ADDENTAX GROUP CORP. 10-Q

Item 1. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS For the three months ended June 30, 2021 and 2020 TABLE OF CONTENTS Condensed Consolidated Balance sheets as of June 30, 2022 and March 31, 2022 (unaudited) F-2 Condensed Consolidated Statements of Income and Comprehensive Income for the Three months ended June 30, 2022 and 2021 (unaudited) F-3 Condensed Consolidated Statements of Changes in Equity for the three months ended June 30, 2022 and 2021 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2022 and 2021 (unaudited) F-5 Notes to Condensed Consolidated Financial Statements for the three months ended June 30, 2022 and 2021 (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) June 30, 2022 March 31, 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,232,348 $ 1,390,644 Accounts receivables, net 2,137,753 2,164,970 Inventories 263,259 266,596 Prepayments and other receivables 1,047,597 575,210 Advances to suppliers 1,090,088 1,181,466 Amount due from related party 80,306 110,242 Total current assets 6,851,351 5,689,128 NON-CURRENT ASSETS Plant and equipment, net 758,529 836,419 Long-term prepayments - 31,496 Operating lease right of use asset 5,411,585 6,530,017 Total non-current assets 6,170,114 7,397,932 TOTAL ASSETS $ 13,021,465 $ 13,087,060 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 142,591 $ 151,090 Accounts payable 1,250,954 1,334,483 Amount due to related parties 3,978,713 3,694,989 Advances from customers 2,696 2,375 Accrued expenses and other payables 2,104,474 1,445,473 Operating lease liability current portion 3,612,922 3,763,931 Total current liabilities 11,092,350 10,392,341 NON-CURRENT LIABILITIES Operating lease liability 1,798,662 2,766,086 TOTAL LIABILITIES $ 12,891,012 $ 13,158,427 EQUITY (deficit) Common stock ($ 0.001 par value, 50,000,000 shares authorized, 26,693,004 shares issued and outstanding at both June 30 and March 31, 2022) $ 26,693 $ 26,693 Additional paid-in capital 6,815,333 6,815,333 Accumulated Deficit ( 6,659,559 ) ( 6,756,230 ) Statutory reserve 13,821 13,821 Accumulated other comprehensive loss ( 65,835 ) ( 170,984 ) Total equity (deficit) 130,453 ( 71,367 ) TOTAL LIABILITIES AND EQUITY $ 13,021,465 $ 13,087,060 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) Three months ended June 30, 2022 2021 REVENUES $ 2,386,384 $ 4,286,431 COST OF REVENUES ( 1,929,700 ) ( 3,703,026 ) GROSS PROFIT 456,684 583,405 OPERATING EXPENSES Selling and marketing ( 5,642 ) ( 46,390 ) General and administrative ( 404,940 ) ( 460,315 ) Total operating expenses ( 410,582 ) ( 506,705 ) INCOME FROM OPERATIONS 46,102 76,700 Interest income 3,238 1,967 Interest expenses ( 2,458 ) ( 2,232 ) Other income (expense), net 51,083 13,237 INCOME BEFORE INCOME TAX EXPENSE 97,965 89,672 INCOME TAX EXPENSE ( 1,294 ) ( 10,725 ) NET (LOSS) INCOME 96,671 78,947 Foreign currency translation gain (loss) 105,149 ( 30,516 ) TOTAL COMPREHENSIVE INCOME $ 201,820 $ 48,431 EARNINGS (LOSS) PER SHARE Basic and diluted 0.00 0.00 Weighted average number of shares outstanding – Basic and diluted 26,693,004 26,153,818 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 MARCH 31, 2021 26,693,004 $ 26,093 $ 6,815,333 $ ( 6,834,228 ) $ 13,821 $ ( 103,117 ) $ ( 81,498 ) Foreign currency translation ( 30,516 ) ( 30,516 ) Net income for the period - - - 78,947 - - 78,947 BALANCE AT JUNE 30, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,755,281 ) $ 13,821 $ ( 133,633 ) $ ( 33,067 ) BALANCE AT MARCH 31, 2022 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,756,230 ) $ 13,821 $ ( 170,984 ) $ ( 71,367 ) Foreign currency translation - - - - - 105,149 105,149 Net income for the period - - - 96,671 - - 96,671 BALANCE AT JUNE 30, 2022 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,659,559 ) $ 13,821 $ ( 65,835 ) $ 130,453 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) Three Months Ended June 30 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 96,671 $ 78,947 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 35,883 33,986 Changes in operating assets and liabilities Accounts receivable 27,217 ( 2,031,892 ) Inventories 3,337 ( 137,894 ) Advances to suppliers 91,378 ( 383,233 ) Other receivables ( 443,140 ) ( 317,382 ) Accounts payables ( 83,529 ) 1,380,495 Accrued expenses and other payables 549,880 129,338 Advances from customers 321 ( 3,029 ) Net cash provided by (used in) operating activities $ 278,018 $ ( 1,250,664 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment and other assets - ( 104,235 ) Net cash used in investing activities $ - $ ( 104,235 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related party borrowings 980,724 1,292,956 Repayment of related party borrowings ( 364,452 ) ( 806,994 ) Repayment of bank borrowings ( 424 ) - Net cash provided by financing activities $ 615,848 $ 485,962 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 893,866 ( 868,937 ) Effect of exchange rate changes on cash and cash equivalents ( 52,162 ) ( 3,969 ) Cash and cash equivalents, beginning of the period 1,390,644 1,845,077 CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 2,232,348 $ 972,171 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ - $ 1,936 Cash paid during the year for income tax $ 1,294 $ 10,725 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations $ - $ 178,189 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on June 23, 2022 (“2022 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 $ 96,671 and $ 78,947 for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and March 31, 2022, the Company had net current liability of $ 4,240,999 and $ 4,703,213 , respectively, and total equity of $ 130,453 and a deficit on total equity of $ 71,367 , respectively. The Company expects to finance operations primarily through cash flow from revenue, capital contributions from the CEO and proceeds from proposed IPO. 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. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders. We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern. 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 June 30, 2022. 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 RELATIONSHIP WITH THE COMPANY Name of Related Parties Relationship with the Company Zhida Hong President, CEO, and a director of the Company Bihua Yang A legal representative of Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), a wholly subsidiary of our Company Zhiyong Zhou General Manager of XKJ, ceased to be general manager of XKJ since May, 2022 Dewu Huang A legal representative of Shantou Yi Bai Yi Garments Co., Ltd (“YBY”), a wholly-owned subsidiary of our Company Jinlong Huang A spouse of legal representative of Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), a wholly owned subsidiary of our Company The Company leases Shenzhen XKJ office rent-free from Bihua Yang. The Company had the following related party balances as of June 30, 2022 and March 31, 2022: SCHEDULE OF RELATED PARTIES Amount due from related party June 30, 2022 March 31, 2022 Hongye Financial Consulting (Shenzhen) Co., Ltd. $ 80,306 $ 110,242 $ 80,306 $ 110,242 Related party borrowings June 30, 2022 March 31, 2022 Zhida Hong (1) $ 3,258,845 $ 3,297,951 Zhiyong Zhou (2) 322,631 - Bihua Yang (3) 70,264 31,738 Dewu Huang 221,359 212,290 Jinlong Huang 105,614 153,010 $ 3,978,713 $ 3,694,989 (1) Being interest free loan as financial support from Zhida Hong to daily operation of the Company. (2) Being interest free loan as financial support from Zhiyong Zhou to pay for daily operating expenditures of XKJ. (3) Being financial support from Bihua Yang for XKJ’s daily operation. (4) Being interest free advanced loan as financial support from 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 June 30, 2022 and March 31, 2022: SCHEDULE OF INVENTORIES June 30, 2022 March 31, 2022 Raw materials $ 26,332 $ 184,498 Work in progress 142,947 1,327 Finished goods 93,980 80,771 Total inventories $ 263,259 $ 266,596 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 June 30, 2022 and March 31, 2022: SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES June 30, 2022 March 31, 2022 Prepayment 65,902 14,046 Deposit 134,744 64,653 Receivable of consideration on disposal of subsidiaries 251,801 269,798 Other receivables 595,150 226,713 Total prepayments and other receivables $ 1,047,597 $ 575,210 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following as of June 30, 2022 and March 31, 2022: SCHEDULE OF PROPERTY PLANT AND EQUIPMENT June 30, 2022 March 31, 2022 Production plant $ 70,074 $ 74,034 Motor vehicles 1,128,524 1,192,296 Office equipment 26,683 28,191 Plant and equipment, gross 1,225,281 1,294,521 Less: accumulated depreciation ( 466,752 ) ( 458,102 ) Plant and equipment, net $ 758,529 $ 836,419 Depreciation expense for the three months ended June 30, 2022 and 2021 was $ 35,883 and $ 33,986 , respectively. F- 9 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 June 30, 2022, the Company has borrowed $ 142,591 (RMB 955,281 ) (March 31, 2022: $ 151,090 ) 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 was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable. 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. It’s wholly owned subsidiary of Addentax Group Corp. Yingxi HK (Yingxi Industrial Chain Investment Co., Ltd.) was incorporated in Hong Kong which is indirectly wholly owned by Addentax Group Corp., 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 months ended June 30, 2022 and 2021. YX, our wholly owned subsidiary, 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 months ended June 30, 2022 and 2021. 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 2022 and 2021. 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 months ended June 30, 2022 and 2021. 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 EFFECTIVE INCOME TAX RATE RECONCILIATION Three months ended June 30, 2022 2021 PRC statutory tax rate 25 % 25 % Computed expected benefits (expense) 24,491 22,418 Temporary differences ( 40,566 ) ( 39,459 ) Permanent difference ( 2,561 ) 1,478 Changes in valuation allowance 19,930 26,288 Income tax expense $ 1,294 $ 10,725 (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, YBY 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 YXPF enjoyed the preferential VAT rate of 3 % in 2022 and 2021. 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”. F- 11 Selected information in the segment structure is presented in the following tables: Revenues by segment for the three months ended June 30, 2022 and 2021 are as follows: SCHEDULE OF SEGMENT REPORTING FOR REVENUE Three months ended June 30, Revenues from external customers 2022 2021 Garments manufacturing segment $ 40,426 $ 2,069,141 Logistics services segment 1,390,882 1,108,042 Property management and subleasing 954,835 1,109,248 Epidemic prevention supplies segment 241 - Total of reportable segments and consolidated revenue $ 2,386,384 $ 4,286,431 Intersegment revenue Garments manufacturing segment - 2,417 Income from operations by segment for the three ended June 30, 2022 and 2021 are as follows: SCHEDULE OF SEGMENT REPORTING FOR INCOME FROM OPERATION Three months ended June 30, 2022 2021 Garment manufacturing segment $ ( 28,656 ) $ 123,629 Logistics services segment 120,041 4,863 Property management and subleasing 34,097 57,211 Epidemic prevention supplies - - Total of reportable segments 125,482 185,703 Corporate and other ( 79,380 ) ( 109,003 ) Total consolidated income from operations $ 46,102 $ 76,700 Total assets by segment as at June 30, 2022 and March 31, 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR ASSETS Total assets June 30, 2022 March 31, 2022 Garment manufacturing segment $ 1,723,582 $ 1,784,020 Logistics services segment 2,993,573 2,610,469 Property management and subleasing 7,312,321 7,608,997 Epidemic prevention supplies 35,042 64,885 Total of reportable segments 12,064,518 12,068,371 Corporate and other 956,947 1,018,689 Consolidated total assets $ 13,021,465 $ 13,087,060 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. SCHEDULE OF GEOGRAPHICAL INFORMATION Geographic Information Three months ended June 30, 2022 2021 Revenues China 2,386,384 4,286,431 Total 2,386,384 4,286,431 June 30, 2022 March 31, 2022 Long-Lived Assets China 6,170,113 7,397,931 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 June 30, 2022, 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 LEASE COST Three months ended June 30, 2022 2021 Operating lease cost 944,549 934,666 Short-term lease cost 20,444 20,902 Total $ 964,993 $ 955,568 The following table summarizes supplemental information related to leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES Three months ended June 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow from operating leases $ 964,993 $ 955,568 Right-of-use assets obtained in exchange for new operating leases liabilities - 178,189 Weighted average remaining lease term - Operating leases (years) 1.5 2.5 Weighted average discount rate - Operating leases 4.75 % 4.75 % The following table summarizes the maturity of operating lease liabilities: SCHEDULE OF OPERATING LEASE LIABILITY Years ending June 30 Lease cost 2023 $ 3,784,536 2024 1,959,775 2025 14,474 Total lease payments 5,758,785 Less: Interest ( 347,200 ) Total $ 5,411,585 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 6.699 and 6.341 as of June 30, 2022 and March 31, 2022, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.603 and 6.461 for the three months ended June 30, 2022 and 2021, 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 June 30, 2022 and March 31, 2022. SCHEDULE OF CONCENTRATION RISKS F- 13 Garment manufacturing segment June 30, 2022 March 31, 2022 Customer A 89.4 % 85.3 % Customer B 10.6 % 11.4 % The high concentration as of June 30, 2022 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 June 30, 2022 March 31, 2022 Customer A 17.0 % 8.2 % Customer B 15.0 % 19.1 % Customer C 13.8 % Nil % Customer D 9.8 % 6.7 % Customer E 8.3 % 3.9 % Property management and subleasing segment There is no account receivable for Property management and subleasing segment as for March 31, 2022. Epidemic prevention supplies segment The accounts receivable of Epidemic prevention supplies segment as at June 30, 2022 was from one customer only. For the three months ended June 30, 2022, one customer from Logistics services segment provided more than 10% of total revenue of the Company, represented 13.1 % of total revenue of the Company for the three months. For the three months ended June 30, 2021, one customer from garment segment provided more than 10% of total revenue of the Company, represented 98.8 % of total revenue of the Company for the three months. 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 months ended June 30, 2022 and 2021. SCHEDULE OF PURCHASES FROM SUPPLIERS Three months ended June 30, 2022 2021 Garment manufacturing segment Nil % 100.0 % Logistics services segment 100.0 % 61.6 % Property management and subleasing 100.0 % 100.0 % Epidemic prevention supplies Nil % Nil % (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 June 30, 2022, the total outstanding borrowings amounted to $ 142,591 (RMB 955,281 ) 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