UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
| 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.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or formation) | Identification Number) |
(Address of principal executive offices)
+
(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 | ||
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.
☒
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).
☒
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 ☐ |
| 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
As of November 14, 2024, there were 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 | 18 |
| Item 4. | Controls and Procedures | 18 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| Item 3. | Defaults Upon Senior Securities | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits | 19 |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the three and six months ended September 30, 2024 and 2023
TABLE OF CONTENTS
| F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
(UNAUDITED)
| September 30, 2024 | March 31, 2024 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivables, net | ||||||||
| Debt securities held-to-maturity | ||||||||
| Inventories | ||||||||
| Prepayments and other receivables | ||||||||
| Advances to suppliers | ||||||||
| Amount due from related party | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | ||||||||
| Operating lease right of use asset | ||||||||
| Long-term prepayments | ||||||||
| Long-term receivables | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term loan | $ | $ | ||||||
| Accounts payable | ||||||||
| Amount due to related parties | ||||||||
| Advances from customers | ||||||||
| Accrued expenses and other payables | ||||||||
| Operating lease liability current portion | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Convertible debts | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| EQUITY | ||||||||
| Common stock ($ par value, shares authorized, and shares issued and outstanding at September 30 and March 31, 2024, respectively) | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Statutory reserve | ||||||||
| Accumulated other comprehensive loss | ||||||||
| Total equity | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
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)
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling and marketing | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value gain or loss | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ( | ) | ( | ) | ||||||||||||
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation gain | ( | ) | ( | ) | ||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| EARNINGS PER SHARE | ||||||||||||||||
| Basic and diluted | ) | ) | ) | |||||||||||||
| Weighted average number of shares outstanding – Basic and diluted | ||||||||||||||||
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)
| Retained earnings | Accumulated | |||||||||||||||||||||||||||
| Additional | (accumulated deficit) | other | ||||||||||||||||||||||||||
| Common Stock | paid-in | Statutory | comprehensive | Total | ||||||||||||||||||||||||
| Shares | Amount | capital | Unrestricted | reserve | loss | Equity | ||||||||||||||||||||||
| BALANCE AT JULY 1, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Issuance of new shares | ( | ) | ||||||||||||||||||||||||||
| Additional paid-in capital from conversion of convertible debts | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| BALANCE AT JULY 1, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Additional paid-in capital from conversion of convertible debts | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| BALANCE AT APRIL 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of new shares before reversed split | ( | ) | ||||||||||||||||||||||||||
| Reverse stock split | ( | ) | ( | ) | ||||||||||||||||||||||||
| New shares for round up of fragmental shares | ||||||||||||||||||||||||||||
| Issuance of new shares after reversed split | ( | ) | ||||||||||||||||||||||||||
| Additional paid-in capital from conversion of convertible debts | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Net income for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| BALANCE AT APRIL 1, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Issuance of new shares | ||||||||||||||||||||||||||||
| Additional paid-in capital from conversion of convertible debts | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
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)
| Six Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Non-cash financial cost | ||||||||
| Investment income | ( | ) | ||||||
| Fair value gain or loss | ( | ) | ||||||
| Loss on debts extinguishment | ||||||||
| Gain on bargain purchase | ( | ) | ||||||
| Loss from sale of property and equipment | ||||||||
| Loss on disposal of subsidiary | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Advances to suppliers | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Accounts payables | ( | ) | ( | ) | ||||
| Accrued expenses and other payables | ( | ) | ||||||
| Advances from customers | ( | ) | ||||||
| Net cash provided by (used in) operating activities | $ | $ | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment and intangible assets | ( | ) | ( | ) | ||||
| Cash decreased in disposal of subsidiary | ( | ) | ||||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related party borrowings | ||||||||
| Repayment of related party borrowings | ( | ) | ( | ) | ||||
| Release of restricted cash | ||||||||
| Proceeds from bank borrowings | ||||||||
| Repayment of bank borrowings | ( | ) | ||||||
| Cash advance to related parties | ( | ) | ||||||
| Repayment from related parties | ||||||||
| Proceeds from issue of ordinary shares | ||||||||
| Net cash provided by (used in) financing activities | $ | ( | ) | $ | ||||
| NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Cash and restricted cash, beginning of the period | ||||||||
| CASH AND RESTRICTED CASH, END OF THE PERIOD | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income tax | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
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 July 15, 2024 (“2023 Form 10-K”).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. 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 six months ended September 30, 2024.
Recently issued accounting pronouncements
Accounting for Convertible Instruments: In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
| F-6 |
4. DISPOSITION OF SUBSIDIARIES
The Company disposed of its subsidiary Shantou Yi Bai Yi Garment Co., Ltd, a PRC Company (“YBY”), a manufacturing company in garment manufacturing segment at end of August 2024 to the local management of YBY. After disposition, YBY became third party to the Company. The Company will not have any businesses with YBY. The Company will carry on the garment manufacturing segment business through other subsidiaries. The disposition of YBY did not qualify as discontinued operations.
Financial position of the entities at disposal date and gain or loss on disposal:
Garment Manufacturing Segment
| Financial position of YBY | August 31, 2024, date of disposal | |||
| Current assets | $ | |||
| Noncurrent assets | ||||
| Current liabilities | ( | ) | ||
| Net assets | $ | |||
The
consideration was , with the reversal of related foreign currency translation reserve brought forward, resulting in a loss of $
5. RELATED PARTY TRANSACTIONS
| Name of Related Parties | Relationship with the Company | |
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 September 30, 2024 and March 31, 2024:
| Amount due from related party | September 30, 2024 | March 31, 2024 | ||||||
| Zhida Hong (1) | $ | $ | ||||||
| Bihua Yang (2) | ||||||||
| $ | $ | |||||||
| Related party borrowings | September 30, 2024 | March 31, 2024 | ||||||
| Hongye Financial Consulting (Shenzhen) Co., Ltd. | ||||||||
| Dewu Huang (3) | ||||||||
| Jinlong Huang | ||||||||
| $ | $ | |||||||
| (1) | The increase of related party debt from Hong Zhida was short term loan to Hong Zhida, which is interest free and to 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
September 30, 2024, the Company provided a short term loan of approximately $ | |
| (3) |
The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand.
| F-7 |
6. DEBT SECURITIES HELD-TO-MATURITY
| September 30, 2024 | March 31, 2024 | |||||||
| Debt securities held-to-maturity | $ | $ | ||||||
The
Company purchased a note issued by a third-party investment company on August 24, 2022. The principal amount of the note is $
7. INVENTORIES
Inventories consist of the following as of September 30, 2024 and March 31, 2024:
| September 30, 2024 | March 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
8. 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.
9. PREPAYMENTS AND OTHER RECEIVABLES
Prepayments and other receivables consist of the following as of September 30 and March 31, 2024:
| September 30, 2024 | March 31, 2024 | |||||||
| Prepayment | ||||||||
| Deposit | ||||||||
| Receivable of consideration on disposal of subsidiaries | ||||||||
| Receivable of interest income from debt security | ||||||||
| Other receivables | ||||||||
| $ | $ | |||||||
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of September 30 and March 31, 2024:
| September 30, 2024 | March 31, 2024 | |||||||
| Production plant | $ | $ | ||||||
| Motor vehicles | ||||||||
| Office equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Plant and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and six months ended September 30, 2024 and 2023 was $
| F-8 |
11. 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 $
12. 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 $
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 $
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 $
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 $
13. 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 is a 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
YX,
our wholly owned subsidiary, was incorporated in the PRC and is subject to the EIT tax rate of
The
Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies were subject to progressive EIT rates from
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 September 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:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| PRC statutory tax rate | % | % | % | % | ||||||||||||
| Computed expected benefits | ( | ) | ( | ) | ( | ) | ||||||||||
| Temporary differences | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Permanent difference | ( | ) | ( | ) | ( | ) | ||||||||||
| Changes in valuation allowance | ( | ) | ||||||||||||||
| Income tax expense | $ | $ | ||||||||||||||
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
For
services, the applicable VAT rate is
14. CONSOLIDATED SEGMENT DATA
Segment information is consistent with how chief operating decision maker reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following four segments:
| (a) | Garment manufacturing. Including manufacturing and distribution of garments; | |
| (b) | Logistics services. Providing logistic services; and | |
| (c) | Property management and subleasing. Providing shops subleasing and property management services for garment wholesalers and retailers in garment market. |
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
| F-10 |
Selected information in the segment structure is presented in the following tables:
Revenues by segment for the three and six months ended September 30, 2024 and 2023 are as follows:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Revenues from external customers | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Garments manufacturing segment | ||||||||||||||||
| Logistics services segment | ||||||||||||||||
| Property management and subleasing | ||||||||||||||||
| Total of reportable segments and consolidated revenue | $ | $ | $ | $ | ||||||||||||
| Intersegment revenue | ||||||||||||||||
| Garments manufacturing segment | ||||||||||||||||
Loss from operations by segment for the three and six ended September 30, 2024 and 2023 are as follows:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Garments manufacturing segment | ( | ) | ( | ) | ( | ) | ||||||||||
| Logistics services segment | ||||||||||||||||
| Property management and subleasing | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total of reportable segments | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate and other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total consolidated income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total assets by segment as of September 30 and March 31, 2024 are as follows:
| Total assets | September 30, 2024 | March 31, 2024 | ||||||
| Garment manufacturing segment | $ | $ | ||||||
| Logistics services segment | ||||||||
| Property management and subleasing | ||||||||
| Total of reportable segments | ||||||||
| Corporate and other | ||||||||
| Consolidated total assets | $ | $ | ||||||
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 September 30, | Six months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| China | ||||||||||||||||
| September 30, 2024 | March 31, 2024 | |||||||
| Long-Lived Assets | ||||||||
| China | ||||||||
| F-11 |
15. 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 $
| ● | senior
secured convertible notes in the aggregate original principal amount of approximately $ | |
| ● | warrants
to purchase up to approximately |
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 $
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 $
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 $
| As of January 4, 2023 | ||||
| Derivative liabilities – Fair value of the Warrants | $ | |||
| Derivative liabilities – Embedded conversion feature | ||||
| Convertible Note | ||||
| $ | ||||
In
January 2023, the Company also granted to the placement agent a warrant as partial of agent fee to purchase million shares of common
stock of the Company. The warrant is matured in
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 continued in full force and effect.
The Company’s convertible notes obligations were as the following for the three and six months ended September 30, 2024 and 2023:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Carrying value – beginning balance | $ | $ | $ | $ | ||||||||||||
| Converted to ordinary shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Redemption | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Deferred debt discount and cost of issuance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest charge | ||||||||||||||||
| Carrying value – ending balance | $ | $ | $ | $ | ||||||||||||
During
the three and six months ended September 30, 2024, approximately $
The Company’s derivative liabilities were as the following for the three and six months ended September 30, 2024 and 2023:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Derivative liabilities –Warrants | $ | $ | $ | $ | ||||||||||||
| Beginning balance | ||||||||||||||||
| Marked to the market | ( | ) | ( | ) | ||||||||||||
| Ending fair value | ||||||||||||||||
| Derivative liabilities – Embedded conversion feature | ||||||||||||||||
| Beginning balance | ||||||||||||||||
| Converted to ordinary shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Remeasurement on change of convertible price | ||||||||||||||||
| Redemption | ( | ) | ( | ) | ||||||||||||
| Marked to the market | ( | ) | ||||||||||||||
| Ending fair value | ||||||||||||||||
| Total Derivative fair value at end of period | $ | $ | $ | $ | ||||||||||||
| F-12 |
16. 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 September 30, 2024, with discounted rate
of
The
Company leases its head office. The lease period is
The following table summarizes the components of lease expense:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease cost | ||||||||||||||||
| Short-term lease cost | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The following table summarizes supplemental information related to leases:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
| Operating cash flow from operating leases | $ | $ | ||||||||||||||
| Right-of-use assets obtained in exchange for new operating leases liabilities | ||||||||||||||||
| Weighted average remaining lease term - Operating leases (years) | ||||||||||||||||
| Weighted average discount rate - Operating leases | % | % | % | % | ||||||||||||
The following table summarizes the maturity of operating lease liabilities:
| Years ending September 30 | Lease cost | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and there after | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Total | $ | |||
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 to
Rental income from subleasing is disclosed in Note 14 segment data.
The future minimum rental receivable under non-cancellable operating leases contracted for the reporting period are as follows:
| Years ending September 30 | Lease income | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and there after | ||||
| Total | $ | |||
| F-13 |
17. 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
shares of its common stock, par value $ per share, at a price of $ per share (the “Common Stock”), resulting in
aggregate gross proceeds to the Company of $
There are and ordinary shares issued and outstanding at September 30, 2024 and March 31, 2024, respectively.
18. 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
| 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 September 30, 2024 and March 31, 2024.
Garment manufacturing segment
| September 30, 2024 | March 31, 2024 | |||||||
| Customer A | % | Nil | % | |||||
| Customer B | % | % | ||||||
The high concentration as of September 30, 2024 was mainly due to business development of a large distributor of garments.
Logistics services segment
| September 30, 2024 | March 31, 2024 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
| Customer D | % | % | ||||||
| Customer E | % | % | ||||||
Property management and subleasing segment
There is no account receivable for Property management and subleasing segment as for September 30, and March 31, 2024.
Concentration on customers
For
the three months ended September 30, 2024, two customers from Logistics services segment provided more than
For
the three months ended September 30, 2023, one customer from Logistics services segment provided more than
Concentration on suppliers
The following tables summarized the purchases from five largest suppliers of each of the reportable segments for the three months ended September 30, 2024 and 2023.
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Garment manufacturing segment | % | % | % | % | ||||||||||||
| Logistics services segment | % | % | % | % | ||||||||||||
| Property management and subleasing | % | % | % | % | ||||||||||||
| (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 September 30, 2024, the total outstanding borrowings
amounted to $
| 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 September 30, 2024 and 2023 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) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (viii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (ix) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), (x) Dongguan Au Te Si Garments Co., Ltd., a PRC company (“AOT”), (xi) 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) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (vi) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (vii) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (viii) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”), (ix) 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”), 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. 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 September 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. The Company 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 September 30, 2024 and 2023
The following table summarize our results of operations for the three months ended September 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 September 30, | Changes in 2024 | |||||||||||||||||||||||
| 2024 | 2023 | compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 1,341,478 | 100.0 | % | $ | 1,335,314 | 100 | % | $ | 6,164 | 0.5 | % | ||||||||||||
| Cost of revenues | (1,012,837 | ) | (75.5 | )% | (932,427 | ) | (69.8 | )% | (80,410 | ) | 8.6 | % | ||||||||||||
| Gross profit | 328,641 | 24.5 | % | 402,887 | 30.2 | % | (74,246 | ) | (18.4 | )% | ||||||||||||||
| Operating expenses | (573,707 | ) | (42.8 | )% | (707,819 | ) | (53.0 | )% | 134,112 | (18.9 | )% | |||||||||||||
| Loss from operations | (245,066 | ) | (18.3 | )% | (304,932 | ) | (22.8 | )% | 59,866 | (19.6 | )% | |||||||||||||
| Other income, net | 113,913 | 8.5 | % | (581,900 | ) | (43.6 | % | 695,813 | (119.6 | )% | ||||||||||||||
| Fair value gain or loss | (531,614 | ) | (39.6 | )% | 2,854,595 | 213.8 | (3,386,209 | ) | (118.6 | )% | ||||||||||||||
| Net finance cost | (57,703 | ) | (4.3 | )% | (602,126 | ) | (45.1 | )% | 544,423 | (90.4 | )% | |||||||||||||
| Income tax expense | (1,062 | ) | (0.1 | )% | (3,237 | ) | (0.2 | )% | 2,175 | (67.2 | )% | |||||||||||||
| Net loss | $ | (721,532 | ) | (53.8 | )% | $ | 1,362,400 | 102.0 | )% | $ | (2,083,932 | ) | (153.0 | )% | ||||||||||
Revenue
Total revenue for the three months ended September 30, 2024 was nearly the same as compared with the three months ended September 30, 2023.
Revenue generated from our garment manufacturing business contributed approximately $0.1 million, or 11.1%, of our total revenue for the three months ended September 30, 2024. Revenue generated from garment manufacturing business contributed approximately $0.1 million or 6.8% of our total revenue for the three months ended September 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 $1.0 million, or 71.9%, of our total revenue for the three months ended September 30, 2024. Revenue generated from our logistic business contributed approximately $1.2 million or 88.8% of our total revenue for the three months ended September 30, 2023.
Revenue generated from our property management and subleasing business was 0.2 million, or 17.0%, of our total revenue for the three months ended September 30, 2024. The revenue from this business segment was $0.06 million or 4.3% of our total revenue for the three months ended September 30, 2023.
Cost of revenue
| Three months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2024 | 2023 | 2024 compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 148,470 | 100.0 | % | $ | 91,218 | 100 | % | $ | 57,252 | 62.8 | % | ||||||||||||
| Raw materials | 87,273 | 58.8 | % | 26,377 | 28.9 | % | 60,896 | 230.9 | % | |||||||||||||||
| Labor | 36,428 | 24.5 | % | 46,404 | 50.9 | % | (9,976 | ) | (21.5 | )% | ||||||||||||||
| Other and Overhead | 7,094 | 4.8 | % | 2,670 | 2.9 | % | 4,424 | 165.7 | % | |||||||||||||||
| Total cost of revenue for garment manufacturing | 130,795 | 88.1 | % | 75,451 | 82.7 | % | 55,344 | 73.4 | % | |||||||||||||||
| Gross profit for garment manufacturing | 17,675 | 11.9 | % | 15,767 | 17.3 | % | 1,908 | 12.1 | % | |||||||||||||||
| Net revenue for logistics services | 964,429 | 100.0 | % | 1,186,033 | 100.0 | % | (221,604 | ) | (18.7 | )% | ||||||||||||||
| Fuel, toll and other cost of logistics services | 511,023 | 53.0 | % | 513,789 | 43.3 | % | (2,766 | ) | (0.5 | )% | ||||||||||||||
| Subcontracting fees | - | % | 338,577 | 28.6 | % | (338,577 | ) | (100.0 | )% | |||||||||||||||
| Total cost of revenue for logistics services | 511,023 | 53.0 | % | 852,366 | 71.9 | % | (341,343 | ) | (40.0 | )% | ||||||||||||||
| Gross Profit for logistics services | 453,406 | 47.0 | % | 333,667 | 28.1 | % | 119,739 | 35.9 | % | |||||||||||||||
| Net revenue for property management and subleasing | 228,579 | 100.0 | % | 58,063 | 100.0 | % | 170,516 | 293.7 | ||||||||||||||||
| Total cost of revenue for property management and subleasing | 371,019 | 162.3 | % | 4,610 | 7.9 | % | 366,409 | 7,948.1 | ||||||||||||||||
| Gross Profit for property management and subleasing | (142,440 | ) | (62.3 | )% | 53,453 | 92.1 | % | (195,893 | ) | (366.5 | )% | |||||||||||||
| Total cost of revenue | $ | 1,012,837 | 75.5 | % | $ | 932,427 | 69.8 | % | $ | 80,410 | 8.6 | % | ||||||||||||
| Gross profit | $ | 328,641 | 24.5 | % | $ | 402,887 | 30.2 | % | $ | (74,246 | ) | (18.4 | )% | |||||||||||
| 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 58.8% of our total garment manufacturing business revenue for the three months ended September 30, 2024, as compared with 28.9% for the three months ended September 30, 2023. The increase in percentage was mainly due to increased orders received.
Labor costs for our garment manufacturing business was approximately 24.5% of our total garment manufacturing business revenue for the three months ended September 30, 2024, as compared with 50.9% for the three months ended September 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 4.8% of our total garment business revenue for the three months ended September 30, 2024, as compared with 2.9% of total garment business revenue for the three months ended September 30, 2023.
For our logistic business, we outsourced some of the business to our contractors. We relied on a few subcontractors, of which the subcontracting fees to our largest contractor represented approximately nil% and 35.1% of total cost of revenues for our service segment for the three months ended September 30, 2024 and 2023, respectively. The decrease was attributed to an increase in 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 September 30, 2024 were approximately $0.5 million as compared with $0.5 million for the three months ended September 30, 2023. Fuel, toll and other costs for our service business accounted for approximately 53.0% of our total service revenue for the three months ended September 30, 2024, as compared with 43.3% for the three months ended September 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 September 30, 2024 decreased approximately 100.0% to $nil from $0.3 million for the three months ended September 30, 2023. Subcontracting fees accounted for nil% and 28.6% of our total service business revenue in the three months ended September 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 September 30, 2024 was $371,019, approximately 162.3% of our total property management and subleasing business revenue, as compared with $4,610, or 7.9% of the total property management and subleasing business revenue for the three months ended September 30, 2023.
Gross profit
Garment manufacturing business gross profit for the three months ended September 30, 2024 was $17,679, as compared with $15,767 for the three months ended September 30, 2023. Gross profit accounted for 11.9% of our total garment manufacturing business revenue for the three months ended September 30, 2024, as compared to 17.3% for the three months ended September 30, 2023. The decrease of gross profit ratio was mainly due to the increased raw material costs.
Gross profit in our logistics services business for the three months ended September 30, 2024 was approximately $453,406 and gross margin was 47.0%. Gross profit in our logistics services business for the three months ended September 30, 2023 was approximately $333,667 and gross margin was 28.1%. 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 September 30, 2024 was $142,440. Gross profit was $53,453 for the three months ended September 30, 2023. Gross loss accounted for (62.3)% of our total property management and subleasing business revenue for the three months ended September 30, 2024, as compared to 92.1% for the three months ended September 30, 2023. The decrease of gross profit ratio was mainly because the property management and subleasing business are still in preliminary stage.
| Three months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2024 | 2023 | 2024 compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 328,641 | 100 | % | $ | 402,887 | 100 | % | (74,246 | ) | (18.4 | )% | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (22,351 | ) | (6.8 | )% | (37,212 | ) | (9.2 | )% | 14,861 | (39.9 | )% | |||||||||||||
| General and administrative expenses | (551,356 | ) | (167.8 | )% | (670,607 | ) | (166.5 | )% | 119,251 | (17.8 | )% | |||||||||||||
| Total | $ | (573,707 | ) | (174.6 | )% | $ | (707,819 | ) | (175.7 | )% | 134,112 | (18.9 | )% | |||||||||||
| (Loss) Income from operations | $ | (245,066 | ) | (74.6 | )% | $ | (304,932 | ) | (75.7 | )% | 59,866 | (19.6 | )% | |||||||||||
Selling, General and administrative expenses
Our selling expenses for our garment manufacturing business for the three months ended September 30, 2024 and 2023 was approximately $13,400 and nil, respectively. The selling expenses for property management and subleasing business for the three months ended September 30, 2024 and 2023 was approximately $8,952 and $37,200, 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 September 30, 2024 and 2023 was approximately $2,653 and $34,400, respectively. Our general and administrative expenses in our logistics services segment for the three months ended September 30, 2024 and 2023 was approximately $223,375 and $160,700, respectively. The general and administrative expenses in our property management and subleasing business was approximately $50,473 and nil for the three months ended September 30, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the three months ended September 30, 2024 and 2023 was approximately $274,855 and $475,600, 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 September 30, 2024 decreased by approximately 4.2% to $1.1 million from $1.2 million for the three months ended September 30, 2023.
Loss from operations
Loss from operations for the three months ended September 30, 2024 and 2023 was approximately $245,066 and $304,932, respectively. Income from operations of approximately $1,622 and loss from operation of $19,000 for the three months ended September 30, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $229,558 and $172,300 was attributed from our logistics services segment for the three months ended September 30, 2024 and 2023, respectively. Loss from operations of approximately $201,865 and $13,400for the three months ended September 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 $274,381 and $444,900 for the three months ended September 30, 2024 and 2023, respectively.
Income Tax Expenses
Income tax expense for the three months ended September 30, 2024 and 2023 was approximately $1,062 and $3,237, 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 September 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 September 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 September 30, 2024 and 2023.
Net Loss
We incurred net loss of approximately $0.7 million and net income of $1.4 million for the three months ended September 30, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.13) and $0.837 for the three months ended September 30, 2024 and 2023, respectively.
| 11 |
Results of Operations for the six months ended September 30, 2024 and 2023
The following table summarize our results of operations for the six months ended September 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.
| Six Months Ended September 30, | Changes in 2024 | |||||||||||||||||||||||
| 2024 | 2023 | compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 2,192,511 | 100.0 | % | $ | 2,387,820 | 100 | % | $ | (195,309 | ) | (8.2 | )% | |||||||||||
| Cost of revenues | (1,661,275 | ) | (75.8 | )% | (1,748,024 | ) | (73.2 | )% | 86,749 | (5.0 | )% | |||||||||||||
| Gross profit | 531,236 | 24.2 | % | 639,796 | 26.8 | % | (108,560 | ) | (17.0 | )% | ||||||||||||||
| Operating expenses | (1,281,318 | ) | (58.4 | )% | (1,205,677 | ) | (50.5 | )% | (75,641 | ) | 6.3 | % | ||||||||||||
| Loss from operations | (750,082 | ) | (34.2 | )% | (565,881 | ) | (23.7 | )% | (184,201 | ) | 32.6 | % | ||||||||||||
| Other income, net | 111,399 | 5.1 | % | (469,414 | ) | (19.7 | )% | 580,813 | (123.7 | )% | ||||||||||||||
| Fair value gain or loss | (397,397 | ) | (18.1 | )% | 1,566,592 | 65.6 | % | (1,963,988 | ) | (125.4 | )% | |||||||||||||
| Net finance cost | (905,018 | ) | (41.3 | )% | (1,893,117 | ) | (79.3 | )% | 988,099 | (52.2 | )% | |||||||||||||
| Income tax expense | (1,546 | ) | (0.1 | )% | (4,501 | ) | (0.2 | )% | 2,955 | (65.7 | )% | |||||||||||||
| Net loss | $ | (1,942,643 | ) | (88.6 | )% | $ | (1,366,321 | ) | (57.2 | )% | $ | (576,322 | ) | 42.2 | % | |||||||||
Revenue
Total revenue for the six months ended September 30, 2024 decreased by approximately $0.2 million, or 8.2%, as compared with the six months ended September 30, 2023. The decrease was mainly due to the decrease of $0.7 million in logistics services, increase of $0.1 million in garment manufacturing business and increase of $0.4 million in property management and subleasing business.
Revenue generated from our garment manufacturing business contributed approximately $0.2 million, or 10.7%, of our total revenue for the six months ended September 30, 2024. Revenue generated from garment manufacturing business contributed approximately $0.1 million or 6.1% of our total revenue for the six months ended September 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.
| 12 |
Revenue generated from our logistics services business contributed approximately $1.5 million, or 66.2%, of our total revenue for the six months ended September 30, 2024. Revenue generated from our logistic business contributed approximately $2.2 million or 91.5% of our total revenue for the six months ended September 30, 2023.
Revenue generated from our property management and subleasing business was 0.5 million, or 23.1%, of our total revenue for the six months ended September 30, 2024. The revenue from this business segment was $0.06 million for the six months ended September 30, 2023.
Cost of revenue
| Six months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2024 | 2023 | 2024 compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 235,072 | 100.0 | % | $ | 145,091 | 100.0 | % | $ | 89,981 | 62.0 | % | ||||||||||||
| Raw materials | 124,959 | 53.2 | % | 25,950 | 17.9 | % | 99,009 | 381.5 | % | |||||||||||||||
| Labor | 54,524 | 23.2 | % | 93,140 | 64.2 | % | (38,616 | ) | (41.5 | )% | ||||||||||||||
| Other and Overhead | 10,648 | 4.5 | % | 2,681 | 1.8 | % | 7,967 | 297.2 | % | |||||||||||||||
| Total cost of revenue for garment manufacturing | 190,131 | 80.9 | % | 121,771 | 83.9 | % | 68,360 | 56.1 | % | |||||||||||||||
| Gross profit for garment manufacturing | 44,941 | 19.1 | % | 23,320 | 16.1 | % | 21,621 | 92.7 | % | |||||||||||||||
| Net revenue for logistics services | 1,450,936 | 100.0 | % | 2,184,666 | 100.0 | % | (733,730 | ) | (33.6 | )% | ||||||||||||||
| Fuel, toll and other cost of logistics services | 760,319 | 52.4 | % | 1,001,219 | 45.8 | % | (240,900 | ) | (24.1 | )% | ||||||||||||||
| Subcontracting fees | - | - | % | 620,424 | 28.4 | % | (620,424 | ) | (100.0 | )% | ||||||||||||||
| Total cost of revenue for logistics services | 760,319 | 52.4 | % | 1,621,643 | 74.2 | % | (861,324 | ) | (53.1 | )% | ||||||||||||||
| Gross Profit for logistics services | 690,617 | 47.6 | % | 563,023 | 25.8 | % | 127,594 | 22.7 | % | |||||||||||||||
| Net revenue for property management and subleasing | 506,503 | 100.0 | % | 58,063 | 100.0 | % | 448,440 | 772.3 | ||||||||||||||||
| Total cost of revenue for property management and subleasing | 710,825 | 140.3 | )% | 4,610 | 7.9 | % | 706,215 | 15,319.2 | ||||||||||||||||
| Gross Profit for property management and subleasing | (204,322 | ) | (40.3 | )% | 53,453 | 92.1 | % | (257,775 | ) | (482.2 | )% | |||||||||||||
| Total cost of revenue | $ | 1,661,275 | 75.8 | % | $ | 1,748,024 | 73.2 | % | $ | (86,749 | ) | (5.0 | )% | |||||||||||
| Gross profit | $ | 531,236 | 24.2 | % | $ | 639,796 | 26.8 | % | $ | (108,560 | ) | (17.0 | )% | |||||||||||
| 13 |
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 53.2% of our total garment manufacturing business revenue for the six months ended September 30, 2024, as compared with 17.9% for the six months ended September 30, 2023. The increase in percentage was mainly due to the increased order received.
Labor costs for our garment manufacturing business was approximately 23.2% of our total garment manufacturing business revenue for the six months ended September 30, 2024, as compared with 64.2% for the six months ended September 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 4.5% of our total garment business revenue for the six months ended September 30, 2024, as compared with 1.8% of total garment business revenue for the six months ended September 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 36.1% of total cost of revenues for our service segment for the six months ended September 30, 2024 and 2023, respectively. The decrease was attributed to an increase in 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 six months ended September 30, 2024 were approximately $0.8 million as compared with $1.0 million for the six months ended September 30, 2023. Fuel, toll and other costs for our service business accounted for approximately 52.4% of our total service revenue for the six months ended September 30, 2024, as compared with 45.8% for the six months ended September 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 six months ended September 30, 2024 decreased approximately 100.0% to $nil from $0.6 million for the six months ended September 30, 2023. Subcontracting fees accounted for nil% and 28.4% of our total service business revenue in the six months ended September 30, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter.
| 14 |
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 six months ended September 30, 2024 was $0.7 million, approximately 140.3% of our total property management and subleasing business revenue, as compared with $$4,610 for the six months ended September 30, 2023.
Gross profit
Garment manufacturing business gross profit for the six months ended September 30, 2024 was $44,942, as compared with $23,300 for the six months ended September 30, 2023. Gross profit accounted for 19.1% of our total garment manufacturing business revenue for the six months ended September 30, 2024, as compared to 16.1% for the six months ended September 30, 2023. The increase of gross profit ratio was mainly due to increased sales.
Gross profit in our logistics services business for the six months ended September 30, 2024 was approximately $690,617 and gross margin was 47.6%. Gross profit in our logistics services business for the six months ended September 30, 2023 was approximately $563,000 and gross margin was 25.8%. 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 six months ended September 30, 2024 was $204,323. Gross profit was $53,500 for the six months ended September 30, 2023. Gross loss accounted for (40.3)% of our total property management and subleasing business revenue for the six months ended September 30, 2024, as compared to gross profit of 16.7% for the six months ended September 30, 2023. The decrease of gross profit ratio was mainly because the property management and subleasing business are still in preliminary stage.
| Six months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2024 | 2023 | 2024 compared to 2023 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 531,236 | 100 | % | $ | 639,796 | 100 | % | (108,560 | ) | (17.0 | )% | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (161,711 | ) | (30.4 | )% | (37,212 | ) | (5.8 | )% | (124,499 | ) | 334.6 | % | ||||||||||||
| General and administrative expenses | (1,119,607 | ) | (210.8 | )% | (1,168,465 | ) | (182.6 | )% | 48,858 | (4.2 | )% | |||||||||||||
| Total | $ | (1,281,318 | ) | (241.2 | )% | $ | (1,205,677 | ) | (188.4 | )% | (75,641 | ) | 6.3 | % | ||||||||||
| (Loss) Income from operations | $ | (750,082 | ) | (141.2 | )% | $ | (565,881 | ) | (88.4 | )% | (184,201 | ) | 32.6 | % | ||||||||||
Selling, General and administrative expenses
Our selling expenses for our garment manufacturing business for the six months ended September 30, 2024 and 2023 was approximately $96,002 and nil, respectively. The selling expenses for property management and subleasing business for the six months ended September 30, 2024 and 2023 was approximately $65,709 and $37,200, 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 six months ended September 30, 2024 and 2023 was approximately $10,963 and $64,100, respectively. Our general and administrative expenses in our logistics services segment for the six months ended September 30, 2024 and 2023 was approximately $439,625 and $388,100, respectively. The general and administrative expenses in our property management and subleasing business was approximately $136,266 and nil for the six months ended September 30, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the six months ended September 30, 2024 and 2023 was approximately $532,753 and $716,300, 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.
| 15 |
Total general and administrative expenses for the six months ended September 30, 2024 decreased by approximately 4.2% to $1.1 million from $1.2 million for the six months ended September 30, 2023.
Loss from operations
Loss from operations for the six months ended September 30, 2024 and 2023 was approximately $750,082 and $565,881, respectively. Loss from operations of approximately $62,023 and $41,100 for the six months ended September 30, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $250,437 and $174,200 was attributed from our logistics services segment for the six months ended September 30, 2024 and 2023, respectively. Loss from operations of approximately $406,298 and $13,400 for the six months ended September 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 $532,198 and $685,600 for the six months ended September 30, 2024 and 2023, respectively.
Income Tax Expenses
Income tax expense for the six months ended September 30, 2024 and 2023 was approximately $1,546 and $4,501, 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 six months ended September 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 six months ended September 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 six months ended September 30, 2024 and 2023.
Net Loss
We incurred net loss of approximately $1.9 million and $1.4 million for the six months ended September 30, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.36) and ($0.37) for the six months ended September 30, 2024 and 2023, respectively.
Summary of cash flows
Summary cash flows information for the three months ended September 30, 2024 and 2023 is as follow:
| Six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash provided by (used in) operating activities | $ | 528,998 | $ | (1,579,486 | ) | |||
| Net cash used in investing activities | (115,651 | ) | (5,274 | ) | ||||
| Net cash (used in) provided by financing activities | $ | (415,566 | ) | $ | 2,698,435 | |||
| 16 |
Net cash provided by operating activities in the six months ended September 30, 2024 was approximately $0.5 million as compared to net cash used in operating activities of $1.6 million in the six months ended September 30, 2023, which was approximately $2.1 million more than that of the six months ended September 30, 2023. The increase was mainly due to (i) net loss adjusted to operating cash flow for the six months ended September 30, 2024 was $0.8 million less than that of the six months ended September 30, 2023; (ii) the movement of operating assets and liabilities of the three months ended September 30, 2024 resulted in cash inflow of approximately $0.1 million, which was $1.2 million more than that of 2023;.
Net cash used in investing activities for the six months ended September 30, 2024 was approximately $0.1 million, which was mainly due to purchase of property, plant and equipment.
Net cash used in financing activities for the three months ended September 30, 2024 was approximately $0.4 million as compared to $1.0 million in the three months ended September 30, 2023, which was approximately $2.7 million net cash provided by financing activities in the six months ended September 30, 2023. In the six months ended September 30, 2024, the Company received proceeds of $0.7 million from a private placement and paid $1.0 million cash advance to related parties, while the Company had release of restricted cash of $3.85 million in the six months ended September 30, 2023.
Financial Condition, Liquidity and Capital Resources
As of September 30, 2024, we had cash on hand of approximately $0.8 million, total current assets of approximately $28.3 million and current liabilities of approximately $2.5 million. We currently finance our operations from revenue, fund raising from 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 debt or 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 September 30, 2024, the market foreign exchange rate was RMB 7.02 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 six months ended September 30, 2024 and 2023 was approximately $(0.05) 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 September 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.
| 17 |
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 September 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.
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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.
| 19 |
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: November 14, 2024 | By: | /s/ Hong Zhida |
| Hong Zhida | ||
| President, Chief Executive Officer and Director, | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ Huang Chao |
| Huang Chao | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
| 20 |