential gain to existing shareholder | $ | 60,000 | ||
Net tangible book value per share after offering | $ | 0.0113 | ||
Increase to present stockholders in net tangible book value per share after offering | $ | 0.0103 | ||
Capital contributions | $ | 3,000 | ||
Number of shares outstanding before the offering | 3,000,000 | |||
Number of shares after offering assuming the sale of 50% of shares | 5,000,000 | |||
Percentage of ownership after offering | 60 | % | ||
Existing Stockholder if one-third of Shares are Sold: | ||||
Price per share | $ | 0.001 | ||
Net tangible book value per share before offering | $ | 0.001 | ||
Potential gain to existing shareholder | $ | 30,000 | ||
Net tangible book value per share after offering | $ | 0.0066 | ||
Increase to present stockholders in net tangible book value per share after offering | $ | 0.0056 | ||
Capital contributions | $ | 3,000 | ||
Number of shares outstanding before the offering | 3,000,000 | |||
Number of shares after offering assuming the sale of the maximum number of shares | 4,000,000 | |||
Percentage of ownership after offering | 75 | % | ||
Purchasers of Shares in this Offering if all 100% Shares Sold | ||||
Price per share | $ | 0.03 | ||
Dilution per share | $ | 0.0156 | ||
Capital contributions | $ | 90,000 | ||
Number of shares after offering held by public investors | 3,000,000 | |||
Percentage of capital contributions by existing shareholder | 3.23 | % | ||
Percentage of capital contributions by new investors | 96.77 | % | ||
Percentage of ownership after offering | 50 | % | ||
Purchasers of Shares in this Offering if two-third of Shares Sold | ||||
Price per share | $ | 0.03 | ||
Dilution per share | $ | 0.0187 | ||
Capital contributions | $ | 60,000 | ||
Percentage of capital contributions by existing shareholder | 4.76 | % | ||
Percentage of capital contributions by new investors | 95.24 | % | ||
Number of shares after offering held by public investors | 2,000,000 | |||
Percentage of ownership after offering | 40 | % | ||
Purchasers of Shares in this Offering if one-third of Shares Sold | ||||
Price per share | $ | 0.03 | ||
Dilution per share | $ | 0.0234 | ||
Capital contributions | $ | 30,000 | ||
Percentage of capital contributions by existing shareholder | 9.09 | % | ||
Percentage of capital contributions by new investors | 90.91 | % | ||
Number of shares after offering held by public investors | 1,000,000 | |||
Percentage of ownership after offering | 25 | % |
Forward Looking Statements
The following discussion should be read in conjunction with our “Selected Historical Financial and analysis of our financial conditionOperation Data” and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. SomeIn preparation of this prospectus, we reperformed the assessment on goodwill for impairment test as of March 31, 2020 and due to the impact on business environment of Covind-19 outbreak in PRC, it was determined that recoverable amount of one of the Company’s reporting units was lower than the carrying amount of the goodwill recorded as of March 31, 2018. Therefore, it was concluded that the carrying amount of said goodwill should have been fully impaired as of March 31, 2018. The Company has restated the impairment of goodwill as if it was fully impaired during the year ended March 31, 2018. The Comprehensive Loss for the year ended March 31, 2020 decreased by $475,003. The long live assets as of March 31, 2019 decreased by $475,003. The accumulative accumulated deficits as of March 31, 2019 increased by the same amount. The restatement has no impact on previously reported “cash flows” amount. In addition to historical information, contained in thisthe following discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includescontains forward-looking statements that involve risks, uncertainties and uncertainties. You should reviewassumptions. Where possible, we have tried to identify these forward-looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” sectionand elsewhere in this prospectus.
This prospectus 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 prospectus for a discussionregarding the prospects of important factorsour 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 prospectus.
You should read the matters described in or implied“Risk Factors” and the other cautionary statements made in this prospectus, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this prospectus. We cannot assure you that the forward-looking statements containedin this prospectus 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 audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the following discussionUnited States of America. The preparation of these audited financial statements requires management to make estimates and analysis.
Corporate History
Addentax Group Corp. was $6,990 as of March 31, 2015. We have been utilizing and continue to utilize funds from Otmane Tajmouati, our Chairman and President, who has formally and verbally agreed to loan funds to allow the Company to pay for offering costs, filing fees, and professional fees. As of March 31, 2015, Mr. Tajmouati had advanced us $8,100 under verbal conditions. Mr. Tajmouati has agreed to loan $30,000 to us pursuant to the terms of the Loan Agreement that is filed as Exhibit 10.1 to the Registration Statement of which this Prospectus forms a part. In order to implement our plan of operations for the next twelve months period, we require a minimum of $30,000 of funding from this offering. If we generate less that minimum needed amount from this offering, less than one third of the offered shares will be sold, we will utilize funds from Mr. Tajmouati. Being a development stage company, we have limited operating history. After twelve months period we may need additional financing. Our principal executive office is located at 70, Av Allan ben Abdellah, Fes, Morocco 30000. Our phone number is +17026606161.
We have a fiscal year-end of March 31. On July 12, 2016, we filed an amendment to our articles of incorporation, which amendment was effectuated by our transfer agent on July 20, 2016. The certificate of amendment was filed in order to undertake a two for one laptopforward stock split and one printerincrease our authorized shares of common stock, par value $0.001 per share, to 150,000,000 shares, which forward stock split has been retroactively reflected throughout this prospectus. On February 27, 2019, we filed a Certificate of Change to effect a 1-for-20 reverse stock split, which reduced our authorized shares of common stock to 50,000,000 shares.
Current Business
Effective December 28, 2016, the Company executed a Sale & Purchase Agreement (“S&P”) for the cost $3,000 including transportation costs, customs and taxes. If we sell 2/3acquisition of all shares we will buy two 3D sublimation vacuum heat transfer machines, two laptops and two printers for the price $6,000 and if we sell 100% of the shares we will buy three setsof Yingxi Industrial Chain Group Co., Ltd. (“YICG”), a company incorporated under the laws of the necessary equipmentRepublic of Seychelles. YICG is currently a garment manufacturer. Intending to diversify its service portfolio, the Company plans to develop another branch of business: international supply chain management consulting service, which will focus exclusively on the textile & garments industry. The Company plans to assist clients to open textile and garment sales outlets throughout China. The Company will also provide assistance services in plan implementation. Pursuant to the S&P, which transaction closed on September 25, 2017, the Company issued five hundred million (500,000,000) restricted common shares of the Company to the owners of Yingxi Industrial Chain Group Co., Ltd. in consideration for the price $9,000.
After the Share Exchange, YICG’s business became our business. We are not planninga garment manufacturer and logistics service provider based in China. Our common stock is listed on the OTCQB under the symbol of “ATXG”. We classified our businesses into two revenue segments for the fiscal year ended 2020 and in previous fiscal years: (i) garment manufacturing and (ii) logistics services. During the fiscal year 2021, we developed a new business segment: epidemic prevention supplies.
Our garment manufacturing business consists of sales made principally to sellwholesalers located in China. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and timely delivery requirements for our customers. We conduct our garment manufacturing operations through five indirect wholly owned subsidiaries of the one 3D sublimation vacuum heat transfer machineCompany, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), Dongguan Yingxi Daying Commercial Co., Ltd (“DY”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd (“YBY”) which are located in the Guangdong province, China.
Our logistics services business consists of delivery and courier services covering approximately 79 cities in approximately seven provinces and two municipalities in China. Although we have already purchased. It will serveour own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), which are located in the Guangdong province, China.
Our epidemic prevention supplies business consists of manufacturing and distribution of epidemic prevention products and reselling of epidemic prevention supplies purchased from third parties in both domestic and overseas markets. We conduct our manufacturing of the epidemic prevention products in YS. We conduct the trading of epidemic prevention suppliers through Addentax Group Corp. (“ATXG”) and Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), an indirect wholly owned subsidiary of the Company.
Business Objectives
Garment Manufacturing Business
We believe the strength of our garment manufacturing business segment is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing business segment is to expand our customer base and improve our profit.
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Logistics Services Business
The business objective and future plan for our logistics service segment is to establish an efficient logistics system and to build a nationwide delivery and courier network in China. As of December 31, 2020, we provide logistics services to over 79 cities in approximately seven provinces and two municipalities. We expect to develop an additional machine20 logistics points in existing serving cities and improve the Company’s profit for printed productsthe fiscal year ending 2021.
Epidemic Prevention Supplies Business
The primary business objective of our epidemic prevention supplies business segment is to take the advantage of our resource in supply chain from our garment manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in order to increase our revenue 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 service revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistic segment.
Credit period
Garment Manufacturing Business
For our new customers, we generally require orders placed to be reserve equipment in case onebacked 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 our logistics service, we generally receive payments from the customers between 30 to 90 days following the date of the machines purchased duringregistration of our receipt of packages.
Epidemic Prevention Supplies Business
For our 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.
Markets
Currently, our market focuses on small and medium-sized enterprises in China who have business expansion plans.
Economic Uncertainty
Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.
Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.
Sufficiency of Cash Flows
Because current cash balances and our projected cash generated from operations breaks downare 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 or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.
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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
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:
(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. |
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.
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Leases
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.
Recently issued and adopted 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 serviced.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.
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Results of Operations for the nine months ended December 31, 2020 and 2019
The following tables summarize our results of operations for the nine months ended December 31, 2020 and 2019. 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 30, | Increase (decrease) in | |||||||||||||||||||||||
2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Revenue | $ | 21,014,064 | 100.0 | % | $ | 8,182,396 | 100 | % | $ | 12,831,668 | 156.8 | % | ||||||||||||
Cost of revenues | (22,776,087 | ) | (108.4 | )% | (7,221,683 | ) | (88.3 | )% | 15,554,404 | 215.4 | )% | |||||||||||||
Gross profit | (1,762,023 | ) | (8.4 | )% | 960,713 | 11.7 | % | (2,722,736 | (283.4 | )% | ||||||||||||||
Operating expenses | (1,830,992 | ) | (8.7 | )% | (1,869,113 | ) | (22.8 | )% | (38,121 | ) | (2.0 | % | ||||||||||||
Loss from operations | (3,593,015 | ) | (17.1 | )% | (908,400 | ) | (11.1 | )% | (2,684,615 | ) | (295.5 | )% | ||||||||||||
Other income, net | 62,489 | 0.3 | % | (10,753 | ) | (0.1 | )% | 73,242 | 681.1 | % | ||||||||||||||
Net finance cost | (6,484 | ) | 0.0 | % | (16,246 | ) | (0.2 | )% | (9,762 | ) | (60.1 | % | ||||||||||||
Income tax expense | (23,196 | ) | (0.1 | )% | (12,086 | ) | (0.1 | )% | 11,110 | 91.9 | )% | |||||||||||||
Net Loss | $ | (3,560,206 | ) | (16.9 | )% | $ | (947,485 | ) | (11.6 | )% | $ | (2,612,721 | ) | (275.8 | )% |
Revenue
Revenue generated from our garment manufacturing business contributed $5,186,042 or 24.7% of our total revenue for the nine months ended December 31, 2020. Revenue generated from our garment manufacturing business contributed $3,517,009 or 34.0% of our total revenue for the nine months ended December 31, 2019. The significant increase of approximately $1.7 million was mainly because revenue in production capacity increased from our newly establish subsidiary YBY.
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Revenue generated from our logistics services logistic business contributed $3,664,409 or 17.4% of our total revenue for the nine months ended December 31, 2020. Revenue generated from our logistics services business contributed $4,665,387 or 57.0% of our total revenue for the nine months ended December 31, 2019. The decrease mainly attributed to as adverse effects from COVID-19, we cannot smoothly go through the logistics services business.
Revenue generated from our property management and testingsubleasing business contributed $294,759 or 1.4% of our total revenue for the nine months ended December 31, 2020. This is a new business segment developed in current period and there was no revenue for the nine months ended December 31, 2019.
Revenue generated from our epidemic prevention supplies business was contributed $11,868,854, or 56.5% of our total revenue for the nine months ended December 31, 2020. This is a new business segment developed during the fiscal year 2020. It included revenue from trading of merchandises and revenue from sales of our own products. The revenue from trading of merchandise was $11,791,672, representing 99.3% of total revenue from the epidemic prevention suppliers business.
Total revenue for the nine months ended December 31, 2020 and 2019 were $21,014,064 and $8,182,396, respectively, representing approximately a 156.8% increase compared with the nine months ended December 31, 2019. The significant increase was mainly because of the increase of garment manufacturing production capacity in YBY, a newly setup subsidiary, and the epidemic prevention supplies business newly developed in current period.
Cost of revenue
Nine months ended December 31, | Increase (decrease) in | |||||||||||||||||||||||
2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Net revenue for garment | $ | 5,186,042 | 100.0 | % | $ | 3,517,009 | 100 | % | $ | 1,669,034 | 47.5 | % | ||||||||||||
Raw materials | 3,709,275 | 71.5 | % | 2,551,508 | 72.5 | % | 1,157,767 | 45.4 | % | |||||||||||||||
Labor | 1,030,350 | 19.9 | % | 570,182 | 16.2 | % | 460,169 | 80.7 | % | |||||||||||||||
Other and Overhead | 30,918 | 0.6 | % | 53,992 | 1.5 | % | (23,074 | ) | (42.7 | )% | ||||||||||||||
Total cost of revenue for garment | 4,770,543 | 92.0 | % | 3,175,682 | 90.3 | % | 1,594,862 | 50.2 | % | |||||||||||||||
Gross profit for garment | 415,499 | 8.0 | % | 341,327 | 9.7 | % | 74,172 | 21.7 | % | |||||||||||||||
Net revenue for logistics services | 3,664,409 | 100.0 | % | 4,665,387 | 100.0 | % | (1,000,979 | ) | (21.5 | )% | ||||||||||||||
Fuel, toll and other cost of logistics services | 1,367,753 | 37.3 | % | 1,385,870 | 29.7 | % | (18,117 | ) | (1.3 | )% | ||||||||||||||
Subcontracting fees | 1,576,228 | 43.0 | % | 2,660,131 | 57.0 | % | (1,083,904 | ) | (40.7 | )% | ||||||||||||||
Total cost of revenue for logistics services | 2,943,981 | 80.3 | % | 4,046,001 | 86.7 | % | (1,102,021 | ) | (27.2 | )% | ||||||||||||||
Gross Profit for logistics services | 720,428 | 19.7 | % | 619,386 | 13.3 | % | 101,042 | 16.3 | % | |||||||||||||||
Net revenue for property management and subleasing | 294,759 | 100.0 | - | - | 294,759 | |||||||||||||||||||
Total cost of revenue for property management and subleasing | 272,759 | 92.5 | - | - | 272,759 | |||||||||||||||||||
Gross Profit for property management and subleasing | 22,000 | 7.5 | - | - | 22,000 | |||||||||||||||||||
Net revenue for epidemic prevention supplies | $ | 11,868,854 | 100 | % | $ | - | - | $ | 11,868,854 | |||||||||||||||
Merchandise/Finished goods/Raw materials | 14,684,284 | 123.8 | % | - | - | 14,684,284 | ||||||||||||||||||
Labor | 64,946 | 0.5 | % | - | - | 64,946 | ||||||||||||||||||
Other and Overhead | 39,574 | 0.3 | % | - | - | 39,574 | ||||||||||||||||||
Total cost of revenue for epidemic prevention supplies | 14,788,804 | 124.6 | % | - | - | 14,788,804 | ||||||||||||||||||
Gross profit for epidemic prevention supplies | (2,919,950 | ) | (24.6 | )% | - | - | (2,919,950 | ) | ||||||||||||||||
Total cost of revenue | $ | 22,776,087 | 108.4 | % | $ | 7,221,683 | 88.3 | % | $ | 15,554,404 | 215.4 | % | ||||||||||||
Gross profit | $ | (1,762,023 | ) | (8.4 | )% | $ | 960,713 | 11.7 | % | $ | (2,722,736 | ) | (283.4 | )% |
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 97.7% and 91.2% of raw materials purchases for the nine months ended December 31, 2020 and 2019, respectively. One supplier provided more than 10% of our raw materials purchases for both nine months ended December 31, 2020 and 2019, respectively. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.
Raw material costs for our garment manufacturing business was approximately 71.5% of our total garment manufacturing business revenue in the nine months ended December 31, 2020, compared with approximately 72.5% in the nine months ended December 31, 2019. The increased in percentages was mainly due to the purchase cost of the raw materials dropped.
Labor costs for our garment manufacturing business was approximately 19.9% of our total garment manufacturing business revenue in the nine months ended December 31, 2020, compared with approximately 16.2% in the nine months ended December 31, 2019. The increase in percentages was mainly attributed to the rising wages in the PRC.
Overhead and other expenses for our garment manufacturing business accounted for approximately 0.6% of our total garment manufacturing business revenue for the nine months ended December 31, 2020, compared with approximately 1.5% of total garment manufacturing business revenue for the nine months ended December 31, 2019.
For our logistics services 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 were approximately 43.0% and 57.0% of total cost of revenues for our service segment for the nine months ended December 31, 2020 and 2019, respectively. The percentages decreased as we used less subcontractors during the COVID-19 epidemic circumstance. 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, 2020 was $1,367,753 as compared with $1,385,870 for the nine months ended December 31, 2019. Fuel, toll and other costs for our service business accounted for approximately 37.3% of our total service revenue for the nine months ended December 31, 2020, compared with approximately 29.7% for the nine months ended December 31, 2019. The increase in percentages was primarily attributed to the decrease usage of subcontractors under the epidemic circumstance.
Subcontracting fees for our service business for the nine months ended December 31, 2020 decreased by approximately 40.7% to $1,576,228 from $2,660,132 for the nine months ended December 31, 2019. Subcontracting fees accounted for approximately 43.0% and 57.0% of our total service business revenue in the nine months ended December 31, 2020 and 2019, respectively. This decrease in percentages was primarily because the Company used less subcontractors under the epidemic circumstance.
For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business.
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For epidemic prevention supplies business, we have purchased beforetrading and own production. The cost of revenue included cost of merchandise and cost of our own products. The cost of merchandise was $14,684,284, represented approximately 99.3% of our total cost of revenue of the epidemic prevention supplies business.
Total cost of revenue for the nine months ended December 31, 2020 was $22,776,087, compared with $7,221,683 for the nine months ended December 31, 2019. Total cost of sales as a percentage of total sales for the nine months ended December 31, 2020 was approximately 108.4%, compared with approximately 88.3% for the nine months ended December 31, 2019. Gross (loss) margin for the nine months ended December 31, 2020 was (8.4)%, compared with 11.7% for the nine months ended December 31, 2019.
Gross profit
Gross profit of garment manufacturing business for the nine months ended December 31, 2020 was $415,499, compared with $341,327 for the nine months ended December 31, 2019. Gross profit accounted for approximately 8.0% of our total garment manufacturing business revenue for the nine months ended December 31, 2020, compared with approximately 9.7% for the nine months ended December 31, 2019. The decrease of gross margin was due to increase of raw materials costs and labor costs.
Gross profit in our logistics services business for the nine months ended December 31, 2020 was $720,428 and gross profit margin was approximately 19.7%. Gross profit in our logistics services business for the nine months ended December 31, 2019 was $619,386 and gross profit margin was approximately 13.3%.
Gross profit in our property management and subleasing business for the nine months ended December 31, 2020 was $22,000, or 7.5% of our total property management and subleasing business revenue. This is a new business developed in current period.
Gross loss in our epidemic prevention supplies business for the nine months ended December 31, 2020 was $2,919,950 and gross margin was approximately (24.6)%. The significant loss was mainly because the cost of materials increased significantly and rapidly while the selling price was fixed in the sales agreement with the customers.
Nine months ended December 31, | Increase (decrease) in 2020 compared to | |||||||||||||||||||||||
2020 | 2019 | 2019 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Gross profit | $ | (1,762,023 | ) | 100 | % | $ | 960,713 | 100 | % | (2,722,736 | ) | (283.4 | )% | |||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling expenses | (376,975 | ) | 21.4 | % | (11,825 | ) | (1.2 | )% | 365,150 | 3,087.8 | % | |||||||||||||
General and administrative expenses | (1,454,017 | ) | 82.5 | % | (1,857,288 | ) | (193.3 | )% | (403,271 | ) | (21.7 | )% | ||||||||||||
Total | $ | (1,830,992 | ) | 103.9 | % | $ | (1,869,113 | ) | (194.6 | )% | (38,121 | ) | (2.0 | )% | ||||||||||
Income (Loss) from operations | $ | (3,593,015 | ) | 203.9 | % | $ | (908,400 | ) | (94.6 | )% | 2,684,615 | 295.5 | % |
Selling, General and administrative expenses
Our selling expenses in our garment manufacturing business segment for the nine months ended December 31, 2020 and 2019 was $2,606 and $11,826, respectively. Our selling expenses in our logistics services business segment was nil and nil for the nine months ended December 31, 2020 and 2019, respectively. Selling expenses in our property management and subleasing business was $15,490 and nil for the nine months ended December 31, 2020 and 2019, respectively. Selling expenses in our epidemic prevention supplies business segment was $358,879 for the nine months ended December 31, 2020. Selling expenses primarily consist of local transportation charges, unloading charges and product inspection charges. Total selling expenses for the nine months ended December 31, 2020 increased significantly 30.9 times to $376,975 from $11,825 for the nine months ended December 31, 2019, mainly due to the selling and marketing expenses in the newly developed epidemic prevention supplies segment and property management and subleasing segment.
Our general and administrative expenses in our garment manufacturing business segment for the nine months ended December 31, 2020 and 2019 was $172,138 and $141,698, respectively. Our general and administrative expenses in our logistics services business segment, for the nine months ended December 31, 2020 and 2019 was $627,922 and $788,021, respectively. The general and administrative expenses in our property management and subleasing business was $544 for the nine months ended December 31, 2020. Our general and administrative expenses in our epidemic prevention supplies business segment was $18,767 for the nine months ended December 31, 2020. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2020 and 2019 was $634,645 and $927,569, respectively. General and administrative expenses primarily consist of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.
Total general and administrative expenses for the nine months ended December 31, 2020 decreased by approximately 21.7% to $1,454,017 from $1,857,288 for the nine months ended December 31, 2019. The amount was $403,271 lower than in the nine months ended December 31, 2019. It was mainly due to the professional fees for the uplisting Form S-1 filing in nine months ended December 31, 2019 and lower administrative expenses in XKJ resulting from shifting more business to outside subcontractors in the nine months ended December 31, 2020.
Income (loss) from operations
Loss from operations for the nine months ended December 31, 2020 and 2019 was $3,593,015 and $908,400, respectively. Income from operations of $240,423 and $187,803 was attributed from our garment manufacturing business segment for the nine months ended December 31, 2020 and 2019, respectively. Income (loss) from operations of $92,506 and $(168,634) was attributed from our logistics services business segment for the nine months ended December 31, 2020 and 2019, respectively. Income from operations of $5,966 was attributed from our newly developed property management and subleasing business for the nine months ended December 31, 2020. Loss from operations of $3,297,265 was attributed from our epidemic prevention supplies business segment for the nine months ended December 31, 2020. We incurred general and administrative expenses in corporate office of $634,645 and $927,569 for the nine months ended December 31, 2020 and 2019, respectively. The decrease was mainly due to the higher in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements for the uplisting Form S-1 filling in the nine months ended December 31, 2020 .
Income Tax Expenses
Income tax expense for the nine months ended December 31, 2020 and 2019 was $23,196 and $12,086, respectively, approximately a 91.9% increase compared to 2019. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
The tax jurisdiction and income tax rate of each entity was described in the above section of analysis of three months’ results. Addentax, Yingxi, Yingxi HK, QYTG, YX, HSW, HPF and YS had no taxable income for the nine months ended December 31, 2020 and 2019.
Net Income (Loss)
We incurred a net loss of $3,560,206 and $947,485 for the nine months ended December 31, 2020 and 2019, respectively. Our basic and diluted loss per share were $0.14 and $0.04 for the nine months ended December 31, 2020 and 2019, respectively.
Summary of cash flows
Summary cash flows information for the nine months ended December 31, 2020 and 2019 is as follow:
Nine months ended December 31, | ||||||||
2020 | 2019 | |||||||
(Unaudited) | (Unaudited) | |||||||
(In U.S. dollars) | ||||||||
Net cash used in operating activities | $ | (3,782,116 | ) | $ | (1,058,936 | ) | ||
Net cash used in investing activities | $ | (1,094,344 | ) | $ | (94,864 | ) | ||
Net cash provided by financing activities | $ | 4,718,213 | $ | 1,306,400 |
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Net cash used in operating activities consist of net loss of $3,560,206, increased by depreciation and amortization of $83,210, loss on disposal of property and equipment of $1,472, and decrease in change of operating assets and liabilities of $306,592. 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 typically manufacture upon customers’ order.
Net cash used in investing activities consist of purchase of plant and equipment of $392,108 and proceeds from disposal of plant and equipment of $2,243, and cash decreased of $704,479 in disposal of two subsidiaries.
Net cash provided by financing activities consist of repayment of related party borrowings of $6,605,044 and we received related party proceeds of $7,697,827; Repayment of bank loan of $196,456 and draw down of new bank loan of $86,886; and Proceeds of $3,735,000 from subscription of ordinary shares offered to a shareholder.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2020, we had cash on hand of $356,728, total current assets of $4, 779,450 and current liabilities of $12,661,861. We presently finance our operations primarily from cash flows from borrowings from related parties and third parties. We also raised equity fund of $3,735,000 from the issuance of common stocks in August 2020. 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 already been installedprovided 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 tested atexpected future operations as well as to achieve our locationstrategic objectives, the CEO has indicated the intent and ready for production. Onceability 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 get more machines, we plan to install and test them at our location. We will need to hire professionalsraise additional capital in order to work part time, suchcontinue as electricians, mechanics and loaders. It will cost about $700 per one set of equipment.
We are subject to all the substantial risks inherent in the development costs, including site designof a new business enterprise within an extremely competitive industry. Due to the absence of a long standing operating history and implementationthe 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 approximately $1,500. If we sell 100%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 shares offeredemerging nature of the market in which we willcompete, we may incur operating losses until such time as we can develop more sophisticateda substantial and well-designed web site, therefore developing coststable 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 $3,000. Updatingsuccessful 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 improving our website will continue throughout the lifetimedegree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our operations.
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, 2020 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.
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Results of Operations for the years ended March 31, 2020 and 2019
The following tables summarize our results of operations for the years ended March 31, 2020 and 2019. The table and the discussion below should be read in conjunction with our consolidated financial information about us upon which to base an evaluationstatements and the notes thereto appearing elsewhere in this report.
Increase (decrease) in | ||||||||||||||||||||||||
2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
(Audited) | (Audited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Revenue | $ | 10,172,379 | 100.0 | % | $ | 10,026,920 | 100 | % | $ | 145,459 | 1.5 | % | ||||||||||||
Cost of revenues | (8,787,018 | ) | (86.4 | )% | (8,744,226 | ) | (87.2 | )% | (42,792 | ) | (0.5 | )% | ||||||||||||
Gross profit | 1,385,361 | 13.6 | % | 1,282,694 | 12.8 | % | 102,667 | 8.0 | % | |||||||||||||||
Operating expenses | (2,249,679 | ) | (22.1 | )% | (1,965,821 | ) | (19.6 | )% | 283,858 | 14.4 | % | |||||||||||||
Loss from operations | (864,318 | ) | (8.5 | )% | (683,127 | ) | (6.8 | )% | (181,191 | ) | 26.5 | % | ||||||||||||
Other income, net | (79,560 | ) | (0.8 | )% | 8,776 | (0.1 | % | (88,336 | ) | (1,006.6 | )% | |||||||||||||
Net finance cost | (20,669 | ) | (0.2 | )% | (11,423 | ) | (0.1 | ) | (9,246 | ) | (80.9 | )% | ||||||||||||
Income tax expense | (16,070 | ) | (0.2 | )% | (8,555 | ) | (6.9 | )% | (7,515 | ) | (87.9 | )% | ||||||||||||
Net loss | $ | (980,617 | ) | (9.6 | )% | $ | (694,329 | ) | (87.2 | )% | $ | (286,288 | ) | (41.2 | )% |
Revenue
Revenue generated from our garment manufacturing business segment contributed $4,298,518, or approximately 42.3%, of our performance.total revenue for the year ended March 31, 2020. Revenue generated from our garment manufacturing business contributed $3,359,638 or approximately 33.5% of our total revenue for the year ended March 31, 2019. The increase of $938,880, or approximately 27.9%, was mainly attribute to the decrease of revenue in HSW by $2,103,618 while revenue in DT increased by $2,811,698.
Revenue generated from our logistics services business segment contributed $5,873,861, or approximately 57.7%, of our total revenue for the year ended March 31, 2020. Revenue generated from our logistics services business contributed $6,667,283, or approximately 66.5%, of our total revenue for the year ended March 31, 2019. The decrease of $793,422, or approximately 11.9%, mainly attribute to COVID-19, as we cannot smoothly go through with logistics services deliveries.
Total revenue for the year ended March 31, 2020 and 2019 were $10,172,379 and $10,026,920, respectively, representing approximately a 1.5% increase compared with the year ended March 31, 2019. The increase was mainly attribute to the increase of orders due to the increase in garment manufacturing business as our garment manufacturing business developed a new client but was offset by (i) our holding companies, YX and QYTG, as they did not have consulting service income in the year ended March 31, 2020; and (ii) one of our subsidiaries, HSW, was losing orders as some of its clients had market performance issue due to COVID-19 and they withdrew the orders placed with us, which resulted in the decrease of our revenue.
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Cost of revenue
Increase (decrease) in | ||||||||||||||||||||||||
2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
(Audited) | (Audited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Net revenue for garment manufacturing | $ | 4,298,518 | 100.0 | % | $ | 3,359,638 | 100 | % | $ | 938,880 | 27.9 | % | ||||||||||||
Raw materials | 3,127,959 | 72.8 | % | 2,521,935 | 75.1 | % | ||||||||||||||||||
Labor | 704,104 | 16.4 | % | 362,139 | 10.7 | % | ||||||||||||||||||
Other and Overhead | 70,381 | 1.6 | % | 171,161 | 5.1 | % | ||||||||||||||||||
Total cost of revenue for garment manufacturing | 3,902,444 | 90.8 | % | 3,055,235 | 90.9 | % | 847,209 | 27.7 | % | |||||||||||||||
Gross profit for garment manufacturing | 396,074 | 9.2 | % | 304,403 | 9.1 | % | 91,671 | 30.1 | % | |||||||||||||||
Net revenue for logistics services | 5,873,861 | 100.0 | % | 6,667,282 | 100 | % | (793,421 | ) | (11.9 | )% | ||||||||||||||
Fuel, toll and other cost of logistics services | 1,932,149 | 32.9 | % | 2,445,439 | 36.7 | % | (513,290 | ) | (21.0 | )% | ||||||||||||||
Subcontracting fees | 2,952,425 | 50.3 | % | 3,243,552 | 48.6 | % | (291,127 | ) | (9.0 | )% | ||||||||||||||
Total cost of revenue for logistics services | 4,884,574 | 83.2 | % | 5,688,991 | 85.3 | % | (804,417 | ) | (14.1 | )% | ||||||||||||||
Gross Profit for logistics services | 989,287 | 16.8 | % | 978,291 | 14.7 | % | 10,996 | 1.1 | % | |||||||||||||||
Total cost of revenue | $ | 8,787,018 | 86.4 | % | $ | 8,744,226 | 87.2 | % | $ | 42,792 | 0.5 | % | ||||||||||||
Gross profit | $ | 1,385,361 | 13.6 | % | $ | 1,282,694 | 12.8 | % | $ | 102,667 | 8.0 | % |
Cost of revenue for our garment manufacturing business segment for the years ended March 31, 2020 and 2019 was $3,902,444 and $3,055,235, respectively, which included direct raw material costs, direct labor costs, manufacturing overheads including depreciation of production equipment and rent. Cost of revenue for our logistics services business segment for the years ended March 31, 2020 and 2019 was $4,884,574 and $5,688,991, respectively, which includes gasoline and diesel fuel, toll charges, other cost of logistics services and subcontracting fees.
For our garment manufacturing business segment, we purchased 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 92.7% and 39.2% of raw materials purchases for the years ended March 31, 2020 and 2019, respectively. One supplier and two suppliers provided more than 10% of our raw materials purchases for the years ended March 31, 2020 and 2019, respectively. We arehave not experienced difficulty in start-up stage operationsobtaining raw materials essentials to our business as we believe we maintain good relationships with our suppliers.
For our logistics services business segment, we outsource some of the business to our subcontractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest subcontractor represented approximately 25.6% and 13.3% of total cost of revenues for our logistics services segment for the years ended March 31, 2020 and 2019, respectively. The increase in percentages was attributed to the increase usage of subcontracting services as compared to last year. We have generated limited revenuesnot experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistics services provider.
Raw material costs for our garment manufacturing business was approximately 72.8 % of $1,080. We cannot guarantee we will be successfulour total garment manufacturing business revenue in the year ended March 31, 2020, compared with approximately 75.1% in the year ended March 31, 2019. The decrease in percentages was mainly due to the purchase cost of the raw materials remained consistent, while the labor costs continued to rise.
Labor costs for our garment manufacturing business was approximately 16.4% of our total garment manufacturing business revenue in the year ended March 31, 2020, compared with approximately 10.8% in the year ended March 31, 2019. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our manufacturing business accounted for approximately 1.6% of our total garment manufacturing business revenue for the year ended March 31, 2020, compared with approximately 5.1% of total garment manufacturing business revenue for the year ended March 31, 2019. The decrease in percentages was mainly attributed to the increased usage of sub-contractors in the manufacturing of garment products.
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Fuel, toll and other costs for our service business for the year ended March 31, 2020 was $1,932,149 compared with $2,445,439 for the year ended March 31, 2019. Fuel, toll and other costs for our service business accounted for approximately 32.9% of our total service revenue for the year ended March 31, 2020, compared with approximately 36.7% for the year ended March 31, 2019. The decrease in percentages was primarily attributable to the increase usage of subcontractors.
Subcontracting fees for our service business for the year ended March 31, 2020 decreased by approximately 9.0% to $2,952,425 from $3,243,552 for the year ended March 31, 2019. Subcontracting fees accounted for approximately 50.3% and 48.6% of our total service business revenue in the years ended March 31, 2020 and 2019, respectively. This increase in percentages was primarily attributed to the Company subcontracted more shipping orders to subcontractors in 2019 due to the increase in shipping orders to various destinations that were not covered by the Company’s own delivery and transportation networks. Moreover, the delivery cost of third-parties increased due to the market condition.
Total cost of revenue for the year ended March 31, 2020 was $8,787,018, which remained consistent with the year ended March 31, 2019. Total cost of sales as a percentage of total sales for the year ended March 31, 2020 was approximately 86.4%, compared with approximately 87.2% for the year ended March 31, 2019. Gross margin for the year ended March 31, 2020 was approximately 13.6% compared with approximately 12.8% for the year ended March 31, 2019.
Gross profit
Increase (decrease) in | ||||||||||||||||||||||||
2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
(Audited) | (Audited) | |||||||||||||||||||||||
(In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Gross profit | $ | 1,385,361 | 100 | % | $ | 1,282,694 | 100 | % | 102,667 | 8.0 | % | |||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling expenses | (13,406 | ) | (1.0 | )% | (17,905 | ) | (1.4 | )% | (4,499 | ) | (25.1 | )% | ||||||||||||
General and administrative expenses | (2,236,273 | ) | (161.4 | )% | (1,947,916 | ) | (151.9 | )% | 288,357 | 14.8 | % | |||||||||||||
Total | $ | (2,249,679 | ) | (162.4 | )% | $ | (1,965,821 | ) | (153.3 | )% | 283,858 | 14.4 | % | |||||||||||
Loss from operations | $ | (864,318 | ) | (62.4 | )% | $ | (683,127 | ) | (53.3 | )% | 181,191 | 26.5 | % |
Garment manufacturing business gross profit for the year ended March 31, 2020 was $396,074 compared with $304,403 for the year ended March 31, 2019. Gross profit accounted for approximately 9.2% of our total garment manufacturing business revenue for the year ended March 31, 2020, compared with approximately 9.1% for the year ended March 31, 2019.
Gross profit in our logistics services business operations. segment for the year ended March 31, 2020 was $989,287 and gross margin was 16.8%. Gross profit in our logistics services business segment for the year ended March 31, 2019 was $978,291 and gross margin was approximately 14.7%.
The increase in gross margin was due to our focus on high margin customers, implementation of cost cutting measures and the effective controls on our costs during the fiscal year.
Selling, General and administrative expenses
Our selling expenses in our garment manufacturing business segment for the years ended March 31, 2020 and 2019 was $13,406 and $17,905, respectively. Our selling expenses in our logistics services business segment for the year ended March 31, 2020 and 2019 was nil and nil, respectively. Selling expenses consist primarily of local transportation charges, unloading charges and product inspection charges. Total selling expenses for the year ended March 31, 2020 decreased by approximately 25.1% to $13,406 from $17,905 for the year ended March 31, 2019.
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Our general and administrative expenses in our garment manufacturing business segment for the years ended March 31, 2020 and 2019 was $167,344 and $278,407, respectively. Our general and administrative expenses in our logistics services business segment, for the year ended March 31, 2020 and 2019 was $909,159 and $959,471, respectively. Our general and administrative expenses in our corporate office for the year ended March 31, 2020 and 2019 was $1,159,770 and $710,038, respectively. General and administrative expenses consist primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.
Total general and administrative expenses for the year ended March 31, 2020 increased approximately 14.8% to $2,236,273 from $1,947,916 for the year ended March 31, 2019. The increase was mainly due to the increase in legal and professional fees to comply with the SEC accounting, disclosures and reporting requirements, new office rental expense, overseas traveling expense and expense of general meetings.
Loss from operations
Loss from operations for the years ended March 31, 2020 and 2019 was $864,318 and $683,127, respectively. For the year ended March 31, 2020, the Company impaired goodwill was $475,003. The Company reperformed the test on goodwill for impairment as of March 31, 2020 and it was determined that recoverable amount of one of the Company’s reporting units was lower than the carrying amount of the goodwill recorded as of March 31, 2018. Therefore, it was concluded that total carrying amount of goodwill should had been fully impaired as of March 31, 2018. The Company has restated the impairment of goodwill as if it was impaired for the year ended March 31, 2018. Income from operations of $215,324 and $8,092 was attributed from our manufacturing segment for the years ended March 31, 2020 and 2019, respectively. Income/(Loss) from operations of $80,128 and ($10) was attributed from our logistics services business segment for the years ended March 31, 2020 and 2019, respectively. We incurred a loss from operations in corporate office of $980,617 and $691,209 for the years ended March 31, 2020 and 2019, respectively. The loss from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosures and reporting requirements.
Income Tax Expenses
Income tax expense for the years ended March 31, 2020 and 2019 was $16,070 and $8,555, respectively, representing approximately an 87.9% increase compared to 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 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 years ended March 31, 2020 and 2019.
QYTG and YX were incorporated in the PRC and are subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the years ended March 31, 2020 and 2019.
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF, DT and YS were subject to an EIT rate of 25% in 2020. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2020.
The Company’s parent entity, Addentax Group Corp. is an U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the years ended March 31, 2020 and 2019.
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Net Loss
We incurred a net loss of $980,617 and $694,329 for the years ended March 31, 2020 and 2019, respectively. Our basic and diluted earnings per share were $0.04 and $0.03 for the year ended March 31, 2020 and 2019, respectively.
Financial Condition, Liquidity and Capital Resources
As of March 31, 2020, we had cash on hand of $531,681, total current assets of $6,001,242 and current liabilities of $10,096,528. The financial condition raised the substantial doubt about the Company’s ability to continue as a going concern. We presently finance our operations primarily from cash flows from borrowings 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 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 establishmentdevelopment of a new business enterprise including limited capital resourceswithin an extremely competitive industry. Due to the absence of a long standing operating history and possible cost overruns due to pricethe 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 cost increases in servicesevolving, and products.
Foreign Currency Translation Risk
Our operations are located in the sale of goods with Derb il Horra dated February 3, 2015, earned revenue of $1,080China, which may give rise to significant foreign currency risks from Derb il Horra for the provision of printed productsfluctuations and the signed a Lease Agreement with Samir Mustafajev for office space for a perioddegree of half a year signed December 15, 2015volatility in foreign exchange rates between the U.S. dollar and effective March 1, 2015.
Off-Balance Sheet Arrangements
We have sold 3,000,000 sharesno off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of common stocks to our sole officer and director, at a price of $0.001 per share, for aggregate proceeds of $3,000.
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Our company Overview
Addentax Group Corp. was incorporated in the State of Nevada on October 28, 2014 and established a fiscal yearend2014. We were principally engaged in the business of March 31. We have generated limited revenues of $1,080, have minimal assets and have generated nominal net income of $161 since inception. We are a development-stage company created for producing images on multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others, using 3D sublimation vacuum heat transfer machine. We have recently started our operation. As of today, we have developed our business plan, purchased and set up our first machine, signed a contract for the sale of goods with Derb il Horra dated February 3, 2015, the Company generated revenue of $1,080 from Derb il Horra for the sale of printed products and entered into a Lease Agreement with Samir Mustafajev for office space for a period of half a year dated December 15, 2015, came into force from March 1, 2015 To the date we have set up our first heat transfer machine, tested its operation and produced a range of demonstration samples for attraction of potential business partners. In the beginning we may not be able to provide enough revenue to cover the company’s operating expenses during first twelve months. We plan to purchase one more heat transfer machine if we sell 1/3 of the shares, and purchase two or three more, if we sell 2/3 and all of the shares respectively. Our director will fund our initial administrative expenses using his own funds.
On December 28, 2016, we entered into a Sale and Purchase Agreement (“SPA”) with Yingxi Industrial Chain Group Co., Ltd. (“YICG”), which was incorporated under the laws of the Republic of Seychelles and principally engaged in garment manufacture, where we agreed to apply imagesacquire 100% of the equity interest in YICG and to issue five hundred million (500,000,000) restricted common shares of the Company to YICG. The completion of the SPA took place on many surfaces.September 25, 2017.
Following the completion of the SPA, we are now a garment manufacturer and logistics services provider based in the PRC. We are listed on the OTCQB under the symbol of “ATXG”. We no longer pursue our Original Business.
Our garment manufacturing business consists of sales made principally to wholesaler located in China. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and timely delivery requirement for our customers. We conduct our garment manufacturing operations through five indirect wholly owned subsidiaries of the Company, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), Dongguan Yingxi Daying Commercial Co., Ltd (“DY”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd (“YBY”) which are located in the Guangdong province, China. We manufacture garments for various high-end fashion brands through HSW, HSW and DTDT, which are located in Guangdong, the PRC.
Our logistics services business consists of delivery and courier 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 logistic operations through two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), which are located in the Guangdong province, China.
During the fiscal year 2021, we developed an epidemic prevention supplies business segment, which consists of manufacturing and distribution of epidemic prevention products and reselling of epidemic prevention supplies purchased from third parties in both domestic and overseas markets
Our epidemic prevention supplies business consists of manufacturing and distribution of epidemic prevention products and trading of epidemic prevention supplies in both domestic and overseas markets. We conduct our manufacturing of the epidemic prevention products in YS. We conduct the trading of epidemic prevention suppliers through Addentax Group Corp. (“ATXG”) and Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), an indirect wholly owned subsidiary of the Company.
Total revenue and net loss for the year ended March 31, 2019 were $10,026,920 and $694,329, respectively. Total revenue and net loss for the year ended March 31, 2020 were $10, 172,379 and $980,617, respectively.
Total revenue and net loss for the nine months ended December 31, 2020 were $21,014,064 and $3,560,206, respectively. Total revenue and net loss for the nine months ended December 31, 2019 were $8,182,396 and $947,485, respectively.
Business Objectives
Garment Manufacturing Business
We believe the strength of our garment manufacturing business segment is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The 3D sublimation vacuum heat transfer machine doesprimary business objective for our garment manufacturing business segment is to expand our customer base and improve our profit.
Logistics Services Business
The business objective and future plan for our logistics services business segment is to establish an efficient logistics system and to build a nationwide delivery and courier network in China. As of December 31, 2020, 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 for the fiscal year ending 2021.
Epidemic Prevention Supplies Business
The primary business objective of our epidemic prevention supplies business segment is to take the advantage of our resources in supply chain from our garment manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in order to increase our revenue and improve our net profit.
Competitive Strengths
We believe we have the following competitive strengths:
Cost-effective production. We have adopted a vertical integration production process. We produce garments in our own production facilities and employ our in-house transport teams to deliver garments to our customers. This one-stop service optimizes production efficiency and saves costs by lowering the cost per unit, thereby achieving economies of scale.
Stringent quality control process. As of December 31, 2020, we had 7 employees in the production department that are responsible for conducting our quality control process. We implement a stringent quality control process which monitors various stages of our garment manufacturing business, including sampling checks of semi-finished products and finished products. We prepare inspection reports to address the quality problems and make recommendations to improve the quality of our products. During final product inspection, we pay special attention to the measurements, workmanship, ironing and packaging of our products to help best ensure that the quality of our products comply with the specifications, standards and requirements of our customers.
Strong design capabilities. Our design team works closely with our customers to understand their needs and make recommendations to them. Our design team also conducts market research and attends industry exhibitions to understand the latest market trends. As of December 31, 2020, our design team consisted of five members.
Extensive delivery network. Our logistics services business has nine routes and covers 79 cities in approximately seven provinces and two municipalities in the PRC.
Business Strategies
Key elements of our business and growth strategies include the following:
Sales of raw materials. We intend to enter into exclusive agreements with textile and garment suppliers in Southeast China to be their exclusive agent and supply their textiles and garments to our customers. To execute this plan, we intend to set up several retailers for the sales of textiles and garments to retail customers and supply the textiles and garments exclusively to various high-end fashion brands.
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Development of our own brands. We intend to develop our own brands that focus on fast fashion with teenagers being our primary target customers are teenagers. We plan to adopt a low cost strategy at the early stage and improve the quality of our products after increasing our market share. We are in the process of registering a trademark for our own brand and intend to start our advertising campaign after the registration of this trademark. We plan to distribute our products in different channels, including our own retailers, co-operative retailers and franchisees.
Develop our logistics services management application. We intend to develop our own mobile application and integrate with to replace our old internal system. We expect this mobile application to improve our routes optimization, courier goods tracking, security of courier goods, booking time required by our customers, and customer care.
Expand our delivery network. As of December 31, 2020, 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 for the fiscal year ending 2021.
Develop international logistics services and warehousing services. We intend to develop international logistics services for customers located all over the world and international warehousing services.
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 business 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 the delivery of finished goods.
Logistics Services business
For our logistics services business, we generally receive payments from the customers between 30 to 90 days following the date of the register receipt of packages.
Epidemic Prevention Supplies Business
For our epidemic prevention supplies business, we generally receive payment from customers within 30 days following the delivery of finished goods. We would also provide our long-term customers with a 12 months long credit term policy to maintain a good business relationship.
Economic Uncertainty
Our business is dependent on consumer demands for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not requirehad an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.
Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategies for long-term sustainable growth in revenue, net income and operating cash flow.
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Customers and Suppliers
Customers
Our customer base is diverse. Our customers in garment manufacturing business are mainly garment wholesalers and retailers and our customers in logistics services business are mainly trading companies and logistic companies.
The followings are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment as of December 31, 2020 and March 31, 2020.
Garment manufacturing segment
December 31, 2020 | March 31, 2020 | |||||||
Customer A | 97.2 | % | 85.5 | % | ||||
Customer B | 2.7 | % | Nil | % |
The high technical skillsconcentration as of March 31, 2020 was mainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
Logistics services segment
December 31, 2020 | March 31, 2020 | |||||||
Customer A | 24.9 | % | 22.4 | % | ||||
Customer B | 13.0 | % | 0.0 | % | ||||
Customer C | 11.4 | % | 18.3 | % | ||||
Customer D | 10.0 | % | 0.6 | % | ||||
Customer E | 7.6 | % | 2.4 | % |
Epidemic prevention supplies segment
No accounts receivables in this segment. Our management believes that should the Company lose any one of its major customers, it will able to sell similar products to other customers.
Suppliers
The following tables summarized the purchases from five largest suppliers of each of the reportable segment for product production. The setthe three and nine months ended December 31, 2020 and 2019.
Three months ended | Nine months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Garment manufacturing segment | 100.0 | % | 98.7 | % | 97.7 | % | 91.2 | % | ||||||||
Logistics services segment | 79.1 | % | 90.4 | % | 99.7 | % | 69.0 | % | ||||||||
Property management and subleasing | 100.0 | % | - | % | 100.0 | % | - | % | ||||||||
Epidemic prevention supplies | 100.0 | % | - | % | 100.0 | % | - | % |
Management believes that should the Company lose any one of printing machine includesits major suppliers, other suppliers are available that could provide similar products to the machine itself and allCompany.
Inventory
Garment manufacturing business. We maintain our raw materials necessary for setting upin our storage facilities. We review our inventory levels in order to identify slow-moving materials and testing,broken assortments.
Logistics services business. Since we deliver products as soon as we receive orders from customers, we do not operate distribution centers and raw materials forhence do not need to carry a significant amount of inventory.
Epidemic prevention supplies business. Since we procured and manufactured epidemic prevention supplies on order basis, we maintain low level of inventories and do not have slow-moving items.
Intellectual Property
We currently do not own any intellectual property rights. We are in the process of registering trademarks and copyright in relation to our garment manufacturing business pending approval from the PRC government.
Competition
While the PRC is still the world’s largest clothing manufacturer with enormous production process.
3D sublimation vacuum heat transfer machine MA3 | ||||
Item: | ||||
Import: | Morocco | |||
Export: | China | |||
Machine cost: | $ | 1,000 | ||
Laptop: | $ | 450 | ||
Printer: | $ | 350 | ||
Country of origin: | China | |||
Cost of delivery and insurance: | $ | 600 | ||
Total cost: | $ | 2,400 | ||
Raw materials | $ | 200 | ||
DTA | --- | |||
VAT | $ | 600 | ||
Total: unit, import, customs and taxes | $ | 3,200 |
The principal competitive factors in maintaining and doesn’t require any special service. At the time this project is being offered we have already purchased one 3D sublimation vacuum heat transfer machine, produced by Chinese company PANDA ONE HOLDINGS LIMITED.
brand awareness and focus; | |||
● | breadth of product offerings; and | ||
● | quality control. |
The principal competitive factors in the logistics market include:
● | delivery time; and | |
● | network coverage. |
The principal competitive factors in the epidemic prevention supplies market include:
● | delivery time; | |
● | cost control; and | |
● | quality control. |
We believe we compete favorably with our competitors on the basis of the above factors as a result of our market position and customer base. By offering one-stop-shop services and affordable price points, we provide services to our customers that are difficult for other competitors to address.
Employees
As of December 31, 2020, we had 133 employees and there was no labor union established by our employees. The following table sets out a breakdown of the number of employees by function as of December 31, 2020:
Function | Number of employees | |||
Administration | ||||
20 | ||||
11 | ||||
29 | ||||
8 | ||||
Production | 7 | |||
Operation | 40 | |||
Total | 133 |
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According to PRC regulations, we must participate in various employee social security plans organized by local governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance and delivery
We believe that we maintain a good working relationship with our employees, and to date we have not experienced any significant labor disputes.
Government Regulations
Currently, apart from customary business laws and regulations, the PRC government does not require any storage facilities. It willregulate the garment manufacturing business and logistics services business. The PRC government may, however, from time to time institute rules and regulations on such businesses which makes it difficult or impossible for us to operate successfully, if at all, in the PRC. Please see the section on “Risk Factors” for further details.
The PRC government encourages small to medium-sized companies in traditional industries, such as garment manufacturing, to modernize their business models with technological updates in order to sharpen their competitive edge in global markets.
Properties
Our principal place of business is Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen City, China 518000, the PRC. We also lease three properties in the PRC from third parties which properties serve as our manufacturing factory and an additional office. The following table sets forth a summary of certain information regarding our leased properties.
Property Type | Address | Monthly Rental (RMB) | Size (Square Meter) | |||||||
Principal Office | Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen, Guangdong, China | 245,827 | 910 | |||||||
Plant and dormitory | No. 22 Maan Road, Shuiwei, Tangjiao Village, Chashan Town, Dongguan, Guangdong, PRC | 18,018 | 1,260 | |||||||
Office | No. 42-46, Floor 1, Block D, District B, Jinpeng Distribution Center, No. 536, Sha Ping North Rd, Danping Committee, Nanwan St, Longgang, Shenzhen, Guangdong, PRC | 44,880 | 720 | |||||||
Office | No. 3 Ping’an Avenue, Pinghu Street, Longgang District, Shenzhen, Guangdong, PRC | 28,725 | 605 |
We also have over 400 logistics points and they are located in seven provinces and two municipalities in the PRC.
Legal Proceedings
From time to time, we may become involved in legal proceedings or be produced directly for each order. The numbersubject to claims arising in the ordinary course of demonstration samples kept is insignificant and doesn’t require any special premises for storage.our business. We are goingnot presently a party to sign a contract with delivering company on regular basis for deliveringany legal proceedings that in the opinion of our productsmanagement, if determined adversely to the customers. We expect that term of delivery shall be not more than 15 days, which shall include product production and procedure of products acceptance by client. To date our first customer Derb il Horra agreed to accept delivery of the products in our office, the Company does not have to organize delivery of products. Our machines will be located at our leased premise in Rue du Somalie, Fes 30060, Morocco.
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The name, address, age and titles of our executive officerofficers and director isare as follows:
Name | Age | Date of First Appointment | ||||
Hong Zhida | 30 | Chairman of the Board, Chief Executive Officer, President and Secretary | March 10, 2017 | |||
March 8, 2019 | ||||||
Yu Jiaxin (1)(2)(3) | 38 | Independent Director | March 13, 2019 | |||
Hong Zhiwang | 26 | Director | March 13, 2019 | |||
Alex P. Hamilton (1)(2)(3)* | 47 | Independent Director Nominee* | May 10, 2021 | |||
Jiangping (Gary) Xiao (1)(2)(3)* | 40 | Independent Director Nominee* | May 12, 2021 |
(1) | Member of the Audit Committee | |
(2) | Member of the Compensation Committee | |
(3) | Member of the Nominating and Corporate Governance Committee | |
* | On May 10, 2021, the Board appointed Mr. Alex P. Hamilton as our independent director, effective upon the date of the Company’s completion of its public offering and the listing of its common stock on a national securities exchange, whichever is the later (the “Appointment Effective Date’). Mr. Hamilton will serve on each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. On May 12, 2021, the Board appointed Mr. Jiangping (Gary) Xiao as our independent director, effective upon the date of the Company’s completion of its public offering and the listing of its common stock on a national securities exchange, whichever is the later (the “Appointment Effective Date’). Mr. Xiao will serve on each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. |
Otmane TajmouatiHong Zhida, Chairman, CEO, President and Secretary has acted
Mr. Hong Zhida received his Bachelor’s Degree in Electronic Information Science and Technology from Sun Yat-sen University in July 2013. From June 2014 to Present, he served as our President, Treasurer, Secretary and solethe Director since our incorporation on October 28, 2014. Mr. Tajmouati owns 100%of China Huiying Joint Supply Chain Group Co. Ltd. He was responsible for assisting the company’s chairman to plan development strategy. From September 2013 to May 2014, he served as Head of Membership Department of the outstanding sharesGuangzhou Haifeng Chamber of our common stock. He graduatedCommerce. In that position he was responsible for the membership management of the institution.
Huang Chao, Chief Financial Officer and Treasurer
Mr. Huang Chao earned two bachelor’s degrees, one in marketing from Shaoguan University, China in 2014 and the other in international logistics and trade finance from University of New England, Tangier, Morocco, onNorthampton, United Kingdom in 2015. He earned his master’s degree in finance and investment management from University of Liverpool, United Kingdom in 2016 to broaden and deepen his knowledge in the Faculty of Business administration for the period of 2007-2013. Mr. Tajmouati worked for GLOBAL PROJECT SARL from 2013 till 2014accounting and finance field. After his graduation in 2016, he was appointed as a managersecretary to Chairman in customers department, and fulfilled duties concerning customer communication and assistance. The enterprise is working on import and distribution different piece of furniture and accessories for the house and offices. Mr. Tajmouati is devoting 75% of his time a week for planning and organizing activities of Addentax Group Corp.
Yu Jiaxin, Independent Director
Ms. Yu Jiaxin earned her bachelor’s degree in business management from Nankai University, China in 2006. Ms. Yu currently is the senior human resources director of Kingkey Capital Management Co., Ltd., a Group which offers real estate development, commercial operation, financial investment, and other services in Shenzhen, China. She has worked for Kingkey Group since 2008, initially as a human resources officer and now as senior human resources director. She assisted in the set-up of Kingkey’s annual operating plan and budget in accordance with the company’s annual goals and strategies, building the company’s organizational structure and coordinating Human Resource and Administration, establishing the sound comprehensive personnel administrative management system which is adaptable to the company’s development, and implementing and supervising the system. Bringing over ten years of human resources administration experience, she brings to the Board insights on compensation and benefits.
Hong Zhiwang, Director
Mr. Hong Zhiwang earned his bachelor’s degree in Automation Engineering from Beijing Institute of Technology University Zhuhai Campus, China in 2014. Mr. Hong has been the brand marketing manager at Addentax Group Corp. since 2018 and is responsible for e-commerce marketing covering design website, brand marketing, market investigation and development, and expanding marketing channels to develop new clients, designing the company’s logo and registering copyrights. In 2014, he was the PDM Software Engineer for Hongfan Computer & Technology Co., Ltd. and was responsible for developing software, on-site inspection and guidance and software maintenance, in assistance of ERP to manage the system and create brand new demands design and in charge of R&D of PLM System, surface model design and function model development, structure development and communications technology development. He brings to the Board deep brand marketing experience.
Alex P. Hamilton, Independent Director Nominee
Mr. Hamilton obtained his B.A. in Economics from Brandeis University in 1994. Mr. Alex P. Hamilton, age 47, has been the Chief Financial Officer of CBD Biotech Inc. since November 2018, and has also served as Director of CBD Biotech Inc. since April 2019. In April 2016, Mr. Hamilton founded Hamilton Laundry, and has served as its chief executive officer since then. Mr. Hamilton also founded Hamilton Strategy in November 2014, and has served as its chief executive officer since. From November 2013 to November 2014, Mr. Hamilton was the president of Kei Advisors. Mr. Hamilton was also the Co-Founder of Donald Capital LLC, and has served as its president since May 2019. Mr. Hamilton has been serving as an independent director and the chairman of the audit committee of Wunong Net Technology Company Limited (Nasdaq: WNW) since December 2020.
The Board has determined that Mr. Hamilton satisfies the definition of “independent director” in accordance with Rule 5605(a)(2) of the Marketplace Rules of The Nasdaq Stock Market, Inc. and Section 10(A)(m)(3) of the Securities Exchange Act of 1934, as amended. Mr. Hamilton has accepted our appointment to be our independent director, effective on the Appointment Effective Date.
Jiangping (Gary) Xiao, Independent Director Nominee
Mr. Xiao obtained a master’s degree in business administration from the Ross School of Business Management at the University of Michigan in 2006 and a bachelor’s degree in accounting from Tsinghua University in Beijing, China, in 2000. Mr. Jiangping (Gary) Xiao, age 40, has been the vice president of finance and accounting at Hilco IP Merchant Banking since July 2019. Since December 2020, Mr. Xiao has been serving as an independent director and the chairman of the nominating and corporate governance committee of Wunong Net Technology Company Limited (Nasdaq: WNW). From March 2017 to March 2019, Mr. Xiao served as the chief financial officer of Professional Diversity Network, Inc.. From June 2013 to April 2016, Mr. Xiao served as the chief financial officer and financial controller of Petstages Inc.. From August 2008 to May 2013, Mr. Xiao served as the operation financial controller of the operations management group of The Jordan Company, a private equity firm. From June 2006 to August 2008, Mr. Xiao served as a senior finance associate in the financial planning and analysis department of United Airlines, Inc.. Mr. Xiao obtained a master’s degree in business administration from the Ross School of Business Management at the University of Michigan in 2006 and a bachelor’s degree in accounting from Tsinghua University in Beijing, China, in 2000.
The Board has determined that Mr. Xiao satisfies the definition of “independent director” in accordance with Rule 5605(a)(2) of the Marketplace Rules of The Nasdaq Stock Market, Inc. and Section 10(A)(m)(3) of the Securities Exchange Act of 1934, as amended. Mr. Hamilton has accepted our appointment to be our independent director, effective on the Appointment Effective Date.
Board Committees
Our board of directors has established standing committees in connection with the discharge of its responsibilities. These committees include an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Our board of directors has adopted written charters for each of these committees. Upon completion of this offering, copies of the charters will be available on our website. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Audit Committee
Our Audit Committee was established on March 8, 2019 and is currently comprised of one independent director, Ms. Yu Jiaxin. Upon effectiveness of the appointment of Mr. Alex P. Hamilton and Mr. Jiangping (Gary) Xiao as our independent directors on the Appointment Effective Date, our Audit Committee will comprise of three independent directors: Mr. Alex P. Hamilton (Chairperson), Ms. Yu Jiaxin and Mr. Jiangping (Gary) Xiao. Mr. Alex P. Hamilton qualifies as the Audit Committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
According to its charter, the Audit Committee shall consist of at least three members, each of whom shall be a non-employee director who has been determined by the Board to meet the independence requirements of NASDAQ, and also Rule 10A-3(b)(1) of the SEC, subject to the exemptions provided in Rule 10A-3(c). We do not have a website containing a copy of the Audit Committee Charter. The Audit Committee Charter describes the primary functions of the Audit Committee, including the following:
Oversee the Company’s accounting and financial reporting processes; | ||
● | Oversee audits of the Company’s financial statements; | |
● | Discuss policies with respect to risk assessment and risk management, and discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures; | |
● | Review and discuss with management the Company’s audited financial statements and review with management and the Company’s independent registered public accounting firm the Company’s financial statements prior to the filing with the SEC of any report containing such financial statements. | |
● | Recommend to the board that the Company’s audited financial statements be included in its annual report on Form 10-K for the last fiscal year; | |
● | Meet separately, periodically, with management, with the Company’s internal auditors (or other personnel responsible for the internal audit function) and with the Company’s independent registered public accounting firm; | |
● | Be directly responsible for the appointment, compensation, retention and oversight of the work of any independent registered public accounting firm engaged to prepare or | |
● | Take, or | |
● | Review major changes to the Company’s auditing and accounting principles and practices as suggested by the Company’s independent registered public accounting firm, internal auditors or management. |
Compensation Committee
The Compensation Committee is responsible for, among other matters:
● | reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers and directors reviewing key employee compensation goals, policies, plans and programs; | |
● | administering incentive and equity-based compensation; | |
● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and | |
● | appointing and overseeing any |
Our Compensation Committee was established on March 8, 2019 and is currently comprised of one independent director, Ms. Yu Jiaxin (Chairperson). Upon effectiveness of the appointment of Mr. Alex P. Hamilton and Mr. Jiangping (Gary) Xiao as our independent directors on the Appointment Effective Date, our Compensation Committee will comprise of three independent directors: Ms. Yu Jiaxin (Chairperson), Mr. Jiangping (Gary) Xiao and Mr. Alex P. Hamilton.
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Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is responsible for, among other matters:
● | selecting or recommending for selection candidates for directorships; | |
● | evaluating the independence of directors and director nominees; | |
● | reviewing and making recommendations regarding the structure and composition of our board and the board committees; | |
● | developing and recommending to the board corporate governance principles and practices; | |
● | reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and | |
● | overseeing the evaluation of the Company’s management. |
Our Corporate Governance and Nominating Committee was established on March 8, 2019 and is currently comprised of one independent directors, Ms. Yu Jiaxin. Upon effectiveness of the appointment of Mr. Alex P. Hamilton and Mr. Jiangping (Gary) Xiao as our independent directors on the Appointment Effective Date, our Corporate Governance and Nominating Committee will comprise of three independent directors: Ms. Yu Jiaxin, Mr. Jiangping (Gary) Xiao (Chairperson) and Mr. Alex P. Hamilton.
Board Leadership Structure and Role in Risk Oversight
Mr. Hong Zhida holds the positions of chief executive officer and chairman of the board of the Company. The board believes that Mr. Hong Zhida’s services as both chief executive officer and chairman of the board is in the best interest of the Company and its shareholders. Mr. Hong Zhida possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company in its business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters relating to the business of the Company. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s shareholders, employees and customers.
The board has not designated a lead director. Given the limited number of directors comprising the Board, the independent directors call and plan their executive sessions collaboratively and, between meetings of the Board, communicate with management and one another directly. Under these circumstances, the directors believe designating a lead director to take on responsibility for functions in which they all currently participate might detract from rather than enhance performance of their responsibilities as directors.
Management is responsible for assessing and managing risk, subject to oversight by the board of directors. The board oversees our risk management policies and risk appetite, including operational risks and risks relating to our business strategy and transactions. Various committees of the board assist the board in this oversight responsibility in their respective areas of expertise.
Code of Ethics
In September 2018, we adopted a Code of Ethical Business Conduct that applies to, among other persons, members of our board of directors, our Company’s officers including our Chief Executive Officer, employees, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1. | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; | |
2. | full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us; | |
3. | compliance with applicable governmental laws, rules and regulations; | |
4. | ||
5. | accountability for adherence to the |
Our Code of Code of Ethical Business Conduct requires, among other things, that all of our company’s senior officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.
In addition, our Code of Ethical Business Conduct emphasizes that all employees, and particularly senior officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws. Any senior officer, who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our Company. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our Company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company’s Code of Ethical Business Conduct by another.
Family Relationships
Mr. Hong Zhida, an executive officer of the Company, and Mr. Hong Zhiwang, a director of the Company, are brothers. Apart from this, there are no family relationships between any director or executive officer of the Company.
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The following tables set forth certain information about compensation paid, earned or accrued for services by our Executive Officer from inception on October 28, 2014 untilofficers for the fiscal years ended March 31, 2015:
Summary Compensation Table
Name and Principal Position | Period | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
Otmane Tajmouati, President, Secretary and Treasurer | October 28, 2014 to March 31, 2015 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
Summary Compensation Table Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Totals ($) | |||||||||||||||||||||||||||
Hong Zhida | 2020 | $ | 17,229 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 17,229 | |||||||||||||||||||||||||
CEO, President and Secretary | 2019 | $ | 16,589 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 16,589 | |||||||||||||||||||||||||
Huang Chao | 2020 | $ | 17,229 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 17,229 | |||||||||||||||||||||||||
CFO | 2019 | $ | 11,496 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 11,496 |
Mr. Hong Zhida is the Company’s Chief Executive Officer, President and Secretary. Mr. Hong’s compensation is $1,436 per month. Mr. Hong may be entitled to options from time to time as authorized and approved by the Compensation Committee or the Board of Directors.
Mr. Huang Chao as the Company’s Chief Financial Officer and Treasurer. On April 15, 2019, the Company and its officer.
Narrative Disclosure to provide management salaries. At this time, we cannot accurately estimate when significant revenues will occur to implement this compensation, or what the amount of the compensation will be.
There are no annuity, pension or retirement benefits proposed to be paid to the officer or director or employees in the event of retirement at normal retirement date pursuant to any presently existing plan provided or contributed to by the Company or any of its subsidiaries, if any.
Stock Option Plan
Currently, we do not have an equity incentive plan in place.
Grants of Plan-Based Awards
To date, there have been no grants or plan-based awards.
Outstanding Equity Awards
To date, there have been no outstanding equity awards.
Option Exercises and Stock Vested
To date, there have been no options exercised by our named officers.
Compensation of Directors
Each independent director has entered into an Independent Director Agreement with the Company, pursuant to which Ms. Cui Shan, Ms. Yu Jiaxin and Mr. Li Weilin will receive $17,142, $15,000 and $15,000 per year, respectively, in equal monthly installments of $1,429, $1,250 and $1,250, respectively, at the end of each month. Ms. Cui Shan resigned as an independent director and the chairperson of the Audit Committee of Addentax Group Corp. on May 10, 2021. Mr. Li Weilin resigned as an independent director and the chairperson of the Nominating and Corporate Governance Committee of Addentax Group Corp. on May 13, 2021.
Mr. Alex P. Hamilton has entered into an independent director agreement with the Company, pursuant to which Mr. Hamilton will receive annual cash compensation of $15,000 payable quarterly in advance on the first business day of each calendar quarter. The first compensation payment after the Appointment Effective Date will comprise a pro-rata amount from the Appointment Effective Date through to the end of the relevant calendar quarter and thereafter quarterly payments in advance of each calendar quarter.
Mr. Jiangping (Gary) Xiao has entered into an independent director agreement with the Company, pursuant to which Mr. Xiao will receive annual cash compensation of $15,000 payable quarterly in advance on the first business day of each calendar quarter. The first compensation payment after the Appointment Effective Date will comprise a pro-rata amount from the Appointment Effective Date through to the end of the relevant calendar quarter and thereafter quarterly payments in advance of each calendar quarter.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
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Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
Otmane Tajmouati | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
During the years ended March 31, 2020 and 2019, and from the period from December 2020, to the date of this prospectus, we have not be paidentered into any transactions with our officers or directors, or persons nominated for any underwriting services that he performs onthese positions, beneficial owners of 5% or more of our behalf with respect to this offering.
On December 26, 2014, weApril 18, 2017, the Company issued a total of 3,000,000500,000,000 restricted shares of restrictedcommon stock as follows:
○ | Hengtian Group Co., Ltd.: (Beneficial Owner: Ma Huizhu) 215,000,000 shares of common stock; | |
○ | Hong Zhida (current Chief Executive Officer, President, Secretary and Chairman of the Company): 30,000,000 shares of common stock; and | |
○ | Hui Lian Group Ltd.: (Beneficial Owner: Ma Huijun) 255,000,000 shares of common stock. |
The 500,000,000 shares of common stock were issued pursuant to a Sale & Purchase Agreement (“S&P”) for the acquisition of 100% of the shares and assets of Yingxi Industrial Chain Group Co., Ltd., a company incorporated under the laws of the Republic of Seychelles. The Company agreed to issue five hundred million (500,000,000) shares of common stock to Otmane Tajmouati,Yingxi Industrial Chain Group Co., Ltd. to acquire its shares and assets for a cost of US$0.30 per share or a total cost of US$150,000,000.
On August 1, 2018, our sole officerwholly-owned subsidiaries, Qianhai Yingxi Textile & Garments (Shenzhen) Co., Ltd and director in considerationShenzhen Qianhai Yingxi Industrial Chain Service Co., Ltd, each entered into a Triparty Agreement of $3,000. As of March 31, 2015, Mr. Tajmouati had advanced us $8,100 under verbal conditions. Mr. Tajmouati hasDebt Transfer, whereby such entities agreed to loan $30,000transfer $1,428,572 and $1,640,072, respectively, of debt owed by the subsidiaries to us pursuanta related party creditor (the “Creditor” and the “Debt”), to the termsCompany’s Chief Executive Officer, Hong Zhida, who agreed to assume and be solely responsible for such Debt. As a result of the Loan Agreement. (See Exhibit 10.1 to the Registration Statement of which this Prospectus forms a part.) In order to implement our plan of operations for the next twelve months period, we require a minimum of $30,000 of funding from this offering. If we generate less that minimum needed amount from this offering, less than one third of the offered shares will be sold, we will utilize funds fromAgreements, Mr. Tajmouati. He will not be repaid from the proceeds of this offering. ThereHong is no due datenow solely responsible for the repayment of the funds advanced by Mr. Tajmouati. Mr. Tajmouati will be repaid from revenues of operations if and when we generate significant revenues to pay the obligation. The Company will conduct the repayment of director’s loans in accordanceDebt to the sequence of loans in full amount. There is no assurance that we will ever generate significant revenues from our operations. The obligation to Mr. Tajmouati does not bear interest.Creditor.
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The following table sets forth, as of May 17, 2021, certain information concerning the beneficial ownership of our common stock by (i) each stockholder known by us to own beneficially five percent or more of our outstanding common stock or series a common stock; (ii) each director; (iii) each named executive officer; and (iv) all of our executive officers and directors as a group, and their percentage ownership and voting power. The column entitled “Percentage of Shares Beneficially Owned—Before Offering” is based on a total of 26,693,004 shares of our issued and outstanding common stock.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within sixty (60) days through the conversion or exercise of any convertible security, warrant, option, or other right. More than one (1) person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of March 31, 2015 concerninga particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within sixty (60) days, by the sum of the number of shares outstanding as of such date. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock beneficially owned by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless otherwise indicated, the stockholder listed possessesbelow have sole voting and investment power with respect to the shares shown.
Name and Address (1) | Number of Shares Beneficially Owned | Percentage Ownership of Shares of Common Stock Before the Offering | Percentage Ownership of Shares of Common Stock After the Offering | |||||||||
Directors and Officers | ||||||||||||
Hong Zhida | 1,507,950 | 5.95 | % | 5.51 | % | |||||||
Hong Zhiwang | 501,171 | 1.98 | % | 1.83 | % | |||||||
Huang Chao | 25,720 | 0.1 | % | 0.09 | % | |||||||
Alex P. Hamilton* | - | - | - | |||||||||
Yu Jiaxin | - | - | - | |||||||||
Jiangping (Gary) Xiao* | - | - | - | |||||||||
All Officers and Directors (six persons) | 2,034,841 | 8.03 | % | 7.44 | % | |||||||
Owner of more than 5% of Class | - | - | - |
Except as otherwise set forth below, the address of | each beneficial owner is c/o Addentax Group Corp., Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen City, China 518000. | ||||||||
* | Mr. Alex P. Hamilton and Mr. Jiangping (Gary) Xiao has accepted our appointment to be our independent director, effective on the Appointment Effective Date. |
We have authorized capital stock consisting of 50,000,000 shares of common stock, $0.001 par value per share.
As of the date of this prospectus, we have 26,693,004 shares of our common stock outstanding.
The following description of our capital stock is a summary only and is subject to and qualified in its entirety by reference to the applicable provisions of the Nevada Revised Statutes, and our charter and Bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is part. You should refer to, and read this summary together with, our Articles of Incorporation and Bylaws, each as amended and restated to date, to review all of the terms of our capital stock. Our Articles of Incorporation and amendments thereto are incorporated by reference as exhibits to the registration statement of which this prospectus is a part.
Common Stock
Each share of our common stock is entitled to equal dividends and distributions per share with respect to the common stock when, as and if declared by our Board of Directors. No holder of any shares of our common stock has a preemptive right to subscribe for any of our securities, nor are any shares of our common stock subject to redemption or convertible into other securities. Upon liquidation, dissolution or winding-up of the Company, and after payment to our creditors and preferred stockholders, if any, our assets will be divided pro rata on a share-for-share basis among the holders of our common stock. Each share of our common stock is entitled to one vote on all stockholder matters. Shares of our common stock do not possess any cumulative voting rights.
The presence of the persons entitled to vote a majority of the outstanding voting shares on a matter before the stockholders constitute the quorum necessary for the consideration of the matter at a stockholders’ meeting.
Except as otherwise required by law, the Articles of Incorporation, or any certificate of designations, (i) at all meetings of stockholders for the election of directors, a plurality of votes cast are sufficient to elect such directors; (ii) any other action taken by stockholders are be valid and binding upon the Company if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, at a meeting at which a quorum is present, except that adoption, amendment or repeal of the Bylaws by stockholders requires the vote of a security includesmajority of the shares entitled to vote; and (iii) broker non-votes and abstentions are considered for purposes of establishing a quorum but not considered as votes cast for or against a proposal or director nominee. Each stockholder has one vote for every share of stock having voting rights registered in his or her name, except as otherwise provided in any preferred stock designation setting forth the right of preferred stock stockholders.
The common stock does not have cumulative voting rights, which means that the holders of 51% of the common stock voting for election of directors can elect 100% of our directors if they choose to do so.
Anti-Takeover Provisions Under The Nevada Revised Statutes
Certain provisions of Nevada law, and our Articles of Incorporation and our Bylaws (subject, where applicable as described below, our opting out of certain provisions of Nevada law), contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
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Business Combinations
Sections 78.411 to 78.444 of the Nevada revised statues (the “NRS”) prohibit a Nevada corporation from engaging in a “combination” with an “interested stockholder” for three years following the date that such person who, directlybecomes an interested stockholder and place certain restrictions on such combinations even after the expiration of the three-year period. With certain exceptions, an interested stockholder is a person or indirectly, through any contract, arrangement, understanding, relationship,group that owns 10% or otherwise has or shares: (i)more of the corporation’s outstanding voting power which includes the power(including stock with respect to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the rightvoting rights and any rights to acquire stock pursuant to an option, warrant, agreement, arrangement, or understanding or upon the exercise of conversion or exchange rights) or is an affiliate or associate of the corporation and was the owner of 10% or more of such voting stock at any time within the previous three years.
A Nevada corporation may elect not to be governed by Sections 78.411 to 78.444 by a provision in its Articles of Incorporation. We do not have such a provision in our Articles of Incorporation, as amended, pursuant to which we have elected to opt out of Sections 78.411 to 78.444; therefore, these sections apply to us.
Control Shares
Nevada law also seeks to impede “unfriendly” corporate takeovers by providing in Sections 78.378 to 78.3793 of the NRS that an “acquiring person” shall only obtain voting rights in the “control shares” purchased by such person to the extent approved by the other stockholders at a meeting. With certain exceptions, an acquiring person is one who acquires or offers to acquire a “controlling interest” in the corporation, defined as one-fifth or more of the voting power. Control shares (for example,include not only shares acquired or offered to be acquired in connection with the acquisition of a controlling interest, but also all shares acquired by the acquiring person within the preceding 90 days. The statute covers not only the acquiring person but also any persons acting in association with the acquiring person.
A Nevada corporation may elect to opt out of the provisions of Sections 78.378 to 78.3793 of the NRS. We do not have a provision in our Articles of Incorporation pursuant to which we have elected to opt out of Sections 78.378 to 78.3793; therefore, these sections apply to us.
Removal of Directors
Section 78.335 of the NRS provides that 2/3rds of the voting power of the issued and outstanding shares of the Company are required to remove a Director from office. As such, it may be more difficult for stockholders to remove Directors due to the fact the NRS requires greater than majority approval of the stockholders for such removal.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, only a limited public market for our common stock existed on the OTCQB. Future sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of an option) within 60 daysoutstanding warrants, or the anticipation of such sales, could adversely affect prevailing market prices of our common stock from time to time and could impair our ability to raise equity capital in the date asfuture.
Upon the closing of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As of March 31, 2015, there were 3,000,000this offering, we will have 31,093,004 shares of our common stock issued and outstanding.
Lock-Up
For further details on the lock-up agreements, see the section entitled “Underwriting – Lock Up Agreements.”
Rule 144
In general, under Rule 144 of the Rules and Regulations of the SEC promulgated under the Securities Act. As we are a “shell company”Act, as that term is defined by the applicable federal securities laws, because of the nature and amount of our assets and our very limited operations, applicable provisions of Rule 144 specify that during that time that we are a “shell company” and for a period of one year thereafter, holders of our restricted securities can not sell those securities in reliance on Rule 144. As result, one year after we cease being a shell company, assuming we are current in our reporting requirements with the Securities and Exchange Commission, holders of our restricted securities may then sell those securities in reliance on Rule 144 (provided, however, those holders satisfy all of the applicable requirements of that rule). For us to cease being a “shell company” we must have more than nominal operations and more that nominal assets or assets which do not consist solely of cash or cash equivalents. Shares purchased in this offering, which will be immediately resalable, and sales of all of our other shares after applicable restrictions expire, could have a depressive effect on the market price, ifdate of this prospectus, any person who is not our affiliate at any time during the preceding three months, and who has beneficially owned their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares of our common stock provided current public information about us is available, and, after owning such shares for at least one year, including the shares we are offering.
A person who is our affiliate or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
● | 1% of the number of shares of our common stock then outstanding, which will equal approximately 273,460 shares immediately after this offering; or | |
● | the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a Notice of Proposed Sale of Securities pursuant to Rule 144 with respect to the sale. |
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
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In connection with this offering, we will enter into an underwriting agreement with Network 1 Financial Securities, Inc., which we sometimes refer to herein as the Underwriter. The Underwriter may retain other brokers or dealers to act as sub-agents on its behalf in connection with this offering and may pay any sub-agent a solicitation fee with respect to any securities placed by it. The Underwriter has 3,000,000agreed to purchase, and we have agreed to sell to the Underwriter, the number of shares indicated below:
Name | Number of shares | |||
Network 1 Financial Securities, Inc. | 5,000,000 | |||
Total | 5,000,000 |
The underwriting agreement provides that the Underwriter is obligated to purchase all shares in the offering if any are purchased, other than those shares covered by the over-allotment option described below.
We have agreed to indemnify the Underwriter and certain of common stock issuedtheir controlling persons against certain liabilities, including liabilities under the Securities Act, and outstandingto contribute to payments that the Underwriter may be required to make in respect of those liabilities.
We have granted to the Underwriter a 45-day option to purchase up to 750,000 additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised in whole or in part, and may be exercised more than once, during the 45-day option period. The Underwriter may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering contemplated by this prospectus.
Fees and Expenses
The Underwriter has advised us that it proposes to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $0.35 per share. After this offering, the public offering price and concession to dealers may be reduced by the Underwriter. No such reduction shall change the amount of proceeds to be received by us as ofset forth on the datecover page of this prospectus. The Company is registering an additionalsecurities are offered by the Underwriter as stated herein, subject to receipt and acceptance by it and subject to its right to reject any order in whole or in part. The Underwriter has informed us that it does not intend to confirm sales to any accounts over which it exercises discretionary authority.
We have agreed to pay the Underwriter a cash fee equal to seven percent (7%) of 3,000,000 shares of its common stock for sale atthe aggregate gross proceeds raised in this offering. The following table shows the price per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of $0.03 per share. There is no arrangementthe Underwriter’ over-allotment option.
Total | ||||||||||||
Per Share | No Exercise | Full Exercise | ||||||||||
Public offering price | $ | 5.00 | $ | 25,000,000 | $ | 28,750,000 | ||||||
Underwriting discounts and commissions to be paid by us: | $ | 0.35 | $ | 1,750,000 | $ | 2,012,500 | ||||||
Proceeds, before expenses, to us | $ | 4.65 | $ | 23,250,000 | $ | 26,737,500 |
We will also pay to address the possible effectUnderwriter by deduction from the net proceeds of the offering on the pricecontemplated herein, a non-accountable expense allowance equal to one percent (1%) of the stock. Our sole officer and director Mr. Tajmouati will offer the shares to his friends and family. We will not utilize advertising or make a general solicitation for our offering, but rather, Mr. Tajmouati will personally and individually contact each investor. Mr. Tajmouati has no experience in selling securities to investors. Mr. Tajmouati will not purchase securities in this offering.
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We have agreed to reimburse the Underwriter up to a maximum of $150,000 for out-of-pocket accountable expenses. We have paid expense deposits of $75,000 to the duration of this offering. Although our common stock isUnderwriter for its anticipated out-of-pocket expenses; any expense deposits will be returned to us to the extent the Underwriter’s out-of-pocket accountable expenses are not listed on a public exchange or quoted over-the-counter, we intend to seek to have our shares of common stock quoted on the Over-the Counter Bulletin Board. In order to be quoted on the OTC Bulletin Board
We have agreed to 240 days from the effective date of this prospectus.
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount and commissions will be approximately $727,303, including a maximum aggregate reimbursement of $150,000 of the Underwriter’s accountable expenses.
Underwriter Warrants
In addition, we have agreed to grant the underwriter non-redeemable warrants to purchase an amount equal to ten percent (10%) of the shares of common stock sold in the offering, which warrants will be exercisable six months after the closing of the offering, have a five (5) year term after the effective date of the registration statement, of which this prospectus forms part, and a cashless exercise feature. Such warrants are exercisable at a price of 130% of the public offering price of the shares of common stock offered pursuant to this offering. We will register the shares underlying the Underwriter Warrants and will file all necessary undertakings in connection therewith. The Underwriter Warrants may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities lawsby any person for a period of certain states)180 days immediately following the commencement of the offering, of which this prospectus forms a part (in accordance with FINRA Rule 5110), except that they may be assigned, in whole or in part, to any member participating in the offering and the officers or partners thereof, and that all securities so transferred remain subject to the lock-up restriction for the remainder of the time period. The Underwriter Warrants may be exercised as to all or a lesser number of shares, will provide for cashless exercise and will contain provisions for one demand registration of the sale of the underlying shares of Common Stock at the Company’s expense, an additional demand registration at the warrant holders’ expense, and unlimited “piggyback” registration rights for a period of five years after the effective date of the registration statement at the Company’s expense. The Underwriter’s Warrants shall further provide for adjustment in the number and price of such warrants (and the shares of Common Stock underlying such warrants) in the event of recapitalization, merger or other structural transaction to prevent dilution. The underwriter will have the option to exercise their warrants at any time, provided that such shares are not transferred during the lock-up period; the 180 day lock period will remain on these underlying shares.
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Electronic Offer, Sale and Distribution of Common Stock
A prospectus in electronic format may be made available on the websites maintained by the underwriter. In addition, the common stock may be sold by the underwriter to securities dealers who resell the common stock to online brokerage account holders. Other than the prospectus in electronic format, the information on the underwriter’s website and any information contained in any other website maintained by the underwriter is not part of the prospectus or the registration statement of which we expectthis prospectus forms a part, has not been approved and/or endorsed by us or the underwriter in its capacity as underwriter and should not be relied upon by investors.
Lock-up Agreements
We, each of our directors and officers and holders of ten percent or more of our common stock on a fully diluted basis immediately prior to the consummation of this offering have agreed or are otherwise contractually restricted for a period of 180 days after the date of this prospectus, without the prior written consent of the underwriter not to directly or indirectly:
● | issue (in the case of us), offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock; | |
● | in the case of us, file or cause the filing of any registration statement under the Securities Act with respect to any shares of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock, other than registration statements on Form S-8 filed with the SEC after the closing date of this offering; or | |
● | enter into any swap or other agreement, arrangement, hedge or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock, |
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whether any transaction described in any of the foregoing bullet points is to be $7,000.
There are no existing agreements between the underwriter and any person who will execute a lock-up agreement in connection with this offering providing consent to the sale of shares prior to the expiration of the lock-up period. The lock up does not apply to the issuance of shares upon the exercise of rights to acquire shares of common stock pursuant to any existing stock option or the conversion of any of our preferred convertible stock.
Procedures and Requirements for Subscribing
If you decide to subscribe for any shares in this offering, you must
● | execute and deliver a subscription agreement; and | |
● | deliver the subscription price to the Company by cashier’s check or wire transfer of immediately available funds. |
The subscription agreement requires you to disclose your name, address, social security number, telephone number, email address, number of shares you are purchasing, and the price you are paying for your shares.
Upon the Company’s acceptance of a subscription agreement; and
We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. We will return allAll monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions. Subscriptions for securities will be accepted or rejected with letter by mail within 48 hoursthree (3) business days after we receive them.
Stabilization
Upon the declaration of effectiveness of the registration statement of which this prospectus is a penny stock.part, we will enter into an underwriting agreement with the Underwriter. The SEC has adopted Rule 15g-9 which generally defines "penny stock" to be any equity securityterms of the underwriting agreement provide that has a market price (as defined) less than $5.00 per share or an exercise pricethe obligations of less than $5.00 per share,the Underwriter are subject to certain exceptions. Our securities are covered byconditions precedent, including the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assetsabsence of any material adverse change in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocksour business and the naturereceipt of certain certificates, opinions and levelletters from us, our counsel and our auditors.
We have applied to list our shares on the NASDAQ Capital Market under the symbol “ATXG”.
Prior to this offering, there has been no public market for our shares. The initial public offering price was determined by negotiations among us and the Underwriter and will not necessarily reflect the market price of risksour common stock following this offering. The principal factors that were considered in determining the initial public offering price included:
● | the information presented in this prospectus and otherwise available to the Underwriter; | |
● | the history of, and prospects for, the industry in which we will compete; | |
● | the ability of our management; | |
● | the prospects for our future earnings; | |
● | the present state of our development, results of operations and our current financial condition | |
● | the general condition of the securities markets at the time of this offering; and | |
● | the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. |
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We cannot assure you that the initial public offering price will correspond to the price at which our common stock will trade in the pennypublic market subsequent to this offering or that an active trading market for our common stock market. The broker-dealer also must provide the customer with current bidwill develop and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before orcontinue after this offering.
In connection with the customer's confirmation. In addition,offering the penny stock rules require that prior to a transactionUnderwriter may engage in a penny stock not otherwise exempt from these rules,stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaserSecurities Exchange Act of 1934 (the “Exchange Act”).
● | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. | |
● | Over-allotment involves sales by the Underwriter of the common stock in excess of the number of shares the Underwriter are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the Underwriter is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The Underwriter may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. | |
● | Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the Underwriter will consider, among other things, the price of our common stock available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the Underwriter sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the Underwriter is concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. | |
● | Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. | |
● | In passive market making, market makers in the shares who is the Underwriter or prospective Underwriter may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate covering transactions and receive the purchaser's written agreement to the transaction. These disclosure requirementspenalty bids may have the effect of reducingraising or maintaining the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketabilityprice of our common stock.
A prospectus in electronic format may be made available on the web sites maintained by one or more of the Underwriter, or selling group members, if any, participating in this offering and the Underwriter may distribute prospectuses electronically. The Underwriter may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the Underwriter and selling group members that will make internet distributions on the same basis as other allocations.
The Underwriter and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Underwriter has, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which it received or will receive customary fees and expenses.
In addition, in the ordinary course of the business activities, the Underwriter and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. These investments and securities activities may involve securities and/or instruments of ours or our affiliates. The Underwriter and their affiliates may also be restricted undermake investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
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Offer Restrictions outside the United States
Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities oroffered by this prospectus in any jurisdiction where action for that purpose is required. The securities regulations laws promulgatedoffered by various states and foreign jurisdictions, commonly referred to as "Blue Sky" laws. Absent compliance with such individual state laws, our common stockthis prospectus may not be tradedoffered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia. This prospectus is not a product disclosure statement, prospectus or other type of disclosure document for the purposes of Corporations Act 2001 (Commonwealth of Australia) (the “Act”) and does not purport to include the information required of a product disclosure statement, prospectus or other disclosure document under Chapter 6D.2 of the Act. No product disclosure statement, prospectus, disclosure document, offering material or advertisement in relation to the offer of the shares has been or will be lodged with the Australian Securities and Investments Commission or the Australian Securities Exchange.
Accordingly, (1) the offer of the shares under this prospectus may only be made to persons: (i) to whom it is lawful to offer the shares without disclosure to investors under Chapter 6D.2 of the Act under one or more exemptions set out in Section 708 of the Act, and (ii) who are “wholesale clients” as that term is defined in section 761G of the Act, (2) this prospectus may only be made available in Australia to persons as set forth in clause (1) above, and (3) by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (1) above, and the offeree agrees not to sell or offer for sale any of the shares sold to the offeree within 12 months after their issue except as otherwise permitted under the Act.
Canada. The shares may not be offered, sold or distributed, directly or indirectly, in any province or territory of Canada other than the provinces of Ontario and Quebec or to or for the benefit of any resident of any province or territory of Canada other than the provinces of Ontario and Quebec, and only on a basis that is pursuant to an exemption from the requirement to file a prospectus in such jurisdictions. Becauseprovince, and only through a dealer duly registered under the applicable securities laws of such province or in accordance with an exemption from the applicable registered hereunderdealer requirements.
Cayman Islands. This prospectus does not constitute a public offer of the shares, whether by way of sale or subscription, in the Cayman Islands. Each underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any shares to any member of the public in the Cayman Islands.
European Economic Area. In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, or a Relevant Member State, from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, an offer of the shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and the competent authority in that Relevant Member State has been notified, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the shares to the public in that Relevant Member State at any time,
● | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
● | to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year, (2) a total balance sheet of more than €43,000,000, and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; | |
● | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive; or | |
● | in any other circumstances that do not require the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive; |
provided that no such offer of shares shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.
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For purposes of the above provision, the expression “an offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Hong Kong. The shares may not be offered or sold by means of this document or any other document other than (i) in circumstances that do not constitute an offer or invitation to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) or the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances that do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), that is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Malaysia
The shares have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. Accordingly, investors may not be ableapproved by the securities commission Malaysia, or SC, and this document has not been and will not be registered as a prospectus with the SC under the Malaysian capital markets and services act of 2007, or CMSA. Accordingly, no securities or offer for subscription or purchase of securities or invitation to liquidate their investmentssubscribe for or purchase securities are being made to any person in or from within Malaysia under this document except to persons falling within any of paragraphs 2(g)(i) to (xi) of schedule 5 of the CMSA and should be prepared to holddistributed only by a holder of a capital markets services license who carries on the common stock for an indefinite periodbusiness of time.
People’s Republic of China. This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Singapore
The securities represented may not be offered or sold, nor may any document or other material in connect with such securities be distributed, either directly or indirectly, (i) to persons in Singapore other than under circumstances in which such offer or sale does not constitute an offer or sale of such securities to the public in Singapore or (ii) to the public or any member of the public in Singapore other than pursuant to, and in accordance with the conditions of, an exemption invoked under division 5a or part iv of the companies act, chapter 50 of Singapore and to persons to whom the securities may be offered or sold under such exemption.
United Kingdom. An offer of the shares may not be made to the public in the United Kingdom within the meaning of Section 102B of the Financial Services and Markets Act 2000, as amended, or the FSMA, except to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances that do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority, or the FSA.
An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) may only be communicated to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section 21 of FSMA does not apply to the company.
All applicable provisions rules and regulations underof the Exchange ActFSMA with regardrespect to security transactions duringanything done by the periodunderwriter in relation to the shares must be complied with in, from or otherwise involving the United Kingdom.
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LEGAL MATTERS
The validity of time when this Registration Statement is effective.
BF Borgers CPA PC, independent registered public accounting firm, has audited our financial statements included in this prospectus and registration statement to the extentas of and for the periodsyears ended March 31, 2020 and 2019 as set forth in their audit report. Cutler & Co., LLC has presented its report with respect to our audited financial statements.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to register the securitiesshares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For futurefurther information aboutwith respect to us and the securitiescommon stock offered underby this prospectus, we refer you may refer to the registration statement and its exhibits. Statements contained in this prospectus as to the exhibitscontents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as a part ofan exhibit to the registration statement. In addition, afterEach of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the effective date of this prospectus, we will be required to file annual, quarterly and current reports, or other information withregistration statement, over the SEC as provided byInternet at the Securities Exchange Act.SEC’s website at www.sec.gov. You may also read and copy any reports, statements or other informationdocument we file with the SEC at the SEC’sits public reference facility maintainedfacilities at 100 F Street NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E.,NE, Washington, D.C. 20549. OurPlease call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing us at Addentax Group Corp., Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen City, China 518000.
We are subject to the information reporting requirements of the Exchange Act, and file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information are available for inspection and copying at the public reference room and web site of the SEC referred to above. We also maintain a website at www.hyjf.com, at which, following the closing of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the public through the SEC Internet site at www.sec.gov.
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F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF DECEMBER 31, 2020 AND MARCH 31, 2020 (UNAUDITED)
December 31, 2020 | March 31, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 356,728 | $ | 531,681 | ||||
Accounts receivables, net | 3,024,627 | 4,500,116 | ||||||
Inventories | 163,233 | 347,531 | ||||||
Other receivables - disposal of subsidiaries | 822,933 | - | ||||||
Other receivables - other | 203,605 | 231,974 | ||||||
Advances to suppliers | 208,324 | 389,940 | ||||||
Total current assets | 4,779,450 | 6,001,242 | ||||||
NON-CURRENT ASSETS | ||||||||
Plant and equipment, net | 894,388 | 585,019 | ||||||
Operating lease right of use asset | 11,604,526 | 1,835,717 | ||||||
Total non-current assets | 12,498,914 | 2,420,736 | ||||||
TOTAL ASSETS | $ | 17,278,364 | $ | 8,421,978 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Short-term loan | $ | 153,172 | $ | 353,114 | ||||
Accounts payable | 1,700,062 | 3,620,583 | ||||||
Amount due to related parties | 6,448,905 | 5,429,440 | ||||||
Advances from customers | 26,192 | 18,931 | ||||||
Accrued expenses and other payables | 411,316 | 230,917 | ||||||
Operating lease liability current portion | 3,922,214 | 443,543 | ||||||
Total current liabilities | 12,661,861 | 10,096,528 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Operating lease liability | 7,682,312 | 1,392,174 | ||||||
TOTAL LIABILITIES | $ | 20,344,173 | $ | 11,488,702 | ||||
EQUITY | ||||||||
Common stock ($0.001 par value, 50,000,000 shares authorized, 26,093,004 and 25,346,004 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively) | $ | 26,093 | $ | 25,346 | ||||
Additional paid-in capital | 3,815,933 | 61,050 | ||||||
Retained earnings | (6,804,107 | ) | (3,233,122 | ) | ||||
Statutory reserve | 13,663 | 23,514 | ||||||
Accumulated other comprehensive loss | (117,391 | ) | 56,488 | |||||
Total deficit | (3,065,809 | ) | (3,066,724 | ) | ||||
TOTAL LIABILITIES AND EQUITY | $ | 17,278,364 | $ | 8,421,978 |
See accompany notes to the unaudited condensed consolidated financial statements.
F-2 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
REVENUES | $ | 3,411,552 | $ | 4,027,902 | $ | 21,014,064 | $ | 8,182,396 | ||||||||
COST OF REVENUES | (2,950,124 | ) | (3,746,040 | ) | (22,776,087 | ) | (7,221,683 | ) | ||||||||
GROSS (LOSS) PROFIT | 461,428 | 281,862 | (1,762,023 | ) | 960,713 | |||||||||||
OPERATING EXPENSES | ||||||||||||||||
Selling and marketing | (217,942 | ) | (960 | ) | (376,975 | ) | (11,826 | ) | ||||||||
General and administrative | (532,012 | ) | (526,194 | ) | (1,454,017 | ) | (1,857,288 | ) | ||||||||
Total operating expenses | (749,954 | ) | (527,154 | ) | (1,830,992 | ) | (1,869,113 | ) | ||||||||
LOSS FROM OPERATIONS | (288,526 | ) | (245,292 | ) | (3,593,015 | ) | (908,400 | ) | ||||||||
Interest income | 87 | 10 | 102 | 58 | ||||||||||||
Interest expenses | (631 | ) | (3,974 | ) | (6,586 | ) | (16,304 | ) | ||||||||
Other income (expense), net | 1,273 | 66 | 62,489 | (10,753 | ) | |||||||||||
LOSS BEFORE INCOME TAX EXPENSE | (287,797 | ) | (249,190 | ) | (3,537,010 | ) | (935,399 | ) | ||||||||
INCOME TAX EXPENSE | (15,784 | ) | (9,022 | ) | (23,196 | ) | (12,086 | ) | ||||||||
NET LOSS | (303,581 | ) | (258,212 | ) | (3,560,206 | ) | (947,485 | ) | ||||||||
Foreign currency translation gain (loss) | (85,728 | ) | (50,440 | ) | (173,879 | ) | 58,715 | |||||||||
TOTAL COMPREHENSIVE LOSS | $ | (389,309 | ) | $ | (308,652 | ) | (3,734,085 | ) | (888,770 | ) | ||||||
LOSS PER SHARE | ||||||||||||||||
Basic and diluted | (0.01 | ) | (0.01 | ) | (0.14 | ) | (0.04 | ) | ||||||||
Weighted average number of shares outstanding – Basic and diluted | 25,712,713 | 25,346,004 | 25,712,713 | 25,346,004 |
See accompany notes to the unaudited condensed consolidated financial statements.
F-3 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
Common Stock | Additional | Retained earnings | Accumulated other | |||||||||||||||||||||||||
Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
BALANCE AT OCTOBER 1, 2019 (Restated) | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,940,044 | ) | $ | 21,779 | $ | 74,201 | $ | (2,757,668 | ) | |||||||||||||
Foreign currency translation | - | - | - | - | - | (50,440 | ) | (50,440 | ) | |||||||||||||||||||
Movement of Statutory reserve | - | - | - | (1,735 | ) | 1,735 | - | - | ||||||||||||||||||||
Net loss for the period | - | - | - | (258,212 | ) | - | (258,212 | ) | ||||||||||||||||||||
BALANCE AT DECEMBER 31, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,199,991 | ) | $ | 23,514 | $ | 23,761 | $ | (3,066,320 | ) | |||||||||||||
BALANCE AT OCTOBER 1, 2020 | 25,346,004 | $ | 26,093 | $ | 3,795,303 | $ | (6,489,747 | ) | $ | 23,514 | $ | (31,663 | ) | $ | (2,676,500 | ) | ||||||||||||
Movement of Statutory reserve | - | - | 20,630 | (10,779 | ) | (9,851 | ) | - | - | |||||||||||||||||||
Foreign currency translation | - | - | - | - | - | (85,728 | ) | (85,728 | ) | |||||||||||||||||||
Net loss 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 MARCH 31, 2019 (Restated) | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,250,770 | ) | $ | 21,779 | $ | (34,955 | ) | $ | (2,177,550 | ) | ||||||||||||
Movement of Statutory reserve | - | - | - | (1,735 | ) | 1,735 | - | - | ||||||||||||||||||||
Foreign currency translation | - | - | - | (1 | ) | - | 58,716 | 58,715 | ||||||||||||||||||||
Net loss for the period | - | - | - | (947,485 | ) | - | - | (947,485 | ) | |||||||||||||||||||
BALANCE AT DECEMBER 31, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,199,991 | ) | $ | 23,514 | $ | 23,761 | $ | (3,066,320 | ) | |||||||||||||
BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,233,122 | ) | $ | 23,514 | $ | 56,488 | $ | (3,066,724 | ) | |||||||||||||
Issuance of common stocks | 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 loss 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 | ) |
See accompany notes to the unaudited condensed consolidated financial statements.
F-4 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(In U.S. Dollars, except share data or otherwise stated)
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (3,560,206 | ) | $ | (947,485 | ) | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 83,210 | 84,277 | ||||||
Loss on disposal of plant and equipment | 1,472 | 3,323 | ||||||
Changes in operating assets and liabilities, net of effects from disposal of subsidiaries: | ||||||||
Accounts receivable | 1,367,371 | (1,880,493 | ) | |||||
Inventories | 174,487 | (924 | ) | |||||
Advances to suppliers | (320,771 | ) | (252,620 | ) | ||||
Other receivables | (65,150 | ) | (80,870 | ) | ||||
Accounts payables | (1,688,272 | ) | 1,661,429 | |||||
Accrued expenses and other payables | 173,582 | 373,429 | ||||||
Advances from customers | 52,161 | (19,002 | ) | |||||
Net cash provided by (used in) operating activities | $ | (3,782,116 | ) | $ | (1,058,936 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of plant and equipment | (392,108 | ) | (94,864 | ) | ||||
Proceeds from sale of property and equipment | 2,243 | - | ||||||
Cash decreased in disposal of subsidiaries | (704,479 | ) | - | |||||
Net cash used in investing activities | $ | (1,094,344 | ) | $ | (94,864 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stocks | 3,735,000 | - | ||||||
Proceeds from related party borrowings | 7,697,827 | 1,828,042 | ||||||
Repayment of related party borrowings | (6,605,044 | ) | (665,323 | ) | ||||
Proceeds from bank borrowings | 86,886 | 515,816 | ||||||
Repayment of bank borrowings | (196,456 | ) | (372,135 | ) | ||||
Net cash provided by financing activities | $ | 4,718,213 | $ | 1,306,400 | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | (158,247 | ) | 152,600 | |||||
Effect of exchange rate changes on cash and cash equivalents | (16,706 | ) | (5,843 | ) | ||||
Cash and cash equivalents, beginning of the period | 531,681 | 277,264 | ||||||
CASH AND CASH EQUIVALENTS, END OF THE PERIOD | $ | 356,728 | $ | 424,021 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for interest | $ | 4,523 | $ | 11,244 | ||||
Cash paid during the year for income tax | $ | 23,196 | $ | 12,086 | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Right-of-use assets obtained in exchange for operating lease obligations | $ | 10,404,962 | $ | 1,966,535 | ||||
Net assets of subsidiaries disposed of recorded as Other Receivables | $ | 118,454 | - |
See accompany notes to the unaudited condensed consolidated financial statements.
F-5 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
ORGANIZATION AND BUSINESS ACQUISITIONS |
ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services, property leasing and management service in the People’s Republic of China (“PRC” or “China”) and epidemic prevention supplies manufacturing and distribution both in China and overseas markets.
2. | BASIS OF PRESENTATION |
In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim 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 same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual 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 notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on June 29, 2020 (“2020 Form 10-K.”) and Form S-1/A filed with SEC on January 22, 2021.
GOING CONCERN UNCERTAINTY
The accompanying unaudited condensed consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
F-6 |
The Company incurred net loss of $303,581 and $258,212 for the three months ended December 31, 2020 and 2019, respectively, and $3,560,206 and $947,485 for the nine months ended December 31, 2020 and 2019, respectively. As of December 31, 2020 and March 31, 2020, the Company had net current liability of $7,882,411 and $4,095,286, respectively, and a deficit on total equity of $3,065,809 and $3,066,724, respectively. These 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. 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. 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.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates |
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.
There is no change on the accounting policies from the year ended March 31, 2020.
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. 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. 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 adjustments to other comprehensive loss, a component of equity.
(c) | Concentration Risks |
The followings are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment as of December 31, 2020 and March 31, 2020.
Garment manufacturing segment
December 31, 2020 | March 31, 2020 | |||||||
Customer A | 97.2 | % | 85.5 | % | ||||
Customer B | 2.7 | % | Nil | % |
The high concentration as of March 31, 2020 was mainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
Logistics services segment
December 31, 2020 | March 31, 2020 | |||||||
Customer A | 24.9 | % | 22.4 | % | ||||
Customer B | 13.0 | % | 0.0 | % | ||||
Customer C | 11.4 | % | 18.3 | % | ||||
Customer D | 10.0 | % | 0.6 | % | ||||
Customer E | 7.6 | % | 2.4 | % |
Epidemic prevention supplies segment
No accounts receivables in this segment.
For the three months ended December 31, 2020, one customer from garment segment provided more than 10% of total revenue of the Company, represented 62.8% of total revenue of the Company for the three months. For the nine months ended December 31, 2020, two customers provided more than 10% of our total revenue, with one from garments segment and the other one from epidemic prevention supplies segment, represented 14.0% and 49.6% of total revenue of the Company for the nine months, respectively.
F-8 |
The high concentration in three and nine months ended December 31, 2020 was mainly due to concentration of distributors in trading of epidemic prevention supplies. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
The following tables summarized the purchases from five largest suppliers of each of the reportable segment for the three and nine months ended December 31, 2020 and 2019.
Three months ended | Nine months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Garment manufacturing segment | 100.0 | % | 98.7 | % | 97.7 | % | 91.2 | % | ||||||||
Logistics services segment | 79.1 | % | 90.4 | % | 99.7 | % | 69.0 | % | ||||||||
Property management and subleasing | 100.0 | % | - | % | 100.0 | % | - | % | ||||||||
Epidemic prevention supplies | 100.0 | % | - | % | 100.0 | % | - | % |
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.
(d) | Interest Rate Risk |
The Company’s exposure to interest rate risk primarily relates 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, 2020, the total outstanding borrowings amounted to $153,172 (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 financial performance in the last three quarters of the financial year and 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 is monitoring the situation closely and to mitigate the financial impact, it is conscientiously managing its cost by adopting an operating cost reduction strategy and conserving liquidity by working with major creditors to align repayment obligations with receivable collections.
5. | RELATED PARTY TRANSACTIONS |
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 | |
Dewu Huang | A legal representative of DT | |
Jinlong Huang | A spouse of legal representative of HSW |
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
In September, the Company disposed of $114,229 aged inventories in HSW to Mr. Jinlong Huang at cost with no gain or loss recognized.
F-9 |
The Company had the following related party balances as of December 31, 2020 and March 31, 2020:
Related parties borrowings | December 31, 2020 | March 31, 2020 | ||||||
Zhida Hong | $ | 5,698,498 | $ | 5,043,489 | ||||
Bihua Yang | 244,094 | - | ||||||
Dewu Huang | 379,253 | 81,287 | ||||||
Zhongpeng Chen | - | 160,427 | ||||||
Jinlong Huang | 127,060 | 144,237 | ||||||
$ | 6,448,905 | $ | 5,429,440 |
The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand.
6. | INVENTORIES |
Inventories consist of the following as of December 31, 2020 and March 31, 2020:
December 31, 2020 | March 31, 2020 | |||||||
Raw materials | $ | 122,354 | $ | 230,742 | ||||
Work in progress | 11,745 | 62,150 | ||||||
Finished goods | 29,134 | 54,639 | ||||||
Total inventories | $ | 163,233 | $ | 347,531 |
There is no inventory write-off for the three and nine months ended December 31, 2020 and 2019.
7. | 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.
8. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consists of the following as of December 31, 2020 and March 31, 2020:
December 31, 2020 | March 31, 2020 | |||||||
Production plant | $ | 84,685 | $ | 67,247 | ||||
Motor vehicles | 1,228,746 | 868,743 | ||||||
Office equipment | 23,243 | 19,471 | ||||||
1,336,674 | 955,461 | |||||||
Less: accumulated depreciation | (442,286 | ) | (370,442 | ) | ||||
Plant and equipment, net | $ | 894,388 | $ | 585,019 |
F-10 |
During the nine months ended December 31, 2020, the Company acquired two production lines amounted to $54,327 to manufacture masks for the epidemic prevention supplies business and seven new motor truckers amounted to $315,920 for the logistic service business. During the period, the Company disposed of old machinery with original cost of $19,303 and accumulated depreciation of $18,661, and two old motor truckers with original cost of $22,505 and accumulated depreciation of $15,791. The Company also replaced a few small items of old machinery and office equipment.
Depreciation expense for the three and nine months ended December 31, 2020 and 2019 was $32,051 and $27,648, $83,210 and $84,277, respectively.
9. | SHORT-TERM BANK LOAN |
In September 2018, HSW, a subsidiary of the Company entered into a facility agreement with Dongguan Agricultural Commercial Bank and obtained a line of credit, which allows the Company to borrow up to approximately $212,334 (RMB1,500,000) for daily operations with fixed interest rate of 6.96% per annum. The loans are guaranteed at no cost by legal representative of HSW. In September 2020, the Company fully repaid the outstanding loan and this line of credit was cancelled (March 31, 2020: $211,868).
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, 2020, the Company has borrowed $153,172 (RMB1,000,000) (March 31, 2020: $141,246) under this line of credit with various annual interest rates from 4.84% to 4.9%. The outstanding loan balance will be due on March 31, 2021.
In August 2020, DT entered into a new facility agreement with Webank and obtained a credit facility of $88,358 (RMB600,000) for daily operations with various annual interest rate from 16.2% to 16.29%. The loans are guaranteed at no cost by the legal representative of DT. The loan borrowing was $86,886 (RMB590,000) as of September 30, 2020 (March 31, 2020: Nil). The loan was transferred to the buyer with the disposal of DT on September 30, 2020.
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, 2020 and 2019.
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, 2020 and 2019.
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 2020 and 2019. 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 an 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, 2020 and 2019.
F-11 |
The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows:
Three months ended | Nine months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
PRC statutory tax rate | 25 | % | 25 | % | 25 | % | 25 | % | ||||||||
Computed expected benefits | (71,949 | ) | (62,297 | ) | (884,253 | ) | (233,850 | ) | ||||||||
Temporary differences | 29,440 | 22,942 | 629,954 | 32,028 | ||||||||||||
Permanent difference | 6,640 | - | 131,595 | - | ||||||||||||
Changes in valuation allowance | 51,653 | 48,377 | 145,900 | 213,908 | ||||||||||||
Income tax expense | $ | 15,784 | $ | 9,022 | $ | 23,196 | $ | 12, 086 |
(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 2020 and 2019. 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 four 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 in the segment structure is presented in the following tables:
F-12 |
Revenues by segment for the three and nine months ended December 31, 2020 and 2019 are as follows:
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
Revenues | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Garments manufacturing segment | $ | 2,287,981 | $ | 2,643,560 | $ | 5,186,042 | $ | 3,517,009 | ||||||||
Logistics services segment | 824,025 | 1,384,342 | 3,664,409 | 4,665,387 | ||||||||||||
Property management and subleasing | 294,759 | - | 294,759 | - | ||||||||||||
Epidemic prevention supplies segment | 4,787 | - | 11,868,854 | - | ||||||||||||
Total of reportable segments and consolidated revenue | $ | 3,411,552 | $ | 4,027,902 | $ | 21,014,064 | $ | 8,182,396 |
Income from operations by segment for the three and nine months ended December 31, 2020 and 2019 are as follows:
Three months ended | Nine months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Garment manufacturing segment | $ | 98,905 | $ | 158,268 | ) | $ | 240,423 | $ | 187,803 | |||||||
Logistics services segment | 57,222 | (176,350 | ) | 92,506 | (168,634 | ) | ||||||||||
Property management and subleasing | 5,966 | - | 5,966 | - | ||||||||||||
Epidemic prevention supplies | (201,147 | ) | - | (3,297,265 | ) | - | ||||||||||
Total of reportable segments | (39,054 | ) | (18,082 | ) | (2,958,370 | ) | 19,169 | |||||||||
Reconciliation – Corporate | (249,472 | ) | (227,210 | ) | (634,645 | ) | (927,569 | ) | ||||||||
Total consolidated loss from operations | $ | (288,526 | ) | $ | (245,292 | ) | $ | (3,593,015 | ) | $ | (908,400 | ) |
Total assets by segment as at December 31, 2020 and March 31, 2020 are as follows:
Total assets | December 31, 2020 | March 31, 2020 | ||||||
Garment manufacturing segment | $ | 2,628,877 | $ | 4,098,758 | ||||
Logistics services segment | 1,877,949 | 2,422,140 | ||||||
Property management and subleasing | 9,993,744 | - | ||||||
Epidemic prevention supplies | 243,075 | - | ||||||
Total of reportable segments | 14,743,645 | 6,520,898 | ||||||
Reconciliation – Corporate | 2,534,719 | 1,901,080 | ||||||
Consolidated total assets | $ | 17,278,364 | $ | 8,421,978 |
F-13 |
12. | ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables consist of the following as of December 31, 2020 and March 31, 2020:
December 31, 2020 | March 31, 2020 | |||||||
Accrued wages and welfare | 58,874 | 61,776 | ||||||
Other tax payable | 51,387 | 25,206 | ||||||
Rental payable | 52,833 | 24,972 | ||||||
Customers’ deposits | 210,785 | - | ||||||
Other payables | 37,437 | 118,963 | ||||||
$ | 411,316 | $ | 230,917 |
13. | LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES |
The Company implemented new accounting policy according to the ASC 842, Leases, on April 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately $0.06 million lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of December 31, 2020, with discounted rate of 4.35%. 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:
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Operating lease cost | 444,162 | 126,053 | 668,883 | 325,664 | ||||||||||||
Short-term lease cost | - | 6,445 | - | 70,231 | ||||||||||||
$ | 444,162 | $ | 132,498 | 668,883 | 395,895 |
The following table summarizes supplemental information related to leases:
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
Operating cash flow from operating leases | $ | 444,162 | $ | 132,498 | $ | 668,883 | $ | 395,895 | ||||||||
Right-of-use assets obtained in exchange for new operating leases liabilities | 10,378,042 | 65,527 | 10,404,962 | 1,966,535 | ||||||||||||
Weighted average remaining lease term - Operating leases (years) | 3.1 | 4.5 | 3.1 | 4.5 | ||||||||||||
Weighted average discount rate - Operating leases | 4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % |
The following table summarizes the maturity of operating lease liabilities:
Years ending December 31 | Lease cost | |||
2021 | $ | 4,092,830 | ||
2022 | 4,107,892 | |||
2023 | 4,145,246 | |||
2024 | 310,197 | |||
Total lease payments | 12,656,165 | |||
Less: Interest | (1,051,639 | ) | ||
Total | $ | 11,604,526 |
14. SHARE CAPITAL
In August 2020, the Company offered 747,000 common stocks to an individual investor. The subscription price was $5.00 per share. The proceeds were all received in August 2020.
15. DISPOSITION OF SUBSIDIARIES
The Company sold its subsidiary DT, a manufacturing company in garment manufacturing segment on October 1 to a third party and sold HPF, a subsidiary in logistics services segment in November 2020 to another third party. After disposition, the two subsidiaries became third parties to the Company. The Company will not have any businesses with the two subsidiaries nor the buyers. The business operations, customers and suppliers of DT and HPF were retained by the Company; therefore, the disposition of the two subsidiaries did not qualify as discontinued operations.
F-14 |
To the Board of Directors
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Addentax Group Corp. (a development stage company)(the “Company”) as of March 31, 20152020 and 2019, and the related statementconsolidated statements of operations,loss and comprehensive loss, changes in shareholder’s equity, and cash flowflows for each of the two years in the period from October 28, 2014 (Inception) toended March 31, 2015. These financial statements are2020, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
Going concern uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has nominal incomeincurred recurring losses from operations, since Inception (October 28, 2014)has net current liabilities and currently does not have sufficient available funding to fully implement its business plan. These factorsan accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management'sManagement’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter
The Company has significant transactions with related parties, which are described in Note 6 to the financial statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist.
/s/ B F Borgers CPA PC | |
Lakewood, Colorado | |
F-15 |
CONSOLIDATED BALANCE SHEET
(In U.S. Dollars, except share data or otherwise stated)
AS OF MARCH 31, 2015
March 31, 2015 | ||||
ASSETS | ||||
Current Assets | ||||
Cash and cash equivalents | $ | 6,990 | ||
Prepaid expenses | 950 | |||
Total Current Assets | 7,940 | |||
Fixed Assets, net of accumulated depreciation of $267 | 3,349 | |||
Total Assets | $ | 11,289 | ||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||
Current Liabilities | ||||
Tax payable | $ | 28 | ||
Loans from director | 8,100 | |||
Total Current Liabilities | 8,128 | |||
Total Liabilities | 8,128 | |||
Stockholder’s Equity | ||||
Common stock, par value $0.001; 75,000,000 shares authorized, 3,000,000 shares issued and outstanding | 3,000 | |||
Earnings accumulated during the development stage | 161 | |||
Total Stockholder’s Equity | 3,161 | |||
Total Liabilities and Stockholder’s Equity | $ | 11,289 |
2020 | 2019 (Restated) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 531,681 | $ | 277,264 | ||||
Accounts receivables | 4,500,116 | 1,798,489 | ||||||
Inventories | 347,531 | 318,047 | ||||||
Other receivables | 231,974 | 178,128 | ||||||
Advances to suppliers | 389,940 | 230,484 | ||||||
Total current assets | 6,001,242 | 2,802,412 | ||||||
NON-CURRENT ASSETS | ||||||||
Plant and equipment, net | 585,019 | 694,431 | ||||||
Operating lease right of use asset | 1,835,717 | - | ||||||
Total non-current assets | 2,420,736 | 694,431 | ||||||
TOTAL ASSETS | $ | 8,421,978 | $ | 3,496,843 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Short-term loan | $ | 353,114 | $ | 223,502 | ||||
Accounts payable | 3,620,583 | 884,251 | ||||||
Related party borrowings | 5,429,440 | 4,204,130 | ||||||
Advances from customers | 18,931 | 102,673 | ||||||
Accrued expenses and other payables | 230,917 | 259,837 | ||||||
Lease liabilities, current portion | 443,543 | - | ||||||
Total current liabilities | 10,096,528 | 5,674,393 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Lease liability, net of current portion | 1,392,174 | - | ||||||
TOTAL LIABILITIES | 11,488,702 | 5,674,393 | ||||||
EQUITY | ||||||||
Common stock ($0.001 par value, 50,000,000 shares authorized, 25,346,004 shares issued and outstanding as of March 31, 2020 and 2019 respectively) | $ | 25,346 | $ | 25,346 | ||||
Additional paid-in capital | 61,050 | 61,050 | ||||||
Accumulated deficits | (3,233,122 | ) | (2,250,770 | ) | ||||
Statutory reserve | 23,514 | 21,779 | ||||||
Accumulated other comprehensive income (loss) | 56,488 | (34,955 | ) | |||||
Total deficit | (3,066,724 | ) | (2,177,550 | ) | ||||
TOTAL LIABILITIES AND EQUITY | $ | 8,421,978 | $ | 3,496,843 |
See accompanyingaccompany notes to these auditedthe consolidated financial statements.
F-16 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE PERIOD FROM OCTOBER 28, 2014 (INCEPTION) TOYEARS ENDED MARCH 31, 2015
For the period from October 28, 2014 (Inception) to March 31, 2015 | ||||
REVENUES | $ | 1,080 | ||
OPERATING EXPENSES | ||||
General and administrative expenses | 891 | |||
TOTAL OPERATING EXPENSES | 891 | |||
NET INCOME FROM OPERATIONS | 189 | |||
PROVISION FOR INCOME TAXES | (28 | ) | ||
NET INCOME | $ | 161 | ||
NET INCOME PER SHARE: BASIC AND DILUTED | $ | 0.00 | * | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | 1,850,649 |
2020 (Restated) | 2019 | |||||||
REVENUES | $ | 10,172,379 | $ | 10,026,920 | ||||
COST OF REVENUES | (8,787,018 | ) | (8,744,226 | ) | ||||
GROSS PROFIT | 1,385,361 | 1,282,694 | ||||||
OPERATING EXPENSES | ||||||||
Selling and marketing | (13,406 | ) | (17,905 | ) | ||||
General and administrative | (2,236,273 | ) | (1,947,916 | ) | ||||
Total operating expenses | (2,249,679 | ) | (1,965,821 | ) | ||||
LOSS FROM OPERATIONS | (864,318 | ) | (683,127 | ) | ||||
Interest income | 130 | 112 | ||||||
Interest expenses | (20,799 | ) | (11,535 | ) | ||||
OTHER (EXPENSES)/INCOME | (79,560 | ) | 8,776 | |||||
LOSS BEFORE INCOME TAX EXPENSE | (964,547 | ) | (685,774 | ) | ||||
INCOME TAX EXPENSE | (16,070 | ) | (8,555 | ) | ||||
NET LOSS | (980,617 | ) | (694,329 | ) | ||||
Foreign currency translation gain | 91,443 | 96,716 | ||||||
TOTAL COMPREHENSIVE LOSS | $ | (889,174 | ) | $ | (597,613 | ) | ||
LOSS PER SHARE | ||||||||
Basic and diluted | (0.04 | ) | (0.03 | ) | ||||
Weighted average number of shares outstanding – Basic and diluted | 25,346,004 | 25,346,004 |
See accompanyingaccompany notes to these auditedthe consolidated financial statements.
F-17 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
(In U.S. Dollars, except share data or otherwise stated)
FOR THE PERIOD FROM OCTOBER 28, 2014 (INCEPTION) TOYEARS ENDED MARCH 31, 2015
Common Stock | Earnings Accumulated during the Development | Total Stockholders’ | ||||||||||||||
Shares | Amount | Stage | Equity | |||||||||||||
Inception, October 28, 2014 | - | $ | - | $ | - | $ | - | |||||||||
Shares issued for cash at $0.001 per share on December 26, 2014 | 3,000,000 | 3,000 | - | 3,000 | ||||||||||||
Net income for the period ended March 31, 2015 | - | - | 161 | 161 | ||||||||||||
Balance, March 31, 2015 | 3,000,000 | $ | 3,000 | $ | 161 | $ | 3,161 |
Common Stock | Additional | Retained earnings | Accumulated other | |||||||||||||||||||||||||
Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
BALANCE AT MARCH 31, 2018 (Restated) | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (1,556,201 | ) | $ | 21,539 | $ | (131,671 | ) | $ | (1,579,937 | ) | ||||||||||||
Transfer to Statutory reserve | - | - | - | (240 | ) | 240 | - | - | ||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | 96,716 | 96,716 | |||||||||||||||||||||
Net loss for the year | - | - | - | (694,329 | ) | - | - | (694,329 | ) | |||||||||||||||||||
BALANCE AT MARCH 31, 2019 (Restated) | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,250,770 | ) | $ | 21,779 | $ | (34,955 | ) | $ | (2,177,550 | ) | ||||||||||||
Transfer to Statutory reserve | - | - | - | (1,735 | ) | 1,735 | - | - | ||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | 91,443 | 91,443 | |||||||||||||||||||||
Net loss for the year (Restated) | - | - | - | (980,617 | ) | - | - | (980,617 | ) | |||||||||||||||||||
BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,233,122 | ) | $ | 23,514 | $ | 56,488 | $ | (3,066,724 | ) |
See accompanyingaccompany notes to these auditedthe consolidated financial statements.
F-18 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE PERIOD FROM OCTOBER 28, 2014 (INCEPTION) TOYEARS ENDED MARCH 31, 2015
For the period from October 28, 2014 (Inception) to March 31, 2015 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Net income for the period | $ | 161 | ||
Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||
Depreciation | 267 | |||
Changes in operating assets and liabilities: | ||||
Increase in the prepaid expenses | (950 | ) | ||
Increase in taxes payable | 28 | |||
CASH FLOWS USED IN OPERATING ACTIVITIES | (494 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||
Purchase of fixed assets | (3,616 | ) | ||
CASH FLOWS USED IN INVESTING ACTIVITIES | (3,616 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||
Proceeds from sale of common stock | 3,000 | |||
Loans from director | 8,100 | |||
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 11,100 | |||
NET INCREASE IN CASH | 6,990 | |||
Cash, beginning of period | - | |||
Cash, end of period | $ | 6,990 | ||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||
Interest paid | $ | - | ||
Income taxes paid | $ | - |
2020 (Restated) | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (980,617 | ) | $ | (694,329 | ) | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 114,391 | 115,673 | ||||||
Loss on disposal of plant and equipment | 87,305 | 10,324 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (2,701,627 | ) | 1,618,129 | |||||
Inventories | (29,484 | ) | (78,818 | ) | ||||
Advances to suppliers | (159,456 | ) | 35,893 | |||||
Amounts due from related parties | - | 202,426 | ||||||
Other receivables | (53,846 | ) | 1,926,637 | |||||
Accounts payables | 2,736,332 | (608,244 | ) | |||||
Accrued expenses and other payables | (80,109 | ) | 130,721 | |||||
Advances from customers | (83,742 | ) | (1,459,187 | ) | ||||
Taxes payable | - | (6,064 | ) | |||||
Net cash (used in) provided by operating activities | $ | (1,150,853 | ) | $ | 1,193,161 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of plant and equipment | (136,001 | ) | (229,240 | ) | ||||
Net cash used in investing activities | $ | (136,001 | ) | $ | (229,240 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from related party borrowings | 2,475,728 | 2,253,680 | ||||||
Repayment of related party borrowings | (1,063,323 | ) | (3,368,969 | ) | ||||
Proceeds from bank borrowings | 515,447 | 223,502 | ||||||
Repayment of bank borrowings | (371,868 | ) | - | |||||
Repayment of third party borrowings | - | (56,739 | ) | |||||
Net cash provided by (used in) financing activities | $ | 1,555,984 | $ | (948,526 | ) | |||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 269,130 | 15,395 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (14,713 | ) | (2,937 | ) | ||||
Cash and cash equivalents, beginning of year | 277,264 | 264,806 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 531,681 | $ | 277,264 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for interest | 15,143 | 9,593 | ||||||
Cash paid during the year for income tax | 16,070 | 8,555 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Right-of-use assets obtained in exchange for operating lease obligations | 1,982,393 | - |
See accompanyingaccompany notes to these auditedthe consolidated financial statements.
F-19 |
NOTES TO THE AUDITEDCONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 28, 2014 (INCEPTION) TOYEARS ENDED MARCH 31, 2015
1. | ORGANIZATION AND BUSINESS ACQUISITIONS |
Addentax Group Corp. (“the Company”, “we”, “us” or “our”ATXG”) was incorporated in Nevada on October 28, 20142014. It is engaged in the business of garments manufacturing, providing logistic services in the People’s Republic of China (“PRC” or “China”) and epidemic prevention supplies manufacturing and distribution both in China and overseas markets.
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 following 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 own approximately ninty-nine percent (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 workingthat of the acquirer prior to the consummation date and that of the combined entity after that date.
Yingxi was incorporated in the fieldRepublic of producing imagesSeychelles on multiple surfaces using heatAugust 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 technology.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 of the following subsidiaries:
Qianhai Yingxi Textile & Garments Co., Ltd (“QYTG”), a wholly-owned subsidiary of Yingxi HK, was incorporated in the PRC in 2016.
Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), a wholly-owned subsidiary of QYTG, was incorporated in the PRC in 2016.
Xin Kuai Jie Transport Co., Ltd (“XKJ”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2001. XKJ is engaged in the provision of logistic services.
Shenzhen Hua Peng Fa Logistics Co., Ltd (“HPF”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2006. HPF is engaged in the provision of logistic services.
Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2009. HSW is a garment manufacturer.
Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2009. DT is a garment manufacturer.
Dongguan Yingxi Daying Commercial Co., Ltd (“DY”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2019. DY is a property management company for the garment manufacturing industry.
Dongguan Yushang Clothing Co., Ltd (“YS”), a wholly-owned subsidiary of YX, was incorporated in the PRC in 2019. YS is a garment manufacturer.
Shantou Yi Bai Yi Garments Co., Ltd (“YBY”), a wholly-owned subsidiary of YX, was incorporated in PRC in 2019, YBY is a garment manufacturer.
F-20 |
2. | BASIS OF PRESENTATION, LIQUIDITY |
The accompanying consolidated financial statements have beenof the Company and its subsidiaries are prepared pursuant to the rules and regulations of the U.S Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles which assumein the U.S. (“US GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are presented on the basis that the Company will be able to realize itsis a going concern. The going concern assumption contemplates the realization of assets and discharge itsthe satisfaction of liabilities in the normal course of businessbusiness.
The Company incurred net loss of $980,617, $694,329 for the foreseeable future. However,years ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and 2019, the Company has generated only limited revenueshad net current liability of $4,095,286 and nominal net income since Inception (October 28, 2014) through March 31, 2015. The Company currently has nominal working capital, has not completed its efforts to establish$2,871,981, respectively, and a stabilized sourcedeficit on total equity of revenues sufficient to cover operating costs over an extended period of time$3,066,724 and currently does not have the funding to fully implement its business-plan. Therefore there is$2,177,550, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon the CompanyCompany’s profit generating sustainable profitable operations in the future and, and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come duebecome 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 implementationCEO. During the year, the CEO has provided financial support for the operations of its business plan.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Use of Estimates |
The Company’s yearend is March 31.
(b) | Fair Value Measurement |
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 March 31, 2020, the Company has no financial assets or liabilities subject to recurring fair value measurements.
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.
F-21 |
(c) | Cash and Cash Equivalents |
The Company considers all highly liquid investments purchased with the original maturities of three months or less to be cash equivalents. All cash and cash equivalents relate to cash on hand and cash at bank at March 31, 2020 and 2019.
The Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business.
(d) | Accounts Receivable |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company had $6,990extends credit to its customers in the normal course of cashbusiness 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 were incorrect, adjustments to the allowance may be required, which would reduce profitability.
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 ofincurred. No allowance for doubtful accounts was made for the years ended March 31, 2015.
(e) | Inventories |
Manufacturing segment inventories consist of Financial Instruments
(f) | Plant and Equipment |
Plant and equipment are statedcarried at cost and depreciated onless accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives, using the straight-line method over the estimated lifemethod. Estimated useful lives of the asset, which is 5 years.
Production plant | 5-10 years |
Motor vehicles | 10-15 years |
Office equipment | 5-10 years |
The cost and replacements that increase the property's useful life are capitalized. Property sold or retired, together with the related accumulated depreciation is removedof assets sold or otherwise retired are eliminated from the appropriated accounts and the resultantany gain or loss is included in the statement of loss and comprehensive loss. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized.
(g) | Accounting for the Impairment of Long-Lived Assets and Goodwill |
In previous, the Company early adopted ASU 2017-04. Under the new accounting guidance, the Company should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. In previous financial statements for the year ended March 31, 2020, the Company impaired goodwill of $475,003. The Company reperformed the test on The Company has restated the impairment of goodwill as if it was impaired during the year ended March 31, 2018.
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 income.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 March 31, 2020 and 2019.
F-23 |
(h) | Revenue Recognition |
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:
(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.
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 of the good or service.
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 as of March 31, 2020 & 2019.
Cost of revenues for garment manufacturing segment includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment and rent. Cost of revenue for logistics services segment includes gasoline and diesel fuel, toll charges and subcontracting fees. Cost of revenue for epidemic prevention supplies business includes cost of merchandise and cost of direct raw materials, direct labor, and manufacturing overheads of our own products.
(i) | Earnings Per Share |
The Company reports earnings (loss) 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 reporting 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 had no potentially dilutive ordinary shares as of March 31, 2020 and 2019.
F-24 |
(j) | Income Taxes |
The Company accounts for income taxes are computed using the asset and liability method.method prescribed by ASC 740 “Income Taxes”. Under the asset and liabilitythis method, deferred income tax assets and liabilities are determined based on the differencesdifference between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. Athat will be in effect in the years in which the differences are expected to reverse. The Company records a valuation allowance is provided for the amount ofto offset deferred tax assets that,if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company has a history of tax losses and there is no convincing evidence that sufficient taxable income will be available against which the deferred tax asset can be utilized, therefore, the Company does not recognize any tax benefits for the year ended March 31, 2020 & 2019.
The Company’s Chinese subsidiaries aregoverned 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 years ended March 31, 2020 and 2019. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatments.
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 was recorded relating to the Tax Act changes for the years ended March 31, 2020 and 2019.
(k) | Leases |
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.
(l) | Restatement of prior years’ consolidated financial statements |
During the preparation of the Company’s March 31, 2020 and 2019 consolidated financial statements, the prior years’ consolidated financial statements have been restated on following matter:
F-25 |
Impairment of goodwill
In previous financial statements for the year ended March 31, 2020, the Company impaired goodwill of $475,003. The Company reperformed the test on goodwill for impairment as of March 31, 2020 and it was determined that recoverable amount of one of the Company’s reporting units was lower than the carrying amount of the goodwill recorded as of March 31, 2018. Therefore, it was concluded that total carrying amount of goodwill should has been fully impaired as of March 31, 2018. The Company has restated the impairment of goodwill as if it was impaired during the year ended March 31, 2018. The Comprehensive loss for the year ended March 31, 2020 decreased by $475,003. The long live assets as of March 31, 2019 decreased by $475,003. The accumulated deficits as of March 31, 2019 increased by the same amount. The restatement has no impact on previously reported “cash flows” amount.
(m) | Recently issued and adopted 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 realized.
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.
4. | RISKS AND UNCERTAINTIES |
(a) | Economic and Political Risks |
The Company’s operations are conducted in accordance with Accounting Standards Codification No. 605, “Revenue Recognition” ("ASC-605"), ASC-605 requires that four basic criteria mustthe PRC. Accordingly, the Company’s business, financial condition and results of operations may be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)influenced by the selling price is fixedpolitical, economic and determinable;legal environment in the PRC, and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regardingby the fixed naturegeneral state of the selling pricesPRC 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. dollar. The functional currency of the products deliveredparent company is the U.S. dollar and the collectabilityfunctional currency of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same periodCompany’s operating subsidiaries is the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
(c) | Concentration Risks |
During the period from October 28, 2014 (inception) toyears ended March 31, 20152020 and 2019, approximately 92.7% and 39% of total inventory purchases were no differences between our comprehensive loss and net loss.
The followings are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment as discussed above.
Equipment | Website | Totals | ||||||||||
Cost | ||||||||||||
As at October 28, 2014 | $ | - | $ | - | $ | - | ||||||
Additions | 2,916 | 700 | 3,616 | |||||||||
Disposals | - | - | - | |||||||||
As at March 31, 2015 | 2,916 | 700 | 3,616 | |||||||||
Depreciation | - | - | - | |||||||||
As at October 28, 2014 | - | - | - | |||||||||
Change for the period | 267 | - | 267 | |||||||||
As at March 31, 2015 | 267 | - | 267 | |||||||||
Net book value | $ | 2,649 | $ | 700 | $ | 3,349 |
Garment manufacturing segment
2020 | 2019 | |||||||
Customer A | 85.5 | % | 0 | % | ||||
Customer B | 10.2 | % | 28.7 | % | ||||
Customer C | 2.0 | % | 0 | % | ||||
Customer D | 0.7 | % | 0 | % | ||||
Customer E | 0.5 | % | 0 | % |
The high concentration as at March 31, 2020 was recognizedmainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
Logistics services segment
2020 | 2019 | |||||||
Customer A | 22.4 | % | 27.4 | % | ||||
Customer B | 18.3 | % | 18.8 | % | ||||
Customer C | 17.8 | % | 17.6 | % | ||||
Customer D | 5.0 | % | 2.6 | % | ||||
Customer E | 3.8 | % | 2.9 | % |
(d) | Interest Rate Risk |
The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in respectcash deposits and liquid investments. As of March 31, 2020, the total outstanding borrowings amounted to $353,114 (RMB 2,500,000) with various interest rate from4.84% 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 website duringpandemic have created a high level of uncertainty to global economic prospects and this has impacted the period from October 28, 2014Company’s operations and its financial performance in the last two months of the financial year and 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 is monitoring the situation closely and to mitigate the financial impact, it is conscientiously managing its cost by adopting an operating cost reduction strategy and conserving liquidity by working with major creditors to align repayment obligations with receivable collections.
5. | ACCOUNTS RECEIVABLES |
The receivables and allowance balances at March 31, 2015,2020 and 2019 are as follows:
2020 | 2019 | |||||||
Accounts receivable | $ | 4,500,116 | $ | 1,798,489 | ||||
Less: allowance for doubtful accounts | - | - | ||||||
Accounts receivable, net | $ | 4,500,116 | $ | 1,798,489 |
No allowance for doubtful accounts was made for the website was not yet operational duringyears ended March 31, 2020 and 2019.
6. | RELATED PARTY TRANSACTIONS |
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 | |
Bihua Yang | A legal representative of XKJ | |
Dewu Huang | A legal representative of DT | |
Jinlong Huang | A spouse of legal representative of HSW |
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
F-26 |
The Company had the period.
Related party debt | 2020 | 2019 | ||||||
Zhida Hong | $ | 5,043,489 | $ | 3,989,382 | ||||
Zhongpeng Chen | 160,427 | 169,235 | ||||||
Dewu Huang | 81,287 | - | ||||||
Jinlong Huang | 144,237 | 45,513 | ||||||
$ | 5,429,440 | $ | 4,204,130 |
The balances of related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advancesparty debts are considered temporary in nature and have not been formalized by a promissory note.
7. | INVENTORIES |
Inventories consist of the following as of March 31, 2020 and 2019:
2020 | 2019 | |||||||
Raw materials | $ | 230,742 | $ | 157,382 | ||||
Work in progress | 62,150 | 160,665 | ||||||
Finished goods | 54,639 | - | ||||||
Total inventories | $ | 347,531 | $ | 318,047 |
There is no inventory write-downs for the years ended March 31, 2020 and 2019.
8. | 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.
9. | PLANT AND EQUIPMENT |
Plant and equipment consists of the following as of March 31, 2020 and 2019:
2020 | 2019 | |||||||
Production plant | $ | 67,247 | $ | 107,173 | ||||
Motor vehicles | 868,743 | 1,016,818 | ||||||
Office equipment | 19,471 | 14,722 | ||||||
955,461 | 1,138,713 | |||||||
Less: accumulated depreciation | (370,442 | ) | (444,282 | ) | ||||
Plant and equipment, net | $ | 585,019 | $ | 694,431 |
Depreciation expense for the years ended March 31, 2020 and 2019 was $114,391 and $115,673, respectively.
F-27 |
10. | SHORT-TERM BANK LOAN |
In September 2018, HSW, a subsidiary of the Company entered into a Loan Agreementfacility agreement with Otmane Tajmouati, the Company’s sole officeDongguan Agricultural Commercial Bank and director. Under the termsobtained a line of the Loan Agreement, Mr. Tajmouati has agreed to loan up to $30,000 tocredit, which allows the Company to fund ongoing expenses operational needs. No fundsborrow up to approximately $212,334 (RMB1,500,000) for daily operations with fixed interest rate of 6.96% per annum. The loans are guaranteed at no cost by legal representative of HSW. As of March 31, 2020, the Company has borrowed $211,868 (RMB1,500,000) under this Loan Agreementline of credit. In September 2020, the Company fully repaid the outstanding loan and this line of credit was cancelled.
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 $147,264 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of March 31, 2020, the Company has borrowed $141,246 (RMB1,000,000) under this line of credit with various annual interest rates from 4.84% to 4.9%. The outstanding loan balance will be due on March 31, 2021.
11. | 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 years ended March 31, 2020 and 2019.
YX were advancedincorporated in the PRC and is subject to the Company duringEIT tax rate of 25%. No provision for income taxes in the period October 28, 2014 (inception) toPRC has been made as YX had no taxable income for the years ended March 31, 2015. 2020 and 2019.
The balanceCompany is governed by the Income Tax Laws of $8,100 that had been loanedthe PRC. All Yingxi’s operating companies were subject to progressive EIT rates from 5% to 15% in 2020 and 2019. 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 an U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the years ended March 31, 2020 and 2019.
F-28 |
The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows:
2020 | 2019 | |||||||
PRC statutory tax rate | 25 | % | 25 | % | ||||
Computed expected benefits | $ | (241,137 | ) | $ | (171,444 | ) | ||
Temporary differences | (15,205 | ) | 19,291 | |||||
Changes in valuation allowance | 268,680 | 160,708 | ||||||
Permanent difference | 3,732 | - | ||||||
Reported income tax expense | $ | 16,070 | $ | 8,555 |
(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 2020 and 2019. 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.
12. | CONSOLIDATED SEGMENT DATA |
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:
(a) | Manufacturing of garments (the “Garment manufacturing segment”); and | |
(b) | Providing logistic services (the “Logistics services segment”). |
The Company also provides general corporate services to its segments and these costs are reported as “Corporate”.
Selected information in the segment structure is presented in the following tables:
Revenues by Mr. Tajmouatisegment for the years ended March 31, 2020 and 2019 are as follows:
Revenues | 2020 | 2019 | ||||||
Garment manufacturing segment | $ | 4,298,518 | $ | 3,359,637 | ||||
Logistics services segment | 5,873,861 | 6,667,283 | ||||||
Total of reportable segments | 10,172,379 | 10,026,920 | ||||||
Reconciliation – Corporate | - | - | ||||||
Total consolidated revenue | $ | 10,172,379 | $ | 10,026,920 |
Income from operations by segment for the years ended March 31, 2020 and 2019 are as follows:
Operating income (loss) | 2020 | 2019 | ||||||
Garment manufacturing segment | $ | 215,324 | $ | 8,091 | ||||
Logistics services segment | 80,128 | (10 | ) | |||||
Total of reportable segments | 295,452 | 8,081 | ||||||
Reconciliation – Corporate | (1,159,770 | ) | (691,208 | ) | ||||
Total consolidated loss from operations | $ | (864,318 | ) | $ | (683,127 | ) | ||
Garment manufacturing segment | (26,686 | ) | (12,762 | ) | ||||
Logistics services segment | (72,750 | ) | 10,118 | |||||
Total of reportable segments | (99,436 | ) | (2,644 | ) | ||||
Reconciliation – Corporate | (793 | ) | (3 | ) | ||||
Total consolidated loss before income tax | $ | (964,547 | ) | $ | (685,774 | ) | ||
Income tax expense | (16,070 | ) | (8,555 | ) | ||||
Net loss | $ | (980,617 | ) | $ | (694,329 | ) |
F-29 |
Depreciation and amortization by segment for the years ended March 31, 2020 and 2019 are as follows:
Depreciation | 2020 | 2019 | ||||||
Garment manufacturing segment | $ | 9,739 | $ | 23,036 | ||||
Logistics service segment | 104,652 | 92,637 | ||||||
Total of reportable segments | 114,391 | 115,673 | ||||||
Reconciliation – Corporate | - | - | ||||||
Total consolidated depreciation | $ | 114,391 | $ | 115,673 |
Expenditure for addition of long lived assets for the years ended March 31, 2020 and 2019 are as follows:
Expenditure for additions to long lived assets | 2020 | 2019 | ||||||
Garment manufacturing segment | $ | 6,526 | $ | - | ||||
Logistics services segment | 129,476 | 228,618 | ||||||
Total of reportable segments | 136,002 | 228,618 | ||||||
Reconciliation – Corporate | - | - | ||||||
Total consolidated expenditure for additions to long lived assets | $ | 136,002 | $ | 228,618 |
Total assets by segment at March 31, 2020 and 2019 are as follows:
Total assets | 2020 | 2019 | ||||||
Garment manufacturing segment | $ | 4,098,758 | $ | 1,242,335 | ||||
Logistics services segment | 2,422,140 | 2,253,308 | ||||||
Total of reportable segments | 6,520,898 | 3,495,643 | ||||||
Reconciliation – Corporate | 1,901,080 | 476,203 | ||||||
Total consolidated total assets | $ | 8,421,978 | $ | 3,971,846 |
12. | ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables consist of the following as of March 31, 2015 was not advanced under the terms of this loan agreement.
2020 | 2019 | |||||||
Accrued wages and welfare | 61,776 | 84,677 | ||||||
Other tax payable | 25,206 | 47,445 | ||||||
Rental payable | 24,972 | - | ||||||
Other payables | 118,963 | 127,715 | ||||||
$ | 230,917 | $ | 259,837 |
13. | LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES |
The Company has 75,000,000, $0.001 parimplemented new accounting policy according to the ASC 842, Leases, on April 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately $0.06 million lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of March 31, 2020, with discounted rate of 4.35%. 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.
F-30 |
As of March 31, 2020 and March 31, 2019, the right-of use asset and lease liabilities are as follows:
March 31, 2020 | March 31, 2019 | |||||||
Right-of-use asset – operating leases | $ | 1,835,717 | $ | - | ||||
Lease liabilities – current portion | 443,543 | - | ||||||
Lease liabilities – non-current portion | 1,392,174 | - | ||||||
$ | 1,835,717 | $ | - |
Lease cost
2020 | 2019 | |||||||
Operating lease cost | 451,685 | 94,986 | ||||||
Short-term lease cost | 63,785 | - | ||||||
515,470 | 94,986 |
Other information
2020 | 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flow from operating leases | $ | 515,470 | $ | - | ||||
Right-of-use assets obtained in exchange for new operating leases liabilities | 1,982,393 | - | ||||||
Weighted average remaining lease term - Operating leases (years) | 4.2 | - | ||||||
Weighted average discount rate - Operating leases | 4.35 | % | - |
14. | RESERVES |
Statutory reserve |
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. The amount appropriated to statutory reserve for the years ended March 31, 2020 and 2019 were $1,735 and $240, respectively. The balance of paid-up statutory reserve was $23,514 and $21,779 as of March 31, 2020 and 2019, respectively.
F-31 |
15. | REVERSE STOCK SPLIT |
On January 24, 2019, the Board of Directors of the Company approved a reverse stock split of the Company’s issued and outstanding shares of common stock, authorized.
16. | SUBSEQUENT EVENTS |
In April 2020, the Company developed a six months rental agreement, signed on December 15, 2015, starting on March 1, 2015new business segment: epidemic prevention supplies. The new business consists of manufacturing and terminating on August 31, 2015. Thedistribution of epidemic prevention products and reselling of epidemic prevention supplies purchased from third parties in both domestic and overseas markets.
In November 2020, the Company is renting 30 square metersdisposed of office space for $190 per month. The Company prepaid all six months$194,164 inventories to Mr. Huang and a prepaid balancethird party at cost for cash with no gain or loss recognized. Such cash was received in November 2020.
In November 2020, the Company disposed of $950one of its subsidiaries in logistic service segment, HPF, with a consideration of $173,170, equals to the carrying amount of its net assets.
On December 31, 2020, the Company offered 600,000 common stocks to an individual investor. The subscription price was $5.00 per share. The proceeds to be received will be used for working capital and other general corporate purposes.
There is reflectedno other subsequent events have occurred that would require recognition or disclosure in the financial statements at March 31, 2015.statements.
F-32 |
ADDENTAX GROUP CORP.
5,000,000 Shares of Common Stock
PROSPECTUS
You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not subjectcontained in this prospectus. This prospectus is not an offer to any legal proceedings during the period from October 28, 2014sell nor is it seeking an offer to March 31, 2015 and we know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiffbuy these securities in any material proceedingjurisdiction where the offer or pending litigation. There are no proceedingssale is not permitted. The information contained in which anythis prospectus is correct only as of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Until _____________ ___, 2015,, 2019, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters andunderwriter with respect to their unsold allotmentssubscriptions.
The date of this prospectus is , 2021
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or subscriptions.
SUBJECT TO COMPLETION, DATED MAY 17, 2021
PRELIMINARY PROSPECTUS
Addentax Group Corp.
987,000 Shares of Common Stock
This prospectus relates to the resale of 987,000 shares of our common stock by the selling stockholders named in this prospectus.
We are a reporting company under Section 15(d) of the Securities Exchange Act of 1934, as amended. Our common stock is currently quoted on the OTCQB Marketplace (the “OTCQB”) under the symbol “ATXG.” The closing price for our common stock on May 17, 2021, was $7.50 per share. There is a limited public trading market for our common stock. We are applying to list our common stock on the Nasdaq Capital Market under the symbol “ATXG.”
Investing in our securities involves risks. You should carefully consider the risk factors beginning on page 8 of this prospectus and set forth in the documents incorporated by reference herein before making any decision to invest in our securities.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this registration statement. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2021
THE OFFERING
Common stock offered by us: | 0 shares | ||
Common Stock offered by the selling stockholders | 987,000 shares | ||
Common stock outstanding before the offering: | 26,693,004 shares as of May 17, 2021 | ||
Common stock to be outstanding after the offering: | 31,093,004 shares (1) | ||
Use of proceeds: | We will not receive any of the proceeds from the sale of the common stock by the selling stockholders named in this prospectus. |
(1) Assumes no issuance by us of our common stock pursuant to the public offering prospectus filed contemporaneously herewith.
SS-1 |
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholders.
SS-2 |
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the number of shares of common stock owned by each selling stockholder immediately prior to the date of this prospectus and the number of shares to be offered by the selling stockholder pursuant to this prospectus. The table also provides information regarding the beneficial ownership of our common stock by the Selling Stockholder as adjusted to reflect the assumed sale of all of the shares offered under this prospectus.
Percentage of beneficial ownership before this offering is based on 26,693,004 shares of our common stock outstanding as May 17, 2021. Beneficial ownership is based on information furnished by the selling stockholders. Unless otherwise indicated and subject to community property laws where applicable, the selling stockholder named in the following table has, to our knowledge, sole voting and investment power with respect to the shares beneficially owned by him.
None of the selling stockholders has had any position, office or other material relationship within past three years with the Company. None of the selling stockholders is a broker dealer or an affiliate of a broker dealer. None of the selling stockholders has an agreement or understanding to distribute any of the shares being registered. Each selling stockholder may offer for sale from time to time any or all of the shares, subject to the lock up agreements described in the “Plan of Distribution.” The table below assumes that the selling shareholders will sell all of the shares offered for sale hereby. A selling stockholder is under no obligation to sell any shares pursuant to this prospectus.
Name of Selling Stockholder | Shares Beneficially Owned Prior to Offering | Maximum Number of Shares to be Sold | Number of Shares Owned After Offering | Percentage Ownership After Offering | ||||||||||||
ZENG Zeyang | 747,000 | 747,000 | - | - | % | |||||||||||
DING Yinping | 336,515 | 10,000 | 326,515 | 1.05 | % | |||||||||||
ZHOU Zhiyong | 262,531 | 10,000 | 252,531 | 0.81 | % | |||||||||||
YANG Bihua | 262,531 | 10,000 | 252,531 | 0.81 | % | |||||||||||
ZHANG Junze | 261,500 | 5,000 | 256,500 | 0.82 | % | |||||||||||
HUANG Jinlong | 209,344 | 10,000 | 199,344 | 0.64 | % | |||||||||||
WU Bo | 123,000 | 5,000 | 118,000 | 0.38 | % | |||||||||||
CHEN Yikui | 116,000 | 10,000 | 106,000 | 0.34 | % | |||||||||||
CHEN Zhongpeng | 107,778 | 10,000 | 97,778 | 0.31 | % | |||||||||||
HUANG Xijuan | 103,542 | 10,000 | 93,542 | 0.30 | % | |||||||||||
LIU Miaozhi | 91,930 | 5,000 | 86,930 | 0.28 | % | |||||||||||
ZHAO Sairui | 54,015 | 5,000 | 49,015 | 0.16 | % |
SS-3 |
ZHAN Mingqiang | 51,500 | 10,000 | 41,500 | 0.13 | % | |||||||||||
WU Xiaolei | 39,000 | 2,000 | 37,000 | 0.12 | % | |||||||||||
CHEN Zengyao | 32,000 | 5,000 | 27,000 | 0.09 | % | |||||||||||
ZHAN Hejiang | 32,000 | 2,000 | 30,000 | 0.10 | % | |||||||||||
ZHANG Lihe | 24,000 | 4,000 | 20,000 | 0.06 | % | |||||||||||
CHEN Chujuan | 21,330 | 2,000 | 19,330 | 0.06 | % | |||||||||||
CHEN Xinfeng | 15,000 | 5,000 | 10,000 | 0.03 | % | |||||||||||
LU Qiuzhe | 15,000 | 5,000 | 10,000 | 0.03 | % | |||||||||||
WU Sihua | 15,000 | 3,000 | 12,000 | 0.03 | % | |||||||||||
XU Weike | 12,500 | 5,000 | 7,500 | 0.02 | % | |||||||||||
LIU Sikun | 12,500 | 5,000 | 7,500 | 0.02 | % | |||||||||||
ZHOU Lifang | 12,250 | 3,000 | 9,250 | 0.03 | % | |||||||||||
QIU Shaoyang | 12,000 | 2,000 | 10,000 | 0.03 | % | |||||||||||
XU Hailiang | 12,000 | 7,000 | 5,000 | 0.02 | % | |||||||||||
CHEN Bijian | 12,000 | 2,000 | 10,000 | 0.03 | % | |||||||||||
DING Yunfeng | 11,365 | 5,000 | 6,365 | 0.02 | % | |||||||||||
ZHAO Zhiming | 11,000 | 3,000 | 8,000 | 0.03 | % | |||||||||||
DENG Anlie | 11,000 | 5,500 | 5,500 | 0.02 | % | |||||||||||
CHEN Yousong | 10,000 | 10,000 | - | - | % | |||||||||||
LI Xiaomei | 10,000 | 10,000 | - | - | % | |||||||||||
GAN Chao | 10,000 | 5,000 | 5,000 | 0.02 | % | |||||||||||
WANG Dongan | 9,000 | 2,000 | 7,000 | 0.02 | % | |||||||||||
XU Qunfang | 7,850 | 2,000 | 5,850 | 0.02 | % | |||||||||||
LIN Zerun | 7,800 | 1,000 | 6,800 | 0.02 | % |
SS-4 |
WU Hanyan | 7,800 | 1,000 | 6,800 | 0.02 | % | |||||||||||
PENG Miao | 7,500 | 1,000 | 6,500 | 0.02 | % | |||||||||||
ZHANG Jiuhua | 7,500 | 6,000 | 1,500 | 0.00 | % | |||||||||||
LIU Yong | 6,000 | 1,000 | 5,000 | 0.02 | % | |||||||||||
MA Yaonan | 6,000 | 1,000 | 5,000 | 0.02 | % | |||||||||||
LIN Shaoqi | 6,000 | 1,000 | 5,000 | 0.02 | % | |||||||||||
LIU Chengzuo | 6,000 | 1,000 | 5,000 | 0.02 | % | |||||||||||
CHENG Wei | 5,500 | 1,000 | 4,500 | 0.01 | % | |||||||||||
YAN Xiaodan | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
HUANG Lifeng | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
HUANG Kexin | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
HUANG Jiancheng | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
LOU Huiqian | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
YING Binman | 5,000 | 1,000 | 4,000 | 0.01 | % | |||||||||||
LIAO Qiaoxi | 4,500 | 1,000 | 3,500 | 0.01 | % | |||||||||||
HUANG Shaojie | 4,155 | 1,000 | 3,155 | 0.01 | % | |||||||||||
LI Ruixiong | 4,000 | 4,000 | - | - | % | |||||||||||
CAO Lubin | 4,000 | 2,000 | 2,000 | 0.01 | % | |||||||||||
HUANG Lizhen | 4,000 | 1,000 | 3,000 | 0.01 | % | |||||||||||
LAN Lanjing | 4,000 | 1,000 | 3,000 | 0.01 | % | |||||||||||
HE Longchi | 3,750 | 1,000 | 2,750 | 0.01 | % | |||||||||||
XU Xiaoliang | 3,500 | 1,000 | 2,500 | 0.01 | % | |||||||||||
LIU Liping | 3,500 | 1,000 | 2,500 | 0.01 | % | |||||||||||
LIU Dan | 3,500 | 1,000 | 2,500 | 0.01 | % |
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BIN Xiaohong | 3,000 | 1,000 | 2,000 | 0.01 | % | |||||||||||
ZHONG Saiqin | 2,500 | 1,000 | 1,500 | 0.00 | % | |||||||||||
CHEN Qinghuang | 2,500 | 1,000 | 1,500 | 0.00 | % | |||||||||||
LIU Ping | 2,500 | 1,000 | 1,500 | 0.00 | % | |||||||||||
LIU Chaoli | 2,500 | 1,000 | 1,500 | 0.00 | % | |||||||||||
LI Chan | 2,500 | 1,000 | 1,500 | 0.00 | % | |||||||||||
PENG Can | 1,700 | 1,000 | 700 | 0.00 | % | |||||||||||
CHEN Weibo | 1,500 | 500 | 1,000 | 0.00 | % | |||||||||||
LIAO Yejun | 1,000 | 500 | 500 | 0.00 | % | |||||||||||
HU Yao | 1,000 | 1,000 | - | - | % | |||||||||||
YANG Siyuan | 1,000 | 1,000 | - | - | % | |||||||||||
LIN Nan | 1,000 | 500 | 500 | 0.00 | % | |||||||||||
YANG Chengjiu | 1,000 | 1,000 | - | - | % | |||||||||||
Total | 987,000 |
(1) Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name.
SS-6 |
SELLING STOCKHOLDERS PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when disposing of shares:
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position; and resell a portion of the block as principal to facilitate the transaction; | |
● | purchases by a broker-dealer as principal and resales by the broker-dealer for its account; | |
● | an exchange distribution in accordance with the rules of the applicable exchange; | |
● | privately negotiated transactions; | |
● | to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the SEC; | |
● | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; | |
● | a combination of any of these methods of sale; and | |
● | any other method permitted pursuant to applicable law. |
The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended, if available for a selling stockholder, rather than under this prospectus. The selling stockholders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
The selling stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.
The selling stockholders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.
The selling stockholders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.
SS-7 |
Rule 2710 requires members firms to satisfy the filing requirements of Rule 2710 in connection with the resale, on behalf of selling stockholders, of the securities on a principal or agency basis. NASD Notice to Members 88-101 states that in the event a Selling Stockholder intends to sell any of the shares registered for resale in this prospectus through a member of FINRA participating in a distribution of our securities, such member is responsible for insuring that a timely filing, if required, is first made with the Corporate Finance Department of FINRA and disclosing to FINRA the following:
● | it intends to take possession of the registered securities or to facilitate the transfer of such certificates; | |
● | the complete details of how the selling stockholders’ shares are and will be held, including location of the particular accounts; | |
● | whether the member firm or any direct or indirect affiliates thereof have entered into, will facilitate or otherwise participate in any type of payment transaction with the selling stockholders, including details regarding any such transactions; and | |
● | in the event any of the securities offered by the selling stockholders are sold, transferred, assigned or hypothecated by any Selling Stockholder in a transaction that directly or indirectly involves a member firm of FINRA or any affiliates thereof, that prior to or at the time of said transaction the member firm will timely file all relevant documents with respect to such transaction(s) with the Corporate Finance Department of FINRA for review. |
No FINRA member firm may receive compensation in excess of that allowable under FINRA rules, including Rule 2710, in connection with the resale of the securities by the selling shareholders, which total compensation may not exceed 8%.
If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the selling stockholders will sell all or any portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling stockholder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.
We and the selling stockholders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.
SS-8 |
LEGAL MATTERS
The validity of the common stock offered in this offering and legal matters as to Nevada law will be passed upon for us by Loeb & Loeb LLP, New York, New York.
SS-9 |
ADDENTAX GROUP CORP.
987,000 Shares of Common Stock
PROSPECTUS
You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or the sale of these securities.
Until , 2021, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter with respect to their unsold subscriptions.
The date of this prospectus is , 2021
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs (assumingfollowing table sets forth the various expenses, all sharesof which will be borne by us, in connection with the sale and distribution of the securities being registered, other than the underwriter commissions. All amounts shown are sold) of this offering are as follows:
Auditor Fees and Expenses | $ | 2,500 | ||
Legal Fees and Expenses | $ | 2,500 | ||
EDGAR fees | $ | 800 | ||
Transfer Agent Fees | $ | 1,200 | ||
TOTAL | $ | 7,000 |
Description | Amount | |||
Filing Fee - Securities and Exchange Commission | $ | 4,298 | ||
FINRA Filing Fee | 6,409 | |||
NASDAQ Application and Listing Fee | 75,000 | |||
Attorney’s fees and expenses | 350,000 | |||
Accountant’s fees and expenses | 125,000 | * | ||
Transfer agent’s and registrar fees and expenses | 5,000 | * | ||
Printing and engraving expenses | 7,500 | * | ||
Miscellaneous expenses | 2,500 | * | ||
Total | $ | 575,708 | * |
* Estimated expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORDIRECTORS AND OFFICERS
We are a Nevada corporation and generally governed by the Nevada Private Corporations Code, Title 78 of the Nevada Revised Statutes, or NRS.
Section 78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of the law. Our articles of incorporation provide the personal liability of our directors is eliminated to the fullest extent permitted under the NRS.
Section 78.7502 of the Nevada Corporate Law provides, in part, thatNRS permits a corporation shall have the powercompany to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or other enterprise,its directors and officers against expenses, (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with sucha threatened, pending, or completed action, suit, or proceeding, if hethe officer or director (i) is not liable pursuant to NRS 78.138, or (ii) acted in good faith and in a manner hethe officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to anyif a criminal action or proceeding, had no reasonable cause to believe histhe conduct was unlawful.
Section 78.751 of the NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent legal counsel. If so provided in the corporation’s articles of incorporation, bylaws, or other agreement, Section 78.751 of the NRS requires a corporation to advance expenses as incurred upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the company. Section 78.751 of the NRS further permits the company to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws, or other agreement.
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Section 78.752 of the NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the company, or is or was serving at the request of the company as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.
Neither our Bylaws nor our Articles of Incorporation include any specific indemnification provisions for our officers or directors against liability under the expenses,Securities Act. Additionally, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During January 2016, the Company sold a total of 18,500 common shares for cash contributions of $555 at $0.03 per share.
During February 2016, the Company sold a total of 74,000 common shares for cash contributions of $2,220 at $0.03 per share.
During March 2016, the Company sold a total of 333,000 common shares for cash contributions of $9,862 at $0.03 per share.
On April 18, 2017, the Company issued a total of 500,000,000 common shares as follows:
○ | Hengtian Group Co., Ltd.: (Beneficial Owner: Ma Huizhu) 215,000,000 restricted common shares. | |
○ | Hong Zhida*: 30,000,000 restricted common shares. | |
○ | Hui Lian Group Ltd.: (Beneficial Owner: Ma Huijun) 255,000,000 restricted common shares. |
The 500,000,000 common shares were issued pursuant to a Sale & Purchase Agreement (“S&P”) for the acquisition of 100% of the shares and assets of Yingxi Industrial Chain Group Co., Ltd., a company incorporated under the laws of the Republic of Seychelles. The Company agreed to issue five hundred million (500,000,000) shares of common stock to Yingxi Industrial Chain Group Co., Ltd. to acquire its shares and assets for a cost of US$0.30 per share or a total cost of US$150,000,000.
During August 2020, the Company sold a total of 747,000 common shares for cash contributions of $3,735,000 at $5.00 per share.
*Hong Zhida is the President, Secretary and a Director of the Company.
We claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506(b) of Regulation D of the Securities Act, and the rules and regulations promulgated thereunder in connection with the sales and issuances described above since the foregoing issuances and sales did not involve a public offering, the recipients were (a) “accredited investors”, and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act. With respect to the transactions described above, no general solicitation was made either by us or by any person acting on our behalf. The transactions were privately negotiated, and did not involve any kind of public solicitation. No underwriters or agents were involved in the foregoing issuances and we paid no underwriting discounts or commissions. The securities sold are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Pursuant to Item 601 of Regulation S-K:
A list of exhibits filed with this registration statement on Form S-1 is set forth on the Exhibit Index and is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such offer,information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or director actually(b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or reasonably incurred.(x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Name and Address | Date | Shares | Consideration | |||
Otmane Tajmouati | December 26, 2014 | 3,000,000 | $ 3,000.00 |
EXHIBIT INDEX
** | Previously filed |
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Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statementRegistration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the Fes, MoroccoCity of Luohu District, Shenzhen City, China, on August 5, 2015.
ADDENTAX GROUP CORP. | |||
/s/ Hong Zhida | |||
Hong Zhida | |||
CEO, President, Secretary and Director | |||
(Principal Executive |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated signed this registration statement.
Signature | Title | Date | ||
/s/ Hong Zhida | CEO, President, Secretary and Director | May 17, 2021 | ||
Hong Zhida | (Principal Executive Officer) | |||
/s/ | ||||
(Principal | ||||
* | May 17, 2021 | |||
Yu Jiaxin | Independent Director | |||
* | May 17, 2021 | |||
Hong Zhiwang | Director |
*/s/ Hong Zhida | |
Hong Zhida | |
Attorney-in-Fact |
II-5 |