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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: June 30, 2024

 

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 August 14, 2024, there were 6,043,769 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 13
     
Item 4. Controls and Procedures 13
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 14
     
Item 1A. Risk Factors 14
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
Item 3. Defaults Upon Senior Securities 14
     
Item 4. Mine Safety Disclosures 14
     
Item 5. Other Information 14
     
Item 6. Exhibits 14

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements and Supplementary Data

 

ADDENTAX GROUP CORP.

 

FINANCIAL STATEMENTS

 

For the three months ended June 30, 2024 and 2023

 

TABLE OF CONTENTS

 

Condensed Consolidated Balance sheets as of June 30, 2024 and March 31, 2024 (unaudited) F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the Three months ended June 30, 2024 and 2023 (unaudited) F-3
Condensed Consolidated Statements of Changes in Equity for the three months ended June 30, 2024 and 2023 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2024 and 2023 (unaudited) F-5
Notes to Condensed Consolidated Financial Statements for the three months ended June 30, 2024 and 2023 (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)

(UNAUDITED)

 

   June 30, 2024   March 31, 2024 
         
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $904,171   $816,186 
Restricted cash   2,750,000    2,750,000 
Accounts receivables, net   1,289,037    2,106,451 
Debt securities held-to-maturity   17,500,000    17,500,000 
Inventories   170,955    63,505 
Prepayments and other receivables   2,151,432    1,922,996 
Advances to suppliers   1,071,200    1,009,362 
Amount due from related party   3,469,667    3,012,892 
Total current assets   29,306,462    29,181,392 
           
NON-CURRENT ASSETS          
Plant and equipment, net   523,402    568,854 
Operating lease right of use asset   19,429,813    19,796,564 
Long-term prepayments   266,743    291,938 
Long-term receivables   2,500,000    2,500,000 
Total non-current assets   22,719,958    23,157,356 
TOTAL ASSETS  $52,026,420   $52,338,748 
           
LIABILITIES AND EQUITY          
           
CURRENT LIABILITIES          
Short-term loan  $573,696   $440,671 
Accounts payable   156,961    359,488 
Amount due to related parties   1,074,129    1,146,745 
Advances from customers   182,378    202,567 
Accrued expenses and other payables   1,312,779    1,372,962 
Operating lease liability current portion   1,050,897    1,059,497 
Total current liabilities   4,350,840    4,581,930 
           
NON-CURRENT LIABILITIES          
Convertible debts   3,518,999    2,684,697 
Derivative liabilities   153,477    287,955 
Operating lease liability   18,515,905    18,737,066 
Total non-current liabilities   22,188,381    21,709,718 
TOTAL LIABILITIES  $26,539,221   $26,291,648 
           
EQUITY          
Common stock ($0.001 par value, 250,000,000 shares authorized, 6,043,769 and 5,383,769 shares issued and outstanding at June 30 and March 31, 2024, respectively)  $6,044   $5,384 
Additional paid-in capital   35,157,009    34,510,869 
Accumulated Deficit   (9,790,301)   (8,569,190)
Statutory reserve   37,020    37,020 
Accumulated other comprehensive loss   77,427    63,017 
Total equity   25,487,199    26,047,100 
TOTAL LIABILITIES AND EQUITY  $52,026,420   $52,338,748 

 

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)

 

   2024   2023 
  

Three months ended

June 30,

 
   2024   2023 
         
REVENUES  $851,033   $1,052,506 
           
COST OF REVENUES   (648,438)   (815,597)
           
GROSS PROFIT   202,595    236,909 
           
OPERATING EXPENSES          
Selling and marketing   (139,360)   - 
General and administrative   (568,251)   (497,858)
Total operating expenses   (707,611)   (497,858)
           
(LOSS) INCOME FROM OPERATIONS   (505,016)   (260,949)
           
Fair value gain or loss   134,217    (1,288,003)
Interest income   368    1,724 
Interest expenses   (847,682)   (1,292,715)
Other income (expense), net   (2,514)   112,486 
           
(LOSS) INCOME BEFORE INCOME TAX EXPENSE   (1,220,627)   (2,727,457)
INCOME TAX EXPENSE   (484)   (1,264)
           
NET (LOSS) INCOME   (1,221,111)   (2,728,721)
Foreign currency translation gain (loss)   14,410    87,450 
TOTAL COMPREHENSIVE (LOSS) INCOME  $(1,206,701)  $(2,641,271)
           
EARNINGS (LOSS) PER SHARE          
Basic and diluted   (0.25)   (0.83)
Weighted average number of shares outstanding – Basic and diluted   4,822,421    3,273,964 

 

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)

 

   Shares   Amount   capital   Unrestricted   reserve   loss   Total Equity 
               Retained earnings   Accumulated     
           Additional   (accumulated deficit)   other     
   Common Stock   paid-in       Statutory   comprehensive     
   Shares   Amount   capital   Unrestricted   reserve   loss   Total Equity 
BALANCE AT MARCH 31, 2023   35,454,670   $35,455   $29,528,564   $(5,451,209)  $28,457   $(19,473)  $24,121,794 
Issuance of new shares   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    -    -    -    - 
Additional paid-in capital from conversion of convertible debts   -    -    2,846,038    -    -    -    2,846,038 
Foreign currency translation   -    -    -    -    -    87,450    87,450 
Net income for the period   -    -    -    (2,728,721)   -    -    (2,728,721)
BALANCE AT JUNE 30, 2023   3,739,581   $3,740   $32,406,317   $(8,179,930)  $28,457   $67,977   $24,326,561 
                                    
BALANCE AT MARCH 31, 2024   5,383,769   $5,384   $34,510,869   $(8,569,190)  $37,020   $63,017   $26,047,100
Issuance of new shares   660,000    660    646,140    -    -    -    646,800 
Foreign currency translation   -    -    -    -    -    14,410    14,410 
Net income for the period   -    -    -    (1,221,111)   -    -    (1,221,111)
BALANCE AT JUNE 30, 2024   6,043,769   $6,044   $35,157,009   $(9,790,301)  $37,020   $(77,427)  $25,487,199 

 

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)

 

   2024   2023 
   Three Months Ended June 30 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(1,221,111)  $(2,728,721)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation   431,299    74,783 
Non-cash financial cost   834,041    1,290,818 
Investment income   -    (109,375)
Fair value gain or loss   (134,217)   1,288,003 
Loss from sale of property and equipment   20,784    - 
Changes in operating assets and liabilities          
Accounts receivable   817,414    (104,404)
Inventories   (107,450)   19,786 
Advances to suppliers   (61,838)   (622,089)
Other receivables   (228,436)   (47,494)
Accounts payables   (226,787)   (25,659)
Accrued expenses and other payables   (296,695)   (144,374)
Advances from customers   (20,189)   (2,152)
Net cash used in operating activities  $(193,185)  $(1,110,878)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment and intangible assets   (27,364)   - 
Net cash used in investing activities  $(27,364)  $- 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from related party borrowings   113,827    1,451,157 
Repayment of related party borrowings   (179,247)   (1,831,373)
Release of restricted cash   -    1,350,000 
Proceeds from bank borrowings   334,372    - 
Repayment of bank borrowings   (198,490)   - 
Cash advance to related parties   (1,148,824)   - 
Repayment from related parties   738,023    - 
Proceeds from issue of ordinary shares   646,800    - 
Net cash provided by financing activities  $306,461   $969,784 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   85,912    (141,094)
Effect of exchange rate changes on cash and cash equivalents   2,073    65,598 
Cash and cash equivalents, beginning of the period   816,186    562,711 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD  $904,171   $487,215 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for interest  $13,311   $- 
Cash paid during the period for income tax  $484   $1,264 
Supplemental disclosure of non-cash investing and financing activities:          
Right-of-use assets obtained in exchange for operating lease obligations  $-   $1,219 

 

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, 2024 filed with the Securities and Exchange Commission (“SEC”) on July15, 2024 (“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.

 

There is no change in the accounting policies for the three months ended June 30, 2024.

 

Recently issued accounting pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

 

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. 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.

 

Hongye Financial Consulting (Shenzhen) Co., Ltd. provided guarantee to the consideration receivable of transfer of a debt security to a third party.

 

The Company had the following related party balances as of June 30, 2024 and March 31, 2024:

 

Amount due from related party  June 30, 2024   March 31, 2024 
Zhida Hong (1)  $2,521,174   $2,154,759 
Bihua Yang (2)   948,493    858,133 
Amount due from related party  $3,469,667   $3,012,892 

 

  (1) The increase of related party from Hong Zhida was short term loan to Hong Zhida, which is interest free and would be repaid in one year.
     
  (2) The increase of related party debt from Yang Bihua was mainly due to the cash paid in advance to Yang Bihua. During the quarter ended June 30, 2024, the Company provided a short term loan of approximately $0.35 million to Yang Bihua and received repayment of approximately $0.25 million from him.

 

 

Related party borrowings  June 30, 2024   March 31, 2024 
Hongye Financial Consulting (Shenzhen) Co., Ltd.   46,017    170,967 
Dewu Huang (3)   858,943    864,599 
Jinlong Huang   169,169    111,179 
Related party borrowings  $1,074,129   $1,146,745 

 

  (1) The increase of related party from Hong Zhida was short term loan to Hong Zhida, which is interest free and would be repaid in one year.
     
  (2) The increase of related party debt from Yang Bihua was mainly due to the cash paid in advance to Yang Bihua. During the quarter ended June 30, 2024, the Company provided a short term loan of approximately $0.35 million to Yang Bihua and received repayment of approximately $0.25 million from him.
     
  (3) The Company received financial support from Huang Dewu to fund company’s daily operation. The decrease is mainly due to repayment of the debt.

 

The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand.

 

5. DEBT SECURITIES HELD-TO-MATURITY

 

   June 30, 2024   March 31, 2024 
           
Debt securities held-to-maturity  $17,500,000   $ 17,500,000  

 

The Company purchased a note issued by a third-party investment company on August 24, 2022. The principal amount of the note is $17,500,000. The note is renewable with one-year tenor on August 23, 2023 and 2.5% p.a. coupon. As of June 30, and March 31, 2024, the coupon receivable was both $437,500. On August 23, 2023, the Company entered into an agreement to transfer the principal and coupon receivable to a third party. According to the agreement, the consideration receivable was $17,937,500 and interest free. The debt is guaranteed by Hongye Financial Consulting (Shenzhen) Co., Ltd., the company controlled by our CEO, Mr. Hong Zhida.

 

6. INVENTORIES

 

Inventories consist of the following as of June 30, and March 31, 2024:

 

   June 30, 2024   March 31, 2024 
Raw materials  $28,564   $20,947 
Work in progress   11,966    - 
Finished goods   130,425    42,558 
Total inventories  $170,955   $63,505 

 

F-7

 

 

7. ADVANCES TO SUPPLIERS

 

The Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand.

 

The Company reviews a supplier’s credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expense in the period they are considered unlikely to be collected.

 

8. PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables consist of the following as of June 30 and March 31, 2024:

 

   June 30, 2024   March 31, 2024 
Prepayment   29,813    34,693 
Deposit   736,659    741,465 
Receivable of consideration on disposal of subsidiaries   -    152,882 
Receivable of consideration of convertible note issued (Note)   437,500    437,500 
Other receivables   947,460    556,456 
Prepayments and other receivables  $2,151,432   $1,922,996 

 

Note: The coupon receivable of the debt security held-to-maturity was transferred together with the principal to a third party. It is guaranteed by Hongye Financial Consulting (Shenzhen) Co., Ltd., a company controlled by our CEO, Mr. Hong Zhida. (Note 5)

 

9. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consists of the following as of June 30 and March 31, 2024:

 

   June 30, 2024   March 31, 2024 
Production plant  $105,053   $105,738 
Motor vehicles   876,415    1,047,121 
Office equipment   52,145    52,486 
Property, plant and equipment gross   1,033,614    1,205,345 
Less: accumulated depreciation   (510,212)   (636,491)
Plant and equipment, net  $523,402   $568,854 

 

Depreciation expense for the three months ended June 30, 2024 and 2023 was $48,977 and $33,982, respectively.

 

F-8

 

 

10. 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.

 

11. 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 June 30, 2024, the Company has borrowed $129,931 (RMB944,255) (March 31, 2024: $130,779) under this line of credit with various annual interest rates from 4.34% to 4.9%. The outstanding loan balance was due on September 30, 2021. The Company was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable.

 

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 drawdown was in October 2023. Before that, the company did not exercise the agreement. As of June 30, 2024, the Company has borrowed $254,563 (RMB1,850,000) (March 31, 2024: $110,799) 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 $68,800 (RMB500,000) for daily operations. As of June 30, 2024, the Company has borrowed $51,600 (RMB375,000) (March 31, 2024: $60,593) under this line of credit with annual interest rate of 16.2%. The loan facility will be expired on December 26, 2025.

 

In March 2024, PF entered into a new facility agreement with WeBank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $137,602 (RMB1,000,000) for daily operations. As of June 30, 2024, the Company has borrowed $137,602 (RMB1,000,000) (March 31, 2024: $138,500) under this line of credit with annual interest rate of 8.244%. The loan facility will expire on March 22, 2026.

 

12. 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 June 30, 2024 and 2023.

 

YX, our wholly owned subsidiary, were incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the three months ended June 30, 2024 and 2023.

 

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 2024 and 2023. The preferential tax rate will be expired at end of year 2024 and the EIT rate will be 25% from year 2025.

 

The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2024 and 2023.

 

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:

 

   2024   2023 
   Three months ended 
   June 30, 
   2024   2023 
PRC statutory tax rate   25%   25%
Computed expected benefits (expense)   (305,157)   (681,864)
Temporary differences   24,191    6,150 
Permanent difference   32,612    82,125 
Changes in valuation allowance   248,838    594,853 
Income tax expense  $484   $1,264 

 

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 YXPF enjoyed the preferential VAT rate of 3% in 2024 and 2023. 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.

 

13. 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 months ended June 30, 2024 and 2023 are as follows:

 

Revenues from external customers  2024   2023 
   Three months ended
June 30,
 
Revenues from external customers  2024   2023 
Garments manufacturing segment  $86,602   $53,873 
Logistics services segment   486,507    998,633 
Property management and subleasing   277,924    - 
Total of reportable segments   851,033    1,052,506 
Corporate and other   -    - 
Total of reportable segments and consolidated revenue  $851,033   $1,052,506 
           
Intersegment revenue          
Garments manufacturing segment   -    - 

 

Loss from operations by segment for the three ended June 30, 2024 and 2023 are as follows:

 

   2024   2023 
   Three months ended 
   June 30, 
   2024   2023 
Garment manufacturing segment  $(63,645)  $(22,155)
Logistics services segment   20,879    1,934 
Property management and subleasing   (204,433)   - 
Total of reportable segments   (247,199)   (20,221)
Corporate and other   (257,817)   (240,728)
Total consolidated income from operations  $(505,016)  $(260,949)

 

Total assets by segment as of June 30 and March 31, 2024 are as follows:

 

Total assets  June 30,
2024
   March 31, 2024 
Garment manufacturing segment  $1,417,550   $1,357,761 
Logistics services segment   3,053,551    3,231,492 
Property management and subleasing   20,480,902    20,931,431 
Total of reportable segments   24,952,003    25,520,684 
Corporate and other   27,074,417    26,818,064 
Consolidated total assets  $52,026,420   $52,338,748 

 

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
June 30,
 
   2024   2023 
Revenues      - 
China   851,033    1,052,506 

 

   June 30, 2024   March 31, 2024 
Long-Lived Assets          
China   22,719,958    23,157,356 

 

F-11

 

 

14. 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 June 30, 2024, the balance of the Warrant was approximately $0.1 million (March 31, 2024: $2.0 million).

 

The Convertible Note is classified as a liability and is subsequently stated at amortized cost with any difference between the initial carrying value and the repayment amount as interest expenses using the effective interest method over the period from the issuance date to the maturity date. The embedded conversion feature should be bifurcated and separately accounted for using fair value, as this embedded feature is considered not clearly and closely related to the debt host. The bifurcated conversion feature was recorded at fair value with the changes recorded in the consolidated statements of operations and comprehensive loss. The initial fair value of the embedded conversion feature was $1.2 million. As of June 30, 2024, the fair value of the conversion option was $0.04 million (March 31, 2024: $0.04 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 Company’s convertible notes obligations were as the following for the three months ended June 39, 2024 and 2023:

 

    2024     2023  
    Three months ended  
    June 30,  
    2024     2023  
Carrying value – beginning balance   $ 2,684,697     $ 11,219,519  
Converted to ordinary shares     -       (2,882,444 )
Amortization of debt discount     682,648       914,196  
Deferred debt discount and cost of issuance     261       (1,117,667 )
Interest charge     151,393       376,622  
Carrying value – ending balance   $ 3,518,999     $ 8,510,226  

 

During the three months ended June 30, 2024, no convertible note was converted into ordinary shares. During the three months ended June 30, 2023, $1.5 million of the convertible notes was converted into approximately 2.3 million ordinary shares, with average effective conversion price of $0.6795 per share.

 

The Company’s derivative liabilities were as the following for the three months ended March 31, 2024 and 2023:

 

   2024   2023 
   Three months ended 
   June 30, 
   2024   2023 
Derivative liabilities –Warrants  $    $-
Beginning balance   251,657    2,013,261 
Marked to the market   (134,217)   805,302 
Ending fair value   117,440    2,818,563 
           
Derivative liabilities – Embedded conversion feature          
Beginning balance   36,298    277,222 
Converted to ordinary shares   -    (113,594)
Remeasurement on change of convertible price   (261)   1,117,667 
Marked to the market   -    482,702 
Ending fair value   36,037    1,763,997 
           
Total Derivative fair value at end of period  $153,477   $4,582,560 

 

F-12

 

 

15. LEASE

 

As a lessee

 

Right-of-use asset and lease liabilities

 

The Company recognized right-of-use asset as well as lease liability according to the ASC 842, Leases (with the exception of short-term leases). Lease liabilities are measured at present value of the sum of remaining rental payments as of June 30, 2024, with 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 and property management services business for 16 years with an option to extend the lease.

 

The Following table summarizes the components of lease expense:

 

   2024   2023 
   Three months ended
June 30,
 
   2024   2023 
Operating lease cost   259,082    43,438 
Short-term lease cost   36,463    23,557 
Lease Cost  $295,545   $66,995 

 

The following table summarizes supplemental information related to leases:

 

   2024   2023 
   Three months ended
June 30,
 
   2024   2023 
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flow from operating leases  $295,545   $66,995 
Right-of-use assets obtained in exchange for new operating leases liabilities   -    1,219 
Weighted average remaining lease term - Operating leases (years)   14.2    2.0 
Weighted average discount rate - Operating leases   4.90%   4.75%

 

The following table summarizes the maturity of operating lease liabilities:

 

Years ending June 30  Lease cost 
2025  $1,102,227 
2026   997,534 
2027   988,347 
2028   1,636,236 
2029 and there after   24,436,242 
Total lease payments   29,160,586 
Less: Interest   (9,593,784)
Total  $19,566,802 

 

As a lessor

 

The Company subleased its leased commercial building by entering into operating leases to third party garment wholesalers and retailers. These leases are negotiated for terms ranging from one to five years. All leases include the term to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.

 

Rental income from subleasing is disclosed in Note 13 segment data.

 

The future minimum rental receivable under non-cancellable operating leases contracted for the reporting period are as follows:

 

Years ending June 30  Lease income 
2025  $613,648 
2026   531,752 
2027   431,043 
2028   202,110 
2029 and there after   - 
Total  $1,778,553 

 

F-13

 

 

16. 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.

 

On April 29, 2024, the Company entered into two Private Placement Agreements (the “Agreement”) with certain individual investors (the “Investors”) who are independent third parties, pursuant to which the Company issued to each of the investor 330,000 shares of its common stock, par value $0.001 per share, at a price of $0.98 per share (the “Common Stock”), resulting in aggregate gross proceeds to the Company of $646,800, which closed on the same day. Pursuant to the Agreement, the Company issued an aggregate of 660,000 unregistered shares of common stock to the Investors.

 

There are 6,043,769 and 5,383,769 ordinary shares issued and outstanding at June 30, 2024 and March 31, 2024, respectively.

 

17. 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 7.27 and 7.22 as of June 30, 2024 and March 31, 2024, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 7.004 and 7.241 for the three months ended June 30, 2024 and 2023, 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.

 

F-14

 

 

(c) Concentration Risks

 

The followings are the percentages of accounts receivable balance of the top customers over accounts receivable for each segment as of June 30, 2024 and March 31, 2024.

 

Garment manufacturing segment

 

   June 30, 2024   March 31, 2024 
Customer A   93.2%   100.0%
Customer B   6.1%   -%
Customer C   0.5%   - 
Customer D   0.2%   - 

 

The high concentration as of June 30, 2024 was mainly due to business development of a large distributor of garments.

 

Logistics services segment

 

   June 30, 2024   March 31, 2024 
Customer A   22.0%   23.3%
Customer B   20.9%   15.9%
Customer C   12.9%   16.2%
Customer D   10.1%   8.9%
Customer E   4.9%   1.1%

 

Property management and subleasing segment

 

There is no account receivable for Property management and subleasing segment as for June 30, and March 31, 2024.

 

Concentration on customers

 

For the three months ended June 30, 2024, one customer from Logistics services segment provided more than 10% of total revenue of the Company, representing 16.1% of total revenue of the Company for the three months.

 

For the three months ended June 30, 2023, three customers from Logistics services segment provided more than 10% of total revenue of the Company, representing 40.6% of total revenue of the Company for the three months.

 

Concentration on suppliers

 

The following tables summarized the purchases from five largest suppliers of each of the reportable segments for the three months ended June 30, 2024 and 2023.

 

   Three months ended 
   June 30, 
   2024    2023 
Garment manufacturing segment  Nil%   Nil%
Logistics services segment   100.0%    100.0%
Property management and subleasing   Nil%    Nil%

 

(d) Interest Rate Risk

 

The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of June 30, 2024, the total outstanding borrowings amounted to $573,696 (RMB4,169,255) with various interest rate from 4.34% to 16.2% p.a. (Note 11)

 

18. SUBSEQUENT EVENTS

 

To focus on the core businesses of the Group, the Company decided to dissolve one of its subsidiaries, Zhuang Hao Jia (Dongguan) Decoration Engineering Co., Ltd. (“ZHJ”). The dissolution is in process up to the date of this report.

 

In July 2024, the Company entered into agreement with the holder of the convertible notes to extend the maturity date to July 4, 2025. Other than the extension of the maturity date, there is no other amendment to the original note. The original note will continue in full force and effect.

 

There are no other subsequent events have occurred that would require recognition or disclosure in the financial statements.

 

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 months ended June 30, 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 People’s Republic of China, or 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. 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 of “ATXG”. We classify our businesses into three main segments: garment manufacturing, logistics services, and property management and subleasing. The Company previously engaged in the provision of epidemic prevention supplies, which included manufacturing, distribution and trading of epidemic prevention supplies. As the COVID-19 pandemic is near an endemic, the Company ceased to operate in this business in the first quarter of 2023. The remaining assets of this business segment were reclassified into the “Corporate and others” segment. The corresponding items of segment information for the earlier periods were restated to reflect the change of the new segment structure.

 

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) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), (xi) Dongguan Au Te Si Garments Co., Ltd., a PRC company (“AOT”), (xii) 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) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (ix) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”), (x) 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 44 cities in 10 provinces and 2 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 two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”), 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 currently have an aggregate of 56,238 square meters floor space   and provide approximately 1,300 shop space to clients. In February 2023, the Company disposed of DY to an independent third party at fair value in February, 2023. We conduct our property management and subleasing operation through a wholly owned subsidiary acquired in September 2023, namely Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”), which is located in the Guangdong province, China.

 

To focus on the core businesses of the Group, the Company dissolved one of its subsidiaries, Shenzhen Yingxi Tongda Logistic Co., Ltd, in April 2024 and received approval from RPC authorities.

 

As at the date of this report, the Company is in the process of dissolving another subsidiary, ZHJ.

 

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 June 30, 2024, we provide logistics services to over 44 cities in approximately 10 provinces and 2 municipalities. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s profit for the remainder of 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. In February 2023, the Company disposed of DY to an independent third party and conduct the business through a wholly owned subsidiary acquired in September 2023, namely Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).

 

Seasonality of Business

 

Garment Manufacturing Business

 

We generally receive more purchase orders during our second and third quarters and fewer manufacture orders during May and June.

 

Logistics Services Business

 

We generally receive more delivery orders in our third and fourth quarters and are more vulnerable to shipping delays in the PRC during Chinese New Year due to traffic and port congestion, border crossing delays and customs clearance issues.

 

Property Management and Subleasing Business

 

There is no significant seasonality in our business.

 

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.

 

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.

 

6

 

 

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.

 

Results of Operations for the three months ended June 30, 2024 and 2023

 

The following table summarize our results of operations for the three months ended June 30, 2024 and 2023. 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 June 30,   Changes in 2024 
   2024   2023   compared to 2023 
    (In U.S. dollars, except for percentages)           
Revenue  $851,033    100.0%  $1,052,506    100%  $(201,473)   (19.1)%
Cost of revenues   (648,438)   (76. 2 )%    (815,597)   (77.5)%   167,159    20.5%
Gross profit   202,595    23.8%   236,909    22.5%   (34,314)   (14.5)%
Operating expenses   (707,611)   (83.1)%   (497,858)   (47.3)%   (209,573)   (42.1)%
Loss from operations   (505,016)   (59.3)%   (260,949)   (24.8)%   (244,067)   (93.5)%
Other income, net   (2,514)   (0.3)%   112,486    10.7%   (115,000)   (102.2)%
Fair value gain or loss   134,217    15.8%   (1,288,003)        1,422,220    110.4%
Net finance cost   (847,314)   (99.6)%   (1,290,991)   (122.7)%   443,677    34.4%
Income tax expense   (484)   (0.1)%   (1,264)   (0.1)%   780    61.7%
Net loss  $(1,221,111)   (143.5)%  $(2,728,721)   (259.3)%  $1,507,610    55.2%

 

Revenue

 

Total revenue for the three months ended June 30, 2024 decreased by approximately $0.2 million, or 19.2%, as compared with the three months ended June 30, 2023. The decrease was mainly due to the decrease of $0.5 million in logistics services and increase of $0.3 million in property management and subleasing business.

 

Revenue generated from our garment manufacturing business contributed approximately $0.09 million, or 10.2%, of our total revenue for the three months ended June 30, 2024. Revenue generated from garment manufacturing business contributed approximately $0.05 million or 5.1% of our total revenue for the three months ended June 30, 2023, respectively. The low level of sales was mainly due to factory facilities renewal and repairs, and the remaining factories cannot provide the same capacity as previously. We estimate the capacity will recover at the fiscal year ending 2025.

 

7

 

 

Revenue generated from our logistics services business contributed approximately $0.5 million, or 57.2%, of our total revenue for the three months ended June 30, 2024. Revenue generated from our logistic business contributed approximately $1.0 million or 94.9% of our total revenue for the three months ended June 30, 2023.

 

Revenue generated from our property management and subleasing business was 0.3 million, or 32.7%, of our total revenue for the three months ended June 30, 2024. The revenue from this business segment was nil for the three months ended June 30, 2023.

 

Cost of revenue

 

   Three months ended June 30,   Increase (decrease) in 
   2024   2023   2024 compared  to 2023 
    (In U.S. dollars, except for percentages)            
Net revenue for garment manufacturing  $86,602    100.0%  $53,873    100%  $32,729    60.8%
Raw materials   37,686    43.5%   26,377    49.0%   11,309    42.9%
Labor   18,096    20.9%   17,273    32.0%   823    4.8%
Other and Overhead   3,553    4.1%   2,670    5.0%   883    33.1%
Total cost of revenue for garment manufacturing   59,335    68.5%   46,320    86.0%   13,015    28.1%
Gross profit for garment manufacturing   27,267    31.5%   7,553    14.0%   19,714    4261.0%
                        0      
Net revenue for logistics services   486,507    100.0%   998,633    100.0%   (512,126)   (51.3)%
Fuel, toll and other cost of logistics services   249,296    51.2%   482,788    48.3%   (233,492)   (48.4)%
Subcontracting fees   -    -%   286,489    28.7%   (286,489)   (100.0)%
Total cost of revenue for logistics services   249,296    51.2%   769,277    77.0%   (519,981)   (67.6)%
Gross Profit for logistics services   237,211    48.8%   229,356    23.0%   7,855    3.4%
                               
Net revenue for property management and subleasing   277,924    100.0%   -    0%   277,924      
Total cost of revenue for property management and subleasing   339,807    (122.3)%   -    0%   339,807      
Gross Profit for property management and subleasing   (61,883)   (22.3)%   -    0%   (61,883)     
                               
Total cost of revenue  $648,438    76.2%  $815,597    77.5%  $(167,159)   (20.5)%
Gross profit  $202,595    23.8%  $236,909    22.5%  $(34,314)   (14.5)%

 

8

 

 

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 were approximately 43.5% of our total garment manufacturing business revenue for the three months ended June 30, 2024, as compared with 49.0% for the three months ended June 30, 2023. The decrease in percentage was mainly due to the purchase cost of the raw materials dropped.

 

Labor costs for our garment manufacturing business was approximately 20.9% of our total garment manufacturing business revenue for the three months ended June 30, 2024, as compared with 32.0% for the three months ended June 30, 2023. We maintained a sustainable level in wages, the decrease in portion of labor cost was mainly due to the increased in revenue.

 

Overhead and other expenses for our garment manufacturing business accounted for approximately 4.1% of our total garment business revenue for the three months ended June 30, 2024, as compared with 5.0% of total garment business revenue for the three months ended June 30, 2023.

 

For our logistic business, we outsourced some of the business to our contractors. We relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately nil% and 37.2% of total cost of revenues for our service segment for the three months ended June 30, 2024 and 2023, respectively. The decrease was attributed to an increase usage of our own logistics as compared to the subcontractor. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services providers.

 

Fuel, toll and other costs for our service business for the three months ended June 30, 2024 were approximately $0.2 million as compared with $0.5 million for the three months ended June 30, 2023. Fuel, toll and other costs for our service business accounted for approximately 51.2% of our total service revenue for the three months ended June 30, 2024, as compared with 48.3% for the three months ended June 30, 2023. The increase was primarily attributable to a decrease of usage of subcontractors during the quarter.

 

Subcontracting fees for our service business for the three months ended June 30, 2024 decreased approximately 100.0% to $nil from $0.3 million for the three months ended June 30, 2023. Subcontracting fees accounted for nil% and 28.7% of our total service business revenue in the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter.

 

9

 

 

For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The cost of revenue for property management and subleasing business for the three months ended June 30, 2024 was $0.3 million, approximately (122.3)% of our total property management and subleasing business revenue, as compared with nil for the three months ended June 30, 2023.

 

Gross profit

 

Garment manufacturing business gross profit for the three months ended June 30, 2024 was $27,267, as compared with $7,553 for the three months ended June 30, 2023. Gross profit accounted for 31.5% of our total garment manufacturing business revenue for the three months ended June 30, 2024, as compared to 14.0% for the three months ended June 30, 2023. The increase of gross profit ratio was mainly due to increased sales.

 

Gross profit in our logistics services business for the three months ended June 30, 2024 was approximately $237,211 and gross margin was 48.8%. Gross profit in our logistics services business for the three months ended June 30, 2023 was approximately $229,356 and gross margin was 23.0%. The increase of gross profit ratio was mainly because the Company re-allocated the orders received and reduced fuel cost.

 

Gross loss in our property management and subleasing business for the three months ended June 30, 2024 was $61,883. Gross profit was nil for the three months ended June 30, 2023. Gross loss accounted for 22.3% of our total property management and subleasing business revenue for the three months ended June 30, 2024, as compared to nil% for the three months ended June 30, 2023. The decrease of gross profit ratio was mainly because the property management and subleasing business still in preliminary stage.

 

   Three months ended June 30,   Increase (decrease) in 
   2024   2023   2024 compared to 2023 
    (In U.S. dollars, except for percentages)           
Gross profit  $202,595    100%  $236,909    100%   (34,314)   (14.5)%
Operating expenses:                              
Selling expenses   (139,360)   -    -         (139,360)     
General and administrative expenses   (568,251)   (280.5)%   (497,858)   (210.1)%   (70,393)   (14.1)%
Total  $(707,611)   (210.1)%  $(497,858)   (210.1)%   (209,753)   (42.1)%
(Loss) Income from operations  $(505,016)   (110.1)%  $(260,949    (110.1)%   (244,067)   (93.5)%

 

Selling, General and administrative expenses

 

Our selling expenses for our garment manufacturing business for the three months ended June 30, 2024 and 2023 was approximately $82,603 and nil, respectively. The selling expenses for property management and subleasing business for the three months ended June 30, 2024 and 2023 was approximately $56,757 and nil, respectively. 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 June 30, 2024 and 2023 was approximately $8,310 and $29,708, respectively. Our general and administrative expenses in our logistics services segment for the three months ended June 30, 2024 and 2023 was approximately $216,250 and $227,423, respectively. The general and administrative expenses in our property management and subleasing business was approximately $85,793 and nil for the three months ended June 30, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the three months ended June 30, 2024 and 2023 was approximately $257,898 and $240,727, 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.

 

10

 

 

Total general and administrative expenses for the three months ended June 30, 2024 increased by approximately 14.1% to $568,251 from $497,858 for the three months ended June 30, 2023.

 

Loss from operations

 

Loss from operations for the three months ended June 30, 2024 and 2023 was approximately $505,016 and $260,949, respectively. Loss from operations of approximately $63,645 and $22,155 for the three months ended June 30, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $20,879 and $1,934 was attributed from our logistics services segment for the three months ended June 30, 2024 and 2023, respectively. Loss from operations of approximately $204,433 and nil for the three months ended June 30, 2024 and 2023, respectively, which was attributed from our property management and subleasing business. We incurred expenses from operations in corporate office of approximately $257,817 and $240,728 for the three months ended June 30, 2024 and 2023, respectively.

 

Income Tax Expenses

 

Income tax expense for the three months ended June 30, 2024 and 2023 was approximately $484 and $1,264, respectively. Yingxi primarily 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 June 30, 2024 and 2023.

 

QYTG and YX were incorporated in the PRC and is 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 June 30, 2024 and 2023.

 

The majority of our subsidiaries are 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 2024. The preferential tax rates will be expired at end of year 2025.

 

Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2024 and 2023.

 

Net Loss

 

We incurred net loss of approximately $1.2 million and $2.7 million for the three months ended June 30, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.25) and ($0.83) for the three months ended June 30, 2024 and 2023, respectively.

 

11

 

 

Summary of cash flows

 

Summary cash flows information for the three months ended June 30, 2024 and 2023 is as follow:

 

   Three months ended June 30, 
   2024   2023 
    (In U.S. dollars) 
Net cash used in operating activities  $(193,185)  $(1,110,878)
Net cash used in investing activities   (27,364)   - 
Net cash provided by financing activities  $306,461   $969,784 

 

Net cash used in operating activities in the three months ended June 30, 2024 was approximately $0.2 million as compared to $1.1 million in the three months ended June 30, 2023, which was approximately $0.9 million less than that of the three months ended June 30, 2023. The decrease was mainly due to (i) net loss adjusted to operating cash flow for the three months ended June 30, 2024 was $0.1 million less than that of the three months ended June 30, 2023; (ii) the movement of operating assets and liabilities of the three months ended June 30, 2024 resulted in cash outflow of approximately $0.1 million, which was $0.8 million less than that of 2023;.

 

Net cash used in investing activities for the three months ended June 30, 2024 was approximately $0.3 million, which was mainly due to purchase of property, plant and equipment.

 

Net cash provided by financing activities for the three months ended June 30, 2024 was approximately $0.3 million as compared to $1.0 million in the three months ended June 30, 2023, which was approximately $0.7 million less than the three months ended June 30, 2023. The decrease was mainly because in the three months ended June 30, 2024, the Company received proceeds of $0.7 million from a private placement, while the Company had release of restricted cash of $1.4 million in the three months ended June 30, 2023.

 

Financial Condition, Liquidity and Capital Resources

 

As of June 30, 2024, we had cash on hand of approximately $0.9 million, total current assets of approximately $29.3 million and current liabilities of approximately $4.4 million. We currently finance our operations from revenue, fund raising from our initial public offering and private placement 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 the past years, RMB continued to appreciate against the U.S. dollar. As of June 30, 2024, the market foreign exchange rate was RMB 7.27 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 three months ended June 30, 2024 and 2023 was approximately $0.01 million and $0.09 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 June 30, 2024 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.

 

12

 

 

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 June 30, 2024. 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  .

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures to further strengthen the Company’s internal controls going forward:

 

1. hire a reporting manager (“Internal Finance Manager”) who has the requisite relevant U.S. GAAP and SEC reporting experience and qualifications;

 

2. make an overall assessment on the current finance and accounting resources and hire additional accounting members with appropriate levels of accounting knowledge and experience;

 

3. streamline our accounting department structure and enhance our staff’s U.S. GAAP and SEC reporting requirements on a continuous basis through internal training provided by the Internal Finance manager;

 

4. participate in trainings and seminars provided by professional services firms on a regular basis to gain knowledge on regular U.S. GAAP /SEC reporting requirements updates; and

 

5. engage an external “Sarbanes-Oxley 404” consulting firm to help us implement Sarbanes-Oxley 404 internal controls compliance together with the establishment of our internal audit function.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2024.

 

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.

 

13

 

 

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   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*Filed herewith.

 

14

 

 

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: August 14, 2023 By: /s/ Hong Zhida
    Hong Zhida
    President, Chief Executive Officer and Director,
    (Principal Executive Officer)
     
Date: August 14, 2023 By: /s/ Huang Chao
    Huang Chao
    Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)

 

15

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Hong Zhida, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Addentax Group Corp.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

  5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
    (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
    (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2024

 

  /s/ Hong Zhida
  Hong Zhida
  President, Chief Executive Officer, Secretary and Director
  (Principal Executive Officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Huang Chao, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Addentax Group Corp.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

  5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
    (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
    (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2024

 

  /s/ Huang Chao
  Huang
  Chao Chief Financial Officer and Treasurer
  (Principal Financial Officer)

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Hong Zhida, Chief Executive Officer, of Addentax Group Corp., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) the quarterly report on Form 10-Q of Addentax Group Corp. for the period ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Addentax Group Corp.

 

  Dated: August 14, 2024
   
  /s/ Hong Zhida
  Hong Zhida
  President, Chief Executive Officer, Secretary and Director
  (Principal Executive Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Addentax Group Corp. and will be retained by Addentax Group Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Huang Chao, Chief Financial Officer, of Addentax Group Corp., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) the quarterly report on Form 10-Q of Addentax Group Corp. for the period ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Addentax Group Corp.

 

  Dated: August 14, 2024
   
  /s/ Huang Chao
  Huang Chao
  Chief Financial Officer, Treasurer
  (Principal Financial Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Addentax Group Corp. and will be retained by Addentax Group Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

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Cover - shares
3 Months Ended
Jun. 30, 2024
Aug. 14, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2024  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2025  
Current Fiscal Year End Date --03-31  
Entity File Number 333-206097  
Entity Registrant Name ADDENTAX GROUP CORP.  
Entity Central Index Key 0001650101  
Entity Tax Identification Number 35-2521028  
Entity Incorporation, State or Country Code NV  
Entity Address, Address Line One Kingkey 100, Block A  
Entity Address, Address Line Two Room 4805  
Entity Address, Address Line Three Luohu District  
Entity Address, City or Town Shenzhen City  
Entity Address, Country CN  
Entity Address, Postal Zip Code 518000  
City Area Code (86)  
Local Phone Number 755 86961 405  
Title of 12(b) Security Common Stock  
Trading Symbol ATXG  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Elected Not To Use the Extended Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   6,043,769
v3.24.2.u1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Jun. 30, 2024
Mar. 31, 2024
CURRENT ASSETS    
Cash and cash equivalents $ 904,171 $ 816,186
Restricted cash 2,750,000 2,750,000
Accounts receivables, net 1,289,037 2,106,451
Debt securities held-to-maturity 17,500,000 17,500,000
Inventories 170,955 63,505
Prepayments and other receivables 2,151,432 1,922,996
Advances to suppliers 1,071,200 1,009,362
Total current assets 29,306,462 29,181,392
NON-CURRENT ASSETS    
Plant and equipment, net 523,402 568,854
Operating lease right of use asset 19,429,813 19,796,564
Long-term prepayments 266,743 291,938
Long-term receivables 2,500,000 2,500,000
Total non-current assets 22,719,958 23,157,356
TOTAL ASSETS 52,026,420 52,338,748
CURRENT LIABILITIES    
Short-term loan 573,696 440,671
Accounts payable 156,961 359,488
Advances from customers 182,378 202,567
Accrued expenses and other payables 1,312,779 1,372,962
Operating lease liability current portion 1,050,897 1,059,497
Total current liabilities 4,350,840 4,581,930
NON-CURRENT LIABILITIES    
Convertible debts 3,518,999 2,684,697
Derivative liabilities 153,477 287,955
Operating lease liability 18,515,905 18,737,066
Total non-current liabilities 22,188,381 21,709,718
TOTAL LIABILITIES 26,539,221 26,291,648
EQUITY    
Common stock ($0.001 par value, 250,000,000 shares authorized, 6,043,769 and 5,383,769 shares issued and outstanding at June 30 and March 31, 2024, respectively) 6,044 5,384
Additional paid-in capital 35,157,009 34,510,869
Accumulated Deficit (9,790,301) (8,569,190)
Statutory reserve 37,020 37,020
Accumulated other comprehensive loss 77,427 63,017