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: SeptemberJune 30, 20202021
| 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, China518000
(Address of principal executive offices)
+(86)755 86961 405
(Registrant’s telephone number)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.
[X] ☒ 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).
[X] ☒ 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 [X] ☒ No
As of NovemberAugust 16, 2020,2021, there were 25,346,004 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 | |
| Item 4. | Controls and Procedures | |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | |
| Item 4. | Mine Safety Disclosures | |
| Item 5. | Other Information | |
| Item 6. | Exhibits |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
ADDENTAX GROUP CORP.
FINANCIAL STATEMENTS
For the sixthree months ended SeptemberJune 30, 20202021 and 20192020
TABLE OF CONTENTS
| F-1 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF SEPTEMBER 30, 2020 AND MARCH 31, 2020 (UNAUDITED)
| September 30, 2020 | March 31, 2020 | June 30, 2021 | March 31, 2021 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 1,178,394 | $ | 531,681 | $ | 972,171 | $ | 1,845,077 | ||||||||
| Accounts receivables, net | 1,338,787 | 4,500,116 | 6,789,410 | 4,757,518 | ||||||||||||
| Inventories | 634,901 | 347,531 | 408,328 | 270,434 | ||||||||||||
| Other receivables | 215,566 | 231,974 | ||||||||||||||
| Prepayments and other receivables | 1,001,543 | 684,161 | ||||||||||||||
| Advances to suppliers | 717,799 | 389,940 | 738,687 | 355,454 | ||||||||||||
| Amount due from related party | 238,743 | 84,838 | ||||||||||||||
| Total current assets | 4,085,447 | 6,001,242 | 10,148,882 | 7,997,482 | ||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||
| Plant and equipment, net | 934,223 | 585,019 | 875,831 | 793,977 | ||||||||||||
| Operating lease right of use asset | 1,633,824 | 1,835,717 | 8,941,288 | 9,632,625 | ||||||||||||
| Total non-current assets | 2,568,047 | 2,420,736 | 9,817,119 | 10,426,602 | ||||||||||||
| TOTAL ASSETS | $ | 6,653,494 | $ | 8,421,978 | $ | 19,966,001 | $ | 18,424,084 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||
| Short-term loan | $ | 234,149 | $ | 353,114 | $ | 154,833 | $ | 152,607 | ||||||||
| Accounts payable | 1,218,896 | 3,620,583 | 4,501,868 | 3,121,373 | ||||||||||||
| Amount due to related parties | 5,959,583 | 5,429,440 | 5,636,053 | 4,913,964 | ||||||||||||
| Advances from customers | 56,472 | 18,931 | - | 3,029 | ||||||||||||
| Accrued expenses and other payables | 227,070 | 230,917 | 765,027 | 681,984 | ||||||||||||
| Operating lease liability current portion | 433,215 | 443,543 | 3,666,026 | 3,555,458 | ||||||||||||
| Total current liabilities | 8,129,385 | 10,096,528 | 14,723,807 | 12,428,415 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||||
| Operating lease liability, net of current portion | 1,200,609 | 1,392,174 | ||||||||||||||
| Total non-current liabilities | 1,200,609 | 1,392,174 | ||||||||||||||
| Operating lease liability | 5,275,261 | 6,077,167 | ||||||||||||||
| TOTAL LIABILITIES | $ | 9,329,994 | $ | 11,488,702 | $ | 19,999,068 | $ | 18,505,582 | ||||||||
| EQUITY | ||||||||||||||||
| Common stock ($0.001 par value, 50,000,000 shares authorized, 26,093,004 and 25,346,004 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively) | $ | 26,093 | $ | 25,346 | ||||||||||||
| Common stock ($ par value, shares authorized, shares issued and outstanding at June 30, 2021 and March 31, 2021) | $ | 26,693 | $ | 26,693 | ||||||||||||
| Additional paid-in capital | 3,795,303 | 61,050 | 6,815,333 | 6,815,333 | ||||||||||||
| Retained earnings | (6,489,747 | ) | (3,233,122 | ) | (6,755,281 | ) | (6,834,228 | ) | ||||||||
| Statutory reserve | 23,514 | 23,514 | 13,821 | 13,821 | ||||||||||||
| Accumulated other comprehensive loss | (31,663 | ) | 56,488 | (133,633 | ) | (103,117 | ) | |||||||||
| Total deficit | (2,676,500 | ) | (3,066,724 | ) | (33,067 | ) | (81,498 | ) | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 6,653,494 | $ | 8,421,978 | $ | 19,966,001 | $ | 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 LOSSOPERATIONS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
| Three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| REVENUES | $ | 4,286,431 | $ | 5,918,215 | ||||
| COST OF REVENUES | (3,703,026 | ) | (5,120,576 | ) | ||||
| GROSS PROFIT | 583,405 | 797,639 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling and marketing | (46,390 | ) | (153,245 | ) | ||||
| General and administrative | (460,315 | ) | (455,962 | ) | ||||
| Total operating expenses | (506,705 | ) | (609,207 | ) | ||||
| INCOME FROM OPERATIONS | 76,700 | 188,432 | ||||||
| Interest income | 1,967 | 42 | ||||||
| Interest expenses | (2,232 | ) | (4,960 | ) | ||||
| Other income (expense), net | 13,237 | 23,745 | ||||||
| INCOME BEFORE INCOME TAX EXPENSE | 89,672 | 207,259 | ||||||
| INCOME TAX EXPENSE | (10,725 | ) | (3,359 | ) | ||||
| NET INCOME | 78,947 | 203,900 | ||||||
| Foreign currency translation loss | (30,516 | ) | (4,455 | ) | ||||
| TOTAL COMPREHENSIVE INCOME | $ | 48,431 | $ | 199,445 | ||||
| EARNING PER SHARE | ||||||||
| Basic and diluted | 0.00 | 0.01 | ||||||
| Weighted average number of shares outstanding – Basic and diluted | 26,153,818 | 25,346,004 | ||||||
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| REVENUES | $ | 11,684,297 | $ | 1,945,002 | $ | 17,602,512 | $ | 4,154,494 | ||||||||
| COST OF REVENUES | (14,705,387 | ) | (1,624,083 | ) | (19,825,963 | ) | (3,475,643 | ) | ||||||||
| GROSS (LOSS) PROFIT | (3,021,090 | ) | 320,919 | (2,223,451 | ) | 678,851 | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling and marketing | (5,788 | ) | (3,639 | ) | (159,033 | ) | (10,866 | ) | ||||||||
| General and administrative | (466,043 | ) | (626,647 | ) | (922,005 | ) | (1,331,094 | ) | ||||||||
| Total operating expenses | (471,831 | ) | (630,286 | ) | (1,081,038 | ) | (1,341,960 | ) | ||||||||
| LOSS FROM OPERATIONS | (3,492,921 | ) | (309,367 | ) | (3,304,489 | ) | (663,109 | ) | ||||||||
| Interest income | 4 | 10 | 15 | 50 | ||||||||||||
| Interest expenses | (1,026 | ) | (7, 902 ) | (5,955 | ) | (12,330 | ) | |||||||||
| Other income (expense), net | 37,471 | (3,814 | ) | 61,216 | (10,820 | ) | ||||||||||
| LOSS BEFORE INCOME TAX EXPENSE | (3,456,472 | ) | (321,073 | ) | (3,249,213 | ) | (686,209 | ) | ||||||||
| INCOME TAX EXPENSE | (4,053 | ) | (852 | ) | (7,412 | ) | (3,064 | ) | ||||||||
| NET LOSS | (3,460,525 | ) | (321,925 | ) | (3,256,625 | ) | (689,273 | ) | ||||||||
| Foreign currency translation gain (loss) | (83,696 | ) | 74,201 | (88,151 | ) | 109,156 | ||||||||||
| TOTAL COMPREHENSIVE LOSS | $ | (3,544,221 | ) | $ | (247,724 | ) | (3,344,776 | ) | (580,117 | ) | ||||||
| LOSS PER SHARE | ||||||||||||||||
| Basic and diluted | (0.14 | ) | (0.00 | ) | (0.13 | ) | (0.00 | ) | ||||||||
| Weighted average number of shares outstanding – Basic and diluted | 25,521,529 | 25,346,004 | 25,521,529 | 25,346,004 | ||||||||||||
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)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
| Common Stock | Additional | Retained earnings | Accumulated other | |||||||||||||||||||||||||
| Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
| BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,233,122 | ) | $ | 23,514 | $ | 56,488 | $ | (3,066,724 | ) | |||||||||||||
| Foreign currency translation | - | - | - | - | - | (4,455 | ) | (4,455 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | 203,900 | - | - | 203,900 | |||||||||||||||||||||
| BALANCE AT JUNE 30, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,029,222 | ) | $ | 23,514 | $ | 52,033 | $ | (2,867,279 | ) | |||||||||||||
| 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 | - | - | - | - | - | (30,516 | ) | (30,516 | ) | |||||||||||||||||||
| Net income for the period | - | - | - | 78,947 | - | - | 78,947 | |||||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | 26,693,004 | $ | 26,093 | $ | 6,815,333 | $ | (6,755,281 | ) | $ | 13,821 | $ | (133,633 | ) | $ | (33,067 | ) | ||||||||||||
| Common Stock | Additional | Retained earnings | Accumulated other | |||||||||||||||||||||||||
| Shares | Amount | paid-in capital | Unrestricted | Statutory reserve | comprehensive loss | Total Equity | ||||||||||||||||||||||
| BALANCE AT JULY 1, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,143,115 | ) | $ | 21,779 | $ | 2,048 | $ | (2,032,892 | ) | |||||||||||||
| Foreign currency translation | - | - | - | - | - | 72,153 | 72,153 | |||||||||||||||||||||
| Net loss for the period | - | - | - | (321,925 | ) | - | - | (321,925 | ) | |||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,465,040 | ) | 21,779 | 74,201 | (2,282,664 | ) | ||||||||||||||||
| BALANCE AT JULY 1, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,029,222 | ) | $ | 23,514 | $ | 52,033 | $ | (2,867,279 | ) | |||||||||||||
| Issue of ordinary shares | 747,000 | 747 | 3,734,253 | - | - | - | 3,735,000 | |||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (83,696 | ) | (83,696 | ) | |||||||||||||||||||
| Net loss for the period | - | - | - | (3,460,525 | ) | - | - | (3,460,525 | ) | |||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2020 | 26,093,004 | $ | 26,093 | $ | 3,795,303 | $ | (6,489,747 | ) | $ | 23,514 | $ | (31,663 | ) | $ | (2,676,500 | ) | ||||||||||||
| BALANCE AT MARCH 31, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (1,775,767 | ) | $ | 21,779 | $ | (34,955 | ) | $ | (1,702,547 | ) | ||||||||||||
| Foreign currency translation | - | - | - | - | - | 109,156 | 109,156 | |||||||||||||||||||||
| Net loss for the period | - | - | - | (689,273 | ) | - | - | (689,273 | ) | |||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2019 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (2,465,040 | ) | 21,779 | 74,201 | (2,282,664 | ) | ||||||||||||||||
| BALANCE AT MARCH 31, 2020 | 25,346,004 | $ | 25,346 | $ | 61,050 | $ | (3,233,122 | ) | $ | 23,514 | $ | 56,488 | $ | (3,066,724 | ) | |||||||||||||
Issuance of common stocks | 747,000 | 747 | 3,734,253 | - | - | - | 3,735,000 | |||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | (88,151 | ) | (88,151 | ) | |||||||||||||||||||
| Net loss for the period | - | - | - | (3,256,625 | ) | - | - | (3,256,625 | ) | |||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2020 | 26,093,004 | $ | 26,093 | $ | 3,795,303 | $ | (6,489,747 | ) | $ | 23,514 | $ | (31,663 | ) | $ | (2,676,500 | ) | ||||||||||||
See accompany notes to the unaudited condensed consolidated financial statements.
| F-4 |
ADDENTAX GROUP CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(In U.S. Dollars, except share data or otherwise stated)
| Three Months Ended June 30 | ||||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (3,256,625 | ) | $ | (689,273 | ) | ||||||||||
| Net income | $ | 78,947 | $ | 203,900 | ||||||||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
| Depreciation | 78,079 | 56,630 | 33,986 | 23,473 | ||||||||||||
| Loss on disposal of plant and equipment | 32,988 | 3,342 | - | 4,947 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Changes in operating assets and liabilities, net of effects from disposal of subsidiaries: | ||||||||||||||||
| Accounts receivable | 3,161,329 | 142,009 | (2,031,892 | ) | 2,823,170 | |||||||||||
| Inventories | (287,370 | ) | (20,952 | ) | (137,894 | ) | (249,262 | ) | ||||||||
| Advances to suppliers | (327,859 | ) | (64,957 | ) | (383,233 | ) | (168,478 | ) | ||||||||
| Other receivables | 16,408 | 452 | (317,382 | ) | 85,722 | |||||||||||
| Accounts payables | (2,500,432 | ) | (224,377 | ) | 1,380,495 | (2,087,678 | ) | |||||||||
| Accrued expenses and other payables | (16,614 | ) | 13,514 | 129,338 | 17,042 | |||||||||||
| Advances from customers | 37,541 | (98,256 | ) | (3,029 | ) | 145,555 | ||||||||||
| Net cash provided by (used in) operating activities | $ | (3,062,555 | ) | $ | (881,868 | ) | ||||||||||
| Net cash (used in) provided by operating activities | $ | (1,250,664 | ) | $ | 798,391 | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Purchase of plant and equipment | (400,585 | ) | (95,445 | ) | ||||||||||||
| Proceeds from sale of property and equipment | 21,192 | - | ||||||||||||||
| Purchase of plant and equipment and other assets | (104,235 | ) | (143,148 | ) | ||||||||||||
| Net cash used in investing activities | $ | (379,393 | ) | $ | (95,445 | ) | $ | (104,235 | ) | $ | (143,148 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from issuance of common stocks | 3,735,000 | - | ||||||||||||||
| Proceeds from related party borrowings | 6,079,859 | 1,268,124 | 1,292,956 | 3,302,608 | ||||||||||||
| Repayment of related party borrowings | (5,621,945 | ) | (443,356 | ) | (806,994 | ) | (2,942,222 | ) | ||||||||
| Proceeds from bank borrowings | 86,886 | 461,151 | ||||||||||||||
| Repayment of bank borrowings | (205,850 | ) | (316,589 | ) | ||||||||||||
| Net cash provided by financing activities | $ | 4,073,950 | $ | 969,330 | $ | 485,962 | $ | 360,386 | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 632,002 | (7,983 | ) | |||||||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (868,937 | ) | 1,015,629 | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 14,711 | (890 | ) | (3,969 | ) | 2,099 | ||||||||||
| Cash and cash equivalents, beginning of the period | 531,681 | 277,264 | 1,845,077 | 531,681 | ||||||||||||
| CASH AND CASH EQUIVALENTS, END OF THE PERIOD | $ | 1,178,394 | $ | 268,391 | $ | 972,171 | $ | 1,549,409 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid during the year for interest | $ | 4,441 | $ | 7,706 | $ | 1,936 | $ | 3,765 | ||||||||
| Cash paid during the year for income tax | $ | 7,412 | $ | 3,064 | $ | 10,725 | $ | 3,359 | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 28,865 | $ | 1,901,008 | $ | 178,189 | $ | - | ||||||||
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
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
| 1. | ORGANIZATION AND BUSINESS ACQUISITIONS |
Addentax Group Corp. (“ATXG”) was incorporated in Nevada on October 28, 2014, and before the transaction described below, ATXG is engaged in the field of producing images on multiple surfaces using heat transfer technology.
On December 28, 2016, ATXG acquired 250,000,000 shares of the issued and outstanding stock of Yingxi Industrial Chain Group Co., Ltd. (“Yingxi”). The 250,000,000 shares of Yingxi were acquired from the members of Yingxi in a share exchange transaction in return for the issuance of 500,000,000 shares of common stock of ATXG. The 250,000,000 shares of Yingxi constitute 100% of its issued and outstanding stock, and as a result of the transaction, Yingxi became a wholly-owned subsidiary of ATXG. And following the consummation of the reverse acquisition effective on September 25, 2017, and giving effect to the securities exchanged in the offering, the members of Yingxi will beneficially own approximately ninty-nine percent (99%) of the issued and outstanding common stock of ATXG. For accounting purposes, the Company was treated as an acquiree and Yingxi as an acquirer, as a result, the business and financial information contained in this report is that of the acquirer prior to the consummation date and that of the combined entity after that date.
Yingxi was incorporated in the Republic of Seychelles on August 4, 2016.
ATXG, together with Yingxi and its subsidiaries (the “Company”) isare 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, 20202021 filed with the Securities and Exchange Commission (“SEC”) on June 29, 20202021 (“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 lossincome of $3,460,525$78,947 and $321,925$203,900 for the three months ended SeptemberJune 30, 20202021 and 2019, respectively, and $3,256,625 and $689,273 for the six months ended September 30, 2020, and 2019, respectively. As of SeptemberJune 30, 20202021 and March 31, 2020,2021, the Company had net current liability of $4,043,938$4,574,925 and $4,095,286,$4,430,933, respectively, and a deficit on total equity of $2,676,500$33,067 and $3,066,724,$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 fromfor the yearthree months ended March 31, 2020.June 30, 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. RISKS
| 4. | RELATED PARTY TRANSACTIONS |
SCHEDULE OF RELATED PARTIES
| 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 | |
| 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 June 30, 2021 and March 31, 2021:
SCHEDULE OF RELATED PARTIES TRANSACTION
| Amount due from related party | June 30, 2021 | March 31, 2021 | ||||||
| Hongye Financial Consulting (Shenzhen) Co., Ltd. | 238,743 | 84,838 | ||||||
| $ | 238,743 | $ | 84,838 | |||||
| Related party borrowings | June 30, 2021 | March 31, 2021 | ||||||
| Zhida Hong (1) | $ | 3,705,193 | $ | 3,727,371 | ||||
| Bihua Yang (2) | 382,437 | 370,523 | ||||||
| Dewu Huang (3) | 1,420,186 | 712,064 | ||||||
| Jinlong Huang | 128,237 | 104,006 | ||||||
| $ | 5,636,053 | $ | 4,913,964 | |||||
| (1) | The decrease was due to net repayment of debt due to Zhida Hong. During the three months ended June 30, 2021, the Company received financial support of $0.2 million from Zhida Hong and repaid $0.2 million of debts due to him. |
| (2) | Being financial support from Bihua Yang for XKJ’s daily operation. |
| (3) | The increase of 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.
| F-8 |
| 5. | INVENTORIES |
Inventories consist of the following as of June 30, 2021 and March 31, 2021:
SCHEDULE OF INVENTORIES
| June 30, 2021 | March 31, 2021 | |||||||
| Raw materials | $ | 365,679 | $ | 234,871 | ||||
| Work in progress | 13,199 | - | ||||||
| Finished goods | 29,450 | 35,564 | ||||||
| Total inventories | $ | 408,328 | $ | 270,434 | ||||
There is 0 inventory write-off for the three months ended June 30, 2021 and 2020.
| 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 June 30, 2021 and March 31, 2021:
SCHEDULE OF PREPAYMENTS AND UNCERTAINTIESOTHER RECEIVABLES
| June 30, 2021 | March 31, 2021 | |||||||
| Prepayment | 476,453 | - | ||||||
| Deposit | 48,544 | 155,830 | ||||||
| Receivable of consideration on disposal of subsidiaries | 263,679 | 258,929 | ||||||
| Other receivables | 212,867 | 269,402 | ||||||
| Prepayments and other receivables | $ | 1,001,543 | $ | 684,161 | ||||
| 8. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consists of the following as of June 30, 2021 and March 31, 2021:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| June 30, 2021 | March 31, 2021 | |||||||
| Production plant | $ | 72,687 | $ | 71,642 | ||||
| Motor vehicles | 1,099,061 | 1,020,893 | ||||||
| Office equipment | 50,673 | 14,073 | ||||||
| 1,222,421 | 1,106,608 | |||||||
| Less: accumulated depreciation | (346,590 | ) | (312,631 | ) | ||||
| Plant and equipment, net | $ | 875,831 | $ | 793,977 | ||||
| F-9 |
Depreciation expense for the three months ended June 30, 2021 and 2020 was $29,389 and $23,473, 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 June 30, 2021, the Company has borrowed $154,833 (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 will be due on September 30, 2021.
In August 2020, DT entered into a new facility agreement with Webank and obtained a credit facility of $88,358 (RMB600,000) for daily operations with various annual interest rate from 16.2% to 16.29%. The loans are guaranteed at no cost by the legal representative of DT. The loan borrowing was $86,886 (RMB590,000) as of September 30, 2020 (March 31, 2020: Nil). The loan was transferred to the buyer with the disposal of DT on September 30, 2020.
| 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 months ended June 30, 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 months ended June 30, 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 months ended June 30, 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:
SCHEDULE OF RECONCILIATION OF INCOME TAXES
| Three months ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| PRC statutory tax rate | 25 | % | 25 | % | ||||
| Computed expected benefits | 22,418 | 51,815 | ||||||
| Temporary differences | (39,459 | ) | (103,932 | ) | ||||
| Permanent difference | 1,478 | - | ||||||
| Changes in valuation allowance | 26,288 | 55,476 | ||||||
| Income tax expense | $ | 10,725 | $ | 3,359 | ||||
| (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 4 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 in the segment structure is presented in the following tables:
SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT
| F-11 |
| Garment | Logistics Services | Property management and leasing | Epidemic prevention supplies | Corporate and other | Totals | |||||||||||||||||||
| Revenue from external customers | 2,069,141 | 1,108,042 | 1,109,248 | - | - | 4,286,431 | ||||||||||||||||||
| Intersegment revenue | 2,417 | - | - | - | - | 2,417 | ||||||||||||||||||
| Interest income | 1,860 | 21 | 81 | - | 5 | 1,967 | ||||||||||||||||||
| Interest expense | 1,993 | 165 | - | - | 74 | 2,232 | ||||||||||||||||||
| Depreciation and amortization | 659 | 27,240 | 4,597 | 1,490 | - | 33,986 | ||||||||||||||||||
| Operating income (loss) | 123,629 | 4,863 | 57,211 | - | (109,003 | ) | 76,700 | |||||||||||||||||
| Segment assets | 6,384,543 | 2,559,283 | 9,256,608 | 76,691 | 1,688,876 | 19,966,001 | ||||||||||||||||||
| Expenditures for segment assets | - | 76,650 | 27,585 | - | - | 104,235 | ||||||||||||||||||
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 REVENUE AND LONG-LIVED ASSETS, BY GEOGRAPHICAL LOCATION
Geographic Information
| Revenues | Long-Lived Assets | |||||||
| China | 4,286,431 | 9,817,118 | ||||||
| Total | 4,286,431 | 9,817,118 | ||||||
| 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 June 30, 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:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
| Three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease cost | 934,666 | 111,706 | ||||||
| Short-term lease cost | 20,902 | - | ||||||
| Lease cost | $ | 955,568 | $ | 111,706 | ||||
The following table summarizes supplemental information related to leases:
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES
| Three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flow from operating leases | $ | 955,568 | $ | 111,706 | ||||
| Right-of-use assets obtained in exchange for new operating leases liabilities | 178,189 | - | ||||||
| Weighted average remaining lease term - Operating leases (years) | 2.5 | 4.0 | ||||||
| Weighted average discount rate - Operating leases | 4.75 | % | 4.35 | % | ||||
The following table summarizes the maturity of operating lease liabilities:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| Years ending June 30 | Lease cost | |||
| 2021 | $ | 3,840,163 | ||
| 2022 | 3,851,328 | |||
| 2023 | 2,014,865 | |||
| 2024 | 14,798 | |||
| Total lease payments | 9,721,154 | |||
| Less: Interest | (779,866 | ) | ||
| Total | $ | 8,941,288 | ||
| F-13 |
| 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) |
DuringThe 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 6.459 and 6.553 as of June 30 June, 2021 and March 31, 2021, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.461 and 6.779 for the three and six months ended SeptemberJune 30, 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 June 30, 2021 and 2019, approximately 99.6%March 31, 2021.
SCHEDULE OF CONCENTRATION OF RISK BY CUSTOMERS
Garment manufacturing segment
| June 30, 2021 | March 31, 2021 | |||||||
| Customer A | 98.8 | % | 98.4 | % | ||||
| Customer B | 1.1 | % | 1.6 | % | ||||
| Customer C | 0.1 | % | 0 | |||||
The high concentration as of June 30, 2021 was mainly due to business development of a large distributor of garments.
Logistics services segment
| June 30, 2021 | March 31, 2021 | |||||||
| Customer A | 19.8 | % | 16.6 | % | ||||
| Customer B | 17.8 | % | 30.2 | % | ||||
| Customer C | 7.7 | % | 5.5 | % | ||||
| Customer D | 6.7 | % | 5.5 | % | ||||
| Customer E | 6.5 | % | 1.8 | % | ||||
Property management and 88.4%, 97.2% and 74.5% of total inventory purchases were from the Company’s five largest suppliers, respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers are available that could provide similar products to the Company. subleasing
SCHEDULE OF PROPERTY MANAGEMENT AND SUBLEASING
| June 30, 2021 | March 31, 2021 | |||||||
| Customer A | 100 | % | - | |||||
During the three and six months ended September 30, 2020 and 2019, approximately 93.6% and 54.5%, 86.8% and 34.6% of total sales were from the Company’s five largest customers, respectively. Epidemic prevention supplies segment
No accounts receivables in this segment.
For the three months ended SeptemberJune 30, 2020, two customers2021, one customer from garment segment provided more than 10% of total revenue of the Company, with one from garment segment and the other one from epidemic prevention supplies segment, represented 13.7% and 74.9%98.8% of total revenue of the Company for the three months respectively. For the six months ended September 30, 2020, two customers provided more than 10% of our total revenue, with one from garments segment and the other one from epidemic prevention supplies segment, represented 14.7% and 59.3% of total revenue of the Company for the six months, respectively. (2020: 62.8%).
| F-14 |
The high concentration in three and six months ended SeptemberJune 30, 20202021 was mainly due to concentration of distributors in trading of epidemic prevention supplies. 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 months ended June 30, 2021 and 2020.
SCHEDULE OF INVENTORY PURCHASES FROM SUPPLIERS
| Three months ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Garment manufacturing segment | 100.0 | % | 97.9 | % | ||||
| Logistics services segment | 61.6 | % | 97.87 | % | ||||
| Property management and subleasing | 100.0 | % | - | % | ||||
| Epidemic prevention supplies | - | % | 100.0 | % | ||||
| 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 SeptemberJune 30, 2020,2021, the total outstanding borrowings amounted to $234,149 (RMB1,590,000)$154,833 (RMB1,000,000) with various interest rate from 4.84% to 6.96% p.a. (Note 10)
The receivablesCoronavirus Disease (COVID-19) outbreak and allowance balances at September 30, 2020the measures taken to contain the spread of the pandemic have created a high level of uncertainty to global economic prospects and March 31, 2020 are as follows: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.
| September 30, 2020 | March 31, 2020 | |||||||
| Accounts receivable | $ | 1,338,787 | $ | 4,500,116 | ||||
| Less: allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | 1,338,787 | $ | 4,500,116 | ||||
No allowance for doubtful accounts was made forAs the three and six months ended September 30, 2020 and 2019.
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 leases Shenzhen XKJ office rent-free from Bihua Yang.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.
In September, the Company disposed of $114,229 aged inventories in HSW to Mr. Jinlong Huang at cost with no gain or loss recognized.
The Company had the following related party balances as of September 30, 2020 and March 31, 2020:
| Amounts due to related parties | September 30, 2020 | March 31, 2020 | ||||||
| Zhida Hong | $ | 5,327,512 | $ | 5,043,489 | ||||
| Bihua Yang | 167,095 | - | ||||||
| Zhongpeng Chen | 167,262 | 160,427 | ||||||
| Dewu Huang | 135,630 | 81,287 | ||||||
| Jinlong Huang | 162,084 | 144,237 | ||||||
| $ | 5,959,583 | $ | 5,429,440 | |||||
The balances with related parties are unsecured, non-interest bearing and repayable on demand.
Inventories consist of the following as of September 30, 2020 and March 31, 2020:
| September 30, 2020 | March 31, 2020 | |||||||
| Raw materials | $ | 600,425 | $ | 230,742 | ||||
| Work in progress | 6,140 | 62,150 | ||||||
| Finished goods | 28,336 | 54,639 | ||||||
| Total inventories | $ | 634,901 | $ | 347,531 | ||||
There is no inventory write-off for the three and six months ended September 30, 2020 and 2019.
O
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.
Property, plant and equipment consists of the following as of September 30, 2020 and March 31, 2020:
| September 30, 2020 | March 31, 2020 | |||||||
| Production plant | $ | 103,015 | $ | 67,247 | ||||
| Motor vehicles | 1,232,428 | 868,743 | ||||||
| Office equipment | 20,301 | 19,471 | ||||||
| 1,355,744 | 955,461 | |||||||
| Less: accumulated depreciation | (421,521 | ) | (370,442 | ) | ||||
| Plant and equipment, net | $ | 934,223 | $ | 585,019 | ||||
During the nine months ended September 30, 2020, the Company acquired two production lines amounted to $54,327 to manufacture masks for the epidemic prevention supplies business and seven new motor truckers amounted to $315,920 for the logistic service business . During the period, the Company disposed of an old motor trucker with original cost of $22,505 and accumulated depreciation of $15,791. The Company also replaced a few small items of old machinery and office equipment.
Depreciation expense for the three and six months ended September 30, 2020 and 2019 was $27,686 and $27,931, $51,159 and $29,238, respectively.
In September 2018, HSW, a subsidiary of the Company entered into a facility agreement with Dongguan Agricultural Commercial Bank and obtained a line of credit, which allows the Company to borrow up to approximately $212,334 (RMB1,500,000) for daily operations with fixed interest rate of 6.96% per annum. The loans are guaranteed at no cost by legal representative of HSW. In September 2020, the Company fully repaid the outstanding loan and this line of credit was cancelled (March 31, 2020: $211,868).
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 $147,264 (RMB1,000,000) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of September 30, 2020, the Company has borrowed $147,264 (RMB1,000,000) (March 31, 2020: $141,246) under this line of credit with various annual interest rates from 4.84% to 4.9%. The line of credit is fully used. The outstanding loan balance will be due on March 31, 2021.
In August 2020, DT entered into a new facility agreement with Webank and obtained a credit facility of $88,358 (RMB600,000) for daily operations with various annual interest rate from 16.2% to 16.29%. The loans are guaranteed at no cost by the legal representative of DT. The loan borrowing was $86,886 (RMB590,000) as of September 30, 2020 (March 31, 2020: Nil).
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 six months ended September 30, 2020 and 2019.
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 six months ended September 30, 2020 and 2019.
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 2020 and 2019. 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 an 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 six months ended September 30, 2020 and 2019.
The reconciliation of income taxes computed at the PRC statutory tax rate applicable to the PRC, to income tax expenses are as follows:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| PRC statutory tax rate | 25 | % | 25 | % | 25 | % | 25 | % | ||||||||
| Computed expected expenses | (864,118 | ) | (80,268 | ) | (812,304 | ) | (171,552 | ) | ||||||||
| Temporary differences | 829,401 | 10,370 | 725,469 | 9,086 | ||||||||||||
Deferred tax assets | 38,770 | 70,750 | 94,247 | 165,530 | ||||||||||||
| Income tax expense | $ | 4,053 | $ | 852 | $ | 7,412 | $ | 3,064 | ||||||||
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 2020 and 2019. 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.
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 three segments:
The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.
Selected information in the segment structure is presented in the following tables:
Revenues by segment for the three and six months ended September 30, 2020 and 2019 are as follows:
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| Revenues | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Garments | $ | 1,623,255 | $ | 322,131 | $ | 2,898,061 | 873,448 | |||||||||
| Logistic service | 1,307,003 | 1,622,871 | 2,840,384 | 3,281,046 | ||||||||||||
| Epidemic prevention supplies | 8,754,039 | - | 11,864,067 | - | ||||||||||||
| $ | 11,684,297 | $ | 1,945,002 | $ | 17,602,512 | 4,154,494 | ||||||||||
Income from operations by segment for the three and six months ended September 30, 2020 and 2019 are as follows:
| Three months ended | Six months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Garments | $ | 75,956 | $ | (16,682 | ) | $ | 141,518 | $ | 29,535 | |||||||
| Logistic service | 25,724 | 26,027 | 35,284 | 7,716 | ||||||||||||
| Epidemic prevention supplies | (3,384,835 | ) | - | (3,096,118 | ) | - | ||||||||||
| Corporate and other | (209,766 | ) | (318,712 | ) | (385,173 | ) | (700,360 | ) | ||||||||
| Income (loss) from operations | $ | (3,492,921 | ) | $ | (309,367 | ) | $ | (3,304,489 | ) | $ | (663,109 | ) | ||||
| Garments | 9,503 | ) | (12,102 | ) | 30,661 | (19,284 | ) | |||||||||
| Logistic service | 27,165 | 420 | 25,722 | (3,707 | ) | |||||||||||
| Epidemic prevention supplies | (4 | ) | - | (3 | ) | - | ||||||||||
| Corporate and other | (215 | ) | (24 | ) | (1,104 | ) | (109 | ) | ||||||||
| Income (loss) before income tax | $ | (3,456,472 | ) | (321,073 | ) | (3,249,213 | ) | (686,209 | ) | |||||||
| Income tax expense | (4,053 | ) | (852 | ) | (7,412 | ) | (3,064 | ) | ||||||||
| Net income (loss) | $ | (3,460,525 | ) | $ | (321,925 | ) | $ | (3,256,625 | ) | $ | (689,273 | ) | ||||
Total assets by segment as at September 30, 2020 and March 31, 2020 are as follows:
| Total assets | September 30, 2020 | March 31, 2020 | ||||||
| Garments | $ | 1,647,452 | $ | 4,098,758 | ||||
| Logistic service | 2,851,451 | 2,422,140 | ||||||
| Epidemic prevention supplies | 197,058 | - | ||||||
| Corporate and other | 1,957,533 | 1,901,080 | ||||||
| $ | 6,653,494 | $ | 8,421,978 | |||||
Accrued expenses and other payables consist of the following as of September 30, 2020 and March 31, 2020:
| September 30, 2020 | March 31, 2020 | |||||||
| Accrued wages and welfare | 64,372 | 61,776 | ||||||
| Other tax payable | - | 25,206 | ||||||
| Rental payable | 44,108 | 24,972 | ||||||
| Other payables | 118,590 | 118,963 | ||||||
| $ | 227,070 | $ | 230,917 | |||||
The Company implemented new accounting policy according to the ASC 842, Leases, on April 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately $0.06 million lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of September 30, 2020, with discounted rate of 4.35%. 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.
Lease cost
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating lease cost | 113,015 | 142,779 | 224,721 | 199,612 | ||||||||||||
| Short-term lease cost | - | 6,278 | - | 63,785 | ||||||||||||
| $ | 113,015 | $ | 149,057 | 224,721 | 263,397 | |||||||||||
Other information
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
| Operating cash flow from operating leases | $ | 113,015 | $ | 149,057 | $ | 224,721 | $ | 263,397 | ||||||||
| Right-of-use assets obtained in exchange for new operating leases liabilities | 28,865 | 1,633,055 | 28,865 | 1,901,008 | ||||||||||||
| Weighted average remaining lease term - Operating leases (years) | 3.8 | 4.7 | 3.8 | 4.7 | ||||||||||||
| Weighted average discount rate - Operating leases | 4.35 | % | 4.35 | % | 4.35 | % | 4.35 | % | ||||||||
15. SHARE CAPITAL
In August 2020, the Company offered 747,000 common stocks to an individual investor. The subscription price was $5.00 per share. The proceeds were all received in August 2020.
16. SUBSEQUENT EVENTS
In November 2020, the Company disposed of $194,164 inventories in HSW to Mr. Huang and a third party at cost for cash with no gain or loss recognized. Such cash was received in November 2020.
No other subsequent events have occurred that would require recognition or disclosure in the financial statements.
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 six months ended SeptemberJune 30, 20202021 and 20192020 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 logistic servicelogistics services provider based in China. We are listed on the OTCQB under the symbol of “ATXG”. We classify our businesses into threefour 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 Yingxi Daying Commercial Co., Ltd (“DY”), 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 logisticlogistics services operations through twofour 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, 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.
Business Objectives
Garment Manufacturing Business
| 3 |
We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery.delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit.
LogisticLogistics Services Business
The business objective and future plan for our logistic servicelogistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of SeptemberJune 30, 2020,2021, we provide logistic servicelogistics 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 2020.2021.
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 suppliesPrevention 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 tradingresale 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 logistic servicelogistics 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 logisticlogistics 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 the deliverytheir acknowledgement of finishedreceipt of goods.
LogisticLogistics services business
For logistic service,logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registerregistration 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 ana 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. |
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 .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 SeptemberJune 30, 20202021 and 20192020
The following tables summarize our results of operations for the three months ended SeptemberJune 30, 20202021 and 2019.2020. 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 June 30, | Increase (decrease) in 2021 | |||||||||||||||||||||||
| 2021 | 2020 | compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 4,286,431 | 100.0 | % | $ | 5,918,215 | 100 | % | $ | (1,631,784 | ) | (27.6 | )% | |||||||||||
| Cost of revenues | (3,703,026 | ) | (86.4 | )% | (5,120,576 | ) | (86.5 | )% | 1,417,550 | 27.7 | % | |||||||||||||
| Gross profit | 583,405 | 13.6 | % | 797,639 | 13.5 | % | (214,234 | ) | (26.9 | )% | ||||||||||||||
| Operating expenses | (506,705 | ) | (11.8 | )% | (609,207 | ) | (10.3 | )% | 102,502 | 16.8 | % | |||||||||||||
| Income from operations | 76,700 | 1.8 | % | 188,432 | 3.2 | % | (111,732 | ) | 59.3 | % | ||||||||||||||
| Other income, net | 13,237 | 0.3 | % | 23,745 | 0.4 | % | (10,508 | ) | (44.3 | )% | ||||||||||||||
| Net finance cost | (265 | ) | (0.0 | )% | (4,918 | ) | (0.1 | )% | 4,653 | 4,527.2 | % | |||||||||||||
| Income tax expense | (10,725 | ) | (0.3 | )% | (3,359 | ) | (0.1 | )% | (7,366 | ) | (219.3 | )% | ||||||||||||
| Net income | $ | 78,947 | 1.8 | % | $ | 203,900 | 3.4 | % | $ | (124,953 | ) | 61.3 | % | |||||||||||
| Three Months Ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 11,684,297 | 100.0 | % | $ | 1,945,002 | 100 | % | $ | 9,739,295 | 500.7 | % | ||||||||||||
| Cost of revenues | (14,705,387 | ) | (125.9 | )% | (1,624,083 | ) | (83.5 | )% | (13,081,304 | ) | (805.5 | )% | ||||||||||||
| Gross profit | (3,021,090 | ) | (25.9 | )% | 320,919 | 16.5 | % | (3,342,009 | ) | (1,041.4 | )% | |||||||||||||
| Operating expenses | (471,831 | ) | (4.0 | )% | (630,286 | ) | (32.4 | )% | 158,455 | 25.1 | % | |||||||||||||
| (Loss) Income from operations | (3,492,921 | ) | (29.9 | )% | (309,367 | ) | (15.9 | )% | (3,183,554 | ) | (1,029.1 | )% | ||||||||||||
| Other income, net | 37,471 | 0.3 | % | (3,814 | ) | (0.2 | )% | 41,285 | 1,082.4 | % | ||||||||||||||
| Net finance cost | (1,022 | ) | (0.0 | )% | (7,891 | ) | (0.4 | )% | 6,869 | 87.0 | % | |||||||||||||
| Income tax expense | (4,053 | ) | (0.0 | )% | (852 | ) | (0.0 | )% | (3,201 | ) | (375.6 | )% | ||||||||||||
| Net income (loss) | $ | (3,460,525 | ) | (29.6 | )% | $ | (321,925 | ) | (16.6 | )% | $ | (3,138,600 | ) | (974.9 | )% | |||||||||
Revenue
Total revenue for the three months ended June 30, 2021 decreased by approximately $1.6 million, or 27.6%, as compared with the three months ended June 30, 2020. The significant decrease was mainly because of the decrease of epidemic supply business and logistics services business offset by increases in garment manufacturing business and property management and leasing business.
Revenue generated from our garment manufacturing business contributed $1,623,255 or 13.9%approximately $2.1 million (48.3%) and $1.3 million (21.5%) of our total revenue for the three months ended SeptemberJune 30, 2020. Revenue generated from our garment business contributed $322,131 or 16.6% of our total revenue for the three months ended September 30, 2019.2021 and 2020, respectively. The $0.8 million increase of $1.3 million was mainly because production capacity increased from newly setup subsidiary, YBY.
Revenue generated from our logistic business contributed $1,307,003 or 11.2% of our total revenue for the three months ended September 30, 2020. Revenue generated from our logistic business contributed $1,622,871 or 83.4% of our total revenue for the three months ended September 30, 2019. The decrease mainly due to COVID-19, we cannot smoothly go through the logistics business.
Revenue generated from our epidemic prevention supplies business contributed $8,754,039, or 74.9%recovery of our total revenue for the three months ended September 30, 2020. This is a new business developed in the current period. It included revenue from resale of purchased products and revenue from sales of our own products. The revenue from trading of merchandise was $8,588,243, representing 98.1% of total revenue fromeconomic when the epidemic prevention suppliers business.was well controlled.
Total revenue for the three months ended September 30, 2020 and 2019 were $11,684,297 and $1,945,002, respectively, a 500.7% increase compared with the three months ended September 30, 2019. The increase was mainly because the increase of garment production capacity from newly setup subsidiary DT and YBY and the epidemic prevention supplies business newly developed in current period.
Cost of revenue
| Three months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment | $ | 1,623,255 | 100.0 | % | $ | 322,131 | 100 | % | $ | 1,301,124 | 403.9 | % | ||||||||||||
| Raw materials | 1,143,215 | 70.3 | % | 228,567 | 71.0 | 914,648 | 400.2 | % | ||||||||||||||||
| Labor | 333,776 | 20.6 | % | 47,393 | 14.6 | 286,384 | 604.3 | % | ||||||||||||||||
| Other and Overhead | 5,745 | 0.4 | % | 12,462 | 3.9 | (6,717 | ) | (53.9 | )% | |||||||||||||||
| Total cost of revenue for garment | 1,482,736 | 91.3 | % | 288,422 | 89.5 | % | 1,194,314 | 414.1 | % | |||||||||||||||
| Gross profit for garment | 140,519 | 8.7 | % | 33,709 | 10.5 | % | 106,810 | 316.9 | % | |||||||||||||||
| Net revenue for logistic service | 1,307,003 | 100.0 | % | 1,622,871 | 100.0 | % | (315,868 | ) | (19.5 | )% | ||||||||||||||
| Fuel, toll and other cost of logistic service | 500,955 | 38.3 | % | 356,780 | 22.0 | % | 144,175 | 40.4 | % | |||||||||||||||
| Subcontracting fees | 588,397 | 45.0 | % | 978,881 | 60.3 | % | (390,484 | ) | (39.9 | )% | ||||||||||||||
| Total cost of revenue for logistic service | 1,089,352 | 83.3 | % | 1,335,661 | 82.3 | % | (246,309 | ) | (18.4 | )% | ||||||||||||||
| Gross Profit for logistic service | 217,650 | 16.7 | % | 287,210 | 17.7 | % | (69,560 | ) | (24.2 | )% | ||||||||||||||
| Net revenue for epidemic prevention supplies | $ | 8,754,039 | 100 | % | $ | - | - | 8,754,039 | N/A | |||||||||||||||
| Merchandise/Finished goods/Raw materials | 12,133,298 | 138.6 | % | - | - | 12,133,298 | N/A | |||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 12,133,298 | 138.6 | % | - | - | 12,133,298 | N/A | |||||||||||||||||
| Gross profit for epidemic prevention supplies | (3,379,259 | ) | (38.6 | )% | - | - | (3,379,259 | ) | N/A | |||||||||||||||
| Total cost of revenue | $ | 14,705,387 | 125.9 | % | $ | 1,624,083 | 83.5 | $ | 13,081,304 | 805.5 | % | |||||||||||||
| Gross profit | $ | (3,021,090 | ) | (25.9 | )% | $ | 320,919 | 16.5 | % | $ | (3,342,009 | ) | (1041.4 | )% | ||||||||||
| 6 |
Revenue generated from our logistics services business contributed approximately $1.1 million or 25.8% of our total revenue for the three months ended June 30, 2021. Revenue generated from our logistic business contributed approximately $1.5 million or 25.9% of our total revenue for the three months ended June 30, 2020. The $0.4 million decrease mainly because the Company disposed of a subsidiary, HPF, in September 2020 and set up a new subsidiary, YXPF. The new subsidiary took time to develop the business gradually to replace the business of HPF.
Revenue generated from our property management and subleasing business contributed approximately $1.1 million increase or 25.9% of our total revenue for the three months ended June 30, 2021. This is a new business segment developed in current period and there was no revenue for the three months ended June 30, 2020.
There was no revenue generated from our epidemic prevention supplies business for the three months ended June 30, 2021 because no profitable 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 $3.1 million decrease, or 52.6% of our total revenue for the three months ended June 30, 2020.
Cost of revenue
| Three months ended June 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment manufacturing | $ | 2,069,141 | 100.0 | % | $ | 1,274,806 | 100 | % | $ | 794,335 | 62.3 | % | ||||||||||||
| Raw materials | 1,441,333 | 69.7 | % | 945,284 | 74.2 | % | 496,049 | 52.5 | % | |||||||||||||||
| Labor | 443,290 | 21.4 | % | 229,096 | 18.0 | % | 214,194 | 93.5 | % | |||||||||||||||
| Other and Overhead | 10,399 | 0.5 | % | 8,427 | 0.6 | % | 1,972 | 23.4 | % | |||||||||||||||
| Total cost of revenue for garment manufacturing | 1,895,022 | 91.6 | % | 1,182,807 | 92.8 | % | 712,215 | 60.2 | % | |||||||||||||||
| Gross profit for garment manufacturing | 174,119 | 8.4 | % | 91,999 | 7.2 | % | 82,120 | 89.3 | % | |||||||||||||||
| 0 | ||||||||||||||||||||||||
| Net revenue for logistics services | 1,108,042 | 100.0 | % | 1,533,381 | 100.0 | % | (425,339 | ) | (27.7 | )% | ||||||||||||||
| Fuel, toll and other cost of logistics services | 393,150 | 35.5 | % | 384,229 | 25.1 | % | 8,921 | 2.3 | % | |||||||||||||||
| Subcontracting fees | 486,722 | 43.9 | % | 902,065 | 58.8 | % | (415,343 | ) | (46.0 | )% | ||||||||||||||
| Total cost of revenue for logistics services | 879,872 | 79.4 | % | 1,286,294 | 83.9 | % | (406,422 | ) | (31.6 | )% | ||||||||||||||
| Gross Profit for logistics services | 228,170 | 20.6 | % | 247,087 | 16.1 | % | (18,917 | ) | (7.7 | )% | ||||||||||||||
| Net revenue for property management and subleasing | 1,109,248 | 100.0 | % | - | - | 1,109,248 | ||||||||||||||||||
| Total cost of revenue for property management and subleasing | 926,642 | 83.5 | % | - | - | 926,642 | ||||||||||||||||||
| Gross Profit for property management and subleasing | 182,606 | 16.5 | % | - | - | 182,606 | ||||||||||||||||||
| Net revenue for epidemic prevention supplies | $ | - | $ | 3,110,028 | - | (3,110,028 | ) | (100.0 | )% | |||||||||||||||
| Merchandise/Finished goods/Raw materials | - | 2,546,955 | 81.9 | % | (2,546,955 | ) | (100.0 | )% | ||||||||||||||||
| Labor | - | 64,946 | 2.1 | % | (64,946 | ) | (100.0 | )% | ||||||||||||||||
| Other and Overhead | 1,490 | 39,574 | 1.3 | % | (38,084 | ) | (96.2 | )% | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 1,490 | 2,651,475 | 85.3 | % | (2,649,985 | ) | (99.9 | )% | ||||||||||||||||
| Gross (loss) income for epidemic prevention supplies | (1,490 | ) | 458,553 | 14.7 | % | (460,043 | ) | (100.3 | )% | |||||||||||||||
| Total cost of revenue | $ | 3,703,026 | 86.4 | % | $ | 5,120,576 | 86.5 | % | $ | -(1,417,550 ) | (27.7 | )% | ||||||||||||
| Gross profit | $ | 583,405 | 13.6 | % | $ | 797,639 | 13.5 | % | $ | -214,234 | ) | (26.9 | )% | |||||||||||
| 7 |
For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Aggregate purchases from our five largest raw material suppliers represented approximately 99.6% and 88.4% of raw materials purchases for the three months ended September 30, 2020 and 2019, respectively. Two and three suppliers provided more than 10% of our raw materials purchases for the three months ended September 30, 2020 and 2019. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.
Raw material costs for our garment manufacturing business were 70.4%69.7% of our total garment manufacturing business revenue in the three months ended SeptemberJune 30, 2020,2021, compared with 71.0%74.2% in the three months ended SeptemberJune 30, 2019.2020. The increaseddecreased in percentages was mainly due to the purchase cost of the raw materials as the continuing high demand from epidemic prevention supplies industry drove up the prices of cotton fabrics.dropped.
Labor costs for our garment manufacturing business were 20.6%21.4% of our total garment manufacturing business revenue in the three months ended SeptemberJune 30, 2020,2021, compared with 14.7%18.0% in the three months ended SeptemberJune 30, 2019.2020. 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 0.4%0.5% of our total garment business revenue for the three months ended SeptemberJune 30, 2020,2021, compared with 3.7%0.7% of total garment business revenue for the three months ended SeptemberJune 30, 2019.2020.
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 32.8%33.4% and 24.2%34.4% of total cost of revenues for our service segment for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The percentage decreased as we used new suppliers after evaluation of suppliers’ performance.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 logistic servicelogistics services provider.
Fuel, toll and other costs for our service business for the three months ended SeptemberJune 30, 20202021 were $500,955approximately $0.4 million compared with $356,780$0.4 million for the three months ended SeptemberJune 30, 2019.2020. Fuel, toll and other costs for our service business accounted for 38.3%35.5% of our total service revenue for the three months ended SeptemberJune 30, 2020,2021, compared with 22.0%25.1% for the three months ended SeptemberJune 30, 2019.2020. The increase in percentages was primarily attributable to decrease of use of subcontractors under the epidemic circumstance.
Subcontracting fees for our service business for the three months ended SeptemberJune 30, 20202021 decreased 39.9%46.0% to $588,397approximately $0.5 million from $978,881$0.9 million for the three months ended SeptemberJune 30, 2019.2020. Subcontracting fees accounted for 45.0%43.9% and 60.3%58.8% of our total service business revenue in the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. This decrease in percentages was primarily because the Company used less subcontractors under the epidemic circumstance.
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 merchandise was $12,133,298,the quarter represented 100%depreciation of total cost of revenue of the epidemic prevention supplies business.machinery.
Total cost of revenue for the three months ended September 30, 2020 was $14,705,387, compared with the amount of $1,624,083 for the three months ended September 30, 2019. Total cost of sales as a percentage of total sales for the three months ended September 30, 2020 was 125.9%, compared with 83.5% for the three months ended September 30, 2019. Gross (loss) margin for the three months ended September 30, 2020 was (25.9)% compared with 16.5% for the three months ended September 30, 2019.
Gross profit
Garment manufacturing business gross profit for the three months ended SeptemberJune 30, 20202021 was $140,519approximately $0.2 million, as compared with $33,709approximately $0.1 million for the three months ended SeptemberJune 30, 2019.2020. Gross profit accounted for 8.7%8.4% of our total Garment manufacturing business revenue for the three months ended SeptemberJune 30, 2020,2021, compared with 10.5%7.2% for the three months ended SeptemberJune 30, 2019.2020. The decrease of gross margin was 1.2% higher due to increase ofhigher raw materialsmaterial cost and labor cost.in the quarter ended June 30, 2020.
Gross profit in our logistic servicelogistics services business for the three months ended SeptemberJune 30, 20202021 was $217,650approximately $0.2 million and gross margin was 16.7 %.20.6%. Gross profit in our logistic servicelogistics services business for the three months ended SeptemberJune 30, 20192020 was $287,210approximately $0.2 million and gross margin was 17.7%16.1%. 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 three months ended June 30, 2021 was approximately $0.2 million, or 16.5% of our total property management and subleasing business revenue. This is a new business developed in last quarter.
Gross loss in our epidemic prevention supplies business for the three months ended SeptemberJune 30, 20202021 was $(3,379,259) and gross margin was (38.6)%. The large lost was mainly because the cost of materials increased significantly and rapidly while the selling price was fixed in the sales agreement with the customers.approximately $0.001 million.
| Three months ended June 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2021 | 2020 | 2021 compared to 2020 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | 583,405 | 100 | % | $ | 797,639 | 100 | % | (214,233 | ) | (26.9 | )% | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (46,390 | ) | (8.0 | )% | (153,245 | ) | (23.1 | )% | 106,855 | 69.7 | % | |||||||||||||
| General and administrative expenses | (460,315 | ) | (78.9 | )% | (455,962 | ) | (68.9 | )% | (4,353 | ) | (1.0 | )% | ||||||||||||
| Total | $ | (506,705 | ) | (86.9 | )% | $ | (609,207 | ) | (92.0 | )% | 102,502 | 16.8 | % | |||||||||||
| Income from operations | $ | 76,700 | 13.1 | % | $ | 188,432 | 8.0 | % | (111,731 | ) | (59.3 | )% | ||||||||||||
| Three months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | (3,021,090 | ) | 100 | % | $ | 320,919 | 100 | % | (3,342,009 | ) | (1,041.4 | )% | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (5,789 | ) | (23.1 | )% | (3,639 | ) | (1.1 | )% | (2,149 | ) | (59.1 | )% | ||||||||||||
| General and administrative expenses | (466,044 | ) | (68.9 | )% | (626,647 | ) | (195.3 | )% | 160,605 | 25.6 | % | |||||||||||||
| Total | $ | (471,831 | ) | (92.0 | )% | $ | (630,286 | ) | (196.4 | )% | 158,455 | 25.1 | % | |||||||||||
| Income (Loss) from operations | $ | (3,492,921 | ) | (8.0 | )% | $ | (309,367 | ) | (96.4 | )% | (3,183,554 | ) | (1,029.1 | )% | ||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the three months ended SeptemberJune 30, 2021 and 2020 was nil and 2019 was $1,112 and $3,639,approximately $0.001 million, respectively. Our selling expenses in our logistic servicelogistics services segment was $nilnil for the three months ended SeptemberJune 30, 2021 and 2020, respectively. Selling expenses in our property management and 2019,subleasing business was nil for the three months ended June 30, 2021 and 2020, respectively. Selling expenses in our epidemic prevention supplies segment was $4,677nil and approximately $0.2 million for the three months ended SeptemberJune 30, 2020.2021 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 SeptemberJune 30, 2020 increased 59.1%2021 decreased 69.7% to $5,788$0.05 million from $3,639$0.2 million for the three months ended SeptemberJune 30, 2019.2020. 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 SeptemberJune 30, 2021 and 2020 was approximately $0.05 million and 2019 was $63,125 and $46,752,$0.03 million, respectively. Our general and administrative expenses in our logistic servicelogistics services segment, for the three months ended SeptemberJune 30, 2021 and 2020 was approximately $0.2 million and 2019$0.2 million, respectively. The general and administrative expenses in our property management and subleasing business was $191,927 and $261,183, respectively.approximately $0.08 million for the three months ended June 30, 2021. Our general and administrative expenses in our epidemic prevention supplies segment was $1,228nil and approximately $0.02 million for the three months ended SeptemberJune 30, 2020.2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the three months ended SeptemberJune 30, 2021 and 2020 was approximately $0.1 million and 2019 was $209,763 and $318,713,$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.
Total general and administrative expenses for the three months ended SeptemberJune 30, 20202021 decreased 32.2%slightly by 1.0% to $466,043approximately $0.46 million from $626,647$0.45 million for the three months ended SeptemberJune 30, 2019. The amount was $160,605 higher in the three months ended September 30, 2019 was mainly due to the professional fees for Form S1 filing.2020.
Income (loss) from operations
LossIncome from operations for the three months ended SeptemberJune 30, 2021 and 2020 was approximately $0.08 million and 2019 was $(3,492,921) and $(309,367),$0.2 million, respectively. Income (loss) from operations of $75,956approximately $0.1 million and $(16,681)$0.07 million was attributed from our garment manufacturing segment for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Income (loss) from operations of $25,724approximately $0.005 million and $26,027$0.001 million was attributed from our logistic servicelogistics services segment for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively. LossIncome from operations of $(3,384,835)approximately $0.06 million was attributed from our newly developed property management and subleasing business. Income from operations of nil and approximately $0.4 million was attributed from our epidemic prevention supplies segment for the three months ended SeptemberJune 30, 2020.2021 and 2020, respectively. We incurred a loss from operations in corporate office of $(209,766)approximately $0.1 million and $(318,712)$0.3 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, 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 SeptemberJune 30, 2021 and 2020 was approximately $0.01 million and 2019 was $4,053 and $852,$0.003 million, respectively, a 375.6%two times increase compared to 2019.2020. 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 SeptemberJune 30, 20202021 and 2019.2020.
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 SeptemberJune 30, 20202021 and 2019.2020.
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 2020.2021. 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 ana 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 SeptemberJune 30, 20202021 and 2019.2020.
Net LossIncome
We incurred a net lossincome of $3,460,525approximately $0.08 million and $321,925$0.2 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Our basic and diluted lossearnings per share were $(0.14)$0.00 and $(0.00)$0.01 for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
RELATED PARTY TRANSACTIONS
The Company leases Shenzhen XKJ office rent-free from Bihua Yang.
In September, the Company disposed of $114,229 aged inventories in HSW to Mr. Jinlong Huang at cost with no gain or loss recognized.
The Company had the following related party balances as of September 30, 2020 and March 31, 2020:
| Amounts due to related parties | September 30, 2020 | March 31, 2020 | ||||||
| Zhida Hong | $ | 5,327,512 | $ | 5,043,489 | ||||
| Bihua Yang | 167,095 | - | ||||||
| Zhongpeng Chen | 167,262 | 160,427 | ||||||
| Dewu Huang | 135,630 | 81,287 | ||||||
| Jinlong Huang | 162,084 | 144,237 | ||||||
| $ | 5,959,583 | $ | 5,429,440 | |||||
The balances with related parties are unsecured, non-interest bearing and repayable on demand.
Results of Operations for the six months ended September 30, 2020 and 2019
The following tables summarize our results of operations for the six months ended September 30, 2020 and 2019. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report.
| Six months Ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 17,602,512 | 100.0 | % | $ | 4,154,494 | 100 | % | $ | 13,448,018 | 323.7 | % | ||||||||||||
| Cost of revenues | (19,825,963 | ) | (112.6 | )% | (3,475,643 | ) | (83.7 | )% | (16,350,320 | ) | (470.4 | )% | ||||||||||||
| Gross profit | (2,223,451 | ) | (12.6 | )% | 678,851 | 16.3 | % | (2,902,302 | ) | (427.5 | )% | |||||||||||||
| Operating expenses | (1,081,038 | ) | (6.1 | )% | (1,341,960 | ) | (32.3 | )% | 260,921 | 19.4 | % | |||||||||||||
| (Loss) Income from operations | (3,304,489 | ) | (18.8 | )% | (663,109 | ) | (15.3 | )% | (2,641,381 | ) | (398.3 | )% | ||||||||||||
| Other income, net | 61,216 | 0.3 | % | (10,820 | ) | (0.3 | )% | 72,035 | 665.8 | % | ||||||||||||||
| Net finance cost | (5,940 | ) | (0.0 | )% | (12,280 | ) | (0.3 | )% | 6,345 | 51.6 | % | |||||||||||||
| Income tax expense | (7,412 | ) | (0.0 | )% | (3,064 | ) | (0.1 | )% | (4,348 | ) | (141.9 | )% | ||||||||||||
| Net income (loss) | $ | (3,256,625 | ) | (18.5 | )% | $ | (689,273 | ) | (16.6 | )% | $ | (2,567,352 | ) | (372.5 | )% | |||||||||
Revenue
Revenue generated from our garment business contributed $2,898,061 or 16.5% of our total revenue for the six months ended September 30, 2020. Revenue generated from our garment business contributed $873,448 or 21.0% of our total revenue for the six months ended September 30, 2019. The increase of $2.0 million was mainly because revenue in production capacity increased from newly setup subsidiary YBY.
Revenue generated from our logistic business contributed $2,840,384 or 16.1% of our total revenue for the six months ended September 30, 2020. Revenue generated from our logistic business contributed $3,281,046 or 79.0% of our total revenue for the six months ended September 30, 2019. The decrease mainly due to COVID-19, we cannot smoothly go through the logistics business.
Revenue generated from our epidemic prevention supplies business contributed $11,864,067, or 67.4% of our total revenue for the six months ended September 30, 2020. This is a new business developed in the current period. It included revenue from trading of merchandise and revenue from sales of our own products. The revenue from trading of merchandise was $11,791,672, representing 99.4% of total revenue from the epidemic prevention suppliers business.
Total revenue for the six months ended September 30, 2020 and 2019 were $17,602,512 and $ 4,154,494, respectively, a 323.7% increase compared with the six months ended September 30, 2019. The increase was mainly because the increase of garment production capacity in newly setup subsidiaries, DT and YBY, and the epidemic prevention supplies business newly developed in current period.
Cost of revenue
| Six months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Net revenue for garment | $ | 2,898,061 | 100.0 | % | $ | 873,448 | 100 | % | $ | 2,024,613 | 231.8 | % | ||||||||||||
| Raw materials | 2,088,499 | 72.1 | % | 605,053 | 69.3 | 1,483,446 | 245.2 | % | ||||||||||||||||
| Labor | 562,873 | 19.4 | % | 100,913 | 11.6 | 461,960 | 457.8 | % | ||||||||||||||||
| Other and Overhead | 14,172 | 0.5 | % | 32,058 | 3.7 | (17,886 | ) | (55.8 | )% | |||||||||||||||
| Total cost of revenue for garment | 2,665,543 | 92.0 | % | 738,024 | 84.5 | % | 1,927,519 | 261.2 | % | |||||||||||||||
| Gross profit for garment | 232,518 | 8.0 | % | 135,424 | 15.5 | % | 97,094 | 71.7 | % | |||||||||||||||
| Net revenue for logistic service | 2,840,384 | 100.0 | % | 3,281,046 | 100 | % | (440,662 | ) | (13.4 | )% | ||||||||||||||
| Fuel, toll and other cost of logistic service | 885,185 | 31.2 | % | 921,287 | 28.1 | % | (36,102 | ) | (3.9 | )% | ||||||||||||||
| Subcontracting fees | 1,490,462 | 52.5 | % | 1,816,332 | 55.4 | % | (325,870 | ) | (17.9 | )% | ||||||||||||||
| Total cost of revenue for logistic service | 2,375,647 | 83.6 | % | 2,737,619 | 83.4 | % | (361,972 | ) | (13.2 | )% | ||||||||||||||
| Gross Profit for logistic service | 464,737 | 16.4 | % | 543,427 | 16.6 | % | (78,690 | ) | (14.5 | )% | ||||||||||||||
| Net revenue for epidemic prevention supplies | $ | 11,864,067 | 100 | % | $ | - | - | % | $ | 11,864,067 | N/A | |||||||||||||
| Merchandise/Finished goods/Raw materials | 14,680,253 | 123.7 | % | - | - | % | 14,680,253 | N/A | ||||||||||||||||
| Labor | 64,946 | 0.5 | % | - | - | % | 64,946 | N/A | ||||||||||||||||
| Other and Overhead | 39,574 | 0.3 | % | - | - | % | 39,574 | N/A | ||||||||||||||||
| Total cost of revenue for epidemic prevention supplies | 14,784,773 | 124.6 | % | - | - | % | 14,784,773 | N/A | ||||||||||||||||
| Gross profit for epidemic prevention supplies | (2,920,706 | ) | (24.6 | )% | - | - | (2,920,706 | ) | N/A | |||||||||||||||
| Total cost of revenue | $ | 19,825,963 | 112.6 | % | $ | 3,475,643 | 83.7 | % | $ | 16,350,320 | 470.4 | % | ||||||||||||
| Gross profit | $ | (2,223,451 | ) | (12.6 | )% | $ | 678,851 | 16.3 | % | $ | (2,902,302 | ) | 427.5 | % | ||||||||||
| 10 |
For our garment business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Aggregate purchases from our five largest raw material suppliers represented approximately 97.2% and 74.5% of raw materials purchases for the six months ended September 30, 2020 and 2019, respectively. One and two suppliers provided more than 10% of our raw materials purchases for both six months ended September 30, 2020 and 2019, respectively. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.
Raw material costs for our garment business were 72.1% of our total garment business revenue in the six months ended September 30, 2020, compared with 69.3% in the six months ended September 30, 2019. The increased in percentages was mainly due to the purchase cost of the raw materials as the continuing high demand from epidemic prevention supplies industry drove up the prices of cotton fabrics.
Labor costs for our garment business were 19.4% of our total garment business revenue in the six months ended September 30, 2020, compared with 11.6% in the six months ended September 30, 2019. The increase in percentages was mainly due to the rising wages in the PRC.
Overhead and other expenses for our garment business accounted for 0.5% of our total garment business revenue for the six months ended September 30, 2020, compared with 3.7% of total garment business revenue for the six months ended September 30, 2019.
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 33.6% and 17.0% of total cost of revenues for our service segment for the six months ended September 30, 2020 and 2019, respectively. The percentage increased as we used the good suppliers after evaluation of suppliers’ performance. We have not experienced any disputes with our subcontractor and we believe we maintain good relationships with our contract logistic service provider.
Fuel, toll and other costs for our service business for the six months ended September 30, 2020 were $885,185 compared with $921,287 for the six months ended September 30, 2019. Fuel, toll and other costs for our service business accounted for 31.2% of our total service revenue for the six months ended September 30, 2020, compared with 28.1% for the six months ended September 30, 2019. The increase in percentages was primarily attributable to decrease of use of subcontractors under the epidemic circumstance.
Subcontracting fees for our service business for the six months ended September 30, 2020 decreased 17.9% to $1,490,462 from $1,816,332 for the six months ended September 30, 2019. Subcontracting fees accounted for 52.5% and 55.4% of our total service business revenue in the six months ended September 30, 2020 and 2019, respectively. This decrease in percentages was primarily because the Company used less subcontractors under the epidemic circumstance.
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 cost of merchandise was $14,680,253, represented 123.7% of total cost of revenue of the epidemic prevention supplies business.
Total cost of revenue for the six months ended September 30, 2020 was $19,825,963, compared with the amount of $3,475,643 for the six months ended September 30, 2019. Total cost of sales as a percentage of total sales for the six months ended September 30, 2020 was 112.6%, compared with 83.7% for the six months ended September 30, 2019. Gross (loss) margin for the six months ended September 30, 2020 was (12.6)% compared with 16.3% for the six months ended September 30, 2019.
Gross profit
Gross profit of Garment business for the six months ended September 30, 2020 was $232,518 compared with $135,424 for the six months ended September 30, 2019. Gross profit accounted for 8.0% of our total Garment business revenue for the six months ended September 30, 2020, compared with 15.5% for the six months ended September 30, 2019. The decrease of gross margin was due to increase of raw materials cost and labor cost.
Gross profit in our logistic service business for the six months ended September 30, 2020 was $464,737 and gross margin was 16.4%. Gross profit in our logistic service business for the six months ended September 30, 2019 was $543,427 and gross margin was 16.6%.
Gross loss in our epidemic prevention supplies business for the six months ended September 30, 2020 was $(2,920,706) and gross margin was (24.6)%. The large lost was mainly because the cost of materials increased significantly and rapidly while the selling price was fixed in the sales agreement with the customers.
| Six months ended September 30, | Increase (decrease) in | |||||||||||||||||||||||
| 2020 | 2019 | 2020 compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Gross profit | $ | (2,223,451 | ) | 100 | % | $ | 678,851 | 100 | % | (2,902,302 | ) | (427.5 | )% | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | (159,033 | ) | (7.2 | )% | (10,866 | ) | (1.6 | )% | (148,167 | ) | (1363.6 | )% | ||||||||||||
| General and administrative expenses | (922,005 | ) | (41.5 | )% | (1,331,093 | ) | (196.1 | )% | 409,088 | 30.7 | % | |||||||||||||
| Total | $ | (1,081,038 | ) | (48.6 | )% | $ | (1,341,959 | ) | (197.7 | )% | 260,921 | 19.4 | % | |||||||||||
| Income (Loss) from operations | $ | (3,304,489 | ) | (148.6 | )% | $ | (663,108 | ) | (97.7 | )% | (2,641,381 | ) | (398.3 | )% | ||||||||||
Selling, General and administrative expenses
Our selling expenses in our Garment business segment for the six months ended September 30, 2020 and 2019 was $1,723 and $10,866, respectively. Our selling expenses in our logistic service segment was $nil for the six months ended September 30, 2020 and 2019, respectively. Selling expenses in our epidemic prevention supplies segment was $157,311 for the six months ended September 30, 2020. Selling expenses consist primarily of local transportation, unloading charges and product inspection charges. Total selling expenses for the six months ended September 30, 2020 increased 1,363.6% to $159,033 from $10,866 for the six months ended September 30, 2019.
Our general and administrative expenses in our Garment business segment for the six months ended September 30, 2020 and 2019 was $88,950 and $95,023, respectively. Our general and administrative expenses in our logistic service segment, for the six months ended September 30, 2020 and 2019 was $429,453 and $535,711, respectively. Our general and administrative expenses in our epidemic prevention supplies segment was $18,429 for the six months ended September 30, 2020. Our general and administrative expenses in our corporate office for the six months ended September 30, 2020 and 2019 was $385,173 and $700,360, 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.
Total general and administrative expenses for the six months ended September 30, 2020 decreased 30.7% to $922,005 from $1,331,093 for the six months ended September 30, 2019. The amount was $409,088 higher in the six months ended September 30, 2019 was mainly due to the professional fees for Form S1 filing.
Income (loss) from operations
Loss from operations for the six months ended September 30, 2020 and 2019 was $(3,304,489) and $(663,108), respectively. Income from operations of $141,518 and $29,535 was attributed from our garment segment for the six months ended September 30, 2020 and 2019, respectively. Income (loss) from operations of $35,284 and $7,716 was attributed from our logistic service segment for the six months ended September 30, 2020 and 2019, respectively. Loss from operations of $(3,096,118) was attributed from our epidemic prevention supplies segment for the six months ended September 30, 2020. We incurred a loss from operations in corporate office of $(385,173) and $(700,360) for the six months ended September 30, 2020 and 2019, 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 six months ended September 30, 2020 and 2019 was $7,412 and $3,064, respectively, a 141.9% increase compared to 2019. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
The tax jurisdiction and income tax rate of each entity was described in the above section of analysis of three months’ results. Addentax, Yingxi, Yingxi HK, QYTG, YX, HSW, HPF and YS had no taxable income for the six months ended September 30, 2020 and 2019.
Net Income (Loss)
We incurred a net loss of $3,256,625 and $689,273 for the six months ended September 30, 2020 and 2019, respectively. Our basic and diluted loss per share were $(0.13) and $(0.00) for the six months ended September 30, 2020 and 2019, respectively.
Summary of cash flows
Summary cash flows information for the sixthree months ended SeptemberJune 30, 20202021 and 20192020 is as follow:
| Six months ended September 30, | Three months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| (In U.S. dollars) | (In U.S. dollars) | |||||||||||||||
| Net cash used in operating activities | $ | (3,062,555 | ) | $ | (881,868 | ) | ||||||||||
| Net cash (used in) provided by operating activities | $ | (1,250,664 | ) | $ | 798,391 | |||||||||||
| Net cash used in investing activities | $ | (379,393 | ) | $ | (95,445 | ) | $ | (104,235 | ) | $ | (143,148 | ) | ||||
| Net cash provided by financing activities | $ | 4,073,950 | $ | 969,330 | $ | 485,962 | $ | 360,386 | ||||||||
Net cash used in operating activities consistin the three months ended June 30, 2021 was approximately $2.1 million more than that of the three months ended June 30, 2020. It was mainly because the net lossincome of $3,256,625, increased by depreciation and amortizationthe three months ended June 30, 2021 was approximately $0.1 million less than the net income of $78,079, loss on disposal of property and equipment of $32,988, and increase in changethe three months ended June 30, 2020. The movement of operating assets and liabilities of $83,003.the three months ended June 30, 2021 resulted in negative cash flow of approximately $1.4 million, while the movement of operating assets and liabilities of the three months ended June 30, 2020 resulted in positive cash inflow of approximately $0.6 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.
| 11 |
Net cash used in investing activities consistfor the three months ended June 30, 2021 was approximately $0.04 million less than that of the three months ended June 30, 2020. It was mainly because the purchase of plant and equipment of $400,585 and proceeds from disposalother assets in the three months ended June 30, 2021 was approximately $0.04 million less than the purchase of plant and equipment of $21,192.in the three months ended June 30, 2020.
Net cash provided by financing activities consist of repayment offor the three months ended June 30, 2021 was approximately $0.1 million more than the three months ended June 30, 2020. It was mainly because the net proceeds from related party borrowings of $5,621,945 and we received related party proceeds of $6,079,859; Repayment of bank loan of $205,850 and draw down of new bank loan of $86,886; Proceeds of $3,735,000 from subscription of ordinary shares offered to a shareholder.increased approximately $0.1 million.
Financial Condition, Liquidity and Capital Resources
As of SeptemberJune 30, 2020,2021, we had cash on hand of $1,178,394,approximately $1.0 million, total current assets of $4,282,093approximately $10.1 million and current liabilities of $8,326,031.approximately $14.7 million. We presently finance our operations primarily from cash flows from borrowings from related parties and third parties. We also raised equity fund of $3,735,000 by issuance of common stocks in August 2020. 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 the 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 SeptemberJune 30, 2020,2021, the market foreign exchange rate had decreased to RMB 6.796.46 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) gainloss for the three and six months ended SeptemberJune 30, 2021 and 2020 was approximately $0.03 million and 2019 was $(83,969) and $72,153, (88,151) and $49,162,$0.004 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 SeptemberJune 30, 20202021 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2020.2021. 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.
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.
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.
In August 2020, the Company offered 747,000 common stocks to an individual investor. The subscription price was $5.00 per share. The new offer is under process of registration. The proceeds were all received in August 2020 and all used for development of the business including purchase of epidemic prevention products and payment of corporate expense.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
There is no other information required to be disclosed under this item, which was not previously disclosed.
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.
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: | By: | /s/ Hong Zhida |
| Hong Zhida | ||
| President, Chief Executive Officer and Director, | ||
| (Principal Executive Officer) | ||
| Date: | By: | /s/ Huang Chao |
| Huang Chao | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||