UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2018
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _________________
Commission File No. 333-206097
ADDENTAX GROUP CORP.
(Exact name of registrant as specified in its charter)
| Nevada | 35-2521028 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or formation) | Identification Number) |
Floor 13th, Building 1, Block B, Zhihui Square,
Nanshan District, Shenzhen City, China 518000
(Address of principal executive offices)
+ (86) 755 86961 405
(Registrant’s telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
| Emerging growth [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
As of August 20, 2018, there were 506,920,000 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 16 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 17 |
| 2 |
PART I – FINANCIAL INFORMATION
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the year three months ended June 30, 2018 and 2017
TABLE OF CONTENTS
| 3 |
ADDENTAX GROUP CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF JUNE 30, 2018 (UNAUDITED) AND MARCH 31, 2018 (AUDITED)
| June 30, 2018 | March 31, 2018 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 301,640 | $ | 264,806 | ||||
| Accounts receivables, net | 3,264,347 | 3,416,618 | ||||||
| Inventories, net | 173,594 | 239,229 | ||||||
| Other receivables | 2,163,472 | 2,005,112 | ||||||
| Advances to suppliers | 258,328 | 266,377 | ||||||
| Amounts due from related parties | 252,885 | 202,426 | ||||||
| Total current assets | 6,414,266 | 6,394,568 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | 643,327 | 648,540 | ||||||
| Goodwill | 475,003 | 475,003 | ||||||
| Total non-current assets | 1,118,330 | 1,123,543 | ||||||
| TOTAL ASSETS | $ | 7,532,596 | $ | 7,518,111 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 2,793,001 | $ | 1,549,847 | ||||
| Amount due to related parties | 5,102,919 | 5,319,418 | ||||||
| Advances from customers | 556,461 | 1,561,861 | ||||||
| Accrued expenses and other payables | 267,009 | 185,855 | ||||||
| Income tax payable | 4,141 | 6,064 | ||||||
| Total current liabilities | 8,723,531 | 8,623,045 | ||||||
| TOTAL LIABILITIES | $ | 8,723,531 | $ | 8,623,045 | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Common stock ($0.001 par value, 506,920,000 shares issued and outstanding for the three months ended June 30, 2018 and the year ended March 31, 2018 ) | $ | 506,920 | $ | 506,920 | ||||
| Additional paid-in capital | (420,524 | ) | (420,524 | ) | ||||
| Retained earnings | (1,242,104 | ) | (1,081,198 | ) | ||||
| Statutory reserve | 21,539 | 21,539 | ||||||
| Accumulated other comprehensive income | (56,766 | ) | (131,671 | ) | ||||
| Total equity | (1,190,935 | ) | (1,104,934 | ) | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 7,532,596 | $ | 7,518,111 | ||||
See accompany notes to the condensed consolidated financial statements.
| F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND 2017 (UNAUDITED)
| June 30, 2018 | June 30, 2017 | |||||||
| (unaudited) | (unaudited) | |||||||
| REVENUES | $ | 2,731,793 | $ | 3,639,409 | ||||
| COST OF REVENUES | (2,437,174 | ) | (3,366,652 | ) | ||||
| GROSS PROFIT | 294,619 | 272,757 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling and marketing | (4,720 | ) | (11,926 | ) | ||||
| General and administrative | (463,900 | ) | (375,808 | ) | ||||
| Total operating expenses | (468,620 | ) | (387,734 | ) | ||||
| LOSS FROM OPERATIONS | (174,001 | ) | (114,977 | ) | ||||
| OTHER INCOME (EXPENSE), NET | 13,704 | (1,616 | ) | |||||
| LOSS BEFORE INCOME TAX EXPENSE | (160,297 | ) | (116,593 | ) | ||||
| INCOME TAX EXPENSE | (609 | ) | (2,243 | ) | ||||
| NET LOSS | (160,906 | ) | (118,836 | ) | ||||
| Foreign currency translation gain (loss) | 74,905 | (48,454 | ) | |||||
| TOTAL COMPREHENSIVE LOSS | (86,001 | ) | $ | (167,290 | ) | |||
| 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.
| F-2 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND 2017 (UNAUDITED)
| June 30, 2018 | June 30, 2017 | |||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (160,906 | ) | $ | (118,836 | ) | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation | 30,805 | 27,527 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 152,271 | (381,166 | ) | |||||
| Inventories | 65,636 | 150,267 | ||||||
| Advances to suppliers | 8,049 | (489,606 | ) | |||||
| Other receivables | 25,796 | (85,643 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payables | 1,243,154 | 962,315 | ||||||
| Accrued expenses and other payables | 132,582 | 699,538 | ||||||
| Advances from customers | (1,005,399 | ) | (820,138 | ) | ||||
| Taxes payable | (1,923 | ) | 1,263 | |||||
| Net cash provided by (used in) operating activities | 490,065 | (54,479 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | (25,592 | ) | (12,695 | ) | ||||
| Payment for acquisition of subsidiaries | - | (3,025,751 | ) | |||||
| Net cash (used in) provided by investing activities | (25,592 | ) | (3,038,446 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related party borrowings | 294,043 | 4,633,089 | ||||||
| Repayment of related party borrowings | (561,001 | ) | (644,301 | ) | ||||
| Proceeds from third party borrowings | 840,670 | 14,481 | ||||||
| Repayment of third party borrowings | (998,627 | ) | (167 | ) | ||||
| Net cash provided by (used in) financing activities | (424,915 | ) | 4,003,102 | |||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 39,558 | 910,177 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (2,724 | ) | 14,489 | |||||
| Cash and cash equivalents, beginning of year | 264,806 | 176,905 | ||||||
| CASH AND CASH EQQIVALENTS, END OF YEAR | $ | 301,640 | $ | 1,101,571 | ||||
See accompany notes to the condensed consolidated financial statements.
| F-3 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 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.
| F-4 |
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 $160,906 and $118,836 during the three months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and March 31, 2018, the Company had net current liability of $1,190,935 and $1,104,934, respectively, and an deficit on total equity of $1,190,934 and $1,104,934, 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.
| F-5 |
| (c) | Use of Estimates |
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
| (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 June 30, 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 June 30, 2018 and March 31, 2018.
| (f) | Accounts Receivable |
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.
| F-6 |
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 three months ended June 30, 2018 and 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable June 30, 2018 and March 31, 2018.
| June 30, 2018 | March 31, 2018 | |||||||
| Customer A | 55 | % | 56 | % | ||||
| Customer B | nil | % | 21 | % | ||||
| Customer C | nil | % | 12 | % | ||||
| Customer D | nil | % | 6 | % | ||||
| (g) | Inventories |
Manufacturing segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No allowance for obsolete finished goods was made for the three months ended June 30, 2018 and 2017, respectively.
During the three months ended June 30, 2018 and 2017, approximately 71% and 77% 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.
| (h) | Plant and Equipment |
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.
| (i) | Goodwill |
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.
| F-7 |
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 June 30, 2018 and March 31, 2018.
| (k) | Revenue Recognition |
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.
| (l) | Earnings Per Share |
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 June 30, 2018 and March 31, 2018.
| F-8 |
| (m) | Income Taxes |
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 three months ended June 30, 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 three months ended June 30, 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.
| F-9 |
| (o) | Recently issued and adopted accounting pronouncements |
In February 2018, the Financial Accounting Standards Board (“ FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
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.
| 4. | BUSINESS ACQUISITION |
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.
| F-10 |
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 |
| 5. | ACCOUNTS RECEIVABLES |
The receivables and allowance balances at June 30, 2018 and March 31, 2018 are as follows:
| June 30, 2018 | March 31, 2018 | |||||||
| (unaudited) | (audited) | |||||||
| Accounts receivable | $ | 3,264,347 | $ | 3,416,618 | ||||
| Less: allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | 3,264,347 | $ | 3,416,618 | ||||
No allowance for doubtful accounts was made for the three months ended June 30, 2018 and 2017.
| 6. | OTHER RECEIVABLES |
Other receivables primarily represent refundable security deposits to customers for quality assurance on the provision of logistic service; and 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.
| F-11 |
The Company had the following related party balances as of June 30, 2018 and March 31, 218
| Amounts due from related parties | June 30, 2018 | March 31, 2018 | ||||||
| (unaudited) | (audited) | |||||||
| Yinping Ding | $ | 27,732 | $ | - | ||||
| Bihua Yang | 65,533 | - | ||||||
| Shenzhen Bitun Textile Co., Ltd. | 5,508 | 39,883 | ||||||
| Shenzhen Yingxi Investment & Development Co., Ltd. | 154,112 | 162,543 | ||||||
| $ | 252,885 | $ | 202,426 | |||||
| Amounts due to related parties | June 30, 2018 | March 31, 2018 | ||||||
| (unaudited) | (audited) | |||||||
| Zhida Hong | $ | 161,045 | 38,196 | |||||
| Zhongpeng Chen | 831,963 | 739,317 | ||||||
| Dewu Huang | 215,297 | 248,031 | ||||||
| Yinping Ding | - | 118,952 | ||||||
| Jinlong Huang | 363,572 | 338,115 | ||||||
| Shenzhen Qianhai Bitun Investment Fund Management Co., Ltd. | 3,399,600 | 3,665,347 | ||||||
| Shenzhen Bitun Yihao Fund Partnership (Limited Partnership) | 119,965 | 159,356 | ||||||
| Huizhu Ma | 11,477 | 12,104 | ||||||
| $ | 5,012,919 | $ | 5,319,418 | |||||
The balances with related parties are unsecured, non-interest bearing and repayable on demand.
| 8. | INVENTORIES |
Inventories consist of the following as of June 30, 2018 and March 31, 2018:
| June 30, 2018 | March 31, 2018 | |||||||
| (unaudited) | (audited) | |||||||
| Raw materials | $ | 111,533 | $ | 126,079 | ||||
| Work in progress | 62,061 | 113,150 | ||||||
| Total | 173,594 | 239,229 | ||||||
| Less: allowance for obsolete inventories | - | - | ||||||
| Inventories, net | $ | 173,594 | $ | 239,229 | ||||
| 9. | ADVANCES TO SUPPLIERS |
The Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand.
| 10. | PLANT AND EQUIPMENT |
Plant and equipment consists of the following as of June 30, 2018 and March 31, 2018:
| June 30, 2018 | March 31, 2018 | |||||||
| (unaudited) | (audited) | |||||||
| Production plant | $ | 147,461 | $ | 155,529 | ||||
| Motor vehicles | 953,637 | 944,539 | ||||||
| Office equipment | 11,843 | 12,491 | ||||||
| 1,112,941 | 1,112,559 | |||||||
| Less: accumulated depreciation | (469,614 | ) | (464,019 | ) | ||||
| Plant and equipment, net | $ | 643,327 | $ | 648,540 | ||||
Depreciation expense for the three months ended June 30, 2018 and 2017 was $30,805 and $27,527, respectively.
| F-12 |
| 11. | INCOME TAXES |
| (a) | Enterprise Income Tax (“EIT”) |
The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a 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 three months ended June 30, 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 three months ended June 30, 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. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2018.
The Company’s parent entity, Addentax Group Corp. is an U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2018 and 2017.
No deferred taxes were recognized for the three months ended June 30, 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:
| June 30, 2018 | June 30, 2017 | |||||||
| (unaudited) | (unaudited) | |||||||
| PRC statutory tax rate | 25 | % | 25 | % | ||||
| Computed expected benefits | $ | (40,074 | ) | $ | (17,695 | ) | ||
| Temporary differences | (1,949 | ) | (38,164 | ) | ||||
| Tax losses not recognized | 42,632 | 58,102 | ||||||
| Income tax expense | $ | 609 | $ | 2,243 | ||||
| (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. 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.
| F-13 |
| 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 three months ended June 30, 2018 and 2017 are as follows:
| Revenues | June 30, 2018 | June 30, 2017 | ||||||
| (unaudited) | (unaudited) | |||||||
| Manufacturing segment | $ | 1,142,490 | $ | 1,309,586 | ||||
| Service segment | 1,589,303 | 2,329,823 | ||||||
| $ | 2,731,793 | $ | 3,639,409 | |||||
Income from operations by segment for the three months ended June 30, 2018 and 2017 are as follows:
| Operating income (loss) | June 30, 2018 | June 30, 2017 | ||||||
| (unaudited) | (unaudited) | |||||||
| Manufacturing segment | $ | 12,856 | $ | (33,296 | ) | |||
| Service segment | (58,543 | ) | (32,510 | ) | ||||
| Corporate and other | (128,314 | ) | (49,171 | ) | ||||
| Loss from operations | $ | (174,001 | ) | $ | (114,977 | ) | ||
| Manufacturing segment | 10,988 | (1,595 | ) | |||||
| Service segment | 121 | (21 | ) | |||||
| Corporate and other | 2,595 | - | ||||||
| Loss before income tax | $ | (160,297 | ) | $ | (116,593 | ) | ||
| Income tax expense | (609 | ) | (2,243 | ) | ||||
| Net loss | $ | (160,906 | ) | $ | (118,836 | ) | ||
Depreciation and amortization by segment for the three months ended June 30, 2018 and 2017 are as follows:
| Depreciation | June 30, 2018 | June 30, 2017 | ||||||
| (unaudited) | (unaudited) | |||||||
| Manufacturing segment | $ | 8,246 | $ | 7,694 | ||||
| Service segment | 22,560 | 19,833 | ||||||
| $ | 30,805 | $ | 27,527 | |||||
| F-14 |
Total assets by segment at June 30, 2018 and March 31, 2018 are as follows:
| Total assets | June 30, 2018 | March 31, 2018 | ||||||
| (unaudited) | (audited) | |||||||
| Manufacturing segment | $ | 3,736,989 | $ | 3,775,765 | ||||
| Service segment | 3,518,081 | 3,391,945 | ||||||
| Corporate and other | 277,526 | 350,400 | ||||||
| $ | 7,532,596 | $ | 7,518,111 | |||||
Goodwill by segment at June 30, 2018 and March 31, 2018 is as follows:
| Goodwill | June 30, 2018 | March 31, 2018 | ||||||
| (unaudited) | (audited) | |||||||
| Manufacturing segment | $ | 475,003 | $ | 475,003 | ||||
| Service segment | - | - | ||||||
| $ | 475,003 | $ | 475,003 | |||||
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 as of March 31, 2018.
| 13. | ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables consist of the following as of June 30, 2018 and March 31, 2018:
| June 30, 2018 | March 31, 2018 | |||||||
| (unaudited) | (audited) | |||||||
| Loan from third parties (i) | $ | 79,798 | $ | 56,739 | ||||
| Employee advances | 1,027 | 1,073 | ||||||
| Accrued wages and welfare | 114,214 | 66,972 | ||||||
| Other payables | 71,970 | 61,071 | ||||||
| $ | 267,009 | $ | 185,855 | |||||
| (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. |
| 14. | RESERVES |
| (a) | Statutory reserve |
In accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company established in the PRC is required to transfer 10% of its profit after taxation prepared in accordance with the accounting regulations of the PRC to the statutory reserve until the reserve balance reaches 50% of the subsidiary’s paid-up capital. Such reserve may be used to offset accumulated losses or increase the registered capital of the subsidiary, subject to the approval from the PRC authorities, and are not available for dividend distribution to the shareholders. At June 30, 2018 and March 31, 2018, 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.
| F-15 |
| 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 three months ended June 30, 2018 and 2017 was approximately $28,010 and $19,009, respectively.
Future minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
| 2019 | $ | 22,641 | ||
| 2020 | 2,516 | |||
| 25,157 |
| 16. | SUBSEQUENT EVENTS |
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.
| F-16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
The following discussion should be read in conjunction with the attached consolidated unaudited financial statements and notes thereto, and our consolidated audited financial statements and related notes for our fiscal year ended March 31, 2018 found in our Annual Report on Form 10-K (as amended). In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward-looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth in our Annual Report on Form 10-K (as amended), and amendments thereto.
This Report contains statements that we believe are, or may be considered to be, “forward-looking statements”. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.
You should read the matters described in “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, convertible promissory notes and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on July 6, 2018 (as amended) are those that depend most heavily on these judgments and estimates. As of June 30, 2018, there had been no material changes to any of the critical accounting policies contained therein.
| 4 |
Definitions:
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Addentax” and “Addentax Group Corp.” refer specifically to Addentax Group Corp. and its consolidated subsidiaries including Dongguan Heng Sheng Wei Garments Co., Ltd, which is wholly-owned; Shantou Chenghai Dai Tou Garments Co., Ltd, which is wholly-owned; Shenzhen Xin Kuai Jie Transportation Co., Ltd, which is wholly-owned; Shenzhen Hua Peng Fa Logistic Co., Ltd, which is wholly-owned; and ingxi Industrial Chain Group Co., Ltd., which is wholly-owned.
In addition, unless the context otherwise requires and for the purposes of this report only:
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; | |
| ● | “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the unaudited financial statements and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2018 (as amended).
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”.
Corporate History
Addentax Group Corp., was incorporated in the State of Nevada on October 28, 2014. We were originally incorporated to produce images on multiple surfaces, such as glass, leather, plastic, ceramic, textile, and others using a 3D sublimation vacuum heat transfer machine. We no longer pursue opportunities related to 3D printing positioning.
We have a fiscal year-end of March 31.
On July 12, 2016, we filed an amendment to our articles of incorporation, which amendment was effectuated by our transfer agent on July 20, 2016. The certificate of amendment was filed in order to undertake a two for one forward stock split and increase our authorized shares of common stock, par value $0.001 per share, to 150,000,000 shares, which forward stock split has been retroactively reflected throughout this Report.
Current Business
Effective December 28, 2016, the Company executed a Sale & Purchase Agreement (“S&P”) for the acquisition of 100% of the shares of Yingxi Industrial Chain Group Co., Ltd., a company incorporated under the laws of the Republic of Seychelles. Yingxi Industrial Chain Group Co., Ltd. (“YICG”) is currently a garment manufacturer. Intending to diversify its service portfolio, the Company plans to develop another branch of business: international supply chain management consulting service, which will focus exclusively on the textile & garments industry. The Company plans to assist clients to open textile and garment sales outlets throughout China. The Company will also provide assistance services in plan implementation. Pursuant to the Agreement, which closed on September 25, 2017, the Company issued five hundred million (500,000,000) restricted common shares of the Company to the owners of Yingxi Industrial Chain Group Co., Ltd. in consideration for the acquisition of YICG.
| 5 |
After the Share Exchange, YICG’s business became our business. We are a garment manufacturer and logistic service provider based in China. Our common stock is 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 wholesalers 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 meet the delivery requirements 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 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 June 30, 2018, we provide logistic service to 30 cities in approximately 20 provinces. We expect to develop additional 20 logistic point in existing serving cities in the third quarter and forth quarter of 2018 and improve company’s profit in 2019 fiscal year.
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 fiscal quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistic segment.
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 of our receipt of packages.
| 6 |
Future Business
In addition to our garment manufacturing business, we also want to kick start our supply chain management consulting service. Our supply chain management consulting service is still under development with no active clients. However, due to the uniqueness of our business model, we have attracted over 30 potential clients strongly interested in our proposed service. All of those potential clients are located in China. We plan to put our proposed service into operation in the second or third quarter of calendar 2018.
To help ensure the quality of our business, we conduct strict rules for our potential clients.
Client Qualifications: To sign a servicing contract with the Company, a potential client must:
| 1. | Be established and validly existing pursuant to relevant laws and regulations; | |
| 2. | Demonstrate that they have a good business reputation and operating performance, and comply with professional ethics; and | |
| 3. | Have not breached any law or regulation, or have received any administrative penalty from a regulatory body or other department in the past twenty-four months. |
Medium and small-sized enterprises all over the world can search for our service, but our current focus is on helping clients in China.
Many medium-small sized enterprises in China experience the problem of business maintenance or expansion in the textile and garments industry where increasing operational costs cause decreasing profit. Most seek to employ new business models that can increase a company’s competitive advantage and increase sales. We have found that due to the limitation of resources and information, management of these enterprises find it hard to design a suitable plan for their company’s sustainable development.
To assist these enterprises, we set up a research team to carry out extensive investigation and integrate necessary industry information and resources which can help us to work out the best plan for our clients.
The research will include:
| 1. | Client diligence: To collect details on the client including its financial reports, management, planned business model, internal systems, operation flows and other important information; | |
| 2. | Relevant business partner research: Focus on the raw material supplier and product buyer, and conduct comprehensive analysis; | |
| 3. | Market research: To discover the actual market demands and market share; and | |
| 4. | Environment research: Research and analyze the environment of policy, economy, technology and legal. |
We developed a multi-task Industrial Chain Service System which we call “Adden Chain” not only for providing business solutions to clients, but also assisting the clients to fully realize their business plan and potential.
Our company’s service can be divided into three parts:
Consulting & Plan Design
There are four main services within this part:
Promotion Service
We will design a “Promotion Plan” for our clients depending on their requirements to improve their marketing plans.
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Operation Assistance Service
We can help clients to sort out all the individual parts (i.e., Raw Materials Supply, Manufacturing, Product Design and Marketing) within the whole operation chain, and assist them to fix weaknesses. We can also help clients to reallocate the resources they own and improve their operational efficiency.
Logistics and International Trading Service
We develop and apply our “YX logistics system” to improve our client’s transportation efficiency. Our YX logistics system mainly provides three services to our clients: transportation service; storage & distribution service; and bulk purchasing service.
We also work with qualified international trading companies to help expand our clients’ global market share. Currently we build trading routes to various areas like America, Australia and Africa which can help clients lower international trading costs.
Financial Services
We will offer financial services to selected clients. The services including long term & short term loans which we provide to clients, financing services and inventory pledge services. Also, we plan to build a third party payment center which can improve clients’ capital turnover. Clients will be able to employ the third party payment center to process transactions and accept the payment terms and payment period we set. As the third party guarantor, we could help our clients to pay or receive payments on time.
Plan implementation Assistance:
We have already built strategic cooperative relationships with over 40 textile and garments industry related entities. We are available to assist our clients to deal with various issues and problems.
Additional Services
Team Establishment:
We will assist clients to establish an organizational structure and a management team best suited for their business plan.
Headhunting Services:
We work with headhunting companies, i.e., companies that provide employment or recruiting services to find the most qualified managers and professionals to meet the specific needs of our clients.
Follow-up Service:
We provide clients with continuous consultancy and follow-up services throughout the entire startup and service period.
Markets
Currently, our market focuses on small and medium-sized enterprises in China who have business expansion plans.
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Sufficiency of Cash Flows
Because current cash balances and our projected cash generated from operations are not sufficient to meet our cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, we may be unable to raise additional capital upon terms acceptable to us. The sale of additional equity will result in additional dilution to our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.
Summary of Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.
Estimates and Assumptions
We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Revenue Recognition
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 55% of accounts receivable for the period ended June 30, 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 February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 U.S. 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. 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. We evaluated the impact of adopting the new standard and conclude there was no material impact to our consolidated financial statement.
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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. We are currently assessing the impact of this new standard on our 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. We evaluated the impact of adopting the new standard on our 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 update 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. We evaluated the impact of adopting the new standard on our consolidated financial statements and conclude there was no material impact to our financial statements.
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 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. We evaluated the impact of adopting the new standard on our consolidated financial statements and concluded there was no material impact to our financial statements.
We review new accounting standards as issued. We have not identified any other new standards that we believe will have a significant impact on our consolidated financial statements.
Results of Operations for the three months ended June 30, 2018 and 2017
The following tables summarize our results of operations for the three months ended June 30, 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.
| Three Months Ended June 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2018 | 2017 | 2018 compared to 2017 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 2,731,793 | 100 | % | $ | 3,639,409 | 100 | % | $ | (907,616 | ) | (24.9 | %) | |||||||||||
| Cost of revenues | (2,437,174 | ) | 89.2 | % | (3,366,652 | ) | 92.5 | % | (929,478 | ) | (27.6 | %) | ||||||||||||
| Gross profit | 294,619 | 10.8 | % | 272,757 | 7.5 | % | 21,862 | 8.0 | % | |||||||||||||||
| Operating expenses | (468,620 | ) | (17.2 | %) | (387,734 | ) | (10.7 | %) | 80,886 | 20.9 | % | |||||||||||||
| Loss from operations | (174,001 | ) | (6.4 | %) | (354,520 | ) | (3.2 | %) | (180,519 | ) | (50.9 | %) | ||||||||||||
| Other income (expense), net | 13,704 | 0.5 | % | (1,616 | ) | (0.0 | %) | 15,320 | (948.0 | %) | ||||||||||||||
| Income tax expense | (609 | ) | (0.0 | %) | (2,243 | ) | (0.1 | %) | (1,634 | ) | (72.8 | %) | ||||||||||||
| Net loss | $ | (160,906 | ) | (5.9 | %) | $ | (116,593 | ) | (3.3 | %) | $ | 44,313 | 38.0 | % | ||||||||||
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Revenue
Revenue generated from our garment manufacturing business contributed $1,142,490 or 41.8% of our total revenue for the three months ended June 30, 2018. Revenue generated from our garment manufacturing business contributed $1,309,586 or 36.0% of our total revenue for the three months ended June 30, 2017. The decrease was due to we terminated business with certain customers with low profit margin during the three months ended June 30, 2018. We have begun to implement control on reviewing and monitoring profit margin with each customer to increase profitability.
Revenue generated from our logistic business contributed $1,589,303 or58.2% of our total revenue for the three months ended June 30, 2018. Revenue generated from our logistic business contributed $2,329,823 or 64% of our total revenue for the three months ended June 30, 2017. The decrease was due to we terminated business with certain customers with low profit margin during the three months ended June 30, 2018. We have begun to implement control on reviewing and monitoring profit margin with each customer to increase profitability.
Total revenue for the three months ended June 30, 2018 was $2,731,793, a 24.9% decrease compared with the three months ended June 30, 2017. The decrease was due to we terminated business with certain customers with low profit margin during the three months ended June 30, 2018. We have begun to implement control on reviewing and monitoring profit margin with each customer to increase profitability.
Cost of revenue
| Three Months Ended June 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2018 | 2017 | 2018 compared to 2017 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 1,142,490 | 100 | % | $ | 1,309,586 | 100 | % | $ | (167,096 | ) | (12.8 | %) | |||||||||||
| Raw materials | 922,080 | 80.7 | % | 1,131,136 | 86.4 | % | ||||||||||||||||||
| Labor | 117,186 | 10.3 | % | 110,650 | 8.4 | % | ||||||||||||||||||
| Other and Overhead | 13,155 | 1.1 | % | 23,482 | 1.8 | % | ||||||||||||||||||
| Total cost of revenue for garment manufacturing | 1,052,421 | 92.1 | % | 1,265,268 | 96.6 | % | (212,847 | ) | (16.8 | %) | ||||||||||||||
| Gross profit for garment manufacturing | 90,068 | 7.9 | % | 44,318 | 3.4 | % | 45,750 | 103.23 | % | |||||||||||||||
| Net revenue for logistic service | 1,589,303 | 100 | % | 2,329,823 | 100 | % | (740,520 | ) | (31.8 | %) | ||||||||||||||
| Fuel and toll | 619,860 | 39.0 | % | 1,507,207 | 64.7 | % | ||||||||||||||||||
| Subcontracting fees | 764,893 | 48.1 | % | 594,177 | 25.5 | % | ||||||||||||||||||
| Total cost of revenue for logistic service | 1,384,753 | 87.1 | % | 2,101,384 | 90.2 | % | (716,631 | ) | (34.1 | %) | ||||||||||||||
| Gross Profit for logistic service | 204,550 | 12.9 | % | 228,439 | 9.8 | % | (23,889 | ) | (10.5 | %) | ||||||||||||||
| Total cost of revenue | $ | 2,437,174 | 89.2 | % | $ | 3,366,652 | 92.5 | % | $ | (929,478 | ) | (27.6 | %) | |||||||||||
| Gross profit | $ | 294,619 | 10.8 | % | $ | 272,757 | 7.5 | % | $ | 21,862 | 8.0 | % | ||||||||||||
Cost of revenue for our manufacturing segment for the three months ended June 30, 2018 and 2017 was $1,052,421 and $1,265,268, 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 three months ended June 30, 2018 and 2017 was $1,384,753 and $2,101,384, 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 71.2% and 76.5% of raw materials purchases for the three months ended June 30, 2018 and 2017, respectively. Two and four suppliers provided more than 10% of our raw materials purchases for the three months ended June 30, 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.
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For our logistic business, we outsource some of the business to our contractors. The Company relied on three subcontractors, in which the subcontracting fees to our largest contractor represented approximately 41.7% of total cost of revenues for our service segment for the three months ended June 30, 2018. 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 80.7% of our total manufacturing business revenue in the three months ended June 30, 2018, compared with 86.4% in the three months ended June 30, 2017. The decrease was mainly due to our cost-cutting measures on materials cost have been in place and the decrease in raw materials purchase.
Labor costs for our manufacturing business were10.3% of our total manufacturing business revenue in the three months ended June 30, 2018, compared with8.4% in the three months ended June 30, 2017. The increase was mainly due to the rising wages in the PRC.
Overhead and other expenses for our manufacturing business accounted for 1.1% of our total manufacturing business revenue for the three months ended June 30, 2018, compared with 1.8% of total manufacturing business revenue for the three months ended June 30, 2017.
Fuel and toll costs for our service business for the three months ended June 30, 2018 were $619,860 compared with $1,507,207 for the three months ended June 30, 2017. Fuel and toll costs for our service business accounted for 39.0% of our total service revenue for the three months ended June 30, 2018, compared with 64.7% for the three months ended June 30, 2017. The decrease was primarily attributable to we 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 three months ended June 30, 2018 increased 78.2% to $764,893 from $594,177 for the three months ended June 30, 2017. Subcontracting fees accounted for 48.1% and 25.5% of our total service business revenue in the three months ended June 30, 2018 and 2017, respectively. This increase was primarily attributable to we 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 three months ended June 30, 2018 was $2,437,174, a 27.6% decrease from $3,366,652 for the three months ended June 30, 2017. Total cost of sales as a percentage of total sales for the three months ended June 30, 2018 was 89.2%, compared with 92.5% for the three months ended June 30, 2017. Gross margin for the three months ended June 30, 2018 was 10.8% compared with 7.5% for the three months ended June 30, 2017.
Gross profit
| Three Months Ended June 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2018 | 2017 | 2018 compared to 2017 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 294,619 | 100 | % | $ | 272,757 | 100 | % | 21,862 | 8.0 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (4,720 | ) | (1.6 | %) | (11,926 | ) | (4.4 | %) | (7,206 | ) | (60.4 | %) | ||||||||||||
| General and administrative expenses | (463,900 | ) | (157.5 | %) | (375,808 | ) | (137.8 | %) | 88,092 | 23.4 | % | |||||||||||||
| Total | $ | (468,620 | ) | (159.1 | %) | $ | (387,734 | ) | (142.2 | %) | 80,886 | 20.9 | % | |||||||||||
| Loss from operations | $ | (174,001 | ) | (59.1 | %) | $ | (114,977 | ) | (42.2 | %) | 59,024 | 51.3 | % | |||||||||||
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Manufacturing business gross profit for the three months ended June 30, 2018 was $90,069 compared with $44,318 for the three months ended June 30, 2017. Gross profit accounted for 7.9% of our total manufacturing business revenue for the three months ended June 30, 2018, compared with 3.4% for the three months ended June 30, 2017.
Gross profit in our service business for the three months ended June 30, 2018 was $204,550 and gross margin was 12.9%. Gross profit in our service business for the three months ended June 30, 2017 was $228,439 and gross margin was 9.8%.
The increase in gross margin was due to the implementation of cost-cutting measures and the effective control on our costs to increase profitability during the three months ended June 30, 2018.
Selling, General and administrative expenses
Our selling expenses in our manufacturing segment for the three months ended June 30, 2018 and 2017 were $4,720 and $11,92, respectively. Our selling expenses in our service segment for the three months ended June 30, 2018 and 2017 were $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 three months ended June 30, 2018 and 2017 were $72,492 and $65,688, respectively. Our general and administrative expenses in our service segment, for the three months ended June 30, 2018 and 2017 were $263,094 and $260,948, respectively. Our general and administrative expenses in our corporate and other segment for the three months ended June 30, 2018 and 2017 were $144,336 and $33,149, 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 three months ended June 30, 2018 decreased 60.4% to $4,720 from $11,926 for the three months ended June 30, 2017.
General and administrative expenses for the three months ended June 30, 2018 increased 23.4% to $463,900 from $375,808 for the three months ended June 30, 2017. The increase was mainly due to the increased in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements
Income from operations
Loss from operations for the three months ended June 30, 2018 and 2017 was $174,001 and $114,977, respectively. (Loss) income from operations of $12,856 and ($33,296) was attributed from our manufacturing segment for the three months ended June 30, 2018 and 2017, respectively. (Loss) income from operations of ($58,543) and ($32,510) was attributed from our service segment for the three months ended June 30, 2018 and 2017, respectively. We incurred a loss from operations in corporate segment of ($128,314) and ($49,171) for the three months ended June 30, 2018 and 2017, respectively. The loss from our corporate segment was mainly due to the increased in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements
Income Tax Expenses
Income tax expense for the three months ended June 30, 2018 and 2017 was $609 and $2,243, respectively, a 72.8% decrease compared to the same period of 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 three months ended June 30, 2018 and 2017.
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QYTG and YX were incorporated in the PRC and are subject to the PRC statutory tax rate of 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the three months ended June 30, 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 is a U.S entity and is subject to United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2018 and 2017.
Net Income
We incurred a net loss of $160,906 and $118,836 for the three months ended June 30, 2018 and 2017, respectively. Our basic and diluted earnings per share were $0.0 and $0.0 for the three months ended June 30, 2018 and 2017, respectively.
Summary of cash flows
Summary cash flows information for the three months ended June 30, 2018 and 2017 is as follow:
| 2018 | 2017 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash provided by (used in) operating activities | $ | 490,065 | $ | (54,479 | ) | |||
| Net cash used in investing activities | $ | (25,592 | ) | $ | (3,038,446 | ) | ||
| Net cash provided by financing activities | $ | (424,915 | ) | $ | 4,003,102 | |||
Net cash used in operating activities consist of net loss of $160,906, increased by depreciation of $30,805, and increased by decrease in change of operating assets and liabilities of $359,964. 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 receipt of customers’ orders.
Net cash used in investing activities consist of purchase of plant and equipment of $25,592.
Net cash provided by financing activities consist of repayment of third party borrowings of $998,627 and we received third party proceeds of $840,670; and repayment of related party borrowings of $561,001 and we received related party proceeds of $294,043.
Financial Condition, Liquidity and Capital Resources
As of June 30, 2018, we had cash on hand of $301,640, total current assets of $6,414,266 and current liabilities of $8,723,531. We presently finance our operations primarily from cash flows from borrowings from related parties and third parties. We aim to improve our operating cash flows and anticipate that cash flows from our operations and borrowings from related parties and third parties will continue to be our primary source of funds to finance our short-term cash needs.
The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
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We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
We have very limited financial resources. We will need to raise substantial additional capital to support the on-going operation and increased market penetration of our services, until such time as we generate revenues sufficient to support our operations, if ever. Our failure to obtain additional capital to finance our working capital needs on acceptable terms, or at all, will negatively impact our business, financial condition and liquidity. As of June 30, 2018, we had approximately $8,723,531 of current liabilities. We currently do not have the resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business, our ability to continue as a going concern, and the value of our securities.
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 June 30, 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 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Translation Risk
Our operations are located in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In the past years, RMB continued to appreciate against the U.S. dollar. As of June 30, 2018, the market foreign exchange rate had increased to RMB 6.619 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 expense 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 gain for the three months ended June 30, 2018 was $74,905.
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Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of June 30, 2018, the end of the period covered by this Quarterly Report on Form 10-Q, were not effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
As of June 30, 2018, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
| 16 |
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any pending legal proceedings to which we are a party or of which any of our properties or assets is the subject, nor are we aware of any such proceedings that are contemplated by any civil entity, any regulatory agency or governmental authority.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended March 31, 2018, filed with the Commission on July 6, 2018 (as amended from time to time), under the heading “Risk Factors”, and investors should review the risks provided in the Form 10-K (as amended from time to time), prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended March 31, 2018 (as amended from time to time), under “Risk Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
There is no other information required to be disclosed under this item, which was not previously disclosed.
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
| 17 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADDENTAX GROUP CORP. | |
| Date: August 20, 2018 | /s/ Hong Zhida |
| Hong Zhida | |
| President,
Treasurer, Secretary and Director (Principal Executive, Financial and Accounting Officer) |
| 18 |
* Filed herewith.
** Furnished herewith.
| 19 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Hong Zhida, certify that:
1. I have reviewed this Form 10-Q of Addentax Group Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13- a-15(f) and 15d-15 (f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 20, 2018 | By: | /s/ Hong Zhida |
| Hong Zhida | ||
| President,
Treasurer, Secretary and Director (Principal Executive, Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Addentax Group Corp. (the “Company”), on Form 10-Q for the quarter ended June 30, 2018, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Hong Zhida, Principal Executive Officer and Principal Accounting Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Such Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in such Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 20, 2018 | By: | /s/ Hong Zhida |
| Hong Zhida | ||
| President,
Treasurer, Secretary and Director (Principal Executive, Financial and Accounting Officer) |
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Aug. 20, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | ADDENTAX GROUP CORP. | |
| Entity Central Index Key | 0001650101 | |
| Document Type | 10-Q | |
| Document Period End Date | Jun. 30, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --03-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 506,920,000 | |
| Trading Symbol | ATXG | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2019 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2018 |
Mar. 31, 2018 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares issued | 506,920,000 | 506,920,000 |
| Common stock, shares outstanding | 506,920,000 | 506,920,000 |
Condensed Consolidated Statements of Loss and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
| Income Statement [Abstract] | ||
| REVENUES | $ 2,731,793 | $ 3,639,409 |
| COST OF REVENUES | (2,437,174) | (3,366,652) |
| GROSS PROFIT | 294,619 | 272,757 |
| OPERATING EXPENSES | ||
| Selling and marketing | (4,720) | (11,926) |
| General and administrative | (463,900) | (375,808) |
| Total operating expenses | (468,620) | (387,734) |
| LOSS FROM OPERATIONS | (174,001) | (114,977) |
| OTHER INCOME (EXPENSE), NET | 13,704 | (1,616) |
| LOSS BEFORE INCOME TAX EXPENSE | (160,297) | (116,593) |
| INCOME TAX EXPENSE | (609) | (2,243) |
| NET LOSS | (160,906) | (118,836) |
| Foreign currency translation gain (loss) | 74,905 | (48,454) |
| TOTAL COMPREHENSIVE LOSS | $ (86,001) | $ (167,290) |
| 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 |
Organization and Business Acquisitions |
3 Months Ended | ||
|---|---|---|---|
Jun. 30, 2018 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| 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. |
Basis of Presentation, Liquidity |
3 Months Ended | ||
|---|---|---|---|
Jun. 30, 2018 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| 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 $160,906 and $118,836 during the three months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and March 31, 2018, the Company had net current liability of $1,190,935 and $1,104,934, respectively, and an deficit on total equity of $1,190,934 and $1,104,934, 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. |
Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
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.
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.
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 June 30, 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.
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 June 30, 2018 and March 31, 2018.
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 three months ended June 30, 2018 and 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable June 30, 2018 and March 31, 2018.
Manufacturing segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No allowance for obsolete finished goods was made for the three months ended June 30, 2018 and 2017, respectively.
During the three months ended June 30, 2018 and 2017, approximately 71% and 77% 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:
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.
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 June 30, 2018 and March 31, 2018.
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 June 30, 2018 and March 31, 2018.
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 three months ended June 30, 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 three months ended June 30, 2018.
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.
In February 2018, the Financial Accounting Standards Board (“ FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
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. |
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Business Acquisition |
3 Months Ended | |||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||
| Business Acquisition |
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:
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Accounts Receivables |
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivables |
The receivables and allowance balances at June 30, 2018 and March 31, 2018 are as follows:
No allowance for doubtful accounts was made for the three months ended June 30, 2018 and 2017. |
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Other Receivables |
3 Months Ended | ||
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Jun. 30, 2018 | |||
| Receivables [Abstract] | |||
| Other Receivables |
Other receivables primarily represent refundable security deposits to customers for quality assurance on the provision of logistic service; and 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. |
Related Party Transactions |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions |
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
The Company had the following related party balances as of June 30, 2018 and March 31, 218
The balances with related parties are unsecured, non-interest bearing and repayable on demand. |
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Inventories |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
Inventories consist of the following as of June 30, 2018 and March 31, 2018:
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Advances to Suppliers |
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Jun. 30, 2018 | |||
| Advances To Suppliers | |||
| Advances to Suppliers |
The Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand. |
Plant and Equipment |
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant and Equipment |
Plant and equipment consists of the following as of June 30, 2018 and March 31, 2018:
Depreciation expense for the three months ended June 30, 2018 and 2017 was $30,805 and $27,527, respectively. |
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Income Taxes |
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
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 three months ended June 30, 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 three months ended June 30, 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. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2018.
The Company’s parent entity, Addentax Group Corp. is an U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2018 and 2017.
No deferred taxes were recognized for the three months ended June 30, 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:
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. 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. |
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Consolidated Segment Data |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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:
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
Selected information in the segment structure is presented in the following tables:
Revenues by segment for the three months ended June 30, 2018 and 2017 are as follows:
Income from operations by segment for the three months ended June 30, 2018 and 2017 are as follows:
Depreciation and amortization by segment for the three months ended June 30, 2018 and 2017 are as follows:
Total assets by segment at June 30, 2018 and March 31, 2018 are as follows:
Goodwill by segment at June 30, 2018 and March 31, 2018 is as follows:
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 as of March 31, 2018. |
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Accrued Expenses and Other Payables |
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Expenses and Other Payables |
Accrued expenses and other payables consist of the following as of June 30, 2018 and March 31, 2018:
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Reserves |
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Jun. 30, 2018 | |||||||
| Reserves | |||||||
| Reserves |
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 June 30, 2018 and March 31, 2018, the paid-up statutory reserve was RMB148,418 or $21,539.
The currency translation reserve represents translation differences arising from translation of foreign currency financial statements into the Company’s functional currency. |
Commitments and Contingencies |
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Jun. 30, 2018 | ||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||
| 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 three months ended June 30, 2018 and 2017 was approximately $28,010 and $19,009, respectively.
Future minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
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Subsequent Events |
3 Months Ended | ||
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Jun. 30, 2018 | |||
| Subsequent Events [Abstract] | |||
| Subsequent Events |
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. |
Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| 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. |
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| 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. |
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| Use of Estimates |
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates. |
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| 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 June 30, 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. |
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| 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 June 30, 2018 and March 31, 2018. |
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| Accounts Receivable |
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 three months ended June 30, 2018 and 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable June 30, 2018 and March 31, 2018.
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| Inventories |
Manufacturing segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No allowance for obsolete finished goods was made for the three months ended June 30, 2018 and 2017, respectively.
During the three months ended June 30, 2018 and 2017, approximately 71% and 77% 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. |
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| Plant and Equipment |
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:
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. |
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| Goodwill |
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. |
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| 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 June 30, 2018 and March 31, 2018. |
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| Revenue Recognition |
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. |
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| Earnings Per Share |
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 June 30, 2018 and March 31, 2018. |
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| Income Taxes |
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 three months ended June 30, 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 three months ended June 30, 2018. |
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| 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. |
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| Recently Issued and Adopted Accounting Pronouncements |
In February 2018, the Financial Accounting Standards Board (“ FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
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. |
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Summary of Significant Accounting Policies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Concentration of Risk by Customers |
The following customers had an accounts receivable balance greater than 10% of total accounts receivable June 30, 2018 and March 31, 2018.
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| Schedule of Plant and Equipment Useful Lives |
Estimated useful lives of the plant and equipment are as follows:
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Business Acquisition (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of Purchase Price Allocation for Acquisition |
The following represents the purchase price allocation at the dates of the acquisition:
|
Accounts Receivables (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivables and Allowance Balances |
The receivables and allowance balances at June 30, 2018 and March 31, 2018 are as follows:
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Related Party Transactions (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Parties |
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| Schedule of Related Parties Transactions |
The Company had the following related party balances as of June 30, 2018 and March 31, 218
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Inventories (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories |
Inventories consist of the following as of June 30, 2018 and March 31, 2018:
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Plant and Equipment (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Plant and Equipment |
Plant and equipment consists of the following as of June 30, 2018 and March 31, 2018:
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Income Taxes (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reconciliation of Income Taxes |
The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows:
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Consolidated Segment Data (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment |
Revenues by segment for the three months ended June 30, 2018 and 2017 are as follows:
Income from operations by segment for the three months ended June 30, 2018 and 2017 are as follows:
Depreciation and amortization by segment for the three months ended June 30, 2018 and 2017 are as follows:
Total assets by segment at June 30, 2018 and March 31, 2018 are as follows:
Goodwill by segment at June 30, 2018 and March 31, 2018 is as follows:
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Accrued Expenses and Other Payables (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Expenses and Other Payables |
Accrued expenses and other payables consist of the following as of June 30, 2018 and March 31, 2018:
|
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Commitments and Contingencies (Tables) |
3 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||
| Schedule of Future Minimum Lease Payments |
Future minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
|
Organization and Business Acquisitions (Details Narrative) - Yingxi Industrial Chain Group Co., Ltd [Member] |
Dec. 28, 2016
shares
|
Dec. 15, 2016
USD ($)
|
Dec. 15, 2016
CNY (¥)
|
|---|---|---|---|
| Number of shares acquired | 250,000,000 | ||
| Number of shares issued | 500,000,000 | ||
| Equity investment percentage | 100.00% | ||
| Beneficially owned percentage | 99.00% | ||
| Equity Transfer Agreement [Member] | |||
| Equity investment percentage | 100.00% | 100.00% | |
| Business combination total consideration | $ | $ 3,048,936 | ||
| Equity Transfer Agreement [Member] | RMB [Member] | |||
| Business combination total consideration | ¥ | ¥ 21,008,886 |
Basis of Presentation, Liquidity (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Mar. 31, 2018 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| Net loss | $ (160,906) | $ (118,836) | |
| Current liability | 1,190,935 | $ 1,104,934 | |
| Total equity | $ 1,190,935 | $ 1,104,934 | |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Mar. 31, 2018 |
|
| Cash equivalents | |||
| Allowance for doubtful accounts | |||
| Allowance for obsolete finished goods | |||
| Impairment loss on goodwill | 454,659 | ||
| Impairment of long-lived assets | |||
| Potentially dilutive ordinary shares | |||
| Penalties and interest accrued | |||
| Deferred tax benefit | |||
| U.S. Tax Reform [Member] | |||
| Effective federal statutory tax rate | 21.00% | ||
| Income tax examination, description | 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 | ||
| People's Republic of China [Member] | |||
| Effective federal statutory tax rate | 25.00% | 25.00% | |
| Five Largest Suppliers [Member] | |||
| Percentage of inventory purchase | 71.00% | 77.00% | |
Summary of Significant Accounting Policies - Schedule of Concentration of Risk by Customers (Details) - Accounts Receivable [Member] |
3 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2018 |
Mar. 31, 2018 |
|
| Customer A [Member] | ||
| Concentration risk percentage | 55.00% | 56.00% |
| Customer B [Member] | ||
| Concentration risk percentage | 0.00% | 21.00% |
| Customer C [Member] | ||
| Concentration risk percentage | 0.00% | 12.00% |
| Customer D [Member] | ||
| Concentration risk percentage | 0.00% | 6.00% |
Summary of Significant Accounting Policies - Schedule of Concentration of Risk by Customers (Details) (Parenthetical) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2018 |
Mar. 31, 2018 |
|
| Accounts Receivable [Member] | Customers [Member] | ||
| Concentration risk percentage | 10.00% | 10.00% |
Summary of Significant Accounting Policies - Schedule of Plant and Equipment Useful Lives (Details) |
3 Months Ended |
|---|---|
Jun. 30, 2018 | |
| Production Plant [Member] | Minimum [Member] | |
| Plant and equipment, useful lives | 5 years |
| Production Plant [Member] | Maximum [Member] | |
| Plant and equipment, useful lives | 10 years |
| Motor Vehicles [Member] | Minimum [Member] | |
| Plant and equipment, useful lives | 10 years |
| Motor Vehicles [Member] | Maximum [Member] | |
| Plant and equipment, useful lives | 15 years |
| Office Equipment [Member] | Minimum [Member] | |
| Plant and equipment, useful lives | 5 years |
| Office Equipment [Member] | Maximum [Member] | |
| Plant and equipment, useful lives | 10 years |
Business Acquisition (Details Narrative) |
Dec. 10, 2016 |
|---|---|
| Equity Transfer Agreement [Member] | Yingxi Industrial Chain Investment Co., Ltd [Member] | |
| Business acquisition interest percentage | 100.00% |
Business Acquisition - Schedule of Purchase Price Allocation for Acquisition (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 15, 2016 |
|---|---|---|---|
| Business Combinations [Abstract] | |||
| Cash and cash equivalents | $ 230,390 | ||
| Other current assets | 6,373,688 | ||
| Plant and equipment | 710,829 | ||
| Goodwill | $ 475,003 | $ 475,003 | 929,662 |
| Current liabilities | (5,174,094) | ||
| Statutory reserves | (21,539) | ||
| Total purchase price | $ 3,048,936 |
Accounts Receivables (Details Narrative) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 30, 2017 |
|---|---|---|---|
| Receivables [Abstract] | |||
| Allowance for doubtful accounts |
Accounts Receivables - Schedule of Accounts Receivables and Allowance Balances (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 30, 2017 |
|---|---|---|---|
| Receivables [Abstract] | |||
| Accounts receivable | $ 3,264,347 | $ 3,416,618 | |
| Less: allowance for doubtful accounts | |||
| Accounts receivable, net | $ 3,264,347 | $ 3,416,618 |
Inventories - Schedule of Inventories (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 111,533 | $ 126,079 |
| Work in progress | 62,061 | 113,150 |
| Total | 173,594 | 239,229 |
| Less: allowance for obsolete inventories | ||
| Inventories, net | $ 173,594 | $ 239,229 |
Plant and Equipment (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 30,805 | $ 27,527 |
Plant and Equipment - Schedule of Plant and Equipment (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
|---|---|---|
| Plant and equipment, gross | $ 1,112,941 | $ 1,112,559 |
| Less: accumulated depreciation | (469,614) | (464,019) |
| Plant and equipment, net | 643,327 | 648,540 |
| Production Plant [Member] | ||
| Plant and equipment, gross | 147,461 | 155,529 |
| Motor Vehicles [Member] | ||
| Plant and equipment, gross | 953,637 | 944,539 |
| Office Equipment [Member] | ||
| Plant and equipment, gross | $ 11,843 | $ 12,491 |
Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
| Percentage on enterprise income tax | 0.25 | |
| Percentage of preferential tax benefits and EIT rate | 15.00% | |
| Deferred taxes | ||
| Percentage of preferential value added tax | 3.00% | |
| Domestic Tax Authority [Member] | ||
| Percentage of value added tax | 17.00% | |
| Logistic Company [Member] | ||
| Percentage of value added tax | 11.00% | |
| Hong Kong [Member] | ||
| Income tax rate | 16.50% | 16.50% |
| People's Republic of China [Member] | ||
| Federal statutory tax rate | 25.00% | 25.00% |
Income Taxes - Schedule of Reconciliation of Income Taxes (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
| Income tax expense | $ 609 | $ 2,243 |
| People's Republic of China [Member] | ||
| PRC statutory tax rate | 25.00% | 25.00% |
| Computed expected benefits | $ (40,074) | $ (17,695) |
| Temporary differences | (1,949) | (38,164) |
| Tax losses not recognized | 42,632 | 58,102 |
| Income tax expense | $ (609) | $ (2,243) |
Consolidated Segment Data (Details Narrative) |
3 Months Ended | 12 Months Ended |
|---|---|---|
|
Jun. 30, 2018
Segment
|
Mar. 31, 2018
USD ($)
|
|
| Segment Reporting [Abstract] | ||
| Number of operating segments | Segment | 2 | |
| Impairment loss on goodwill | $ | $ 454,659 |
Consolidated Segment Data - Schedule of Segment Reporting Information, by Segment (Details) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Mar. 31, 2018 |
Dec. 15, 2016 |
|
| Revenues | $ 2,731,793 | $ 3,639,409 | ||
| Loss from operations | (174,001) | (114,977) | ||
| (Loss) income before income tax | (160,297) | (116,593) | ||
| Income tax expense | (609) | (2,243) | ||
| Net (loss) income | (160,906) | (118,836) | ||
| Depreciation | 30,805 | 27,527 | ||
| Total assets | 7,532,596 | $ 7,518,111 | ||
| Goodwill | 475,003 | 475,003 | $ 929,662 | |
| Manufacturing Segment [Member] | ||||
| Revenues | 1,142,490 | 1,309,586 | ||
| Loss from operations | 12,856 | (33,296) | ||
| (Loss) income before income tax | 10,988 | (1,595) | ||
| Depreciation | 8,246 | 7,694 | ||
| Total assets | 3,736,989 | 3,775,765 | ||
| Goodwill | 475,003 | 475,003 | ||
| Service Segment [Member] | ||||
| Revenues | 1,589,303 | 2,329,823 | ||
| Loss from operations | (58,543) | (32,510) | ||
| (Loss) income before income tax | 121 | (21) | ||
| Depreciation | 22,560 | 19,833 | ||
| Total assets | 3,518,081 | 3,391,945 | ||
| Goodwill | ||||
| Corporate and Other [Member] | ||||
| Loss from operations | (128,314) | (49,171) | ||
| (Loss) income before income tax | 2,595 | |||
| Total assets | $ 277,526 | $ 350,400 | ||
Accrued Expenses and Other Payables - Schedule of Accrued Expenses and Other Payables (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
||
|---|---|---|---|---|
| Payables and Accruals [Abstract] | ||||
| Loan from third parties | [1] | $ 79,798 | $ 56,739 | |
| Employee advances | 1,027 | 1,073 | ||
| Accrued wages and welfare | 114,214 | 66,972 | ||
| Other payables | 71,970 | 61,071 | ||
| Accrued expenses and other payables | $ 267,009 | $ 185,855 | ||
| ||||
Reserves (Details Narrative) |
3 Months Ended | |||
|---|---|---|---|---|
|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2018
CNY (¥)
|
Mar. 31, 2018
USD ($)
|
Mar. 31, 2018
CNY (¥)
|
|
| Description on statutory reserve | In accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company established in the PRC is required to transfer 10% of its profit after taxation prepared in accordance with the accounting regulations of the PRC to the statutory reserve until the reserve balance reaches 50% of the subsidiary’s paid-up capital. | |||
| Paid-up statutory reserve | $ | $ 21,539 | $ 21,539 | ||
| RMB [Member] | ||||
| Paid-up statutory reserve | ¥ | ¥ 148,418 | ¥ 148,418 | ||
Commitments and Contingencies (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Operating leases expiring, term | operating leases expiring on various dates through 2019 | |
| Operating leases, rent expense | $ 28,010 | $ 19,009 |
Commitments and Contingencies - Schedule of Future Minimum Lease Payments (Details) |
Mar. 31, 2018
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2019 | $ 22,641 |
| 2020 | 2,516 |
| Future minimum lease payments for leases | $ 25,157 |