Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations for the years ended March 31, 2018 and
2017 should be read in conjunction with the Financial Statements and corresponding notes included in this Annual Report on Form
10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from
those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the
Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,”
“target”, “forecast” and similar expressions to identify forward-looking statements.
Overview
Our
Business
We
are a garment manufacturer and logistic service provider based in China. We are listed on the OTCQB under the symbol of “ATXG”.
We classify our businesses into two segments: Garment manufacturing and logistics services.
Our
garment manufacturing business consists of sales made principally to wholesaler located in the People’s Republic of China
(“PRC”). 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 two wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”)
and Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), which are located in the Guangdong province, China.
Our
logistic business consists of delivery and courier services covering approximately 20 provinces in China. Although we have our
own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows
us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during
slow seasons. We conduct our logistic operations through two 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.
Business
Objectives
Garment
Manufacturing Business
We
believe the enduring strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality
and timely delivery. The primary business objective for our garment manufacturing segment is to expand our customer base and improve
our profit. In the future, we plan to develop our growth opportunities and continued investment initiatives to provide value-added
consulting services to the apparel supply-chain companies and retailers in China.
Logistic
Business
The
business objective and future plan for our logistic service segment is to establish an efficient logistic system and to build
a nationwide delivery and courier network in China. As of March 31, 2018, we provide logistic service to over 23 cities in approximately
20 provinces. We expect to open logistic points in additional 10 cities in the year of 2019.
Seasonality
of Business
Our
business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistic
service revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing
shipments and holiday periods in the logistic 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.
Logistic
business
For
logistic service, we generally receive payments from the customers between 30 to 90 days following the date of the register receipt
of packages.
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.
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
We
are generating our revenue from the sale of garments manufactured and the provision of logistic services to customers. We recognize
our revenue, net of value-added taxes, upon customer acceptance, at such time title passes to the customer provided that (i) there
are no uncertainties regarding customer acceptance, (ii) persuasive evidence of an arrangement exists, (iii) the sales price is
fixed and determinable, and (iv) collectability is deemed probable.
Concentrations
of Credit Risk
Cash
held in banks: We maintain cash balances at the financial institutions in China. We have not experienced any losses in such accounts.
Accounts
Receivable: Customer accounts typically are collected within a short period of time, and based on its assessment of current conditions
and its experience collecting such receivables, management believes it has no significant risk related to its concentration within
its accounts receivable.
We
have one major debtor that accounted for approximately 56% of accounts receivable for the year ended March 31, 2018. We have spent
tremendous effort on the collection with the goal of receiving full payment as soon as possible. The debtor had signed
a settlement agreement to commit that the full payment amount will be settled by the end of September 2018.
Recently
issued and adopted accounting pronouncements
In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”).
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU
2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date
(“ASU 2015-14”), which
defers the effective date of ASU 2014-09 to January 1, 2018 for the Company. Early adoption is permitted. The Company adopts ASU
2014-09 utilizing the modified retrospective method. The Company evaluated the impact of adopting the new standard and conclude
there was no material impact on the Company’s revenue recognition policy.
In
January 2016, the FASB issued ASU 2016-01, “
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities
(“ASU 2016-01”)”. The standard addresses certain aspects of
recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. The Company evaluated the impact of adopting the new standard
and conclude there was no material impact to its consolidated financial statement.
In
February 2016, the FASB issued ASU 2016-02,
“Lease (Topic 842)
”, which amends recognition of lease assets and
lease liabilities by lessees for those leases classified as operating leases. Under the new guidance, lessees will be required
to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement
date. This standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. The Company is currently assessing the impact of this new standard on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, “
Statement of Cash flows -—Classification of Certain Cash Receipts and
Cash Payment”
, effective for the fiscal years beginning after December 15, 2017, and interim periods within that fiscal
year. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.
The Company evaluated the impact of adopting the new standard on its consolidated financial statements and conclude there was
no material impact to the Company’s financial statement.
In
January, 2017, the FASB issued 2017-01 “
Business Combinations
”, effective for the annual reporting period beginning
after December 15, 2017, and interim period within that period. This Updated clarifies the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or
business. The Company evaluated the impact of adopting the new standard on its consolidated financial statements and conclude
there was no material impact to the Company’s financial statement.
In
February 2017, the FASB issued ASU 2017-05 “
Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20)
”, effective for the annual reporting period beginning after the December 15, 2017, including
the interim reporting period within that period. This update provides guidance on the recognition of gains and losses on transfers
of nonfinancial assets and in substance nonfinancial assets to counterparties that are not customers. The Company evaluated the
impact of adopting the new standard on its consolidated financial statements and conclude there was no material impact to the
Company’s financial statement.
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 years ended March 31, 2018 and 2017
The
following tables summarize our results of operations for the years ended March 31, 2018 and 2017. The table and the discussion
below should be read in conjunction with our condensed consolidated financial statements and the notes thereto appearing elsewhere
in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
compared to 2017
|
|
|
|
(In
U.S. dollars, except for percentages)
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,437,569
|
|
|
|
100.0
|
%
|
|
$
|
5,335,501
|
|
|
|
100
|
%
|
|
$
|
8,102,068
|
|
|
|
151.9
|
%
|
Cost
of revenues
|
|
|
(11,995,947
|
)
|
|
|
(89.3
|
%)
|
|
|
(5,079,483
|
)
|
|
|
(95.2
|
%)
|
|
|
6,916,464
|
|
|
|
136.2
|
%
|
Gross
profit
|
|
|
1,441,622
|
|
|
|
10.7
|
%
|
|
|
256,018
|
|
|
|
4.8
|
%
|
|
|
1,185,604
|
|
|
|
463.1
|
%
|
Operating
expenses
|
|
|
(1,697,576
|
)
|
|
|
(12.6
|
%)
|
|
|
(630,239
|
)
|
|
|
(11.8
|
%)
|
|
|
1,067,337
|
|
|
|
169.3
|
%
|
Loss
from operations
|
|
|
(255,954
|
)
|
|
|
(1.9
|
%)
|
|
|
(374,221
|
)
|
|
|
(7.0
|
%)
|
|
|
(118,267
|
)
|
|
|
(31.6
|
%)
|
Impairment
loss on goodwill
|
|
|
(454,659
|
)
|
|
|
(3.4
|
%)
|
|
|
-
|
|
|
|
-
|
|
|
|
454,659
|
|
|
|
100
|
%
|
Other
income, net
|
|
|
20,558
|
|
|
|
0.2
|
%
|
|
|
15,996
|
|
|
|
0.3
|
%
|
|
|
(4,562
|
)
|
|
|
(28.3
|
%)
|
Income
tax expense
|
|
|
(19,342
|
)
|
|
|
(0.1
|
%)
|
|
|
(13,577
|
)
|
|
|
(0.3
|
%)
|
|
|
5,765
|
|
|
|
42.5
|
%
|
Net
loss
|
|
$
|
(709,396
|
)
|
|
|
(5.2
|
%)
|
|
$
|
(371,802
|
)
|
|
|
(7.0
|
%)
|
|
$
|
337,594
|
|
|
|
90.8
|
%
|
Revenue
Revenue
generated from our garment manufacturing business contributed $5,069,699 or 37.7% of our total revenue for the year ended March
31, 2018. Revenue generated from our garment manufacturing business contributed $2,750,210 or 51.5% of our total revenue for the
year ended March 31, 2017.
Revenue
generated from our logistic business contributed $8,367,870 or 62.3% of our total revenue for the year ended March 31, 2018. Revenue
generated from our logistic business contributed $2,585,291 or 48.5% of our total revenue for the year ended March 31, 2017.
Total
revenue for the year ended March 31, 2018 and 2017 were $13,437,569 and $5,335,501, respectively, a 151.9% increase compared
with the year ended March 31, 2017. The increase was due to revenue generated for the year ended March 31, 2017 represents only
four months results beginning December 2016 when the operating companies in the PRC were being acquired and consolidated to the
Company.
Cost
of revenue
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
compared to 2017
|
|
|
|
(In
U.S. dollars, except for percentages)
|
|
|
|
|
Net
revenue for garment manufacturing
|
|
$
|
5,069,699
|
|
|
|
100.0
|
%
|
|
$
|
2,750,210
|
|
|
|
100
|
%
|
|
$
|
2,319,489
|
|
|
|
84.3
|
%
|
Raw
materials
|
|
|
4,250,043
|
|
|
|
83.8
|
%
|
|
|
2,502,627
|
|
|
|
91.0
|
%
|
|
|
|
|
|
|
|
|
Labor
|
|
|
359,897
|
|
|
|
7.1
|
%
|
|
|
110,389
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
Other
and Overhead
|
|
|
106,693
|
|
|
|
2.1
|
%
|
|
|
27,911
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
Total
cost of revenue for garment manufacturing
|
|
|
4,716,633
|
|
|
|
93.0
|
%
|
|
|
2,640,927
|
|
|
|
96.0
|
%
|
|
|
2,075,706
|
|
|
|
78.6
|
%
|
Gross
profit for garment manufacturing
|
|
|
353,066
|
|
|
|
7.0
|
%
|
|
|
109,283
|
|
|
|
4.0
|
%
|
|
|
243,783
|
|
|
|
223.1
|
%
|
Net
revenue for logistic service
|
|
|
8,367,870
|
|
|
|
100.0
|
%
|
|
|
2,585,291
|
|
|
|
100
|
%
|
|
|
5,782,579
|
|
|
|
223.7
|
%
|
Fuel
and toll
|
|
|
6,290,430
|
|
|
|
75.2
|
%
|
|
|
2,289,116
|
|
|
|
88.5
|
%
|
|
|
|
|
|
|
|
|
Subcontracting
fees
|
|
|
988,883
|
|
|
|
11.8
|
%
|
|
|
149,440
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
Total
cost of revenue for logistic service
|
|
|
7,279,313
|
|
|
|
87.0
|
%
|
|
|
2,438,556
|
|
|
|
94.3
|
%
|
|
|
4,840,757
|
|
|
|
198.5
|
%
|
Gross
Profit for logistic service
|
|
|
1,088,557
|
|
|
|
10.7
|
%
|
|
|
146,735
|
|
|
|
5.7
|
%
|
|
|
941,822
|
|
|
|
641.9
|
%
|
Total
cost of revenue
|
|
$
|
11,995,946
|
|
|
|
89.3
|
%
|
|
$
|
5,079,483
|
|
|
|
95.2
|
%
|
|
$
|
6,916,463
|
|
|
|
136.2
|
%
|
Gross
profit
|
|
$
|
1,441,623
|
|
|
|
10.7
|
%
|
|
$
|
256,018
|
|
|
|
4.8
|
%
|
|
$
|
1,185,605
|
|
|
|
463.1
|
%
|
Cost
of revenue for our manufacturing segment for the years ended March 31, 2018 and 2017 was $4,716,633 and $2,640,927, respectively,
which includes direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment
and rent. Cost of revenue for our service segment for the years ended March 31, 2018 was $7,279,313 and $2,438,556, respectively,
which includes gasoline and diesel fuel, toll charges and subcontracting fees.
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 45.3% and 81.1% of raw materials
purchases for the years ended March 31, 2018 and 2017, respectively. Two and four suppliers provided more than 10% of our raw
materials purchases for the years ended March 31, 2018 and 2017. We have not experienced difficulty in obtaining raw materials
essential to our business, and we believe we maintain good relationships with our suppliers.
For
our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, in which
the subcontracting fees to our largest contractor represented approximately 29.1% and 31.7% of total cost of revenues for our
service segment for the years ended March 31, 2018 and 2017, respectively. We have not experienced any disputes with our subcontractor
and we believe we maintain good relationships with our contract logistic service provider.
Raw
material costs for our manufacturing business were 83.8% of our total manufacturing business revenue in the year ended March 31,
2018, compared with 91.0% in the year ended March 31, 2017. The decrease in percentages was mainly due to the purchase cost of
the raw materials remained consistent, while the labor costs continued rising.
Labor
costs for our manufacturing business were 7.1% of our total manufacturing business revenue in the year ended March 31, 2018, compared
with 4.0% in the year ended March 31, 2017. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead
and other expenses for our manufacturing business accounted for 2.1% of our total manufacturing business revenue for the year
ended March 31, 2018, compared with 1.0% of total manufacturing business revenue for the year ended March 31, 2017.
Fuel
and toll costs for our service business for the year ended March 31, 2018 were $6,290,430 compared with $2,289,116 for the year
ended March 31, 2017. Fuel and toll costs for our service business accounted for 75.2% of our total service revenue for the year
ended March 31, 2018, compared with 88.5% for the year ended March 31, 2017. The decrease in percentages was primarily attributable
to the Company subcontracted more shipping orders to subcontractors in 2018 due to the increase in shipping orders with the destination
that were not covered by the Company’s own delivery and transportation networks.
Subcontracting
fees for our service business for the year ended March 31, 2018 increased 562% to $988,883 from $149,440 for the year ended March
31, 2017. Subcontracting fees accounted for 11.8% and 5.8% of our total service business revenue in the years ended March 31,
2018 and 2017, respectively. This increase in percentages the Company subcontracted more shipping orders to subcontractors in
2018 due to the increase in shipping orders with the destination that were not covered by the Company’s own delivery and
transportation networks
Total
cost of revenue for the year ended March 31, 2018 was $11,995,947, a 60.3% increase from $5,335,501 for the year ended March 31,
2017. Total cost of sales as a percentage of total sales for the year ended March 31, 2018 was 89.3%, compared with 95.2% for
the year ended March 31, 2017. Gross margin for the year ended March 31, 2018 was 10.7% compared with 4.8% for the year ended
March 31, 2017. The increase in gross margin was due to the effective control of our cost through business restructuring in 2017
for reorganizing the operational and other structures of our garment manufacturing subsidiaries to increase profitability.
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
compared to 2017
|
|
|
|
(In
U.S. dollars, except for percentages)
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
1,441,622
|
|
|
|
100
|
%
|
|
$
|
256,018
|
|
|
|
100
|
%
|
|
|
1,185,604
|
|
|
|
463.1
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
(25,428
|
)
|
|
|
(1.8
|
%)
|
|
|
(7,696
|
)
|
|
|
(3.0
|
%)
|
|
|
17,732
|
|
|
|
230.4
|
%
|
General
and administrative expenses
|
|
|
(1,672,148
|
)
|
|
|
(116.0
|
%)
|
|
|
(622,543
|
)
|
|
|
(243.2
|
%)
|
|
|
1,049,605
|
|
|
|
168.6
|
%
|
Total
|
|
$
|
(1,697,576
|
)
|
|
|
(117.8
|
%)
|
|
$
|
(630,239
|
)
|
|
|
(246.2
|
%)
|
|
|
1,067,337
|
|
|
|
171.4
|
%
|
Loss
from operations
|
|
$
|
(255,954
|
)
|
|
|
(17.8
|
%)
|
|
$
|
(374,221
|
)
|
|
|
(146.2
|
%)
|
|
|
(118,267
|
)
|
|
|
(31.6
|
%)
|
Manufacturing
business gross profit for the year ended March 31, 2018 was $353,066 compared with $109,283 for the year ended March 31, 2017.
Gross profit accounted for 7.0% of our total manufacturing business revenue for the year ended March 31, 2018, compared with 4.0%
for the year ended March 31, 2017.
Gross
profit in our service business for the year ended March 31, 2018 was $1,088,557 and gross margin was 10.7%. Gross profit in our
service business for the year ended March 31, 2017 was $146,735 and gross margin was 5.7%.
The
increase in gross margin was due to the effective control of our cost through business restructuring in 2017 for reorganizing
the operational and other structures of our garment manufacturing subsidiaries to increase profitability.
Selling,
General and administrative expenses
Our
selling expenses in our manufacturing segment for the years ended March 31, 2018 and 2017 was $25,428 and $7,696, respectively.
Our selling expenses in our service segment for the year ended March 31, 2017 was $nil and $nil, respectively. Selling expenses
consist primarily of local transportation, unloading charges and product inspection charges.
Our
general and administrative expenses in our manufacturing segment for the years ended March 31, 2018 and 2017 was $266,493 and
$235,688, respectively. Our general and administrative expenses in our service segment, for the year ended March 31, 2018 and
2017 was $1,077,999 and $349,845, respectively. Our general and administrative expenses in our corporate and other segment for
the year ended March 31, 2018 and 2017 was $327,656 and $37,010, 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.
Selling
expenses for the year ended March 31, 2018 increased 230.4% to $25,428 from $7,696 for the year ended March 31, 2017.
General
and administrative expenses for the year ended March 31, 2018 increased 168.6% to $1,672,148 from $622,543 for the year ended
March 31, 2017. The increase was due to revenue generated for the year ended March 31, 2017 represents only four months results
beginning December 2016 when the operating companies in the PRC were being acquired and consolidated to the Company, offset with
the decrease in expenses as a result of cost cutting policy applied in 2017 including streamlining operating process and laying
off redundant employees.
Income
from operations
Loss
from operations for the years ended March 31, 2018 and 2017 was 255,954 and $374,220, respectively. Income (loss) from operations
of $61,145 and ($134,100) was attributed from our manufacturing segment for the years ended March 31, 2018 and 2017, respectively.
Income from operations of $10,406 and ($203,110) was attributed from our service segment for the years ended March 31, 2018 and
2017, respectively. We incurred a loss from operations in corporate segment of $327,505 and $37,010 for the years ended March
31, 2018 and 2017, respectively. The loss from our corporate segment was mainly due to the legal and professional fee in connection
to the reverse merger transactions incurred in 2017.
Income
Tax Expenses
Income
tax expense for the years ended March 31, 2018 and 2017 was $19,342 and $13,577, respectively, a 42.5% increase compared to 2017.
The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi
Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin
Islands, is not subject to income taxes.
Yingxi
HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a tax rate of 16.5%. No provision for income taxes
in Hong Kong has been made as Yingxi HK had no taxable income for the years ended March 31, 2018 and 2017.
QYTG
and YX were incorporated in the PRC and is subject to the PRC statutory tax 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, 2018 and 2017.
The
Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an
EIT rate of 25% in 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2017.
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, 2018 and 2017.
Impairment
Loss on Goodwill
For
the year ended March 31, 2018, we recognized an impairment loss on goodwill of $454,659. A number of factors, including the overall
financial performance, the slower than expected growth and trading conditions were considered. The goodwill impairment assessment
process was conducted at the reporting units. We determined the fair value based on discounted cash flow calculations.
Based on our impairment test of goodwill, the recoverable amount was lower than the carrying amount of the goodwill recorded and
it was concluded that carrying amount of goodwill of $454,659 was impaired.
Net
Income
We
incurred a net loss of $709,396 and $371,802 for the years ended March 31, 2018 and 2017, respectively. Our basic and diluted
earnings per share were $0.00 and $0.00 for the year ended March 31, 2018, respectively.
Summary
of cash flows
Summary
cash flows information for the years ended March 31, 2018 and 2017 is as follow:
|
|
2018
|
|
|
2017
|
|
|
|
(In
U.S. dollars)
|
|
Net
cash provided by operating activities
|
|
$
|
1,880,166
|
|
|
$
|
561,458
|
|
Net
cash used in investing activities
|
|
$
|
(3,122,828
|
)
|
|
$
|
227,711
|
|
Net
cash provided by (used in) financing activities
|
|
$
|
1,323,044
|
|
|
$
|
(612,354
|
)
|
Net
cash used in operating activities consist of net loss of $709,396, increased by depreciation of $111,740 and impairment loss on
goodwill of $454,659, and reduced by increase in change of operating assets and liabilities of $2,023,163. We will 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 payment for acquisition of subsidiaries of $3,025,751 and purchase of plant and equipment
of $97,077.
Net
cash provided by financing activities consist of repayment of related party borrowings of $2,893,064 and we received related
party proceeds of $797,422. repayment of third party borrowings of $2,391,411 and we received third party proceeds of $1,618,813.
Financial
Condition, Liquidity and Capital Resources
As
of March 31, 2018, we had cash on hand of $264,806, total current assets of $6,394,568 and current liabilities of $8,623,045.
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.
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, 2018, the market foreign exchange
rate had increased to RMB 6.28 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, 2018 and 2017 was ($151,555) and $19,884, 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, 2018
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item
8. Financial Statements and Supplementary Data
ADDENTAX
GROUP CORP.
FINANCIAL
STATEMENTS
For
the year ended March 31, 2018 and 2017
TABLE
OF CONTENTS
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 balance sheet of Addentax Group Corp. together with its subsidiaries (“the Company”)
as of March 31, 2018 and 2017, and the related consolidated statements of income and comprehensive loss, stockholders’ equity,
and cash flows for the year then ended, 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 position of the Company as of
March 31, 2018 and 2017, and the results of its operations and its cash flows for the year then ended, 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 audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
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 audit 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
audit 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 audit 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 audit provides a reasonable basis for our opinion.
Emphasis
of Matter
The
Company has significant transactions with related parties, which are described in Note 7 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/
Pan-China Singapore PAC
We
have served as the Company’s auditor since 2018.
Singapore
July
16, 2018
ADDENTAX
GROUP CORP AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
U.S. Dollars, except share data or otherwise stated)
AS
OF MARCH 31, 2018 AND 2017
|
|
|
2018
|
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
264,806
|
|
|
$
|
176,905
|
|
Accounts
receivables, net
|
|
|
3,416,618
|
|
|
|
4,776,878
|
|
Inventories,
net
|
|
|
239,229
|
|
|
|
445,442
|
|
Other
receivables
|
|
|
2,005,112
|
|
|
|
1,105,320
|
|
Advances
to suppliers
|
|
|
266,377
|
|
|
|
322,556
|
|
Amounts
due from related parties
|
|
|
202,426
|
|
|
|
127,552
|
|
Total
current assets
|
|
|
6,394,568
|
|
|
|
6,954,653
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Plant
and equipment, net
|
|
|
648,540
|
|
|
|
663,203
|
|
Goodwill
|
|
|
475,003
|
|
|
|
929,662
|
|
Total
non-current assets
|
|
|
1,123,543
|
|
|
|
1,592,865
|
|
TOTAL
ASSETS
|
|
$
|
7,518,111
|
|
|
$
|
8,547,518
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,549,847
|
|
|
$
|
1,610,643
|
|
Amount
due to related parties
|
|
|
5,319,418
|
|
|
|
2,907,283
|
|
Advances
from customers
|
|
|
1,561,861
|
|
|
|
1,047,817
|
|
Accrued
expenses and other payables
|
|
|
185,855
|
|
|
|
199,283
|
|
Payable
for acquisition of business
|
|
|
-
|
|
|
|
3,025,751
|
|
Income
tax payable
|
|
|
6,064
|
|
|
|
723
|
|
Total
current liabilities
|
|
|
8,623,045
|
|
|
|
8,791,500
|
|
TOTAL
LIABILITIES
|
|
$
|
8,623,045
|
|
|
$
|
8,791,500
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock ($0.001 par value, 506,920,000 shares issued and outstanding for the year ended March 31, 2018 and $0.001 par value,
500,000,000shares issued and outstanding for the year ended March 31, 2017)
|
|
$
|
506,920
|
|
|
$
|
500,000
|
|
Additional
paid-in capital
|
|
|
(420,524
|
)
|
|
|
(413,604
|
)
|
Retained
earnings
|
|
|
(1,081,198
|
)
|
|
|
(371,802
|
)
|
Statutory
reserve
|
|
|
21,539
|
|
|
|
21,539
|
|
Accumulated
other comprehensive income
|
|
|
(131,671
|
)
|
|
|
19,884
|
|
Total
equity
|
|
|
(1,104,934
|
)
|
|
|
(243,983
|
)
|
TOTAL
LIABILITIES AND EQUITY
|
|
$
|
7,518,111
|
|
|
$
|
8,547,517
|
|
See
accompany notes to the condensed 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, 2018 AND 2017
|
|
2018
|
|
|
2017
|
|
REVENUES
|
|
$
|
13,437,569
|
|
|
$
|
5,335,501
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUES
|
|
|
(11,995,947
|
)
|
|
|
(5,079,483
|
)
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,441,622
|
|
|
|
256,018
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
(25,428
|
)
|
|
|
(7,696
|
)
|
General
and administrative
|
|
|
(1,672,148
|
)
|
|
|
(622,543
|
)
|
Total
operating expenses
|
|
|
(1,697,576
|
)
|
|
|
(630,239
|
)
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(255,954
|
)
|
|
|
(374,221
|
)
|
|
|
|
|
|
|
|
|
|
IMPAIRMENT
LOSS ON GOODWILL
|
|
|
(454,659
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME, NET
|
|
|
20,559
|
|
|
|
15,996
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAX EXPENSE
|
|
|
(690,054
|
)
|
|
|
(358,225
|
)
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
(19,342
|
)
|
|
|
(13,577
|
)
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(709,396
|
)
|
|
|
(371,802
|
)
|
Foreign
currency translation (loss) gain
|
|
|
(151,555
|
)
|
|
|
19,884
|
|
TOTAL
COMPREHENSIVE LOSS
|
|
|
(860,951
|
)
|
|
$
|
(351,918
|
)
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
0.00
|
|
|
|
0.00
|
|
Weighted
average number of shares outstanding – Basic and diluted
|
|
|
506,920,000
|
|
|
|
500,000,000
|
|
See
accompany notes to the condensed 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, 2018 AND 2017
|
|
Common
Stock
|
|
|
Additional
|
|
|
Retained
earnings
|
|
|
Accumulated
other
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in
capital
|
|
|
Unrestricted
|
|
|
Statutory
reserve
|
|
|
comprehensive
income
|
|
|
Total
Equity
|
|
BALANCE
AT
AUGUST 4, 2016 (i)
|
|
|
500,000,000
|
|
|
$
|
500,000
|
|
|
$
|
(413,604
|
)
|
|
$
|
-
|
|
|
$
|
21,539
|
|
|
$
|
-
|
|
|
$
|
107,935
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,884
|
|
|
|
19,884
|
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(371,802
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(371,802
|
)
|
BALANCE AT MARCH
31, 2017
|
|
|
500,000,000
|
|
|
$
|
500,000
|
|
|
$
|
(413,604
|
)
|
|
$
|
(371,802
|
)
|
|
$
|
21,539
|
|
|
$
|
19,884
|
|
|
$
|
(243,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
6,920,000
|
|
|
|
6,920
|
|
|
|
(6,920
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(151,555
|
)
|
|
|
(151,555
|
)
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(709,396
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(709,396
|
)
|
BALANCE
AT MARCH 31, 2018
|
|
|
506,920,000
|
|
|
$
|
506,920
|
|
|
$
|
(420,524
|
)
|
|
$
|
(1,081,198
|
)
|
|
$
|
21,539
|
|
|
$
|
(131,671
|
)
|
|
$
|
(1,104,934
|
)
|
|
(i)
|
Yingxi
Industrial Chain Group Co., Ltd was incorporated on August 4, 2016.
|
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, 2018 AND 2017
|
|
2018
|
|
|
2017
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(709,396
|
)
|
|
$
|
(371,802
|
)
|
Adjustments
to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
111,740
|
|
|
|
34,905
|
|
Loss
from disposal of plant and equipment
|
|
|
-
|
|
|
|
6,129
|
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
155,722
|
|
Impairment
loss on goodwill
|
|
|
454,659
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,360,260
|
|
|
|
(780,593
|
)
|
Inventories
|
|
|
206,213
|
|
|
|
21,398
|
|
Advances
to suppliers
|
|
|
56,179
|
|
|
|
361,143
|
|
Amounts
due from related parties
|
|
|
(74,879
|
)
|
|
|
24,253
|
|
Other
receivables
|
|
|
(181,528
|
)
|
|
|
(20,713
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payables
|
|
|
(60,796
|
)
|
|
|
216,185
|
|
Amounts
due to related parties
|
|
|
186,451
|
|
|
|
392,296
|
|
Accrued
expenses and other payables
|
|
|
11,879
|
|
|
|
(69,400
|
)
|
Advances
from customers
|
|
|
514,044
|
|
|
|
569,673
|
|
Taxes
payable
|
|
|
5,341
|
|
|
|
22,262
|
|
Net
cash provided by operating activities
|
|
|
1,880,166
|
|
|
|
561,458
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of plant and equipment
|
|
|
(97,077
|
)
|
|
|
-
|
|
Proceeds
from sale of plant and equipment
|
|
|
-
|
|
|
|
5,871
|
|
Payment
for acquisition of subsidiaries
|
|
|
(3,025,751
|
)
|
|
|
-
|
|
Acquisition
of businesses net of cash acquired
|
|
|
-
|
|
|
|
221,840
|
|
Net
cash (used in) provided by investing activities
|
|
|
(3,122,828
|
)
|
|
|
227,711
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from related party borrowings
|
|
|
2,893,065
|
|
|
|
-
|
|
Repayment
of related party borrowings
|
|
|
(797,422
|
)
|
|
|
(28,998
|
)
|
Proceeds
from third party borrowings
|
|
|
1,618,813
|
|
|
|
696,816
|
|
Repayment
of third party borrowings
|
|
|
(2,391,411
|
)
|
|
|
(1,280,172
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
1,323,045
|
|
|
|
(612,35
4
|
)
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
80,383
|
|
|
|
176,815
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
7,581
|
|
|
|
90
|
|
Cash
and cash equivalents, beginning of year
|
|
|
176,905
|
|
|
|
-
|
|
CASH
AND CASH EQQIVALENTS, END OF YEAR
|
|
$
|
264,806
|
|
|
$
|
176,905
|
|
See
accompany notes to the condensed consolidated financial statements.
ADDENTAX
GROUP CORP. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
1.
|
ORGANIZATION
AND BUSINESS ACQUISITIONS
|
Addentax
Group Corp. (“ATXG”) was incorporated in Nevada on October 28, 2014, and before the transaction described below, ATXG
is engaged in the field of producing images on multiple surfaces using heat transfer technology.
On
December 28, 2016, ATXG acquired 250,000,000 shares of the issued and outstanding stock of Yingxi Industrial Chain Group Co.,
Ltd. (“Yingxi”). The 250,000,000 shares of Yingxi were acquired from the members of Yingxi in a share exchange transaction
in return for the issuance of 500,000,000 shares of common stock of ATXG. The 250,000,000 shares of Yingxi constitute 100% of
its issued and outstanding stock, and as a result of the transaction, Yingxi became a wholly-owned subsidiary of ATXG. And 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 (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 PRC in
2016.
Shenzhen
Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), a wholly-owned subsidiary of QYTG, was incorporated in PRC
in 2016.
Xin
Kuai Jie Transport Co., Ltd (“XKJ”), a wholly-owned subsidiary of YX, was incorporated in 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.
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 losses of $709,396 and $371,802 during the years ended March 31, 2018 and 2017, respectively. As of
March 31, 2018 and 2017, the Company had net current liability of $2,228,477 and $1,836,847, respectively, and an deficit
on total equity of $1,104,934 and $243,980, respectively.
The
ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or
obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when
they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
The
Company expects to finance operations primarily through cash flow from revenue and capital contributions from the CEO.
In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future
operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional
equity financing.
These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation
as a going concern is dependent on the Company’s ability to meet obligations as they become due and to obtain additional
equity or alternative financing required to fund operations until sufficient sources of recurring revenues can be generated. There
can be no assurance that the Company will be successful in its plans described above or in attracting equity or alternative financing
on acceptable terms, or if at all. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(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 adjustment
to other comprehensive income, a component of equity.
The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made; however actual results could differ
materially from those estimates.
(d)
|
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, 2018, 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.
(e)
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
The Company had no cash equivalents at March 31, 2018 and 2017.
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, 2018 and 2017.
The
following customers had an accounts receivable balance greater than 10% of total accounts receivable at March 31, 2018 and 2017.
|
|
2018
|
|
|
2017
|
|
Customer
A
|
|
|
56
|
%
|
|
|
25
|
%
|
Customer
B
|
|
|
21
|
%
|
|
|
15
|
%
|
Customer
C
|
|
|
12
|
%
|
|
|
nil
|
%
|
Customer
D
|
|
|
6
|
%
|
|
|
10
|
%
|
Customer
E
|
|
|
nil
|
%
|
|
|
31
|
%
|
Manufacturing
segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined
on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course
of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold,
their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net
realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. The Company
made allowance for obsolete finished goods of $nil and $155,722nil for the years ended March 31, 2018 and 2017, respectively.
During
the years ended March 31, 2018 and 2017, approximately 45% and 81% of total inventory purchases were from the Company’s
five largest suppliers, respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers
are available that could provide similar products to the Company on comparable terms.
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful
lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
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 income. The cost of maintenance and repairs is charged to the statement of income as incurred,
whereas significant renewals and betterments are capitalized.
Goodwill
represents the excess of the purchase price over the net fair value of the identifiable tangible and intangible assets acquired
and the fair value of liabilities assumed in acquisitions. ASC350-30-50 “Goodwill and Other Intangible Assets”, requires
the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for
impairment in the fourth quarter of each years.
Under
applicable accounting guidance, the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment
test involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of
a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying
amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment.
The
second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated
possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment.
If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for
the excess.
The
Company tested goodwill for impairment as of March 31, 2018 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. Therefore it was concluded that carrying amount of
goodwill of $454,659 was impaired.
(j)
|
Accounting
for the Impairment of Long-Lived Assets
|
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, 2018 and 2017.
The
Company recognizes manufacturing revenue from product sales, net of value added taxes, upon delivery at which time title passes
to the customer provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement
exists, the sales price is fixed and determinable and collectability is deemed probable. Service revenue is recognized at the
time at the point in time when delivery is completed, and the shipping terms of the contract have been satisfied.
Cost
of revenues for manufacturing segment includes the direct raw material cost, direct labor cost, manufacturing overheads including
depreciation of production equipment and rent. Cost of for service segment includes gasoline and diesel fuel, toll charges and
subcontracting fees.
The
Company reports earnings per share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per
share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted
average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Further, if
the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a
reverse stock split, the computations of a basic and diluted earnings per share shall be adjusted retroactively for all periods
presented to reflect that change in capital structure.
The
Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number
of the Company’s ordinary shares outstanding. Diluted earnings per share reflects the amount of net income available to
each ordinary share outstanding during the period plus the number of additional shares that would have been outstanding if potentially
dilutive securities had been issued. The Company had no potentially dilutive ordinary shares as of March 31, 2018 and 2017.
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 does not have any material unrecognized tax benefits.
The
Company is governed by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25%. The Company files income tax
returns with the relevant government authorities in the PRC. The Company does not believe there will be any material changes in
its unrecognized tax positions over the next 12 months.
The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income
tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was
any interest expense recognized during the years ended March 31, 2018 and 2017. The Company’s effective tax rate differs
from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatment.
New
U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed
into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the
statutory U.S. federal corporate income tax rate from 35% to F21% for taxable years beginning after December 31, 2017; limiting
and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on
a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations,
generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain
foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The
Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement,
no deferred tax benefit nor expense relating to the Tax Act changes for the year ended March 31, 2018.
(n)
|
Related
party balances and transactions
|
A
related party is generally defined as:
(i)
any person that holds the Company’s securities including such person’s immediate families,
(ii)
the Company’s management,
(iii)
someone that directly or indirectly controls, is controlled by or is under common control with the Company, or
(iv)
anyone who can significantly influence the financial and operating decisions of the Company.
A
transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related
parties.
(o)
|
Recently
issued and adopted accounting pronouncements
|
In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”).
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU
2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date
(“ASU 2015-14”), which
defers the effective date of ASU 2014-09 to January 1, 2018 for the Company. Early adoption is permitted. The Company adopts ASU
2014-09 utilizing the modified retrospective method. The Company evaluated the impact of adopting the new standard and conclude
there was no material impact on the Company’s revenue recognition policy.
In
January 2016, the FASB issued ASU 2016-01, “
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities
(“ASU 2016-01”)”. The standard addresses certain aspects of
recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. The Company evaluated the impact of adopting the new standard
and conclude there was no material impact to its consolidated financial statement.
In
February 2016, the FASB issued ASU 2016-02,
“Lease (Topic 842)
”, which amends recognition of lease assets and
lease liabilities by lessees for those leases classified as operating leases. Under the new guidance, lessees will be required
to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement
date. This standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. The Company is currently assessing the impact of this new standard on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, “
Statement of Cash flows -—Classification of Certain Cash Receipts and
Cash Payment”
, effective for the fiscal years beginning after December 15, 2017, and interim periods within that fiscal
year. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.
The Company evaluated the impact of adopting the new standard on its consolidated financial statements and conclude there was
no material impact to the Company’s financial statement.
In
January, 2017, the FASB issued 2017-01 “
Business Combinations
”, effective for the annual reporting period beginning
after December 15, 2017, and interim period within that period. This Updated clarifies the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or
business. The Company evaluated the impact of adopting the new standard on its consolidated financial statements and conclude
there was no material impact to the Company’s financial statement.
In
February 2017, the FASB issued ASU 2017-05 “
Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20)
”, effective for the annual reporting period beginning after the December 15, 2017, including
the interim reporting period within that period. This update provides guidance on the recognition of gains and losses on transfers
of nonfinancial assets and in substance nonfinancial assets to counterparties that are not customers. The Company evaluated the
impact of adopting the new standard on its consolidated financial statements and conclude there was no material impact to the
Company’s financial statement.
The
Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will
have a significant impact on the Company’s consolidated financial statements.
On
December 10, 2016, the Company entered into an equity transfer agreement relating to the acquisition of 100% of the equity of
Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”) and subsidiaries. The acquisition was financed with proceeds
from the Company’s borrowings from a third party. The acquisition was closed on December 15, 2016. The results of operations
of Yingxi HK are included in the Company’s consolidated financial statements beginning on December 15, 2016.
The
following represents the purchase price allocation at the dates of the acquisition:
|
Cash
and cash equivalents
|
|
$
|
230,390
|
|
Other
current assets
|
|
|
6,373,688
|
|
Plant
and equipment
|
|
|
710,829
|
|
Goodwill
|
|
|
929,662
|
|
Current
liabilities
|
|
|
(5,174,094
|
)
|
Statutory
reserves
|
|
|
(21,539
|
)
|
Total
purchase price
|
|
$
|
3,048,936
|
|
The
receivables and allowance balances at March 31, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Accounts
receivable
|
|
$
|
3,416,618
|
|
|
$
|
4,776,878
|
|
Less:
allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts
receivable, net
|
|
$
|
3,416,618
|
|
|
$
|
4,776,878
|
|
No
allowance for doubtful accounts was made for the years ended March 31, 2018 and 2017.
Other
receivables primarily represent unsecured and non-interest bearing short-term advances that the Company makes from time-to-time
to employees and third-party entities. These advances are unsecured and due on demand.
7.
|
RELATED
PARTY TRANSACTIONS
|
Name
of Related Parties
|
|
Relationship
with the Company
|
Zhida
Hong
|
|
President,
CEO, CFO 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
|
Qiuying
Chen
|
|
A
spouse of legal representative of DT
|
Yingping
Ding
|
|
A
legal representative of HSW
|
Jinlong
Huang
|
|
A
spouse of legal representative of HSW
|
Shenzhen
Qianhai Bitun Investment Fund Management Co., Ltd
|
|
Huizhu
Ma is a legal representative
and principal shareholder
|
Shenzhen
Bitun Textile Co., Ltd.
|
|
Huizhu
Ma is a legal representative and principal shareholder
|
Shenzhen
Yingxi Investment & Development Co., Ltd.
|
|
Sister of
Huizhu Ma is a legal representative
|
Shenzhen
Bitun Yihao Fund Partnership (Limited Partnership)
|
|
Shenzhen Qianhai
Bitun Investment Fund Management Co., Ltd is a legal representative and principal shareholder
|
Bitun
Apparel (Shenzhen) Co., Ltd
|
|
Huijun
Ma is a legal representative
|
Huizhu
Ma
|
|
A
director and principal shareholder of the Company’s principal shareholder
|
Xijuan
Huang
|
|
A
spouse of legal representative of HPF
|
The
Company leases Shenzhen XKJ office rent-free from Bihua Yang.
The
Company had the following related party balances at the end of the years:
Amounts
due from related parties
|
|
2018
|
|
|
2017
|
|
Zhida
Hong
|
|
$
|
-
|
|
|
$
|
9,190
|
|
Bihua
Yang
|
|
|
-
|
|
|
|
118,358
|
|
Shenzhen
Bitun Textile Co., Ltd.
|
|
|
39,883
|
|
|
|
-
|
|
Shenzhen
Yingxi Investment & Development Co., Ltd.
|
|
|
162,543
|
|
|
|
4
|
|
|
|
$
|
202,426
|
|
|
$
|
127,552
|
|
Amounts
due to related parties
|
|
2018
|
|
|
2017
|
|
Zhida
Hong
|
|
$
|
38,196
|
|
|
|
$
|
|
Zhongpeng
Chen
|
|
|
739,317
|
|
|
|
554,158
|
|
Dewu
Huang
|
|
|
248,031
|
|
|
|
121,794
|
|
Yinping
Ding
|
|
|
118,952
|
|
|
|
983,452
|
|
Jinlong
Huang
|
|
|
338,115
|
|
|
|
1,218,846
|
|
Shenzhen
Qianhai Bitun Investment Fund Management Co., Ltd.
|
|
|
3,665,347
|
|
|
|
-
|
|
Shenzhen
Bitun Yihao Fund Partnership (Limited Partnership)
|
|
|
159,356
|
|
|
|
-
|
|
Huizhu
Ma
|
|
|
12,104
|
|
|
|
-
|
|
Bitun
Apparel (Shenzhen) Co., Ltd
|
|
|
-
|
|
|
|
29,033
|
|
|
|
$
|
5,319,418
|
|
|
$
|
2,878,250
|
|
Payables
for acquisition of subsidiaries
|
|
2018
|
|
|
2017
|
|
Bitun
Apparel (Shenzhen) Co., Ltd
|
|
|
-
|
|
|
|
1,584,247
|
|
Shenzhen
Yingxi Investment & Development Co., Ltd.
|
|
|
-
|
|
|
|
1,440,224
|
|
|
|
$
|
-
|
|
|
$
|
3,024,471
|
|
The
balances with related parties are unsecured, non-interest bearing and repayable on demand.
Inventories
consist of the following as of March 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Raw
materials
|
|
$
|
126,079
|
|
|
$
|
300,592
|
|
Work
in progress
|
|
|
113,150
|
|
|
|
340,330
|
|
Finished
goods
|
|
|
-
|
|
|
|
261,060
|
|
Total
|
|
|
239,229
|
|
|
|
601,982
|
|
Less:
allowance for obsolete inventories
|
|
|
-
|
|
|
|
(156,540
|
)
|
Inventories,
net
|
|
$
|
239,229
|
|
|
$
|
445,442
|
|
The
Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made
to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory.
The amounts advanced to suppliers are fully refundable on demand.
Plant
and equipment consists of the following as of March 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Production
plant
|
|
|
155,529
|
|
|
$
|
141,680
|
|
Motor
vehicles
|
|
|
944,539
|
|
|
|
877,015
|
|
Office
equipment
|
|
|
12,491
|
|
|
|
11,378
|
|
|
|
|
1,112,559
|
|
|
|
1,030,073
|
|
Less:
accumulated depreciation
|
|
|
(464,019
|
)
|
|
|
(366,870
|
)
|
Plant
and equipment, net
|
|
|
648,540
|
|
|
$
|
663,203
|
|
Depreciation
expense for the years ended March 31, 2018 was $111,740 and $34,905, respectively.
(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 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, 2018 and 2017.
YX
were incorporated in the PRC and is subject to the PRC federal statutory tax rate is 25%. No provision for income taxes in the
PRC has been made as YX had no taxable income for the years ended March 31, 2018 and 2017.
The
Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, QYTG, HSW, HPF and DT were subject
to an EIT rate of 25% in 2018 and 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2018 and 2017.
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, 2018 and 2017.
No
deferred taxes were recognized for the years ended March 31, 2018 and 2017.
The
reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are
as follows:
|
|
2018
|
|
|
2017
|
|
PRC
statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Temporary
differences
|
|
|
(19
|
%)
|
|
|
(4
|
%)
|
Tax
losses not recognized
|
|
|
(72
|
%)
|
|
|
(25
|
%)
|
Income
tax expense
|
|
$
|
(66
|
%)
|
|
$
|
(4
|
%)
|
|
|
2018
|
|
|
2017
|
|
PRC
statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Computed
expected benefits
|
|
$
|
(172,514
|
)
|
|
$
|
(89,556
|
)
|
Temporary
differences
|
|
|
(20,389
|
)
|
|
|
48,309
|
|
Tax
losses not recognized
|
|
|
212,245
|
|
|
|
54,824
|
|
Income
tax expense
|
|
$
|
19,342
|
|
|
$
|
13,577
|
|
(b)
|
Value
Added Tax (“VAT”)
|
In
accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 17%, which is levied on the invoiced
value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority. A credit
is available whereby VAT paid on purchases can be used to offset the VAT due on sales.
For
services, the applicable VAT rate is 11% under the relevant tax category for logistic company, except the branch of HPF enjoyed
the preferential VAT rate of 3% in 2018 and 2017. 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 “Manufacturing segment”); and
|
|
(b)
|
Providing
logistic services (the “Service segment”).
|
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 years ended March 31, 2018 and 2017 are as follows:
Revenues
|
|
2018
|
|
|
2017
|
|
Manufacturing
segment
|
|
$
|
5,069,699
|
|
|
$
|
2,750,210
|
|
Service
segment
|
|
|
8,367,870
|
|
|
|
2,585,291
|
|
|
|
$
|
13,437,569
|
|
|
$
|
5,335,501
|
|
Income
from operations by segment for the years ended March 31, 2018 and 2017 are as follows:
Operating
income (loss)
|
|
2018
|
|
|
2017
|
|
Manufacturing
segment
|
|
$
|
61,145
|
|
|
$
|
(134,100
|
)
|
Service
segment
|
|
|
10,406
|
|
|
|
(203,110
|
)
|
Corporate
and other
|
|
|
(327,505
|
)
|
|
|
(37,010
|
)
|
(Loss)
income from operations
|
|
$
|
(255,954
|
)
|
|
$
|
(374,220
|
)
|
Manufacturing
segment
|
|
|
13,481
|
|
|
|
(2,916
|
)
|
Service
segment
|
|
|
6,824
|
|
|
|
5,231
|
|
Corporate
and other
|
|
|
(454,405
|
)
|
|
|
13,681
|
|
(Loss)
income before income tax
|
|
$
|
(690,054
|
)
|
|
$
|
(358,225
|
)
|
Income
tax expense
|
|
|
(19,342
|
)
|
|
|
(13,577
|
)
|
Net
(loss) income
|
|
$
|
(709,396
|
)
|
|
$
|
(371,802
|
)
|
Depreciation
and amortization by segment for the years ended March 31, 2018 and 2017 are as follows:
Depreciation
|
|
2018
|
|
|
2017
|
|
Manufacturing
segment
|
|
$
|
28,657
|
|
|
$
|
8,614
|
|
Service
segment
|
|
|
83,083
|
|
|
|
26,291
|
|
|
|
$
|
111,740
|
|
|
$
|
34,905
|
|
Total
assets by segment at March 31, 2018 and 2017 are as follows:
Total
assets
|
|
2018
|
|
|
2017
|
|
Manufacturing
segment
|
|
$
|
3,775,765
|
|
|
$
|
5,328,211
|
|
Service
segment
|
|
|
3,391,945
|
|
|
|
3,099,276
|
|
Corporate
and other
|
|
|
350,400
|
|
|
|
120,031
|
|
|
|
$
|
7,518,111
|
|
|
$
|
8,547,518
|
|
Goodwill
by segment at March 31, 2018 and 2017 is as follows:
Goodwill
|
|
2018
|
|
|
2017
|
|
Manufacturing
segment
|
|
$
|
475,003
|
|
|
$
|
475,003
|
|
Service
segment
|
|
|
-
|
|
|
|
454,659
|
|
|
|
$
|
475,003
|
|
|
$
|
929,662
|
|
The
recoverable amounts of reporting units are determined based on discounted cash flow calculations. The calculations
use budget for the first year and cash flow projections based on financial forecasts prepared by management covering the remaining
4-year operating period. The key assumptions include revenue, cost of sales and operating expenses which were determined by management
based on the past performance and its expectations on market development. Based on the impairment test of goodwill, the recoverable
amount was lower than the carrying amount of the goodwill recorded and it was concluded that carrying amount of goodwill of $454,659
was impaired.
13.
|
ACCRUED
EXPENSES AND OTHER PAYABLES
|
Accrued
expenses and other payables consist of the following as of March 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Loan
from third parties (i)
|
|
$
|
56,739
|
|
|
$
|
104,040
|
|
Employee
advances
|
|
|
1,073
|
|
|
|
987
|
|
Accrued
wages and welfare
|
|
|
66,972
|
|
|
|
91,441
|
|
Other
payables
|
|
|
61,071
|
|
|
|
2,815
|
|
|
|
$
|
185,855
|
|
|
$
|
199,283
|
|
|
(i)
|
Loan
from third parties represent unsecured and non-interest bearing short-term advances that the Company makes from time-to-time
from third-party entities. These advances are unsecured and due on demand.
|
In
accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company established in the PRC is required
to transfer 10% of its profit after taxation prepared in accordance with the accounting regulations of the PRC to the statutory
reserve until the reserve balance reaches 50% of the subsidiary’s paid-up capital. Such reserve may be used to offset accumulated
losses or increase the registered capital of the subsidiary, subject to the approval from the PRC authorities, and are not available
for dividend distribution to the shareholders. At March 31, 2018 and 2017, the paid-up statutory reserve was RMB148,418 or $21,539.
(b)
|
Currency
translation reserve
|
The
currency translation reserve represents translation differences arising from translation of foreign currency financial statements
into the Company’s functional currency.
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Leases
The
Company leased offices in various cities in the PRC, under operating leases expiring on various dates through 2019. Rent expense
for the years ended March 31, 2018 and 2017 was approximately $97,634 and $30,405, respectively.
Future
minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
In
accordance with ASC 855, the Company evaluated all of its activity through the issue date of the financial statements and concluded
that no other subsequent events have occurred that would require recognition or disclosure in the financial statements.