ADDENTAX GROUP CORP. - Quarter Report: 2021 December (Form 10-Q)
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, 2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _________________
Commission File No. 333-206097
ADDENTAX GROUP CORP.
(Exact name of registrant as specified in its charter)
| Nevada | 35-2521028 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or formation) | Identification Number) |
Kingkey 100, Block A, Room 4805,
Luohu District, Shenzhen City, China 518000
(Address of principal executive offices)
+ (86) 755 8233 0336
(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 | OTC 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, 2022, there were shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 18 |
| Item 1A. | Risk Factors | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities | 18 |
| Item 4. | Mine Safety Disclosures | 18 |
| Item 5. | Other Information | 18 |
| Item 6. | Exhibits | 18 |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the nine months ended December 31, 2021 and 2020
TABLE OF CONTENTS
| F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
(UNAUDITED)
| December 31, 2021 | March 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 506,342 | $ | 1,845,077 | ||||
| Accounts receivables, net | 1,718,991 | 4,757,518 | ||||||
| Inventories | 298,196 | 270,434 | ||||||
| Prepayments and other receivables | 610,621 | 684,161 | ||||||
| Advances to suppliers | 1,522,370 | 355,454 | ||||||
| Amount due from related party | 171,364 | 84,838 | ||||||
| Total current assets | 4,827,884 | 7,997,482 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | 869,603 | 793,977 | ||||||
| Long-term prepayments | 9,348 | - | ||||||
| Operating lease right of use asset | 7,307,883 | 9,632,625 | ||||||
| Total non-current assets | 8,186,834 | 10,426,602 | ||||||
| TOTAL ASSETS | $ | 13,014,718 | $ | 18,424,084 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term loan | $ | 157,354 | $ | 152,607 | ||||
| Accounts payable | 1,221,731 | 3,121,373 | ||||||
| Amount due to related parties | 3,536,615 | 4,913,964 | ||||||
| Advances from customers | 34,683 | 3,029 | ||||||
| Accrued expenses and other payables | 778,260 | 681,984 | ||||||
| Operating lease liability current portion | 3,701,925 | 3,555,458 | ||||||
| Total current liabilities | 9,430,568 | 12,428,415 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liability | 3,605,958 | 6,077,167 | ||||||
| TOTAL LIABILITIES | $ | 13,036,526 | $ | 18,505,582 | ||||
| EQUITY (deficit) | ||||||||
| Common stock ($ par value, shares authorized, shares issued and outstanding at December 31, 2021 and March 31, 2021) | $ | 26,693 | $ | 26,693 | ||||
| Additional paid-in capital | 6,815,333 | 6,815,333 | ||||||
| Accumulated Deficit | (6,711,641 | ) | (6,834,228 | ) | ||||
| Statutory reserve | 13,821 | 13,821 | ||||||
| Accumulated other comprehensive loss | (166,014 | ) | (103,117 | ) | ||||
| Total deficit | (21,808 | ) | (81,498 | ) | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 13,014,718 | $ | 18,424,084 | ||||
See accompany notes to the unaudited condensed consolidated financial statements.
| F-2 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
| Three
months ended December 31, | Nine
months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | $ | 2,791,470 | $ | 3,411,552 | $ | 9,835,733 | $ | 21,014,064 | ||||||||
| COST OF REVENUES | (2,323,716 | ) | (2,950,124 | ) | (8,314,149 | ) | (22,776,087 | ) | ||||||||
| GROSS PROFIT (LOSS) | 467,754 | 461,428 | 1,521,584 | (1,762,023 | ) | |||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling and marketing | (43,118 | ) | (217,942 | ) | (135,310 | ) | (376,975 | ) | ||||||||
| General and administrative | (452,312 | ) | (532,012 | ) | (1,375,513 | ) | (1,454,017 | ) | ||||||||
| Total operating expenses | (495,430 | ) | (749,954 | ) | (1,510,823 | ) | (1,830,992 | ) | ||||||||
| (LOSS) INCOME FROM OPERATIONS | (27,676 | ) | (288,526 | ) | 10,761 | (3,593,015 | ) | |||||||||
| Interest income | 72 | 102 | 2,135 | 102 | ||||||||||||
| Interest expenses | (2,526 | ) | (646 | ) | (5,375 | ) | (6,586 | ) | ||||||||
| Other income (expense), net | 43,958 | 1,273 | 132,959 | 62,489 | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAX EXPENSE | 13,828 | (287,797 | ) | 140,480 | (3,537,010 | ) | ||||||||||
| INCOME TAX EXPENSE | (2,209 | ) | (15,784 | ) | (17,893 | ) | (23,196 | ) | ||||||||
| NET INCOME (LOSS) | 11,619 | (303,581 | ) | 122,587 | (3,560,206 | ) | ||||||||||
| Foreign currency translation loss | (28,755 | ) | (85,728 | ) | (62,897 | ) | (173,879 | ) | ||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | (17,136 | ) | $ | (389,309 | ) | $ | 59,690 | $ | (3,734,085 | ) | |||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||||||
| Basic and diluted | 0.00 | (0.01 | ) | 0.00 | (0.14 | ) | ||||||||||
| Weighted average number of shares outstanding – Basic and diluted | 26,556,566 | 25,712,713 | 26,556,566 | 25,712,713 | ||||||||||||
See accompany notes to the unaudited condensed consolidated financial statements.
| F-3 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In U.S. Dollars, except share data or otherwise stated)
| Common Stock | Additional | Retained
earnings (accumulated deficit) | Accumulated other | |||||||||||||||||||||||||
| Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
| BALANCE AT OCTOBER 31, 2020 | 25,346,004 | $ | 26,093 | $ | 3,795,303 | $ | (6,489,747 | ) | $ | 23,514 | $ | (31,663 | ) | $ | (2,676,500 | ) | ||||||||||||
| Movement of Statutory reserve | - | - | 20,630 | (10,779 | ) | (9,851 | ) | - | - | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (85,728 | ) | (85,728 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | (303,581 | ) | - | - | (303,581 | ) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | 26,093,004 | $ | 26,093 | $ | 3,815,933 | $ | (6,804,107 | ) | $ | 13,663 | $ | (117,391 | ) | $ | (3,065,809 | ) | ||||||||||||
| BALANCE AT OCTOBER 31, 2021 | 26,693,004 | $ | 26,093 | $ | 6,815,333 | $ | (6,723,260 | ) | $ | 13,821 | $ | (137,259 | ) | $ | (4,672 | ) | ||||||||||||
| Foreign currency translation | (28,755 | ) | (28,755 | ) | ||||||||||||||||||||||||
| Net income for the period | 11,619 | 11,619 | ||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,711,641 | ) | $ | 13,821 | $ | (166,014 | ) | $ | (21,808 | ) | ||||||||||||
| BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | (3,233,122 | ) | 23,514 | 56,488 | (3,066,724 | ) | |||||||||||||||||
| Paid in capital | 747,000 | 747 | 3,734,253 | - | - | - | 3,735,000 | |||||||||||||||||||||
| Movement of Statutory reserve | - | - | 20,630 | (10,779 | ) | (9,851 | ) | - | - | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (173,879 | ) | (173,879 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | (3,560,206 | ) | - | - | (3,560,206 | ) | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | 26,093,004 | 26,093 | 3,815,933 | (6,804,107 | ) | 13,663 | (117,391 | ) | (3,065,809 | ) | ||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,834,228 | ) | $ | 13,821 | $ | (103,117 | ) | $ | (81,498 | ) | ||||||||||||
| Foreign currency translation | - | - | - | - | - | (62,897 | ) | (62,897 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | 122,587 | - | - | 122,587 | |||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | 26,693,004 | $ | 26,693 | $ | 6,815,333 | $ | (6,711,641 | ) | $ | 13,821 | $ | (166,014 | ) | $ | (21,808 | ) | ||||||||||||
See accompany notes to the unaudited condensed consolidated financial statements.
| F-4 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
| Nine Months Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 122,587 | $ | (3,560,206 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 115,561 | 83,210 | ||||||
| Loss on disposal of plant and equipment | - | 1,472 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 3,038,527 | 1,367,371 | ||||||
| Inventories | (27,762 | ) | 174,487 | |||||
| Advances to suppliers | (1,166,916 | ) | (320,771 | ) | ||||
| Other receivables | 73,540 | (65,150 | ) | |||||
| Accounts payables | (1,899,642 | ) | (1,688,272 | ) | ||||
| Accrued expenses and other payables | 96,276 | 173,582 | ||||||
| Advances from customers | 31,654 | 52,161 | ||||||
| Net cash provided by (used in) operating activities | $ | 383,825 | $ | (3,782,116 | ) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment and other assets | (176,268 | ) | (392,108 | ) | ||||
| Proceeds from sale of property and equipment | - | 2,243 | ||||||
| Cash decreased in disposal of subsidiaries | - | (704,479 | ) | |||||
| Net cash used in investing activities | $ | (176,268 | ) | $ | (1,094,344 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stocks | - | 3,735,000 | ||||||
| Proceeds from related party borrowings | 3,797,473 | 7,697,827 | ||||||
| Repayment of related party borrowings | (5,341,046 | ) | (6,605,044 | ) | ||||
| Proceeds from bank borrowings | - | 86,886 | ||||||
| Repayment of bank borrowings | - | (196,456 | ) | |||||
| Net cash (used in) provided by financing activities | $ | (1,543,573 | ) | $ | 4,718,213 | |||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,336,016 | ) | (158,247 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (2,719 | ) | (16,706 | ) | ||||
| Cash and cash equivalents, beginning of the period | 1,845,077 | 531,681 | ||||||
| CASH AND CASH EQUIVALENTS, END OF THE PERIOD | $ | 506,342 | $ | 356,728 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year for interest | $ | $ | 4,523 | |||||
| Cash paid during the year for income tax | $ | 17,893 | $ | 23,196 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 342,457 | $ | 10,404,962 | ||||
| Net assets of subsidiaries disposed of recorded as Other Receivables | $ | $ | 118,454 | |||||
See accompany notes to the unaudited condensed consolidated financial statements.
| F-5 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND BUSINESS ACQUISITIONS |
ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services, property leasing and management service in the People’s Republic of China (“PRC” or “China”) and epidemic prevention supplies manufacturing and distribution both in China and overseas markets.
| 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 necessary 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, 2021 filed with the Securities and Exchange Commission (“SEC”) on June 29, 2021 (“2020 Form 10-K.”).
GOING CONCERN UNCERTAINTY
The accompanying unaudited condensed consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
| F-6 |
The Company incurred net income of $11,619 and net loss of $303,581 for the three months ended December 31, 2021 and 2020, respectively, and net income of $122,587 and net loss of $3,560,206 for the nine months ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and March 31, 2021, the Company had net current liability of $4,602,684 and $4,430,933, respectively, and a deficit on total equity of $21,808 and $81,498, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company expects to finance operations primarily through cash flow from revenue and capital contributions from the CEO. During the year, the CEO has provided financial support for the operations of the Company. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing.
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
There is no change on the accounting policies for the three months ended December 31, 2021.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
| F-7 |
| 4. | RELATED PARTY TRANSACTIONS |
| Name of Related Parties | Relationship with the Company | |
| Zhida Hong | President, CEO, and a director of the Company | |
| Zhongpeng Chen | A legal representative of HPF, became not a related party when HPF was disposed of in November, 2020 | |
| Bihua Yang | A legal representative of XKJ | |
| Zhiyong Zhou | General Manager of XKJ | |
| Dewu Huang | A legal representative of YBY | |
| Jinlong Huang | A spouse of legal representative of HSW |
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
The Company had the following related party balances as of December 31, 2021 and March 31, 2021:
| Amount due from related party | December 31, 2021 | March 31, 2021 | ||||||
| Hongye Financial Consulting (Shenzhen) Co., Ltd. | $ | 154,210 | $ | 84,838 | ||||
| Zhiyong Zhou (1) | 17,154 | |||||||
| $ | 171,364 | $ | 84,838 | |||||
| Related party borrowings | December 31, 2021 | March 31, 2021 | ||||||
| Zhida Hong (2) | $ | 3,208,463 | $ | 3,727,371 | ||||
| Bihua Yang (3) | 370,523 | |||||||
| Dewu Huang (4) | 177,755 | 712,064 | ||||||
| Jinlong Huang | 150,397 | 104,006 | ||||||
| $ | 3,536,615 | $ | 4,913,964 | |||||
| (1) | Being cash advance to Zhiyong Zhou to pay for daily operating expenditures of XKJ. | |
| (2) | The decrease was due to net repayment of debt due to Zhida Hong. During the three and nine months ended December 31, 2021, the Company received financial support of $0.03 million and 0.27 million from Zhida Hong and repaid $0.3 million and $0.9 million of debts due to him. | |
| (3) | Being financial support from Bihua Yang for XKJ’s daily operation. | |
| (4) | The decrease was due to net repayment of debt due to Dewu Huang. During the nine months ended December 31, 2021, the company received interest free advanced loan as financial support of approximately $1.5 million from Dewu Huang and repaid approximately $2.0 million of debts due to him. The related party debt was additional financial support provided by Dewu Huang for YBY’s daily operation. |
The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand.
| 5. | INVENTORIES |
Inventories consist of the following as of December 31, 2021 and March 31, 2021:
| December 31, 2021 | March 31, 2021 | |||||||
| Raw materials | $ | 242,644 | $ | 234,870 | ||||
| Work in progress | 3,916 | - | ||||||
| Finished goods | 51,636 | 35,564 | ||||||
| Total inventories | $ | 298,196 | $ | 270,434 | ||||
There is no inventory write-off for the three and nine months ended December 31, 2021 and 2020.
| F-8 |
| 6. | 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.
| 7. | PREPAYMENTS AND OTHER RECEIVABLES |
Prepayments and other receivables consist of the following as of December 31, 2021 and March 31, 2021:
| December 31, 2021 | March 31, 2021 | |||||||
| Prepayment | 34,248 | - | ||||||
| Deposit | 79,447 | 155,830 | ||||||
| Receivable of consideration on disposal of subsidiaries | 269,057 | 258,929 | ||||||
| Other receivables | 227,869 | 269,402 | ||||||
| $ | 610,621 | $ | 684,161 | |||||
| 8. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consists of the following as of December 31, 2021 and March 31, 2021:
| December 31, 2021 | March 31, 2021 | |||||||
| Production plant | $ | 73,871 | $ | 71,642 | ||||
| Motor vehicles | 1,189,673 | 1,020,893 | ||||||
| Office equipment | 28,129 | 14,073 | ||||||
| 1,291,673 | 1,106,608 | |||||||
| Less: accumulated depreciation | (422,070 | ) | (312,631 | ) | ||||
| Plant and equipment, net | $ | 869,603 | $ | 793,977 | ||||
| F-9 |
Depreciation expense for the three and nine months ended December 31, 2021 and 2020 was $44,164 and $32,051, $115,561 and $83,210, respectively.
| 9. | 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, 2021, the Company has borrowed $157,354 (RMB1,000,000) (March 31, 2021: $152,607) under this line of credit with various annual interest rates from 4.84% 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 January 2022, Ding Yinping, underwriter of the loan, partly repaid $6,596 (RMB41,921) on behalf of the Company.
| 10. | INCOME TAXES |
| (a) | Enterprise Income Tax (“EIT”) |
The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three and nine months ended December 31, 2021 and 2020.
YX were incorporated in the PRC and is subject to the EIT tax rate of 25%. No provision for income taxes in the PRC has been made as YX had no taxable income for the three and nine months ended December 31, 2021 and 2020.
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 2021 and 2020. The preferential tax rate will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended December 31, 2021 and 2020.
| F-10 |
The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows:
| Three months ended | Nine months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| PRC statutory tax rate | 25 | % | 25 | % | 25 | % | 25 | % | ||||||||
| Computed expected benefits (expense) | 3,457 | (71,949 | ) | 35,120 | (884,253 | ) | ||||||||||
| Temporary differences | (30,951 | ) | 29,440 | (87,797 | ) | 629,954 | ||||||||||
| Permanent difference | 1,444 | 6,640 | 1,691 | 131,595 | ||||||||||||
| Changes in valuation allowance | 28,259 | 51,654 | 68,879 | 145,900 | ||||||||||||
| Income tax expense | $ | 2,209 | $ | (15,784 | ) | 17,893 | 23,196 | |||||||||
| (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, DT 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 HPF enjoyed the preferential VAT rate of 3% in 2021 and 2020. 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.
| 11. | 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) | Epidemic prevention supplies. Including manufacturing, distribution and trading of epidemic prevention supplies. |
| (d) | 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 for period ended December 31, 2021 in the segment structure is presented in the following tables:
| F-11 |
| Garment | Logistics Services | Property management and leasing | Epidemic prevention supplies | Corporate and other | Totals | |||||||||||||||||||
| Revenue from external customers | 2,488,173 | 4,144,604 | 3,202,956 | 9,835,733 | ||||||||||||||||||||
| Intersegment revenue | ||||||||||||||||||||||||
| Interest income | 1,925 | 63 | 140 | 6 | 2,135 | |||||||||||||||||||
| Interest expense | 4,181 | 506 | 456 | 232 | 5,375 | |||||||||||||||||||
| Depreciation and amortization | 1,981 | 90,655 | 18,443 | 4,482 | 115,561 | |||||||||||||||||||
| Operating income (loss) | 96,275 | 210,878 | 47,935 | (344,327 | ) | 10,761 | ||||||||||||||||||
| Segment assets | 1,833,807 | 2,433,062 | 7,770,529 | 87,597 | 947,253 | 13,072,248 | ||||||||||||||||||
| Expenditures for segment assets | 148,604 | 27,664 | 176,268 | |||||||||||||||||||||
Geographical Information
The Company operates predominantly in China. In presenting information on the basis of geographical location, revenue is based on the geographical location of customers and long-lived assets are based on the geographical location of the assets.
Geographic Information
| Three
months ended December 31, | Nine
months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| United States | 4,787 | 11,868,854 | ||||||||||||||
| China | 2,791,470 | 3,406,766 | 9,835,733 | 9,145,210 | ||||||||||||
| Total | 2,791,470 | 3,411,552 | 9,835,733 | 21,014,064 | ||||||||||||
| December 31, 2021 | March 31, 2020 | |||||||
| Long-Lived Assets | ||||||||
| China | 8,186,834 | 10,426,602 | ||||||
| F-12 |
| 12. | LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES |
The Company recognized right-of-use asset as well as lease liability according to the ASC 842, Leases (with the exception of short-term leases). Lease liabilities are measured at present value of the sum of remaining rental payments as of December 31, 2021, with discounted rate of 4.75%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows.
The Company leases its head office. The lease period is 5 years with an option to extend the lease. The Company leases its plant and dormitory for 4.5 years with an option to extend the lease. The Company leased several floors in a commercial building for its sublease business for 3 years with an option to extend the lease.
The Following table summarizes the components of lease expense:
| Three
months ended December 31, | Nine
months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost | 968,170 | 444,162 | 2,878,730 | 668,883 | ||||||||||||
| Short-term lease cost | 20,955 | - | 62,799 | - | ||||||||||||
| $ | 989,125 | $ | 444,162 | 2,941,529 | 668,883 | |||||||||||
The following table summarizes supplemental information related to leases:
| Three
months ended December 31, | Nine
months ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
| Operating cash flow from operating leases | $ | 989,170 | $ | 444,162 | 2,941,529 | 668,883 | ||||||||||
| Right-of-use assets obtained in exchange for new operating leases liabilities | (3,390 | ) | 10,378,042 | 3,42,457 | 10,404,962 | |||||||||||
| Weighted average remaining lease term - Operating leases (years) | 2.0 | 3.1 | 2.0 | 3.1 | ||||||||||||
| Weighted average discount rate - Operating leases | 4.75 | % | 4.35 | % | 4.75 | % | 4.35 | % | ||||||||
The following table summarizes the maturity of operating lease liabilities:
| Years ending December 31 | Lease cost | |||
| 2022 | $ | 3,877,767 | ||
| 2023 | 3,857,516 | |||
| 2024 | 103,853 | |||
| Total lease payments | 7,839,136 | |||
| Less: Interest | (531,253 | ) | ||
| Total | $ | 7,307,883 | ||
| 13. | 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 6.355 and 6.553 as of December 31, 2021 and March 31, 2021, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.442 and 6.779 for the nine months ended December 31, 2021 and 2020, 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, 2021 and March 31, 2021.
| F-13 |
Garment manufacturing segment
| December 31, 2021 | March 31, 2021 | |||||||
| Customer A | 87.0 | % | 98.4 | % | ||||
| Customer B | 13.0 | % | 1.6 | % | ||||
The high concentration as of December 31, 2021 was mainly due to business development of a large distributor of garments.
Logistics services segment
| December 31, 2021 | March 31, 2021 | |||||||
| Customer A | 12.2 | % | 16.6 | % | ||||
| Customer B | 11.0 | % | Nil | % | ||||
| Customer C | 10.0 | % | 30.2 | % | ||||
| Customer D | 7.3 | % | Nil | % | ||||
| Customer E | 6.5 | % | 12.7 | % | ||||
Property management and subleasing
No accounts receivables in this segment.
Epidemic prevention supplies segment
No accounts receivables in this segment.
For the three months ended December 31, 2021, there was no single customer provided more than 10% of total revenue of the Company. For nine months ended December 31, 2021, one customer from garment segment provided more than 10% of total revenue of the Company, represented 24.8% for the nine months. For the three months ended December 31, 2020, there was no customer provided more than 10% of total revenue of the Company. For nine months ended December 31, 2020, one customer from garment segment and one customer from epidemic prevention supplies segment provided more than 10% of total revenue of the Company.
The high concentration in nine months ended December 31, 2021 was mainly due to concentration of distributors in garment segment. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.
The following tables summarized the purchases from five largest suppliers of each of the reportable segment for the three and nine months ended December 31, 2021 and 2020.
| Three months ended | Nine months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Garment manufacturing segment | 100.0 | % | 100.0 | % | 99.8 | % | 97.7 | % | ||||||||
| Logistics services segment | 100.0 | % | 79.1 | % | 92.2 | % | 99.7 | % | ||||||||
| Property management and subleasing | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Epidemic prevention supplies | Nil | % | 100.0 | % | Nil | % | 100 | % | ||||||||
| (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, 2021, the total outstanding borrowings amounted to $157,354 (RMB1,000,000) with various interest rate from 4.84% to 6.96% p.a. (Note 10)
| (e) | COVID-19 |
The Coronavirus Disease (COVID-19) outbreak and the measures taken to contain the spread of the pandemic have created a high level of uncertainty to global economic prospects and this has impacted the Company’s operations and its financial performance in the last three quarters of the financial year and subsequent to the financial year end.
As the situation continues to evolve with significant level of uncertainty, the Company is unable to reasonably estimate the full financial impact of the COVID-19 outbreak. The Company is monitoring the situation closely and to mitigate the financial impact, it is conscientiously managing its cost by adopting an operating cost reduction strategy and conserving liquidity by working with major creditors to align repayment obligations with receivable collections.
| F-14 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended December 31, 2021 and 2020 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 are a garment manufacturer and logistics services provider based in China. We are listed on the OTCQB under the symbol of “ATXG”. We classify our businesses into four segments: Garment manufacturing, Logistics services, Property management and subleasing, and Epidemic prevention supplies.
Our garment manufacturing business consists of sales made principally to wholesaler located in the People’s Republic of China (“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 delivery requirement for our customers. We conduct our garment manufacturing operations through five wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou Garments Co., Ltd (“DT”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd (“YBY”) which are located in the Guangdong province, China. In October 2020, the Company disposed of DT to a third party at fair value, which was also its carrying value as of September 30, 2020.
Our logistic business consists of delivery and courier services covering approximately 79 cities in approximately seven provinces and two 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 logistics services operations through four wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), Shenzhen Yingxi Peng Fa Logistic Co., Ltd., which was incorporated in November 2020, and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), Shenzhen Yingxi Tongda Logistic Co., Ltd (“TD”), which are located in the Guangdong province, China. In November 2020, the Company disposed of HPF to a third party at fair value, which was also its carrying value as of November 30, 2020.
The business operations, customers and suppliers of DT and HPF were retained by the Company; therefore, the disposition of the two subsidiaries did not qualify as discontinued operations.
Our property management and subleasing provides shops subleasing and property management services for garment wholesalers and retailers in garment market. We conduct our property management and subleasing operation through a wholly owned subsidiary, namely Dongguan Yingxi Daying Commercial Co., Ltd (“DY”).
Our epidemic prevention supplies business consists of manufacturing and distribution of epidemic prevention products and resale of epidemic prevention supplies purchased from third party in both domestic and overseas markets. We conduct our manufacturing of the epidemic prevention products in Dongguan Yushang Clothing Co., Ltd (“YS”). We conduct the trading of epidemic prevention suppliers through Addentax Group Corp. (“ATXG”) and Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), a wholly owned subsidiary of the Company.
| 3 |
Business Objectives
Garment Manufacturing Business
We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit.
Logistics Services Business
The business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31, 2021, we provide logistics services to over 79 cities in approximately seven provinces and two municipalities. We expect to develop an additional 20 logistics points in existing serving cities and improve the Company’s profit in the year end of 2022.
Property Management and Subleasing Business
The business objective of our property management and subleasing segment is to integrate resources in shopping mall, develop e-commerce bases and the Internet celebrity economy together to drive to increase the value of the stores in the area. The short-term goal for the year is to increase the occupancy rate of stores in the mall to more than 70%.
Epidemic Prevention Supplies Business
The primary objective of our epidemic prevention supplies business is to take the advantage of our resource in supply chain from the garment manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in order to increase our revenue base and improve our net profit.
Seasonality of Business
Our business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistics services revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistics services segment.
Collection Policy
Garment manufacturing business
For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following their acknowledgement of receipt of goods.
Logistics services business
For logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registration of our receipt of packages.
Property management and subleasing business
For property management and subleasing business, we generally collect rental and management fees of the following month each month in advance.
Epidemic prevention supplies business
For Epidemic prevention supplies business, we generally receive payment from the customers within 30 days following the delivery of finished goods. We would also give our long-term customers with a 12 months long credit term policy to maintain a good business relationship.
| 4 |
Economic Uncertainty
Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.
Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.
Summary of Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions.
Estimates and Assumptions
We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Revenue Recognition
Revenue is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount:
| (i) | identification of the promised goods and services in the contract; | |
| (ii) | determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; | |
| (iii) | measurement of the transaction price, including the constraint on variable consideration; | |
| (iv) | allocation of the transaction price to the performance obligations; and | |
| (v) | recognition of revenue when (or as) the Company satisfies each performance obligation. |
| 5 |
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Leases
Lessee
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Lessor
As a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight line basis over the lease term.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
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, 2021 and 2020
The following tables summarize our results of operations for the three months ended December 31, 2021 and 2020. 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 2021 | |||||||||||||||||||||||
| 2021 | 2020 | compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 2,791,470 | 100.0 | % | $ | 3,411,552 | 100 | % | $ | (620,082 | ) | (18.2 | )% | |||||||||||
| Cost of revenues | (2,323,716 | ) | (83.2 | )% | (2,950,124 | ) | (86.5 | )% | 626,408 | 21.2 | % | |||||||||||||
| Gross profit (loss) | 467,754 | 16.8 | % | 461,428 | 13.5 | % | 6,326 | 1.4 | % | |||||||||||||||
| Operating expenses | (495,430 | ) | (17.8 | )% | (749,954 | ) | (22.0 | )% | 254,524 | ) | 33.9 | % | ||||||||||||
| Loss from operations | (27,676 | ) | (1.0 | )% | (288,526 | ) | (8.5 | )% | 260,850 | 90.4 | % | |||||||||||||
| Other income, net | 43,958 | 1.6 | % | 1,273 | 0.0 | % | 42,685 | 3,353.4 | % | |||||||||||||||
| Net finance cost | (2,454 | ) | (0.1 | )% | (544 | ) | (0.0 | )% | 1,910 | 262.0 | % | |||||||||||||
| Income tax expense | (2,209 | ) | (0.1 | )% | (15,784 | ) | (0.4 | )% | 13,575 | 86.0 | % | |||||||||||||
| Net income (loss) | $ | 11,619 | 0.4 | % | $ | (303,581 | ) | (8.9 | )% | $ | 315,200 | 103.8 | % | |||||||||||
Revenue
Total revenue for the three months ended December 31, 2021 decreased by approximately $0.6 million, or 18.2%, as compared with the three months ended December 31, 2020. The significant decrease was mainly because of the decrease in garment manufacturing business offset by increases in logistics services business and property management and leasing business.
Revenue generated from our garment manufacturing business contributed approximately $0.03 million (0.9%) and $2.3 million (67.1%) of total revenue for the three months ended December 31, 2021 and 2021, respectively. The decrease of $2.3 million was mainly due to factory re-decoration, remaining factories cannot provide as much capacity as before, we estimate the capacity will recover in early 2022.
| 6 |
Revenue generated from our logistics services business contributed approximately $1.7 million or 61.6% of our total revenue for the three months ended December 31, 2021. Revenue generated from our logistic business contributed approximately $0.8 million or 24.2% of our total revenue for the three months ended December 31, 2020. YXPF, the new subsidiary has developed the business to replace the business of HPF, which was disposed of in September 2020.
Revenue generated from our property management and subleasing business contributed approximately $1.0 million or 37.5% of our total revenue for the three months ended December 31, 2021. This is a new business segment developed in current period. Revenue of the segment contributed approximately $0.3 million, or 8.6% of our total revenue for the three months ended December 31, 2020.
There was no revenue generated from our epidemic prevention supplies business for the three months ended December 31, 2021 because no orders were obtained in the quarter. The Company accepted sales orders very cautiously to make sure the sales orders can be matched with stable suppliers to secure profitability of each order. Revenue generated from our epidemic prevention supplies business contributed approximately $0.01 million, or 0.1% of our total revenue for the three months ended December 31, 2020.
Cost of revenue
| Three months ended December 31, |
Increase (decrease) in |
|||||||||||||||||||||||
| 2021 | 2020 |
2021 compared to 2020 |
||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 25,641 | 100.0 | % | $ | 2,287,981 | 100 | % | $ | (2,262,340 | ) | (98.9 | )% | |||||||||||
| Raw materials | 8,829 | 34.4 | % | 1,620,775 | 70.8 | % | (1,611,946 | ) | (99.5 | )% | ||||||||||||||
| Labor | 12,783 | 49.9 | % | 467,478 | 20.5 | % | (454,695 | ) | (97.3 | )% | ||||||||||||||
| Other and Overhead | 6,306 | 24.6 | % | 16,747 | 0.7 | % | (10,441 | ) | (62.3 | )% | ||||||||||||||
| Total cost of revenue for garment manufacturing | 27,918 | 108.9 | % | 2,105,000 | 92.0 | % | (2,077,082 | ) | (98.7 | )% | ||||||||||||||
| Gross profit for garment manufacturing | (2,277 | ) | (8.9 | )% | 182,981 | 8.0 | % | (185,258 | ) | (101.2 | )% | |||||||||||||
| Net revenue for logistics services | 1,719,202 | 100.0 | % | 824,025 | 100.0 | % | 895,177 | 108.6 | % | |||||||||||||||
| Fuel, toll and other cost of logistics services | 568,726 | 33.1 | % | 482,568 | 58.6 | % | 86,158 | ) | 17.9 | % | ||||||||||||||
| Subcontracting fees | 842,510 | 49.0 | % | 85,766 | 10.4 | % | 756,744 | 882.3 | % | |||||||||||||||
| Total cost of revenue for logistics services | 1,411,236 | 82.1 | % | 568,334 | 69.0 | % | 842,902 | 148.3 | % | |||||||||||||||
| Gross Profit for logistics services | 307,967 | 17.9 | % | 255,691 | 31.0 | % | 52,276 | 20.4 | % | |||||||||||||||
| Net revenue for property management and subleasing | 1,046,627 | 100.0 | % | 294,759 | 100.0 | % | 751,868 | 255.1 | % | |||||||||||||||
| Total cost of revenue for property management and subleasing | 884,556 | 84.5 | % | 272,759 | 92.5 | % | 611,797 | 224.3 | % | |||||||||||||||
| Gross Profit for property management and subleasing | 162,071 | 15.5 | % | 22,000 | 7.5 | % | 140,071 | 636.7 | % | |||||||||||||||
| Net revenue for epidemic prevention supplies | $ | - | $ | 4,786 | 100.0 | % | (4,786 | ) | (100.0 | )% | ||||||||||||||
| Merchandise/Finished goods/Raw materials | 6 | 4,030 | 84.2 | % | (4,024 | ) | (99.9 | )% | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 6 | 4,030 | 84.2 | % | (4,024 | ) | (99.9 | )% | ||||||||||||||||
| Gross (loss) income for epidemic prevention supplies | (6 | ) | 756 | 15.8 | % | (762 | ) | (100.8 | )% | |||||||||||||||
| Total cost of revenue | $ | 2,323,716 | 83.2 | % | $ | 2,950,123 | 86.5 | % | $ | (626,407 | ) | (21.2 | )% | |||||||||||
| Gross profit | $ | 467,754 | 16.8 | % | $ | 461,428 | 13.5 | % | $ | 6,326 | 1.4 | % | ||||||||||||
| 7 |
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers.
Raw material costs for our garment manufacturing business were 34.4% of our total garment manufacturing business revenue in the three months ended December 31, 2021, compared with 70.8% in the three months ended December 31, 2020. The decreased in percentages was mainly due to the purchase cost of the raw materials dropped.
Labor costs for our garment manufacturing business were 49.9% of our total garment manufacturing business revenue in the three months ended December 31, 2021, compared with 20.5% in the three months ended December 31, 2020. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our garment manufacturing business accounted for 24.6% of our total garment business revenue for the three months ended December 31, 2021, compared with 0.7% of total garment business revenue for the three months ended December 31, 2020.
For our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest contractor represented approximately 29.9% and 10.4% of total cost of revenues for our service segment for the three months ended December 31, 2021 and 2020, respectively. The percentage increased as we used more subcontractors than our own logistics when COVID-19 epidemic was under controlled and aggregated subcontracting service to the largest supplier. We have not experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistics services provider.
Fuel, toll and other costs for our service business for the three months ended December 31, 2021 were approximately $0.6 million compared with $0.5 million for the three months ended December 31, 2020. Fuel, toll and other costs for our service business accounted for 33.1% of our total service revenue for the three months ended December 31, 2021, compared with 58.6% for the three months ended December 31, 2020. The decrease in percentages was primarily attributable to decrease of use of our own logistics.
Subcontracting fees for our service business for the three months ended December 31, 2021 increased 8.8 times to approximately $0.8 million from $0.1 million for the three months ended December 31, 2020. Subcontracting fees accounted for 49.0% and 10.4% of our total service business revenue in the three months ended December 31, 2021 and 2020, respectively. The significant increase in percentages was primarily because the Company used more subcontractors when the epidemic was getting controlled.
| 8 |
For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business.
For epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise and cost of our own products. The other cost of the quarter represented depreciation of machinery.
Gross profit
Garment manufacturing business gross loss for the three months ended December 31, 2021 was approximately $0.002 million, or -8.9% of our total Garment manufacturing business revenue, as compared with gross profit of approximately $0.2 million, or 8.0% of our total Garment manufacturing business revenue for the three months ended December 31, 2020. The gross margin was 16.9% lower due to higher raw material cost in the quarter ended December 31, 2021.
Gross profit in our logistics services business for the three months ended December 31, 2021 was approximately $0.3 million and gross margin was 17.9%. Gross profit in our logistics services business for the three months ended December 31, 2020 was approximately $0.3 million and gross margin was 31.0%. The decrease of gross profit ratio was mainly because of the increased cost of subcontractors in recent period.
Gross profit in our property management and subleasing business for the three months ended December 31, 2021 was approximately $0.2 million, or 15.5% of our total property management and subleasing business revenue. Gross profit of the segment for the three months ended December 31, 2020 was approximately $0.02 million, or 7.5% of the revenue of the segment.
| Three months ended December 31, |
Increase (decrease) in |
|||||||||||||||||||||||
| 2021 | 2020 |
2021 compared to 2020 |
||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 467,754 | 100 | % | $ | 461,428 | 100 | % | 6,326 | 1.4 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (43,118 | ) | (9.2 | )% | (217,942 | ) | (47.2 | )% | 174,824 | 80.2 | % | |||||||||||||
| General and administrative expenses | (452,312 | ) | (96.7 | )% | (532,012 | ) | (115.3 | )% | 79,700 | 15.0 | % | |||||||||||||
| Total | $ | (495,430 | ) | (105.9 | )% | $ | (749,954 | ) | (162.5 | )% | 254,524 | 33.9 | % | |||||||||||
| Loss from operations | $ | (27,676 | ) | (5.9 | )% | $ | (288,526 | ) | (62.5 | )% | 260,850 | 90.4 | % | |||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the three months ended December 31, 2021 and 2020 was approximately $0.001 million and $0.001 million, respectively. Our selling expenses in our logistics services segment was nil for the three months ended December 31, 2021 and 2020, respectively. Selling expenses in our property management and subleasing business was approximately $0.04 million and $0.02 million for the three months ended December 31, 2021 and 2020, respectively. Selling expenses in our epidemic prevention supplies segment was nil and approximately $0.2 million for the three months ended December 31, 2021 and 2020, respectively. Selling expenses consist primarily of advertisement, local transportation, unloading charges and product inspection charges. Total selling expenses for the three months ended December 31, 2021 decreased 80.2% to approximately $0.04 million from $0.2 million for the three months ended December 31, 2020. It was mainly due to decrease of marketing expenses of epidemic prevention supplies business.
Our general and administrative expenses in our Garment manufacturing business segment for the three months ended December 31, 2021 and 2020 was approximately $0.03 million and $0.08 million, respectively. Our general and administrative expenses in our logistics services segment, for the three months ended December 31, 2021 and 2020 was both approximately $0.2 million. The general and administrative expenses in our property management and subleasing business was approximately $0.1 million and $0.001 million for the three months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our epidemic prevention supplies segment was nil and approximately $0.001 million for the three months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the three months ended December 31, 2021 and 2020 was approximately $0.1 million and $0.2 million, respectively. General and administrative expenses consist primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.
| 9 |
Total general and administrative expenses for the three months ended December 31, 2021 decreased by 15.0% to approximately $0.45 million from $0.53 million for the three months ended December 31, 2020.
Loss from operations
Loss from operations for the three months ended December 31, 2021 and 2020 was approximately $0.03 million and $0.3 million, respectively. Loss from operations of approximately $0.03 million and income of $0.1 million was attributed from our garment manufacturing segment for the three months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.1 million and $0.06 million was attributed from our logistics services segment for the three months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.01 million and $0.006 million was attributed from our newly developed property management and subleasing business for the three months ended December 31, 2021 and 2020, respectively. Income (loss) from operations of nil and approximately ($0.2) million was attributed from our epidemic prevention supplies segment for the three months ended December 31, 2021 and 2020, respectively. We incurred a loss from operations in corporate office of approximately $0.1 million and $0.2 million for the three months ended December 31, 2021 and 2020, respectively. The loss from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.
Income Tax Expenses
Income tax expense for the three months ended December 31, 2021 and 2020 was approximately $0.002 million and $0.016 million, respectively, 86.0% decrease compared to 2020. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended December 31, 2021 and 2020.
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, 2021 and 2020.
The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2021. The preferential tax rates will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended December 31, 2021 and 2020.
Net Income (Loss)
We incurred a net income of approximately $0.01 million and a net loss of $0.3 million for the three months ended December 31, 2021 and 2020, respectively. Our basic and diluted earnings per share were $0.00 and ($0.01) for the three months ended December 31, 2021 and 2020, respectively.
| 10 |
Results of Operations for the nine months ended December 31, 2021 and 2020
The following tables summarize our results of operations for the nine months ended December 31, 2021 and 2020. 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 2021 | |||||||||||||||||||||||
| 2021 | 2020 | compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 9,835,733 | 100.0 | % | $ | 21,014,064 | 100.0 | % | $ | (11,178,331 | ) | (53.2 | )% | |||||||||||
| Cost of revenues | (8,314,149 | ) | (84.5 | )% | (22,776,087 | ) | (108.4 | )% | 14,461,938 | 63.5 | % | |||||||||||||
| Gross profit (loss) | 1,521,584 | 15.5 | % | (1,762,023 | ) | (8.4 | )% | 3,283,607 | (186.4 | )% | ||||||||||||||
| Operating expenses | (1,510,823 | ) | (15.4 | )% | (1,830,992 | ) | (8.7 | )% | 320,169 | 17.5 | % | |||||||||||||
| Income (loss) from operations | 10,761 | 0.1 | % | (3,593,015 | ) | (17.1 | )% | 3,603,776 | 100.3 | % | ||||||||||||||
| Other income, net | 132,959 | 1.3 | % | 62,489 | 0.3 | % | 70,470 | 112.8 | % | |||||||||||||||
| Net finance cost | (3,240 | ) | (0.0 | )% | (6,484 | ) | 0.0 | % | 3,244 | 50.0 | % | |||||||||||||
| Income tax expense | (17,893 | ) | (0.2 | )% | (23,196 | ) | (0.1 | )% | 5,303 | ) | 22.9 | % | ||||||||||||
| Net income (loss) | $ | 122,587 | 1.2 | % | $ | (3,560,206 | ) | (16.9 | )% | $ | 3,682,793 | 103.4 | % | |||||||||||
Revenue
Total revenue for the nine months ended December 31, 2021 decreased by approximately $11.2 million, or 53.2%, as compared with the nine months ended December 31, 2020. The significant decrease was mainly because of the decrease of epidemic supply business and garment manufacturing business offset by increases in logistics services business and property management and leasing business.
Revenue generated from our garment manufacturing business contributed approximately $2.5 million (25.3%) and $5.2 million (24.7%) of total revenue for the nine months ended December 31, 2021 and 2020, respectively. The decrease of approximately $2.7 million mainly due to factory re-decoration which caused a capacity decrease. We estimate the capacity will recover in the first quarter of 2022.
| 11 |
Revenue generated from our logistics services business contributed approximately $4.1 million or 42.1% of our total revenue for the nine months ended December 31, 2021. Revenue generated from our logistic business contributed approximately $3.7 million or 17.4% of our total revenue for the nine months ended December 31, 2020. The increase of $0.4 million was because YXPF, the new subsidiary was developing the business to replace the business of HPF, which was disposed of in September 2020.
Revenue generated from our property management and subleasing business contributed approximately $3.2 million or 32.6% of our total revenue for the nine months ended December 31, 2021.
There was no revenue generated from our epidemic prevention supplies business for the nine months ended December 31, 2021 because no profitable orders were obtained in the period. The Company accepted sales orders very cautiously to make sure the sales orders can be matched with stable suppliers to secure profitability of each order. Revenue generated from our epidemic prevention supplies business contributed approximately $11.9 million, or 56.5% of our total revenue for the nine months ended December 31, 2020.
Cost of revenue
| Nine months ended December 31, |
Increase (decrease) in |
|||||||||||||||||||||||
| 2021 | 2020 |
2021 compared to 2020 |
||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 2,488,173 | 100.0 | % | $ | 5,186,042 | 100.0 | % | $ | (2,697,869 | ) | (52.0 | )% | |||||||||||
| Raw materials | 1,719,420 | 69.1 | % | 3,709,275 | 71.5 | % | (1,989,855 | ) | (53.6 | )% | ||||||||||||||
| Labor | 542,118 | 21.8 | % | 1,030,350 | 19.9 | % | (488,232 | ) | (47.4 | )% | ||||||||||||||
| Other and Overhead | 23,124 | 0.9 | % | 30,918 | 0.6 | % | (7,794 | ) | (25.2 | )% | ||||||||||||||
| Total cost of revenue for garment manufacturing | 2,284,662 | 91.8 | % | 4,770,543 | 92.0 | % | (2,485,881 | ) | (52.1 | )% | ||||||||||||||
| Gross profit for garment manufacturing | 203,511 | 8.2 | % | 415,499 | 8.0 | % | (211,988 | ) | (51.0 | )% | ||||||||||||||
| Net revenue for logistics services | 4,144,604 | 100.0 | % | 3,664,409 | 100.0 | % | 480,195 | 13.1 | % | |||||||||||||||
| Fuel, toll and other cost of logistics services | 1,410,231 | 34.0 | % | 1,367,753 | 37.3 | % | 42,478 | 3.1 | % | |||||||||||||||
| Subcontracting fees | 1,868,648 | 45.1 | % | 1,576,228 | 43.0 | % | 292,420 | 18.6 | % | |||||||||||||||
| Total cost of revenue for logistics services | 3,278,879 | 79.1 | % | 2,943,981 | 80.3 | % | 334,898 | 11.4 | % | |||||||||||||||
| Gross Profit for logistics services | 865,725 | 20.9 | % | 720,428 | 19.7 | % | 145,297 | 20.2 | % | |||||||||||||||
| Net revenue for property management and subleasing | 3,202,956 | 100.0 | % | 294,759 | 100 | % | 2,908,197 | 986.6 | % | |||||||||||||||
| Total cost of revenue for property management and subleasing | 2,749,114 | 85.8 | % | 272,759 | 92.5 | % | 2,476,355 | 907.9 | % | |||||||||||||||
| Gross Profit for property management and subleasing | 453,842 | 14.2 | % | 22,000 | 7.5 | % | 431,842 | 1,962.9 | % | |||||||||||||||
| Net revenue for epidemic prevention supplies | $ | - | $ | 11,868,854 | 100.0 | % | (11,868,854 | ) | (100.0 | )% | ||||||||||||||
| Merchandise/Finished goods/Raw materials | - | 14,684,284 | 123.7 | % | (14,684,284 | ) | (100.0 | )% | ||||||||||||||||
| Labor | - | 64,946 | 0.5 | % | (64,946 | ) | (100.0 | )% | ||||||||||||||||
| Other and Overhead | 1,494 | 39,574 | 0.3 | % | (38,080 | ) | (96.2 | )% | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 1,494 | 14,788,804 | 124.6 | % | (14,787,310 | ) | (100.0 | )% | ||||||||||||||||
| Gross loss for epidemic prevention supplies | (1,494 | ) | (2,919,950 | ) | (24.6 | )% | 2,918,456 | (99.9 | )% | |||||||||||||||
| Total cost of revenue | $ | 8,314,149 | 84.5 | % | $ | 22,776,087 | 108.4 | % | $ | (14,461,938 | ) | (63.5 | )% | |||||||||||
| Gross profit | $ | 1,521,584 | 15.5 | % | $ | (1,762,023 | ) | (8.4 | )% | $ | 3,283,607 | 186.4 | % | |||||||||||
| 12 |
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers.
Raw material costs for our garment manufacturing business were 69.1% of our total garment manufacturing business revenue in the nine months ended December 31, 2021, compared with 71.5% in the nine months ended December 31, 2020. The decreased in percentages was mainly due to the purchase cost of the raw materials dropped.
Labor costs for our garment manufacturing business were 21.8% of our total garment manufacturing business revenue in the nine months ended December 31, 2021, compared with 19.9% in the nine months ended December 31, 2020. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our garment manufacturing business accounted for 8.2% of our total garment business revenue for the nine months ended December 31, 2021, compared with 8.0% of total garment business revenue for the nine months ended December 31, 2020.
For our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest contractor represented approximately 30.3% and 43.0% of total cost of revenues for our service segment for the nine months ended December 31, 2021 and 2020, respectively. The percentage decreased as we used our own logistics more than the subcontractors under COVID-19 epidemic. We have not experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistics services provider.
Fuel, toll and other costs for our service business for the nine months ended December 31, 2021 were approximately $1.4 million compared with $1.4 million for the nine months ended December 31, 2020. Fuel, toll and other costs for our service business accounted for 34.0% of our total service revenue for the nine months ended December 31, 2021, compared with 37.3% for the nine months ended December 31, 2020.
Subcontracting fees for our service business for the nine months ended December 31, 2021 increased 18.6% to approximately $1.9 million from $1.6 million for the nine months ended December 31, 2020. Subcontracting fees accounted for 45.1% and 43.0% of our total service business revenue in the nine months ended December 31, 2021 and 2020, respectively.
| 13 |
For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business.
For epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise and cost of our own products. The other cost of the quarter represented depreciation of machinery.
Gross profit
Garment manufacturing business gross profit was approximately $0.2 million, accounted for 8.2% of our total Garment manufacturing business revenue for the nine months ended December 31, 2021 and approximately $0.4 million, accounted for 8.0% of our total Garment manufacturing business revenue for the nine months ended December 31, 2020. The gross margin was 0.2% higher due to lower raw material cost in the months ended December 31, 2021.
Gross profit in our logistics services business for the nine months ended December 31, 2021 was approximately $0.9 million and accounted for 20.9% of our total Logistics services business revenue. Gross profit in our logistics services business for the nine months ended December 31, 2020 was approximately $0.7 million and accounted for 19.7% of our total Logistics services business revenue. The increase of gross profit ratio was mainly because of a decrease of operating expenses due to replacement of old vehicles and shifting our strategic focus on high margin customers.
Gross profit in our property management and subleasing business for the nine months ended December 31, 2021 was approximately $0.5 million, or 14.2% of our total property management and subleasing business revenue. Gross profit in our property management and subleasing business for the nine months ended December 31, 2020 was $0.02 million, or 7.5% of our total property management and subleasing business revenue.
| Nine months ended December 31, |
Increase (decrease) in |
|||||||||||||||||||||||
| 2021 | 2020 |
2021 compared to 2020 |
||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 1,521,584 | 100 | % | $ | (1,762,023 | ) | (100 | )% | 3,283,607 | 186.4 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (135,310 | ) | (8.9 | )% | (376,975 | ) | (21.4 | )% | 241,665 | 64.1 | % | |||||||||||||
| General and administrative expenses | (1,375,513 | ) | (90.4 | )% | (1,454,017 | ) | (82.5 | )% | 78,504 | ) | 5.4 | % | ||||||||||||
| Total | $ | (1,510,823 | ) | (99.3 | )% | $ | (1,830,992 | ) | (103.9 | )% | 320,169 | 17.5 | % | |||||||||||
| Income from operations | $ | 10,761 | (0.7 | )% | $ | (3,593,015 | ) | (203.9 | )% | 3,603,776 | 100.3 | % | ||||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the nine months ended December 31, 2021 and 2020 was $0.0003 million and approximately $0.003 million, respectively. Our selling expenses in our logistics services segment was nil for the nine months ended December 31, 2021 and 2020, respectively. Selling expenses in our property management and subleasing business was $0.1 million for the nine months ended December 31, 2021. Selling expenses in our epidemic prevention supplies segment was nil and approximately $0.4 million for the nine months ended December 31, 2021 and 2020, respectively. Selling expenses consist primarily of advertisement, local transportation, unloading charges and product inspection charges. Total selling expenses for the nine months ended December 31, 2021 decreased 64.1% to $0.1 million from $0.4 million for the nine months ended December 31, 2020. It was mainly due to decrease of marketing expenses of epidemic prevention supplies business.
Our general and administrative expenses in our Garment manufacturing business segment for the nine months ended December 31, 2021 and 2020 was approximately $0.1 million and $0.2 million, respectively. Our general and administrative expenses in our logistics services segment, for the nine months ended December 31, 2021 and 2020 was approximately $0.7 million and $0.6 million. The general and administrative expenses in our property management and subleasing business was approximately $0.3 million and $0.001 million for the nine months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our epidemic prevention supplies segment was nil and approximately $0.02 million for the nine months ended December 31, 2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2021 and 2020 was approximately $0.3 million and $0.6 million, respectively. General and administrative expenses consist primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues.
| 14 |
Total general and administrative expenses for the nine months ended December 31, 2021 and 2020 was approximately $1.4 million and $1.5 million, respectively.
Income (loss) from operations
Income from operations for the nine months ended December 31, 2021 was approximately $0.01 million and loss from operations for the nine months ended December 31, 2020 was approximately $3.6 million. Income from operations of approximately $0.1 million and $0.2 million was attributed from our garment manufacturing segment for the nine months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.2 million and $0.1 million was attributed from our logistics services segment for the nine months ended December 31, 2021 and 2020, respectively. Income from operations of approximately $0.05 million and $0.006 million was attributed from our property management and subleasing business for the nine months ended December 31, 2021 and 2020, respectively. Income (loss) from operations of nil and approximately ($3.3) million was attributed from our epidemic prevention supplies segment for the nine months ended December 31, 2021 and 2020, respectively. We incurred a loss from operations in corporate office of approximately $0.3 million and $0.6 million for the nine months ended December 31, 2021 and 2020, respectively. The loss from our corporate office was mainly due to increase in legal and professional fees to comply with the SEC accounting, disclosure and reporting requirements.
Income Tax Expenses
Income tax expense for the nine months ended December 10, 2021 and 2020 was approximately $0.018 million and $0.023 million, respectively, 22.9% decrease compared to 2020. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes.
Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the nine months ended December 31, 2021 and 2020.
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, 2021 and 2020.
The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies are subject to progressive EIT rates from 5% to 15% in 2021. The preferential tax rates will be expired at end of year 2022 and the EIT rate will be 25% from year 2023.
The Company’s parent entity, Addentax Group Corp. is a U.S entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the nine months ended December 31, 2021 and 2020.
Net Income (Loss)
We incurred a net income of approximately $0.1 million and a net loss of $3.6 million for the nine months ended December 31, 2021 and 2020, respectively. Our basic and diluted earnings per share were $0.00 and ($0.14) for the nine months ended December 31, 2021 and 2020, respectively.
Summary of cash flows
Summary cash flows information for the nine months ended December 31, 2021 and 2020 is as follow:
| Nine months ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash provided by (used in) operating activities | $ | 383,825 | $ | (3,782,116 | ) | |||
| Net cash used in investing activities | $ | (176,268 | ) | $ | (1,094,344 | ) | ||
| Net cash (used in) provided by financing activities | $ | (1,543,573 | ) | $ | 4,718,213 | |||
Net cash used in operating activities in the nine months ended December 31, 2021 was approximately $4.2 million more than that of the nine months ended December 31, 2020. It was mainly because the net income of the nine months ended December 31, 2021 was approximately $0.1 million while it was a net loss of approximately $3.6 million for the nine months ended December 31, 2020. The movement of operating assets and liabilities of the nine months ended December 31, 2021 resulted in cash inflow of approximately $0.1 million, while the movement of operating assets and liabilities of the nine months ended December 31, 2020 resulted in cash outflow of approximately $0.3 million. We will continue to improve our operating cash flow by closely monitoring the timely collection of accounts and other receivables. We generally do not hold any significant inventory for more than ninety days, as we typically manufacture upon customers’ order.
| 15 |
Net cash used in investing activities for the nine months ended December 31, 2021 was approximately $0.9 million less than that of the nine months ended December 31, 2020. It was mainly because the purchase of plant and equipment and other assets in the nine months ended December 31, 2021 was approximately $0.2 million less than the purchase of plant and equipment in the nine months ended December 31, 2020. Moreover, there was a cash decrease of approximately $0.7 million due to disposal of two subsidiaries in the nine months ended December 31, 2020.
Net cash of financing activities for the nine months ended December 31, 2021 was approximately $6.2 million less than the nine months ended December 31, 2020. It was mainly because there was proceeds of $3.7 million from issue of ordinary shares in the nine months ended December 31, 2020; the net repayment of related party borrowings in current period was approximately $2.6 million more than that of the nine months ended December 31, 2020; and there was repayment of bank borrowing of $0.1 million in the nine months ended December 31, 2020.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2021, we had cash on hand of approximately $0.5 million, total current assets of approximately $4.8 million and current liabilities of approximately $9.5 million. We presently finance our operations by using the cash flows borrowed from related parties and third parties. We aim to improve our operating cash flows and anticipate that cash flows from our operations and borrowings from related parties and third parties will continue to be our primary source of funds to finance our short-term cash needs. The Company’s financial conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company expects to finance operations primarily through cash flow from revenue and capital contributions from the CEO. During the year, the CEO has provided financial support for the operations of the Company. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing.
The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
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, 2021, the market foreign exchange rate was RMB 6.355 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 loss for the nine months ended December 31, 2021 and 2020 was approximately $0.06 million and $0.2 million respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 2021 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.
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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, 2021. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls over Financial Reporting
There was no change in the Company’s internal control over financial reporting period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Item 1A. Risk Factors
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
There is no other information required to be disclosed under this item, which was not previously disclosed.
Item 6. Exhibits
|
Exhibit Number |
Description | |
| (31) | Rule 13a-14 (d)/15d-14d) Certifications | |
| 31.1* | Section 302 Certification by the Principal Executive Officer | |
| 31.2* | Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| (32) | Section 1350 Certifications | |
| 32.1* | Section 906 Certification by the Principal Executive Officer | |
| 32.2* | Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| 101* | Interactive Data File | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
*Filed herewith.
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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, 2022 | By: | /s/ Hong Zhida |
| Hong Zhida | ||
| President, Chief Executive Officer and Director, | ||
| (Principal Executive Officer) | ||
| Date: February 14, 2022 | By: | /s/ Huang Chao |
| Huang Chao | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
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