ADDENTAX GROUP CORP. 10-K

Item 8. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance sheets as of March 31, 2021 and 2020 F-2 Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended March 31, 2021 and 2020 F-3 Consolidated Statements of Changes in Equity for the years ended March 31, 2021 and 2020 F-4 Consolidated Statements of Cash Flows for the years ended March 31, 2021 and 2020 F-5 Notes to Consolidated Financial Statements for the years ended March 31, 2021 and 2020 F-6 – F-18 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Addentax Group Corp.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Addentax Group Corp. (the “Company”) as of March 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the two years in the period ended March 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States. Going concern uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter The Company has significant transactions with related parties, which are described in Note 5 to the financial statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist. /s/ B F Borgers CPA PC We have served as the Company’s auditor since 2020. Lakewood, Colorado June 29, 2021 F- 1 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In U.S. Dollars, except share data or otherwise stated) March 31, 2021 March 31, 2020 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,845,077 $ 531,681 Accounts receivables 4,757,518 4,500,116 Inventories 270,434 347,531 Other receivables 684,161 231,974 Advances to suppliers 355,454 389,940 Amount due from related party 84,838 - Total current assets 7,997,482 6,001,242 NON-CURRENT ASSETS Plant and equipment, net 793,977 585,019 Operating lease right of use asset 9,632,625 1,835,717 Total non-current assets 10,426,602 2,420,736 TOTAL ASSETS $ 18,424,084 $ 8,421,978 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 152,607 $ 353,114 Accounts payable 3,121,373 3,620,583 Related party borrowings 4,913,964 5,429,440 Advances from customers 3,029 18,931 Accrued expenses and other payables 681,984 230,917 Lease liabilities, current portion 3,555,458 443,543 Total current liabilities 12,428,415 10,096,528 NON-CURRENT LIABILITIES Lease liability, net of current portion 6,077,167 1,392,174 TOTAL LIABILITIES 18,505,582 11,488,702 EQUITY Common stock ($0.001 par value, 50,000,000 shares authorized, 26,693,004 and 25,346,004 shares issued and outstanding as of March 31, 2021 and 2020 respectively) $ 26,693 $ 25,346 Additional paid-in capital 6,815,333 61,050 Accumulated deficits (6,834,228 ) (3,233,122 ) Statutory reserve 13,821 23,514 Accumulated other comprehensive income (loss) (103,117 ) 56,488 Total deficit (81,498 ) (3,066,724 ) TOTAL LIABILITIES AND EQUITY $ 18,424,084 $ 8,421,978 See accompany notes to the consolidated financial statements. F- 2 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 2021 2020 (Restated) REVENUES $ 24,734,759 $ 10,172,379 COST OF REVENUES (25,921,936 ) (8,787,018 ) GROSS (LOSS)/PROFIT (1,187,177 ) 1,385,361 OPERATING EXPENSES Selling and marketing (413,654 ) (13,406 ) General and administrative (2,007,343 ) (2,236,273 ) Total operating expenses (2,420,997 ) (2,249,679 ) LOSS FROM OPERATIONS (3,608,174 ) (864,318 ) Interest income 230 130 Interest expenses (19,142 ) (20,799 ) Other income/(expenses) 62,784 (79,560 ) LOSS BEFORE INCOME TAX EXPENSE (3,564,302 ) (964,547 ) Income tax expense (25,867 ) (16,070 ) NET LOSS (3,590,169 ) (980,617 ) Foreign currency translation (loss)/gain (159,605 ) 91,443 TOTAL COMPREHENSIVE LOSS $ (3,749,774 ) $ (889,174 ) LOSS PER SHARE Basic and diluted (0.14 ) (0.04 ) Weighted average number of shares outstanding – Basic and diluted 25,817,990 25,346,004 See accompany notes to the consolidated financial statements. F- 3 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 Common Stock Additional Retained earnings Accumulated other Total Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Equity (Deficit) BALANCE AT MARCH 31, 2019 (Restated) 25,346,004 $ 25,346 $ 61,050 $ (2,250,770 ) $ 21,779 $ (34,955 ) $ (2,177,550 ) Transfer to Statutory reserve - - - (1,735 ) 1,735 - - Foreign currency translation - - - - - 91,443 91,443 Net loss for the year (Restated) - - - (980,617 ) - - (980,617 ) BALANCE AT MARCH 31, 2020 25,346,004 $ 25,346 $ 61,050 $ (3,233,122 ) $ 23,514 $ 56,488 $ (3,066,724 ) Issuance of common stocks for cash 1,347,000 1,347 6,733,653 - - - 6,735,000 Appropriation of Statutory reserve and release of Statutory Reserve with disposition of subsidiaries - - 20,630 (10,937 ) (9,693 ) - - Foreign currency translation - - - - - (159,605 ) (159,605 ) Net loss for the year - - - (3,590,169 ) - - (3,590,169 ) BALANCE AT MARCH 31, 2020 26,693,004 $ 26,693 $ 6,815,333 $ (6,834,228 ) $ 13,821 $ (103,117 ) $ (81,498 ) See accompany notes to the consolidated financial statements. F- 4 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 2021 2020 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,590,169 ) $ (980,617 ) Adjustments to reconcile net income to net cash used in operating activities: Depreciation 101,014 114,391 Loss on disposal of plant and equipment 46,769 87,305 Changes in operating assets and liabilities: Accounts receivable (365,122 ) (2,701,627 ) Inventories 67,322 (29,484 ) Advances to suppliers (466,049 ) (159,456 ) Other receivables (186,571 ) (53,846 ) Accounts payables (268,181 ) 2,736,332 Accrued expenses and other payables 409,146 (80,109 ) Advances from customers 28,833 (83,742 ) Net cash used in operating activities $ (4,223,008 ) $ (1,150,853 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (405,851 ) (136,001 ) Proceeds from sale of property and equipment 2,439 - Proceeds from disposal of subsidiaries 542,242 - Cash decreased in disposal of subsidiaries (701,882 ) - Net cash used in investing activities $ (563,052 ) $ (136,001 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related party borrowings 9,200,975 2,475,728 Repayment of related party borrowings (9,702,083 ) (1,063,323 ) Proceeds from bank borrowings 87,032 515,447 Repayment of bank borrowings (221,268 ) (371,868 ) Proceeds from issue of common stocks 6,735,000 - Net cash provided by financing activities $ 6,099,656 $ 1,555,984 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,313,596 269,130 Effect of exchange rate changes on cash and cash equivalents (200 ) (14,713 ) Cash and cash equivalents, beginning of year 531,681 277,264 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,845,077 $ 531,681 Supplemental disclosure of cash flow information: Cash paid during the year for interest 4,588 15,143 Cash paid during the year for income tax 25,867 16,070 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations 9,380,402 1,982,393 See accompany notes to the consolidated financial statements. F- 5 ADDENTAX GROUP CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2021 AND 2020 1. ORGANIZATION AND BUSINESS ACQUISITIONS ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services, property leasing and management service in the People’s Republic of China (“PRC” or “China”) and epidemic prevention supplies manufacturing and distribution both in China and overseas markets. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company and its subsidiaries are prepared pursuant to the rules and regulations of the U.S Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles in the U.S. (“US GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation. GOING CONCERN UNCERTAINTY The accompanying consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net loss of $3,590,169 and $980,617 for the year ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and 2020, the Company had net current liability of $4,430,933 and $4,095,286, respectively, and a deficit on total equity of $81,498 and $3,066,724, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company expects to finance operations primarily through cash flow from revenue and capital contributions from the CEO. During the year, the CEO has provided financial support for the operations of the Company. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve its strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) 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. (b) Fair Value Measurement Accounting Standards Codification (“ASC”) 820 “ Fair Value Measurements and Disclosures “, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. This ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). At March 31, 2021, 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. F- 6 (c) Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. All cash and cash equivalents relate to cash on hand and cash at bank at March 31, 2021 and 2020. The Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business. (d) 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 years ended March 31, 2021 and 2020. (e) 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 write-downs for obsolete finished goods for both years ended March 31, 2021 and 2020. F- 7 (f) 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 loss and comprehensive loss. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized. (g) Accounting for the Impairment of Long-Lived Assets and Goodwill In previous, the Company early adopted ASU 2017-04. Under the new accounting guidance, the Company should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. In previous financial statements for the year ended March 31, 2020, the Company impaired goodwill of $475,003. The Company reperformed the test on goodwill for impairment for the time of reissuance of March 31, 2020 consolidated financial statements and it was determined that recoverable amount of one of the Company’s reporting units was lower than the carrying amount of the goodwill recorded as of March 31, 2018. The Company has restated the impairment of goodwill as if it was impaired during the year ended March 31, 2018. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment of long-lived assets as of March 31, 2021 and 2020. F- 8 (h) Revenue Recognition Revenue is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods and services in the contract; (ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery of the good or service. For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules as of March 31, 2021 and 2020. Cost of revenues for garment manufacturing segment includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment and rent. Cost of revenue for logistics services segment includes gasoline and diesel fuel, toll charges and subcontracting fees. Cost of revenue of property management and subleasing business was mainly the amortization of right-of-used assets for the subleasing business. Cost of revenue for epidemic prevention supplies business includes cost of merchandise and cost of direct raw materials, direct labor, and manufacturing overheads of our own products. (i) Earnings Per Share The Company reports earnings (loss) 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 reporting 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 had no potentially dilutive ordinary shares as of March 31, 2021 and 2020 . F- 9 (j) Income Taxes The Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. The Company has a history of tax losses and there is no convincing evidence that sufficient taxable income will be available against which the deferred tax asset can be utilized, therefore, the Company does not recognize any tax benefits for the year ended March 31, 2021 and 2020. The Company’s Chinese subsidiaries are governed by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25%. The Company files income tax returns with the relevant government authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended March 31, 2021 and 2020. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatments. The 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 was recorded relating to the Tax Act changes for the years ended March 31, 2021 and 2020. (k) Leases Lessee The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lessor As a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. F- 10 (l) Recently issued and adopted accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements. 4. DISPOSITION OF SUBSIDIARIES The Company sold its subsidiary DT, a manufacturing company in garment manufacturing segment on October 1, 2020 to a third party and sold HPF, a subsidiary in logistics services segment in November 2020 to another third party. After disposition, the two subsidiaries became third parties to the Company. The Company will not have any businesses with the two subsidiaries nor the buyers. The business operations, customers and suppliers of DT and HPF were retained by the Company; therefore, the disposition of the two subsidiaries did not qualify as discontinued operations. Financial position of the entities at disposal date and gain or loss on disposal: Garment Manufacturing Segment Financial position of DT September 30, 2020, date of disposal Current assets $ 673,025 Noncurrent assets - Current liabilities (70,481 ) Net assets $ 602,544 The consideration was at the fair value as of date of disposal, which was also the carrying value of DT, resulting no gain or loss recognized on the disposal. Logistics Services Segment Financial position of HPF November 16, 2020, date of disposal Current assets $ 740,060 Noncurrent assets 42,658 Current liabilities (565,362 ) Net assets $ 217,356 The consideration was at the fair value as of date of disposal, which was also the carrying value of DT, resulting no gain or loss recognized on the disposal. 5. RELATED PARTY TRANSACTIONS Name of Related Parties Relationship with the Company Zhida Hong President, CEO, and a director of the Company Hongye Financial Consulting (Shenzhen) Co., Ltd. A company controlled by CEO, Mr. Zhida Hong Zhongpeng Chen A legal representative of HPF, became not a related party when HPF was disposed of in November, 2020 Bihua Yang A legal representative of XKJ Dewu Huang A legal representative of YBY Jinlong Huang A spouse of legal representative of HSW The Company leases Shenzhen XKJ office rent-free from Bihua Yang. In September, the Company disposed of $114,229 aged inventories in HSW to Mr. Jinlong Huang at cost with no gain or loss recognized. F- 11 The Company had the following related party balances at the end of the years: Amount due from related party 2021 2020 Hongye Financial Consulting (Shenzhen) Co., Ltd. 84,838 Nil $ 84,838 $ Nil Being lease of the quarter ended March 31, 2021 paid on behalf of Hongye Financial Consulting (Shenzhen) Co., Ltd. for the shared office in Shenzhen. Related party debt 2021 2020 Zhida Hong (1) $ 3,727,371 $ 5,043,489 Bihua Yang (2) 370,523 - Dewu Huang (3) 712,064 81,287 Zhongpeng Chen - 160,427 Jinlong Huang 104,006 144,237 $ 4,913,964 $ 5,429,440 (1) The decrease was due to net repayment of debt due to Zhida Hong. During years ended March 31, 2021, the Company received financial support of $2.2 million from Zhida Hong and repaid $3.6 million of debts due to him. (2) Being financial support from Bihua Yang for XKJ’s daily operation. (3) The increase of related party debt was additional financial support provided by Dewu Huang for YBY’s daily operation. The borrowing balances of related party are unsecured, non-interest bearing and repayable on demand. 6. INVENTORIES Inventories consist of the following as of March 31, 2021 and 2020: 2021 2020 Raw materials $ 234,871 $ 230,742 Work in progress - 62,150 Finished goods 35,564 54,639 Total inventories $ 270,434 $ 347,531 There is no inventory write-downs for the years ended March 31, 2021 and 2020. 7. 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. The Company reviews a supplier’s credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expense in the period they are considered unlikely to be collected. 8. PREPAYMENTS AND OTHER RECEIVABLES Prepayments and other receivables consists of the following as of March 31, 2021 and 2020: 2021 2020 Deposit 155,830 123,965 Receivable of consideration on disposal of subsidiaries 258,929 - Other receivables 269,402 108,009 $ 684,161 $ 231,974 9. PLANT AND EQUIPMENT Plant and equipment consists of the following as of March 31, 2021 and 2020: 2021 2020 Production plant $ 71,642 $ 67,247 Motor vehicles 1,020,893 868,743 Office equipment 14,073 19,471 1,106,608 955,461 Less: accumulated depreciation (312,631 ) (370,442 ) Plant and equipment, net $ 793,977 $ 585,019 Depreciation expense for the years ended March 31, 2021 and 2020 was $101,014 and $114,391, respectively. F- 12 10. SHORT-TERM BANK LOAN In September 2018, HSW, a subsidiary of the Company entered into a facility agreement with Dongguan Agricultural Commercial Bank and obtained a line of credit, which allows the Company to borrow up to approximately $212,334 (RMB1,500,000) for daily operations with fixed interest rate of 6.96% per annum. The loans are guaranteed at no cost by legal representative of HSW. As of March 31, 2020, the Company has borrowed $211,868 (RMB1,500,000) under this line of credit. In September 2020, the Company fully repaid the outstanding loan and this line of credit was cancelled. In August 2019, HSW entered into a facility agreement with Agricultural Bank of China and obtained a line of credit, which allows the Company to borrow up to approximately $147,264 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of March 31, 2020, the Company has borrowed $152,607 (RMB1,000,000) under this line of credit with various annual interest rates from 4.34% to 4.9%. The outstanding loan balance will be due on July 31, 2021. In August 2020, DT entered into a new facility agreement with Webank and obtained a credit facility of $88,358 (RMB600,000) for daily operations with various annual interest rate from 16.2% to 16.29%. The loans are guaranteed at no cost by the legal representative of DT. The loan borrowing was $Nil as of March 31, 2021 as the loan was transferred to the buyer with the disposal of DT on September 30, 2020. 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 progressive rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the years ended March 31, 2021 and 2020. YX were incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the years ended March 31, 2021 and 2020. The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies were subject to progressive EIT rates from 5% to 15% in 2021 and 2020. The preferential tax rate will be expired at end of year 2022 and the EIT rate will be 25% from year 2023. The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the years ended March 31, 2021 and 2020. F- 13 The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows: 2021 2020 PRC statutory tax rate 25 % 25 % Computed expected benefits $ (891,076 ) $ (241,137 ) Temporary differences (50,911 ) (15,205 ) Permanent difference 56,227 3,732 Changes in valuation allowance 911,627 268,680 Reported income tax expense $ 25,867 $ 16,070 As of March 31, 2021, the accumulated tax losses in China amounting to $1.5 million (2020: $0.8 million) will expire in five years. As of March 31, 2021, the accumulated net operating loss carried forward in the US entity was $4.7 million (2020: $1.2 million). (b) Value Added Tax (“VAT”) In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 13%, which is levied on the invoiced value of sales and is payable by the purchaser. The subsidiaries HSW, DT and YS enjoyed preferential VAT rate of 13%. The Companies are required to remit the VAT they collect 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 9% under the relevant tax category for logistic company, except the branch of HPF enjoyed the preferential VAT rate of 3% in 2021 and 2020. 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. 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 four segments: (a) Garment manufacturing . Including manufacturing and distribution of garments; (b) Logistics services . Providing logistic services; (c) Epidemic prevention supplies . Including manufacturing, distribution and trading of epidemic prevention supplies; and (d) Property management and subleasing. Providing shops subleasing and property management services for garment wholesalers and retailers in garment market. The Company also provides general corporate services to its segments and these costs are reported as “Corporate and other”. Selected information in the segment structure is presented in the following tables: Garment Logistics Services Property management and leasing Epidemic prevention supplies Corporate and other Totals Revenue from external customers 6,896,410 4,580,733 1,278,517 11,979,099 - 24,734,759 Intersegment revenue 2,304 - - - - 2,304 Interest income 23 0 8 - 199 230 Interest expense 16,787 795 7 - 1,553 19,142 Depreciation and amortization 5,036 90,549 - 5,429 - 101,014 Operating income (loss) 327,161 191,730 4,220 (3,280,313 ) (850,972 ) (3,608,174 ) Segment assets 4,410,466 2,236,574 9,316,090 33,737 2,342,379 18,339,246 Expenditures for segment assets 79,460 326,391 - - - 405,851 F- 14 Geographical Information The Company operates predominantly in China. In presenting information on the basis of geographical location, revenue is based on the geographical location of customers and long-lived assets are based on the geographical location of the assets. Geographic Information Revenues Long-Lived Assets China 13,131,787 10,426,602 United States 11,602,972 - Total 24,734,759 10,426,602 13. ACCRUED EXPENSES AND OTHER PAYABLES Accrued expenses and other payables consist of the following as of March 31, 2021 and 2020: 2021 2020 Accrued wages and welfare 82,548 61,776 Accrued expenses 55,000 5,753 Other tax payable 28,242 25,206 Rental payable 29,741 24,972 Customers’ deposits 150,993 - Other payables 335,460 113,210 $ 681,984 $ 230,917 14. LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES The Company implemented new accounting policy according to the ASC 842, Leases, on April 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately $0.06 million lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of March 31, 2021, with discounted rate of 4.35%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows. The Company leases its head office. The lease period is 5 years with an option to extend the lease. The Company leases its plant and dormitory for 4.5 years with an option to extend the lease. The Company leased three floors of a commercial building for 3 years with an option to extend the lease in Humen Town of Dongguan City from the landlord and provides shops subleasing and property management services for garment wholesalers and retailers in the leased property. F- 15 The Following table summarizes the components of lease expense: 2021 2020 Operating lease cost 1,021,267 451,685 Short-term lease cost 35,727 63,785 1,056,994 515,470 The following table summarizes supplemental information related to leases: 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow used in operating leases $ 1,650,847 $ 515,470 Right-of-use assets obtained in exchange for new operating leases liabilities 9,380,402 1,982,393 Weighted average remaining lease term - Operating leases (years) 2.8 4.2 Weighted average discount rate - Operating leases 4.35 % 4.35 % The following table summarizes the maturity of operating lease liabilities: Years ending March 31 Lease cost 2022 $ 3,710,121 2023 3,792,954 2024 2,891,377 2025 58,344 Total lease payments 10,452,795 Less: Interest (820,170 ) Total $ 9,632,625 15. SHARE CAPITAL AND RESERVES Share capital In August 2020, the Company offered 747,000 common stocks to an individual investor. The subscription price was $5.00 per share. The proceeds were all received in August 2020. On December 31, 2020, the Company offered 600,000 common stocks to an individual investor. The subscription price was $5.00 per share. The proceeds received will be used for working capital and other general corporate purposes. 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. The amount appropriated to statutory reserve for the years ended March 31, 2021 and 2020 were $10,937 and $1,735, respectively. In November 2020, consolidated statutory reserve of $20,630 was transferred to additional paid in capital because there was no liability for the company to provide such reserve due to disposal of a subsidiary. The balance of paid-up statutory reserve was $13,821 and $23,514 as of March 31, 2021 and 2020, respectively. F- 16 16. RISKS AND UNCERTAINTIES (a) Economic and Political Risks The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. (b) Foreign Currency Translation The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date, which are 6.55 and 7.08 as at March 31, 2021 and March 31, 2020, respectively. Revenue and expenses are translated at the average yearly exchange rates, which are 6.78 and 6.94 for the two years ended March 31, 2021 and 2020, respectively. The equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustments to other comprehensive loss, a component of equity. (c) Concentration Risks The followings are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment as at March 31, 2021 and 2020. Garment manufacturing segment March 31, 2021 March 31, 2020 Customer A 98.4 % 85.5 % Customer B 1.6 % Nil % The high concentration as at March 31, 2021 was mainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers. Logistics services segment March 31, 2021 March 31, 2020 Customer A 30.2 % 22.4 % Customer B 16.6 % 18.3 % Customer C 12.7 % 3.8 % Customer D 5.5 % 2.7 % Customer E 5.5 % Nil % Property management and subleasing The accounts receivable of Property management and subleasing segment as at March 31, 2021 was from one customer only. Epidemic prevention supplies segment No accounts receivables in this segment. F- 17 For the year ended March 31, 2021, two customers, one from garment segment and the other from Epidemic prevention supplies segment, provided more than 10% of total consolidated revenue of the Company, represented 57.4% of total revenue of the Company. The high concentration in year ended March 31, 2021 was mainly due to concentration of distributors in garment manufacturing business and epidemic prevention supplies business. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers. The following tables summarized the percentages of purchases from five largest suppliers of each of the reportable segment purchase for the years ended March 31, 2021 and 2020. Year ended March 31, 2021 2020 Garment manufacturing segment 98.7 % 92.7 % Logistics services segment 49.9 % 25.6 % Property management and subleasing 100.0 % Nil % Epidemic prevention supplies 90.8 % Nil % 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. (d) Interest Rate Risk The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of March 31, 2021, the total outstanding borrowings amounted to $152,607 (RMB 1,000,000) with various interest rate from4.84% to 6.96% p.a. (Note 10) (e) COVID-19 The Coronavirus Disease (COVID-19) outbreak and the measures taken to contain the spread of the pandemic have created a high level of uncertainty to global economic prospects and this has impacted the Company’s operations and its financial performance of the financial year and subsequent to the financial year end. As the situation continues to evolve with significant level of uncertainty, the Company is unable to reasonably estimate the full financial impact of the COVID-19 outbreak. The Company is monitoring the situation closely and to mitigate the financial impact, it is conscientiously managing its cost by adopting an operating cost reduction strategy and conserving liquidity by working with major creditors to align repayment obligations with receivable collections. 17. SUBSEQUENT EVENTS There is no other subsequent events have occurred that would require recognition or disclosure in the financial statements. F- 18 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.