ADDENTAX GROUP CORP. 10-K

Item 8. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 6255) F-1 Consolidated Balance sheets as of March 31, 2023 and 2022 F-3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended March 31, 2023 and 2022 F-4 Consolidated Statements of Changes in Equity for the years ended March 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the years ended March 31, 2023 and 2022 F-6 Notes to Consolidated Financial Statements for the years ended March 31, 2023 and 2022 F-7 – F-22 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Addentax Group Corp.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Addentax Group Corp. (the “Company”) as of March 31, 2023, and the related consolidated statement of operations and comprehensive income (loss), changes in equity, and cash flow for the year ended March 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023, and the result of its operations and its cash flow for year then ended March 31, 2023, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The Company conducted transactions with its related parties and affiliates during the normal course of its business in 2023. The Company has entered into a number of transactions with these related parties, including accrued of director remuneration which represented as costs and expenses to the Company. We identified the evaluation of the identification of related parties and related party transactions as a critical audit matter. Auditor judgment was involved in assessing the sufficiency of the procedures performed to identify related parties and related party transactions of the Company. How the Critical Audit Matter Was Addressed in the Audit We performed the following procedures to evaluate the identification of related parties and related party transactions by the Company: ●Conducted background checks, and reviewed other public research sources for information related to transactions between the Company and its related parties ●Performed confirmations for account balances with related parties ●Reviewed transaction details in the accounts payable system for transactions with related parties ●Examined the Company’s reconciliation of its related parties’ transactions and balances ●Tested expenses transactions between the Company and its related parties /s/ Pan-China Singapore PAC ( 6255 ) Chartered Accountants Singapore June 29, 2023 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Addentax Group Corp.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Addentax Group Corp. (the “Company”) as of March 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the two years in the period ended March 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter The Company has significant transactions with related parties, which are described in Note 5 to the financial statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist. /s/ B F Borgers CPA PC We have served as the Company’s auditor since 2020. Lakewood, Colorado June 29, 2023 F- 2 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In U.S. Dollars, except share data or otherwise stated) March 31, 2023 March 31, 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 562,711 $ 1,390,644 Accounts receivables 1,858,889 2,164,970 Debt securities held-to-maturity 17,718,750 - Inventories 285,528 266,596 Other receivables 959,196 575,210 Advances to suppliers 1,281,075 1,181,466 Amount due from related party 375,092 110,242 Other receivables 375,092 110,242 Total current assets 23,041,241 5,689,128 NON-CURRENT ASSETS Plant and equipment, net 649,120 836,419 Operating lease right of use asset 272,488 6,530,017 Long-term prepayment 90,032 31,496 Restricted Cash 14,750,000 Long-term receivables 2,500,000 - Total non-current assets 18,261,640 7,397,932 TOTAL ASSETS $ 41,302,881 $ 13,087,060 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 137,468 $ 151,090 Accounts payable 267,501 1,334,483 Related party borrowings 2,384,633 3,694,989 Advances from customers 2,152 2,375 Accrued expenses and other payables 606,843 1,445,473 Lease liabilities, current portion 127,101 3,763,931 Total current liabilities 3,525,698 10,392,341 NON-CURRENT LIABILITIES Convertible debts 11,219,519 - Derivative liabilities 2,290,483 - Lease liability, net of current portion 145,387 2,766,086 Total non-current liabilities 13,655,389 2,766,086 TOTAL LIABILITIES 17,181,087 13,158,427 EQUITY Common stock ($ 0.001 par value, 250,000,000 shares authorized, 35,454,670 and 26,693,004 shares issued and outstanding as of March 31, 2023 and 2022, respectively) $ 35,455 $ 26,693 Additional paid-in capital 29,528,564 6,815,333 Statutory reserve 28,457 13,821 Accumulated deficits ( 5,451,209 ) ( 6,756,230 ) Accumulated other comprehensive income (loss) ( 19,473 ) ( 170,984 ) Total equity (deficit) 24,121,794 ( 71,367 ) TOTAL LIABILITIES AND EQUITY $ 41,302,881 $ 13,087,060 See accompanying notes to the consolidated financial statements. F- 3 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2023 AND 2022 2023 2022 REVENUES $ 7,944,171 $ 12,690,633 COST OF REVENUES ( 6,103,110 ) ( 10,627,379 ) GROSS PROFIT $ 1,841,061 $ 2,063,254 ) OPERATING EXPENSES Selling and marketing ( 78,769 ) ( 206,251 ) General and administrative ( 2,225,207 ) ( 1,914,008 ) Total operating expenses $ ( 2,303,976 ) $ ( 2,120,259 ) LOSS FROM OPERATIONS ( 462,915 ) ( 57,005 ) Change in fair value of warrants and embedded conversion feature 2,983,538 - Interest income 8,463 7,818 Interest expenses ( 1,507,842 ) ( 9,891 ) Other income (expenses), net 320,556 160,570 INCOME BEFORE INCOME TAX EXPENSE $ 1,341,800 $ 101,492 Income tax expense ( 22,143 ) ( 23,494 ) NET INCOME 1,319,657 77,998 Foreign currency translation gain / (loss) 151,511 ( 67,867 ) TOTAL COMPREHENSIVE INCOME $ 1,471,168 $ 10,131 EARNING PER SHARE Basic $ 0.04 $ 0.00 Weighted average number of shares outstanding – Basic 30,340,967 26,693,004 Diluted $ 0.04 $ 0.00 Weighted average number of shares outstanding – Diluted 35,680,006 26,693,004 See accompanying notes to the consolidated financial statements. F- 4 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2023 AND 2022 Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Equity (Deficit) Common Stock Additional Retained earnings Accumulated other Total Shares Amount paid-in capital Unrestricted Statutory reserve comprehensive loss Equity (Deficit) BALANCE AT MARCH 31, 2021 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,834,228 ) $ 13,821 $ ( 103,117 ) $ ( 81,498 ) Balance 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,834,228 ) $ 13,821 $ ( 103,117 ) $ ( 81,498 ) Foreign currency translation - - - - - ( 67,867 ) ( 67,867 ) Net income for the year - - - 77,998 - - 77,998 BALANCE AT MARCH 31, 2022 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,756,230 ) $ 13,821 $ ( 170,984 ) $ ( 71,367 ) Balance 26,693,004 $ 26,693 $ 6,815,333 $ ( 6,756,230 ) $ 13,821 $ ( 170,984 ) $ ( 71,367 ) Issuance of common stocks 8,761,666 8,762 22,713,231 - - - 22,721,993 Appropriation of Statutory reserve - - - ( 14,636 ) 14,636 - - Foreign currency translation - - - - - 151,511 151,511 Net income for the year - - - 1,319,657 - - 1,319,657 BALANCE AT MARCH 31, 2023 35,454,670 $ 35,455 $ 29,528,564 $ ( 5,451,209 ) $ 28,457 $ ( 19,473 ) $ 24,121,794 Balance 35,454,670 $ 35,455 $ 29,528,564 $ ( 5,451,209 ) $ 28,457 $ ( 19,473 ) $ 24,121,794 See accompanying notes to the consolidated financial statements. F- 5 ADDENTAX GROUP CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In U.S. Dollars, except share data or otherwise stated) FOR THE YEARS ENDED MARCH 31, 2023 AND 2022 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,319,657 $ 77,998 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 344,896 157,604 Amortization of debt discount 1,493,541 - Investment income ( 218,750 ) - Fair value gain or loss ( 2,983,539 ) - Changes in operating assets and liabilities: Accounts receivable 306,081 2,592,548 Inventories ( 18,932 ) 3,838 Advances to suppliers ( 99,609 ) ( 826,012 ) Other receivables ( 1,321,003 ) 108,951 Accounts payables ( 1,262,127 ) ( 1,786,890 ) Accrued expenses and other payables 870,849 763,489 Advances from customers ( 223 ) ( 654 ) Net cash (used in) provided by operating activities $ ( 1,569,159 ) $ 1,090,872 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment - ( 198,122 ) Purchase of debt securities ( 17,500,000 ) - Long-term receivables ( 2,500,000 ) - Cash decreased in disposal of subsidiaries ( 1,168,153 ) - Net cash used in investing activities $ ( 21,168,153 ) $ ( 198,122 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related party borrowings 3,337,373 4,512,014 Repayment of related party borrowings ( 4,461,510 ) ( 5,878,286 ) Repayment of bank borrowings ( 2,018 ) ( 6,531 ) Proceeds from issuance of convertible debt and warrants 15,000,000 - Restricted cash ( 14,750,000 ) - Proceeds from issuance of common stocks 22,721,993 - Net cash provided by (used in) financing activities $ 21,845,838 $ ( 1,372,803 ) NET INCREASE IN CASH AND CASH EQUIVALENTS ( 891,474 ) ( 480,053 ) Effect of exchange rate changes on cash and cash equivalents 63,541 25,620 Cash and cash equivalents, beginning of year 1,390,644 1,845,077 CASH AND CASH EQUIVALENTS, END OF YEAR $ 562,711 $ 1,390,644 Supplemental disclosure of cash flow information: Cash paid during the year for interest - 116 Cash paid during the year for income tax 21,442 23,494 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations - 470,763 Transfer of Right-of-use assets due to disposal of subsidiary ( 3,025,985 ) - See accompanying notes to the consolidated financial statements. F- 6 ADDENTAX GROUP CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2023 AND 2022 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”). As of March 31, 2023, the Company’s principal subsidiaries consisted of the following entities: SCHEDULE OF PRINCIPAL SUBSIDIARIES ENTITIES Name of entity Place of incorporation Principal activities Immediate holding company % of effective ownership interest held by the Group in 2023 % of effective ownership interest held by the Group in 2022 Yingxi Industrial Chain Group Co., Ltd. (“Yingxi Seychelles”) Republic of Seychelles Investment holding Addentax Group Corp. 100 % 100 % Yingxi Industrial Chain Investment Co., Ltd. (“Yingxi HK”) Hong Kong SAR Investment holding Yingxi Industrial Chain Group Co., Ltd. 100 % 100 % Qianhai Yingxi Textile & Garments Co., Ltd. (“WFOE”) P. R. China Investment holding Yingxi Industrial Chain Investment Co., Ltd. 100 % 100 % Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. (“YX”) P. R. China Investment holding Qianhai Yingxi Textile & Garments Co., Ltd. 100 % 100 % Dongguan Heng Sheng Wei Garments Co., Ltd. (“HSW”) P. R. China Garment Manufacturing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Dongguan Yushang Clothing Co., Ltd. (“YS”) P. R. China Garment Manufacturing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Shantou Yi Bai Yi Garment Co., Ltd. (“YBY”) P. R. China Garment Manufacturing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Dongguan Aotesi Garments Co.,Ltd. (“AOT”) P. R. China Garment Manufacturing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Shenzhen Xin Kuai Jie Transportation Co., Ltd. (“XKJ”) P. R. China Logistics Services Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Shenzhen Yingxi Peng Fa Logistic Co., Ltd. (“PF”) P. R. China Logistics Services Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Shenzhen Yingxi Tongda Logistic Co., Ltd. (“TD”) P. R. China Logistics Services Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd. (“ZHJ”) P. R. China Building decoration designing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % Dongguan Yingxi Daying Commercial Co., Ltd. (“DY”) P. R. China Property Management & Subleasing Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd. 100 % 100 % F- 7 2. BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company and its subsidiaries are prepared pursuant to the rules and regulations of the U.S Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles in the U.S. (“US GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Use of Estimates The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates. (b) Principles of Consolidation . The consolidated financial statements include the accounts of the Company and all subsidiaries, as discussed above. A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting powers; or has the power to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Fair Value Measurement Accounting Standards Codification (“ASC”) 820 “ Fair Value Measurements and Disclosures “, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. This ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The Company has derivative liabilities, embedded conversion feature and warrants that are not traded in an active market with readily observable quoted prices, and therefore the Company used significant unobservable inputs (Level 3) to measure the fair value of these options and derivative liabilities at inception and at each subsequent balance sheet date. The change in fair value is recognized in the consolidated statement of operations and comprehensive loss during the year ended March 31, 2023. The Company’s financial instruments include cash, accounts receivable, advances to suppliers, other receivables, accounts payable, other payables, taxes payables and related party receivables or payables. Management estimates that the carrying amounts of financial instruments approximate their fair values due to their short-term nature. The fair value of amounts with related parties is not practicable to estimate due to the related party nature of the underlying transactions. (d) Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. All cash and cash equivalents relate to cash on hand and cash at bank at March 31, 2023 and 2022. The Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business. F- 8 (e) Accounts Receivable Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit to its customers in the normal course of business and generally does not require collateral. The Company’s credit terms are dependent upon the segment, and the customer. The Company assesses the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed. Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability. Accounts receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful accounts was made for the years ended March 31, 2023 and 2022. (f) Inventories Manufacturing segment inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs. No write-downs for obsolete finished goods for the year ended March 31, 2023. Write-downs for obsolete finished goods for the year ended March 31, 2022 was approximately $ 0.02 million. (g) Plant and Equipment Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows: SCHEDULE OF PLANT AND EQUIPMENT USEFUL LIVES Production plant 5 - 10 years Motor vehicles 10 - 15 years Office equipment 5 - 10 years The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of loss and comprehensive loss. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized. F- 9 (h) Accounting for the Impairment of Long-Lived Assets Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment of long-lived assets as of March 31, 2023 and 2022. (i) Revenue Recognition Revenue is generated through sale of goods, delivery services, and provision of property management and subleasing. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods and services in the contract; (ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery of the good or service. F- 10 For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules as of March 31, 2023 and 2022. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Cost of revenues for garment manufacturing segment includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment and rent. Cost of revenue for logistics services segment includes gasoline and diesel fuel, toll charges and subcontracting fees. Cost of revenue of property management and subleasing business was mainly the amortization of right-of-used assets for the subleasing business. (j) Earnings Per Share The Company reports earnings (loss) per share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the reporting period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital structure. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of unvested restricted shares, ordinary shares issuable upon the exercise of outstanding share options using the treasury stock method, and ordinary shares issuable upon the conversion of convertible note, option and preferred shares using the if converted method. Ordinary equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive. For the year ended March 31, 2023, the Company had ordinary equivalent shares assumed converted from convertible note and warrants. The weighted average numbers of dilutive potential ordinary shares was 5,339,039 and Nil for the year ended March 31, 2023 and 2022, respectively. (k) Income Taxes The Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. The Company has a history of tax losses and there is no convincing evidence that sufficient taxable income will be available against which the deferred tax asset can be utilized, therefore, the Company does not recognize any tax benefits for the year ended March 31, 2023 and 2022. The Company’s Chinese subsidiaries are governed by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25 %. The Company files income tax returns with the relevant government authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended March 31, 2023 and 2022. The Company’s effective tax rate differs from the PRC federal statutory rate primarily due to non-deductible expenses, temporary differences and preferential tax treatments. F- 11 The U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21 % for taxable years beginning after December 31, 2017 ; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit nor expense was recorded relating to the Tax Act changes for the years ended March 31, 2023 and 2022. (l) Leases Lessee The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lessor As a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. (m) Recently issued and adopted accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. Accounting for Convertible Instruments: In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. 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- 12 4. DISPOSITION OF SUBSIDIARIES The Company sold its subsidiary DY, the company in property management and subleasing segment on March 1, 2023 to a third party. After disposition, the subsidiary became third party to the Company. The Company will not have any business with DY nor the buyers after the disposal. Financial position of the entities at disposal date and gain or loss on disposal: Property Management and Subleasing Segment SUMMARY OF FINANCIAL POSITION OF ENTITIES AND GAIN OR LOSS ON DISPOSAL Financial position of DY March 1, 2023, date of disposal Current assets $ 2,496,622 Noncurrent assets - Current liabilities ( 2,032,110 ) Net assets $ 464,512 The consideration was at the fair value as of date of disposal, which was also the carrying value of DY, resulting no gain or loss recognized on the disposal. 5. 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 XKJ Dewu Huang A legal representative of YBY Jinlong Huang Management of HSW The Company leases Shenzhen XKJ office rent-free from Bihua Yang. F- 13 The Company had the following related party balances at the end of the years: SCHEDULE OF AMOUNT DUE FROM RELATED PARTY Amount due from related party 2023 2022 Hongye Financial Consulting (Shenzhen) Co., Ltd. - 110,242 Bihua Yang 375,092 - $ 375,092 $ 110,242 Being lease of the quarter ended March 31, 2022 paid on behalf of Hongye Financial Consulting (Shenzhen) Co., Ltd. for the shared office in Shenzhen. SCHEDULE OF RELATED PARTIES TRANSACTIONS Related party debt 2023 2022 Zhida Hong (1) $ 901,110 $ 3,297,951 Hongye Financial Consulting (Shenzhen) Co., Ltd. 45,841 - Bihua Yang (2) - 31,738 Dewu Huang (3) 1,305,758 212,290 Jinlong Huang 131,924 153,010 Total Related party debt $ 2,384,633 $ 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) The decrease of related party debt was mainly due to the repayment of the debt. The borrowing balances of related parties are unsecured, non-interest bearing and repayable on demand. 6. RESTRICTED CASH The proceeds from issuance of the convertible note and warrants were deposited in a Holder Master Restricted Account with East West Bank controlled by the holders of the convertible note and warrants. The restricted cash will be released, over the period from the issuance date to the maturity date of the convertible note, when control account release events occur, which includes: (i) the Company’s receipt of a notice by the Holder electing to voluntarily effect a release of cash to the Company; (ii) the shareholder approval and registration of the new authorized shares according to the Securities Purchase Agreement; and (iii) any conversion of the convertible note. 7. DEBT SECURITIES HELD-TO-MATURITY SCHEDULE OF DEBT SECURITIES HELD TO MATURITY March 31, 2023 March 31, 2022 Debt securities held-to-maturity $ 17,718,750 $ - 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 is renewable with one-year tenor on August 23, 2023 and 2.5 % p.a. coupon. As of March 31, 2023, the coupon receivable is $ 218,750 . 8. INVENTORIES Inventories consist of the following as of March 31, 2023 and 2022: SCHEDULE OF INVENTORIES 2023 2022 Raw materials $ 19,484 $ 184,498 Work in progress 9,373 1,327 Finished goods 256,671 80,771 Total inventories $ 285,528 $ 266,596 9. ADVANCES TO SUPPLIERS The Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand. 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. F- 14 10. PREPAYMENTS AND OTHER RECEIVABLES Prepayments and other receivables consist of the following as of March 31, 2023 and 2022: SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES 2023 2022 Prepayment 10,913 14,046 Deposit 40,341 64,653 Receivable of consideration on disposal of subsidiaries 708,457 269,798 Other receivables 199,485 226,713 Total Prepayment $ 959,196 $ 575,210 11. PLANT AND EQUIPMENT Plant and equipment consist of the following as of March 31, 2023 and 2022: SCHEDULE OF PLANT AND EQUIPMENT 2023 2022 Production plant $ 68,345 $ 74,034 Motor vehicles 1,100,683 1,192,296 Office equipment 26,025 28,191 Total gross 1,195,053 1,294,521 Less: accumulated depreciation ( 545,933 ) ( 458,102 ) Plant and equipment, net $ 649,120 $ 836,419 Depreciation expense for the years ended March 31, 2023 and 2022 was $ 137,818 and $ 132,152 , respectively. 12. LONG-TERM RECEIVABLES The Company entered into a long-term loan agreement with an independent third party in September 2022. The principal to the borrower is $ 2.5 million. The loan is interest free and will be expired in August 2025. 13. 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 March 31, 2023, the Company has borrowed $ 137,468 (RMB 944,255 ) (March 31, 2022: $ 151,090 , or RMB 958,079 ) under this line of credit with various annual interest rates from 4.34 % 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. 14. TAXATION (a) Enterprise Income Tax (“EIT”) The Company operates in the PRC and files tax returns in the PRC jurisdictions. Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes. Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive rate of 16.5 %. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the years ended March 31, 2023 and 2022. F- 15 YX were incorporated in the PRC and is subject to the EIT tax rate of 25 %. No provision for income taxes in the PRC has been made as YX had no taxable income for the years ended March 31, 2023 and 2022. 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 2023 and 2022. The preferential tax rate will be expired at end of year 2023 and the EIT rate will be 25% from year 2024 . The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the years ended March 31, 2023 and 2022. The reconciliation of income taxes computed at the PRC federal statutory tax rate applicable to the PRC, to income tax expenses are as follows: SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 2023 2022 PRC statutory tax rate 25 % 25 % Computed expected benefits $ 335,450 $ 25,373 Temporary differences ( 6,089 ) ( 350 ) Permanent difference ( 309,661 ) ( 106,866 ) Changes in valuation allowance 2,443 105,337 Reported income tax expense $ 22,143 $ 23,494 As of March 31, 2023, the accumulated tax losses in China amounting to $ 2.1 million (2022: $ 1.9 million) will expire in five years. As of March 31, 2023, the accumulated net operating loss carried forward in the US entity was $ 6.6 million (2021: $ 4.8 million). Deferred tax assets had not been recognized in respect of any potential tax benefit that may be derived from non-capital loss carry forward and property and equipment due to past negative evidence of previous cumulative net losses and uncertainty upon restructuring. The management will continue to assess at each reporting period to determine the realizability of deferred tax assets. (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, AOT, ZHJ and YS enjoyed preferential VAT rate of 13 %. 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. F- 16 15. CONSOLIDATED SEGMENT DATA Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following three segments: (a) Garment manufacturing . Including manufacturing and distribution of garments; (b) Logistics services . Providing logistic services; (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 other”. 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 near an endemic, the Company ceased to operate in the Epidemic prevention supplies business in the first quarter of 2023. The remaining assets of the segment were reclassified into the “Corporate and others” segment. The corresponding items of segment information for the earlier periods were restated to reflect the change of the new segment structure. Selected information in the segment structure is presented in the following tables: SCHEDULE OF SEGMENT REPORTING FOR REVENUE Revenues from external customers 2023 2022 Year ended March 31, Revenues from external customers 2023 2022 Garments manufacturing segment 177,549 2,525,440 Logistics services segment 4,621,125 5,332,291 Property management and subleasing 3,096,914 4,265,218 Total of reportable segments 7,895,588 12,122,949 Corporate and other 48,583 567,684 Total consolidated revenue $ 7,944,171 $ 12,690,633 Income (loss) from operations by segment for year ended March 31, 2023 and 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR INCOME FROM OPERATION 2023 2022 Year ended March 31, 2023 2022 Garments manufacturing segment ( 68,215 ) 75,494 Logistics services segment 284,911 236,777 Property management and subleasing 267,359 96,490 Total of reportable segments $ 484,055 408,761 Corporate and other ( 946,970 ) ( 465,766 ) Total consolidated loss from operations ( 462,915 ) ( 57,005 ) Depreciation and amortization by segment for year ended March 31, 2023 and 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR DEPRECIATION AND AMORTIZATION 2023 2022 Year ended March 31, 2023 2022 Garments manufacturing segment 2,400 2,641 Logistics services segment 334,708 123,513 Property management and subleasing 2,168 25,451 Total of reportable segments $ 339,276 151,605 Corporate and other 5,620 5,999 Total consolidated depreciation and amortization $ 344,896 157,604 Financial cost by segment for year ended March 31, 2023 and 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR FINANCIAL COST 2023 2022 Year ended March 31, 2023 2022 Garments manufacturing segment 7,206 8,015 Logistics services segment 387 604 Property management and subleasing 308 678 Total of reportable segments $ 7,901 9,297 Corporate and other 1,499,941 594 Total consolidated financial cost $ 1,507,842 9,891 Total assets by segment as of March 31, 2023 and March 31, 2022 are as follows: SCHEDULE OF SEGMENT REPORTING FOR ASSETS Total assets March 31, 2023 March 31, 2022 Garment manufacturing segment $ 2,169,973 $ 1,784,020 Logistics services segment 2,476,841 2,610,469 Property management and subleasing - 7,608,997 Total of reportable segments 4,646,814 12,003,486 Corporate and other 36,656,067 1,083,574 Consolidated total assets $ 41,302,881 $ 13,087,060 F- 17 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 GEOGRAPHICAL INFORMATION Revenues Long-Lived Assets China 7,944,171 1,011,640 Total 7,944,171 1,011,640 16. ACCRUED EXPENSES AND OTHER PAYABLES Accrued expenses and other payables consist of the following as of March 31, 2023 and 2022: SCHEDULE OF ACCRUED EXPENSES AND OTHER PAYABLES 2023 2022 Accrued wages and welfare 63,935 78,776 Accrued expenses 445,985 259,647 Other tax payable 34,988 55,814 Rental payable 25,739 27,882 Interest payable 26,226 20,835 Customers’ deposits - 871,730 Advance payment from shareholder - 125,000 Other payables 9,970 5,789 Accrued expenses and other payables $ 606,843 $ 1,445,473 17. FINANCIAL INSTRUMENTS On January 4, 2023, the Company entered into a series of agreements with certain accredited investors, 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 approximately $ 16.7 million with interest rate of 5 % per annum (the “Convertible Notes”); The Convertible Notes shall be matured on July 4, 2024 . The conversion price is $ 1.25 , subject to adjustment under several conditions. ● warrants to purchase up to approximately 16.1 million 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, also subject to adjustment under several conditions. The Warrant is considered a freestanding instrument issued together with the Convertible Note and measured at its issuance date fair value. Proceeds received were first allocated to the Warrant based on its initial fair value. The initial fair value of the Warrant was $ 3.9 million. The Warrant were marked to the market with the changes in the fair value of warrant recorded in the consolidated statements of operations and comprehensive loss. As of March 31, 2023, the balance of the Warrant was approximately $ 2.0 million. The Convertible Note is classified as a liability and is subsequently stated at amortized cost with any difference between the initial carrying value and the repayment amount as interest expenses using the effective interest method over the period from the issuance date to the maturity date. The embedded conversion feature should be bifurcated and separately accounted for using fair value, as this embedded feature is considered not clearly and closely related to the debt host. The bifurcated conversion feature was recorded at fair value with the changes recorded in the consolidated statements of operations and comprehensive loss. The initial fair value of the embedded conversion feature was $ 1.2 million. As of March 31, 2023, the fair value of the conversion option was $ 0.3 million. The Company determined that the other embedded features do not require bifurcation as they either are clearly and closely related to the Convertible Note or do not meet the definition of a derivative. The total proceeds of the Convertible Note and the Warrants, net of issuance cost, of $ 15.0 million was received by the Company in January 2023, and allocated to each of the financial instruments as following: SCHEDULE OF FINANCIAL INSTRUMENTS As of January 4, 2023 Derivative liabilities – Fair value of the Warrants $ 3,858,521 Derivative liabilities – Embedded conversion feature 1,247,500 Convertible Note 9,893,979 $ 15,000,000 In January 2023, the Company also granted to the placement agent a warrant as partial of agent fee to purchase 0.7 million shares of common stock of the Company. The warrant is matured in five years with an exercise price of $ 1.25 subject to adjustments under different conditions. The warrant was recognized as derivative liability and the initial fair value was $ 0.168 million. As of March 31, 2023, there was not any conversion of the convertible note nor any exercise of warrants. F- 18 18. LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES The Company implemented a new accounting policy according to the ASC 842, Leases, on April 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately $ 0.06 million lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of March 31, 2023, 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 three floors of a commercial building for 3 years with an option to extend the lease in Humen Town of Dongguan City from the landlord and provides shops subleasing and property management services for garment wholesalers and retailers in the leased property. The following table summarizes the components of lease expense: SCHEDULE OF LEASE COST 2023 2022 Operating lease cost 3,341,042 3,862,342 Short-term lease cost 78,663 84,089 Lease Cost 3,419,705 3,946,431 The following table summarizes supplemental information related to leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow used in operating leases $ 3,419,705 $ 3,946,431 Right-of-use assets obtained in exchange for new operating leases liabilities - 470,763 Transfer of Right-of-use assets due to disposal of subsidiary ( 3,025,985 ) - Weighted average remaining lease term - Operating leases (years) 2.2 1.8 Weighted average discount rate - Operating leases 4.75 % 4.75 % The following table summarizes the maturity of operating lease liabilities: SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY Years ending March 31 Lease cost 2024 $ 133,138 2025 122,409 2026 38,881 Total lease payments 294,428 Less: Interest ( 21,940 ) Total $ 272,488 F- 19 19. SHARE CAPITAL AND RESERVES Ordinary shares In August 2022, the Company completed its IPO and 5,000,000 ordinary shares were issued and sold to the public, with proceeds of approximately $ 20.2 million, net of underwriter commissions and relevant offering expenses. In September, 2022, 391,666 shares were issued upon cashless exercise of Underwriter Warrants. On February 3, 2023, 3,370,000 shares were issued as pre-delivery shares to the placement agents. In January 2023, the Company increased its authorized share capital and the authorized share capital is US$ 250,000 divided into 250,000,000 ordinary shares with par value of US$ 0.001 per share. There are 35,454,670 and 26,693,004 ordinary shares issued and outstanding at March 31, 2023 and 2022, respectively. Statutory reserve In accordance with the relevant laws and regulations of the PRC, the subsidiary of the Company established in the PRC is required to transfer 10% of its profit after taxation prepared in accordance with the accounting regulations of the PRC to the statutory reserve until the reserve balance reaches 50% of the subsidiary’s paid-up capital. Such reserve may be used to offset accumulated losses or increase the registered capital of the subsidiary, subject to the approval from the PRC authorities, and are not available for dividend distribution to the shareholders . The amount appropriated to statutory reserve for the years ended March 31, 2023 and 2022 were $ 14,636 and $ Nil , respectively. The balance of paid-up statutory reserve was $ 28,457 and $ 13,821 as of March 31, 2023 and 2022, respectively. 20. OTHER INCOME (EXPENSES), NET SCHEDULE OF OTHER INCOME NET 2023 2022 Investment income $ 218,750 $ - Consultant fee income - 70,000 Allowance for obsolete inventories - ( 17,541 ) Penalty income from customers’ defaults 76,160 45,382 Subsidy from government 30,302 61,901 Donations ( 8,029 ) - Other 3,373 828 Other income, net $ 320,556 $ 160,570 21. RISKS AND UNCERTAINTIES (a) Economic and Political Risks The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. (b) Foreign Currency Translation The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date, which are 6.87 and 6.34 as at March 31, 2023 and March 31, 2022, respectively. Revenue and expenses are translated at the average yearly exchange rates, which are 6.85 and 6.42 for the two years ended March 31, 2023 and 2022, respectively. The equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustments to other comprehensive loss, a component of equity. F- 20 (c) Concentration Risks The following are the percentages of accounts receivable balance of the top five customers over accounts receivable for each segment as of March 31, 2023 and 2022. Garment manufacturing segment SCHEDULE OF CONCENTRATION RISKS March 31, 2023 March 31, 2022 Customer A 82.5 % 85.3 % Customer B 9.9 % 11.4 % Customer C 4.0 % Nil % Customer D 3.5 % Nil % The high concentration as of March 31, 2023 was mainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers. Logistics services segment March 31, 2023 March 31, 2022 Customer A 14.1 % 1.1 % Customer B 11.4 % Nil % Customer C 10.2 % 19.1 % Customer D 9.5 % Nil % Customer E 7.3 % 8.2 % Property management and subleasing There is no account receivable for Property management and subleasing segment as for March 31, 2023. For the year ended March 31, 2023, one customer from logistics services segment provided more than 10 % of total consolidated revenue of the Company, representing 11.4 % of total revenue of the Company. F- 21 The following tables summarized the percentages of purchases from five largest suppliers of each of the reportable segment purchase for the years ended March 31, 2023 and 2022. SCHEDULE OF PURCHASES FROM SUPPLIERS Year ended March 31, 2023 2022 Garment manufacturing segment Nil % 99.3 % Logistics services segment 100.0 % 96.4 % Property management and subleasing 100.0 % 100.0 % Two and one suppliers provided more than 10 % of our raw materials purchases for the years ended March 31, 2023 and 2022, respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers are available that could provide similar products to the Company. (d) Interest Rate Risk The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of March 31, 2023, the total outstanding borrowings amounted to $ 137,468 (RMB 944,255 ) with various interest rate from 4.34 % to 4.9 % p.a. (Note 13) 22. SUBSEQUENT EVENTS In April 2023, the board of directors of the Company resolved to release BF Borgers CPA PC (“Borgers”) as independent accountants and engaged Pan-China Singapore PAC (“Pan-China”) as the new independent auditor. In June 2023, the Company entered into a share purchase agreement to acquire Dongguan Hongxiang Commercial Co., Ltd.’s entire equity with the relevant sellers. The consideration of the acquisition was approximately RMB 3.2 million in cash. The Company effected the amendment and combination to the outstanding shares of our common stock into a lesser number of outstanding shares (the “Reverse Stock Split Amendment”) on a ratio of one-for-ten, with effected date on June 26, 2023. As at the date of this report, approximately $ 1.5 million of convertible note including principal and related accrued interest were converted into approximately 2.2 million ordinary shares. The effective average conversion price was $ 0.681 per share. There are no other subsequent events have occurred that would require recognition or disclosure in the financial statements. F- 22 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.