UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
(Mark One)
| [X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 2017
| [ ] | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to __________
Commission file number: 333-206097
ADDENTAX GROUP CORP.
(Exact name of registrant as specified in its charter)
| Nevada | 35-2521028 | |
(State
or other jurisdiction of |
(IRS Employer Identification No.) |
| Floor
13th, Building 1, Block B, Zhihui Square Nanshan District, Shenzhen City, China 518000 |
51800 | |
| (Address of principal executive offices) | (Zip Code) |
| +(86) 755 86961 405 |
| (Registrant’s telephone number, including area code) |
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 for 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. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [ ] | |
| Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided 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 [ ] No [X]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 506,920,000 common shares issued and outstanding as of April 16, 2018.
EXPLANATORY NOTE
Addentax Group, Corp. (“Addentax”, the “Company”, “we” or “us”) is filing this Amendment No. 1 to our quarterly report on Form 10-Q (“Form 10-Q/A”) for the period ended December 31, 2017, which was originally filed with the Securities and Exchange Commission (SEC) on April 16, 2018 (the “Original Filing”), to restate the Company’s unaudited consolidated financial statements as of March 31, 2017 and unaudited condensed consolidated financial statements as of December 31, 2017, as well as the related notes included in the Original Filing (“Restatement”).
This Form 10-Q/A contains only Item 1 (Financial Statements), Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 4 (Controls and Procedures) of Part I and Item 6 (Exhibits) of Part II, and items including information not affected by the Restatement have not been repeated in this Form 10-Q/A.
The Restatement corrects accounting errors related to:
| 1) | The related party balances incorrectly recorded as other receivables and payables as of December 31, 2017. |
| 2) | The recognition of incorrect amounts of revenue and cost of revenue in the consolidated statements of operations due to inaccurate cut-off. |
| 3) | The recording of incorrect balance sheets for comparative period as of March 31, 2017. |
Note 2, Restatement of Previously Issued Consolidated Financial Statements, in the Company’s condensed consolidated financial statements included in Item 1 below provides further information regarding the Restatement. “Item 4 – Controls and Procedures” to this Form 10-Q/A discloses the material weaknesses in the Company’s internal controls associated with the Restatement, as well as management’s conclusion that the Company’s internal controls over financial reporting were not effective as of December 31, 2017. Management is currently evaluating the changes needed in the Company’s internal controls over financial reporting to remediate these material weaknesses.
This Form 10-Q/A does not reflect events occurring after the filing of the Original Filing and does not substantively modify or update the disclosures therein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, set forth in Item 1 of this Form 10-Q/A, for additional information. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing.
We are also filing currently dated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1 and 31.2 to this Form 10-Q/A.
Unless the context otherwise requires, references to “we,” “us,” “our,” “ATXG”, or the “Company,” are to Addentax Group Corp. and its subsidiaries.
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
ADDENTAX GROUP CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF DECEMBER 31, 2017 (UNAUDITED) AND MARCH 31, 2017
| December 31, 2017 | March 31, 2017 | |||||||
| (Restated) | (Restated) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 146,365 | $ | 176,905 | ||||
| Accounts receivables, net | 4,626,213 | 4,776,878 | ||||||
| Inventories, net | 465,589 | 445,442 | ||||||
| Other receivables | 1,927,410 | 1,105,320 | ||||||
| Advances to suppliers | 939,604 | 322,556 | ||||||
| Amounts due from related parties | 289,210 | 127,552 | ||||||
| Total current assets | 8,394,391 | 6,954,653 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | 655,457 | 663,203 | ||||||
| Goodwill | 929,662 | 929,662 | ||||||
| Total non-current assets | 1,585,119 | 1,592,865 | ||||||
| TOTAL ASSETS | $ | 9,979,510 | $ | 8,547,518 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 3,468,618 | $ | 1,610,643 | ||||
| Amount due to related parties | 5,076,803 | 2,907,283 | ||||||
| Advances from customers | 820,981 | 1,047,817 | ||||||
| Accrued expenses and other payables | 991,571 | 199,283 | ||||||
| Payable for acquisition of business | - | 3,025,751 | ||||||
| Income tax payable | 6,108 | 723 | ||||||
| Total current liabilities | 10,364,081 | 8,791,500 | ||||||
| TOTAL LIABILITIES | $ | 10,364,081 | $ | 8,791,500 | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Common stock ($0.001 par value, 506,920,000 shares issued and outstanding for the period ended December 31, 2017 and $0.001 par value, 500,000,000 shares issued and outstanding for the year ended March 31, 2017) | $ | 506,920 | $ | 500,000 | ||||
| Additional paid-in capital | (420,523 | ) | (413,604 | ) | ||||
| Retained earnings | (412,984 | ) | (371,802 | ) | ||||
| Statutory reserve | 21,539 | 21,539 | ||||||
| Accumulated other comprehensive income | (79,523 | ) | 19,884 | |||||
| Total equity | (384,571 | ) | (243,983 | ) | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 9,979,510 | $ | 8,547,517 | ||||
See accompany notes to the condensed consolidated financial statements.
| 3 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (UNAUDITED)
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| REVENUES | $ | 3,063,211 | $ | 2,413,505 | $ | 10,677,416 | $ | 2,413,505 | ||||||||
| COST OF REVENUES | (2,702,415 | ) | (2,053,447 | ) | (9,472,377 | ) | (2,053,447 | ) | ||||||||
| GROSS (LOSS) PROFIT | 360,796 | 360,058 | 1,205,039 | 360,058 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling and marketing | (4,106 | ) | (736 | ) | (21,643 | ) | (736 | ) | ||||||||
| General and administrative | (419,057 | ) | (292,537 | ) | (1,216,486 | ) | (292,537 | ) | ||||||||
| Total operating expenses | (423,163 | ) | (293,273 | ) | (1,238,129 | ) | (293,273 | ) | ||||||||
| (LOSS) INCOME FROM OPERATIONS | (62,367 | ) | 66,785 | (33,090 | ) | 66,785 | ||||||||||
| OTHER INCOME, NET | 7,204 | 2,677 | 5,621 | 2,677 | ||||||||||||
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE | (55,163 | ) | 69,462 | (27,469 | ) | 69,462 | ||||||||||
| INCOME TAX EXPENSE | (5,976 | ) | (13,191 | ) | (13,713 | ) | (13,191 | ) | ||||||||
| NET (LOSS) INCOME | (61,139 | ) | 56,271 | (41,182 | ) | 56,271 | ||||||||||
| Foreign currency translation (loss) gain | (29,568 | ) | 6,907 | (99,407 | ) | 6,907 | ||||||||||
| TOTAL COMPREHENSIVE (LOSS) INCOME | $ | (90,707 | ) | $ | 63,178 | $ | (140,589 | ) | $ | 63,178 | ||||||
| EARNINGS PER SHARE | ||||||||||||||||
| Basic and diluted | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| Weighted average number of shares outstanding – Basic and diluted | 506,920,000 | 500,000,000 | 506,920,000 | 500,000,000 | ||||||||||||
See accompany notes to the condensed consolidated financial statements.
| 4 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (UNAUDITED)
| 2017 | 2016 | |||||||
| (Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (41,182 | ) | $ | 56,271 | |||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation | 84,535 | 7,484 | ||||||
| Loss from disposal of plant and equipment | - | 4,502 | ||||||
| Allowance for obsolete inventories | - | 155,722 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 150,665 | (915,615 | ) | |||||
| Inventories | (20,147 | ) | 192,636 | |||||
| Advances to suppliers | (617,048 | ) | 260,362 | |||||
| Amounts due from related parties | - | (39,354 | ) | |||||
| Other receivables | (822,090 | ) | (681,413 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payables | 1,857,974 | 712,153 | ||||||
| Amounts due to related parties | - | (28,878 | ) | |||||
| Accrued expenses and other payables | 385,254 | 64,516 | ||||||
| Advances from customers | (226,836 | ) | (113,579 | ) | ||||
| Taxes payable | 5,385 | 34,672 | ||||||
| Net cash provided by (used in) operating activities | 756,510 | (290,521 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | (76,788 | ) | - | |||||
| Proceeds from sale of plant and equipment | 5,871 | |||||||
| Payment for acquisition of subsidiaries | (3,025,751 | ) | - | |||||
| Acquisition of businesses net of cash acquired | - | 221,840 | ||||||
| Net cash provided by investing activities | (3,102,539 | ) | 227,711 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related party borrowings | 4,778,063 | - | ||||||
| Repayment of related party borrowings | (2,770,201 | ) | - | |||||
| Proceeds from third party borrowings | 829,081 | 547,051 | ||||||
| Repayment of third party borrowings | (525,978 | ) | (254,401 | ) | ||||
| Net cash provided by financing activities | 2,310,965 | 292,650 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | (35,064 | ) | 229,840 | |||||
| Effect of exchange rate changes on cash and cash equivalents | 4,524 | (1,891 | ) | |||||
| Cash and cash equivalents, beginning of year | 176,905 | - | ||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 146,365 | $ | 227,949 | ||||
See accompany notes to the condensed consolidated financial statements.
| 5 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (UNAUDITED)
| 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 acquisition 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.
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.
| 6 |
| 2. | RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS |
Subsequent to the issuance of the Company’s Form 10-Q for the period ended December 31, 2017, the Company determined that material adjustments were needed to correct certain accounting errors. Accordingly, the accompanying consolidated financial statements of the Company as of December 31, 2017 and March 31, 2017, and the related notes hereto, have been restated to correct these accounting errors (the “Restatement”). A summary of these accounting errors, and their effect on the Company’s consolidated financial statements is as follows:
| 1) | The Company had historically presented certain related party balances as other receivables and payables in the Company’s consolidated balance sheet. However, subsequent to the issuance of the Company’s Form 10-Q for the period ended December 31, 2017, the Company determined that the correct presentation of these related party balances should be separately disclosed. Accordingly, the accompanying consolidated balance sheet as of December 31, 2017 and Note 7 have been restated to reclassify $225,029 and $3,700,572 to amount due from related parties and amount due to related parties, respectively. | |
| 2) | The Company had historically recognized incorrect amounts of revenue and cost of revenue in its consolidated statement of operations due to inaccurate cut off. Subsequent to the issuance of the Form 10-K for the year ended March 31, 2017, the Company determined that revenue and cost of revenue on such cut off error were overstated. Accordingly, the accompanying consolidated financial statements for the three and nine months ended December 31, 2017 have been restated to reflect the correction of the proper recognition. The adjustments resulted in a decrease in revenue of $nil and $662,471; a decrease in cost of revenue of $3,166 and $728,641; and an increase in gross profit of $4,378 and $66,170 for the three and nine months ended December 31, 2017, respectively. | |
| 3) | The Company had presented incorrect unaudited balance sheets for comparative period as of March 31, 2017, the errors principally relate to the recognition of incorrect amounts of revenues and expenses. The incorrect amount was subsequently adjusted and the audited financial statements as of March 31, 2017 were incorporated into the Company’s Form 10-K was filed on July 16, 2017. Accordingly, the accompanying consolidated financial statements as of March 31, 2017 have been restated for these adjustments. |
| 7 |
The effect of these adjustments on the Company’s consolidated balance sheets as of December 31, 2017 and March 31, 2017, and cash flows for the nine months ended December 31, 2017 is summarized below:
| Balance sheets: | As of December 31, 2017 | As of March 31, 2017 | ||||||||||||||||||||||
| As filed | Restatement adjustments | As restated | As filed | Restatement adjustments | As restated | |||||||||||||||||||
| Accounts receivable | $ | 4,626,213 | $ | - | $ | 4,626,213 | $ | 5,763,771 | $ | (986,893 | ) | $ | 4,776,878 | |||||||||||
| Other receivables | 2,152,439 | (225,029 | ) | 1,927,410 | 1,105,324 | (4 | ) | 1,105,320 | ||||||||||||||||
| Amount due from related parties | 64,181 | 225,029 | 289,210 | 127,548 | 4 | 127,552 | ||||||||||||||||||
| Total current assets | 8,394,391 | - | 8,394,391 | 7,941,546 | (986,893 | ) | 6,954,653 | |||||||||||||||||
| Total assets | 9,979,510 | - | 9,979,510 | 9,534,411 | (986,893 | ) | 8,547,518 | |||||||||||||||||
| Accounts payable | 3,307,746 | 160,872 | 3,468,618 | 2,354,543 | (743,900 | ) | 1,610,643 | |||||||||||||||||
| Amount due to related parties | 1,376,231 | 3,700,572 | 5,076,803 | 2,878,250 | 29,033 | 2,907,283 | ||||||||||||||||||
| Advances from customers | 820,981 | - | 820,981 | 289,690 | 758,127 | 1,047,817 | ||||||||||||||||||
| Accrued expenses and other payables | 3,985,978 | (2,988,407 | ) | 991,571 | 334,292 | (135,009 | ) | 199,283 | ||||||||||||||||
| Payables for acquisition of business | - | - | - | 3,049,765 | (24,014 | ) | 3,025,751 | |||||||||||||||||
| Total current liabilities | 9,497,044 | 867,037 | 10,364,081 | 8,907,263 | (115,763 | ) | 8,791,500 | |||||||||||||||||
| Total liabilities | 9,497,044 | 867,037 | 10,364,081 | 8,907,263 | (115,763 | ) | 8,791,500 | |||||||||||||||||
| Additional paid-in capital | (420,523 | ) | - | (420,523 | ) | (400,000 | ) | (13,604 | ) | (413,604 | ) | |||||||||||||
| Retained earnings | 406,174 | (819,158 | ) | (412,984 | ) | 498,417 | (870,219 | ) | (371,802 | ) | ||||||||||||||
| Accumulated other comprehensive income | (31,644 | ) | (47,879 | ) | (79,523 | ) | 7,192 | 12,692 | 19,884 | |||||||||||||||
| Total equity | 482,466 | (867,037 | ) | (384,571 | ) | 627,148 | (871,131 | ) | (243,983 | ) | ||||||||||||||
| Total liabilities and equity | 9,979,510 | - | 9,979,510 | 9,534,411 | (986,894 | ) | 8,547,517 | |||||||||||||||||
| Statements of loss and comprehensive loss: | For
the three months ended December 31, 2017 | For
the nine months ended December 31, 2017 | ||||||||||||||||||||||
| As filed | Restatement adjustments | As restated | As filed | Restatement adjustments | As restated | |||||||||||||||||||
| Revenues | $ | 3,061,999 | $ | 1,211 | $ | 3,063,211 | $ | 11.339,887 | $ | (662,471 | ) | $ | 10,677,416 | |||||||||||
| Cost of revenues | (2,705,581 | ) | (3,166 | ) | (2,702,415 | ) | (10,201,018 | ) | 728,641 | (9,472,377 | ) | |||||||||||||
| Gross profit | 356,418 | 4,378 | 360,796 | 1,138,869 | 66,170 | 1,205,039 | ||||||||||||||||||
| Loss from operations | (66,745 | ) | 4,378 | (62,367 | ) | (99,260 | ) | 66,170 | (33,090 | ) | ||||||||||||||
| Loss before income tax expense | (59,541 | ) | 4,378 | (55,163 | ) | (92,133 | ) | 64,664 | (27,469 | ) | ||||||||||||||
| Net loss | (65,517 | ) | 4,378 | (61,139 | ) | (105,846 | ) | 64,664 | (41,182 | ) | ||||||||||||||
| Foreign currency translation loss | (8,932 | ) | (20,636 | ) | (29,568 | ) | (38,836 | ) | (60,571 | ) | (99,407 | ) | ||||||||||||
| Total comprehensive loss | (74,449 | ) | (16,258 | ) | (90,707 | ) | (144,682 | ) | 4,093 | (140,589 | ) | |||||||||||||
| Statements of cash flow: | For the nine months ended December 31, 2017 | |||||||||||
| As filed | Restatement adjustments | As restated | ||||||||||
| Net loss | $ | (105,846 | ) | $ | 64,664 | $ | (41,182 | ) | ||||
| Accounts receivable | 1,137,558 | (986,893 | ) | 150.665 | ||||||||
| Amounts due from related parties | 62,088 | (62,088 | ) | - | ||||||||
| Other receivables | (1,047,115 | ) | 225,025 | (822,090 | ) | |||||||
| Accounts payable | 953,203 | 904,771 | 1,857,974 | |||||||||
| Amounts due to related parties | (1,502,019 | ) | 1,502,019 | - | ||||||||
| Accrued expenses and other payables | 1,248,142 | (862,888 | ) | 385,254 | ||||||||
| Advances from customers | 531,291 | (758,127 | ) | (226,836 | ) | |||||||
| Net cash provided by operating activities | 730,027 | 26,483 | 756,510 | |||||||||
| Payment for the acquisition of subsidiaries | (3,049,765 | ) | 24,014 | (3,025,751 | ) | |||||||
| Net cash used in investing activities | (3,126,553 | ) | 24,014 | (3,102,539 | ) | |||||||
| Proceeds from related party borrowings | - | 4,778,063 | 4,778,063 | |||||||||
| Repayment of related party borrowings | - | (2,770,201 | ) | (2,770,201 | ) | |||||||
| Proceeds from third party borrowings | 7,217,389 | (6,388,308 | ) | 829,081 | ||||||||
| Repayment of third party borrowings | (4,855,927 | ) | 4,329,949 | (525,978 | ) | |||||||
| Net cash provided by financing activities | 2,361,462 | (50,497 | ) | 2,310,965 | ||||||||
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of Presentation |
The condensed consolidated financial statements of the Company and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation.
| 8 |
| (b) | 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.
| (c) | 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.
| (d) | 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.
| (e) | 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 December 31, 2017, 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.
| 9 |
| (f) | 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 December 31, 2017.
| (g) | 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 and nine months ended December 31, 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable at December 31, 2017.
| Customer A | 35 | % | ||
| Customer B | 11 | % |
| 10 |
| (h) | 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 and nine months ended December 31, 2017.
During the three and nine months ended December 31, 2017, approximately 62% and 57% 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.
| (i) | 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.
| (j) | 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 year.
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.
In the fourth quarter of 2016, the Company tested goodwill for impairment and it was determined that goodwill was not impaired and none of the Company’s reporting units with significant goodwill was at risk of failing step one of this goodwill impairment test.
| (k) | 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 December 31, 2017.
| (l) | 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.
| (m) | 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 December 31, 2017.
| (n) | 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 year 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.
| 11 |
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 and nine months ended December 31, 2017. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatment.
New U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit nor expense relating to the Tax Act changes for the period ended December 31, 2017.
| (o) | Recently issued and adopted accounting pronouncements |
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018 for the Company. Early adoption is permitted. The Company expects to adopt ASU 2014-09 utilizing the modified retrospective method in the first quarter of 2018.
The Company is in the process of reviewing revenue contracts across each revenue stream and continues to evaluate the impact the standard would have on each revenue stream. As a result of the Company’s evaluation performed to date, the Company does not believe the adoption of this new standard will have a 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.
| 12 |
| 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.
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 Company provides an allowance for doubtful accounts receivable. The receivables and allowance balances at December 31, 2017 and March 31, 2017 are as follows:
| December 31, 2017 | March 31, 2017 | |||||||
| (Restated) | (Restated) | |||||||
| Accounts receivable | $ | 4,626,213 | $ | 4,776,878 | ||||
| Less: allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | 4,626,213 | $ | 4,776,878 | ||||
No allowance for doubtful accounts was made for the period ended December 31, 2017 and year ended March 31, 2017.
| 6. | OTHER RECEIVABLES |
Other receivables primarily represent unsecured and non-interest bearing short-term advances that the Company makes from time-to-time to third-party entities. These advances are unsecured and due on demand.
| 7. | RELATED PARTY TRANSACTIONS |
| Name of Related Parties | Relationship with the Company | |
| Zhida Hong | President, CEO, CFO and a director of the Company | |
| Zhongpeng Chen | A legal representative of HPF | |
| Bihua Yang | A legal representative of XKJ | |
| Dewu Huang | A legal representative of DT | |
| Qiuying Chen | A spouse of legal representative of DT | |
| Yingping Ding | A legal representative of HSW | |
| Jinlong Huang | A spouse of legal representative of HSW | |
| Shenzhen Qianhai Bitun Investment Fund Management Co., Ltd. | Huizhu Ma is a legal representative and principal shareholder | |
| Shenzhen Bitun Textile Co., Ltd. | Huizhu Ma is a legal representative and principal shareholder | |
| Shenzhen Yingxi Investment & Development Co., Ltd. | Sister of Huizhu Ma, a legal representative | |
| Shenzhen BitunYihao Fund Partnership (Limited Partnership) | Shenzhen Qianhai Bitun Investment Fund Management Co., Ltd. is a legal representative and principal shareholder | |
| Bitun Apparel (Shezhen) 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.
| 13 |
The Company had the following related party balances at the end of the period/year:
| Amounts due from related parties | December 31, 2017 | March 31, 2017 | ||||||
| (Restated) | (Restated) | |||||||
| Zhida Hong | $ | 833 | $ | 9,190 | ||||
| Yinping Ding | 63,348 | - | ||||||
| Bihua Yang | - | 118,358 | ||||||
| Shenzhen Yingxi Investment & Development Co., Ltd. | 156,784 | 4 | ||||||
| Shenzhen Bitun Textile Co., Ltd. | 68,245 | - | ||||||
| $ | 289,210 | $ | 127,552 | |||||
| Amounts due to related parties | December 31, 2017 | March 31, 2017 | ||||||
| (Restated) | (Restated) | |||||||
| Zhongpeng Chen | $ | 713,100 | $ | 554,158 | ||||
| Bihua Yang | 30,741 | - | ||||||
| Dewu Huang | 206,480 | 121,794 | ||||||
| Yinping Ding | - | 983,452 | ||||||
| Jinlong Huang | 425,910 | 1,218,846 | ||||||
| Bitun Apparel (Shenzhen) Co., Ltd. | 1,537,050 | 29,033 | ||||||
| Shenzhen Qianhai Bitun Investment Fund Management Co., Ltd. | 2,151,870 | - | ||||||
| Huizhu Ma | 11,652 | - | ||||||
| $ | 5,076,803 | $ | 2,970,283 | |||||
| Payables for acquisition of subsidiaries | December 31, 2017 | March 31, 2017 | ||||||
| (Restated) | (Restated) | |||||||
| Bitun Apparel (Shenzhen) Co., Ltd. | $ | - | $ | 1,584,247 | ||||
| Shenzhen Yingxi Investment & Development Co., Ltd. | - | 1,440,224 | ||||||
| $ | - | $ | 3,024,471 | |||||
The balances represent cash advances paid to or due from legal representatives for reimbursable company expenses.
The balances with related parties are unsecured, non-interest bearing and repayable on demand. These balances were fully settled in 2018.
| 8. | INVENTORIES |
Inventories consist of the following as of December 31, 2017 and March 31, 2017:
| December 31, 2017 | March 31, 2017 | |||||||
| (Restated) | ||||||||
| Raw materials | $ | 354,921 | $ | 300,592 | ||||
| Work in progress | - | 40,330 | ||||||
| Finished goods | 276,416 | 261,060 | ||||||
| Total | 631,337 | 601,982 | ||||||
| Less: allowance for obsolete inventories | (165,748 | ) | (156,540 | ) | ||||
| Inventories, net | $ | 465,589 | $ | 445,442 | ||||
| 14 |
| 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 December 31, 2017 and March 31, 2017:
| December 31, 2017 | March 31, 2017 | |||||||
| Production plant | 150,013 | $ | 141,680 | |||||
| Motor vehicles | 901,697 | 877,015 | ||||||
| Office equipment | 12,048 | 11,378 | ||||||
| 1,063,758 | 1,030,073 | |||||||
| Less: accumulated depreciation | (408,301 | ) | (366,870 | ) | ||||
| Plant and equipment, net | 655,457 | $ | 663,203 | |||||
Depreciation expense for the three and nine months ended December 31, 2017 was $28,646 and $84,535, respectively.
| 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 and nine months ended December 31, 2017 and 2016.
QYTG and 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 QYTG and YX had no taxable income for the three and nine months ended December 31, 2017 and 2016.
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2017.
The Company’s parent entity, Addentax Group Corp. is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended December 31, 2017 and 2016.
No deferred taxes were recognized for the three and nine months ended December 31, 2017 and 2016.
The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows:
| Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| PRC statutory tax rate | 25 | % | 25 | % | 25 | % | 25 | % | ||||||||
| Computed expected (benefits) expense | $ | (13,791 | ) | $ | 17,365 | $ | (6,867 | ) | $ | 17,365 | ||||||
| Temporary differences and tax losses not recognized | 19,767 | 3,586 | 26,034 | 3,586 | ||||||||||||
| Preferential tax treatment | - | (7,760 | ) | (5,454 | ) | (7,760 | ) | |||||||||
| Income tax expense | $ | 5,976 | $ | 13,191 | $ | 13,713 | $ | 13,191 | ||||||||
| (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 2017. The Company is required to pay the full amount of VAT calculated at the applicable VAT rate of the invoiced value of sales as required. A credit is available whereby VAT paid on gasoline and toll charges can be used to offset the VAT due on service income.
| 12. | CONSOLIDATED SEGMENT DATA |
Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following two segments:
| (a) | Manufacturing of garments (the “Manufacturing segment”); and | |
| (b) | Providing logistic services (the “Service segment”). |
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
Selected information in the segment structure is presented in the following tables:
| 15 |
Revenues by segment for the three and nine months ended December 31, 2017 are as follows:
| Revenues | Three
months ended December 31, | Nine
months ended December 31, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Manufacturing segment | $ | 717,618 | $ | 1,670,662 | $ | 3,779,595 | $ | 1,670,662 | ||||||||
| Service segment | 2,345,593 | 742,843 | 6,897,821 | 742,843 | ||||||||||||
| $ | 3,063,211 | $ | 2,413,505 | $ | 10,677,416 | $ | 2,413,505 | |||||||||
Income from operations by segment for the three and nine months ended December 31, 2017 are as follows:
| Operating (loss) income | Three
months ended December 31, | Nine
months ended December 31, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Manufacturing segment | $ | (13,903 | ) | $ | 10,125 | $ | (6,027 | ) | $ | 10,125 | ||||||
| Service segment | (12,059 | ) | 57,112 | 116,644 | 57,112 | |||||||||||
| Corporate and other | (36,405 | ) | (452 | ) | (143,707 | ) | (452 | ) | ||||||||
| (Loss) income from operations | $ | (62,367 | ) | $ | 66,785 | $ | (33,090 | ) | $ | 66,785 | ||||||
| Manufacturing segment | 4,316 | (2,600 | ) | 2,722 | (2,600 | ) | ||||||||||
| Service segment | 2,888 | 5,199 | 2,866 | 5,199 | ||||||||||||
| Corporate and other | - | 78 | 33 | 78 | ||||||||||||
| (Loss) income before income tax | $ | (55,163 | ) | $ | 69,462 | $ | (27,469 | ) | $ | 69,462 | ||||||
| Income tax expense | (5,976 | ) | (13,191 | ) | (13,713 | ) | (13,191 | ) | ||||||||
| Net (loss) income | $ | (61,139 | ) | $ | 56,271 | $ | (41,182 | ) | $ | 56,271 | ||||||
Depreciation and amortization by segment for the three and nine months ended December 31, 2017 are as follows:
| Depreciation | Three
months ended December 31, | Nine
months ended December 31, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Manufacturing segment | $ | 8,121 | $ | 938 | $ | 23,745 | $ | 938 | ||||||||
| Service segment | 20,525 | 6,546 | 60,790 | 6,546 | ||||||||||||
| $ | 28,646 | $ | 7,484 | $ | 84,535 | $ | 7,484 | |||||||||
Total assets by segment at December 31, 2017 and March 31, 2017 are as follows:
| Total assets | December 31, 2017 | March 31, 2017 | ||||||
| (Restated) | (Restated) | |||||||
| Manufacturing segment | $ | 5,029,970 | $ | 5,328,211 | ||||
| Service segment | 4,585,243 | 3,099,276 | ||||||
| Corporate and other | 364,297 | 120,031 | ||||||
| $ | 9,979,510 | $ | 8,547,518 | |||||
Goodwill by segment at December 31, 2017 and March 31, 2017 is as follows:
| Goodwill | December 31, 2017 | March 31, 2017 | ||||||
| Manufacturing segment | $ | 475,003 | $ | 475,003 | ||||
| Service segment | 454,659 | 454,659 | ||||||
| $ | 929,662 | $ | 929,662 | |||||
| 13. | ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables consist of the following as of December 31, 2017 and March 31, 2017:
| December 31, 2017 | March 31, 2017 | |||||||
| (Restated) | (Restated) | |||||||
| Loan from third parties (i) | $ | 861,433 | $ | 104,040 | ||||
| Employee advances | 882 | 987 | ||||||
| Accrued wages and welfare | 97,697 | 91,441 | ||||||
| Value-added taxes (refundable) payable | 11,556 | - | ||||||
| Other payables | 20,003 | 2,815 | ||||||
| $ | 991,571 | $ | 199,283 | |||||
| (i) | Loan from third parties represent unsecured and non-interest bearing short-term advances that the Company makes from time-to-time from third-party entities. These advances are unsecured and due on demand. |
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 December 31, 2017 and March 31, 2017, the paid-up statutory reserve was RMB148,418 or $21,539.
| 16 |
| (b) | Currency translation reserve |
The currency translation reserve represents translation differences arising from translation of foreign currency financial statements into the Company’s functional currency.
| 15. | COMMITMENTS AND CONTINGENCIES |
Leases
During the year 2017, the Company leased offices in various cities in the PRC, under operating leases expiring on various dates through 2019. Rent expense for the three and nine months ended December 31, 2017 was approximately $25,616 and $70,034, respectively.
Future minimum lease payments for leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
| 2018 | $ | 7,678 | |||
| 2019 | 30,710 | ||||
| 2020 | 2,559 | ||||
| $ | 40.947 |
| 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.
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Forward-looking statements
Statements made in this Form 10-Q/A that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events, except as required by law.
Financial information contained in this report and in our financial statements is stated in United States dollars and is prepared in accordance with United States generally accepted accounting principles.
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.
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.
Where You Can Find Other Information
We file annual, quarterly, and current reports and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any documents we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can also obtain copies of the document upon the payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended December 31, 2017 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.
Overview
Our Business
We are a garment manufacturer and logistic service provider based in China. We are listed on the OTCQB under the symbol of “ATXG”. We classify our businesses into two segments: Garment manufacturing and logistics services.
Our garment manufacturing business consists of sales made principally to wholesaler located in the People’s Republic of China (“PRC”). We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and timely delivery requirement for our customers. We conduct our garment manufacturing operations through two wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”) and Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), which are located in the Guangdong province, China.
Our logistic business consists of delivery and courier services covering approximately 20 provinces in China. Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), which are located in the Guangdong province, China.
Business Objectives
Garment Manufacturing Business
We believe the enduring strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit. In the future, we plan to develop our growth opportunities and continued investment initiatives to provide value-added consulting services to the apparel supply-chain companies and retailers in China.
Logistic Business
The business objective and future plan for our logistic service segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31, 2017, we provide logistic service to over 23 cities in approximately 20 provinces. We expect to open logistic points in additional 10 cities in the third and fourth quarter of 2017 and in the year of 2018.
Seasonality of Business
Our business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistic service revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistic segment.
Collection Policy
Garment manufacturing business
For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished goods.
Logistic business
For logistic service, we generally receive payments from the customers between 30 to 90 days following the date of the register receipt of packages.
Economic Uncertainty
Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.
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Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.
Summary of Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.
Estimates and Assumptions
We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Revenue Recognition
We are generating our revenue from the sale of garments manufactured and the provision of logistic services to customers. We recognize our revenue, net of value-added taxes, upon customer acceptance, at such time title passes to the customer provided that (i) there are no uncertainties regarding customer acceptance, (ii) persuasive evidence of an arrangement exists, (iii) the sales price is fixed and determinable, and (iv) collectability is deemed probable.
Concentrations of Credit Risk
Cash held in banks: We maintain cash balances at the financial institutions in China. We have not experienced any losses in such accounts.
Accounts Receivable: Customer accounts typically are collected within a short period of time, and based on its assessment of current conditions and its experience collecting such receivables, management believes it has no significant risk related to its concentration within its accounts receivable.
Recently issued and adopted accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018 for the Company. Early adoption is permitted. We expect to adopt ASU 2014-09 utilizing the modified retrospective method in the first quarter of 2018.
We are in the process of reviewing our revenue contracts across each revenue stream and continues to evaluate the impact the standard would have on each revenue stream. As a result of our evaluation performed to date, we do not believe the adoption of this new standard will have a material impact on our revenue recognition policy.
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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.
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 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. We evaluated the impact of adopting the new standard on its consolidated financial statements and conclude there was no material impact to our 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. We evaluated the impact of adopting the new standard on our consolidated financial statements and conclude there was no material impact to our financial statement.
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 December 31, 2017 and 2016
The following tables summarize our results of operations for the three months ended December 31, 2017 and 2016. 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 December 31, 2017 | Increase (decrease) in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 3,063,211 | 100.0 | % | $ | 2,413,505 | 100 | % | $ | 649,706 | 26.9 | % | ||||||||||||
| Cost of revenues | (2,702,415 | ) | (88.2 | %) | (2,053,447 | ) | (85.1 | %) | 648,968 | 31.6 | % | |||||||||||||
| Gross profit | 360,796 | 11.8 | % | 360,058 | 14.9 | % | 738 | 0.2 | % | |||||||||||||||
| Operating expenses | (423,163 | ) | (13.8 | %) | (293,273 | ) | (12.1 | %) | 129,890 | 44.3 | % | |||||||||||||
| (Loss) income from operations | (62,367 | ) | (2.0 | %) | 66,785 | 2.8 | % | (129,152 | ) | (193.4 | %) | |||||||||||||
| Other income, net | 7,204 | 0.2 | % | 2,677 | 0.1 | % | 4,527 | 169.1 | % | |||||||||||||||
| Income tax expense | (5,976 | ) | (0.2 | %) | (13,191 | ) | (0.5 | %) | 7,215 | 54.7 | % | |||||||||||||
| Net (loss) income | $ | (61,139 | ) | (2.0 | %) | $ | 56,271 | 2.4 | % | $ | (117,410 | ) | (208.7 | %) | ||||||||||
Revenue
Revenue generated from our garment manufacturing business contributed $717,618 or 23.4% of our total revenue for the three months ended December 31, 2017. Revenue generated from our garment manufacturing business contributed $1,670,662 or 69.2% of our total revenue for the three months ended December 31, 2016. The decrease was due to we partially closed our operations in 2017 to undergo business restructuring for reorganizing the operational and other structures of our garment manufacturing subsidiaries to increase profitability.
Revenue generated from our logistic business contributed $2,345,593 or 76.6% of our total revenue for the three months ended December 31, 2017. Revenue generated from our logistic business contributed $742,843 or 30.8% of our total revenue for the three months ended December 31, 2016. The increase was due to revenue generated for the three months ended December 31, 2016 represents only one-month revenue since Yingxi Industrial Chain Group Co., Ltd (“Yingxi”) consolidated with the four business operating companies in the PRC through the acquisition of Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”) in December 2016 (the “Acquisition transaction in 2016”).
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Total revenues for the three months ended December 31, 2017 were $3,063,211, a 26.9% increase compared with the three months ended December 31, 2016. This increase was due to the operating companies in the PRC was being acquired and consolidated to the Company beginning December 2016.
Cost of revenue
| Three Months Ended December 31, 2017 | Increase (decrease)/ in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 717,618 | 100.0 | % | $ | 1,670,662 | 100 | % | $ | (953,044 | ) | (57.0 | %) | |||||||||||
| Raw materials | 537,430 | 74.9 | % | 1,378,051 | 82.4 | % | ||||||||||||||||||
| Labor | 55,881 | 7.8 | % | 82,115 | 5.0 | % | ||||||||||||||||||
| Other and Overhead | 34,932 | 4.8 | % | 23,196 | 1.4 | % | ||||||||||||||||||
| Total cost of revenue for garment manufacturing | 628,243 | 87.5 | % | 1,483,362 | 88.8 | % | (855,119 | ) | (57.6 | %) | ||||||||||||||
| Gross profit (loss) for garment manufacturing | 89,375 | 12.5 | % | 187,300 | 11.2 | % | (97,925 | ) | (52.3 | %) | ||||||||||||||
| Net revenue for logistic service | 2,345,593 | 100.0 | % | 742,843 | 100 | % | 1,602,750 | 215.8 | % | |||||||||||||||
| Fuel and toll | 1,748,002 | 74.5 | % | 387,034 | 52.1 | % | ||||||||||||||||||
| Subcontracting fees | 326,170 | 13.9 | % | 183,051 | 24.6 | % | ||||||||||||||||||
| Total cost of revenue for logistic service | 2,074,172 | 88.4 | % | 570,085 | 76.7 | % | 1,504,087 | 263.8 | % | |||||||||||||||
| Gross profit (loss) for logistic service | 271,421 | 11.6 | % | 172,758 | 23.3 | % | 98,663 | 57.1 | % | |||||||||||||||
| Total cost of revenue | $ | 2,702,415 | 88.2 | % | $ | 2,053,447 | 85.1 | % | $ | 648,968 | 31.6 | % | ||||||||||||
| Gross profit (loss) | $ | 360,796 | 11.8 | % | $ | 360,058 | 14.9 | % | $ | 738 | 0.2 | % | ||||||||||||
Cost of revenue for our manufacturing segment for the three months ended December 31, 2017 and 2016 was $628,243 and $1,483,362, 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 December 31, 2017 was $2,074,172 and $570,085, 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 62% and 88% of raw materials purchases for the three months ended December 31, 2017 and 2016, respectively. Three and four suppliers provided more than 10% of our raw materials purchases for the three months ended December 31, 2017 and 2016. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.
For our logistic business, we outsource some of the business to our contractors. The Company relied on three subcontractors, in which the subcontracting fees to our largest contractor represented approximately 60% of total cost of revenues for our service segment for the three months ended December 31, 2017. 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 74.9% of our total manufacturing business revenue in the three months ended December 31, 2017, compared with 82.4% in the three months ended December 31, 2016. The decrease was mainly due to the purchase cost of the raw materials remained consistent, while the labor costs continued rising.
Labor costs for our manufacturing business were 7.8% of our total manufacturing business revenue in the three months ended December 31, 2017, compared with 5.0% in the three months ended December 31, 2016. The increase was mainly due to the rising wages in the PRC.
Overhead and other expenses for our manufacturing business accounted for 4.8% of our total manufacturing business revenue for the three months ended December 31, 2017, compared with 1.4% of total manufacturing business revenue for the three months ended December 31, 2016.
Fuel and toll costs for our service business for the three months ended December 31, 2017 were $1,748,002 compared with $387,034 for the three months ended December 31, 2016. Fuel and toll costs for our service business accounted for 74.5% of our total service revenue for the three months ended December 31, 2017, compared with 52.1% for the three months ended December 31, 2016. The increase was primarily attributable to the Acquisition transaction in 2016.
Subcontracting fees for our service business for the three months ended December 31, 2017 increased 78.2% to $326,170 from $183,051 for the three months ended December 31, 2016. Subcontracting fees accounted for 13.9% and 24.6% of our total service business revenue in the three months ended December 31, 2017 and 2016, respectively. This increase was primarily attributable to the Acquisition transaction in 2016.
Total cost of revenue for the three months ended December 31, 2017 was $2,702,415, a 31.6% increase from $2,053,447 for the three months ended December 31, 2016. Total cost of sales as a percentage of total sales for the three months ended December 31, 2017 was 88.2%, compared with 85.1% for the three months ended December 31, 2016. Gross margin for the three months ended December 31, 2017 was 11.8% compared with 14.9% for the three months ended December 31, 2016.
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Gross profit
| Three Months Ended December 31, 2017 | Increase (decrease) in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit (loss) | $ | 360,796 | 100 | % | $ | 360,058 | 100 | % | 738 | 0.2 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (4,106 | ) | (1.1 | %) | (736 | ) | (2.0 | %) | 3,370 | 457.9 | % | |||||||||||||
| General and administrative expenses | (419,057 | ) | (116.2 | %) | (292,537 | ) | (81.3 | %) | 126,520 | 43.2 | % | |||||||||||||
| Total | $ | (423,163 | ) | (117.3 | %) | $ | (293,273 | ) | (81.5 | %) | 129,890 | 47.5 | % | |||||||||||
| (Loss) income from operations | $ | (62,367 | ) | (17.3 | %) | $ | 66,785 | 18.5 | % | (129,152 | ) | (193.4 | %) | |||||||||||
Manufacturing business gross profit for the three months ended December 31, 2017 was $89,375 compared with $187,300 for the three months ended December 31, 2016. Gross profit accounted for 12.5% of our total manufacturing business revenue for the three months ended December 31, 2017, compared with 11.2% for the three months ended December 31, 2016.
Gross profit in our service business for the three months ended December 31, 2017 was $271,421 and gross margin was 11.6%. Gross profit in our service business for the three months ended December 31, 2016 was $172,758 and gross margin was 23.3%. The decrease was derived from the new opened logistic points in 2017, these logistic points have a lower gross margin as we provide lower service fee to attract new business.
Selling, General and administrative expenses
Our selling expenses in our manufacturing segment for the three months ended December 31, 2017 and 2016 was $4,106 and $736, respectively. Our selling expenses in our service segment for the three months ended December 31, 2017 was $nil and $nil, respectively. Selling expenses consist primarily of local transportation, unloading charges and product inspection charges.
Our general and administrative expenses in our manufacturing segment for the three months ended December 31, 2017 and 2016 was $99,172 and $176,890, respectively. Our general and administrative expenses in our service segment, for the three months ended December 31, 2017 and 2016 was $283,480 and $115,647, respectively. Our general and administrative expenses in our corporate and other segment for the three months ended December 31, 2017 and 2016 was $36,405 and $nil, 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 December 31, 2017 increased 457.9% to $4,106 from $736 for the three months ended December 31, 2016.
General and administrative expenses for the three months ended December 31, 2017 increased 43.2% to $419,057 from $292,537 for the three months ended December 31, 2016. The increase was mainly due to the Acquisition transaction in 2016, offset with the decrease in expenses as a result of cost cutting policy applied in 2017 including streamlining operating process and laying off redundant employees.
Income from operations
We had a loss from operations for the three months ended December 31, 2017 of $62,367, compared to income from operations for the three months ended December 31, 2016 of $66,785. (Loss) income from operations of ($13,903) and $10,125 was attributed from our manufacturing segment for the three months ended December 31, 2017 and 2016, respectively. (Loss) income from operations of ($12,059) and $57,112 was attributed from our service segment for the three months ended December 31, 2017 and 2016, respectively. We incurred a loss from operations in corporate segment of $36,405 and $452 for the three months ended December 31, 2017 and 2016, respectively. The loss from our corporate segment was mainly due to the legal and professional fee in connection to the reverse merger transactions incurred in 2017.
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Income Tax Expenses
Income tax expense for the three months ended December 31, 2017 and 2016 was $5,976 and $13,191, respectively, a 54.7% decrease compared to the same period of 2016. 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 December 31, 2017 and 2016.
QYTG and YX were incorporated in the PRC and is subject to the PRC statutory tax rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the three months ended December 31, 2017 and 2016.
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2017.
The Company’s parent entity, Addentax Group Corp. is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended December 31, 2017 and 2016.
Net Income
We incurred a net income (loss) of ($61,139) and $56,271 for the three months ended December 31, 2017 and 2016, respectively. Our basic and diluted earnings per share were $0.00 and $0.00 for the three months ended December 31, 2017, respectively.
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Results of Operations for the nine months ended December 31, 2017 and 2016
The following tables summarize our results of operations for the nine months ended December 31, 2017 and 2016. 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.
| Nine Months Ended December 31, 2017 | Increase (decrease) in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 10,677,416 | 100.0 | % | $ | 2,413,505 | 100 | % | $ | 8,263,911 | 342.4 | % | ||||||||||||
| Cost of revenues | (9,472,377 | ) | (88.7 | %) | (2,053,447 | ) | (85.1 | %) | 7,418,930 | 361.3 | % | |||||||||||||
| Gross profit | 1,205,039 | 11.3 | % | 360,058 | 14.9 | % | 844,981 | 234.7 | % | |||||||||||||||
| Operating expenses | (1,238,129 | ) | (11.6 | %) | (293,273 | ) | (12.1 | %) | 944,856 | 322.2 | % | |||||||||||||
| Loss (income) from operations | (33,090 | ) | (0.3 | %) | 66,785 | 2.8 | % | (99,875 | ) | (149.5 | %) | |||||||||||||
| Other income, net | 5,621 | 0.0 | % | 2,677 | 0.1 | % | 2,944 | 110.0 | % | |||||||||||||||
| Income tax expense | (13,713 | ) | (0.1 | %) | (13,191 | ) | (0.5 | %) | 522 | 4.0 | % | |||||||||||||
| Net income(loss) | $ | (41,182 | ) | (0.4 | %) | $ | 56,271 | 2.4 | % | $ | (97,453 | ) | (173.2 | %) | ||||||||||
Revenue
Revenue generated from our garment manufacturing business contributed $3,779,595 or 35.4% of our total revenue for the nine months ended December 31, 2017. Revenue generated from our garment manufacturing business contributed $1,670,662 or 69.2% of our total revenue for the nine months ended December 31, 2016. An increase of 126.2% was due to the Acquisition transaction in 2016, offset by the decrease resulting from our operations was partially closed in 2017 to undergo business restructuring for reorganizing the operational and other structures of our garment manufacturing subsidiaries to increase profitability.
Revenue generated from our logistic business contributed $6,897,821 or 64.6% of our total revenue for the nine months ended December 31, 2017. Revenue generated from our logistic business contributed $742,843 or 30.8% of our total revenue for the nine months ended December 31, 2016. The increase was due to revenue generated for the three months ended December 31, 2016 represents only one-month revenue since Yingxi Industrial Chain Group Co., Ltd (“Yingxi”) consolidated with the four business operating companies in the PRC through the acquisition of Yingxi Industrial Chain Investment Co., Ltd (“Yingxi HK”) in December 2016 (the “Acquisition transaction in 2016”).
Total revenue for the nine months ended December 31, 2017 were $10,677,416, a 342.4% increase compared with the nine months ended December 31, 2016. This increase was due to the operating companies in the PRC was being acquired and consolidated to the Company beginning December 2016.
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Cost of revenue
| Nine Months Ended December 31, 2017 | Increase (decrease) in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 3,779,595 | 100.0 | % | $ | 1,670,662 | 100 | % | $ | 2,108,933 | 126.2 | % | ||||||||||||
| Raw materials | 2,957,368 | 78.2 | % | 1,378,051 | 82.4 | % | ||||||||||||||||||
| Labor | 410,562 | 10.9 | % | 82,115 | 5.0 | % | ||||||||||||||||||
| Other and Overhead | 159,834 | 4.2 | % | 23,196 | 1.4 | % | ||||||||||||||||||
| Total cost of revenue for garment manufacturing | 3,527,764 | 93.3 | % | 1,483,362 | 88.8 | % | 2,044,402 | 137.8 | % | |||||||||||||||
| Gross profit for garment manufacturing | 251,831 | 6.7 | % | 187,300 | 11.2 | % | 64,531 | 34.5 | % | |||||||||||||||
| Net revenue for logistic service | 6,897,821 | 100.0 | % | 742,843 | 100 | % | 6,154,978 | 828.6 | % | |||||||||||||||
| Fuel and toll | 4,835,293 | 70.1 | % | 387,034 | 52.1 | % | ||||||||||||||||||
| Subcontracting fees | 1,109,320 | 16.1 | % | 183,051 | 24.6 | % | ||||||||||||||||||
| Total cost of revenue for logistic service | 5,944,613 | 86.2 | % | 570,085 | 76.7 | % | 5,374,528 | 942.8 | % | |||||||||||||||
| Gross Profit for logistic service | 953,208 | 13.8 | % | 172,758 | 23.3 | % | 780,450 | 451.8 | % | |||||||||||||||
| Total cost of revenue | $ | 9,472,377 | 88.7 | % | $ | 2,053,447 | 85.1 | % | $ | 7,418,930 | 361.3 | % | ||||||||||||
| Gross profit | $ | 1,205,039 | 11.3 | % | $ | 360,058 | 14.9 | % | $ | 844,981 | 234.7 | % | ||||||||||||
Cost of revenue for our manufacturing segment for the nine months ended December 31, 2017 and 2016 was $3,527,764 and $1,483,362, 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 nine months ended December 31, 2017 was $5,944,613 and $570,085, 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 57% and 88% of raw materials purchases for the nine months ended December 31, 2017 and 2016, respectively. Three and four suppliers provided more than 10% of our raw materials purchases for the nine months ended December 31, 2017 and 2016. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.
For our logistic business, we outsource some of the business to our contractors. The Company relied on three subcontractors, in which the subcontracting fees to our largest contractor represented approximately 60% of total cost of revenues for our service segment for the nine months ended December 31, 2017. 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 78.2% of our total manufacturing business revenue in the nine months ended December 31, 2017, compared with 82.4% in the nine months ended December 31, 2016.
Labor costs for our manufacturing business were 10.9% of our total manufacturing business revenue in the nine months ended December 31, 2017, compared with 5.0% in the nine months ended December 31, 2016. The increase was mainly due to the rising wages in the PRC.
Overhead and other expenses for our manufacturing business accounted for 4.2% of our total manufacturing business revenue for the nine months ended December 31, 2017, compared with 1.4% of total manufacturing business revenue for the nine months ended December 31, 2016.
Fuel and toll costs for our service business for the nine months ended December 31, 2017 were $4,835,293 compared with $387,034 for the nine months ended December 31, 2016. Fuel and toll costs for our service business accounted for 70.1% of our total service revenue for the nine months ended December 31, 2017, compared with 52.1% for the nine months ended December 31, 2016. The increase was primarily attributable to the Acquisition transaction in 2016.
| 26 |
Subcontracting fees for our service business for the nine months ended December 31, 2017 increased 506.0% to $1,109,320 from $183,051 for the nine months ended December 31, 2016. Subcontracting fees accounted for 16.1% and 24.6% of our total service business revenue in the nine months ended December 31, 2017 and 2016, respectively. This increase was primarily attributable to the Acquisition transaction in 2016.
Total cost of revenue for the nine months ended December 31, 2017 was $9,472,377, a 361.3% increase from $2,053,447 for the nine months ended December 31, 2016. Total cost of sales as a percentage of total sales for the nine months ended December 31, 2017 was 88.7%, compared with 85.1% for the nine months ended December 31, 2016. Gross margin for the nine months ended December 31, 2017 was 11.3% compared with 14.9% for the nine months ended December 31, 2016.
Gross profit
| Nine Months Ended December 31, 2017 | Increase (decrease) in | |||||||||||||||||||||||
| 2017 | 2016 | 2017 compared to 2016 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 1,205,039 | 100 | % | $ | 360,058 | 100 | % | 844,981 | 234.7 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (21,643 | ) | (1.8 | %) | (736 | ) | (2.0 | %) | 20,907 | 2,840.6 | % | |||||||||||||
| General and administrative expenses | (1,216,487 | ) | (101.0 | %) | (292,537 | ) | (81.3 | %) | 923,950 | 315.8 | % | |||||||||||||
| Total | $ | (1,238,129 | ) | (102.8 | %) | $ | (293,273 | ) | (81.5 | %) | 944,856 | 322.2 | % | |||||||||||
| (Loss) income from operations | $ | (33,090 | ) | (2.8 | %) | $ | 66,785 | 18.5 | % | (99,875 | ) | (149.5 | %) | |||||||||||
Manufacturing business gross profit for the nine months ended December 31, 2017 was $251,831 compared with $187,300 for the nine months ended December 31, 2016. Gross profit accounted for 6.7% of our total manufacturing business revenue for the nine months ended December 31, 2017, compared with 11.2% for the three months ended December 31, 2016.
Gross profit in our service business for the nine months ended December 31, 2017 was $953,208 and gross margin was 13.8%. Gross profit in our service business for the nine months ended December 31, 2016 was $172,758 and gross margin was 23.3%. The decrease was a result of the new opened logistic points in 2017, these logistic points have a lower gross margin as we provide lower service fee to attract new business.
Selling, General and administrative expenses
Our selling expenses in our manufacturing segment for the nine months ended December 31, 2017 and 2016 was $21,643 and $736, respectively. Our selling expenses in our service segment for the nine months ended December 31, 2017 was $nil and $nil, respectively. Selling expenses consist primarily of local transportation, unloading charges and product inspection charges.
Our general and administrative expenses in our manufacturing segment for the nine months ended December 31, 2017 and 2016 was $295,324 and $176,891, respectively. Our general and administrative expenses in our service segment, for the nine months ended December 31, 2017 and 2016 was $803,721 and 115,647, respectively. Our general and administrative expenses in our corporate and other segment for the nine months ended December 31, 2017 and 2016 was $117,441 and $nil, 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 nine months ended December 31, 2017 increased 2,840.6% to $21,643 from $736 for the nine months ended December 31, 2016.
General and administrative expenses for the nine months ended December 31, 2017 increased 315.8% to $1,216,487 from $292,537 for the nine months ended December 31, 2016. The increase was mainly due to the Acquisition transaction in 2016, offset with the decrease in expenses as a result of cost cutting policy applied in 2017 including streamlining operating process and laying off redundant employees.
| 27 |
Income from operations
(Loss) income from operations for the nine months ended December 31, 2017 and 2016 was ($33,090) and $66,785, respectively. (Loss) income from operations of ($6,027) and $10,125 was attributed from our manufacturing segment for the nine months ended December 31, 2017 and 2016, respectively. Income from operations of $116,644 and $57,112 was attributed from our service segment for the nine months ended December 31, 2017 and 2016, respectively. We incurred a loss from operations in corporate segment of $143,707 and $452 for the nine months ended December 31, 2017 and 2016, respectively. The loss from our corporate segment was mainly due to the legal and professional fees in connection with the reverse merger transactions incurred in 2017.
Income Tax Expenses
Income tax expense for the nine months ended December 31, 2017 and 2016 was $13,713 and $13,191, respectively. A 4.0% increase compared to the same period of 2016. 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 nine months ended December 31, 2017 and 2016.
QYTG and 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 QYTG and YX had no taxable income for the nine months ended December 31, 2017 and 2016.
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2017.
The Company’s parent entity, Addentax Group Corp. is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the nine months ended December 31, 2017 and 2016.
Net Income
We incurred a net (loss) income of ($41,182) and $56,271 for the nine months ended December 31, 2017 and 2016, respectively. Our basic and diluted earnings per share were $0.00 and $0.00 for the nine months ended December 31, 2017, respectively.
Summary of cash flows
Summary cash flows information for the nine months ended December 31, 2017 and 2016 is as follow:
| 2017 | 2016 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash provided by (used in) operating activities | $ | 756,510 | $ | (290,521 | ) | |||
| Net cash used in investing activities | $ | (3,102,539 | ) | $ | 227,711 | |||
| Net cash provided by financing activities | $ | 2,310,965 | $ | 292,650 | ||||
| 28 |
Net cash provided by operating activities consisted of net loss of $41,182, increased by depreciation of $84,535, and increased by change of operating assets and liabilities of $713,157. We will improve our operating cash flow by closely monitoring the timely collection of accounts and other receivables. We generally do not hold any significant inventory for more than ninety days, as we typically manufacture upon customers’ order.
Net cash used in investing activities consisted of payment for acquisition of subsidiaries of $3,025,751 and purchase of plant and equipment of $76,788.
Net cash provided by financing activities consisted of repayment of related party borrowings of $2,770,201 and we received related party proceeds of $4,778,063. Additionally, we repaid third party borrowings of $525,978 and we received third party proceeds of $829,081.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2017, we had cash on hand of $146,365, total current assets of $8,394,391 and current liabilities of $10,364,081. We presently finance our operations primarily from cash flows from borrowings from related parties and third parties. We aim to improve our operating cash flows and anticipate that cash flows from our operations and borrowings from related parties and third parties will continue to be our primary source of funds to finance our short-term cash needs.
Foreign Currency Translation Risk
Our operations are located in the China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In the past years, RMB continued to appreciate against the U.S. dollar. As of December 31, 2017, the market foreign exchange rate had increased to RMB 6.65 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation loss for the three and nine months ended December 31, 2017 was $29,568 and $99,407, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 2017 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.
| 29 |
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer and principal financial/accounting officer), as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer and principal financial/accounting officer), of the effectiveness of our disclosure controls and procedures as of December 31, 2017. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer (principal executive officer and principal financial/accounting officer) concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over financial reporting period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 30 |
The following exhibits are included as part of this report:
| Exhibit Number | Description | |
| (31) | Rule 13a-14(a)/15d-14(a) Certification | |
| 31.1 | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | |
| (32) | Section 1350 Certification | |
| 32.1 | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | |
| 101 | Interactive Data Files | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 31 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADDENTAX GROUP CORP. | ||
| By: | /s/ Hong Zhida | |
| Name: | Hong Zhida | |
| Title: | President, Treasurer, Secretary and Director | |
| (Principal Executive, Financial and Accounting Officer) | ||
| Date: | November 8, 2018 | |
| 32 |
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/A 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: November 8, 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 Quarter Report of Addentax Group Corp. (the “Company”), on Form 10-Q/A for the quarter ended December 31, 2017, 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 Quarter Report on Form 10-Q/A for the quarter ended December 31, 2017, 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 Quarter Report on Form 10-Q/A for the quarter ended December 31, 2017, fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 8, 2018 | By: | /s/ Hong Zhida |
| Hong Zhida | ||
President, Treasurer, Secretary and Director (Principal Executive, Financial and Accounting Officer) |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Dec. 31, 2017 |
Apr. 16, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | ADDENTAX GROUP CORP. | |
| Entity Central Index Key | 0001650101 | |
| Document Type | 10-Q/A | |
| Document Period End Date | Dec. 31, 2017 | |
| Amendment Flag | true | |
| Amendment Description | <p style="margin: 0pt"></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Addentax Group, Corp. (“Addentax”, the “Company”, “we” or “us”) is filing this Amendment No. 1 to our quarterly report on Form 10-Q (“Form 10-Q/A”) for the period ended December 31, 2017, which was originally filed with the Securities and Exchange Commission (SEC) on April 16, 2018 (the “Original Filing”), to restate the Company’s unaudited consolidated financial statements as of March 31, 2017 and unaudited condensed consolidated financial statements as of December 31, 2017, as well as the related notes included in the Original Filing (“Restatement”).</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This Form 10-Q/A contains only Item 1 (Financial Statements), Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 4 (Controls and Procedures) of Part I and Item 6 (Exhibits) of Part II, and items including information not affected by the Restatement have not been repeated in this Form 10-Q/A.</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Restatement corrects accounting errors related to:</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 24px; text-align: justify"><font style="font-size: 10pt">1)</font></td> <td style="text-align: justify"><font style="font-size: 10pt">The related party balances incorrectly recorded as other receivables and payables as of December 31, 2017.</font></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"><font style="font-size: 10pt">2)</font></td> <td style="text-align: justify"><font style="font-size: 10pt">The recognition of incorrect amounts of revenue and cost of revenue in the consolidated statements of operations due to inaccurate cut-off.</font></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"><font style="font-size: 10pt">3)</font></td> <td style="text-align: justify"><font style="font-size: 10pt">The recording of incorrect balance sheets for comparative period as of March 31, 2017.</font></td></tr> </table> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 2, Restatement of Previously Issued Consolidated Financial Statements, in the Company’s condensed consolidated financial statements included in Item 1 below provides further information regarding the Restatement. “Item 4 – Controls and Procedures” to this Form 10-Q/A discloses the material weaknesses in the Company’s internal controls associated with the Restatement, as well as management’s conclusion that the Company’s internal controls over financial reporting were not effective as of December 31, 2017. Management is currently evaluating the changes needed in the Company’s internal controls over financial reporting to remediate these material weaknesses.</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This Form 10-Q/A does not reflect events occurring after the filing of the Original Filing and does not substantively modify or update the disclosures therein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, set forth in Item 1 of this Form 10-Q/A, for additional information. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing.</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We are also filing currently dated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1 and 31.2 to this Form 10-Q/A.</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Unless the context otherwise requires, references to “we,” “us,” “our,” “ATXG”, or the “Company,” are to Addentax Group Corp. and its subsidiaries.</p> | |
| Current Fiscal Year End Date | --03-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business Flag | false | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | false | |
| Entity Common Stock, Shares Outstanding | 506,920,000 | |
| Trading Symbol | ATXG | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2018 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares issued | 506,920,000 | 500,000,000 |
| Common stock, shares outstanding | 506,920,000 | 500,000,000 |
Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Income Statement [Abstract] | ||||
| REVENUES | $ 3,063,211 | $ 2,413,505 | $ 10,677,416 | $ 2,413,505 |
| COST OF REVENUES | (2,702,415) | (2,053,447) | (9,472,377) | (2,053,447) |
| GROSS (LOSS) PROFIT | 360,796 | 360,058 | 1,205,039 | 360,058 |
| OPERATING EXPENSES | ||||
| Selling and marketing | (4,106) | (736) | (21,643) | (736) |
| General and administrative | (419,057) | (292,537) | (1,216,486) | (292,537) |
| Total operating expenses | (423,163) | (293,273) | (1,238,129) | (293,273) |
| (LOSS) INCOME FROM OPERATIONS | (62,367) | 66,785 | (33,090) | 66,785 |
| OTHER INCOME, NET | 7,204 | 2,677 | 5,621 | 2,677 |
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE | (55,163) | 69,462 | (27,469) | 69,462 |
| INCOME TAX EXPENSE | (5,976) | (13,191) | (13,713) | (13,191) |
| NET (LOSS) INCOME | (61,139) | 56,271 | (41,182) | 56,271 |
| Foreign currency translation (loss) gain | (29,568) | 6,907 | (99,407) | 6,907 |
| TOTAL COMPREHENSIVE (LOSS) INCOME | $ (90,707) | $ 63,178 | $ (140,589) | $ 63,178 |
| EARNINGS PER SHARE | ||||
| Basic and diluted | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 |
| Weighted average number of shares outstanding - Basic and diluted | 506,920,000 | 500,000,000 | 506,920,000 | 500,000,000 |
Organization and Business Acquisitions |
9 Months Ended | ||
|---|---|---|---|
Dec. 31, 2017 | |||
| 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 acquisition 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.
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. |
Restatement of Previously Issued Consolidated Financial Statements |
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| Restatement Of Previously Issued Consolidated Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restatement of Previously Issued Consolidated Financial Statements |
Subsequent to the issuance of the Company’s Form 10-Q for the period ended December 31, 2017, the Company determined that material adjustments were needed to correct certain accounting errors. Accordingly, the accompanying consolidated financial statements of the Company as of December 31, 2017 and March 31, 2017, and the related notes hereto, have been restated to correct these accounting errors (the “Restatement”). A summary of these accounting errors, and their effect on the Company’s consolidated financial statements is as follows:
The effect of these adjustments on the Company’s consolidated balance sheets as of December 31, 2017 and March 31, 2017, and cash flows for the nine months ended December 31, 2017 is summarized below:
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Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
The condensed consolidated financial statements of the Company and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation.
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 December 31, 2017, 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 December 31, 2017.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit to its customers in the normal course of business and generally does not require collateral. The Company’s credit terms are dependent upon the segment, and the customer. The Company assesses the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.
Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability.
Accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful accounts was made for the three and nine months ended December 31, 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable at December 31, 2017.
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 and nine months ended December 31, 2017.
During the three and nine months ended December 31, 2017, approximately 62% and 57% 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 year.
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.
In the fourth quarter of 2016, the Company tested goodwill for impairment and it was determined that goodwill was not impaired and none of the Company’s reporting units with significant goodwill was at risk of failing step one of this goodwill impairment test.
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 December 31, 2017.
The Company recognizes manufacturing revenue from product sales, net of value added taxes, upon delivery at which time title passes to the customer provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists, the sales price is fixed and determinable and collectability is deemed probable. Service revenue is recognized at the time at the point in time when delivery is completed and the shipping terms of the contract have been satisfied.
Cost of revenues for manufacturing segment includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment and rent. Cost of for service segment includes gasoline and diesel fuel, toll charges and subcontracting fees.
The Company reports earnings per share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital structure.
The Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number of the Company’s ordinary shares outstanding. Diluted earnings per share reflects the amount of net income available to each ordinary share outstanding during the period plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued. The Company had no potentially dilutive ordinary shares as of December 31, 2017.
The Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year 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 and nine months ended December 31, 2017. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatment.
New U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit nor expense relating to the Tax Act changes for the period ended December 31, 2017.
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 expects to adopt ASU 2014-09 utilizing the modified retrospective method in the first quarter of 2018.
The Company is in the process of reviewing revenue contracts across each revenue stream and continues to evaluate the impact the standard would have on each revenue stream. As a result of the Company’s evaluation performed to date, the Company does not believe the adoption of this new standard will have a 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. |
Business Acquisition |
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||
| 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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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivables |
The Company provides an allowance for doubtful accounts receivable. The receivables and allowance balances at December 31, 2017 and March 31, 2017 are as follows:
No allowance for doubtful accounts was made for the period ended December 31, 2017 and year ended March 31, 2017. |
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Other Receivables |
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Dec. 31, 2017 | |||
| Receivables [Abstract] | |||
| Other Receivables |
Other receivables primarily represent unsecured and non-interest bearing short-term advances that the Company makes from time-to-time to third-party entities. These advances are unsecured and due on demand. |
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 at the end of the period/year:
The balances represent cash advances paid to or due from legal representatives for reimbursable company expenses.
The balances with related parties are unsecured, non-interest bearing and repayable on demand. These balances were fully settled in 2018. |
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Inventories |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
Inventories consist of the following as of December 31, 2017 and March 31, 2017:
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Advances to Suppliers |
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Dec. 31, 2017 | |||
| 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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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant and Equipment |
Plant and equipment consists of the following as of December 31, 2017 and March 31, 2017:
Depreciation expense for the three and nine months ended December 31, 2017 was $28,646 and $84,535, respectively. |
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Income Taxes |
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| 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 and nine months ended December 31, 2017 and 2016.
QYTG and 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 QYTG and YX had no taxable income for the three and nine months ended December 31, 2017 and 2016.
The Company is governed by the Income Tax Laws of the PRC. Yingxi’s operating companies, HSW, HPF and DT were subject to an EIT rate of 25% in 2017. XKJ enjoyed the preferential tax benefits and its EIT rate was 15% in 2017.
The Company’s parent entity, Addentax Group Corp. is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended December 31, 2017 and 2016.
No deferred taxes were recognized for the three and nine months ended December 31, 2017 and 2016.
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 2017. The Company is required to pay the full amount of VAT calculated at the applicable VAT rate of the invoiced value of sales as required. A credit is available whereby VAT paid on gasoline and toll charges can be used to offset the VAT due on service income. |
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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 and nine months ended December 31, 2017 are as follows:
Income from operations by segment for the three and nine months ended December 31, 2017 are as follows:
Depreciation and amortization by segment for the three and nine months ended December 31, 2017 are as follows:
Total assets by segment at December 31, 2017 and March 31, 2017 are as follows:
Goodwill by segment at December 31, 2017 and March 31, 2017 is as follows:
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Accrued Expenses and Other Payables |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Expenses and Other Payables |
Accrued expenses and other payables consist of the following as of December 31, 2017 and March 31, 2017:
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Reserves |
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| Reserves | |||||
| Reserves |
14. 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 December 31, 2017 and March 31, 2017, 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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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||
| Commitments and Contingencies |
Leases
During the year 2017, the Company leased offices in various cities in the PRC, under operating leases expiring on various dates through 2019. Rent expense for the three and nine months ended December 31, 2017 was approximately $25,616 and $70,034, 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 |
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Dec. 31, 2017 | |||
| 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] | ||||||||||||||||||
| Basis of Presentation |
The condensed consolidated financial statements of the Company and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation. |
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| 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 December 31, 2017, 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 December 31, 2017. |
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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 and nine months ended December 31, 2017.
The following customers had an accounts receivable balance greater than 10% of total accounts receivable at December 31, 2017.
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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 and nine months ended December 31, 2017.
During the three and nine months ended December 31, 2017, approximately 62% and 57% 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 year.
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.
In the fourth quarter of 2016, the Company tested goodwill for impairment and it was determined that goodwill was not impaired and none of the Company’s reporting units with significant goodwill was at risk of failing step one of this goodwill impairment test. |
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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 December 31, 2017. |
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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 December 31, 2017. |
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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 year 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 and nine months ended December 31, 2017. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatment.
New U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit nor expense relating to the Tax Act changes for the period ended December 31, 2017. |
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| Recently Issued and Adopted Accounting Pronouncements |
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” (“ASU 2014-09”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in US GAAP. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018 for the Company. Early adoption is permitted. The Company expects to adopt ASU 2014-09 utilizing the modified retrospective method in the first quarter of 2018.
The Company is in the process of reviewing revenue contracts across each revenue stream and continues to evaluate the impact the standard would have on each revenue stream. As a result of the Company’s evaluation performed to date, the Company does not believe the adoption of this new standard will have a 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. |
Restatement of Previously Issued Consolidated Financial Statements (Tables) |
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| Restatement Of Previously Issued Consolidated Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Restatement of Condensed Consolidated Financial Statements |
The effect of these adjustments on the Company’s consolidated balance sheets as of December 31, 2017 and March 31, 2017, and cash flows for the nine months ended December 31, 2017 is summarized below:
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Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2017 | ||||||||||||||||
| 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 at December 31, 2017.
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| Schedule of Plant and Equipment Useful Lives |
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:
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Business Acquisition (Tables) |
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of Purchase Price Allocation for Acquisition |
The following represents the purchase price allocation at the dates of the acquisition:
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Accounts Receivables (Tables) |
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivables and Allowance Balances |
The Company provides an allowance for doubtful accounts receivable. The receivables and allowance balances at December 31, 2017 and March 31, 2017 are as follows:
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Related Party Transactions (Tables) |
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| 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 at the end of the period/year:
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Inventories (Tables) |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories |
Inventories consist of the following as of December 31, 2017 and March 31, 2017:
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Plant and Equipment (Tables) |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Plant and Equipment |
Plant and equipment consists of the following as of December 31, 2017 and March 31, 2017:
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Income Taxes (Tables) |
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| 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) |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment |
Revenues by segment for the three and nine months ended December 31, 2017 are as follows:
Income from operations by segment for the three and nine months ended December 31, 2017 are as follows:
Depreciation and amortization by segment for the three and nine months ended December 31, 2017 are as follows:
Total assets by segment at December 31, 2017 and March 31, 2017 are as follows:
Goodwill by segment at December 31, 2017 and March 31, 2017 is as follows:
|
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Accrued Expenses and Other Payables (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Expenses and Other Payables |
Accrued expenses and other payables consist of the following as of December 31, 2017 and March 31, 2017:
|
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Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||
| 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] |
9 Months Ended | |||
|---|---|---|---|---|
|
Dec. 28, 2016
shares
|
Dec. 15, 2016
USD ($)
|
Dec. 15, 2016
CNY (¥)
|
Dec. 31, 2017
shares
|
|
| 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 | |||
Restatement of Previously Issued Consolidated Financial Statements (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
|
| Amount due from related parties | $ 289,210 | $ 289,210 | $ 127,552 | ||
| Amount due to related parties | 5,076,803 | 5,076,803 | 2,907,283 | ||
| Decrease in revenue | (3,063,211) | $ (2,413,505) | (10,677,416) | $ (2,413,505) | |
| Increase (decrease) cost of revenues | 2,702,415 | 2,053,447 | 9,472,377 | 2,053,447 | |
| Increase in gross profit | 360,796 | $ 360,058 | 1,205,039 | $ 360,058 | |
| Restatement Adjustment [Member] | |||||
| Amount due from related parties | 225,029 | 225,029 | 4 | ||
| Amount due to related parties | 3,700,572 | 3,700,572 | $ 29,033 | ||
| Decrease in revenue | (1,211) | 662,471 | |||
| Increase (decrease) cost of revenues | 3,166 | (728,641) | |||
| Increase in gross profit | $ 4,378 | $ 66,170 | |||
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
|
| Cash equivalents | |||||
| Allowance for doubtful accounts | |||||
| Allowance for obsolete finished goods | |||||
| Impairment of long-lived assets | |||||
| Potentially dilutive ordinary shares | |||||
| Effective federal statutory tax rate | 25.00% | ||||
| 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% | 25.00% | 25.00% | |
| Five Largest Suppliers [Member] | |||||
| Percentage of inventory purchase | 62.00% | 57.00% | |||
Summary of Significant Accounting Policies - Schedule of Concentration of Risk by Customers (Details) - Accounts Receivable [Member] |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Customer A [Member] | |
| Concentration risk percentage | 35.00% |
| Customer B [Member] | |
| Concentration risk percentage | 11.00% |
Summary of Significant Accounting Policies - Schedule of Concentration of Risk by Customers (Details) (Parenthetical) |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Accounts Receivable [Member] | Customers [Member] | |
| Concentration risk percentage | 10.00% |
Summary of Significant Accounting Policies - Schedule of Plant and Equipment Useful Lives (Details) |
9 Months Ended |
|---|---|
Dec. 31, 2017 | |
| 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 Group Co., Ltd [Member] | |
| Business acquisition interest percentage | 100.00% |
Business Acquisition - Schedule of Purchase Price Allocation for Acquisition (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 15, 2016 |
|---|---|---|---|
| Business Combinations [Abstract] | |||
| Cash and cash equivalents | $ 230,390 | ||
| Other current assets | 6,373,688 | ||
| Plant and equipment | 710,829 | ||
| Goodwill | $ 929,662 | $ 929,662 | 929,662 |
| Current liabilities | (5,174,094) | ||
| Statutory reserves | (21,539) | ||
| Total purchase price | $ 3,048,936 |
Accounts Receivables (Details Narrative) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Receivables [Abstract] | ||
| Allowance for doubtful accounts |
Accounts Receivables - Schedule of Accounts Receivables and Allowance Balances (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Receivables [Abstract] | ||
| Accounts receivable | $ 4,626,213 | $ 4,776,878 |
| Less: allowance for doubtful accounts | ||
| Accounts receivable, net | $ 4,626,213 | $ 4,776,878 |
Inventories - Schedule of Inventories (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 354,921 | $ 300,592 |
| Work in progress | 40,330 | |
| Finished goods | 276,416 | 261,060 |
| Total | 631,337 | 601,982 |
| Less: allowance for obsolete inventories | (165,748) | (156,540) |
| Inventories, net | $ 465,589 | $ 445,442 |
Plant and Equipment (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expense | $ 28,646 | $ 7,484 | $ 84,535 | $ 7,484 |
Plant and Equipment - Schedule of Plant and Equipment (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
|---|---|---|
| Plant and equipment, gross | $ 1,063,758 | $ 1,030,073 |
| Less: accumulated depreciation | (408,301) | (366,870) |
| Plant and equipment, net | 655,457 | 663,203 |
| Production Plant [Member] | ||
| Plant and equipment, gross | 150,013 | 141,680 |
| Motor Vehicles [Member] | ||
| Plant and equipment, gross | 901,697 | 877,015 |
| Office Equipment [Member] | ||
| Plant and equipment, gross | $ 12,048 | $ 11,378 |
Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| Hong Kong income tax rate | 16.50% | |||
| Federal statutory tax rate | 25.00% | |||
| Percentage on enterprise income tax | 0.25 | |||
| Percentage of preferential tax benefits and EIT rate | 15.00% | |||
| Deferred taxes | ||||
| Percentage of preferential Value Added Tax | 3.00% | |||
| Domestic Tax Authority [Member] | ||||
| Percentage of Value Added Tax | 17.00% | |||
| Logistic Company [Member] | ||||
| Percentage of Value Added Tax | 11.00% | |||
Income Taxes - Schedule of Reconciliation of Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
| PRC statutory tax rate | 25.00% | |||
| Income tax expense | $ 5,976 | $ 13,191 | $ 13,713 | $ 13,191 |
| People's Republic of China [Member] | ||||
| PRC statutory tax rate | 25.00% | 25.00% | 25.00% | 25.00% |
| Computed expected (benefits) expense | $ (13,791) | $ 17,365 | $ (6,867) | $ 17,365 |
| Temporary differences and tax losses not recognized | 19,767 | 3,586 | 26,034 | 3,586 |
| Preferential tax treatment | (7,760) | (5,454) | (7,760) | |
| Income tax expense | $ 5,976 | $ 13,191 | $ 13,713 | $ 13,191 |
Consolidated Segment Data (Details Narrative) |
9 Months Ended |
|---|---|
|
Dec. 31, 2017
Segment
| |
| Segment Reporting [Abstract] | |
| Number of operating segments | 2 |
Consolidated Segment Data - Schedule of Segment Reporting Information, by Segment (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
Dec. 15, 2016 |
|
| Revenues | $ 3,063,211 | $ 2,413,505 | $ 10,677,416 | $ 2,413,505 | ||
| (Loss) income from operations | (62,367) | 66,785 | (33,090) | 66,785 | ||
| (Loss) income before income tax | (55,163) | 69,462 | (27,469) | 69,462 | ||
| Income tax expense | (5,976) | (13,191) | (13,713) | (13,191) | ||
| Net (loss) income | (61,139) | 56,271 | (41,182) | 56,271 | ||
| Depreciation | 28,646 | 7,484 | 84,535 | 7,484 | ||
| Total assets | 9,979,510 | 9,979,510 | $ 8,547,518 | |||
| Goodwill | 929,662 | 929,662 | 929,662 | $ 929,662 | ||
| Manufacturing Segment [Member] | ||||||
| Revenues | 717,618 | 1,670,662 | 3,779,595 | 1,670,662 | ||
| (Loss) income from operations | (13,903) | 10,125 | (6,027) | 10,125 | ||
| (Loss) income before income tax | 4,316 | (2,600) | 2,722 | (2,600) | ||
| Depreciation | 8,121 | 938 | 23,745 | 938 | ||
| Total assets | 5,029,970 | 5,029,970 | 5,328,211 | |||
| Goodwill | 475,003 | 475,003 | 475,003 | |||
| Service Segment [Member] | ||||||
| Revenues | 2,345,593 | 742,843 | 6,897,821 | 742,843 | ||
| (Loss) income from operations | (12,059) | 57,112 | 116,644 | 57,112 | ||
| (Loss) income before income tax | 2,888 | 5,199 | 2,866 | 5,199 | ||
| Depreciation | 20,525 | 6,546 | 60,790 | 6,546 | ||
| Total assets | 4,585,243 | 4,585,243 | 3,099,276 | |||
| Goodwill | 454,659 | 454,659 | 454,659 | |||
| Corporate and Other [Member] | ||||||
| (Loss) income from operations | (36,405) | (452) | (143,707) | (452) | ||
| (Loss) income before income tax | $ 78 | 33 | $ 78 | |||
| Total assets | $ 364,297 | $ 364,297 | $ 120,031 | |||
Accrued Expenses and Other Payables - Schedule of Accrued Expenses and Other Payables (Details) - USD ($) |
Dec. 31, 2017 |
Mar. 31, 2017 |
||
|---|---|---|---|---|
| Payables and Accruals [Abstract] | ||||
| Loan from third parties | [1] | $ 861,433 | $ 104,040 | |
| Employee advances | 882 | 987 | ||
| Accrued wages and welfare | 97,697 | 91,441 | ||
| Value-added taxes (refundable) payable | 11,556 | |||
| Other payables | 20,003 | 2,815 | ||
| Accrued expenses and other payables | $ 991,571 | $ 199,283 | ||
| ||||
Reserves (Details Narrative) |
9 Months Ended | |||
|---|---|---|---|---|
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2017
CNY (¥)
|
Mar. 31, 2017
USD ($)
|
Mar. 31, 2017
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 | 9 Months Ended |
|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2017 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Operating leases expiring, term | operating leases expiring on various dates through 2019 | |
| Operating leases, rent expense | $ 25,616 | $ 70,034 |
Commitments and Contingencies - Schedule of Future Minimum Lease Payments (Details) |
Dec. 31, 2017
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2018 | $ 7,678 |
| 2019 | 30,710 |
| 2020 | 2,559 |
| Future minimum lease payments | $ 40,947 |
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