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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 26,693,004 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

 

Condensed Consolidated Balance sheets as of December 31, 2021 and March 31, 2021 (unaudited) F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the Nine months ended December 31, 2021 and 2020 (unaudited) F-3
Condensed Consolidated Statements of Changes in Equity for the nine months ended December 31, 2021 and 2020 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 (unaudited) F-5
Notes to Condensed Consolidated Financial Statements for the nine months ended December 31, 2021 and 2020 (unaudited) F-6 – F-14

 

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 ($0.001 par value, 50,000,000 shares authorized, 26,693,004 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)

 

   Shares   Amount   paid-in
capital
   Unrestricted   Statutory reserve   comprehensive loss   Total Equity
   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)

 

   2021   2020 
   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 
 Total Prepayment  $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:

 SCHEDULE OF SEGMENT REPORTING

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.

SCHEDULE OF GEOGRAPHICAL INFORMATION 

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:

 

   2021   2020   2021   2020 
   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    - 
 Lease Cost  $989,125   $444,162    2,941,529    668,883 

 

The following table summarizes supplemental information related to leases:

 

   2021   2020   2021   2020 
   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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