ADDENTAX GROUP CORP. 10-Q

Item 1. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS For the nine months ended December 31, 2022 and 2021 TABLE OF CONTENTS Condensed Consolidated Balance sheets as of December 31, 2022 and March 31, 2022 (unaudited) F-4 Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended June 30, 2022 and 2021 (unaudited) F-5 Condensed Consolidated Statements of Changes in Equity for the nine months ended December 31, 2022 and 2021 (unaudited) F-6 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021 (unaudited) F-7 Notes to Condensed Consolidated Financial Statements for the nine months ended December 31, 2022 and 2021 (unaudited) F-8 – F-16 F- 3 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In U.S. Dollars, except share data or otherwise stated) (UNAUDITED) December 31, 2022 March 31, 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,588,385 $ 1,390,644 Accounts receivables, net 2,090,372 2,164,970 Debt securities held-to-maturity 17,500,000 - Inventories 254,692 266,596 Prepayments and other receivables 4,791,716 575,210 Advances to suppliers 1,054,827 1,181,466 Amount due from related party - 110,242 Total current assets 27,279,992 5,689,128 NON-CURRENT ASSETS Plant and equipment, net 675,402 836,419 Long-term prepayments 73,504 31,496 Operating lease right of use asset 3,548,168 6,530,017 Total non-current assets 4,297,074 7,397,932 TOTAL ASSETS $ 31,577,066 $ 13,087,060 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 138,265 $ 151,090 Accounts payable 159,414 1,334,483 Amount due to related parties 2,057,822 3,694,989 Advances from customers 5,291 2,375 Accrued expenses and other payables 2,760,150 1,445,473 Operating lease liability current portion 3,383,626 3,763,931 Total current liabilities 8,504,568 10,392,341 NON-CURRENT LIABILITIES Operating lease liability 164,542 2,766,086 TOTAL LIABILITIES $ 8,669,110 $ 13,158,427 EQUITY (deficit) Common stock ($ 0.001 par value, 50,000,000 shares authorized, 31,693,004 shares and 26,693,004 shares issued and outstanding at December 31 and March 31, 2022, respectively) $ 31,693 $ 26,693 Additional paid-in capital 29,532,326 6,815,333 Accumulated Deficit ( 6,673,191 ) ( 6,756,230 ) Statutory reserve 28,452 13,821 Accumulated other comprehensive loss ( 11,324 ) ( 170,984 ) Total equity (deficit) 22,907,956 ( 71,367 ) TOTAL LIABILITIES AND EQUITY $ 31,577,066 $ 13,087,060 See accompany notes to the unaudited condensed consolidated financial statements. F- 4 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In U.S. Dollars, except share data or otherwise stated) 2022 2021 2022 2021 Three months ended December 31, Nine months ended December 31, 2022 2021 2022 2021 REVENUES $ 2,122,242 $ 2,791,470 $ 6,652,645 $ 9,835,733 COST OF REVENUES ( 1,514,780 ) ( 2,323,716 ) ( 5,023,338 ) ( 8,314,149 ) GROSS PROFIT 607,462 467,754 1,629,307 1,521,584 OPERATING EXPENSES Selling and marketing ( 24,511 ) ( 43,118 ) ( 60,155 ) ( 135,310 ) General and administrative ( 675,918 ) ( 452,312 ) ( 1,545,865 ) ( 1,375,513 ) Total operating expenses ( 700,429 ) ( 495,430 ) ( 1,606,020 ) ( 1,510,823 ) (LOSS) INCOME FROM OPERATIONS ( 92,967 ) ( 27,676 ) 23,287 10,761 Interest income 1,687 72 6,687 2,135 Interest expenses ( 1,986 ) ( 2,526 ) ( 6,653 ) ( 5,375 ) Other income, net 19,232 43,958 93,288 132,959 (LOSS) INCOME BEFORE INCOME TAX EXPENSE ( 74,034 ) 13,828 116,609 140,480 INCOME TAX EXPENSE ( 8,184 ) ( 2,209 ) ( 18,939 ) ( 17,893 ) NET (LOSS) INCOME ( 82,218 ) 11,619 97,670 122,587 Foreign currency translation gain (loss) ( 43,032 ) ( 28,755 ) 159,660 ( 62,897 ) TOTAL COMPREHENSIVE (LOSS) INCOME $ ( 125,250 ) $ ( 17,136 ) $ 257,330 $ 59,690 EARNINGS PER SHARE Basic and diluted ( 0.00 ) ( 0.00 ) 0.00 0.00 Weighted average number of shares outstanding – Basic and diluted 28,377,936 26,556,566 28,377,936 26,556,566 See accompany notes to the unaudited condensed consolidated financial statements. F- 5 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars, except share data or otherwise stated) Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Total Equity Common Stock Additional Retained earnings (accumulated deficit) Accumulated other Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Total Equity BALANCE AT SEPTEMBER 30, 2021 26,693,004 $ 26,093 $ 6,815,333 $ ( 6,723,260 ) $ 13,821 $ ( 137,259 ) $ ( 4,672 ) Foreign currency translation - - - - - ( 28,755 ) ( 28,755 ) Net income for the period - - - 11,619 - - 11,619 BALANCE AT DECEMBER 31, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,711,641 ) $ 13,821 $ ( 166,014 ) $ ( 21,808 ) BALANCE AT SEPTEMBER 30, 2022 31,693,004 $ 31,693 $ 29,532,326 $ ( 6,576,342 ) $ 13,821 $ 31,708 $ 23,033,206 Appropriation to Statutory Reserves - - - ( 14,631 ) 14,631 - - Foreign currency translation - - - - - ( 43,032 ) ( 43,032 ) Net loss for the period - - - ( 82,218 ) - - ( 82,218 ) BALANCE AT DECEMBER 31, 2022 31,693,004 $ 31,693 $ 29,532,326 $ ( 6,673,191 ) $ 28,452 $ ( 11,324 ) $ 22,907,956 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 - - - - - ( 62,897 ) ( 62,897 ) Net income for the period - - - 122,587 - - 122,587 BALANCE AT DECEMBER 31, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,711,641 ) $ 13,821 $ ( 166,014 ) $ ( 21,808 ) BALANCE AT MARCH 31, 2022 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,756,230 ) $ 13,821 $ ( 170,984 ) $ ( 71,367 ) Paid in capital 5,000,000 5,000 22,716,993 - - - 22,721,993 Appropriation to Statutory Reserves - - - ( 14,631 ) 14,631 - - Foreign currency translation - - - - - 159,660 159,660 Net income for the period - - - 97,670 - - 97,670 Net income (loss) - - - 97,670 - - 97,670 BALANCE AT DECEMBER 31, 2022 31,693,004 $ 31,693 $ 29,532,326 $ ( 6,673,191 ) $ 28,452 $ ( 11,324 ) $ 22,907,956 See accompany notes to the unaudited condensed consolidated financial statements. F- 6 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In U.S. Dollars, except share data or otherwise stated) 2022 2021 Nine Months Ended December 31 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 97,670 $ 122,587 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 264,876 115,561 Changes in operating assets and liabilities Accounts receivable 74,598 3,038,527 Inventories 11,904 ( 27,762 ) Advances to suppliers 126,639 ( 1,166,916 ) Other receivables ( 1,789,539 ) 73,540 Accounts payables ( 1,309,228 ) ( 1,899,642 ) Accrued expenses and other payables 992,046 96,276 Advances from customers 2,916 31,654 Net cash (used in) provided by operating activities $ ( 1,528,118 ) $ 383,825 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment and other assets - ( 176,268 ) Purchase of debt securities ( 17,500,000 ) - Net cash used in investing activities $ ( 17,500,000 ) $ ( 176,268 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issue of ordinary shares 20,221,993 - Proceeds from related party borrowings 2,376,221 3,797,473 Repayment of related party borrowings ( 3,356,829 ) ( 5,341,046 ) Repayment of bank borrowings ( 408 ) - Net cash provided by (used in) financing activities $ 19,240,977 $ ( 1,543,573 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 212,859 ( 1,336,016 ) Effect of exchange rate changes on cash and cash equivalents ( 15,118 ) ( 2,719 ) Cash and cash equivalents, beginning of the period 1,390,644 1,845,077 CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 1,588,385 $ 506,342 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ - $ - Cash paid during the year for income tax $ 18,939 $ 17,893 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations $ - $ 342,457 See accompany notes to the unaudited condensed consolidated financial statements. F- 7 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 and property leasing and management service in the People’s Republic of China (“PRC” or “China”). 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”). F- 8 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 December 31, 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- 9 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 Hongye Financial Consulting (Shenzhen) Co., Ltd . A company controlled by CEO, Mr. Zhida Hong Bihua Yang A legal representative of Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), a wholly subsidiary of our Company 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 Huilin Chen A legal representative of Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”), 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 December 31, 2022 and March 31, 2022: SCHEDULE OF RELATED PARTY TRANSACTION Amount due from related party December 31, 2022 March 31, 2022 Hongye Financial Consulting (Shenzhen) Co., Ltd. $ - $ 110,242 $ - $ 110,242 Related party borrowings December 31, 2022 March 31, 2022 Zhida Hong (1) $ 903,398 $ 3,297,951 Hongye Financial Consulting (Shenzhen) Co., Ltd. 4,909 - Huilin Chen 724 - Bihua Yang (2) - 31,738 Dewu Huang 1,057,309 212,290 Jinlong Huang 91,482 153,010 $ 2,057,822 $ 3,694,989 (1) Being interest free loan as financial support from Zhida Hong to daily operation of the Company. (2) Being financial support from Bihua Yang for XKJ’s daily operation. (3) 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. DEBT SECURITIES HELD-TO-MATURITY SCHEDULE OF DEBT SECURITIES HELD TO MATURITY December 31, 2022 March 31, 2022 Debt securities held-to-maturity $ 17,500,000 $ - The Company purchased a note issued by a third-party investment company on August 24, 2022. The principal amount of the note is $ 17,500,000 . The note was renewable with one-year tenor and 2.5 % p.a. coupon . 6. INVENTORIES Inventories consist of the following as of December 31, 2022 and March 31, 2022: SCHEDULE OF INVENTORIES December 31, 2022 March 31, 2022 Raw materials $ 9,319 $ 184,498 Work in progress 129,328 1,327 Finished goods 116,045 80,771 Total inventories $ 254,692 $ 266,596 F- 10 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 consist of the following as of December 31, 2022 and March 31, 2022: SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES December 31, 2022 March 31, 2022 Prepayment 18,412 14,046 Deposit 1,349,669 64,653 Receivable of consideration on disposal of subsidiaries 242,139 269,798 Other receivables 3,181,496 226,713 Total Prepayment $ 4,791,716 $ 575,210 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following as of December 31, 2022 and March 31, 2022: SCHEDULE OF PROPERTY PLANT AND EQUIPMENT December 31, 2022 March 31, 2022 Production plant $ 67,948 $ 74,034 Motor vehicles 1,094,285 1,192,296 Office equipment 25,874 28,191 Total gross 1,188,107 1,294,521 Less: accumulated depreciation ( 512,704 ) ( 458,102 ) Plant and equipment, net $ 675,402 $ 836,419 Depreciation expense for the three and nine months ended December 31, 2022 and 2021 was $ 33,817 and $ 44,164 , $ 102,649 and $ 115,561 , respectively. F- 11 10. 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 December 31, 2022, the Company has borrowed $ 138,265 (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 December 31, 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. 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, and 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 have been made as Yingxi HK had no taxable income for the three and nine months ended December 31, 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 have been made as YX had no taxable income for the three and nine months ended December 31, 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 have been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended December 31, 2022 and 2021. F- 12 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 Nine months ended December 31, December 31, 2022 2021 2022 2021 PRC statutory tax rate 25 % 25 % 25 % 25 % Computed expected benefits ( 18,509 ) 3,457 29,152 35,120 Temporary differences ( 54,616 ) ( 30,951 ) ( 148,387 ) ( 87,797 ) Permanent difference 9,933 1,444 13,278 1,691 Changes in valuation allowance 71,376 28,259 124,896 68,879 Income tax expense $ 8,184 $ 2,209 18,939 17,893 (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, OTX, ZHJ 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. 12. 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 three segments: (a) Garment manufacturing . Including manufacturing and distribution of garments; (b) Logistics services . Providing logistic services; and (c) 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”. The Company used to have an operating segment named “Epidemic prevention supplies”, which included manufacturing, distribution and trading of epidemic prevention supplies. As the COVID-19 pandemic is getting better, the Company ceased to operate in the Epidemic prevention supplies business at the beginning of the quarter. The remaining assets of the segment was reclassified into the “Corporate and others” segment. The corresponding items of segment information for the earlier periods was restated to reflect the change of the new segment structure. F- 13 Selected information in the segment structure is presented in the following tables: Revenues by segment for the three and nine months ended December 31, 2022 and 2021 are as follows: SCHEDULE OF SEGMENT REPORTING FOR REVENUE Revenues from external customers 2022 2021 2022 2021 Three months ended Nine months ended December 31, December 31, Revenues from external customers 2022 2021 2022 2021 Garments manufacturing segment 100,723 25,641 142,010 2,488,173 Logistics services segment 1,213,530 1,719,202 3,826,070 4,144,604 Property management and subleasing 796,343 1,046,627 2,671,379 3,202,956 Total of reportable segments 2,110,596 2,791,470 6,639,459 9,835,733 Corporate and other 11,646 - 13,186 - Total consolidated revenue $ 2,122,242 $ 2,791,470 $ 6,652,645 $ 9,835,733 Intersegment revenue Garments manufacturing segment - - - - Income (loss) from operations by segment for the three and nine months ended December 31, 2022 and 2021 are as follows: SCHEDULE OF SEGMENT REPORTING FOR INCOME FROM OPERATION 2022 2021 2022 2021 Three months ended Nine months ended December 31, December 31, 2022 2021 2022 2021 Garments manufacturing segment 7,745 ( 28,473 ) ( 48,999 ) 96,275 Logistics services segment 91,147 100,769 363,569 210,878 Property management and subleasing 131,213 14,844 ) 254,934 47,935 Total of reportable segments $ 230,105 $ 87,140 $ 569,504 $ 355,088 Corporate and other ( 323,072 ) ( 114,816 ) ( 546,217 ) ( 344,327 ) Total consolidated income (loss) from operations ( 92,967 ) ( 27,676 ) 23,287 10,761 Total assets by segment as of December 31, 2022 and March 31, 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR ASSETS Total assets December 31, 2022 March 31, 2022 Garment manufacturing segment $ 1,735,455 $ 1,784,020 Logistics services segment 2,903,654 2,610,469 Property management and subleasing 5,899,871 7,608,997 Total of reportable segments 10,538,980 12,003,486 Corporate and other 21,038,086 1,083,574 Consolidated total assets $ 31,577,066 $ 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 2022 2021 2022 2021 Three months ended December 31, Nine months ended December 31, 2022 2021 2022 2021 Revenues China 2,122,242 2,791,470 6,652,645 9,835,733 Total 2,122,242 2,791,470 6,652,645 9,835,733 December 31, 2022 March 31, 2022 Long-Lived Assets - - China 4,297,074 7,397,932 F- 14 13. 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 December 31, 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 2022 2021 2022 2021 Three months ended December 31, Nine months ended December 31, 2022 2021 2022 2021 Operating lease cost 902,455 968,170 2,723,514 2,878,730 Short-term lease cost 19,540 20,955 58,955 62,799 Lease Cost $ 921,995 $ 989,125 $ 2,782,469 $ 2,941,529 The following table summarizes supplemental information related to leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES 2022 2021 2022 2021 Three months ended December 31, Nine months ended December 31, 2022 2021 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow from operating leases $ 921,995 $ 989,170 2,782,469 2,941,529 Right-of-use assets obtained in exchange for new operating leases liabilities 159,758 ( 3,390 ) ( 332,682 ) 342,457 Weighted average remaining lease term - Operating leases (years) 1.1 2.0 1.1 2.0 Weighted average discount rate - Operating leases 4.75 % 4.75 % 4.75 % 4.75 % The following table summarizes the maturity of operating lease liabilities: SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY Years ending December 31 Lease cost 2023 $ 3,544,349 2024 115,966 2025 67,647 Total lease payments 3,727,962 Less: Interest ( 179,794 ) Total $ 3,548,168 14. 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 6.909 and 6.341 as of December 31, 2022 and March 31, 2022, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.852 and 6.466 for the nine months ended December 31, 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 December 31, 2022 and March 31, 2022. SCHEDULE OF CONCENTRATION RISKS F- 15 Garment manufacturing segment December 31, 2022 March 31, 2022 Customer A 82.0 % 85.3 % Customer B 9.8 % 11.4 % Customer C 7.8 % Nil Customer D 0.4 % Nil The high concentration as of December 31, 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 December 31, 2022 March 31, 2022 Customer A 20.1 % 19.1 % Customer B 7.7 % 3.9 % Customer C 6.0 % Nil % Customer D 5.5 % 8.2 % Customer E 4.6 % 1.1 % Property management and subleasing segment There is no account receivable for Property management and subleasing segment as of both December 31, 2022 and March 31, 2022. For the three months ended December 31, 2022, one customer from logistics services segment provided more than 10 % of total revenue of the Company, represented 11.8 % of total revenue of the Company for the three months. For the nine months ended December 31, 2022, one customer from logistics services segment provided more than 10 % of total revenue of the Company, represented 10.8 % of total revenue of the Company for the nine months. For the three months ended December 31, 2021, no customer provided more than 10 % of total revenue of the Company. For nine months ended December 31, 2021, one customer from garment segment provided more than 10 % of total revenue of the Company, represented 24.8 % of total revenue for the nine 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 and nine months ended December 31, 2022 and 2021. SCHEDULE OF PURCHASES FROM SUPPLIERS Three months ended Nine months ended December 31, December 31, 2022 2021 2022 2021 Garment manufacturing segment Nil % 100.0 % Nil % 99.8 % Logistics services segment 100.0 % 100.0 % 100.0 % 92.2 % Property management and subleasing 100.0 % 100.0 % 100.0 % 100.0 % (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 December 31, 2022, the total outstanding borrowings amounted to $ 138,265 (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. 15. SUBSEQUENT EVENTS On January 4, 2023, Addentax Group Corp. (the “Company”) entered into a Securities Purchase Agreement (the “Securities Purchase Agreement) with certain accredited investors (the “Purchasers”), pursuant to which the Company received a net proceed of $ 15,000,000 in consideration of the issuance of: ● senior secured convertible notes in the aggregate original principal amount of $ 16,666,666.66 (the “Convertible Notes”); ● warrants to purchase up to 16,077,172 shares of common stock of the Company (the “Common Stock”) until on or prior to 11:59 p.m. (New York time) on the five year anniversary of the closing date at an exercise price of $ 1.25 per share. The transactions contemplated under the Securities Purchase Agreement closed on January 4, 2023. The Company intends to use the proceeds from the issuance of the Convertible Notes and the PIPE Warrants for general corporate purposes. The Convertible Notes bear interest at an interest rate of 5 % per annum payable on each installment date commencing on the original date of issuance. On January 10, 2023, the Company entered into an amendment (the “Amendment”, and the Original Purchase Agreement, as amended, the “Purchase Agreement”) to the Original Purchase Agreement with each Investor in accordance with the terms of the Original Purchase Agreement. Under the Amendment, the original increase in the authorized shares of the Company from 50,000,000 to 150,000,000 was increased to 250,000,000 . F- 16