ADDENTAX GROUP CORP. 10-Q

Item 1. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS For the six months ended September 30, 2021 and 2020 TABLE OF CONTENTS Condensed Consolidated Balance sheets as of September 30, 2021 and March 31, 2021 (unaudited) F-2 Condensed Consolidated Statements of Income and Comprehensive Income for the Six months ended September 30, 2021 and 2020 (unaudited) F-3 Condensed Consolidated Statements of Changes in Equity for the six months ended September 30, 2021 and 2020 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020 (unaudited) F-5 Notes to Condensed Consolidated Financial Statements for the six months ended September 30, 2021 and 2020 (unaudited) F-6 – F-14 F- 1 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In U.S. Dollars, except share data or otherwise stated) (UNAUDITED) September 30, 2021 March 31, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents $ 710,669 $ 1,845,077 Accounts receivables, net 1,540,962 4,757,518 Inventories 300,806 270,434 Prepayments and other receivables 580,159 684,161 Advances to suppliers 1,469,698 355,454 Amount due from related party 698,861 84,838 Total current assets 5,301,155 7,997,482 NON-CURRENT ASSETS Plant and equipment, net 859,498 793,977 Long-term prepayments 16,126 - Operating lease right of use asset 8,209,872 9,632,625 Total non-current assets 9,085,496 10,426,602 TOTAL ASSETS $ 14,386,651 $ 18,424,084 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 155,120 $ 152,607 Accounts payable 1,320,116 3,121,373 Amount due to related parties 3,924,511 4,913,964 Advances from customers 55,337 3,029 Accrued expenses and other payables 726,366 681,984 Operating lease liability current portion 3,728,507 3,555,458 Total current liabilities 9,909,957 12,428,415 NON-CURRENT LIABILITIES Operating lease liability 4,481,366 6,077,167 TOTAL LIABILITIES $ 14,391,323 $ 18,505,582 EQUITY ( deficit ) Common stock ($ 0.001 par value, 50,000,000 shares authorized, 26,693,004 shares issued and outstanding at September 30, 2021 and March 31, 2021) $ 26,693 $ 26,693 Additional paid-in capital 6,815,333 6,815,333 Accumulated Deficit ( 6,723,260 ) ( 6,834,228 ) Statutory reserve 13,821 13,821 Accumulated other comprehensive loss ( 137,259 ) ( 103,117 ) Total deficit ( 4,672 ) ( 81,498 ) TOTAL LIABILITIES AND EQUITY $ 14,386,651 $ 18,424,084 See accompany notes to the unaudited condensed consolidated financial statements. F- 2 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In U.S. Dollars, except share data or otherwise stated) 2021 2020 2021 2020 Three months ended September 30, Six months ended September 30, 2021 2020 2021 2020 REVENUES $ 2,757,832 $ 11,684,297 $ 7,044,263 $ 17,602,512 COST OF REVENUES ( 2,287,407 ) ( 14,705,387 ) ( 5,990,433 ) ( 19,825,963 ) GROSS PROFIT (LOSS) 470,425 ( 3,021,090 ) 1,053,830 ( 2,223,451 ) OPERATING EXPENSES Selling and marketing ( 45,802 ) ( 5,789 ) ( 92,192 ) ( 159,033 ) General and administrative ( 462,886 ) ( 466,042 ) ( 923,201 ) ( 922,005 ) Total operating expenses ( 508,688 ) ( 471,831 ) ( 1,015,393 ) ( 1,081,038 ) (LOSS) INCOME FROM OPERATIONS ( 38,263 ) ( 3,492,921 ) 38,437 ( 3,304,489 ) Interest income 96 4 2,063 15 Interest expenses ( 617 ) ( 1,026 ) ( 2,849 ) ( 5,955 ) Other income (expense), net 75,764 37,471 89,001 61,216 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 36,980 ( 3,456,472 ) 126,652 ( 3,249,213 ) INCOME TAX EXPENSE ( 4,959 ) ( 4,053 ) ( 15,684 ) ( 7,412 ) NET INCOME (LOSS) 32,021 ( 3,460,525 ) 110,968 ( 3,256,625 ) Foreign currency translation loss ( 3,626 ) ( 83,696 ) ( 34,142 ) ( 88,151 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 28,395 $ ( 3,544,221 ) $ 76,826 $ ( 3,344,776 ) EARNINGS (LOSS) PER SHARE Basic and diluted 0.00 ( 0.14 ) 0.00 ( 0.13 ) Weighted average number of shares outstanding – Basic and diluted 26,405,333 25,521,529 26,405,333 25,521 ,529 See accompany notes to the unaudited condensed consolidated financial statements. F- 3 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars, except share data or otherwise stated) Common Stock Additional Retained earnings (accumulated deficit) Accumulated other Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Total Equity BALANCE AT JUNE 30, 2020 25,346,004 $ 25,346 $ 61,050 $ ( 3,029,222 ) $ 23,514 $ 52,033 $ ( 2,867,279 ) Paid in capital 747,000 747 3,734,253 3,734,253 Foreign currency translation - - - - - ( 83,696 ) ( 83,696 ) Net income for the period - - - ( 3,460,525 ) - - ( 3,460,525 ) BALANCE AT SEPTEMBER 30, 2020 26,093,004 $ 26,093 $ 3,795,303 $ ( 6,489,747 ) $ 23,514 $ ( 31,663 ) $ ( 2,676,500 ) BALANCE AT JUNE 30, 2021 26,693,004 $ 26,093 $ 6,815,333 $ ( 6,755,281 ) $ 13,821 $ ( 133,633 ) $ ( 33,067 ) Foreign currency translation - - - - ( 3,626 ) ( 3,626 ) Net income for the period - - 32,021 - 32,021 BALANCE AT SEPTEMBER 30, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,723,260 ) $ 13,821 $ ( 137,259 ) $ ( 4,672 ) BALANCE AT MARCH 31, 2020 25,346,004 $ 25,346 $ 61,050 ( 3,233,122 ) 23,514 56,488 ( 3,066,724 ) Paid in capital 747,000 747 3,734,253 - - - 3,735,000 Foreign currency translation - - - - - ( 88,151 ) ( 88,151 ) Net income for the period - - - ( 3,256,625 ) - - ( 3,256,625 ) BALANCE AT SEPTEMBER 30, 2020 26,093,004 26,093 3,795,303 ( 6,489,747 ) 23,514 ( 31,663 ) ( 2,676,500 ) BALANCE AT MARCH 31, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,834,228 ) $ 13,821 $ ( 103,117 ) $ ( 81,498 ) Foreign currency translation - - - - - ( 34,142 ) ( 34,142 ) Net income for the period - - - 110,968 - - 110,968 BALANCE AT SEPTEMBER 30, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,723,260 ) $ 13,821 $ ( 137,259 ) $ ( 4,672 ) See accompany notes to the unaudited condensed consolidated financial statements. F- 4 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In U.S. Dollars, except share data or otherwise stated) 2021 2020 Six Months Ended September 30 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 110,968 $ ( 3,256,625 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 71,398 78,079 Loss on disposal of plant and equipment - 32,988 Changes in operating assets and liabilities Accounts receivable 3,216,556 3,161,329 Inventories ( 30,372 ) ( 287,370 ) Advances to suppliers ( 1,114,244 ) ( 327,859 ) Other receivables ( 399,257 ) 16,408 Accounts payables ( 1,801,257 ) ( 2,500,432 ) Accrued expenses and other payables 44,382 ( 16,614 ) Advances from customers 52,308 37,541 Net cash provided by (used in) operating activities $ 150,482 $ ( 3,062,555 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment and other assets ( 142,922 ) ( 400,585 ) Proceeds from sale of property and equipment - 21,192 Net cash used in investing activities $ ( 142,922 ) $ ( 379,393 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stocks - 3,735,000 Proceeds from related party borrowings 1,623,725 6,079,859 Repayment of related party borrowings ( 2,762,272 ) ( 5,621,945 ) Proceeds from bank borrowings - 86,886 Repayment of bank borrowings - ( 205,850 ) Net cash (used in) provided by financing activities $ ( 1,138,547 ) $ 4,073,950 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 1,130,987 ) 632,002 Effect of exchange rate changes on cash and cash equivalents ( 3,421 ) 14,711 Cash and cash equivalents, beginning of the period 1,845,077 531,681 CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 710,669 $ 1,178,394 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 1,935 $ 4,441 Cash paid during the year for income tax $ 15,684 $ 7,412 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations $ 345,847 $ 28,865 See accompany notes to the unaudited condensed consolidated financial statements. F- 5 ADDENTAX GROUP CORP. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results. The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on June 29, 2021 (“2020 Form 10-K.”). GOING CONCERN UNCERTAINTY The accompanying unaudited condensed 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. F- 6 The Company incurred net income of $ 32,021 and net loss of $ 3,460,525 for the three months ended September 30, 2021 and 2020, respectively, and net income of $ 110,968 and net loss of $ 3,256,626 for the six months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and March 31, 2021, the Company had net current liability of $ 4,608,802 and $ 4,430,933 , respectively, and a deficit on total equity of $ 4,672 and $ 81,498 , 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 our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. There is no change on the accounting policies for the three months ended September 30, 2021. Recently issued 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. F- 7 4. RELATED PARTY TRANSACTIONS SCHEDULE OF RELATED PARTIES Name of Related Parties Relationship with the Company Zhida Hong President, CEO, and a director of the Company 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 Zhiyong Zhou General Manager 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. The Company had the following related party balances as of September 30, 2021 and March 31, 2021: SCHEDULE OF RELATED PARTIES TRANSACTION Amount due from related party September 30, 2021 March 31, 2021 Hongye Financial Consulting (Shenzhen) Co., Ltd. $ 195,602 $ 84,838 Zhiyong Zhou (1) 503,259 - $ 698,861 $ 84,838 Related party borrowings September 30, 2021 March 31, 2021 Zhida Hong (2) $ 3,405,707 $ 3,727,371 Bihua Yang (3) 361,454 370,523 Dewu Huang (4) 16,811 712,064 Jinlong Huang 140,539 104,006 $ 3,924,511 $ 4,913,964 (1) Being cash advance to Zhiyong Zhou to pay for daily operating expenditures of XKJ. (2) The decrease was due to net repayment of debt due to Zhida Hong. During the three and six months ended September 30, 2021, the Company received financial support of $ 0.04 million and 0.24 million from Zhida Hong and repaid $ 0.4 million and $ 0.6 million of debts due to him. (3) Being financial support from Bihua Yang for XKJ’s daily operation. (4) The decrease was due to net repayment of debt due to Dewu Huang. During the six months ended September 30, 2021, the company received interest free advanced loan as financial support of approximately $ 1.3 million from Dewu Huang and repaid approximately $ 2.0 million of debts due to him. The related party debt was additional financial support provided by Dewu Huang for YBY’s daily operation. The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand. 5. INVENTORIES Inventories consist of the following as of September 30, 2021 and March 31, 2021: SCHEDULE OF INVENTORIES September 30, 2021 March 31, 2021 Raw materials $ 257,428 $ 234,870 Work in progress 13,874 - Finished goods 29,504 35,564 Total inventories $ 300,806 $ 270,434 There is no inventory write-off for the three and six months ended September 30, 2021 and 2020. F- 8 6. 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. 7. PREPAYMENTS AND OTHER RECEIVABLES Prepayments and other receivables consist of the following as of September 30, 2021 and March 31, 2021: SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES September 30, 2021 March 31, 2021 Prepayment 477,334 - Deposit 48,634 155,830 Receivable of consideration on disposal of subsidiaries 264,290 258,929 Other receivables 293,160 269,402 Prepayments and other receivables $ 1,083,418 $ 684,161 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following as of September 30, 2021 and March 31, 2021: SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT September 30, 2021 March 31, 2021 Production plant $ 72,821 $ 71,642 Motor vehicles 1,139,978 1,020,893 Office equipment 27,730 14,073 1,240,529 1,106,608 Less: accumulated depreciation ( 381,031 ) ( 312,631 ) Plant and equipment, net $ 859,498 $ 793,977 F- 9 Depreciation expense for the three and six months ended September 30, 2021 and 2020 was $ 42,008 and $ 27,686 , $ 71,397 and $ 51,159 , respectively. 9. SHORT-TERM BANK LOAN 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 $ 153,172 (RMB 1,000,000 ) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of September 30, 2021, the Company has borrowed $ 155,120 (RMB 1,000,000 ) (March 31, 2021: $ 152,607 ) under this line of credit with various annual interest rates from 4.84 % to 4.9 %. The outstanding loan balance was due on September 30, 2021. The Company is still negotiating with the bank on renewal of the loan facility. Before renewal, the Company is paying additional 2.22 % as penalty interest. 10. 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 three and six months ended September 30, 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 three and six months ended September 30, 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 three and six months ended September 30, 2021 and 2020. F- 10 The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows: SCHEDULE OF RECONCILIATION OF INCOME TAXES Three months ended Six months ended September 30, September 30, 2021 2020 2021 2020 PRC statutory tax rate 25 % 25 % 25 % 25 % Computed expected benefits (expense) 9,245 ( 864,118 ) 31,663 ( 812,304 ) Temporary differences ( 17,388 ) 829,401 ( 56,847 ) 725,469 Permanent difference ( 1,230 ) - 248 - Changes in valuation allowance 14,332 38,770 40,620 94,247 Income tax expense $ 4,959 $ 4,053 15,684 7,412 (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. 11. CONSOLIDATED SEGMENT DATA Segment information is consistent with how chief operating decision maker 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; and (c) Epidemic prevention supplies . Including manufacturing, distribution and trading of epidemic prevention supplies. (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 others”. Selected information in the segment structure is presented in the following tables: SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT F- 11 Garment Logistics Services Property management and leasing Epidemic prevention supplies Corporate and other Totals Revenue from external customers 2,462,532 2,425,402 2,156,329 - - 7,044,263 Intersegment revenue 2,415 - - - - 2,415 Interest income 1,886 33 128 - 4 2,051 Interest expense 2,231 285 245 - 88 2,849 Depreciation and amortization 2,805 55,620 11,484 1,488 - 71,397 Operating income (loss) 124,748 110,109 33,091 - ( 229,511 ) 38,437 Segment assets 1,802,162 2,608,999 8,547,438 101,885 1,326,167 14,386,651 Expenditures for segment assets - 115,359 27,563 - - 142,922 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 SCHEDULE OF REVENUE AND LONG-LIVED ASSETS, BY GEOGRAPHICAL LOCATION Three months ended September 30, Six months ended September 30, 2021 2020 2021 2020 Revenues United States - 2,852,972 - 11,602,972 China 2,757,832 8,831,325 7,044,263 5,999,540 Total 2,757,832 11,684,297 7,044,263 17,602,512 September 30, 2021 March 31, 2020 Long-Lived Assets China 9,085,496 10,426,602 F- 12 12. LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES The Company recognized right-of-use asset as well as lease liability according to the ASC 842, Leases (with the exception of short-term leases). Lease liabilities are measured at present value of the sum of remaining rental payments as of September 30, 2021, with discounted rate of 4.75 %. 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 several floors in a commercial building for its sublease business for 3 years with an option to extend the lease. The Following table summarizes the components of lease expense: SCHEDULE OF COMPONENTS OF LEASE EXPENSE 2021 2020 2021 2020 Three months ended September 30, Six months ended September 30, 2021 2020 2021 2020 Operating lease cost 975,894 113,015 1,910,560 224,721 Short-term lease cost 41,883 - 62,785 - Lease cost $ 1,017,777 $ 113,015 1,973,345 224,721 The following table summarizes supplemental information related to leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES Three months ended September 30, Six months ended September 30, 2021 2020 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow from operating leases $ 1,017,777 $ 113,015 1,973,345 224,721 Right-of-use assets obtained in exchange for new operating leases liabilities 167,658 28,865 345,847 28,865 Weighted average remaining lease term - Operating leases (years) 2.3 3.8 2.3 3.8 Weighted average discount rate - Operating leases 4.75 % 4.35 % 4.75 % 4.35 % The following table summarizes the maturity of operating lease liabilities: SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES Years ending September 30 Lease cost 2022 $ 3,905,611 2023 3,899,207 2024 1,066,355 Total lease payments 8,871,173 Less: Interest ( 661,300 ) Total $ 8,209,873 13. 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 was 6.447 and 6.553 as of September 30, 2021 and March 31, 2021, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.466 and 6.779 for the six months ended September 30, 2021 and 2020, respectively. 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 customers over accounts receivable for each segment as of September 30, 2021 and March 31, 2021. SCHEDULE OF CONCENTRATION OF RISK BY CUSTOMERS F- 13 Garment manufacturing segment September 30, 2021 March 31, 2021 Customer A 86.0 % 98.4 % Customer B 14.0 % 1.6 % The high concentration as of September 30, 2021 was mainly due to business development of a large distributor of garments. Logistics services segment September 30, 2021 March 31, 2021 Customer A 15.1 % 16.6 % Customer B 8.1 % 12.7 % Customer C 6.8 % 5.5 % Customer D 6.1 % Nil % Customer E 5.7 % 1.8 % Property management and subleasing SCHEDULE OF PROPERTY MANAGEMENT AND SUBLEASING September 30, 2021 March 31, 2021 Customer A 100 % - Epidemic prevention supplies segment No accounts receivables in this segment. For the three and six months ended September 30, 2021, one customer from garment segment provided more than 10 % of total revenue of the Company, represented 14.0 % of total revenue of the Company for the three months and 34.5 % for the six months. For the three and six months ended September 30, 2020, one customer from garment segment and one customer from epidemic prevention supplies segment provided more than 10 % of total revenue of the Company. The high concentration in three months ended September 30, 2021 was mainly due to concentration of distributors in trading of epidemic prevention supplies. 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 purchases from five largest suppliers of each of the reportable segment for the three and six months ended September 30, 2021 and 2020. SCHEDULE OF INVENTORY PURCHASES FROM SUPPLIERS Three months ended Six months ended September 30, September 30, 2021 2020 2021 2020 Garment manufacturing segment 100.0 % 99.6 % 99.8 % 97.2 % Logistics services segment 100.0 % 96.3 % 90.4 % 93.2 % Property management and subleasing 100.0 % Nil % 100.0 % Nil % Epidemic prevention supplies Nil % 100.0 % Nil % 100 % (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 September 30, 2021, the total outstanding borrowings amounted to $ 155,120 (RMB 1,000,000 ) with various interest rate from 4.84 % 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 in the last three quarters 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. F- 14