As
filed with the Securities and Exchange Commission on May 17, 2021
Registration
No. 333-230943
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1/A
(Amendment
No. 8)
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADDENTAX
GROUP CORP.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
3990
|
|
35-2521028
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
|
Kingkey
100, Block A, Room 4805
Luohu
District, Shenzhen City, China 518000
+(86) 755 8696 1405
(Address, including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Business
Filings Incorporated
701
S Carson Street, Suite 200
Carson
City, Nevada 89701
Tel:
(608) 827-5300
(Name,
address, including zip code, and telephone number,
including
area code, of agent for 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.
VCL Law LLP
1945 Old Gallows Road, Suite 630
Vienna, VA 22182
Telephone: (703) 919-7285
|
Approximate
date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is 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 check the following box: [X]
If
this Form 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. [ ]
If
this Form is a post-effective amendment 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. [ ]
If
this Form is a post-effective amendment 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. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer [ ]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [X]
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Smaller
reporting company [X]
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|
Emerging
growth company [X]
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Security Being Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price
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Proposed Maximum
Aggregate Offering Price (1)
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Amount of Registration
Fee
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|
|
|
|
|
|
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|
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Common Stock, $0.001 par value (2)
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5,750,000
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|
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5.00
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$
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28,750,000
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|
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$
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3,136.63
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|
Common Stock, $0.001 par value (3)
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|
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987,000
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|
|
$
|
7.00
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|
|
$
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6,909,000
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|
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$
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753.77
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Underwriter Warrants
(4) (5)
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—
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—
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—
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—
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Common Stock Underlying
Underwriter Warrants (6)
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|
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575,000
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6.50
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$
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3,737,500
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$
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407.76
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Total
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—
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—
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$
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39,396,500
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$
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4,298.16
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(7)
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(1)
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Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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(2)
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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)
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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)
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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.
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(5)
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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.
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(6)
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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.
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(7)
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Previously
paid.
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The
registrant hereby amends this Registration 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 Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act or until the Registration 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.
●
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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.
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●
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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”).
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The
Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:
●
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they
contain different outside and inside front covers and back covers;
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●
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they
contain different Offering sections in the Prospectus Summary section beginning on page 2;
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●
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they
contain different Use of Proceeds sections on page 21;
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●
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a
Selling Stockholder section is included in the Resale Prospectus;
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●
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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
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●
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the
Legal Matters section in the Resale Prospectus on page 67 deletes the reference to counsel for the underwriter.
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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 Addentax Group Corp. We are offering 5,000,000 shares of common stock, par value $0.001
per share on a firm 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 2012, 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 $7.50 per share. There is a limited public trading market for our common stock.
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “ATXG.”
Investing
in our securities involves risks. You should carefully consider the risk factors beginning on page 8 of this prospectus and set
forth in the documents incorporated by reference herein before making any decision to invest in our securities.
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Per
share
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Total
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Public
offering price
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$
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5.00
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$
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25,000,000
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Underwriting
discounts and commissions (1)
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$
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0.35
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$
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1,750,000
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Offering
proceeds to us, before expenses
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$
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4.65
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$
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23,250,000
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(1)
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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 45-day option to the 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
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (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 their respective dates, regardless of the time of delivery of this prospectus or of any sale of
our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. On
February 27, 2019, we effected a 1-for-20 reverse split on our shares of common stock and the proportional reduction of our total
authorized shares of common stock from 506,920,000 shares to 25,346,004 shares.
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
market 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:
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●
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“we,”
“us,” “our,” the “Registrant”, the “Company,”
and “Addentax” refer to Addentax Group Corp. and its subsidiaries;
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●
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“Exchange
Act” refers to the Securities Exchange Act of 1934, as amended;
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●
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“SEC”
or the “Commission” refers to the United States Securities and Exchange Commission;
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●
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“Securities
Act” refers to the Securities Act of 1933, as amended;
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●
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“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;
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●
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all
references to “RMB” or “Chinese Yuan” is to the legal currency of the People’s
Republic of China; and
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●
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all
references to “U.S. dollars,” “dollars,” “USD” or “$”
are to the legal currency of the United States;
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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.
PROSPECTUS
SUMMARY
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 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 wholesalers 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 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.
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.
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.
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 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 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:
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
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 our common stock. These risks include, among others, the following:
|
●
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Our
success depends on our customer’s ability to market and sell their products manufactured by us.
|
|
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●
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Our
future expansion plans are subject to uncertainties and risks.
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●
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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.
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●
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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.
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●
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Any
labor shortages, increased labor costs or other factors affecting labor supply for our production materials may materially
and adversely affect our business operations.
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●
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If
we are unable to attract additional customers and clients 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.
|
Corporate
Information
Addentax
Group Corp. was incorporated in the State of Nevada on October 28, 2014. We have a fiscal year-end of March 31. Our principal
executive offices are located at Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen City, China 518000 and our telephone
number is + (86) 755 8696 1405. We maintain a website at www.addentax.com. The information contained on our website is
not, and should not be interpreted to be, a part of this prospectus.
THE
OFFERING
Shares
of common stock offered by us:
|
5,000,000
shares of common stock, or 5,750,000 shares if the underwriter
exercises the over-allotment option in full.
|
|
|
Number
of shares of common stock outstanding after this offering: (1)
|
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.
|
|
|
Over-allotment
option:
|
We
have granted the underwriter the right to purchase up to 750,000 additional shares of common stock from us at the public
offering price less the underwriting discount within 45 days from the date of this prospectus to cover over-allotments.
|
|
|
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 Underwriter’s Warrants will have a term of five years and may be exercised commencing 180 days after
the date of closing. The Underwriter’s Warrants may be exercised on a cashless basis.
|
|
|
Use
of proceeds:
|
Our
proceeds from this offering are expected to be approximately $25,000,000, before payment of underwriter commissions
and other expenses. We intend to use the proceeds from this offering for the purchase and sale of raw materials and developing
our own brands, including working capital and general corporate purposes. See “Use of Proceeds” on page 21.
|
|
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Proposed
Nasdaq Capital Market symbol:
|
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 this offering is contingent upon the successful listing of our common
stock on the Nasdaq Capital Market.
|
|
|
Lock-Up
Agreements:
|
“See
“Plan of Distribution” for more information.
|
|
|
Risk
factors:
|
Investing
in our common stock is highly speculative and involves a significant degree of risk. As an investor you should be able to
bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors”
section beginning on page 8.
|
|
|
OTCQB
Market Symbol
|
“ATXG”.
|
|
(1)
|
The
number of shares of our common stock to be outstanding after this offering is based on 26,693,004 shares outstanding
as of May 17, 2021.
|
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.
SUMMARY
FINANCIAL AND OTHER DATA
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 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 December 31, 2020 are derived from 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 those statements,
as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are
included elsewhere in this prospectus.
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|
As of March 31,
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As of
December 31,
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2019
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2020
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2020
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Balance Sheet Data:
|
|
|
|
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|
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|
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|
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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
|
)
|
FORWARD-LOOKING
STATEMENTS
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.
RISK
FACTORS
You
should carefully consider the risks described below and elsewhere in this prospectus, which could materially and adversely affect
our 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 these risks occur, the trading price
of our common stock could decline, and you may lose all or part of your investment. You should consider our business and prospects
in light of the challenges we face, including the ones discussed in this section. In the event that any of the events described
in the risk factors below occur, it could have a material adverse effect on our operations and cash flow and cause the value of
our securities to decline in value or become worthless.
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.
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 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.
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 assertions
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 operations
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 us 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 be able to generate adequate revenues and may soon find ourselves lacking the capital that is required to
continue operations.
If
we are unable to attract additional customers and clients 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 customers. 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 customers, 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.
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 resources. 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 engage a sufficient number of high-quality third-party contractors in a timely
manner, which may adversely affect our delivery schedules and delivery costs and hence our business, results of operations and
financial conditions.
Our
insurance may not be sufficient.
We
carry insurance that we consider adequate in regard to the nature of the covered risks and the 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 success.
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 time 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 settlement from us or adverse court decisions against
us. We cannot currently assess the likely outcome of such suits, but if the outcome were negative, it could have a material adverse
effect on our reputation, results of operations, financial condition and cash flows.
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 outstanding shares
of capital stock. Additional debt financing may include conditions that would restrict our freedom to operate our business, such
as conditions that:
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limit
our ability to pay dividends or require us to seek consent for the payment of dividends;
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increase
our vulnerability to general adverse economic and industry conditions;
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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
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limit
our flexibility in planning for, or reacting to, changes in our business and our industry.
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We
cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.
Natural
disasters and other events beyond our control could materially adversely affect us.
Natural
disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global
economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters,
fire, power shortages, pandemics and other events beyond our control. This may result in delivery delays, malfunctioning of facilities
or shutdown of logistic points. Such events could make it difficult or impossible for us to deliver our products and services
to our customers and could decrease demand for our services. In the past, there was no significant disruption of operation at
our production facilities and logistic points. However, we could not assure you that the production facilities and logistic points
will always operate normally in the future.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
General
Risks Associated with Business Operations in China
You
may have difficulty enforcing judgments against us.
We
are a Nevada corporation and most of our assets are and will be located outside of the United States. Almost all of our operations
will be conducted in China. In addition, our officers and directors are nationals and residents of a country other than the United
States. All of their assets are located outside the United States. As a result, it may be difficult for you to effect service
of process within the United States upon them. It may also be difficult for you to enforce in U.S. courts judgments on the civil
liability provisions of the U.S. federal securities laws against us and our officer and director, since he is not a resident in
the United States. In addition, there is uncertainty as to whether the courts of China would recognize or enforce judgments of
U.S. courts.
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.
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.
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.
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 foreign 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.
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:
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investments through enterprises established for only a few months without substantive operation;
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investments with amounts far exceeding the registered capital of onshore parent and not supported by its business performance
shown on financial statements;
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investments in targets which are unrelated to onshore parent’s main business; and
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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 subject to the scrutiny
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 SEC 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.
Risks
Related to this Offering and our Common Stock
Prior
to this offering, we had a limited public market for our shares of common stock and you may not be able to resell our shares at
or above the price you paid, or at all.
Prior
to this offering, there was a limited public market for our common stock in the OTCQB. We cannot assure you that an active public
market for our common stock will develop or 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 time and place we deem appropriate. Up to 5,000,000 shares of common stock offered in this
offering will be eligible 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 the Securities 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:
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variations
in our actual and perceived operating results;
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news
regarding gains or losses of customers or partners by us or our competitors;
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news
regarding gains or losses of key personnel by us or our competitors;
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announcements
of competitive developments, acquisitions or strategic alliances in our industry by us or our competitors;
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changes
in earnings estimates or buy/sell recommendations by financial analysts;
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potential
litigation;
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the
imposition of fines or penalties related to our activities in the PRC and failure to comply with applicable rules and regulations;
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general
market conditions or other developments affecting us or our industry; and
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the
operating and stock price performance of other companies, other industries and other events or factors beyond our control.
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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.
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 we become profitable.
Earnings, if any, are expected to be used to advance our activities and for working 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 selling shares of our common stock, possibly at a discount to market in the future. These actions will result
in dilution of the 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 be 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. In 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 broker/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 very high trading volume. Consequently, the price of the
stock 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 portion of the net 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 used to purchase and sell raw materials, grow our brand and for working capital and general corporate purposes. You will
not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You
must rely on the judgment of our management regarding the application of the 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.
USE
OF PROCEEDS
After
deducting the estimated underwriting commissions and estimated offering expenses payable by us, we expect to receive net proceeds
of $22,424,292 from this offering. We anticipate that the proceeds will be applied as follows:
Planned Actions
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Amount
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Working capital and general corporate purposes
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$
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6,127,285
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Fund existing businesses operation (garment manufacturing and logistic)
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2,000,000
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Expansion of garment manufacturing business
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Branding and marketing
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3,063,644
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Retailer set-up
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1,021,215
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Expansion of logistics services business
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Expand delivery network
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1,021,215
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Establish warehouse
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1,021,215
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Research and development
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1,021,215
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Marketing
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3,063,644
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Expansion of epidemic prevention supplies business
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Lab and factory set-up
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1,021,215
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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
our operations and the rate of growth, if any, of our business.
Although
we may use a portion of the proceeds for the acquisition of, or investment in, companies, technologies, products or assets that
complement our business, we have no present understandings, commitments or agreements to enter into any acquisitions or make any
investments. We cannot assure you that we will make any acquisitions or investments in the future.
CAPITALIZATION
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
|
|
DILUTION
If
you invest in our common stock, your interest will be diluted immediately to the extent of the difference 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 common stock
after this offering. Our net tangible book value as of December 31, 2020 was ($3,065,809), or ($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 $0.73 per share. The public offering price per share will significantly
exceed the net tangible book value per share. Accordingly, new investors who purchase 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 this offering by $0.86 per share, assuming that the number
of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriter
commissions and estimated offering expenses payable by us.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is currently quoted on the OTCQB under the symbol “ATXG.”
Trading
in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that
may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market
for our common stock in the future.
We
received our trading symbol on September 12, 2016 and were first quoted on September 12, 2016 but no shares were traded until
December 12, 2016.
The
following table sets forth the high and low trading prices of one share of our common stock for each fiscal quarter over the past
two fiscal years, and April 1, 2019 to the date of this prospectus. The quotations provided are for the over the counter market,
which reflect interdealer prices without retail mark-up, mark-down or commissions, and may not represent actual transactions.
Our common stock trades on a limited, sporadic and volatile basis. These high and low bid prices per share of common stock have
been adjusted to give effect to the 1-for-20 reverse stock split of our common stock effected on February 27, 2019.
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 Our Common Stock
26,693,004
shares of common stock were 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 all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive
rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock.
Dividend
Policy
No
cash dividends were paid on our shares of common stock during the fiscal years ended March 31, 2020 and March 31, 2019. We have not paid any cash dividends since October 28, 2014 (inception) and do not foresee declaring any cash dividends on
our common stock in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We
do not have in effect any compensation plans under which our equity securities are authorized.
SELECTED
HISTORICAL FINANCIAL AND OPERATING DATA
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 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 December 31, 2020 are derived from 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 those statements,
as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are
included elsewhere in this prospectus.
|
|
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
|
)
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward
Looking Statements
The following discussion
should be read in conjunction with our “Selected Historical Financial and Operation Data” and our consolidated financial
statements and related notes and other financial information included elsewhere in this prospectus. In 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, the following discussion contains forward-looking statements that involve risks, uncertainties
and assumptions. 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” and
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 regarding the prospects of our industry or
our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking words such as “may,” “will,”
“expect,” “intend,” “estimate,” “foresee,” “project,”
“anticipate,” “believe,” “plans,” “forecasts,” “continue”
or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking
statements may be included in various filings that we make with the Securities and Exchange Commission or press releases or oral
statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct.
These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that
could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned
not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only
as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any
revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports
to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements contained in this prospectus.
You
should read the matters described in “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 in 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 United States
of America. The preparation of these audited financial statements requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going
basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, convertible
promissory notes and contingencies. Management bases its estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. The accounting policies and related risks described in the Company’s Annual Report
on Form 10-K as initially filed with the Securities and Exchange Commission on July, 2020 are those that depend most heavily
on these judgments and estimates.
Corporate
History
Addentax
Group Corp. was incorporated in the State of Nevada on October 28, 2014. We were originally incorporated to produce images on
multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others using a 3D sublimation vacuum heat transfer machine.
We no longer pursue opportunities related to 3D printing positioning.
We
have a fiscal year-end of March 31. On July 12, 2016, we filed an amendment to our 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 forward stock split and increase 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 acquisition of
100% of the shares of Yingxi Industrial Chain Group Co., Ltd. (“YICG”), a company incorporated under the laws
of the Republic 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 acquisition of YICG.
After
the Share Exchange, YICG’s business became our business. We are a 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 wholesalers 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 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.
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.
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.
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
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 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 backed by advances or deposits. For our long-term and established
customers with good payment track records, we generally provide payment terms between 30 to 180 days following their acknowledgement
of receipt of goods.
Logistics
Services Business
For
our logistics service, we generally receive payments from the customers between 30 to 90 days following the date of the registration
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 are not sufficient to meet our cash needs for working capital
and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, we may
be unable to raise additional capital upon terms acceptable to us. The sale of additional equity will result in additional dilution
to our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses or products 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.
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.
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 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.
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.
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 subleasing 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.
For
epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise
and cost of our own products. The 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
|
|
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 provided financial support for the operations of the Company. In the event that the Company requires additional
funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic
objectives, the CEO has indicated the intent and ability to provide additional equity financing.
The
growth and development of our business will require a significant amount of additional working capital. We currently have limited
financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as
a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital
is raised, it may have a dilutive effect on our existing stockholders.
We
are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry.
Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating
losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is
new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven.
We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services,
the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the
market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional
development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you
that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a
going concern.
Foreign
Currency Translation Risk
Our
operations are located in China, which may give rise to significant foreign currency risks from fluctuations and the degree of
volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are
in RMB. In the past years, RMB continued to appreciate against the U.S. dollar. As of December 31, 2020, the market foreign
exchange rate had decreased to RMB 6.53 to one U.S. dollar. Our financial statements are translated into U.S. dollars using
the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance
sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions
while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included
in accumulated other comprehensive income in the statement of equity. The foreign currency translation (loss) gain for the three
and nine months ended December 31, 2020 and 2019 was $(85,728) and $(50,440), (173,879) and $58,715,
respectively.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31,
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.
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 statements 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 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.
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 have not experienced difficulty in obtaining 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 not 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 our 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.
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 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.
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.
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 development of a new business enterprise within an extremely competitive
industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete,
we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue
streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability
of this business model is unproven. We may never ever achieve profitable operations. Our future operating results depend on many
factors, including demand for our services, the level of competition, and the ability of our officers to manage our business and
growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as
we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability
of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can
sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
Foreign
Currency Translation Risk
Our
operations are located in the China, which may give rise to significant foreign currency risks from fluctuations and the degree
of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales
are in RMB. In the past years, RMB continued to appreciate against the U.S. dollar. As of March 31, 2020, the market foreign
exchange rate had increased to RMB 7.08 to one U.S. dollar. Our financial statements are translated into U.S. dollars using
the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance
sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions
while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included
in accumulated other comprehensive income in the statement of equity. The foreign currency translation (loss) gain for the years
ended March 31, 2020 and 2019 was $91,443 and $96,716, respectively.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of March 31, 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.
BUSINESS
Overview
Addentax
Group Corp. was incorporated in the State of Nevada on October 28, 2014. We were principally engaged in the business of producing
images on multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others, using a three-dimensional sublimation
vacuum heat transfer machine (“Original Business”).
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 acquire 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 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 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 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.
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 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 strategies for long-term sustainable growth in revenue, net income and operating cash flow.
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 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. 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 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.
Inventory
Garment
manufacturing business. We maintain our raw materials in our storage facilities. We review our inventory levels in order to
identify slow-moving materials and broken assortments.
Logistics
services business. Since we deliver products as soon as we receive orders from customers, we do not operate distribution
centers and hence 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 capacity, oversupply, increasing labor
costs and rising local protectionism have eroded its competitiveness.
The
principal competitive factors in the garment manufacturing market include:
|
●
|
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
|
|
|
18
|
|
Finance
|
|
|
20
|
|
Logistics
|
|
|
11
|
|
Management
|
|
|
29
|
|
Marketing
|
|
|
8
|
|
Production
|
|
|
7
|
|
Operation
|
|
|
40
|
|
Total
|
|
|
133
|
|
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 medical insurance. We are also required under
PRC law to contribute to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the local government from time to time.
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 regulate 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 subject to claims arising in the ordinary course of our business.
We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would
individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash
flows.
DIRECTORS
AND EXECUTIVE OFFICERS
The
name, address, age and titles of our executive officers and director are as follows:
Name
& Address
|
|
Age
|
|
Title
|
|
Date
of First Appointment
|
Hong
Zhida
|
|
30
|
|
Chairman
of the Board, Chief Executive Officer, President and Secretary
|
|
March
10, 2017
|
|
|
|
|
|
|
|
Huang
Chao
|
|
27
|
|
Chief
Financial Officer and Treasurer
|
|
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.
|
Hong
Zhida, Chairman, CEO, President and Secretary
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 the Director 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 Guangzhou Haifeng Chamber of Commerce. 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 Northampton, 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 accounting
and finance field. After his graduation in 2016, he was appointed as a secretary to Chairman in Addentax Group Corp. He handles
all Company’s filings to ensure the Company complies with regulation and advising on good corporate governance practice.
Huang Chao interacts with the directors, general manager of each business unit, various regulatory and professional bodies such
as the SEC, auditors and attorneys to ensure the compliance. His managing experiences, and profound knowledge in finance make
him well positioned for his role as Chief Financial Officer and Treasurer.
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 issue an audit report for the Company;
|
|
|
|
|
●
|
Take,
or recommend that the board take, appropriate action to oversee and ensure the independence of the Company’s independent
registered public accounting firm; and
|
|
|
|
|
●
|
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 compensation consultants or advisors.
|
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.
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.
|
the
prompt internal reporting of violations of the Code of Ethical Business Conduct to an appropriate person or persons identified
in the Code of Ethical Business Conduct; and
|
|
|
|
|
5.
|
accountability
for adherence to the Code of Ethical Business Conduct.
|
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.
EXECUTIVE
COMPENSATION
The
following tables set forth certain information about compensation paid, earned or accrued for services by our officers for the
fiscal years ended March 31, 2020 and March 31, 2019:
Summary
Compensation Table
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 entered into an employment
agreement with Mr. Huang. Mr. Huang’s compensation
is $1,436 per month. Mr. Huang
may be entitled to options from time to time
as authorized and approved by the Compensation Committee or the Board of Directors.
Narrative
Disclosure to Summary Compensation Table
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.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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 entered into any transactions with our officers or directors, or persons nominated for these positions, beneficial owners
of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series
of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets, except as set forth below:
On
April 18, 2017, the Company issued a total of 500,000,000 restricted shares of common 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 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 wholly-owned subsidiaries, Qianhai Yingxi Textile & Garments (Shenzhen) Co., Ltd and Shenzhen Qianhai
Yingxi Industrial Chain Service Co., Ltd, each entered into a Triparty Agreement of Debt Transfer, whereby such entities agreed
to transfer $1,428,572 and $1,640,072, respectively, of debt owed by the subsidiaries to a related party creditor (the “Creditor”
and the “Debt”), to the Company’s Chief Executive Officer, Hong Zhida, who agreed to assume and be solely responsible
for such Debt. As a result of the Agreements, Mr. Hong is now solely responsible for the repayment of the Debt to the Creditor.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 a 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 listed below 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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
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.
|
DESCRIPTION
OF CAPITAL STOCK
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 majority 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.
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 becomes 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 group that owns 10% or more of the corporation’s
outstanding voting power (including stock with respect to which the person has voting 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 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.
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 outstanding 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 future.
Upon
the closing of this offering, we will have 31,093,004 shares of our common stock issued and outstanding. In addition, we
will have 500,000 shares of common stock issuable upon
the exercise of the Underwriter Warrants.
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 Securities Act, as in effect on the date 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 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 without restriction.
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.
UNDERWRITING
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 agreed 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 their controlling persons against certain liabilities, including liabilities
under the Securities Act, and to 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 set forth on the cover page of this prospectus. The securities 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 the 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 the 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 the Underwriter by deduction from the net proceeds of the offering contemplated herein, a non-accountable expense
allowance equal to one percent (1%) of the gross proceeds received by us from the sale of the shares.
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 Underwriter 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 actually incurred in accordance with FINRA Rule
5110(g)(5)(A).
We
have agreed to pay expenses relating to the offering, including, without limitation: the Company’s legal and accounting
fees and disbursements; the costs of preparing, printing, mailing and delivering the Registration Statement, the preliminary and
final prospectus contained therein and amendments thereto, post-effective amendments and supplements thereto, the underwriting
agreement and related documents (all in such quantities as the Underwriter may reasonably require); preparing and printing stock
certificates and warrant certificates; the costs of any “due diligence” meetings; all reasonable and documented fees
and expenses for conducting a net road show presentation; all filing fees (including SEC filing fees) and communication expenses
relating to the registration of the shares to be sold in the Offering, FINRA filing fees; the reasonable and documented fees and
disbursements of the Underwriter’s counsel up to an amount of $60,000 (which maximum shall apply solely to such fees and
disbursements of counsel and not to other fees and expenses); background checks of the Company’s officers and directors
up to a maximum of $15,000; preparation of bound volumes and mementos in such quantities as the Underwriter may reasonably request
up to an amount of $2,500; transfer taxes, if any, payable upon the transfer of securities from the Company to the Underwriter;
and the fees and expenses of the transfer agent, clearing firm and registrar for the shares; provided that the actual accountable
expenses of the Underwriter shall not exceed $150,000.
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 by any person for a period of 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.
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 this 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,
|
whether
any transaction described in any of the foregoing bullet points is to be settled by delivery of our common stock or other capital
stock, other securities, in cash or otherwise, or publicly announce an intention to do any of the foregoing.
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 Subscription
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 and receipt of full payment, and subject to the timing qualification set forth
above, the Company shall countersign the subscription agreement and issue a stock certificate along with a copy of the subscription
agreement.
We
have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All 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 within three (3) business days after we receive them.
Stabilization
Upon
the declaration of effectiveness of the registration statement of which this prospectus is a part, we will enter into an underwriting
agreement with the Underwriter. The terms of the underwriting agreement provide that the obligations of the Underwriter are subject
to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain
certificates, opinions and letters 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 our 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.
|
We
cannot assure you that the initial public offering price will correspond to the price at which our common stock will trade in
the public market subsequent to this offering or that an active trading market for our common stock will develop and continue
after this offering.
In connection with the offering
the Underwriter may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty
bids and passive market making in accordance with Regulation M under the Securities 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 penalty bids may have the effect of raising or maintaining the market
price of our common stock or preventing or retarding a decline in the market price of the shares. As a result the price of our
common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on
NASDAQ Capital Market or otherwise and, if commenced, may be discontinued at any time.
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 make 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.
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
offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus
may not be offered 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 province, 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 dealer 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.
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 and may not be approved 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 subscribe 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 distributed only by a holder of a capital markets services license who carries on the business
of dealing in securities and subject to the issuer having lodged this prospectus with the SC within seven days from the date of
the distribution of this prospectus in Malaysia. The distribution in Malaysia of this document is subject to Malaysian laws. Save
as aforementioned, no action has been taken in Malaysia under its securities laws in respect of this document. This document does
not constitute and may not be used for the purpose of a public offering or an issue, offer for subscription or purchase, invitation
to subscribe for or purchase any securities requiring the approval of the sc or the registration of a prospectus with the SC under
the CMSA.
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 of the FSMA with respect to anything done by the underwriter in relation to the shares must be complied
with in, from or otherwise involving the United Kingdom.
LEGAL
MATTERS
The
validity of the shares of our common stock offered hereby has been passed upon for us by Loeb & Loeb LLP, New York, New York.
VCL LawLLP, is acting as counsel to the underwriter in connection with the securities offered hereby. Certain legal matters
relating to the offering as to PRC law will be passed upon for us by Hiways Law Firm (Shenzhen) and for the underwriter by Dahui
Lawyers. Loeb & Loeb LLP may rely upon Hiways Law Firm with respect to matters governed by PRC law. VCL Law LLP may rely upon
Dahui Lawyers with respect to matters governed by PRC law.
EXPERTS
BF Borgers CPA PC,
independent registered public accounting firm, has audited our financial statements as of and for the years ended March
31, 2020 and 2019 as set forth in their report.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the shares 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 further information with respect to us and the common stock offered by this prospectus, we refer you to the registration
statement and its exhibits. Statements contained in this prospectus as to the contents 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 an
exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You
can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You
may also read and copy any document we file with the SEC at its public reference facilities 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 NE, Washington, D.C. 20549. Please 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 SEC. The information contained in, or that can be accessed through, our website incorporated by reference
in, and is not part of, this prospectus.
FINANCIAL
STATEMENTS
Index to Consolidated Financial Statements
|
Page
|
Condensed Consolidated Balance sheets as of December 31, 2020 (unaudited) and March 31, 2020 (unaudited)
|
F-2
|
Condensed
Consolidated Statements of Loss and Comprehensive Loss for the nine months ended December 31, 2020 and 2019
(unaudited)
|
F-3
|
Condensed
Consolidated Statements of Change of Equity for the nine months ended December 31, 2020 and 2019 (unaudited)
|
F-4
|
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019 (unaudited)
|
F-5
|
Notes to Condensed Consolidated Financial Statements for the nine months ended December 31, 2020 and 2019 (unaudited)
|
F-6
– F-14
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-15
|
Consolidated Balance sheets as of March 31, 2020 and 2019
|
F-16
|
Consolidated Statements of Loss and Comprehensive Loss for the years ended March 31, 2020 and 2019
|
F-17
|
Consolidated Statements of Changes in Equity for the years ended March 31, 2020 and 2019
|
F-18
|
Consolidated Statements of Cash Flows for the years ended March 31, 2020 and 2019
|
F-19
|
Notes to Consolidated Financial Statements for the years ended March 31, 2020 and 2019
|
F-20
– F-32
|
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.
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.
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.
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.
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
1.
|
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.
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.
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
|
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.
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.
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.
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.
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)
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.
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.
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.
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
|
|
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.
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.
(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.
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:
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
|
|
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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Addentax Group Corp.:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Addentax Group Corp. (the “Company”) as
of March 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, changes in
equity, and cash flows for each of the two years in the period ended March 31, 2020, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial positions of the Company as of March 31, 2020 and 2019, and the results
of its operations and its cash flows for each of the two years in the period ended March 31, 2020, in conformity
with accounting principles generally accepted in the United States.
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 incurred recurring losses from operations, has net current liabilities and
an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’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
|
|
|
|
We
have served as the Company’s auditor since 2020.
|
|
|
|
Lakewood,
Colorado
|
|
January
22, 2021
|
|
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
U.S. Dollars, except share data or otherwise stated)
AS
OF MARCH 31, 2020 AND 2019
|
|
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
accompany notes to the consolidated financial statements.
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In
U.S. Dollars, except share data or otherwise stated)
FOR
THE YEARS ENDED MARCH 31, 2020 AND 2019
|
|
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
accompany notes to the consolidated financial statements.
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(In
U.S. Dollars, except share data or otherwise stated)
FOR
THE YEARS ENDED MARCH 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 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
accompany notes to the consolidated financial statements.
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
U.S. Dollars, except share data or otherwise stated)
FOR
THE YEARS ENDED MARCH 31, 2020 AND 2019
|
|
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
accompany notes to the consolidated financial statements.
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2020 AND 2019
1.
|
ORGANIZATION
AND BUSINESS ACQUISITIONS
|
Addentax
Group Corp. (“ATXG”) was incorporated in Nevada on October 28, 2014. 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 that of the acquirer prior to the consummation date and that of the combined entity after
that date.
Yingxi was incorporated in the
Republic of Seychelles on August 4, 2016. ATXG, together with Yingxi and its subsidiaries (the “Company”) operates
primarily in the People’s Republic of China (“PRC” or “China”) and is engaged in the business of
garments manufacturing and providing logistic services.
On December 15, 2016, Yingxi
entered into an equity transfer agreement with the shareholder of Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”)
under which Yingxi agreed to pay total consideration of RMB21,008,886 (approximately $3,048,936) in cash in exchange for a 100%
ownership interest in Yingxi HK. Yingxi HK was incorporated in Hong Kong in 2016. Yingxi HK is a holding company with no assets
other than a 100% equity interest 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.
2.
|
BASIS
OF PRESENTATION, LIQUIDITY
|
The
accompanying consolidated financial statements of 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
in 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 is a going concern. The going concern
assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The
Company incurred net loss of $980,617, $694,329 for the years ended March 31, 2020 and 2019, respectively.
As of March 31, 2020 and 2019, the Company had net current liability of $4,095,286
and $2,871,981, respectively, and a deficit on total equity of $3,066,724 and $2,177,550, 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. There can be no assurance that
the Company will be successful in its plans described above or in attracting equity or alternative financing on acceptable terms,
or if at all. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
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.
(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.
(c)
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid investments purchased with 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.
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The
Company extends credit to its customers in the normal course of business and generally does not require collateral. The Company’s
credit terms are dependent upon the segment, and the customer. The Company assesses the probability of collection from each customer
at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current
creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the
uncertainty is removed.
Management
performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history
and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses
in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed
analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and
also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic
conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors
change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance
for doubtful accounts. If judgments regarding the collectability of receivables 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
incurred. No allowance for doubtful accounts was made for the years ended March 31, 2020 and 2019.
Manufacturing
segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined
on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course
of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold,
their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net
realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No write-downs
for obsolete finished goods for both years ended March 31, 2020 and 2019.
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful
lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
Production
plant
|
5-10
years
|
Motor
vehicles
|
10-15
years
|
Office
equipment
|
5-10
years
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of 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 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.
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.
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.
The
Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under
this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected
to reverse. The Company records a valuation allowance to offset deferred tax assets 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 are governed
by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25%. The Company files income tax returns with the relevant
government authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions
over the next 12 months.
The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income
tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was
any interest expense recognized during the 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.
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:
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 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.
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.
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, respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers
are available that could provide similar products to the Company.
The
followings are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment
as at March 31, 2020 and 2019.
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 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
|
|
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
|
%
|
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 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 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 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.
The receivables and allowance
balances at March 31, 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 years 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.
The
Company had the following related party debt at the end of the years:
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 party debts are unsecured, non-interest bearing and repayable on demand.
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.
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.
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.
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. As of March 31, 2020, the Company has borrowed $211,868 (RMB1,500,000) under this
line 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.
(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 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 years ended March 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 years ended March 31, 2020 and 2019.
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 segment 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
|
)
|
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, 2020 and 2019:
|
|
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 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 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.
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
|
%
|
|
|
-
|
|
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.
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, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-20 (the “Reverse
Stock Split”). The Reverse Stock Split was effective on February 27, 2019 (the “Effective Date”). As a result
of the filing of the Certificate, the number of shares of the Company’s authorized Common Stock was reduced from 1,000,000,000
shares to 50,000,000 shares and the issued and outstanding number of shares of the Company’s Common Stock was correspondingly
decreased to 25,346,004. There was no change to the par value of the Company’s Common Stock. The
decrease of Share Capital was transferred to and increased the Additional Paid In Capital. The Company has adjusted all references
to number of share and loss per share amounts in the accompanying consolidated financial statements and notes to reflect the reverse
stock split.
In
April 2020, the Company developed a new business segment: epidemic prevention supplies. The new 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.
In
November 2020, the Company disposed of $194,164 inventories to Mr. Huang and a third 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 one 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 no other subsequent events have occurred that would require recognition or disclosure in the financial statements.
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 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
, 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 underwriter with respect to their unsold subscriptions.
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 sale is not permitted.
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.
USE
OF PROCEEDS
We
will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholders.
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
|
%
|
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
|
%
|
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
|
%
|
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.
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.
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.
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.
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 PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth the various expenses, all of 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 estimates except for the Securities
and Exchange Commission registration fee and the FINRA filing fee.
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 DIRECTORS 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 NRS permits a company to indemnify its directors and officers against expenses, judgments, fines, and amounts paid
in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding,
if the officer or director (i) is not liable pursuant to NRS 78.138, or (ii) acted in good faith and in a manner the officer or
director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding,
had no reasonable cause to believe the conduct of the officer or director was unlawful. Section 78.7502 of the NRS requires a
corporation to indemnify a director or officer that has been successful on the merits or otherwise in defense of any action or
suit. Section 78.7502 of the NRS precludes indemnification by the corporation if the officer or director has been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals, to be liable to the corporation or for amounts paid in settlement
to the corporation, unless and only to the extent that the court determines that in view of all the circumstances, the person
is fairly and reasonably entitled to indemnity for such expenses and requires a corporation to indemnify its officers and directors
if they have been successful on the merits or otherwise in defense of any claim, issue, or matter resulting from their service
as a director or officer.
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.
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 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.
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 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 (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 (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.
EXHIBIT
INDEX
Exhibit
|
|
|
|
Filed
or Furnished
|
|
Incorporated
by Reference
|
Number
|
|
|
|
Herewith
|
|
Form
|
|
Exhibit
|
|
Date
|
|
File
No.
|
1.1*
|
|
Form
of Underwriting Agreement
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation
|
|
|
|
S-1
|
|
3.1
|
|
8/5/2015
|
|
333-206097
|
3.2
|
|
Certificate
of Amendment Pursuant to NRS 78.386 and 78.390, effectuating the two for one forward stock split and increasing the authorized
shares of common stock of Addentax Group Corp. from 75,000,000 to 150,000,000
|
|
|
|
8-K
|
|
3.1
|
|
7/21/2016
|
|
333-206097
|
3.3**
|
|
Certificate
of Amendment Pursuant to NRS 78.385 and 78.390, increasing the authorized shares of common stock of Addentax Group Corp. to
1,000,000,000
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
Certificate
of Change Pursuant to NRS 78.209, effectuating the 20-for-1 reverse stock split and decreasing the authorized shares of common
stock of Addentax Group Corp. from 1,000,000,000 to 50,000,000
|
|
|
|
8-K
|
|
3.1
|
|
3/5/2019
|
|
333-206097
|
3.5
|
|
Amended
and Restated Bylaws
|
|
|
|
8-K
|
|
3.1
|
|
3/15/2019
|
|
333-206097
|
4.1*
|
|
Form
of Underwriter Warrant
|
|
|
|
|
|
|
|
|
|
|
5.1**
|
|
Opinion
of Loeb & Loeb LLP re: the legality of the securities being registered
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Loan
Agreement, dated March 2, 2015
|
|
|
|
S-1
|
|
10.1
|
|
8/5/2015
|
|
333-206097
|
10.2
|
|
Contract
of the sale goods, dated February 3, 2015
|
|
|
|
S-1
|
|
10.2
|
|
8/5/2015
|
|
333-206097
|
10.3
|
|
Lease
Agreement, dated December 15, 2014
|
|
|
|
S-1
|
|
10.3
|
|
8/5/2015
|
|
333-206097
|
10.4
|
|
Verbal
Agreement, dated October 28, 2014
|
|
|
|
S-1
|
|
10.4
|
|
8/5/2015
|
|
333-206097
|
10.5
|
|
Form
of Subscription Agreement
|
|
|
|
S-1
|
|
99.1
|
|
8/5/2015
|
|
333-206097
|
10.6
|
|
Sale
and Purchase Agreement for the Acquisition of 100% of the shares and assets of Yingxi Industrial Chain Group Co., Ltd.; Dated
December 26, 2016
|
|
|
|
8-K
|
|
10.1
|
|
12/28/2016
|
|
333-206097
|
10.7
|
|
Sale
and Purchase Agreement for the Acquisition of 100% of the shares and assets of Yingxi Industrial Chain Group Co., Ltd.; Dated
March 6, 2017
|
|
|
|
8-K
|
|
10.1
|
|
3/7/2017
|
|
333-206097
|
10.8
|
|
Independent Director Agreement with Mr. Alex P. Hamilton
|
|
|
|
8-K
|
|
10.1
|
|
5/10/2021
|
|
333-206097
|
10.9
|
|
Independent
Director Agreement with Ms. Yu Jiaxin
|
|
|
|
8-K
|
|
10.2
|
|
3/11/2019
|
|
333-206097
|
10.10
|
|
Independent
Director Agreement with Jiangping (Gary) Xiao
|
|
|
|
8-K
|
|
10.3
|
|
5/13/2021
|
|
333-206097
|
14.1
|
|
Code
of Ethics
|
|
|
|
10-K/A
|
|
14.1
|
|
9/21/2018
|
|
333-206097
|
16.1
|
|
Letter,
dated October 27, 2015 from Cutler & Co. LLC to the Securities and Exchange Commission.
|
|
|
|
8-K
|
|
16.1
|
|
10/27/2015
|
|
333-206097
|
16.2
|
|
Letter
from Pritchett Siler & Hardy, PC dated February 22, 2017
|
|
|
|
8-K
|
|
16.1
|
|
2/22/2017
|
|
333-206097
|
23.1*
|
|
Consent of BF Borgers CPA PC
|
|
|
|
|
|
|
|
|
|
|
23.2**
|
|
Consent
of Loeb & Loeb LLP (included in Exhibit 5.1)
|
|
|
|
|
|
|
|
|
|
|
24.1**
|
|
Power
of Attorney
|
|
|
|
|
|
|
|
|
|
|
*
|
Filed
herewith.
|
**
|
Previously filed
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Luohu District, Shenzhen City, China,
on May 17, 2021.
|
ADDENTAX
GROUP CORP.
|
|
|
|
/s/
Hong Zhida
|
|
Hong
Zhida
|
|
CEO,
President, Secretary and Director
|
|
(Principal
Executive Officer)
|
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 indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Hong Zhida
|
|
CEO,
President, Secretary and Director
|
|
May
17, 2021
|
Hong
Zhida
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Huang Chao
|
|
CFO
and Treasurer
|
|
May 17, 2021
|
Huang
Chao
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
*
|
|
|
|
May
17, 2021
|
Yu
Jiaxin
|
|
Independent
Director
|
|
|
|
|
|
|
|
*
|
|
|
|
May
17, 2021
|
Hong
Zhiwang
|
|
Director
|
|
|
*/s/
Hong Zhida
|
|
Hong
Zhida
|
|
Attorney-in-Fact
|
|
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