UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended: June 30, December 31, 2022

For the transition period from _____________ to _________________

Commission File No. 333-206097

ADDENTAX GROUP CORP.

(Exact name of registrant as specified in its charter)

Kingkey 100, Block A, Room 4805,

Luohu District, Shenzhen City, China 518000

(Address of principal executive offices)

+ (86) 755 86961 405

(Registrant’s telephone number)

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

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

☒ Yes ☐ No

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

☒ Yes ☐ No

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

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

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

As of August 15, 2022,February 14, 2023, there were 26,093,00435,454,670 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

ADDENTAX GROUP CORP.

FINANCIAL STATEMENTS

For the threenine months ended June 30,December 31, 2022 and 2021 and 2020

TABLE OF CONTENTS

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

See accompany notes to the unaudited condensed consolidated financial statements.

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

See accompany notes to the unaudited condensed consolidated financial statements.

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

See accompany notes to the unaudited condensed consolidated financial statements.

ADDENTAX GROUP CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

See accompany notes to the unaudited condensed consolidated financial statements.

ADDENTAX GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND BUSINESS ACQUISITIONS

ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services and 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on June 23, 2022 (“2022 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.

The Company incurred net income of $96,671and $78,947for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and March 31, 2022, the Company had net current liability of $4,240,999and $4,703,213, respectively, and total equity of $130,453and a deficit on total equity of $71,367, respectively.

The Company expects to finance operations primarily through cash flow from revenue, capital contributions from the CEO and proceeds from proposed IPO. 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.

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

There is no change on the accounting policies for the three months ended June 30,December 31, 2022.

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.

4.RELATED PARTY TRANSACTIONS

 SCHEDULE OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY

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

The Company had the following related party balances as of June 30,December 31, 2022 and March 31, 2022:

SCHEDULE OF RELATED PARTIESPARTY TRANSACTION

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

5.DEBT SECURITIES HELD-TO-MATURITY

SCHEDULE OF DEBT SECURITIES HELD TO MATURITY

The Company purchased a note issued by a third-party investment company on August 24, 2022. The principal amount of the note is $17,500,000. The note was renewable with one-year tenor and 2.5% p.a. coupon.

6. INVENTORIES

Inventories consist of the following as of June 30,December 31, 2022 and March 31, 2022:

SCHEDULE OF INVENTORIES

6.7. 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.

7.8. PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consist of the following as of June 30,December 31, 2022 and March 31, 2022:

 SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES

8.9. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following as of June 30,December 31, 2022 and March 31, 2022:

SCHEDULE OF PROPERTY PLANT AND EQUIPMENT

Depreciation expense for the three and nine months ended June 30,December 31, 2022 and 2021 was $35,88333,817 and $33,98644,164, $102,649 and $115,561, respectively.

9.10. 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,December 31, 2022, the Company has borrowed $142,591138,265 (RMB955,281) (March 31, 2022: $151,090) under this line of credit with various annual interest rates from 4.844.84%% to 4.94.9%%. The outstanding loan balance was due on September 30, 2021.December 31, 2021. The Company was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable.

10.11. INCOME TAXES

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, and is not subject to income taxes. It’s wholly owned subsidiary of Addentax Group Corp.

Yingxi HK (Yingxi Industrial Chain Investment Co., Ltd.) was incorporated in Hong Kong which is indirectly wholly owned by Addentax Group Corp., and is subject to Hong Kong income tax at a progressive rate of 16.516.5%%. No provision for income taxes in Hong Kong hashave been made as Yingxi HK had no taxable income for the three and nine months ended June 30,December 31, 2022 and 2021.

YX, our wholly owned subsidiary, were incorporated in the PRC and is subject to the EIT tax rate of 2525%%. No provision for income taxes in the PRC hashave been made as YX had no taxable income for the three and nine months ended June 30,December 31, 2022 and 2021.

The Company is governed by the Income Tax Laws of the PRC. All Yingxi’s operating companies were subject to progressive EIT rates from 55%% to 1515%% in 2022 and 2021. The preferential tax rate will be expired at end of year 2022 and the EIT rate will be 25% from year 20232023..

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 hashave been made as Addentax Group Corp. had no United States taxable income for the three and nine months ended June 30,December 31, 2022 and 2021.

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

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 1313%%, which is levied on the invoiced value of sales and is payable by the purchaser. The subsidiaries HSW, YBY, OTX, ZHJ and YS enjoyed preferential VAT rate of 1313%%. 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 99%% under the relevant tax category for logistic company, except the branch of YXPF enjoyed the preferential VAT rate of 33%% in 2022 and 2021. 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.

11.12. 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 fourthree segments:

The Company also provides general corporate services to its segments and these costs are reported as “Corporate and others”.

The Company used to have an operating segment named “Epidemic prevention supplies”, which included manufacturing, distribution and trading of epidemic prevention supplies. As the COVID-19 pandemic is getting better, the Company ceased to operate in the Epidemic prevention supplies business at the beginning of the quarter. The remaining assets of the segment was reclassified into the “Corporate and others” segment. The corresponding items of segment information for the earlier periods was restated to reflect the change of the new segment structure.

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

Revenues by segment for the three and nine months ended June 30,December 31, 2022 and 2021 are as follows:

SCHEDULE OF SEGMENT REPORTING FOR REVENUE

Income (loss) from operations by segment for the three and nine months ended June 30,December 31, 2022 and 2021 are as follows:

SCHEDULE OF SEGMENT REPORTING FOR INCOME FROM OPERATION

Total assets by segment as at June 30,of December 31, 2022 and March 31, 2022 are as follows:

SCHEDULE OF SEGMENT REPORTING FOR ASSETS

Geographical Information

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

SCHEDULE OF GEOGRAPHICAL INFORMATION

Geographic Information

12.13. 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,December 31, 2022, with discounted rate of 4.754.75%%. 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 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 years with an option to extend the lease.

The Following table summarizes the components of lease expense:

SCHEDULE OF LEASE COST

The following table summarizes supplemental information related to leases:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

The following table summarizes the maturity of operating lease liabilities:

SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY

13.14. RISKS AND UNCERTAINTIES

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.

The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date, which was 6.6996.909 and 6.341 as of June 30,December 31, 2022 and March 31, 2022, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 6.6036.852 and 6.4616.466 for the threenine months ended June 30,December 31, 2022 and 2021, 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.

The followings are the percentages of accounts receivable balance of the top customers over accounts receivable for each segment as of June 30,December 31, 2022 and March 31, 2022.

SCHEDULE OF CONCENTRATION RISKS

Garment manufacturing segment

The high concentration as of June 30,December 31, 2022 was mainly due to business development of a large distributor of garments. Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.

Logistics services segment

Property management and subleasing segment

There is no account receivable for Property management and subleasing segment as forof both December 31, 2022 and March 31, 2022.

Epidemic prevention supplies segment

The accounts receivable of Epidemic prevention supplies segment as at June 30, 2022 was from one customer only.

For the three months ended June 30,December 31, 2022, one customer from Logisticslogistics services segment provided more than 10% of total revenue of the Company, represented 13.111.8%% of total revenue of the Company for the three months. For the nine months ended December 31, 2022, one customer from logistics services segment provided more than 10% of total revenue of the Company, represented 10.8% of total revenue of the Company for the nine months. For the three months ended June 30,December 31, 2021, no customer provided more than 10% of total revenue of the Company. For nine months ended December 31, 2021, one customer from garment segment provided more than 10% of total revenue of the Company, represented 98.824.8%% of total revenue of the Company for the threenine months.

Management believes that should the Company lose any one of its major customers, it was able to sell similar products to other customers.

The following tables summarized the purchases from five largest suppliers of each of the reportable segment for the three and nine months ended June 30,December 31, 2022 and 2021.

SCHEDULE OF PURCHASES FROM SUPPLIERS