10-Q 1 form10-q.htm
false Q3 --03-31 2024 0001650101 0001650101 2023-04-01 2023-12-31 0001650101 2024-02-13 0001650101 2023-12-31 0001650101 2023-03-31 0001650101 us-gaap:RelatedPartyMember 2023-12-31 0001650101 us-gaap:RelatedPartyMember 2023-03-31 0001650101 2023-10-01 2023-12-31 0001650101 2022-10-01 2022-12-31 0001650101 2022-04-01 2022-12-31 0001650101 us-gaap:CommonStockMember 2022-09-30 0001650101 us-gaap:AdditionalPaidInCapitalMember 2022-09-30 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2022-09-30 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2022-09-30 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-09-30 0001650101 2022-09-30 0001650101 us-gaap:CommonStockMember 2023-09-30 0001650101 us-gaap:AdditionalPaidInCapitalMember 2023-09-30 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2023-09-30 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2023-09-30 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-09-30 0001650101 2023-09-30 0001650101 us-gaap:CommonStockMember 2022-03-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2022-03-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2022-03-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-03-31 0001650101 2022-03-31 0001650101 us-gaap:CommonStockMember 2023-03-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2023-03-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2023-03-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-03-31 0001650101 us-gaap:CommonStockMember 2022-10-01 2022-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2022-10-01 2022-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2022-10-01 2022-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2022-10-01 2022-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-10-01 2022-12-31 0001650101 us-gaap:CommonStockMember 2023-10-01 2023-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2023-10-01 2023-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2023-10-01 2023-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2023-10-01 2023-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-10-01 2023-12-31 0001650101 us-gaap:CommonStockMember 2022-04-01 2022-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2022-04-01 2022-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2022-04-01 2022-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2022-04-01 2022-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-04-01 2022-12-31 0001650101 us-gaap:CommonStockMember 2023-04-01 2023-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2023-04-01 2023-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2023-04-01 2023-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2023-04-01 2023-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-04-01 2023-12-31 0001650101 us-gaap:CommonStockMember 2022-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2022-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2022-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001650101 2022-12-31 0001650101 us-gaap:CommonStockMember 2023-12-31 0001650101 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001650101 ATXG:RetainedEarningsUnrestrictedMember 2023-12-31 0001650101 ATXG:RetainedEarningsStatutoryReserveMember 2023-12-31 0001650101 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001650101 ATXG:DongguanHongxiangCommercialCoLtdMember 2023-09-30 0001650101 ATXG:DongguanHongxiangCommercialCoLtdMember 2023-09-01 2023-09-30 0001650101 ATXG:DongguanHongxiangCommercialCoLtdMember 2023-09-05 0001650101 ATXG:ZhidaHongMember 2023-04-01 2023-12-31 0001650101 ATXG:HongyeFinancialConsultingShenzhenCoLtdMember 2023-04-01 2023-12-31 0001650101 ATXG:BihuaYangMember 2023-04-01 2023-12-31 0001650101 ATXG:DewuHuangMember 2023-04-01 2023-12-31 0001650101 ATXG:JinlongHuangMember 2023-04-01 2023-12-31 0001650101 ATXG:ZhidaHongMember 2023-12-31 0001650101 ATXG:ZhidaHongMember 2023-03-31 0001650101 ATXG:BihuaYangMember 2023-12-31 0001650101 ATXG:BihuaYangMember 2023-03-31 0001650101 ATXG:ZhidaHongMember 2022-04-01 2023-03-31 0001650101 ATXG:HongyeFinancialConsultingShenzhenCoLtdMember 2022-04-01 2023-03-31 0001650101 ATXG:DewuHuangMember 2022-04-01 2023-03-31 0001650101 ATXG:JinlongHuangMember 2022-04-01 2023-03-31 0001650101 2022-04-01 2023-03-31 0001650101 2022-08-24 0001650101 ATXG:ProductionPlantMember 2023-12-31 0001650101 ATXG:ProductionPlantMember 2023-03-31 0001650101 ATXG:MotorVehiclesMember 2023-12-31 0001650101 ATXG:MotorVehiclesMember 2023-03-31 0001650101 us-gaap:OfficeEquipmentMember 2023-12-31 0001650101 us-gaap:OfficeEquipmentMember 2023-03-31 0001650101 ATXG:LoanAgreementMember 2023-12-31 0001650101 ATXG:LoanAgreementMember 2023-04-01 2023-12-31 0001650101 ATXG:DongguanAgriculturalBankOfChinaMember ATXG:FacilityAgreementMember 2019-08-31 0001650101 ATXG:DongguanAgriculturalBankOfChinaMember ATXG:FacilityAgreementMember 2023-12-31 0001650101 ATXG:DongguanAgriculturalBankOfChinaMember ATXG:FacilityAgreementMember 2023-03-31 0001650101 ATXG:DongguanAgriculturalBankOfChinaMember ATXG:FacilityAgreementMember srt:MinimumMember 2023-04-01 2023-12-31 0001650101 ATXG:DongguanAgriculturalBankOfChinaMember ATXG:FacilityAgreementMember srt:MaximumMember 2023-04-01 2023-12-31 0001650101 ATXG:ChinaConstructionBankMember ATXG:FacilityAgreementMember 2023-02-28 0001650101 ATXG:ChinaConstructionBankMember ATXG:FacilityAgreementMember 2023-12-31 0001650101 ATXG:ChinaConstructionBankMember ATXG:FacilityAgreementMember 2023-03-31 0001650101 ATXG:FacilityAgreementMember ATXG:SichuamXinwangBankCoLtdMember 2023-12-31 0001650101 ATXG:FacilityAgreementMember ATXG:SichuamXinwangBankCoLtdMember 2023-03-31 0001650101 ATXG:FacilityAgreementMember ATXG:SichuamXinwangBankCoLtdMember 2023-01-01 2023-12-31 0001650101 country:HK 2023-04-01 2023-12-31 0001650101 ATXG:PeoplesRepublicOfChinaMember 2023-04-01 2023-12-31 0001650101 ATXG:PeoplesRepublicOfChinaMember 2022-04-01 2022-12-31 0001650101 us-gaap:DomesticCountryMember 2023-04-01 2023-12-31 0001650101 ATXG:HSWDTAndYSMember 2023-04-01 2023-12-31 0001650101 ATXG:LogisticCompanyMember 2023-04-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember srt:ReportableLegalEntitiesMember 2023-10-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember srt:ReportableLegalEntitiesMember 2022-10-01 2022-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember srt:ReportableLegalEntitiesMember 2023-04-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember srt:ReportableLegalEntitiesMember 2022-04-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember srt:ReportableLegalEntitiesMember 2023-10-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember srt:ReportableLegalEntitiesMember 2022-10-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember srt:ReportableLegalEntitiesMember 2023-04-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember srt:ReportableLegalEntitiesMember 2022-04-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember srt:ReportableLegalEntitiesMember 2023-10-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember srt:ReportableLegalEntitiesMember 2022-10-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember srt:ReportableLegalEntitiesMember 2023-04-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember srt:ReportableLegalEntitiesMember 2022-04-01 2022-12-31 0001650101 ATXG:TotalOfReportableSegmentsMember 2023-10-01 2023-12-31 0001650101 ATXG:TotalOfReportableSegmentsMember 2022-10-01 2022-12-31 0001650101 ATXG:TotalOfReportableSegmentsMember 2023-04-01 2023-12-31 0001650101 ATXG:TotalOfReportableSegmentsMember 2022-04-01 2022-12-31 0001650101 us-gaap:CorporateAndOtherMember 2023-10-01 2023-12-31 0001650101 us-gaap:CorporateAndOtherMember 2022-10-01 2022-12-31 0001650101 us-gaap:CorporateAndOtherMember 2023-04-01 2023-12-31 0001650101 us-gaap:CorporateAndOtherMember 2022-04-01 2022-12-31 0001650101 us-gaap:IntersegmentEliminationMember ATXG:GarmentManufacturingSegmentMember 2023-10-01 2023-12-31 0001650101 us-gaap:IntersegmentEliminationMember ATXG:GarmentManufacturingSegmentMember 2022-10-01 2022-12-31 0001650101 us-gaap:IntersegmentEliminationMember ATXG:GarmentManufacturingSegmentMember 2023-04-01 2023-12-31 0001650101 us-gaap:IntersegmentEliminationMember ATXG:GarmentManufacturingSegmentMember 2022-04-01 2022-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember 2023-10-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember 2022-10-01 2022-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember 2023-04-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember 2022-04-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember 2023-10-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember 2022-10-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember 2023-04-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember 2022-04-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember 2023-10-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember 2022-10-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember 2023-04-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember 2022-04-01 2022-12-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:GarmentManufacturingSegmentMember 2023-12-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:GarmentManufacturingSegmentMember 2023-03-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:LogisticServicesSegmentMember 2023-12-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:LogisticServicesSegmentMember 2023-03-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:PropertyManagementAndSubleasingMember 2023-12-31 0001650101 us-gaap:MaterialReconcilingItemsMember ATXG:PropertyManagementAndSubleasingMember 2023-03-31 0001650101 us-gaap:MaterialReconcilingItemsMember 2023-12-31 0001650101 us-gaap:MaterialReconcilingItemsMember 2023-03-31 0001650101 us-gaap:CorporateNonSegmentMember 2023-12-31 0001650101 us-gaap:CorporateNonSegmentMember 2023-03-31 0001650101 country:CN 2023-10-01 2023-12-31 0001650101 country:CN 2022-10-01 2022-12-31 0001650101 country:CN 2023-04-01 2023-12-31 0001650101 country:CN 2022-04-01 2022-12-31 0001650101 country:CN 2023-12-31 0001650101 country:CN 2023-03-31 0001650101 2023-01-04 2023-01-04 0001650101 2023-01-04 0001650101 us-gaap:WarrantMember 2023-01-04 2023-01-04 0001650101 srt:MaximumMember 2023-01-04 0001650101 2023-01-31 2023-01-31 0001650101 2023-01-31 0001650101 ATXG:ConvertibleNoteMember 2023-12-31 0001650101 ATXG:ConvertibleNoteMember 2023-04-01 2023-12-31 0001650101 2023-06-13 0001650101 us-gaap:DerivativeMember 2023-01-04 2023-01-04 0001650101 us-gaap:DerivativeMember 2023-01-04 0001650101 ATXG:HeadOfficeMember 2023-12-31 0001650101 ATXG:PlantAndDormitoryMember 2023-12-31 0001650101 us-gaap:BuildingMember 2023-12-31 0001650101 us-gaap:SalesRevenueSegmentMember us-gaap:CustomerConcentrationRiskMember ATXG:TwoCustomerMember 2023-10-01 2023-12-31 0001650101 ATXG:TwoCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2023-10-01 2023-12-31 0001650101 ATXG:OneCustomerMember us-gaap:SalesRevenueSegmentMember us-gaap:CustomerConcentrationRiskMember 2022-10-01 2022-12-31 0001650101 ATXG:OneCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2022-10-01 2022-12-31 0001650101 us-gaap:SalesRevenueSegmentMember us-gaap:CustomerConcentrationRiskMember ATXG:OneCustomerMember 2023-04-01 2023-12-31 0001650101 ATXG:OneCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2023-04-01 2023-12-31 0001650101 us-gaap:SalesRevenueSegmentMember us-gaap:CustomerConcentrationRiskMember ATXG:OneCustomerMember 2022-04-01 2022-12-31 0001650101 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember ATXG:OneCustomerMember 2022-04-01 2022-12-31 0001650101 srt:MinimumMember 2023-04-01 2023-12-31 0001650101 srt:MaximumMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerAMember us-gaap:CustomerConcentrationRiskMember ATXG:GarmentManufacturingSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerAMember us-gaap:CustomerConcentrationRiskMember ATXG:GarmentManufacturingSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerBMember us-gaap:CustomerConcentrationRiskMember ATXG:GarmentManufacturingSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerBMember us-gaap:CustomerConcentrationRiskMember ATXG:GarmentManufacturingSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerAMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerAMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerBMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerBMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerCMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerCMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerDMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerDMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:CustomerEMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2023-04-01 2023-12-31 0001650101 ATXG:CustomerEMember us-gaap:CustomerConcentrationRiskMember ATXG:LogisticsServicesSegmentMember us-gaap:AccountsReceivableMember 2022-04-01 2023-03-31 0001650101 ATXG:GarmentManufacturingSegmentMember ATXG:FiveLargestSuppliersMember 2023-10-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember ATXG:FiveLargestSuppliersMember 2022-10-01 2022-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember ATXG:FiveLargestSuppliersMember 2023-04-01 2023-12-31 0001650101 ATXG:GarmentManufacturingSegmentMember ATXG:FiveLargestSuppliersMember 2022-04-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember ATXG:FiveLargestSuppliersMember 2023-10-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember ATXG:FiveLargestSuppliersMember 2022-10-01 2022-12-31 0001650101 ATXG:LogisticServicesSegmentMember ATXG:FiveLargestSuppliersMember 2023-04-01 2023-12-31 0001650101 ATXG:LogisticServicesSegmentMember ATXG:FiveLargestSuppliersMember 2022-04-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember ATXG:FiveLargestSuppliersMember 2023-10-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember ATXG:FiveLargestSuppliersMember 2022-10-01 2022-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember ATXG:FiveLargestSuppliersMember 2023-04-01 2023-12-31 0001650101 ATXG:PropertyManagementAndSubleasingMember ATXG:FiveLargestSuppliersMember 2022-04-01 2022-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure ATXG:Segment iso4217:CNY

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: December 31, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _________________

 

Commission File No. 333-206097

 

ADDENTAX GROUP CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   35-2521028
(State or other jurisdiction of   (I.R.S. Employer
incorporation or formation)   Identification Number)

 

Kingkey 100, Block A, Room 4805,

Luohu District, Shenzhen City, China 518000

(Address of principal executive offices)

 

+ (86) 755 86961 405

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   ATXG   Nasdaq Capital Markets

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer Smaller reporting company
   
Emerging growth  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of February 13, 2024, there were 4,294,979 shares outstanding of the registrant’s common stock.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) F-1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
     
Item 4. Controls and Procedures 16
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 17
     
Item 1A. Risk Factors 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults Upon Senior Securities 17
     
Item 4. Mine Safety Disclosures 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 17

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements and Supplementary Data

 

ADDENTAX GROUP CORP.

 

FINANCIAL STATEMENTS

 

For the three and nine months ended December 31, 2023 and 2022

 

TABLE OF CONTENTS

 

Condensed Consolidated Balance sheets as of December 31, 2023 (unaudited) and March 31, 2023 (audited) F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended December 31, 2023 and 2022 (unaudited) F-3
Condensed Consolidated Statements of Changes in Equity for the three and nine months ended December 31, 2023 and 2022 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022 (unaudited) F-5
Notes to Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2023 and 2022 (unaudited) F-6 – F-15

 

F-1

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars, except share data or otherwise stated)

 

   December 31, 2023 (unaudited)   March 31, 2023 (audited) 
         
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $498,254   $562,711 
Restricted cash   3,250,000    - 
Accounts receivables, net   2,182,465    1,858,889 
Debt securities held-to-maturity   -    17,718,750 
Inventories   304,400    285,528 
Prepayments and other receivables   19,259,660    959,196 
Advances to suppliers   2,008,023    1,281,075 
Amount due from related party   2,809,116    375,092 
Total current assets   30,311,918    23,041,241 
           
NON-CURRENT ASSETS          
Plant and equipment, net   607,311    649,120 
Long-term prepayments   257,314    90,032 
Restricted cash   -    14,750,000 
Long-term receivables   2,500,000    2,500,000 
Operating lease right of use asset   20,108,986    272,488 
Total non-current assets   23,473,611    18,261,640 
TOTAL ASSETS  $53,785,529   $41,302,881 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Short-term loan  $309,175   $137,468 
Accounts payable   466,184    267,501 
Amount due to related parties   2,125,000    2,384,633 
Advances from customers   195,755    2,152 
Accrued expenses and other payables   1,251,839    606,843 
Operating lease liability current portion   1,079,653    127,101 
Total current liabilities   5,427,606    3,525,698 
           
NON-CURRENT LIABILITIES          
Convertible debts   2,376,112    11,219,519 
Derivative liabilities   2,708,757    2,290,483 
Operating lease liability   19,029,332    145,387 
Total non-current liabilities   24,114,201    13,655,389 
TOTAL LIABILITIES  $29,541,807   $17,181,087 
           
EQUITY          
Common stock ($0.001 par value, 250,000,000 shares authorized, 4,494,979 and 35,454,670 shares issued and outstanding at December 31 and March 31, 2023, respectively)  $4,495   $35,455 
Additional paid-in capital   33,606,949    29,528,564 
Accumulated Deficit   (9,433,762)   (5,451,209)
Statutory reserve   37,027    28,457 
Accumulated other comprehensive loss   29,013    (19,473)
Total equity   24,243,722    24,121,794)
TOTAL LIABILITIES AND EQUITY  $53,785,529   $41,302,881 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-2

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In U.S. Dollars, except share data or otherwise stated)

 

   2023   2022   2023   2022 
   Three months ended
December 31,
   Nine months ended
December 31,
 
   2023   2022   2023   2022 
                 
REVENUES  $1,468,496   $2,122,242   $3,856,316   $6,652,645 
                     
COST OF REVENUES   (1,306,169)   (1,514,780)   (3,054,193)   (5,023,338)
                     
GROSS PROFIT   162,327    607,462    802,123    1,629,307 
                     
OPERATING EXPENSES                    
Selling and marketing   (95,321)   (24,511)   (132,533)   (60,155)
General and administrative   (516,598)   (675,918)   (1,685,063)   (1,545,865)
Total operating expenses   (611,919)   (700,429)   (1,817,596)   (1,606,020)
                     
INCOME (LOSS) FROM OPERATIONS   (449,592)   (92,967)   (1,015,473)   23,287 
                     
Fair value gain or loss   (1,738,593)   -    (172,001)   - 
Interest income   1,712    1,687    5,129    6,687 
Interest expenses   (529,530)   (1,986)   (2,426,064)   (6,653)
Other income (expense), net   111,566    19,232    (357,848)   93,288 
                     
INCOME (LOSS) BEFORE INCOME TAX EXPENSE   (2,604,437)   (74,034)   (3,966,257)   116,609 
INCOME TAX EXPENSE   (3,225)   (8,184)   (7,726)   (18,939)
                     
NET (LOSS)/INCOME   (2,607,662)   (82,218)   (3,973,983)   97,670 
Foreign currency translation gain   (41,266)   (43,032)   48,486    159,660 
TOTAL COMPREHENSIVE INCOME (LOSS)  $(2,648,928)  $(125,250)  $(3,925,497)  $257,330 
                     
EARNINGS PER SHARE                    
Basic and diluted   (0.66)   (0.00)   (1.00)   0.00 
Weighted average number of shares outstanding – Basic and diluted   3,980,714    28,377,936    3,980,714    28,377,936 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-3

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In U.S. Dollars, except share data or otherwise stated)

 

BALANCe   Share   $     Value   $   Share   $Value)  $                  Value   $Value)  $Total 
   Common Stock   Additional
paid-in
   Retained earnings
(accumulated deficit)
   Accumulated
other
comprehensive
   Total 
   Shares   Amount   capital   Unrestricted   Statutory reserve   loss   Equity 
BALANCE AT OCTOBER 1, 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 OCTOBER 1, 2023   4,494,979   $4,495   $33,558,928   $(6,817,530)  $28,457   $70,279   $26,844,629 
Additional paid-in capital from conversion of convertible debts   -    -    48,021    -    -    -    48,021 
Appropriation to Statutory Reserves   -    -    -    (8,570)   8,570    -    - 
Foreign currency translation   -    -    -    -    -    (41,266)   (41,266)
Net loss for the period   -    -    -    (2,607,662)   -    -    (2,607,662)
BALANCE AT DECEMBER 31, 2023   4,494,979   $4,495   $33,606,949   $(9,433,762)  $37,027   $29,013   $24,243,722 
                                    
BALANCE AT APRIL 1, 2022   26,693,004   $26,693   $6,815,333   $(6,756,230)  $13,821   $(170,984)  $(71,367)
Issuance of new shares   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 
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 APRIL 1, 2023   35,454,670   $35,455   $29,528,564   $(5,451,209)  $28,457   $(19,473)  $24,121,794 
Issuance of new shares before reversed split   1,940,750    1,941    (1,941)   -    -    -    - 
Reverse stock split   (33,655,878)   (33,656)   33,656    -    -    -    - 
New shares for round up of fragmental shares   39    0    0    -    -    -    - 
Issuance of new shares after reversed split   755,398    755    (755)   -    -    -    - 
Additional paid-in capital from conversion of convertible debts   -    -    4,047,425    -    -    -    4,047,425 
Appropriation to Statutory Reserves   -    -    -    (8,570)   8,570    -    - 
Foreign currency translation   -    -    -    -    -    48,486    48,486 
Net loss for the period   -    -    -    (3,972,983)   -    -    (3,973,983)
BALANCE AT DECEMBER 31, 2023   4,494,979   $4,495   $33,606,949   $(9,433,762)  $37,027   $29,013   $24,243,722 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-4

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. Dollars, except share data or otherwise stated)

 

   2023   2022 
   Nine Months Ended December 31 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss) income  $(3,973,983)  $97,670 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization   664,646    264,876 
Amotization of convertible debt   2,402,972    - 
Investment income   (218,750)   - 
Fair value gain or loss   172,001    - 
Loss on debts extinguishment   697,318    - 
Gain on bargain purchase   (975)   - 
Changes in operating assets and liabilities          
Accounts receivable   (323,576)   74,598 
Inventories   (18,872)   11,904 
Advances to suppliers   (726,948)   126,639 
Other receivables   (95,924)   (1,789,539)
Accounts payables   198,683    (1,309,228)
Accrued expenses and other payables   (402,381)   992,046 
Advances from customers   103,987    2,916 
Net cash used in operating activities  $(1,521,802)  $(1,528,118)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment and intangible assets   (135,299)   - 
Cash from acquired investee   226,162    - 
Purchase of debt securities   -    (17,500,000)
Net cash used in investing activities  $90,863   $(17,500,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issue of ordinary shares   -    20,221,993 
Proceeds from related party borrowings   2,648,014    2,376,221 
Repayment of related party borrowings   (5,341,671)   (3,356,829)
Release of restricted cash   3,850,000    - 
Proceeds from bank borrowings   176,127    - 
Repayment of bank borrowings   -    (408)
Net cash provided by financing activities  $1,332,470   $19,240,977 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   (98,469)   212,859 
Effect of exchange rate changes on cash and cash equivalents   34,012    (15,118)
Cash and cash equivalents, beginning of the period   562,711    1,390,644 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD  $498,254   $1,588,385 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for interest  $-   $- 
Cash paid during the period for income tax  $7,726   $18,939 
Supplemental disclosure of non-cash investing and financing activities:          
Right-of-use assets obtained in exchange for operating lease obligations  $19,934,673   $- 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-5

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND BUSINESS ACQUISITIONS

 

ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services, property leasing and management service in the People’s Republic of China (“PRC” or “China”).

 

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 necessarily 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, 2023 filed with the Securities and Exchange Commission (“SEC”) on June 29, 2023 (“2023 Form 10-K”).

 

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.

 

Accounts receivable, net

 

Accounts receivable, net are stated at the historical carrying amount net of allowance for doubtful accounts.

 

Account receivables are classified as financial assets subsequently measured at amortized cost. Account receivables are recognized when the Company becomes a party to the contractual provisions of the receivables. They are measured, at initial recognition, at fair value plus transaction costs, if any and are subsequently measured at amortized cost. The amortized cost is the amount recognized on the receivable initially, minus principal repayments, plus cumulative amortization (interest) using the effective interest method of any difference between the initial amount and the maturity amount, adjusted for any loss allowance.

 

A loss allowance for expected credit losses is recognized on account receivables and is updated at each reporting date. The Company determines the expected credit losses provisions based on ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASC 326’’) using a modified retrospective approach which did not have a material impact on the opening balance of accumulated deficit. To determine expected credit losses on account receivables, the Company will consider the historic credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions, and an assessment of both the current and forecasted direction of conditions at the reporting date, including the time value of money, where appropriate.

 

The loss allowance is calculated on a collective basis for all trade and other receivables in totality. An impairment gain or loss is recognized in profit or loss with a corresponding adjustment to the carrying amount of account receivables, through use of a loss allowance account. The impairment loss is included in operating expenses as a movement in credit loss allowance.

 

Receivables are written off when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Receivables written off may still be subject to enforcement activities under the Company’s recovery procedures, considering legal advice where appropriate. Any recoveries made are recognized in profit or loss.

 

There is no change in the accounting policies for the three months ended December 31, 2023.

 

Recently issued accounting pronouncements

 

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-6

 

 

4. BUSINESS ACQUISITION

 

In September 2023, the Company acquired a 100% equity interest of Dongguan Hongxiang Commercial Co., Ltd (HX), an entity engaged in property management and subleasing services in Dongguan, Guangdong Province, for cash consideration of $438,470 (RMB3.2 million). The Company recognized gain on bargain purchase of $996. The acquisition has been accounted under the acquisition method of accounting in accordance with ASC 805, “Business Combinations”. The results of HX’s operations have been included in the consolidated financial statements since its acquisition date.

 

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of acquisition:

 

   September 5, 2023 
Cash in bank  $226,162 
Other receivables   705,510 
Fixed assets, net   58,493 
Long-term prepayments   192,391 
Advance from customers   (89,616)
Payroll payable   (19,239)
Other tax payable   (4,633)
Other payables   (629,602)
Net book value at acquisition date   439,466 
Gain on bargain purchase   (996)
Purchase price  $438,470 

 

Pro forma results of operation for this acquisition have not been presented because the effects of the acquisition were not material to the Company’s consolidated financial results.

 

5. RELATED PARTY TRANSACTIONS

  

Name of Related Parties   Relationship with the Company
Zhida Hong   President, CEO, and a director of the Company
Hongye Financial Consulting (Shenzhen) Co., Ltd.   A company controlled by CEO, Mr. Zhida Hong
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.

 

The Company had the following related party balances as of December 31, 2023 and March 31, 2023:

SCHEDULE OF AMOUNT DUE FROM RELATED PARTY   

Amount due from related party  December 31, 2023   March 31, 2023 
Zhida Hong (1)  $2,111,557   $- 
Bihua Yang   697,559    375,092 
Amount due from related party  $2,809,116   $375,092 

 

  

Related party borrowings  December 31, 2023   March 31, 2023 
Zhida Hong  $-   $901,110 
Hongye Financial Consulting (Shenzhen) Co., Ltd.   146,388    45,841 
Dewu Huang (2)   1,862,446    1,305,758 
Jinlong Huang   116,166    131,924 
Total Related party borrowings   $2,125,000   $2,384,633 

 

  (1) Being cash advance to Zhida Hong to pay for new brand development fee of the Company.
     
  (2) Being interest free loan as financial support from Dewu Huang to pay for daily operating expenditures of YBY.

 

The borrowing balances with 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 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

  

   December 31, 2023   March 31, 2023 
         
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 December 31, and March 31, 2023, the coupon receivable was $437,500 and $218,750, respectively. The note was matured on August 23, 2023 and was reclassified to Other receivables (Note 10). The Company is discussing with the issuer and will determine whether to renew the note.

 

F-7

 

 

8. INVENTORIES

 

Inventories consist of the following as of December 31, 2023 and March 31, 2023:

  

    December 31, 2023     March 31, 2023  
Raw materials   $ 67,448     $ 19,484  
Work in progress     -       9,373  
Finished goods     236,952       256,671  
Total inventories   $ 304,400     $ 285,528  

 

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.

 

10. PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables consist of the following as of December 31, 2023 and March 31, 2023:

  

   December 31, 2023   March 31, 2023 
Prepayment   36,761    10,913 
Deposit   750,932    40,341 
Receivable of consideration on disposal of subsidiaries   233,956    708,457 
Receivable of matured debt security (Note)   17,937,500    - 
Other receivables   300,511    199,485 
Total Prepayment  $19,259,660   $959,196 

 

Note: The debt security held-to-maturity was matured and was reclassified to Other receivables. The Company is discussing with the issuer and will determine whether to renew the note. (Note 7)

 

11. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consists of the following as of December 31, 2023 and March 31, 2023:

 

   December 31, 2023   March 31, 2023 
Production plant  $107,573   $68,345 
Motor vehicles   1,065,287    1,100,683 
Office equipment   53,143    26,025 
Total gross   1,226,003    1,195,053 
Less: accumulated depreciation   (618,692)   (545,933)
Plant and equipment, net  $607,311   $649,120 

 

Depreciation expense for the three and nine months ended December 31, 2023 and 2022 was $29,004 and $33,817, $86,005 and $102,649, respectively.

 

F-8

 

 

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 expire 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 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of December 31, 2023, the Company has borrowed $133,047 (RMB944,255) (March 31, 2023: $137,468) under this line of credit with various annual interest rates from 4.34% 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.

 

In February 2023, XKJ entered into a facility agreement with China Construction Bank and obtained a line of revolving credit, which allows the Company to borrow up to approximately $1,268,118 (RMB9,000,000) for daily operations, with Loan Prime Rate of the day prior to the draw down day. The loans are guaranteed by the legal representative of XKJ at no cost. The first borrow was happened in October 2023, before that, the company didn’t exercise the agreement. As of December 31, 2023, the Company has borrowed $105,677 (RMB750,000) (March 31, 2023: Nil) under this line of credit with annual interest rate of 3.9%. The revolving credit facility will be expired on February 1, 2026.

 

In December 2023, PF entered into a facility agreement with Sichuan Xinwang Bank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $70,451 (RMB500,000) for daily operations. As of December 31, 2023, the Company has borrowed $70,451 (RMB500,000) (March 31, 2023: Nil) under this line of credit with annual interest rate of 6.72%. The loan facility will be expired on December 26, 2025.

 

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. It’s wholly owned subsidiary of Addentax Group Corp.

 

Yingxi HK (Yingxi Industrial Chain Investment Co., Ltd.) was incorporated in Hong Kong which is indirectly wholly owned by Addentax Group Corp., and is subject to Hong Kong income tax at a progressive rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended December 31, 2023 and 2022.

 

YX, our wholly owned subsidiary, were incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the three months ended December 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 three months ended December 31, 2023 and 2022.

 

F-9

 

 

The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows:

   

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
PRC statutory tax rate   25%   25%   25%   25%
Computed expected benefits   (651,109)   (18,509)   (991,564)   29,152 
Temporary differences   37,772    (54,616)   13,003    (148,387)
Permanent difference   93,336    9,933    99,648    13,278 
Changes in valuation allowance   523,226    71,376    886,639    124,896 
Income tax expense  $3,225   $8,184    7,726    18,939 

 

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%. 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 PF enjoyed the preferential VAT rate of 3% in 2023 and 2022. 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.

 

15. CONSOLIDATED SEGMENT DATA

 

Segment information is consistent with how chief operating decision maker reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following four segments:

 

  (a) Garment manufacturing. Including manufacturing and distribution of garments;
     
  (b) Logistics services. Providing logistic services; and
     
  (c) Property management and subleasing. Providing shops subleasing and property management services for garment wholesalers and retailers in garment market.

 

The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.

 

F-10

 

 

Selected information in the segment structure is presented in the following tables:

 

Revenues by segment for the three and nine months ended December 31, 2023 and 2022 are as follows:

 

Revenues from external customers  2023   2022   2023   2022 
   Three months ended   Nine months ended 
   December 31,   December 31, 
Revenues from external customers  2023   2022   2023   2022 
Garments manufacturing segment   27,015    100,723    172,106    142,010 
Logistics services segment   1,189,004    1,213,530    3,373,670    3,826,070 
Property management and subleasing   252,477    796,343    310,540    2,671,379 
Total of reportable segments   1,468,496   $2,110,596   $3,856,316   $6,639,459 
Corporate and other   -    11,646    -    13,186 
Total consolidated revenue  $1,468,496   $2,122,242   $3,856,316   $6,652,645 

 

(Loss) Income from operations by segment for the three ended December 31, 2023 and 2022 are as follows:

  

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Garments manufacturing segment   (30,398)   7,745    (71,541)   (48,999)
Logistics services segment   (41,699)   91,147    132,530    363,569 
Property management and subleasing   (168,012)   131,213    (181,372)   254,934 
Total of reportable segments  $(240,109)  $230,105   $(120,383)  $569,504 
Corporate and other   (209,483)   (323,072)   (895,090)   (546,217)
Total consolidated income (loss) from operations   (449,592)   (92,967)   (1,015,473)   23,287 

 

Total assets by segment as of December 31, 2023 and March 31, 2023 are as follows:

  

Total assets  December 31, 2023   March 31, 2023 
Garment manufacturing segment  $2,622,846   $2,169,973 
Logistics services segment   2,999,261    2,476,841 
Property management and subleasing   21,111,864    - 
Total of reportable segments   26,733,971    4,646,814 
Corporate and other   27,051,558    36,656,067 
Consolidated total assets  $53,785,529   $41,302,881 

 

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

  

   Three months ended
December 31,
   Nine months ended
December 31,
 
   2023   2022   2023   2022 
Revenues                    
China   1,468,496    2,122,242    3,856,316    6,652,645 
Total   1,468,496    2,122,242    3,856,316    6,652,645 

 

   December 31, 2023   March 31, 2023 
Long-Lived Assets          
China   23,473,610    3,511,640 

 

F-11

 

 

16. 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 December 31, 2023, the fair value of the Warrant was $268,435 (March 31, 2023: 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.

 

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:

 

  

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 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.

 

The movement of the Company’s convertible notes obligations were as the following for the three and nine months ended December 31, 2023 and 2022:

  

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Carrying value – beginning balance  $2,583,324   $-   $9,893,979   $- 
Converted to ordinary shares   (51,530)   -    (4,629,520)   - 
Reversal of debt discount due to conversion   4,012         886,191      
Redemption   -    -    (5,687,056)   - 
Amortization of debt discount   364,400    -    2,616,008    - 
Deferred debt discount and cost of issuance   (677,683)   -    (1,815,995)   - 
Interest charge   153,589    -    1,112,505    - 
Carrying value – ending balance  $2,376,112   $-   $2,376,112   $- 

 

During the three months ended December 31 2023, approximately $51,530 of the convertible notes was converted into approximately 50,298 ordinary shares, with average effective conversion price of $1.0245 per share.

 

During the nine months ended December 31 2023, approximately $4.6 million of the convertible notes was converted into approximately 3.11 million ordinary shares, with average effective conversion price of $1.4896 per share.

 

On July 13, 2023, the Company entered into a Waiver and Ratification Agreement with one of the holders of the Convertible Note. According to the agreement, the holder redeemed the full amount of $7.5 million for the Convertible Note and irrevocably waives any past, present or future claims, rights and obligations under the Convertible Note.

 

F-12

 

 

The Company’s derivative liabilities were as the following for the three and nine months ended December 31, 2023 and 2022:

SCHEDULE OF DERIVATIVE LIABILITIES 

   2023   2022   2023   2022 
   Three months ended   Nine months ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Derivative liabilities –Warrants  $    $    $    $- 
Beginning balance   268,435    -    4,026,521    - 
Marked to the market   704,640    -    (3,053,446)   - 
Ending fair value   973,075    -    973,075    - 
                   - 
Derivative liabilities – Embedded conversion feature                  - 
Beginning balance   24,549    -    1,247,500    - 
Converted to ordinary shares   (503)   -    (454,097)   - 
Remeasurement on change of convertible price   677,683    -    1,815,996    - 
Redemption   -    -    (1,115,627)   - 
Marked to the market   1,033,953    -    241,910    - 
Ending fair value   1,735,682    -    1,735,682    - 
         -         - 
Total Derivative fair value at end of period  $2,708,757   $-   $2,708,757   $- 

 

17. 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, 2023, with average discounted rate of 4.9%. 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 16 years with an option to extend the lease.

 

The Following table summarizes the components of lease expense:

  

   2023   2022   2023   2022 
   Three months ended
December 31,
   Nine months ended
December 31,
 
   2023   2022   2023   2022 
Operating lease cost   362,991    902,455    437,791    2,723,514 
Short-term lease cost   36,830    19,540    94,881    58,955 
Lease Cost  $399,821   $921,995   $532,672   $2,782,469 

 

The following table summarizes supplemental information related to leases:

  

   2023   2022   2023   2022 
   Three months ended
December 31,
   Nine months ended
December 31,
 
   2023   2022   2023   2022 
Cash paid for amounts included in the measurement of lease liabilities                    
Operating cash flow from operating leases  $399,821   $921,995    532,672    2,782,469 
Right-of-use assets obtained in exchange for new operating leases liabilities   671,059    159,758    20,183,459    (332,682)
Weighted average remaining lease term - Operating leases (years)   14.6    1.1    14.6    1.1 
Weighted average discount rate - Operating leases   4.90%   4.75%   4.90%   4.75%

 

F-13

 

 

The following table summarizes the maturity of operating lease liabilities:

  

Years ending December 31  Lease cost 
2024  $1,132,384 
2025   1,077,906 
2026   1,012,052 
2027   1,177,909 
2028 and there after   26,030,167 
Total lease payments   30,430,418 
Less: Interest   (10,321,433)
Total  $20,108,985 

 

18. SHARE CAPITAL

 

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.

 

19. 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 7.10 and 6.87 as of December 31, 2023 and March 31, 2023, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 7.148 and 6.603 for the three months ended December 31, 2023 and 2022, 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, 2023 and March 31, 2023.

 

F-14

 

 

Garment manufacturing segment

  

   December 31, 2023   March 31, 2023 
Customer A   89.3%   82.5%
Customer B   10.7%   9.9%

 

The high concentration as of December 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

 

   December 31, 2023   March 31, 2023 
Customer A   23.4%   11.4%
Customer B   16.9%   10.2%
Customer C   11.0%   6.4%
Customer D   9.1%   14.1%
Customer E   4.8%   Nil 

 

Property management and subleasing segment

 

There is no account receivable for Property management and subleasing segment as for December 31, and March 31, 2023.

 

Concentration on customers

 

For the three months ended December 31, 2023, two customers from Logistics services segment provided more than 10% of total revenue of the Company, together representing 31.8% of total revenue of the Company for the three months. For the three months ended December 31, 2022, one customer provided more than 10% of total revenue of the Company, representing 11.8% of total revenue of the Company for the three months. For the nine months ended December 31, 2023, one customer from Logistics services segment provided more than 10% of total revenue of the Company, representing 16.5% of total revenue of the Company for the nine months. For the nine months ended December 31, 2022, one customer provided more than 10% of total revenue of the Company, representing 10.8% of total revenue of the Company 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.

 

Concentration on suppliers

 

The following tables summarized the purchases from five largest suppliers of each of the reportable segments for the three and nine months ended December 31, 2023 and 2022.

  

   Three months ended   Nine months ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Garment manufacturing segment   Nil %   Nil %   Nil %   Nil %
Logistics services segment   100%   100.0%   100%   100.0%
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, 2023, the total outstanding borrowings amounted to $309,175 (RMB2,194,255) with various interest rate from 3.9% to 6.72% p.a. (Note 13)

 

F-15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended December 31, 2023 and 2022 should be read in conjunction with the Financial Statements and corresponding notes included in this Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

 

Overview

 

Our Business

 

We, Addentax Group Corp., are a Nevada holding company with no material operations of our own. We conduct substantially all of our operations through our operating companies established in the PRC, primarily Shenzhen Qianhai Yingxi Industrial Chain Service Co., Ltd. (“YX”), our wholly owned subsidiary and its subsidiaries. We are not a Chinese operating company. We are a holding company and do not directly own any substantive business operations in China. Therefore, our investors will not directly hold any equity interests in our operating companies. Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our operating structure, which would likely result in a material change in our operations and/or the value of our common stock, including that it could cause the value of such securities to significantly decline or become worthless. Our holding company, Addentax Group Corp., is listed on the Nasdaq Capital Market under the symbol “ATXG”. We classify our businesses into three segments: garment manufacturing, logistics services, property management and subleasing.

 

Unless the context otherwise requires, all references in this annual report to “Addentax” refer to Addentax Group Corp., a holding company, and references to “we,” “us,” “our,” the “Registrant”, the “Company,” or “our company” refer to Addentax and/or its consolidated subsidiaries. Addentax Group Corp., our Nevada holding company, is the entity in which our investors are investing.

 

Our subsidiaries include (i) Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles company; (ii) Yingxi Industrial Chain Investment Co., Ltd., a Hong Kong company (“Yingxi HK”); (iii) Qianhai Yingxi Textile & Garments Co., Ltd., a PRC company; (iv) Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd, a PRC company (“YX”), (v) Dongguan Heng Sheng Wei Garments Co., Ltd, a PRC company (“HSW”), (vi) Dongguan Yushang Clothing Co., Ltd, a PRC company (“YS”), (vii) Shantou Yi Bai Yi Garment Co., Ltd, a PRC company (“YBY”), (viii) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (ix) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (x) Shenzhen Yingxi Tongda Logistic Co., Ltd, a PRC company (“TD”), (xi) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (xii) Dongguan Aotesi Garments Co., Ltd., a PRC company (“AOT”), (xiii) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).

 

PRC Subsidiaries” refer to, collectively, (i) Qianhai Yingxi Textile & Garments Co., Ltd.; (ii) Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), (iii) Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), (iv) Dongguan Yushang Clothing Co., Ltd (“YS”); (v) Shantou Yi Bai Yi Garment Co., Ltd (“YBY”); (vi) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (vii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (viii) Shenzhen Yingxi Tongda Logistic Co., Ltd, a PRC company (“TD”),,(ix) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (x) Dongguan Aotesi Garments Co., Ltd., a PRC company (“AOT”), (xi) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).

 

WFOE” refers to Qianhai Yingxi Textile & Garments Co., Ltd, a wholly foreign owned enterprise in China, which is indirectly wholly owned by Addentax Group Corp.

 

Our garment manufacturing business consists of sales made principally to wholesaler located in the PRC. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and timely meet the delivery requirements for our customers. We conduct our garment manufacturing operations through five wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Dongguan Yushang Clothing Co., Ltd (“YS”), Shantou Yi Bai Yi Garment Co., Ltd (“YBY”), Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd (“ZHJ”), and Dongguan Aotesi Garments Co., Ltd., (“AOT”), which are located in the Guangdong province, China.

 

Our logistics business consists of delivery and courier services covering 86 cities in 11 provinces and 3 municipalities   in China. Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through three wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”) and Shenzhen Yingxi Tongda Logistic Co., Ltd (“TD”), which are located in the Guangdong province, China.

 

Our property management and subleasing business provides shops subleasing and property management services for garment wholesalers and retailers in the garment market. We conduct our property management and subleasing operation through a wholly owned subsidiary, namely Dongguan Yingxi Daying Commercial Co., Ltd. (“DY”), which is located in the Guangdong province, China.

 

3

 

 

Business Objectives

 

Garment Manufacturing Business

 

We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit.

 

Logistics Services Business

 

The business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31, 2023, we provide logistics services to over 86 cities in approximately 11 provinces and 3 municipalities  . We expect to develop an additional 20 logistics points in existing serving cities and improve the Company’s profit in the year 2024.

 

Property Management and Subleasing Business

 

The business objective of our property management and subleasing segment is to integrate resources in shopping mall, develop e-commerce bases and the Internet celebrity economy together to drive to increase the value of the stores in the area. The short-term goal for the year is to increase the occupancy rate of stores in the mall to more than 70%. In February 2023, the Company disposed of DY to an independent third party at fair value, which was also its carrying value as of February 28, 2023. In September 2023, we finished the acquisition of HX.

 

Seasonality of Business

 

Our business is affected by seasonal trends, with higher levels of garment sales during our second and third quarters and higher logistics services revenue during our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistics services segment.

 

Collection Policy

 

Garment manufacturing business

 

For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following their acknowledgement of receipt of goods.

 

Logistics services business

 

For logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registration of our receipt of packages.

 

Property management and subleasing business

 

For property management and subleasing business, we generally collect rental and management fees of the following month each month in advance.

 

4

 

 

Economic Uncertainty

 

Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.

 

Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.

 

Summary of Critical Accounting Policies

 

We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.

 

Estimates and Assumptions

 

We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

Revenue Recognition

 

Revenue is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount:

 

  (i) identification of the promised goods and services in the contract;
     
  (ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract;
     
  (iii) measurement of the transaction price, including the constraint on variable consideration;
     
  (iv) allocation of the transaction price to the performance obligations; and
     
  (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 

5

 

 

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.

 

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.

 

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. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the 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.

 

Recently issued accounting pronouncements

 

In September 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.

 

Results of Operations for the three months ended December 31, 2023 and 2022

 

The following tables summarize our results of operations for the three months ended December 31, 2023 and 2022. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

  

Three Months Ended

December 31,

   Changes in 2023 
   2023   2022   compared to 2022 
   (In U.S. dollars, except for percentages)     
Revenue  $1,468,496    100.0%  $2,122,242    100%  $(653,746)   (30.8)%
Cost of revenues   (1,306,169)   (88.9)%   (1,514,780)   (71.4)%   208,611    13.8%
Gross profit   162,327    11.1%   607,462    28.6%   (445,135)   (73.3)%
Operating expenses   (611,919)   (41.7)%   (700,429)   (33.0)%   (88,510)   12.6%
(Loss) Income from operations   (449,592)   (30.6)%   (92,967)   4.4%   (356,625)   (383.6)%
Other income, net   111,566    7.6%   19,232    0.9%   92,334    480.1%
Fair value gain   (1,738,593)   (118.4)%   -    -    (1,738,593)     
Net finance cost   (527,818)   (35.9)%   (299)   (0.0)%   (527,519)   (26563.1)%
Income tax expense   (3,225)   (0.2)%   (8,184)   (0.4)%   4,959    60.6%
Net (loss) income  $(2,607,662)   (177.6)%  $(82,218)   (3.9)%  $(2,525,444)   (3071.6)%

 

6

 

 

Revenue

 

Total revenue for the three months ended December 31, 2023 decreased by approximately $0.7 million, or 30.8%, as compared with the three months ended December 31, 2022. The decrease was mainly due to the decrease of $0.6 million in property management and subleasing business and $0.1 million decrease in garment manufacturing business.

 

Revenue generated from our garment manufacturing business contributed approximately $0.03 million or 1.8% of our total revenue for the three months ended December 31, 2023. Revenue generated from garment manufacturing business contributed approximately $0.1 million or 4.7% of our total revenue for the three months ended December 31, 2022, respectively. The low level of sales was mainly due to factory facilities renewal and repair, remaining factories cannot provide the same capacity as previously. We estimate the capacity will recover at the last quarter of the fiscal year ending 2024.

 

Revenue generated from our logistics services business contributed approximately $1.2 million or 81.0% of our total revenue for the three months ended December 31, 2023. Revenue generated from our logistic business contributed approximately $1.2 million or 57.2% of our total revenue for the three months ended December 31, 2022.

 

Revenue generated from our property management and subleasing business was $0.3 million or 17.2% of our total revenue for the three months ended December 31, 2023. The revenue from this business segment was $0.8 million or 37.5% of our total revenue of this business for the three months ended December 31, 2022.

 

Cost of revenue

 

  

Three months ended

December 31,

   Increase
(decrease) in
 
   2023   2022   2023 compared
to 2022
 
   (In U.S. dollars, except for percentages)         
Net revenue for garment manufacturing  $27,015    100.0%  $100,723    100%  $(73,708)   (73.2)%
Raw materials   4,238    15.7%   771    0.8%   3,467    449.7%
Labor   6,957    25.8%   64,108    63.7%   (57,151)   (89.1)%
Other and Overhead   (1,292)   (4.8)%   2,761    2.7%   (4,053)   (146.8)%
Total cost of revenue for garment manufacturing   9,903    36.7%   67,640    67.2%   (57,737)   (85.4)%
Gross profit (loss) for garment manufacturing   17,112    63.3%   33,083    32.8%   (15,971)   (48.3)%
                               
Net revenue for logistics services   1,189,004    100.0%   1,213,530    100.0%   (24,526)   (2.0)%
Fuel, toll and other cost of logistics services   495,352    41.6%   648,971    53.5%   (153,619)   (23.7)%
Subcontracting fees   560,735    47.2%   253,359    20.9%   307,376    121.3%
Total cost of revenue for logistics services   1,056,087    88.8%   902,330    74.4%   153,757    17.0%
Gross Profit for logistics services   132,917    11.2%   311,200    25.6%   (178,283)   (57.3)%
                               
Net revenue for property management and subleasing   252,477    100.0%   796,343    100.0%   (543,866)   (68.3)%
Total cost of revenue for property management and subleasing   236,291    93.6%   536,732    67.4%   (300,442)   (56.0)%
Gross Profit for property management and subleasing   16,186    6.4%   259,611    32.6%   (243,425)   (93.8)%
                               
Net revenue for corporate and others  $-    0%  $11,646    100.0%   (11,646)   (100.0)%
Merchandise/Finished goods/Raw materials   3,888    0%   8,078    69.4%   (4,190)   (51.9)%
Total cost of revenue for corporate and others   3,888    0%   8,078    69.4%   (4,190)   (51.9)%
Gross (loss) income for corporate and others   (3,888)   0%   3,568    30.6%   (7,456)   (209.0)%
Total cost of revenue  $1,306,169    88.9%  $1,514,780    71.4%  $(208,611)   (13.8)%
Gross profit  $162,327    11.1%  $607,462    28.6%  $(445,135)   (73.3)%

 

7

 

 

For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers.

 

Raw material costs for our garment manufacturing business was approximately 15.7% of our total garment manufacturing business revenue for the three months ended December 31, 2023, as compared with 0.8% for the three months ended December 31, 2022.

 

Labor costs for our garment manufacturing business was approximately 25.8% of our total garment manufacturing business revenue for the three months ended December 31, 2023, as compared with 63.7% for the three months ended December 31, 2022.

 

Overhead and other expenses for our garment manufacturing business accounted for approximately (4.8)% of our total garment business revenue for the three months ended December 31, 2023, as compared with 2.7% of total garment business revenue for the three months ended December 31, 2022.

 

For our logistic business, we outsource some of our business to our contractors. The Company relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately 53.1% and 28.1  % of total cost of revenues for our service segment for the three months ended December 31, 2023 and 2022, respectively. The increase was attributed to a decrease usage of our own logistics as compared to the subcontractor.   We have not experienced any dispute with our subcontractors and we believe we maintain good relationships with our contract logistics services provider.

 

Fuel, toll and other costs for our service business for the three months ended December 31, 2023 was approximately $0.5 million as compared with $0.6 million for the three months ended December 31, 2022. Fuel, toll and other costs for our service business accounted for approximately 41.6% of our total service revenue for the three months ended December 31, 2023, as compared with 53.5% for the three months ended December 31, 2022. The decrease was primarily attributable to an increase of subcontractors usage after the COVID-19 epidemic.

 

Subcontracting fees for our service business for the three months ended December 31, 2023 increased significantly by approximately 121.3% to $0.6 million from $0.3 million for the three months ended December 31, 2022. Subcontracting fees accounted for approximately 47.2% and 20.9% of our total service business revenue in the three months ended December 31, 2023 and 2022, respectively. The increase was primarily attributable to a decrease usage of our own logistics as compared to the subcontractors after the COVID-19 epidemic.

 

8

 

 

For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The Company disposed of DY in February 2023 and acquired HX in September 2023. Therefore, the revenue in the quarter was only $0.3 million compared to $0.8 million for the three months ended December 31, 2022.

 

Gross profit

 

Garment manufacturing business gross profit for the three months ended December 31, 2023 was approximately $17,113, as compared with gross profit of approximately $33,082 for the three months ended December 31, 2022. Gross profit accounted for approximately 63.3% of our total garment manufacturing business revenue for the three months ended December 31, 2023.

 

Gross profit in our logistics services business for the three months ended December 31, 2023 was approximately $132,917 and gross margin was 11.2%. Gross profit in our logistics services business for the three months ended December 31, 2022 was approximately $311,300 and gross margin was 25.6%. The decrease of gross profit ratio was mainly because the subsidiary PF used more subcontractors to proceed the orders which increase the cost of revenue.  

 

Gross profit in our property management and subleasing business for the three months ended December 31, 2023 was approximately $16,186, or 6.4% of revenue of the segment. It was approximately $259,611, or 32.6% margin for the three months ended December 31, 2022.

 

  

Three months ended

December 31,

   Increase
(decrease) in
 
   2023   2022   2023 compared
to 2022
 
   (In U.S. dollars, except for percentages)         
Gross profit  $162,327    100%  $607,462    100%   (445,135)   (73.3)%
Operating expenses:                              
Selling expenses   (95,321)   (58.7)%   (24,511)   (4.0)%   (70,810)   288.9%
General and administrative expenses   (516,598)   (318.2)%   (675,918)   (111.3)%   159,320    (23.6)%
Total  $(611,919)   (377.0)%  $(700,429)   (115.3)%   88,510    (12.6)%
(Loss) Income from operations  $(449,592)   (277.0)%  $(92,967)   (15.3)%   (356,625)   383.6%

 

Selling, General and administrative expenses

 

Our selling expenses were mainly incurred for our property management and subleasing business. It was $81,817 for property management and subleasing business and $13,504 for garments manufacturing business for the three months ended December 31, 2023 It was approximately $24,511 for property management and subleasing business for the three months ended December 31, 2022. Selling expenses consisted primarily of advertisement, local transportation, unloading charges and product inspection charges.

 

Our general and administrative expenses in our garment manufacturing business segment for the three months ended December 31, 2023 and 2022 was approximately $34,008 and $25,228, respectively. Our general and administrative expenses in our logistics services segment for the three months ended December 31, 2023 and 2022 was approximately $174,618 and $220,052, respectively. The general and administrative expenses in our property management and subleasing business was approximately $132,336 and $103,999 for the three months ended December 31, 2023 and 2022, respectively. Our general and administrative expenses in our corporate office for the three months ended December 31, 2023 and 2022 was approximately $175,636 and $326,639, respectively. General and administrative expenses consisted primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.

 

9

 

 

Total general and administrative expenses for the three months ended December 31, 2023 decreased by approximately 23.6% to $516,598 from $675,918 for the three months ended December 31, 2022.

 

(Loss) Income from operations

 

Loss from operations for the three months ended December 31, 2023 was approximately $449,592, while loss from operations for the three months ended December 31, 2022 was $92,967. Loss from operations of approximately $30,398 and income from operations of $7,745 was attributed from our garment manufacturing segment for the three months ended December 31, 2023 and 2022, respectively. Loss from operations of approximately $41,699 and income from operations of approximately $91,147 was attributed from our logistics services segment for the three months ended December 31, 2023 and 2022, respectively. Loss from operations of approximately $168,012 and income from operations of $131,213 for the three months ended December 31, 2023 and 2022 was attributed from our property management and subleasing business, respectively. We incurred expenses from operations in corporate office of approximately $209,483 and $324,046 for the three months ended December 31, 2023 and 2022, respectively. The decrease of expenses from our corporate office was mainly due to decrease in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.

 

Income Tax Expenses

 

Income tax expense for the three months ended December 31, 2023 and 2022 was approximately $3,255 and $8,184, respectively. 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 tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended December 31, 2023 and 2022.

 

QYTG and YX were incorporated in the PRC and are subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the three months ended December 31, 2023 and 2022.

 

The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2023. The preferential tax rates will be expired at end of year 2023.

 

The Company’s parent entity, Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended December 31, 2023 and 2022.

 

Net Income (Loss)

 

We incurred net loss of approximately $2.6 million for the three months ended December 31, 2023 and a net loss of approximately $0.08 million for the three months ended December 31, 2022. Our basic and diluted loss per share were $0.66 and $0.00 for the three months ended December 31, 2023 and 2022, respectively.

 

10

 

 

Results of Operations for the nine months ended December 31, 2023 and 2022

 

The following tables summarize our results of operations for the nine months ended December 31, 2023 and 2022. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report.

 

  

Nine Months Ended

December 31,

   Changes in 2023 
   2023   2022   compared to 2022 
   (In U.S. dollars, except for percentages)     
Revenue  $3,856,316    100%  $6,652,645    100.0%  $(2,796,329)   (42.0)%
Cost of revenues   (3,054,193)   (79.2)%   (5,023,338)   (75.5)%   1,969,145    39.2%
Gross profit   802,123    20.8%   1,629,307    24.5%   (827,184)   (50.8)%
Operating expenses   (1,817,596)   (47.1)%   (1,606,020)   (24.1)%   (211,576)   (13.2)%
(Loss) Income from operations   (1,015,473)   (26.3)%   23,287    0.4%   (1,038,760)   (4460.7)%
Other income, net   (357,848)   (9.3)%   93,288    1.4%   (451,136)   (483.6)%
Fair value gain   (172,001)   (4.5)%   

-

    -    (172,001)   - 
Net finance cost   (2,420,935)   (62.8)%   34    (0.0)%   (2,420,969)   36365.7%
Income tax expense   (7,726)   (0.2)%   (18,939)   (0.3)%   11,213    59.2%
Net (loss) income  $(3,973,983)   (103.1)%  $97,670    1.5%  $(4,071,653)   (4168.8)%

 

Revenue

 

Total revenue for the nine months ended December 31, 2023 decreased by approximately $2.8 million, or 42.0%, as compared with the nine months ended December 31, 2022. The decrease was mainly due to the decrease of $0.4 million in logistics services and $2.3 million in property management and subleasing business.

 

Revenue generated from our garment manufacturing business contributed approximately $0.2 million or 4.5% of our total revenue for the nine months ended December 31, 2023. Revenue generated from garment manufacturing business contributed approximately $0.1 million or 2.1% of our total revenue for the nine months ended December 31, 2022, respectively. The low level of sales was mainly due to factory facilities renewal and repair, remaining factories cannot provide the same capacity as previously. We estimate the capacity will appear to recover at last quarter of for the fiscal year ending 2024.

 

11

 

 

Revenue generated from our logistics services business contributed approximately $3.4 million or 87.5% of our total revenue for the nine months ended December 31, 2023. Revenue generated from our logistic business contributed approximately $3.8 million or 57.5% of our total revenue for the nine months ended December 31, 2022.

 

Revenue generated from our property management and subleasing business was $0.3 million or 8.1% of our total revenue for the nine months ended December 31, 2023. The revenue from this business segment was $2.7 million or 40.2% of our total revenue of this business for the nine months ended December 31, 2022.

 

Cost of revenue

 

  

Nine months ended

December 31,

   Increase
(decrease) in
 
   2023   2022   2023 compared
to 2022
 
   (In U.S. dollars, except for percentages)         
Net revenue for garment manufacturing  $172,106    100.0%  $142,010    100.0%  $30,096    21.2%
Raw materials   30,187    17.5%   28,323    19.9%   1,864    6.6%
Labor   100,097    58.2%   73,376    51.7%   26,721    36.4%
Other and Overhead   1,389    0.8%   4,380    3.1%   (2,991)   (68.3)%
Total cost of revenue for garment manufacturing   131,673    76.5%   106,079    74.7%   25,595    24.1%
Gross profit for garment manufacturing   40,433    23.5%   35,931    25.3%   4,502    12.5%
                               
Net revenue for logistics services   3,373,670    100.0%   3,826,070    100.0%   (452,400)   (11.8)%
Fuel, toll and other cost of logistics services   1,496,570    44.4%   1,916,957    50.1%   (420,387)   (21.9)%
Subcontracting fees   1,181,160    35.0%   890,660    23.3%   290,500    32.6%
Total cost of revenue for logistics services   2,677,730    79.4%   2,807,617    73.4%   (129,887)   (4.6)%
Gross Profit for logistics services   695,940    20.6%   1,018,453    26.6%   (322,513)   (31.7)%
                               
Net revenue for property management and subleasing   310,540    100.0%   2,671,379    100.0%   (2,360,839)   (88.4)%
Total cost of revenue for property management and subleasing   240,902    77.6%   2,099,050    78.6%   (1,858,148)   (88.5)%
Gross Profit for property management and subleasing   69,638    22.4%   572,329    21.4%   (502,691)   (87.8)%
                               
Net revenue for supplies corporate and others  $-    -   $13,186    100.0%          
Other and Overhead   3,888    -    10,592    80.3%   (6,704)   (63.3)%
Total cost of revenue for corporate and others   3,888    -    10,592    80.3%   (6,704)   (63.3)%
Gross (loss) income for corporate and others   (3,888)   -    2,594    19.7%   (6,482)   (249.9)
Total cost of revenue  $3,054,193    79.2%  $5,023,338    75.5%  $(1,969,145)   (39.2)%
Gross profit  $802,123    20.8%  $1,629,307    24.5%  $(827,184)   (50.8)%

 

12

 

 

For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers.

 

Raw material costs for our garment manufacturing business was approximately 17.5% of our total garment manufacturing business revenue for the nine months ended December 31, 2023, as compared with 19.9% for the nine months ended December 31, 2022. The decrease in percentages was mainly due to the company develop new raw material suppliers..

 

Labor costs for our garment manufacturing business was approximately 58.2% of our total garment manufacturing business revenue for the nine months ended December 31, 2023, as compared with 51.7% for the nine months ended December 31, 2022. The increase was mainly due to rising of salary.   

 

Overhead and other expenses for our garment manufacturing business accounted for approximately 0.8% of our total garment business revenue for the nine months ended December 31, 2023, as compared with 3.1% of total garment business revenue for the nine months ended December 31, 2022.

 

For our logistic business, we outsource some of our business to our contractors. The Company relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately 39.9% and 25.8% of total cost of revenues for our service segment for the nine months ended December 31, 2023 and 2022, respectively. The increase was attributed to a decrease usage of our own logistics as compared to the subcontractors after the COVID-19 epidemic. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services provider.

 

Fuel, toll and other costs for our service business for the nine months ended December 31, 2023 was approximately $1.5 million as compared with $1.9 million for the nine months ended December 31, 2022. Fuel, toll and other costs for our service business accounted for approximately 44.4% of our total service revenue for the nine months ended December 31, 2023, as compared with 50.1% for the nine months ended December 31, 2022. The decrease was primarily attributable to an increase of usage of subcontractors after the COVID-19 epidemic.

 

Subcontracting fees for our service business for the nine months ended December 31, 2023 increased approximately 32.6% to $1.2 million from $0.9 million for the nine months ended December 31, 2022. Subcontracting fees accounted for 35.0% and 23.3% of our total service business revenue in the nine months ended December 31, 2023 and 2022, respectively. The increase was primarily attributable a decrease usage of our own logistics as compared to the subcontractors after the COVID-19 epidemic.

 

13

 

 

For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business.

 

Gross profit

 

Garment manufacturing business gross profit for the nine months ended December 31, 2023 was approximately $40,433, as compared with approximately $35,931 for the nine months ended December 31, 2022. Gross profit accounted for 23.5% of our total garment manufacturing business revenue for the nine months ended December 31, 2023, as compared to 25.3% for the nine months ended December 31, 2022.

 

Gross profit in our logistics services business for the nine months ended December 31, 2023 was approximately $695,940 and gross margin was 20.6%. Gross profit in our logistics services business for the nine months ended December 31, 2022 was approximately $1,018,453 and gross margin was 26.6%. The decrease of gross profit ratio was mainly because the subsidiary PF used more subcontractors to proceed the orders which increase the cost of revenue.  

 

Gross profit in our property management and subleasing business for the nine months ended December 31, 2023 was $69,639, or 22.4% gross margin. It was approximately $572,329, or 21.4% for the nine months ended December 31, 2022. The decrease was due to disposal of DY.

 

  

Nine months ended

December 31,

   Increase
(decrease) in
 
   2023   2022   2023 compared
to 2022
 
   (In U.S. dollars, except for percentages)         
Gross profit  $802,123    100.0%  $1,629,307    100.0%   (827,184)   (50.8)%
Operating expenses:                              
Selling expenses   (132,533)   (16.5)%   (60,155)   (3.7)%   (72,378)   (120.3)%
General and administrative expenses   (1,685,063)   (210.1)%   (1,545,865)   (94.9)%   (139,198)   (9.0)%
Total  $(1,817,596)   (226.6)%  $(1,606,020)   (98.6)%   (211,576)   (13.2)%
(Loss) Income from operations  $(1,015,473)   (126.6)%  $23,287    1.4%   (1,038,760)   (4460.7)%

 

Selling, General and administrative expenses

 

Our selling expenses were mainly incurred for our property management and subleasing business. It consisted of $13,857 for garments manufacturing segment and approximately $118,676 for our property management and subleasing business for the nine months ended December 31, 2023. It was $60,155 for property management and subleasing business for the nine months ended December 31, 2022. Selling expenses consisted primarily of advertisement, local transportation, unloading charges and product inspection charges.

 

Our general and administrative expenses in our garment manufacturing business segment for the nine months ended December 31, 2023 and 2022 was approximately $98,117 and $84,821, respectively. Our general and administrative expenses in our logistics services segment for the nine months ended December 31, 2023 and 2022 was approximately $562,696 and $654,883, respectively. The general and administrative expenses in our property management and subleasing business was approximately $132,336 and $257,351 for the nine months ended December 31, 2023 and 2022, respectively. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2023 and 2022 was approximately $891,914 and $548,810, respectively. General and administrative expenses consisted primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.

 

14

 

 

Total general and administrative expenses for the nine months ended December 31, 2023 increased by approximately 9.0% to $1.7 million from $1.5 million for the nine months ended December 31, 2022.

 

(Loss) Income from operations

 

Loss from operations for the nine months ended December 31, 2023 was approximately $1.0 million, while income from operations for the nine months ended December 31, 2022 was $23,287. Loss from operations of approximately $71,541 and $48,999 for the nine months ended December 31, 2023 and 2022 was attributed from our garment manufacturing segment, respectively. Income from operations of approximately $132,530 and $363,569 was attributed from our logistics services segment for the nine months ended December 31, 2023 and 2022, respectively. Loss from operations of approximately $181,372 and income of $254,934 for the nine months ended December 31, 2023 and 2022 was attributed from our property management and subleasing business, respectively. We incurred expenses from operations in corporate office of approximately $895,090 and $546,217 for the nine months ended December 31, 2023 and 2022, respectively. The increase of expenses from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.

 

Income Tax Expenses

 

Income tax expense for the nine months ended December 31, 2023 and 2022 was approximately $7,726 and $18,939, respectively. 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 tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the nine months ended December 31, 2023 and 2022.

 

QYTG and YX were incorporated in the PRC and are subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the nine months ended December 31, 2023 and 2022.

 

The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2023. The preferential tax rates will be expired at end of year 2023.

 

The Company’s parent entity, Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the nine months ended December 31, 2023 and 2022.

 

Net Income (Loss)

 

We incurred net loss of approximately $4.0 million for the nine months ended December 31, 2023 and a net income of approximately $0.1 million for the nine months ended December 31, 2022. Our basic and diluted earnings per share were ($1.0) and $0.00 for the nine months ended December 31, 2023 and 2022, respectively.

 

Summary of cash flows

 

Summary cash flows information for the nine months ended December 31, 2023 and 2022 is as follow:

 

  

Nine months ended

December 31,

 
   2023   2022 
   (In U.S. dollars) 
Net cash used in operating activities  $(1,521,802)  $(1,528,118)
Net cash provided by (used in) investing activities  $90,863   $(17,500,000)
Net cash provided by financing activities  $1,332,470   $19,240,977 

 

Net cash used in operating activities in the nine months ended December 31, 2023 was $1.5 million, nearly the same as that of the nine months ended December 31, 2022.

 

Net cash provided by investing activities in the nine months ended December 31, 2023 was consist of $0.1 million purchase of property and equipment and long-term prepayment and $0.2 million cash from acquired investee. Net cash used in investing activities in the nine months ended December 31, 2022 was for investment in debt securities.

 

Net cash provided by financing activities for the nine months ended December 31, 2023 included $3.9 million released from restricted cash, proceeds from bank borrowings of $0.2 million and net repayment of $2.7 million to related parties. Net cash provided by financing activities for the nine months ended December 31, 2022 included $20.2 million proceeds from its public offering and $1.0 million net repayment to related parties.

 

Financial Condition, Liquidity and Capital Resources

 

As of December 31, 2023, we had cash on hand of approximately $0.5 million, total current assets of approximately $30.3 million and current liabilities of approximately $5.4 million. We presently finance our operations from revenue, fund raising from our initial public offering proceeds and capital contributions from our chief executive officer, Mr. Hong Zhida (the “CEO”).

 

In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing.

 

Foreign Currency Translation Risk

 

Our operations are located in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In last year, RMB depreciated against the U.S. dollar. As of December 31, 2023, the market foreign exchange rate was RMB 7.10 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the nine months ended December 31, 2023 and 2022 was approximately $0.05 million and $0.2 million respectively.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 2023 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

15

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

 

Changes in Internal Controls over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

16

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.

 

Item 1A. Risk Factors

 

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

There is no other information required to be disclosed under this item, which was not previously disclosed.

 

Item 6. Exhibits

 

Exhibit

Number

  Description
(31)   Rule 13a-14 (d)/15d-14d) Certifications
31.1*   Section 302 Certification by the Principal Executive Officer
31.2*   Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer
(32)   Section 1350 Certifications
32.1*   Section 906 Certification by the Principal Executive Officer
32.2*   Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer
101*   Interactive Data File
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

*Filed herewith.

 

17

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Addentax Group Corp.    
     
Date: February 14, 2024 By: /s/ Hong Zhida
    Hong Zhida
    President, Chief Executive Officer and Director,
    (Principal Executive Officer)
     
Date: February 14, 2024 By: /s/ Huang Chao
    Huang Chao
    Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)

 

18