UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: December 31, 2024

 

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

 

For the transition period from _____________ to _________________

 

Commission File No. 001-41478

 

ADDENTAX GROUP CORP.

(Exact name of registrant as specified in its charter)

 

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

 

Kingkey 100, Block A, Room 4805,

Luohu District, Shenzhen City, China 518000

(Address of principal executive offices)

 

+ (86) 755 86961 405

(Registrant’s telephone number)

 

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

 

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

 

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

☒ Yes ☐ No

 

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

☒ Yes ☐ No

 

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

 

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

 

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

 

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

 

As of, February 14, 2025, there were 6,043,769 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	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

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements and Supplementary Data

 

ADDENTAX GROUP CORP.

 

FINANCIAL STATEMENTS

 

For the three and nine months ended December 31, 2024 and 2023

 

TABLE OF CONTENTS

 

Condensed Consolidated Balance sheets as of December 31, 2024 (unaudited) and March 31, 2024 (audited)	F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended December 31, 2024 and 2023 (unaudited)	F-3
Condensed Consolidated Statements of Changes in Equity for the three and nine months ended December 31, 2024 and 2023 (unaudited)	F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2024 and 2023 (unaudited)	F-5
Notes to Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2024 and 2023 (unaudited)	F-6 – F-14

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

 

		December 31, 2024				March 31, 2024
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	480,082			$	816,186
Restricted cash			2,750,000				2,750,000
Accounts receivables, net			1,055,476				2,106,451
Debt securities held-to-maturity			17,500,000				17,500,000
Inventories			169,518				63,505
Prepayments and other receivables			1,267,623				1,922,996
Advances to suppliers			338,147				1,009,362
Amount due from related party			4,194,557				3,012,892
Total current assets			27,755,403				29,181,392
NON-CURRENT ASSETS
Plant and equipment, net			406,393				568,854
Operating lease right of use asset			18,635,215				19,796,564
Long-term prepayments			269,915				291,938
Long-term receivables			2,500,000				2,500,000
Total non-current assets			21,811,523				23,157,356
TOTAL ASSETS		$	49,566,926			$	52,338,748
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loan		$	617,656			$	440,671
Accounts payable			44,717				359,488
Amount due to related parties			162,105				1,146,745
Advances from customers			298,152				202,567
Accrued expenses and other payables			1,151,188				1,372,962
Operating lease liability current portion			938,039				1,059,497
Total current liabilities			3,211,857				4,581,930
NON-CURRENT LIABILITIES
Convertible debts			2,797,143				2,684,697
Derivative liabilities			1,478,424				287,955
Operating lease liability			18,267,479				18,737,066
Total non-current liabilities			22,543,046				21,709,718
TOTAL LIABILITIES		$	25,754,903			$	26,291,648
EQUITY
Common stock ($0.001 par value, 250,000,000 shares authorized, 6,043,769 and 5,383,769 shares issued and outstanding at December 31 and March 31, 2024, respectively)		$	6,044			$	5,384
Additional paid-in capital			35,240,981				34,510,869
Accumulated Deficit			(11,598,216	)			(8,569,190	)
Statutory reserve			37,682				37,020
Accumulated other comprehensive loss			125,532				63,017
Total equity			23,812,023				26,047,100
TOTAL LIABILITIES AND EQUITY		$	49,566,926			$	52,338,748

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

		2024				2023				2024				2023
		Three months ended December 31,								Nine months ended December 31,
		2024				2023				2024				2023
REVENUES		$	1,059,362			$	1,468,496			$	3,251,873			$	3,856,316
COST OF REVENUES			(976,543	)			(1,306,169	)			(2,637,818	)			(3,054,193	)
GROSS PROFIT			82,819				162,327				614,055				802,123
OPERATING EXPENSES
Selling and marketing			(111,946	)			(95,321	)			(273,657	)			(132,533	)
General and administrative			(351,927	)			(516,598	)			(1,471,534	)			(1,685,063	)
Total operating expenses			(463,873	)			(611,919	)			(1,745,191	)			(1,817,596	)
INCOME (LOSS) FROM OPERATIONS			(381,054	)			(449,592	)			(1,131,136	)			(1,015,473	)
Fair value gain or loss			(648,051	)			(1,738,593	)			(1,045,448	)			(172,001	)
Interest income			311				1,712				1,021				5,129
Interest expenses			(124,998	)			(529,530	)			(1,030,725	)			(2,426,064	)
Other income, net			71,187				111,566				182,586				(357,848	)
(LOSS) INCOME BEFORE INCOME TAX EXPENSE			(1,082,605	)			(2,604,437	)			(3,023,702	)			(3,966,257	)
INCOME TAX EXPENSE			(3,116	)			(3,225	)			(4,662	)			(7,726	)
NET (LOSS) INCOME			(1,085,721	)			(2,607,662	)			(3,028,364	)			(3,973,983	)
Foreign currency translation gain			107,565				(41,266	)			62,515				48,486
TOTAL COMPREHENSIVE INCOME (LOSS)		$	(978,156	)		$	(2,648,928	)		$	(2,965,849	)		$	(3,925,497	)
EARNINGS PER SHARE
Basic and diluted			(0.19	)			(0.66	)			(0.53	)			(1.00	)
Weighted average number of shares outstanding – Basic and diluted			5,750,523				3,980,714				5,750,523				3,980,714

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

 

		Shares				Amount				capital				Unrestricted				reserve				loss				Equity
														Retained earnings								Accumulated
										Additional				(accumulated deficit)								other
		Common Stock								paid-in								Statutory				comprehensive				Total
		Shares				Amount				capital				Unrestricted				reserve				loss				Equity
BALANCE AT OCTOBER 1, 2023			4,494,979			$	4,495			$	33,558,928			$	(6,817,530	)		$	28,457			$	70,279			$	26,844,629
Additional paid-in capital from conversion of convertible debts			-				-				48,021				-				-				-				48,021
Appropriation to Statutory Reserves			-				-				-				(8,570	)			8,570				-				-
Foreign currency translation			-				-				-				-				-				(41,266	)			(41,266	)
Net income for the period			-				-				-				(2,607,662	)			-				-				(2,607,662	)
BALANCE AT DECEMBER 31, 2023			4,494,979			$	4,495			$	33,606,949			$	(9,433,762	)		$	37,027			$	29,013			$	24,243,722
BALANCE AT OCTOBER 1, 2024			6,043,769			$	6,044			$	35,240,981			$	(10,511,833	)		$	37,020			$	17,967			$	24,790,179
Appropriation to Statutory Reserves			-				-				-				(626	)			626				-				-
Foreign currency translation			-				-				-				-				-				107,565	)			107,565
Net income for the period			-				-				-				(1,085,721	)			-				-				(1,085,721	)
BALANCE AT DECEMBER 31, 2024			6,043,769			$	6,044			$	35,240,981			$	(11,598,216	)		$	37,682			$	125,532			$	23,812,023
BALANCE AT APRIL 1, 2023			35,454,670			$	35,455			$	29,528,564			$	(5,451,209	)		$	28,457			$	(19,473	)		$	24,121,794
Issuance of new shares before reversed split			1,940,750				1,941				(1,941	)			-				-				-				-
Reverse stock split			(33,655,878	)			(33,656	)			33,656				-				-				-				-
New shares for round up of fragmental shares			39				0				0				-				-				-				-
Issuance of new shares after reversed split			755,398				755				(755	)			-				-				-				-
Additional paid-in capital from conversion of convertible debts			-				-				4,047,425				-				-				-				4,047,425
Appropriation to Statutory Reserves			-				-				-				(8,570	)			8,570				-				-
Foreign currency translation			-				-				-				-				-				48,486				48,486
Net income for the period			-				-				-				(3,973,983	)			-				-				(3,973,983	)
BALANCE AT DECEMBER 31, 2023			4,494,979			$	4,495			$	33,606,949			$	(9,433,762	)		$	37,027			$	29,013			$	24,243,722
BALANCE AT APRIL 1, 2024			5,383,769			$	5,384			$	34,510,869			$	(8,569,190	)		$	37,020			$	63,017			$	26,047,100
Balance			5,383,769			$	5,384			$	34,510,869			$	(8,569,190	)		$	37,020			$	63,017			$	26,047,100
Issuance of new shares			660,000				660				646,140				-				-				-				646,800
Additional paid-in capital from conversion of convertible debts			-				-				83,972				-				-				-				83,972
Appropriation to Statutory Reserves			-				-				-				(662	)			662				-				-
Foreign currency translation			-				-				-				-				-				62,515				62,515
Net income for the period			-				-				-				(3,028,364	)			-				-				(3,028,364	)
BALANCE AT DECEMBER 31, 2024			6,043,769			$	6,044			$	35,240,981			$	(11,598,216	)		$	37,682			$	125,532			$	23,812,023
Balance			6,043,769			$	6,044			$	35,240,981			$	(11,598,216	)		$	37,682			$	125,532			$	23,812,023

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

		2024				2023
		Nine Months Ended December 31
		2024				2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,028,364	)		$	(3,973,983	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation			1,258,591				664,646
Non-cash financial cost			989,930				2,402,972
Investment income			(330,000	)			(218,750	)
Fair value gain or loss			1,045,448				172,001
Loss on debts extinguishment			(103,785	)			697,318
Gain on bargain purchase			-				(975	)
Loss from sale of property and equipment			73,430				-
Loss on disposal of subsidiary			334,135				-
Changes in operating assets and liabilities
Accounts receivable			641,574				(323,576	)
Inventories			(114,872	)			(18,872	)
Advances to suppliers			(67,419	)			(726,948	)
Other receivables			1,000,232				(95,924	)
Accounts payables			(314,771	)			198,683
Accrued expenses and other payables			(677,335	)			(402,381	)
Advances from customers			95,585				103,987
Net cash provided by (used in) operating activities		$	802,379			$	(1,521,802	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment and intangible assets			(145,520	)			(135,299	)
Cash from acquired investee			-				226,162
Cash decreased in disposal of subsidiary			(8,219	)			-
Net cash used in investing activities		$	(153,739	)		$	90,863
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings			908,290				176,127
Repayment of bank borrowings			(726,524	)			-
Proceeds from related party borrowings			167,783				2,648,014
Repayment of related party borrowings			(298,772	)			(5,341,671	)
Cash advance to related parties			(3,549,135	)			-
Repayment from related parties			2,409,923				-
Release of restricted cash			-				3,850,000
Redemption of convertible debt			(544,706	)			-
Proceeds from issue of ordinary shares			646,800				-
Net cash provided by (used in) financing activities		$	(986,341	)		$	1,332,470
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH			(337,701	)			(98,469	)
Effect of exchange rate changes on cash and cash equivalents			1,597				34,012
Cash and restricted cash, beginning of the period			816,186				562,711
CASH AND RESTRICTED CASH, END OF THE PERIOD		$	480,082			$	498,254
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	39,768			$	-
Cash paid during the period for income tax		$	4,662			$	7,726
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease obligations		$	-			$	20,183,459

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

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 nine months ended December 31, 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.

 

 

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

 SCHEDULE OF FINANCIAL POSITION OF ENTITIES AND GAIN OR LOSS ON DISPOSAL

Financial position of YBY		August 31, 2024, date of disposal
Current assets		$	1,165,329
Noncurrent assets			134
Current liabilities			(863,205	)
Net assets		$	302,258

 

The consideration was Nil, with the reversal of related foreign currency translation reserve brought forward, resulting in a loss of $334,135 recognized on the disposal.

 

5. RELATED PARTY TRANSACTIONS

 SCHEDULE OF RELATED PARTIES RELATIONSHIP WITH COMPANY

Name of Related Parties		Relationship with the Company
Zhida Hong		President, CEO, and a director of the Company
Hongye Financial Consulting (Shenzhen) Co., Ltd.		A company controlled by CEO, Mr. Zhida Hong
Bihua Yang		A legal representative of XKJ
Dewu Huang		A legal representative of YBY, ceased to be related party at August 31, 2024 when YBY was disposed.
Jinlong Huang		Management of HSW

 

The Company leases Shenzhen XKJ office rent-free from Bihua Yang.

 

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

 

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

SCHEDULE OF RELATED PARTY BALANCES 

Amount due from related party		December 31, 2024				March 31, 2024
Zhida Hong (1)		$	2,963,528			$	2,154,759
Bihua Yang (2)			1,231,030				858,133
Amount due from related party		$	4,194,557			$	3,012,892

 

Related party borrowings		December 31, 2024				March 31, 2024
Hongye Financial Consulting (Shenzhen) Co., Ltd.			38,965				170,967
Dewu Huang (3)			-				864,599
Jinlong Huang			123,140				111,179
Related party borrowings		$	162,105			$	1,146,745

 

	(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. During the quarter ended December 31, 2024, the Company provided a short term loan of approximately $0.175 million to Hong Zhida and received repayment of approximately $0.277 million from him.
	(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 December 31, 2024, the Company provided a short term loan of approximately $0.4 million to Yang Bihua and received repayment of approximately $0.1 million from him.
	(3)	The Company received financial support from Huang Dewu to fund company’s daily operation. The decrease is because YBY was disposed of in August 2024.

 

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

 

 

6. DEBT SECURITIES HELD-TO-MATURITY

 SCHEDULE OF DEBT SECURITIES HELD TO MATURITY

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

 

The Company purchased a note issued by a third-party investment company on August 24, 2022. The principal amount of the note is $17,500,000. The note is renewable with one-year tenor on August 23, 2023 and 2.5% p.a. coupon. On August 23, 2023, the Company entered into an agreement to transfer the principal and coupon receivable to a third party. During the quarter ended December 31, 2024, the Company received interest payment of $330,000. As of December 31, and March 31, 2024, the coupon receivable was $Nil and $437,500. The debt is guaranteed by Hongye Financial Consulting (Shenzhen) Co., Ltd., the company controlled by our CEO, Mr. Hong Zhida.

 

7. INVENTORIES

 

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

 SCHEDULE OF INVENTORIES

		December 31, 2024				March 31, 2024
Raw materials		$	10,139			$	20,947
Finished goods			159,379				42,558
Total inventories		$	169,518			$	63,505

 

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 December 31 and March 31, 2024:

 SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES

		December 31, 2024				March 31, 2024
Prepayment			8,036				34,693
Deposit			718,472				741,465
Receivable of consideration on disposal of subsidiaries			-				152,882
Receivable of interest income from debt security			-				437,500
Other receivables			541,115				556,456
Prepayments and other receivables		$	1,267,623			$	1,922,996

 

10. PROPERTY, PLANT AND EQUIPMENT

 

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

 SCHEDULE OF PROPERTY PLANT AND EQUIPMENT

		December 31, 2024				March 31, 2024
Production plant		$	102,693			$	105,738
Motor vehicles			731,084				1,047,121
Office equipment			51,916				52,486
Property, plant and equipment gross			885,693				1,205,345
Less: accumulated depreciation			(479,300	)			(636,491	)
Plant and equipment, net		$	406,393			$	568,854

 

Depreciation expense for the three and nine months ended December 31, 2024 and 2023 was $23,262 and $29,004, $99,181 and $86,005, respectively.

 

 

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 $2.5 million. The loan is interest free and will expire in August 2025.

 

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 $153,172 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of December 31, 2024, the Company has borrowed $129,360 (RMB944,255) (March 31, 2024: $130,779) under this line of credit with various annual interest rates from 4.34% to 4.9%. The outstanding loan balance was due on September 30, 2021. The Company was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable.

 

In February 2023, XKJ entered into a facility agreement with China Construction Bank and obtained a line of revolving credit, which allows the Company to borrow up to approximately $1,268,118 (RMB9,000,000) for daily operations, with Loan Prime Rate of the day prior to the draw down day. The loans are guaranteed by the legal representative of XKJ at no cost. The first drawdown was in October 2023. As of December 31, 2024, the Company has borrowed $356,192 (RMB2,600,000) (March 31, 2024: $110,799) under this line of credit with annual interest rate of 3.9%. The revolving credit facility will be expired on February 1, 2026.

 

In December 2023, PF entered into a facility agreement with Sichuan Xinwang Bank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $68,800 (RMB500,000) for daily operations. As of December 31, 2024, the outstanding balance of the loan was $34,249 (RMB250,000) (March 31, 2024: $60,593) under this line of credit with annual interest rate of 16.2%. The loan facility will be expired on December 26, 2025.

 

In March 2024, PF entered into a new facility agreement with WeBank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $137,602 (RMB1,000,000) for daily operations. As of December 31, 2024, the outstanding balance of the loan was $97,855 (RMB714,286) (March 31, 2024: $138,500) under this line of credit with annual interest rate of 8.244%. The loan facility will expire on March 22, 2026.

 

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 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three and nine months ended December 31, 2024 and 2023.

 

YX, our wholly owned subsidiary, was incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the three and nine months ended December 31, 2024 and 2023.

 

The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies were subject to progressive EIT rates from 5% to 15% in 2024 and 2023. The preferential tax rate will be expired at end of year 2024 and the EIT rate will be 25% from year 2025.

 

The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended December 31, 2024 and 2023.

 

 

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

 SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

		2024				2023				2024				2023
		Three months ended								Nine months ended
		December 31,								December 31,
		2024				2023				2024				2023
PRC statutory tax rate			25	%			25	%			25	%			25	%
Computed expected benefits			(270,651	)			(651,109	)			(755,926	)			(991,564	)
Temporary differences			36,665				37,772				30,420				13,003
Permanent difference			30,109				93,336				(16,087	)			99,648
Changes in valuation allowance			206,993				523,226				746,255				886,639
Income tax expense		$	3,116			$	3,225				4,662				7,726

 

Deferred tax assets had not been recognized in respect of any potential tax benefit that may be derived from non-capital loss carry forward and property and equipment due to past negative evidence of previous cumulative net losses and uncertainty upon restructuring. The management will continue to assess at each reporting period to determine the realizability of deferred tax assets.

 

(b)	Value Added Tax (“VAT”)

 

In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 13%, which is levied on the invoiced value of sales and is payable by the purchaser. The subsidiaries HSW, AOT and YS enjoyed preferential VAT rate of 13%. The companies are required to remit the VAT they collect to the tax authority. A credit is available whereby VAT paid on purchases can be used to offset the VAT due on sales.

 

For services, the applicable VAT rate is 9% under the relevant tax category for logistic company, except the branch of YXPF enjoyed the preferential VAT rate of 3% in 2024 and 2023. The Company is required to pay the full amount of VAT calculated at the applicable VAT rate of the invoiced value of sales as required. A credit is available whereby VAT paid on gasoline and toll charges can be used to offset the VAT due on service income.

 

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”.

 

 

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

 

Revenues by segment for the three and nine months ended December 31, 2024 and 2023 are as follows:

 SCHEDULE OF SEGMENT REPORTING FOR REVENUE

Revenues from external customers		2024				2023				2024				2023
		Three months ended								Nine months ended
		December 31,								December 31,
Revenues from external customers		2024				2023				2024				2023
Garments manufacturing segment			33,773				27,015				268,845				172,106
Logistics services segment			831,103				1,189,004				2,282,039				3,373,670
Property management and subleasing			194,486				252,477				700,989				310,540
Total of reportable segments and consolidated revenue		$	1,059,362			$	1,468,496			$	3,251,873			$	3,856,316
Intersegment revenue
Garments manufacturing segment			-				-				-				-

 

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

 SCHEDULE OF SEGMENT REPORTING FOR LOSS FROM OPERATION

		2024				2023				2024				2023
		Three months ended								Nine months ended
		December 30,								December 30,
		2024				2023				2024				2023
Garments manufacturing segment			(31,220	)			(30,398	)			(93,243	)			(71,541	)
Logistics services segment			8,707				(41,699	)			259,144				132,530
Property management and subleasing			(234,264	)			(168,012	)			(640,562	)			(181,372	)
Total of reportable segments		$	(256,777	)		$	(240,109	)		$	(474,661	)		$	(120,383	)
Corporate and other			(124,277	)			(209,483	)			(656,475	)			(895,090	)
Total consolidated income (loss) from operations			(381,054	)			(449,592	)			(1,131,136	)			(1,015,473	)

 

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

 SCHEDULE OF SEGMENT REPORTING FOR ASSETS

Total assets		December 31, 2024				March 31, 2024
Garment manufacturing segment		$	221,322			$	1,357,761
Logistics services segment			3,201,602				3,231,492
Property management and subleasing			19,930,880				20,931,431
Total of reportable segments			23,353,804				25,520,684
Corporate and other			26,213,122				26,818,064
Consolidated total assets		$	49,566,926			$	52,338,748

 

Geographical Information

 

The Company operates predominantly in China. In presenting information on the basis of geographical location, revenue is based on the geographical location of customers and long-lived assets are based on the geographical location of the assets.

 

Geographic Information

 SCHEDULE OF GEOGRAPHICAL INFORMATION

		Three months ended December 31,								Nine months ended December 31,
		2024				2023				2024				2023
Revenues
China			1,059,362				1,468,496				3,251,873				3,856,316

 

		December 31, 2024				March 31, 2024
Long-Lived Assets
China			21,811,523				23,157,356

 

 

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 $15,000,000 in consideration of the issuance of:

 

	●	senior secured convertible notes in the aggregate original principal amount of approximately $16.7 million with interest rate of 5% per annum (the “Convertible Notes”); The Convertible Notes shall be matured on July 4, 2024. The conversion price is $1.25, subject to adjustment under several conditions.
	●	warrants to purchase up to approximately 16.1 million shares of common stock of the Company (the “Common Stock”) until on or prior to 11:59 p.m. (New York time) on the five-year anniversary of the closing date at an exercise price of $1.25 per share, also subject to adjustment under several conditions.

 

The Warrant is considered a freestanding instrument issued together with the Convertible Note and measured at its issuance date fair value. Proceeds received were first allocated to the Warrant based on its initial fair value. The initial fair value of the Warrant was $3.9 million. The Warrant were marked to the market with the changes in the fair value of warrant recorded in the consolidated statements of operations and comprehensive loss. As of December 31, 2024, the balance of the Warrant was approximately $0.7 million (March 31, 2024: $0.25 million).

 

The Convertible Note is classified as a liability and is subsequently stated at amortized cost with any difference between the initial carrying value and the repayment amount as interest expenses using the effective interest method over the period from the issuance date to the maturity date. The embedded conversion feature should be bifurcated and separately accounted for using fair value, as this embedded feature is considered not clearly and closely related to the debt host. The bifurcated conversion feature was recorded at fair value with the changes recorded in the consolidated statements of operations and comprehensive loss. The initial fair value of the embedded conversion feature was $1.2 million. As of December 31, 2024, the fair value of the conversion option was $0.8 million (March 31, 2024: $0.04 million).

 

The Company determined that the other embedded features do not require bifurcation as they either are clearly and closely related to the Convertible Note or do not meet the definition of a derivative.

 

The total proceeds of the Convertible Note and the Warrants, net of issuance cost, of $15.0 million was received by the Company in January 2023, and allocated to each of the financial instruments as following:

 SCHEDULE OF FINANCIAL INSTRUMENTS

		As of January 4, 2023
Derivative liabilities – Fair value of the Warrants		$	3,858,521
Derivative liabilities – Embedded conversion feature			1,247,500
Convertible Note			9,893,979
		$	15,000,000

 

In January 2023, the Company also granted to the placement agent a warrant as partial of agent fee to purchase 0.7 million shares of common stock of the Company. The warrant is matured in five years with exercise price of $1.25 subject to adjustments under different conditions. The warrant was recognized as derivative liability and the initial fair value was $0.168 million.

 

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 nine months ended December 31, 2024 and 2023:

 SCHEDULE OF CONVERTIBLE NOTES OBLIGATION

		Three months ended								Nine months ended
		December 30,								December 30,
		2024				2023				202 4				2023
Carrying value – beginning balance		$	3,214,514			$	2,583,324			$	2,684,697			$	9,893,979
Converted to ordinary shares			-				(47,518	)			(82,642	)			(3,743,329	)
Redemption			(544,706	)			-				(544,706	)			(5,687,056	)
Amortization of debt discount			74,113				364,400				756,761				2,616,008
Deferred debt discount and cost of issuance			15,633				(677,683	)			(250,136	)			(1,815,995	)
Interest charge			37,589				153,589				233,169				1,112,505
Carrying value – ending balance		$	2,797,143			$	2,376,112			$	2,797,143			$	2,376,112

 

During the three and nine months ended December 31, 2024, approximately $Nil and $82,642 of the convertible note was converted into approximately Nil and 132,994 ordinary shares, with average effective conversion price of $0.6214 per share. During the three and nine months ended December 31, 2023, approximately $47,128 and $3.7 million of the convertible notes was converted into approximately 0.05 and 3.1 million ordinary shares, with average effective conversion price of $1.0245 and $1.4896 per share.

 

The Company’s derivative liabilities were as the following for the three and nine months ended December 30, 2024 and 2023:

 SCHEDULE OF DERIVATIVE LIABILITIES

		2024				2023				2024				2023
		Three months ended								Nine months ended
		December 30,								December 30,
		2024				2023				2024				2023
Derivative liabilities –Warrants		$				$				$				$
Beginning balance			301,989				268,435				251,657				4,026,521
Marked to the market			352,320				704,640				402,652				(3,053,446	)
Ending fair value			654,309				973,075				654,309				973,075
Derivative liabilities – Embedded conversion feature
Beginning balance			645,958				24,549				36,298				1,247,500
Converted to ordinary shares			-				(503	)			(1,330	)			(454,097	)
Remeasurement on change of convertible price			(15,633	)			677,683				248,292				1,815,996
Redemption			(103,786	)			-				(103,786	)			(1,115,627	)
Marked to the market			297,575				1,033,953				644,641				241,910
Ending fair value			824,115				1,735,682				824,115				1,735,682
Total Derivative fair value at end of period		$	1,478,424			$	2,708,757			$	1,478,424			$	2,708,757

 

 

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 December 31, 2024, with discounted rate of 4.9%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows.

 

The Company leases its plant and dormitory for 4.5 years with an option to extend the lease. The Company leased several floors in a commercial building for its sublease and property management services business for 16 years with an option to extend the lease.

 

The following table summarizes the components of lease expense:

 SCHEDULE OF LEASE EXPENSES

		2024				2023				2024				2023
		Three months ended December 31,								Nine months ended December 31,
		2024				2023				2024				2023
Operating lease cost			238,245				362,991				763,220				437,791
Short-term lease cost			31,366				36,830				100,237				94,881
Lease Cost		$	269,611			$	399,821			$	863,457			$	532,672

 

The following table summarizes supplemental information related to leases:

 SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

		2024				2023				2024				2023
		Three months ended December 31,								Nine months ended December 31,
		2024				2023				2024				2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow from operating leases		$	269,611			$	399,821				863,457				532,672
Right-of-use assets obtained in exchange for new operating leases liabilities			-				671,059				-				20,183,459
Weighted average remaining lease term - Operating leases (years)			13.8				14.6				13.8				14.6
Weighted average discount rate - Operating leases			4.90	%			4.90	%			4.90	%			4.90	%

 

The following table summarizes the maturity of operating lease liabilities:

 SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY

Years ending December 31		Lease cost
2025		$	984,003
2026			984,003
2027			984,003
2028			2,001,348
2029 and there after			23,303,295
Total lease payments			28,256,652
Less: Interest			(9,051,133	)
Total		$	19,205,519

 

As a lessor

 

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

 

Rental income from subleasing is disclosed in Note 14 segment data.

 

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

SCHEDULE OF FUTURE MINIMUM RENT RECEIVABLE 

Years ending December 31		Lease income
2025		$	199,018
2026			261,754
2027			294,097
2028			-
2029 and there after			-
Total		$	754,869

 

 

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 330,000 shares of its common stock, par value $0.001 per share, at a price of $0.98 per share (the “Common Stock”), resulting in aggregate gross proceeds to the Company of $646,800, which closed on the same day. Pursuant to the Agreement, the Company issued an aggregate of 660,000 unregistered shares of common stock to the Investors.

 

There are 6,043,769 and 5,383,769 ordinary shares issued and outstanding at December 31, 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 7.30 and 7.22 as of December 31, 2024 and March 31, 2024, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 7.19 and 7.15, 7.20 and 7.15 for the three and nine months ended December 31, 2024 and 2023, respectively. Equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustments to other comprehensive loss, a component of equity.

 

(c)	Concentration Risks

 

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

 

Garment manufacturing segment

 SCHEDULE OF CONCENTRATION RISKS

		December 31, 2024				March 31, 2024
Customer A			54.7	%			Nil	%
Customer B			45.3	%			3.3	%

 

The high concentration as of December 31, 2024 was mainly due to business development of a large distributor of garments.

 

Logistics services segment

 

		December 31, 2024				March 31, 2024
Customer A			18.9	%			13.9	%
Customer B			18.9	%			8.2	%
Customer C			16.3	%			21.6	%
Customer D			6.9	%			9.9	%
Customer E			5.0	%			5.4	%

 

Property management and subleasing segment

 

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

 

Concentration on customers

 

For the three months ended December 31, 2024, two customers from Logistics services segment provided more than 10% of total revenue of the Company, representing 37.6% of total revenue of the Company for the three months. For the nine months ended December 31, 2024, two customers from Logistics services segment provided more than 10% of total revenue of the Company, representing 40.7% of total revenue of the Company for the nine months.

 

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

 

Concentration on suppliers

 

The following tables summarized the purchases from five largest suppliers of each of the reportable segments for the three and nine months ended December 31, 2024 and 2023.

 SCHEDULE OF PURCHASES FROM SUPPLIERS

		Three months ended												Nine months ended
		December 31,												December 31,
		2024				2023								2024				2023
Garment manufacturing segment			100.0	%			Nil				%				100.0	%			Nil	%
Logistics services segment			100	%			100.0	%							100	%			100.0	%
Property management and subleasing			100.0	%			100.0	%							100.0	%			100.0	%

 

(d)	Interest Rate Risk

 

The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of December 31, 2024, the total outstanding borrowings amounted to $617,656 (RMB4,508,541) with various interest rate from 4.34% to 16.2% p.a. (Note 12)

 

 

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 December 31, 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) Dongguan Au Te Si Garments Co., Ltd., a PRC company (“AOT”), (x) 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) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”), and (viii) 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”) 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.

 

The Company dissolved another subsidiary, Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd (“ZHJ”), in August 2024 and received approval from RPC authorities.

 

 

Business Objectives

 

Garment Manufacturing Business

 

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

 

Logistics Services Business

 

The business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31, 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 December 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.

 

 

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.

 

 

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.

 

 

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 December 31, 2024 and 2023

 

The following table summarize our results of operations for the three months ended December 31, 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 December 31,																Changes in 2024
		2024								2023								compared to 2023
			(In U.S. dollars, except for percentages)
Revenue		$	1,059,362				100.0	%		$	1,468,496				100	%		$	(409,134	)			(27.9	)%
Cost of revenues			(976,543	)			(92.2	)%			(1,306,169	)			(88.9	)%			329,626				(25.2	)%
Gross profit			82,819				7.8	%			162,327				11.1	%			(79,508	)			(49.0	)%
Operating expenses			(463,873	)			(43.8	)%			(611,919	)			(41.7	)%			148,046				(24.2	)%
Loss from operations			(381,054	)			(36.0	)%			(449,592	)			(30.6	)%			68,538				(15.2	)%
Other income, net			71,187				6.7	%			111,566				7.6	%			(40,379	)			(36.2	)%
Fair value gain or loss			(648,051	)			(61.2	)%			(1,738,593	)			(118.4	)%			1,090,541				(62.7	)%
Net finance cost			(124,686	)			(11.8	)%			(527,818	)			(35.9	)%			403,132				(76.4	)%
Income tax expense			(3,116	)			(0.3	)%			(3,225	)			(0.2	)%			109				(3.4	)%
Net loss		$	(1,085,721	)			(102.5	)%		$	(2,607,662	)			(177.6	)%		$	1,521,941				(58.4	)%

 

Revenue

 

Total revenue for the three months ended December 31, 2024 decreased by approximately $0.4 million, or 27.9%, as compared with the three months ended December 31, 2023. The decrease was mainly due to the decrease of $0.4 million in logistics services business.

 

Revenue generated from our garment manufacturing business contributed approximately $0.03 million, or 3.2%, of our total revenue for the three months ended December 31, 2024. Revenue generated from garment manufacturing business contributed approximately $0.03 million or 1.8% of our total revenue for the three months ended December 31, 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.

 

 

Revenue generated from our logistics services business contributed approximately $0.8 million, or 78.5%, of our total revenue for the three months ended December 31, 2024. Revenue generated from our logistic business contributed approximately $1.2 million or 81.0% of our total revenue for the three months ended December 31, 2023.

 

Revenue generated from our property management and subleasing business was 0.2 million, or 18.4%, of our total revenue for the three months ended December 31, 2024. The revenue from this business segment was $0.3 million or 17.2% of our total revenue for the three months ended December 31, 2023.

 

Cost of revenue

 

		Three months ended December 31,																Increase (decrease) in
		2024								2023								2024 compared  to 2023
		(In U.S. dollars, except for percentages)
Net revenue for garment manufacturing		$	33,773				100.0	%		$	27,015				100	%		$	6,758				25.0	%
Raw materials			11,907				35.3	%			4,238				15.7	%			7,669				181.0	%
Labor			12,884				38.1	%			6,957				25.8	%			5,927				85.2	%
Other and Overhead			3,361				10.0	%			(1,293	)			(4.8	)%			4,653				(360.1	)%
Total cost of revenue for garment manufacturing			28,152				83.4	%			9,902				36.7	%			18,249				184.3	%
Gross profit for garment manufacturing			5,621				16.6	%			17,113				63.3	%			(11,492	)			(67.2	)%
Net revenue for logistics services			831,103				100.0	%			1,189,004				100.0	%			(357,901	)			(30.1	)%
Fuel, toll and other cost of logistics services			528,883				63.6	%			495,352				41.6	%			33,531				6.8	%
Subcontracting fees			117,674				14.2	%			560,735				47.2	%			(443,061	)			(79.0	)%
Total cost of revenue for logistics services			646,557				77.8	%			1,056,087				88.8	%			(409,530	)			(38.8	)%
Gross Profit for logistics services			184,546				22.2	%			132,917				11.2	%			51,629				38.8	%
Net revenue for property management and subleasing			194,486				100.0	%			252,477				100.0	%			(57,991	)			(23.0	)
Total cost of revenue for property management and subleasing			301,834				155.2	%			236,291				93.6	%			65,543				27.7
Gross Profit for property management and subleasing			(107,348	)			(55.2	)%			16,186				6.4	%			(123,534	)			(763.2	)%
Net revenue for corporate and others											-				-
Merchandise/Finished goods/Raw materials											3,889				-				(3,889	)			(100.0	)%
Total cost of revenue for corporate and others											3,889				-				(3,889	)			(100.0	)%
Gross (loss) income for corporate and others											(3,889	)			-				3,889				(100.0	)%
Total cost of revenue		$	976,543				92.2	%		$	1,306,169				88.9	%		$	(329,626	)			(25.2	)%
Gross profit		$	82,819				7.8	%		$	162,327				11.1	%		$	(79,508	)			(49.0	)%

 

 

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 35.3% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared with 15.7% for the three months ended December 31, 2023. The increase in percentage was mainly due to increased orders received.

 

Labor costs for our garment manufacturing business was approximately 38.1% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared with 25.8% for the three months ended December 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 10.0% of our total garment business revenue for the three months ended December 31, 2024, as compared with (4.8)% of total garment business revenue for the three months ended December 31, 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 % and 53.1% of total cost of revenues for our service segment for the three months ended December 31, 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 December 31, 2024 were approximately $0.5 million as compared with $0.5 million for the three months ended December 31, 2023. Fuel, toll and other costs for our service business accounted for approximately 63.6% of our total service revenue for the three months ended December 31, 2024, as compared with 41.6% for the three months ended December 31, 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 December 31, 2024 decreased approximately 79.0% to $0.1 from $0.6 million for the three months ended December 31, 2023. Subcontracting fees accounted for 14.2% and 47.2% of our total service business revenue in the three months ended December 31, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter.

 

 

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 December 31, 2024 was $301,834, approximately 155.2% of our total property management and subleasing business revenue, as compared with $236,291, or 93.6% of the total property management and subleasing business revenue for the three months ended December 31, 2023.

 

Gross profit

 

Garment manufacturing business gross profit for the three months ended December 31, 2024 was $5,620, as compared with $17,113 for the three months ended December 31, 2023. Gross profit accounted for 16.6% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared to 63.3% for the three months ended December 31, 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 December 31, 2024 was approximately $184,545 and gross margin was 22.2%. Gross profit in our logistics services business for the three months ended December 31, 2023 was approximately $132,917 and gross margin was 11.2%. 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 December 31, 2024 was $107,346. Gross profit was $16,186 for the three months ended December 31, 2023. Gross loss accounted for (55.2)% of our total property management and subleasing business revenue for the three months ended December 31, 2024, as compared to 6.4% for the three months ended December 31, 2023. The decrease of gross profit ratio was mainly because the property management and subleasing business are still in preliminary stage.

 

		Three months ended December 31,																Increase (decrease) in
		2024								2023								2024 compared to 2023
		(In U.S. dollars, except for percentages)
Gross profit		$	82,819				100	%		$	162,327				100	%			(79,508	)			(49.0	)%
Operating expenses:
Selling expenses			(111,946	)			(135.2	)%			(95,321	)			(58.7	)%			(16,625	)			17.4	%
General and administrative expenses			(351,927	)			(424.9	)%			(516,598	)			(318.2	)%			164,671				(31.9	)%
Total		$	(463,873	)			(560.1	)%		$	(611,919	)			(377.0	)%			148,046				(24.2	)%
(Loss) Income from operations		$	(381,054	)			(460.1	)%		$	(449,592	)			(277.0	)%			68,538				(15.2	)%

 

Selling, General and administrative expenses

 

Our selling expenses for our garment manufacturing business for the three months ended December 31, 2024 and 2023 was approximately $28,818 and $13,504, respectively. The selling expenses for property management and subleasing business for the three months ended December 31, 2024 and 2023 was approximately $83,127 and $81,817, 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 December 31, 2024 and 2023 was approximately $8,021 and $34,007, respectively. Our general and administrative expenses in our logistics services segment for the three months ended December 31, 2024 and 2023 was approximately $175,837 and $174,618, respectively. The general and administrative expenses in our property management and subleasing business was approximately $43,790 and $132,336for the three months ended December 31, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the three months ended December 31, 2024 and 2023 was approximately $124,279 and $175,636, 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.

 

 

Total general and administrative expenses for the three months ended December 31, 2024 decreased by approximately 31.9% to $0.4 million from $0.5 million for the three months ended December 31, 2023.

 

Loss from operations

 

Loss from operations for the three months ended December 31, 2024 and 2023 was approximately $381,054 and $449,592, respectively. Loss from operations of approximately $31,220 and loss from operation of $30,398 for the three months ended December 31, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $8,707 and loss from operation of $41,699 was attributed from our logistics services segment for the three months ended December 31, 2024 and 2023, respectively. Loss from operations of approximately $234,264 and $168,012 for the three months ended December 31, 2024 and 2023, respectively, which was attributed from our property management and subleasing business. We incurred expenses from operations in corporate office of approximately $124,277 and $209,483 for the three months ended December 31, 2024 and 2023, respectively.

 

Income Tax Expenses

 

Income tax expense for the three months ended December 31, 2024 and 2023 was approximately $3,116 and $3,225, 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 December 31, 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 December 31, 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 December 31, 2024 and 2023.

 

Net Loss

 

We incurred net loss of approximately $1.1 million and $2.6 million for the three months ended December 31, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.19) and ($0.66) for the three months ended December 31, 2024 and 2023, respectively.

 

 

Results of Operations for the nine months ended December 31, 2024 and 2023

 

The following table summarize our results of operations for the nine months ended December 31, 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.

		Nine Months Ended December 31,																Changes in 2024
		2024								2023								compared to 2023
		(In U.S. dollars, except for percentages)
Revenue		$	3,251,873				100.0	%		$	3,856,316				100	%		$	(604,443	)			(15.7	)%
Cost of revenues			(2,637,818	)			(81.1	)%			(3,054,193	)			(79.2	)%			416,375				(13.6	)%
Gross profit			614,055				18.9	%			802,123				20.8	%				)			(23.4	)%
Operating expenses			(1,745,191	)			(53.7	)%			(1,817,596	)			(47.1	)%			72,405	)			(4.0	)%
Loss from operations			(1,131,136	)			(34.8	)%			(1,015,473	)			(26.3	)%			(115,663	)			11.4	%
Other income, net			182,586				5.6	%			(357,848	)			(9.3	)%			540,434				(151.0	)%
Fair value gain or loss			(1,045,448	)			(32.1	)%			(172,001	)			(4.5	)%			(873,447	)			507.8	%
Net finance cost			(1,029,704	)			(31.7	)%			(2,420,935	)			(62.8	)%			1,391,231				(57.5	)%
Income tax expense			(4,662	)			(0.1	)%			(7,726	)			(0.2	)%			3,064				(39.7	)%
Net loss		$	(3,028,364	)			(93.1	)%		$	(3,973,983	)			(103.1	)%		$	945,619	)			(23.8	)%

 

Revenue

 

Total revenue for the nine months ended December 31, 2024 decreased by approximately $0.6 million, or 15.7%, as compared with the nine months ended December 31, 2023. The decrease was mainly due to the decrease of $1.1 million in logistics services, decrease 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 $0.3 million, or 8.3%, of our total revenue for the nine months ended December 31, 2024. Revenue generated from garment manufacturing business contributed approximately $0.2 million or 4.5% of our total revenue for the nine months ended December 31, 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.

 

 

Revenue generated from our logistics services business contributed approximately $2.3 million, or 70.2%, of our total revenue for the nine months ended December 31, 2024. Revenue generated from our logistic business contributed approximately $3.4 million or 87.5% of our total revenue for the nine months ended December 31, 2023.

 

Revenue generated from our property management and subleasing business was 0.7 million, or 21.6%, of our total revenue for the nine months ended December 31, 2024. The revenue from this business segment was $0.3 million or 8.1% of our total revenue for the nine months ended December 31, 2023.

 

Cost of revenue

 

		Nine months ended December 31,																Increase (decrease) in
		2024								2023								2024 compared  to 2023
		(In U.S. dollars, except for percentages)
Net revenue for garment manufacturing		$	268,845				100.0	%		$	172,106				100.0	%		$	96,739				56.2	%
Raw materials			136,866				50.9	%			30,187				17.5	%			106,679				353.4	%
Labor			67,409				25.1	%			100,097				58.2	%			(32,688	)			(32.7	)%
Other and Overhead			14,008				5.2	%			1,389				0.8	%			12,619				908.5	%
Total cost of revenue for garment manufacturing			218,283				81.2	%			131,673				76.5	%			86,610				65.8	%
Gross profit for garment manufacturing			50,562				18.8	%			40,433				23.5	%			10,129				25.1	%
Net revenue for logistics services			2,282,039				100.0	%			3,373,670				100.0	%			(1,091,631	)			(32.4	)%
Fuel, toll and other cost of logistics services			1,289,202				56.5	%			1,496,570				44.4	%			(207,368	)			(13.9	)%
Subcontracting fees			117,674				5.2	%			1,181,160				35.0	%			(1,063,486	)			(90.0	)%
Total cost of revenue for logistics services			1,406,876				61.6	%			2,677,730				79.4	%			(1,270,854	)			(47.5	)%
Gross Profit for logistics services			875,163				38.4	%			695,940				20.6	%			179,223				25.8	%
Net revenue for property management and subleasing			700,989				100.0	%			310,540				100.0	%			390,449				125.7	%
Total cost of revenue for property management and subleasing			1,012,659				144.5	%			240,900				77.6	%			771,759				320.4	%
Gross Profit for property management and subleasing			(311,670	)			(44.5	)%			69,639				22.4	%			(381,309	)			(547.6	)%
Net revenue for supplies corporate and others											-
Other and Overhead											3,889								(3,889	)			(100.0	)%
Total cost of revenue for corporate and others											3,889								(3,889	)			(100.0	)%
Gross (loss) income for corporate and others											(3,889	)							3,889				(100.0	)%
Total cost of revenue		$	2,637,818				81.1	%		$	3,054,193				79.2	%		$	(416,375	)			(13.6	)%
Gross profit		$	614,055				18.9	%		$	802,123				20.8	%		$	(188,068	)			(23.4	)%

 

 

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 50.9% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared with 17.5% for the nine months ended December 31, 2023. The increase in percentage was mainly due to the increased order received.

 

Labor costs for our garment manufacturing business was approximately 25.1% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared with 58.2% for the nine months ended December 31, 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 5.2% of our total garment business revenue for the nine months ended December 31, 2024, as compared with 0.8% of total garment business revenue for the nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2024 were approximately $1.3 million as compared with $1.5 million for the nine months ended December 31, 2023. Fuel, toll and other costs for our service business accounted for approximately 56.5% of our total service revenue for the nine months ended December 31, 2024, as compared with 44.4% for the nine months ended December 31, 2023. The increase was primarily attributable to a decrease of usage of subcontractors during the quarter.

 

Subcontracting fees for our service business for the nine months ended December 31, 2024 decreased approximately 90.0% to $0.1 million from $1.2 million for the nine months ended December 31, 2023. Subcontracting fees accounted for 5.2% and 35.0% of our total service business revenue in the nine months ended December 31, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter.

 

 

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 nine months ended December 31, 2024 was $1.0 million, approximately 144.5% of our total property management and subleasing business revenue, as compared with $0.2 million, approximately 77.6% of our total property managemet for the nine months ended December 31, 2023.

 

Gross profit

 

Garment manufacturing business gross profit for the nine months ended December 31, 2024 was $50,562, as compared with $40,433 for the nine months ended December 31, 2023. Gross profit accounted for 18.8% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared to 23.5% for the nine months ended December 31, 2023. The increase of gross profit ratio was mainly due to increased sales.

 

Gross profit in our logistics services business for the nine months ended December 31, 2024 was approximately $875,162 and gross margin was 38.4%. Gross profit in our logistics services business for the nine months ended December 31, 2023 was approximately $695,940 and gross margin was 20.6%. 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 nine months ended December 31, 2024 was $311,669. Gross profit was $69,639 for the nine months ended December 31, 2023. Gross loss accounted for (44.5)% of our total property management and subleasing business revenue for the nine months ended December 31, 2024, as compared to gross profit of 22.4% for the nine months ended December 31, 2023. The decrease was due to disposal of DY.

 

		Nine months ended December 31,																Increase (decrease) in
		2024								2023								2024 compared to 2023
		(In U.S. dollars, except for percentages)
Gross profit		$	614,055				100	%		$	802,123				100	%			(188,068	)			(23.4	)%
Operating expenses:
Selling expenses			(273,657	)			(44.6	)%			(132,533	)			(16.5	)%			(141,124	)			106.5	%
General and administrative expenses			(1,471,534	)			(239.6	)%			(1,685,063	)			(210.1	)%			213,529				(12.7	)%
Total		$	(1,745,191	)			(284.2	)%		$	(1,817,596	)			(226.6	)%			72,405				(4.0	)%
(Loss) Income from operations		$	(1,131,136	)			(184.2	)%		$	(1,015,473	)			(126.6	)%			(115,663	)			11.4	%

 

Selling, General and administrative expenses

 

Our selling expenses for our garment manufacturing business for the nine months ended December 31, 2024 and 2023 was approximately $124,821 and $13,857, respectively. The selling expenses for property management and subleasing business for the nine months ended December 31, 2024 and 2023 was approximately $148,836 and $118,676, 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 nine months ended December 31, 2024 and 2023 was approximately $18,984 and $98,117, respectively. Our general and administrative expenses in our logistics services segment for the nine months ended December 31, 2024 and 2023 was approximately $615,462 and $562,696, respectively. The general and administrative expenses in our property management and subleasing business was approximately $180,056 and $132,336 for the nine months ended December 31, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2024 and 2023 was approximately $657,032 and $891,914, 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.

 

 

Total general and administrative expenses for the nine months ended December 31, 2024 decreased by approximately 12.7% to $1.5 million from $1.7 million for the nine months ended December 31, 2023.

 

Loss from operations

 

Loss from operations for the nine months ended December 31, 2024 and 2023 was approximately $1.1 and $1.0, respectively. Loss from operations of approximately $93,243 and $71,541 for the nine months ended December 31, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $259,144 and $132,530 was attributed from our logistics services segment for the nine months ended December 31, 2024 and 2023, respectively. Loss from operations of approximately $640,562 and $181,372 for the nine months ended December 31, 2024 and 2023, respectively, which was attributed from our property management and subleasing business. We incurred expenses from operations in corporate office of approximately $656,475 and $895,090 for the nine months ended December 31, 2024 and 2023, respectively.

 

Income Tax Expenses

 

Income tax expense for the nine months ended December 31, 2024 and 2023 was approximately $4,662 and $7,726, 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 nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2024 and 2023.

 

Net Loss

 

We incurred net loss of approximately $3.0 million and $4.0 million for the nine months ended December 31, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.53) and ($1.0) for the nine months ended December 31, 2024 and 2023, respectively.

 

Summary of cash flows

 

Summary cash flows information for the three months ended December 31, 2024 and 2023 is as follow:

 

		Nine months ended December 31,
		2024				2023
		(In U.S. dollars)
Net cash provided by (used in) operating activities		$	802,379			$	(1,521,802	)
Net cash used in investing activities			(153,739	)			90,863
Net cash (used in) provided by financing activities		$	(986,341	)		$	1,332,470

 

 

Net cash provided by operating activities in the nine months ended December 31, 2024 was approximately $0.8 million as compared to net cash used in operating activities of $1.5 million in the nine months ended December 31, 2023, which was approximately $2.3 million more than that of the nine months ended December 31, 2023. The increase was mainly due to (i) net loss adjusted to operating cash flow for the nine months ended December 31, 2024 was $0.6 million less than that of the nine months ended December 31, 2023; (ii) the movement of operating assets and liabilities of the three months ended December 31, 2024 resulted in cash outflow of approximately $0.1 million, which was $1.1 million less than that of 2023;.

 

Net cash used in investing activities for the nine months ended December 31, 2024 was approximately $0.2 million, which was $0.3 million less than the nine months ended December 31, 2023.

 

Net cash used in financing activities for the three months ended December 31, 2024 was approximately $1.0 million as compared to cash provided by financing activities of $1.3 million in the three months ended December 31, 2023. In the nine months ended December 31, 2024, the Company received proceeds of $0.2 million from bank borrowings, $0.6 million of proceeds from issue of ordinary shares, loan to related parties of $1.3 million, payment for redemption of convertible debts, and proceeds of $0.7 million from a private placement, while the Company had release of restricted cash of $3.85 million in the nine months ended December 31, 2023.

 

Financial Condition, Liquidity and Capital Resources

 

As of December 31, 2024, we had cash on hand of approximately $0.5 million, total current assets of approximately $27.8 million and current liabilities of approximately $3.2 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 December 31, 2024, the market foreign exchange rate was RMB 7.30 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the nine months ended December 31, 2024 and 2023 was approximately $0.06 million and $0.05 million, respectively.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 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.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

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

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 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.

 

 

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.

 

 

SIGNATURES

 

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

 

Addentax Group Corp.
Date: February 14, 2025	By:	/s/ Hong Zhida
		Hong Zhida
		President, Chief Executive Officer and Director,
		(Principal Executive Officer)
Date: February 14, 2025	By:	/s/ Huang Chao
		Huang Chao
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)