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 was 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.
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 beneficially owned 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 Chinese Renminbi (RMB) 21,008,886
(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 n
egative
working capital
of $2,228,477 and $1,836,847,
respectively, and a 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 $155,722 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. ASC 350-30-50 “
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 21% for taxable years beginning after December 31, 2017; limiting
and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on
a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations,
generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain
foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The
Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement,
no deferred tax benefit nor expense relating to the 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 concluded
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 concluded 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 concluded
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 concluded 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 concluded 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 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 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 office space for XKJ rent-free from Bihua Yang.
The
Company had the following related party balances at March 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Amounts due
from related parties
|
|
|
|
|
|
|
|
|
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
|
|
|
|
2018
|
|
|
2017
|
|
Amounts
due to related parties
|
|
|
|
|
|
|
|
|
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
|
|
|
|
2018
|
|
|
2017
|
|
Payables for
acquisition of subsidiaries
|
|
|
|
|
|
|
|
|
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 preferential tax benefits and its EIT rate was 15% in 2018 and 2017.
Addentax
Group Corp. is a 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 our logistic companies, 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:
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
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:
|
|
2018
|
|
|
2017
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
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:
|
|
2018
|
|
|
2017
|
|
Depreciation
|
|
|
|
|
|
|
|
|
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:
|
|
2018
|
|
|
2017
|
|
Total
assets
|
|
|
|
|
|
|
|
|
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:
|
|
2018
|
|
|
2017
|
|
Goodwill
|
|
|
|
|
|
|
|
|
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 receives 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 RMB 148,418 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.