|
Item
1.
|
Financial
Statements
|
Index
to the interim Unaudited Condensed Consolidated Financial Statements
ADDENTAX
GROUP CORP.
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
378,557
|
|
|
$
|
176,929
|
|
Accounts
receivable
|
|
|
4,476,085
|
|
|
|
4,709,476
|
|
Note
receivable
|
|
|
1,613,812
|
|
|
|
1,057,437
|
|
Due
from related parties
|
|
|
74,922
|
|
|
|
130,001
|
|
Inventory
|
|
|
530,799
|
|
|
|
602,123
|
|
Prepaid
expenses
|
|
|
983,780
|
|
|
|
318,938
|
|
Other
current assets
|
|
|
200,942
|
|
|
|
48,483
|
|
Total
Current Assets
|
|
|
8,258,897
|
|
|
|
7,043,387
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
632,896
|
|
|
|
663,359
|
|
TOTAL
ASSETS
|
|
$
|
8,891,793
|
|
|
$
|
7,706,746
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
2,447,418
|
|
|
|
2,133,683
|
|
Loan
payable
|
|
|
4,284,572
|
|
|
|
1,627,228
|
|
Deferred
revenue
|
|
|
492,553
|
|
|
|
290,099
|
|
Due
to related parties
|
|
|
2,613,458
|
|
|
|
2,878,924
|
|
Tax
payable
|
|
|
17,372
|
|
|
|
4,630
|
|
Other
current liabilities
|
|
|
56,269
|
|
|
|
104,065
|
|
Total
Current Liabilities
|
|
|
9,911,642
|
|
|
|
7,038,629
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
9,911,642
|
|
|
|
7,038,629
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Preferred
stock: 100,000,000 authorized; $0.0001 par value 0 and 0 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, par value $0.001; 1,000,000,000 shares authorized, 506,920,000 shares issued and outstanding
|
|
|
506,920
|
|
|
|
506,920
|
|
Capital
deficiency
|
|
|
(1,554,441
|
)
|
|
|
(32,421
|
)
|
Accumulated
other comprehensive loss
|
|
|
(160,350
|
)
|
|
|
(114,073
|
)
|
Retained
earnings
|
|
|
188,022
|
|
|
|
307,691
|
|
Total
Stockholders’ Deficit
|
|
|
(1,019,849
|
)
|
|
|
668,117
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
8,891,793
|
|
|
$
|
7,706,746
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
ADDENTAX
GROUP CORP.
Condensed
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,729,840
|
|
|
|
2,433,559
|
|
|
$
|
8,046,794
|
|
|
$
|
5,927,072
|
|
Cost
of revenue
|
|
|
3,366,742
|
|
|
|
2,047,859
|
|
|
|
7,403,721
|
|
|
|
5,083,084
|
|
Gross
Profit
|
|
|
363,098
|
|
|
|
385,700
|
|
|
|
643,073
|
|
|
|
843,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administration
|
|
|
374,505
|
|
|
|
401,552
|
|
|
|
755,548
|
|
|
|
789,188
|
|
Total
operating expenses
|
|
|
374,505
|
|
|
|
401,552
|
|
|
|
755,548
|
|
|
|
789,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
(11,407
|
)
|
|
|
(15,852
|
)
|
|
|
(112,475
|
)
|
|
|
54,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
81
|
|
|
|
7,640
|
|
|
|
669
|
|
|
|
12,586
|
|
Other
expense
|
|
|
(41
|
)
|
|
|
(213
|
)
|
|
|
(1,735
|
)
|
|
|
(689
|
)
|
Total
other income (expense)
|
|
|
40
|
|
|
|
7,427
|
|
|
|
(1,066
|
)
|
|
|
11,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before taxes
|
|
|
(11,367
|
)
|
|
|
(8,425
|
)
|
|
|
(113,541
|
)
|
|
|
66,697
|
|
Income
tax
|
|
|
(3,912
|
)
|
|
|
(5,081
|
)
|
|
|
(6,128
|
)
|
|
|
(15,326
|
)
|
Loss
from Continuing Operations
|
|
|
(15,279
|
)
|
|
|
(13,506
|
)
|
|
|
(119,669
|
)
|
|
|
51,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(15,279
|
)
|
|
|
(13,506
|
)
|
|
$
|
(119,669
|
)
|
|
$
|
51,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
(16,175
|
)
|
|
|
(11,122
|
)
|
|
|
(46,160
|
)
|
|
|
(73,411
|
)
|
Comprehensive
Loss
|
|
|
(31,454
|
)
|
|
|
(24,628
|
)
|
|
|
(165,829
|
)
|
|
|
(22,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Common Share – Basic and Diluted
|
|
$
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
506,920,000
|
|
|
|
506,920,000
|
|
|
|
506,920,000
|
|
|
|
506,920,000
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements.
ADDENTAX
GROUP CORP.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
For
the Six Months Ended
|
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(119,669
|
)
|
|
$
|
51,371
|
|
Adjustments
to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
56,797
|
|
|
|
49,719
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
398,010
|
|
|
|
(119,031
|
)
|
Inventory
|
|
|
92,289
|
|
|
|
(189,515
|
)
|
Prepaid
expenses
|
|
|
(646,507
|
)
|
|
|
3,554
|
|
Other
receivable
|
|
|
(150,455
|
)
|
|
|
237,450
|
|
Accounts
payable
|
|
|
231,203
|
|
|
|
(36,326
|
)
|
Deferred
revenue
|
|
|
191,881
|
|
|
|
310,445
|
|
Tax
payable
|
|
|
12,554
|
|
|
|
18,270
|
|
Other
payable
|
|
|
(51,348
|
)
|
|
|
(18,559
|
)
|
Net
cash provided by operating activities
|
|
|
14,755
|
|
|
|
307,378
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition
of subsidiary
|
|
|
(1,500,000
|
)
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(3,142
|
)
|
|
|
(101,255
|
)
|
Note
receivable
|
|
|
(854,795
|
)
|
|
|
(621,926
|
)
|
Collection
of note receivable
|
|
|
336,597
|
|
|
|
-
|
|
Loan
to related parties
|
|
|
189,283
|
|
|
|
-
|
|
Collection
of loan to related parties
|
|
|
(29,940
|
)
|
|
|
618,557
|
|
Net
cash used in investing activities
|
|
|
(1,861,997
|
)
|
|
|
(104,624
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceed
from borrowings
|
|
|
4,275,000
|
|
|
|
-
|
|
Repayment
of loans
|
|
|
(1,680,000
|
)
|
|
|
-
|
|
Loans
from related parties, net
|
|
|
150
|
|
|
|
56,196
|
|
Repayment
of loans from related parties
|
|
|
(549,380
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
2,045,770
|
|
|
|
56,196
|
|
|
|
|
|
|
|
|
|
|
Effects
on changes in foreign exchange rate
|
|
|
3,116
|
|
|
|
(5,116
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
201,644
|
|
|
|
253,834
|
|
Cash
and cash equivalents - beginning of period
|
|
|
176,913
|
|
|
|
158,558
|
|
Cash
and cash equivalents - end of period
|
|
$
|
378,557
|
|
|
$
|
412,392
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Disclosures
|
|
|
|
|
|
|
|
|
Cash
paid for interest and income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed financial statements
ADDENTAX
GROUP CORP.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
NOTE
1 - ORGANIZATION AND NATURE OF BUSINESS
Addentax
Group Corp. (“the Company”, “we”, “us” or “our”) was incorporated in Nevada on
October 28, 2014, and the Company was engaged in the field of producing images on multiple surfaces using heat transfer technology.
During
the reporting period, the Company was mainly engaged in textile and garment manufacturing and providing logistics services to
its customers. The Company also provides business consultancy to their customers in assisting them to identify weaknesses in their
operation in order to optimize their efficiency. The Company also assists their customers in improving their supply chain management
which involves the movement and storage of raw materials, of work in progress inventory, and of finished goods from point of origin
to point of consumption.
Share
Exchange and Reorganization
As
of the Effective Date and pursuant to a Securities Purchase Agreement dated September 25, 2017, the Company and Yingxi Industrial
Chain Group Co., Ltd.(“Yingxi”), have determined that all conditions necessary to close the Share Exchange Agreement
have been satisfied and therefore as of the date hereof, the Share Exchange Agreement was closed and as such Yingxi has become
a wholly-owned subsidiary of the Company. As per the Share Exchange Agreement, the Company acquired 250,000,000 shares of Yingxi,
representing 100% of the issued and outstanding equity of Yingxi, from the Yingxi shareholders and in exchange the Company issued
to Yingxi an aggregate of 500,000,000 shares of common stock.
Recapitalization
For
financial accounting purposes, this transaction was treated as a reverse acquisition by Yingxi, and resulted in a recapitalization
with Yingxi being the accounting acquirer and Addentax Group Corp. as the acquired company. The consummation of this reverse acquisition
resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting
acquirer, Yingxi and have been prepared to give retroactive effect to the reverse acquisition completed on September 25, 2017,
and represent the operations of Yingxi. The consolidated financial statements after the acquisition date, September 25, 2017 include
the balance sheets of both companies at historical cost, the historical results of Yingxi and the results of the Company from
the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes
has been retroactively restated to reflect the recapitalization.
NOTE
2 - GOING CONCERN
The accompanying unaudited interim financial
statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of
assets and the liquidation of liabilities in the normal course of business. For the 6 months ended September 30, 2017,
the Company has suffered a loss from operations of $119,669. The Company intends to fund operations through equity financing
arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the
year ended March 31, 2018.
The
ability of the Company to emerge from an early stage is dependent upon, among other things, obtaining additional financing to
continue operations, and development of its business plan. In response to these problems, management intends to raise additional
funds through public or private placement offerings.
These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying
unaudited interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America for interim financial information and with the instructions to Regulation S-X.
In
the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods
presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the
consolidated financial statements presented not misleading. The results of operations for such interim periods are not necessarily
indicative of operations for a full year.
Basis
of Consolidation
These
consolidated financial statements include the accounts of Yingxi Industrial Chain Group Co., Ltd and its wholly-owned subsidiaries.
All material intercompany balances and transactions have been eliminated in consolidation.
Principal
of subsidiaries
The
details of the principal subsidiaries of the Company are set out as follows:
Name of subsidiaries
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
Shares held directly
|
|
|
|
|
|
|
Yingxi Industrial Chain Group Co., Ltd (“Yingxi”)
|
|
Seychelles
|
|
100%
|
|
Investment holdings
|
Shares held indirectly
|
|
|
|
|
|
|
Yingxi Industrial Chain Investment Co., Ltd (“YICI”)
|
|
Hong Kong China
|
|
100%
|
|
Investment holdings
|
Dongguan Heng Sheng Wei Garments Co., Ltd (“DHSW”)
|
|
China
|
|
100%
|
|
Garment manufacturing and business consultancy
|
Qianhai Yingxi Textile and Garments Co., Ltd (“QYTG”)
|
|
China
|
|
100%
|
|
Investment holdings
|
Shantou Chenghai Dai Tou Garments Co., Ltd (“SCDT”)
|
|
China
|
|
100%
|
|
Garment manufacturing
|
Shenzhen Hua Peng Fa Logistics Co., Ltd (“SHPF”)
|
|
China
|
|
100%
|
|
Logistics and business consultancy
|
Shenzhen Qianhai Yingxi Industrial Chain Service Co., Ltd (“SQYI”)
|
|
China
|
|
100%
|
|
Investment holdings
|
Shenzhen Xin Kuai Jie Transport Co., Ltd (“SXKJ”)
|
|
China
|
|
100%
|
|
Logistics
|
Use
of Estimates
The
preparation of the consolidated financial statements is in conformity with the GAAP that requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities. It also requires the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign
Currency Translation
The
Company’s reporting currency is the U.S. Dollars (“USD”). The functional currency of the Company and its subsidiaries
is Chinese Yuan Renminbi (“RMB”). All transactions initiated in RMB are translated into USD in accordance with ASC
830,
“Foreign Currency Matters,”
as follows:
|
i)
|
Assets
and liabilities at the rate of exchange in effect at the balance sheet date.
|
|
ii)
|
Equities
at historical rate
|
|
iii)
|
Revenue
and expense items at the average rate of exchange prevailing during the period.
|
Adjustments
arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Spot
CNY: USD exchange rate
|
|
$
|
0.1503
|
|
|
$
|
0.1452
|
|
|
$
|
0.15
|
|
Average
CNY: USD exchange rate
|
|
$
|
0.1458
- 0.1500
|
|
|
$
|
0.1487
|
|
|
$
|
0.1500
- 0.1531
|
|
Spot
HKD: USD exchange rate
|
|
$
|
0.1289
|
|
|
$
|
0.1289
|
|
|
$
|
0.1289
|
|
Average
HKD: USD exchange rate
|
|
$
|
0.1289
|
|
|
$
|
0.1289
|
|
|
$
|
0.1289
|
|
Accounts
Receivable
The
Company’s accounts receivable consists of trade receivables from customers. The Company maintains an allowance for doubtful
accounts based on the Company’s assessment of collectability of the customer receivable. The Company analyzes past history
with a customer, customer credit, collection history, and financial condition when evaluating the collectability of customer accounts.
Uncollectible accounts are charged off to the allowance when it is deemed probable that the receivable will not be recovered.
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$
|
2,132,179
|
|
|
$
|
2,335,027
|
|
1 - 2 year
|
|
|
2,343,906
|
|
|
|
2,372,796
|
|
2 - 3 year
|
|
|
|
|
|
|
1,653
|
|
|
|
$
|
4,476,085
|
|
|
$
|
4,709,476
|
|
For
the concentration risk disclosure, please refer to Note 10.
Financial
Instruments
The
Company’s consolidated financial instruments consist primarily of cash, accounts receivable, prepaid expenses, inventory
and other assets, accounts payable and accrued expenses and other payables. The carrying amounts of such financial instruments
approximate their respective estimated fair value due to their short-term maturities.
Concentrations
of Credit Risks
The
Company’s exposure to concentrations of credit risk primarily related to its cash and cash equivalents. The Company places
its cash and cash equivalents with financial institutions of high credit worthiness. The Company’s management assess the
financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated
credit risk exposures are limited.
Inventory
Inventory
is stated at the lower of cost (weighted average) or net realizable value. The Company’s inventory is constantly monitored
for obsolescence. This is based on the management’s estimates and they have taken into considerations factors such as turnover,
technical obsolescence, right of return status to suppliers and price protection offered by suppliers. These estimates are necessarily
subject to a degree of measurement uncertainty. Reserves for slow-moving and obsolete inventory at September 30, 2017 were $0
and at March 31, 2017were $0.
Related
Parties
The
Company follows ASC 850,
“Related Party Disclosures,”
for the identification of related parties and disclosure
of related party transactions see Note 9.
Property
and Equipment
Property
and equipment are carried at cost less accumulated depreciation. Cost includes all direct costs necessary to acquire and prepare
assets for use.
The
costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly
add to the productive capacity or extend the useful life of an asset are capitalized. When assets are retired or sold, the asset’s
cost and related accumulated depreciation are eliminated with any remaining gain or loss recognized in net earnings.
Depreciation
of plant and equipment, is recorded on the straight-line method over estimated useful lives, generally as follows:
|
|
|
Years
|
|
Production
equipment
|
|
|
5
- 10
|
|
Vehicles
|
|
|
3
- 15
|
|
Office
equipment
|
|
|
5
- 10
|
|
Impairment
of long-lived assets
We
evaluate carrying value of long-lived assets whenever events or changes in circumstances would indicate that it is more likely
than not their carrying values may exceed their realizable values, and records impairment charges when considered necessary.
When
circumstances indicate that impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated
undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying
amount. In estimating these future cash flows, assets and liabilities are grouped at a lowest level for which there are identifiable
cash flows that are largely independent of the cash flows generated by other such groups. If the undiscounted future cash flows
are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset
over its estimated fair value, is recognized. Fair values are determined based on discounted cash flows, quoted market values
or external appraisals as applicable.
Revenue
Recognition
The
Company recognizes revenue only when all of the following criteria have been met:
|
i)
|
Persuasive
evidence for an agreement exists;
|
|
ii)
|
Service
has been provided;
|
|
iii)
|
The
fee is fixed or determinable; and,
|
|
iv)
|
Collection
is reasonably assured.
|
Deferred
Revenue
Deferred
revenue are services billed to customers for which the services have not been fully performed. As of September 30, 2017 and March
31, 2017, deferred revenue were $492,553 and $290,099, respectively.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740,
“Accounting for Income
Taxes.”
The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for
operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax
rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Uncertain
Tax Positions
The
Company follows guidance issued by the FASB regarding accounting for uncertainty in income taxes. This guidance clarifies the
accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before
being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using
a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to
meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater
than 50% likely to be realized upon its ultimate settlement.
The
Company records income tax related interest and penalties as a component of the provision for income tax expense. As of September
30, 2017 and March 31, 2017, the Company determined there were no uncertain tax provisions.
Earnings
(Loss) Per Share
The
Company has adopted ASC 260,
“Earnings Per Share,”
(“EPS”) which requires presentation of basic
and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.
In the accompanying consolidated statements of operations and comprehensive loss, basic loss per share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding during the period.
The
Company had no potentially dilutive securities, such as convertible debt, options or warrants, issued and outstanding during the
six months ended September 30, 2017 and 2016.
Recent
Accounting Pronouncements
The
Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future
adoption of any such pronouncements may be expected to cause a material impact on our consolidated financial statements.
In
September 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-13,
“Revenue Recognition (Topic 605),
Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant
to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”
The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU
No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the
related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments
for ASU 2014-09 and ASU 2016-02.
In
May 2014, the FASB issued an accounting standards update and introduced a 5-step approach which modifies the requirements for
identifying, allocating, and recognizing revenue related to the achievement of performance conditions under contracts with customers.
This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized
under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and
is required to be applied retrospectively to all revenue arrangements. The adoption of this guidance is not expected to have a
significant impact on the Company’s consolidated financial statements.
In
December 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-20
, “Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers.”
The amendments affect narrow aspects of the guidance issued in
ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts,
Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract
Asset vs. Receivable, Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized
for Advisors to Private Funds and Public Funds. The effective date and transition requirements for the amendments are the same
as the effective date and transition requirements for FASB Accounting Standards Codification Topic 606. Public entities should
apply Topic 606 (and related amendments) for annual reporting periods beginning after December 15, 2017, including interim reporting
periods therein.
NOTE
4 – INVENTORY
Inventory
at September 30, 2017 and March 31, 2017consist of the following:
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
Raw
material
|
|
$
|
166,240
|
|
|
$
|
300,662
|
|
Work
in progress
|
|
|
94,267
|
|
|
|
40,340
|
|
Finished
goods
|
|
|
270,292
|
|
|
|
261,121
|
|
|
|
$
|
530,799
|
|
|
$
|
602,123
|
|
NOTE
5 – NOTES RECEIVABLE
Note
receivable at September 30, 2017 and March 31, 2017amounted to $1,613,812 and $1,057,437, respectively.
The
amounts are interest free, unsecured and have no fixed terms of repayment. As at September 30, 2017 and March 31, 2017, there
were no interest due and outstanding and no provision had been made for non-repayment of the loan or interest.
Notes receivables
consisted mainly of interest-free loan due from unrelated third parties, social insurance and housing provident fund, and
input Value Added Tax to be credited.
|
|
September 30,
2017
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
Interest-free loan
|
|
$
|
1,590,142
|
|
|
$
|
1,039,401
|
|
Social insurance and housing provident fund
|
|
|
23,670
|
|
|
|
18,036
|
|
Input Value Added Tax to be credited
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,613,812
|
|
|
$
|
1,057,437
|
|
NOTE
6 – PROPERTY AND EQUIPMENT
Property
and equipment at September 30, 2017 and March 31, 2017, consist of the following:
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
Cost:
|
|
|
|
|
|
|
|
|
Production
equipment
|
|
$
|
148,168
|
|
|
$
|
141,713
|
|
Means of transport
|
|
|
851,122
|
|
|
|
822,242
|
|
office
equipment
|
|
|
13,451
|
|
|
|
11,381
|
|
|
|
|
1,012,741
|
|
|
|
975,336
|
|
Less:
accumulated depreciation
|
|
|
(379,845
|
)
|
|
|
(311,977
|
)
|
|
|
$
|
632,896
|
|
|
$
|
663,359
|
|
Depreciation
expense for the six months ended September 30, 2017 and 2016 amounted to $56,797 and $49,719, respectively.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at September 30, 2017 and March 31, 2017, consist of the following:
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
Accounts
payable
|
|
$
|
2,294,591
|
|
|
$
|
2,042,221
|
|
Accrued
payroll
|
|
|
152,827
|
|
|
|
91,462
|
|
Total
|
|
$
|
2,447,418
|
|
|
$
|
2,133,683
|
|
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
Accounts payable outstanding:
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$
|
1,839,754
|
|
|
$
|
1,343,926
|
|
1 - 2 year
|
|
|
454,837
|
|
|
|
698,295
|
|
Total
|
|
$
|
2,294,591
|
|
|
$
|
2,042,221
|
|
NOTE
8 – LOAN PAYABLE
The
components of our short-term debt and the associated interest rates, were as follows as of September 30, 2017 and March 31, 2017:
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
Loan
payable with no interest and 1-year maturity
|
|
$
|
4,284,572
|
|
|
$
|
1,627,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,284,572
|
|
|
|
1,627,228
|
|
Current
portion of loans payable
|
|
|
4,284,572
|
|
|
|
1,627,228
|
|
Long-term
loans payable
|
|
$
|
-
|
|
|
$
|
-
|
|
During
the six months ended September 30, 2017 and 2016, the Company borrowed $4,275,000 and $0, and repaid $1,680,000 and $0, respectively.
NOTE
9 – RELATED PARTY TRANSACTIONS
Due
from related parties
Due
from related parties at September 30, 2017 and March 31, 2017consist of as follows:
Related
Party Name
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
Relationship
with the Company
|
Hong
Zhida
|
|
$
|
-
|
|
|
$
|
11,616
|
|
|
CEO
|
Yang
Bihua
|
|
|
74,922
|
|
|
|
118,385
|
|
|
Company’s
legal representative
|
|
|
$
|
74,922
|
|
|
$
|
130,001
|
|
|
|
The
amounts were interest free, unsecured and had no fixed terms of repayment.
Due
to related parties
Due
to related parties at September 30, 2017 and March 31, 2017consist of as follows:
Related
Party Name
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
Relationship
with the Company
|
Hong
Zhida
|
|
$
|
41,852
|
|
|
$
|
-
|
|
|
CEO
|
Ding
Yinping
|
|
|
291,997
|
|
|
|
983,682
|
|
|
Company’s
legal representative
|
Huang
Jinlong
|
|
|
1,564,762
|
|
|
|
1,219,132
|
|
|
Company’s
supervisor
|
Chen
Zhongpeng
|
|
|
657,198
|
|
|
|
554,287
|
|
|
Company’s
legal representative
|
Huang
Dewu
|
|
|
57,649
|
|
|
|
121,823
|
|
|
Company’s
legal representative
|
|
|
$
|
2,613,458
|
|
|
$
|
2,878,924
|
|
|
|
The
amounts were interest free, unsecured and had no fixed terms of repayment.
NOTE
10 – CONCENTRATION OF CREDIT RISKS
The
Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose
accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, or whose accounts
payable balances individually represented 10% or more of the Company’s total accounts payable, the details of which are
set out as follows:
For
the six months ended September 30, 2017 and the year ended March 31, 2017, 5 customers accounted for 53% and 5 customer accounted
for 55% of the revenue of the Company, respectively.
At
September 30, 2017 and March 31, 2017, 2 customers accounted for 58% and 3 customers accounted for 55% of the accounts receivable
of the Company, respectively.
NOTE
11 – INCOME TAX
The Company is subject to U.S. Income taxes.
For the 6 months ended September 30, 2017 and the year ended March 31, 2017, the Company does not have to pay any U.S. income
tax.
The Company’s subsidiary, Yingxi was
incorporated on August 4, 2016 in the Republic of Seychelles. Yingxi’s subsidiary YICI was incorporated on July 28,
2016 in Hong Kong China. YICI’s subsidiaries DHSW, QYTG, SCDT, SHPF, SQYI and SXKJ were incorporated on May 15, 2009, November
29, 2016, May 13, 1982, July 6, 2006, January 29, 2016, and September 28, 2001 respectively in China.
The Company has subsidiaries operate
in China and they file their tax returns in accordance with China’s laws and regulations.
Provision for income taxes in China
for the six months ended September 30, 2017 and the year ended March 31, 2017 were $6,128 and $15,326 respectively.
The income tax rate for the years 2017 and 2016 are 25% in China. However, DHSW and SHPF enjoyed a preferential income
tax rate at 10% for the year 2016. Whereas SHPF enjoyed a preferential income tax rate at 10% for the year 2016.
The Company’s subsidiaries do
not generate any income in Hong Kong or Seychelles for the 6 months ended September 30, 2017 and the years ended March 31,
2017 and hence does not have to pay any Hong Kong Profits tax or Seychelles income tax.
NOTE
12 – SHAREHOLDERS’ EQUITY
Common
Stock
The
Company has 1,000,000,000, $0.001 par value shares of common stock authorized.
On
September 25, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 500,000,000 shares of common stock
to the stockholders of Yingxi in exchange for 250,000,000 shares of Yingxi’s common stock, representing 100% of its issued
and outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Yingxi stockholders
are treated as being outstanding from the date of issuance of the Insight shares.
There
were 506,920,000 shares of common stock outstanding as of September 30, 2017.
The
Company has no stock option plan, warrants or other dilutive securities.
NOTE
13 –SUBSEQUENT EVENTS
The
Company has analyzed its operations subsequent to September 30, 2017, through the date these financials were approved to be issued,
and has determined that it does not have any material events.
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition or Plan of Operation
|
FORWARD-LOOKING
STATEMENTS
This
quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”,
“plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”
or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Our
consolidated unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United
States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements
and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below
and elsewhere in this quarterly report.
Unless
otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to
“common stock” refer to shares of our common stock.
As
used in this quarterly report, the terms “we”, “us”, “our company”, mean Addentax Group Corp.,
a Nevada corporation and our wholly-owned subsidiary Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles corporation,
unless otherwise indicated.
Corporate
Overview
Addentax
Group Corp. was incorporated in the State of Nevada on October 28, 2014 and established a fiscal year-end of March 31. We are
in the development stage and were incorporated to produce images on multiple surfaces, such as glass, leather, plastic, ceramic,
textile, and others using a 3D sublimation vacuum heat transfer machine. Our business office is located at Floor 13th, Building
1, Block B, Zhihui Square, Nanshan District, Shenzhen City, China 518000. Our telephone number is +(86) 755 86961 405.
On
December 28, 2016, the Company executed a Sale & Purchase Agreement (“Agreement”) for the acquisition of 100%
of the shares and assets of Yingxi Industrial Chain Group Co., Ltd., (YICG”) a company incorporated under the laws of the
Republic of Seychelles. The Company agreed to issue five hundred million (500,000,000) shares to Yingxi Industrial Chain Group
Co., Ltd. to acquire the shares and assets for a cost of US$0.30 per share or a total cost of US$150,000,000. The closing of the
Agreement occurred on September 25, 2017.
As
a result of the closing, the Company has terminated its previous business plan, and is now pursuing the historical business of
Yingxi Industrial Chain Group Co., Ltd., an international industry chain service provider specializing in textile & garments
industry.
We
have never declared bankruptcy, been in receivership, or involved in any kind of legal proceeding.
Results
of Operations
For
the three months ended September 30, 2017 compared to 2016
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Revenue
|
|
$
|
3,729,840
|
|
|
$
|
2,433,559
|
|
|
$
|
1,296,281
|
|
|
|
53
|
%
|
Cost
of goods sold
|
|
|
(3,366,742
|
)
|
|
|
(2,047,859
|
)
|
|
|
1,318,883
|
|
|
|
64
|
%
|
Gross
profit
|
|
|
363,098
|
|
|
|
385,700
|
|
|
|
(22,602
|
)
|
|
|
(6
|
%)
|
Operating
expenses
|
|
|
(374,505
|
)
|
|
|
(401,552
|
)
|
|
|
(27,047
|
)
|
|
|
(7
|
%)
|
Other
income (expenses)
|
|
|
40
|
|
|
|
7,427
|
|
|
|
(7,387
|
)
|
|
|
(99
|
%)
|
Income
tax
|
|
|
(3,912
|
)
|
|
|
(5,081
|
)
|
|
|
(1,169
|
)
|
|
|
(23
|
%)
|
Net
loss
|
|
$
|
(15,279
|
)
|
|
$
|
(13,506
|
)
|
|
$
|
1,773
|
|
|
|
13
|
%
|
Revenue
Net
revenues totaled $3,729,840 for the three months ended September 30, 2017, an increase of $1,296,281 compared to 2016. The increase
was primarily a result of regular increase of business.
Cost
of revenue
Cost
of revenue totaled $3,366,742 for the three months ended September 30, 2017, an increase of $1,318,883 compared to 2016. Our cost
of revenues consisted mainly of the labor cost, raw material cost, manufacturing cost, transportation cost and operation tax.
The increase was primarily a result of an increase in transportation fee caused by increasing toll charge and the third-party
cost from new business.
Gross
profit
Gross
profit was 10% ($363,098) and 16% ($385,700) for the three months ended September 30, 2017 and 2016, respectively. The decrease
in gross profit was primarily a result of unprofitable new business.
Operating
expense
General
and administrative expenses totaled $374,505 for the three months ended September 30, 2017, a decrease of $27,047, compared to
2016. Operating expenses consisted of sales expense, administration expense and financial expense. The decrease in operating expenses
was primarily a result of a decrease in administration expenses due to a decrease of staff.
Other
income
Total
other income totaled $40 for the three months ended September 30, 2017, a decrease of $7,387 compared to 2016. Other income consisted
mainly of a government subsidy.
Net
loss
Net
loss totaled $15,279 for the three months ended September 30, 2017, an increase from net loss of $1,773, compared to net loss
of $13,506 for the three months ended September 30, 2016, primarily as the result of a decrease in gross profit.
For
the six months ended September 30, 2017 compared to 2016
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Revenue
|
|
$
|
8,046,794
|
|
|
$
|
5,927,072
|
|
|
$
|
2,119,722
|
|
|
|
36
|
%
|
Cost
of goods sold
|
|
|
(7,403,721
|
)
|
|
|
(5,083,084
|
)
|
|
|
2,320,637
|
|
|
|
46
|
%
|
Gross
profit
|
|
|
643,073
|
|
|
|
843,988
|
|
|
|
(200,915
|
)
|
|
|
(24
|
%)
|
Operating
expenses
|
|
|
(755,548
|
)
|
|
|
(789,188
|
)
|
|
|
(33,640
|
)
|
|
|
(4
|
%)
|
Other
income (expenses)
|
|
|
(1,066
|
)
|
|
|
11,897
|
|
|
|
(12,963
|
)
|
|
|
(109
|
%)
|
Income
tax
|
|
|
(6,128
|
)
|
|
|
(15,326
|
)
|
|
|
(9,198
|
)
|
|
|
(60
|
%)
|
Net
income (loss)
|
|
$
|
(119,669
|
)
|
|
$
|
51,371
|
|
|
$
|
(171,040
|
)
|
|
|
(333
|
%)
|
Revenue
Net
revenues totaled $8,046,794 for the six months ended September 30, 2017, an increase of $2,119,722 compared to 2016. The increase
was primarily a result of regular increase of business.
Cost
of revenue
Cost
of revenue totaled $7,403,721 for the six months ended September 30, 2017, an increase of $2,320,637 compared to 2016. Our cost
of revenues consisted mainly of the labor cost, raw material cost, manufacturing cost, transportation cost and operation tax.
The increase was primarily a result of an increase in transportation fee caused by increasing toll charge and the third-party
cost from new business.
Gross
profit
Gross
profit was 8% ($643,073) and 14% ($843,988) for the six months ended September 30, 2017 and 2016, respectively. The decrease in
gross profit was primarily a result of unprofitable new business.
Operating
expense
General
and administrative expenses totaled $755,548 for the six months ended September 30, 2017, a decrease of $33,640, compared to 2016.
Operating expenses consisted of sales expense, administration expense and financial expense. The decrease in operating expenses
was primarily a result of a decrease in administration expenses due to a decrease of staffs.
Other
income (expense)
Total
other expenses totaled $1,066 for the six months ended September 30, 2017, a decrease of $12,963, compared to 2016. Other income
consisted mainly of government subsidy.
Net
income (loss)
Net loss totaled $119,669 for the six
months ended September 30, 2017, a decrease from net income of $171,040, compared to net income of $51,371 for the six months
ended September 30, 2016, primarily as the result of a decrease in gross profit.
Liquidity
and Capital Resources
Working
Capital
|
|
|
|
|
|
|
|
Change
|
|
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
Amount
|
|
|
%
|
|
Cash
|
|
$
|
378,557
|
|
|
$
|
176,929
|
|
|
$
|
201,628
|
|
|
|
114
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
8,258,897
|
|
|
$
|
7,043,387
|
|
|
$
|
1,215,510
|
|
|
|
17
|
%
|
Current
Liabilities
|
|
|
9,911,642
|
|
|
|
7,038,629
|
|
|
|
2,873,013
|
|
|
|
41
|
%
|
Working
Capital (deficiency)
|
|
$
|
(1,652,745
|
)
|
|
$
|
4,758
|
|
|
$
|
(1,657,503
|
)
|
|
|
(34,836
|
%)
|
The
change in working capital deficiency during the period ended September 30, 2017 was primarily from an increase in short-term loan
payable of $2,657,344 and reduced by an increase in note receivable of $556,375 and prepaid expenses of $664,842.
Cash
Flows
|
|
September
30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net
cash provided by operating activities
|
|
$
|
14,755
|
|
|
$
|
307,378
|
|
|
$
|
(292,623
|
)
|
Net
cash used in investing activities
|
|
$
|
(1,861,997
|
)
|
|
$
|
(104,624
|
)
|
|
$
|
(1,757,373
|
)
|
Net
cash provided by financing activities
|
|
$
|
2,045,770
|
|
|
$
|
56,196
|
|
|
$
|
1,989,574
|
|
Effects
on changes in foreign exchange rate
|
|
$
|
3,116
|
|
|
$
|
(5,116
|
)
|
|
$
|
8,232
|
|
Net
increase in cash and cash equivalents
|
|
$
|
201,644
|
|
|
$
|
5,625
|
|
|
$
|
196,019
|
|
Cash
Flows from Operating Activities
For
the six months ended September 30, 2017, net cash flows provided by operating activities consisted of a net loss of $119,669 and
was decreased by depreciation of $56,797, and increased by a net increase in change of operating assets and liabilities of $77,627.
For the six months ended September 30, 2016, net cash flows provided by operating consisted of a net income of $51,371 and was
increased by depreciation of $49,719 and a net increase in the change of operating assets and liabilities of $206,288. Cash flows
from operating activities decreased mainly due to a decrease in net income.
Cash
Flows from Investing Activities
For
the six months ended September 30, 2017, we collected loans of $336,597 and loans to related parties of $189,283 and used $1,500,000
for acquisition of subsidiary and $3,142 for purchases of equipment, provided loans of $854,795 and loans to related parties of
$29,940. For the six months ended September 30, 2016, we collected loan to related parties of $618,557 and used $101,225 for purchases
of equipment, and provided loans of $621,926.
Cash
Flows from Financing Activities
For
the six months ended September 30, 2017, we received $4,275,000 from loan payable and $150 from loan payable from related parties
and used $1,680,000 for repayments of loans and $549,380 for repayment of loans to related parties. For the six months ended September
30, 2016, we received loans from related parties of $56,196.
Critical
Accounting Policy and Estimates
In
the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles.
We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable
under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
|
Item
4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures, as defined in Rule 13a15(e) promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
We
carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2017. Based on
the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls
over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were not effective.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s
internal control over financial reporting as of September 30, 2017 using the criteria established in “Internal Control -
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not
be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting
as of September 30, 2017, the Company determined that there were control deficiencies that constituted material weaknesses, as
described below.
1.
We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s
view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s
financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member
that is considered to be independent of management to provide the necessary oversight over management’s activities.
2.
We did not maintain appropriate cash controls – As of September 30, 2017, the Company has not maintained sufficient internal
controls over financial reporting for cash, including failure to segregate cash handling and accounting functions, and did not
require dual signatures on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated
by the fact that the Company had limited transactions in its bank accounts.
3.
We did not implement appropriate information technology controls – As at September 30, 2017, the Company retains copies
of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s
data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Accordingly,
the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As
a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal
control over financial reporting as of September 30, 2017 based on criteria established in Internal Control- Integrated Framework
issued by COSO.
Changes
in Internal Controls over Financial Reporting
There
has been no change in our internal control over financial reporting occurred during
our
first fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
This
quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this
quarterly report.