ADDENTAX GROUP CORP. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the three months ended June 30, 2023 and 2022 should be read in conjunction with the Financial Statements and corresponding notes included in this Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements. Overview Our Business We (Addentax Group Corp.) are a Nevada holding company with no material operations of our own. We conduct substantially all of our operations through our operating companies established in the PRC, primarily Shenzhen Qianhai Yingxi Industrial Chain Service Co., Ltd. (“YX”), our wholly owned subsidiary and its subsidiaries. We are not a Chinese operating company. We are a holding company and do not directly own any substantive business operations in China. Therefore, our investors will not directly hold any equity interests in our operating companies. Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our operating structure, which would likely result in a material change in our operations and/or the value of our common stock, including that it could cause the value of such securities to significantly decline or become worthless. Our holding company, Addentax Group Corp., is listed on the Nasdaq Capital Market under the symbol “ATXG”. We classify our businesses into three segments: garment manufacturing, logistics services, property management and subleasing. Unless the context otherwise requires, all references in this annual report to “ Addentax ” refer to Addentax Group Corp., a holding company, and references to “ we, ” “ us, ” “ our, ” the “ Registrant ”, the “ Company, ” or “ our company ” refer to Addentax and/or its consolidated subsidiaries. Addentax Group Corp., our Nevada holding company, is the entity in which our investors are investing. Our subsidiaries include (i) Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles company; (ii) Yingxi Industrial Chain Investment Co., Ltd., a Hong Kong company (“Yingxi HK”); (iii) Qianhai Yingxi Textile & Garments Co., Ltd., a PRC company; (iv) Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd, a PRC company (“YX”), (v) Dongguan Heng Sheng Wei Garments Co., Ltd, a PRC company (“HSW”), (vi) Dongguan Yushang Clothing Co., Ltd, a PRC company (“YS”), (vii) Shantou Yi Bai Yi Garment Co., Ltd, a PRC company (“YBY”), (viii) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (ix) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (x) Shenzhen Yingxi Tongda Logistic Co., Ltd, a PRC company (“TD”), (xi) Dongguan Yingxi Daying Commercial Co., Ltd., a PRC company (“DY”), (xii) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (xiii) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”). “ PRC Subsidiaries ” refer to, collectively, (i) Qianhai Yingxi Textile & Garments Co., Ltd.; (ii) Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), (iii) Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), (iv) Dongguan Yushang Clothing Co., Ltd (“YS”); (v) Shantou Yi Bai Yi Garment Co., Ltd (“YBY”); (vi) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (vii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (viii) Shenzhen Yingxi Tongda Logistic Co., Ltd, a PRC company (“TD”), (ix) Dongguan Yingxi Daying Commercial Co., Ltd., a PRC company (“DY”), (x) Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd, a PRC company (“ZHJ”), and (xi) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”). In February 2023, the Company disposed DY to an independent third party respectively. “ WFOE ” refers to Qianhai Yingxi Textile & Garments Co., Ltd, a wholly foreign owned enterprise in China, which is indirectly wholly owned by Addentax Group Corp. Our garment manufacturing business consists of sales made principally to wholesaler located in the PRC. We have our own manufacturing facilities, with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards and timely meet the delivery requirements for our customers. We conduct our garment manufacturing operations through five wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Dongguan Yushang Clothing Co., Ltd (“YS”), Shantou Yi Bai Yi Garment Co., Ltd (“YBY”), Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd (“ZHJ”), and Dongguan Aotesi Garments Co., Ltd., (“AOT”) , which are located in the Guangdong province, China. Our logistics business consists of delivery and courier services covering 86 cities in 11 provinces and 3 municipalities in China. Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through three wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”), Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”) and Shenzhen Yingxi Tongda Logistic Co., Ltd (“TD”), which are located in the Guangdong province, China. Our property management and subleasing business provides shops subleasing and property management services for garment wholesalers and retailers in the garment market. We conduct our property management and subleasing operation through a wholly owned subsidiary, namely Dongguan Yingxi Daying Commercial Co., Ltd. (“DY”), which is located in the Guangdong province, China. In February 2023, the Company disposed of DY to an independent third party at fair value, which was also its carrying value as of February 28, 2023. The business operations, customers and suppliers of DY were retained by the Company; therefore, the disposition of the subsidiary did not qualify as discontinued operations. 3 Business Objectives Garment Manufacturing Business We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit. Logistics Services Business The business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of June 30, 2023, we provide logistics services to over 79 cities in approximately seven provinces and two municipalities. We expect to develop an additional 20 logistics points in existing serving cities and improve the Company’s profit by the year end of 2023. 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%. In February 2023, the Company disposed of DY to an independent third party at fair value, which was also its carrying value as of February 28, 2023. Seasonality of Business Our business is affected by seasonal trends, with higher levels of garment sales during our second and third quarters and higher logistics services revenue during our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistics services segment. Collection Policy Garment manufacturing business For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following their acknowledgement of receipt of goods. Logistics services business For logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registration of our receipt of packages. Property management and subleasing business For property management and subleasing business, we generally collect rental and management fees of the following month each month in advance. 4 Economic Uncertainty Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure. If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins, cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters. Despite the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow. Summary of Critical Accounting Policies We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operation involved could result in material changes to our financial position or results of operations under different conditions or using different assumptions. Estimates and Assumptions We regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. Revenue Recognition Revenue is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods and services in the contract; (ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. 5 The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery. For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules. Leases Lessee The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lessor As a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight line basis over the lease term. Recently issued accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. 6 Accounting for Convertible Instruments: In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements. Results of Operations for the three months ended June 30, 2023 and 2022 The following tables summarize our results of operations for the three months ended June 30, 2022 and 2021. 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, Changes in 2023 2023 2022 compared to 2022 (In U.S. dollars, except for percentages) Revenue $ 1,052,506 100.0 % $ 2,386,384 100 % $ (1,333,878 ) (55.9 )% Cost of revenues (815,597 ) (77.5 )% (1,929,700 ) (80.9 )% 1,114,103 57.7 % Gross profit 236,909 22.5 % 456,684 19.1 % (219,775 ) (48.1 )% Operating expenses (497,858 ) (47.3 )% (410,582 ) (17.2 )% (87,276 ) (21.3 )% (Loss) Income from operations (260,949 ) (24.8 )% 46,102 1.9 % (307,051 ) 666.0 % Other income, net 112,486 10.7 % 51,083 2.2 % 61,403 120.2 % Fair value gain or loss (1,288,003 ) - - (1,288,003 ) Net finance cost (1,290,991 ) (122.7 )% 780 (0.1 )% (1,291,771 ) 52492.1 % Income tax expense (1,264 ) (0.1 )% (1,294 ) (0.1 )% 30 2.3 % Net (loss) income $ (2,728,721 ) (259.3 )% $ 96,671 4.1 % $ (2,825,392 ) 2922.7 % Revenue Total revenue for the three months ended June 30, 2023 decreased significantly by approximately $1.3 million, or 55.9%, as compared with the three months ended June 30, 2022. The significant decrease was mainly because of the decrease of $0.4 million in logistics services and $0.9 million in property management and subleasing business. Revenue generated from our garment manufacturing business contributed approximately $0.05 million or 5.1% of our total revenue for the three months ended June 30, 2023. Revenue generated from garment manufacturing business contributed approximately $0.04 million or 1.7% of our total revenue for the three months ended June 30, 2022, respectively. The low level of sales was mainly due to factory facilities renewal and repair, remaining factories cannot provide the same capacity as previously. We estimate the capacity will appear to recover at second quarter of for the fiscal year ending 2024. 7 Revenue generated from our logistics services business contributed approximately $1.0 million or 94.9% of our total revenue for the three months ended June 30, 2023. Revenue generated from our logistic business contributed approximately $1.4 million or 58.3% of our total revenue for the three months ended June 30, 2022. Revenue generated from our property management and subleasing business was nil for the three months ended June 30, 2023. The revenue from this business segment was $0.9 million or 40.0% of our total revenue of this business for the three months ended June 30, 2022. Cost of revenue Three months ended June 30, Increase (decrease) in 2023 2022 2023 compared to 2022 (In U.S. dollars, except for percentages) Net revenue for garment manufacturing $ 53,873 100.0 % $ 40,426 100 % $ 13,447 33.3 % Raw materials 26,377 49.0 % 27,952 69.1 % (1,575 ) (5.6 )% Labor 17,273 32.0 % 8,544 21.1 % 8,729 ) 102.2 % Other and Overhead 2,670 5.0 % 579 1.4 % 2,091 361.1 % Total cost of revenue for garment manufacturing 46,320 86.0 % 37,075 91.7 % 9,245 24.9 % Gross profit for garment manufacturing 7,553 14.0 % 3,351 8.3 % 4,202 125.4 % 0 Net revenue for logistics services 998,633 100.0 % 1,390,882 100.0 % (392,249 ) (28.2 )% Fuel, toll and other cost of logistics services 482,788 48.3 % 602,584 44.3 % (119,796 ) (19.9 )% Subcontracting fees 286,489 28.7 % 441,196 31.7 % (154,707 ) (35.1 )% Total cost of revenue for logistics services 769,277 77.0 % 1,043,780 75.0 % (274,503 ) (26.3 )% Gross Profit for logistics services 229,356 23.0 % 347,102 25.0 % (117,746 ) (33.9 )% 0 Net revenue for property management and subleasing - 0 % 954,835 100.0 % (954,835 ) 100.0 % Total cost of revenue for property management and subleasing - 0 % 848,451 88.9 % (848,451 ) 100.0 % Gross Profit for property management and subleasing - 0 % 106,384 11.1 % (106,384 ) 100.0 % Net revenue for epidemic prevention supplies $ - 0 % $ 241 100.0 % (241 ) 100.0 % Other and Overhead - 0 % 394 163.5 % (394 ) 100.0 % Total cost of revenue for epidemic prevention supplies - 0 % 394 163.5 % (394 ) 100.0 % Gross (loss) income for epidemic prevention supplies - 0 % (153 ) 63.5 % 153 100.0 % Total cost of revenue $ 815,597 77.5 % $ 1,929,700 80.9 % $ 1,114,103 57.7 % Gross profit $ 236,909 22.5 % $ 456,684 19.1 % $ (219,775 ) (48.1 )% 8 For our garment manufacturing business, we purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Raw material costs for our garment manufacturing business were approximately 49.0% of our total garment manufacturing business revenue for the three months ended June 30, 2023, as compared with 69.1% for the three months ended June 30, 2022. The decrease in percentages was mainly due to the purchase cost of the raw materials dropped. Labor costs for our garment manufacturing business was approximately 32.0% of our total garment manufacturing business revenue for the three months ended June 30, 2023, as compared with 21.1% for the three months ended June 30, 2022. The increase was mainly due to the rising wages in the PRC. Overhead and other expenses for our garment manufacturing business accounted for approximately 5.0% of our total garment business revenue for the three months ended June 30, 2023, as compared with 1.4% of total garment business revenue for the three months ended June 30, 2022. For our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately 37.2% and 35.6% of total cost of revenues for our service segment for the three months ended June 30, 2023 and 2022, respectively. The decreased was attributed to an increase usage of our own logistics as compared to the subcontractors during the COVID-19 epidemic. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services provider. Fuel, toll and other costs for our service business for the three months ended June 30, 2023 were approximately $0.5 million as compared with $0.6 million for the three months ended June 30, 2022. Fuel, toll and other costs for our service business accounted for approximately 48.3% of our total service revenue for the three months ended June 30, 2023, as compared with 44.3% for the three months ended June 30, 2022. The increase was primarily attributable to a decrease of usage of subcontractors during the COVID-19 epidemic. Subcontracting fees for our service business for the three months ended June 30, 2023 decreased approximately 35.1% to $0.3 million from $0.4 million for the three months ended June 30, 2022. Subcontracting fees accounted for 28.7% and 31.7% of our total service business revenue in the three months ended June 30, 2023 and 2022, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the COVID-19 epidemic. 9 For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The Company disposed of DY in February, 2023. Therefore, there was no revenue from this segment in the quarter. Gross profit Garment manufacturing business gross profit for the three months ended June 30, 2023 was approximately $8,000, as compared with approximately $3,000 for the three months ended June 30, 2022. Gross profit accounted for 14.0% of our total garment manufacturing business revenue for the three months ended June 30, 2023, as compared to 8.3% for the three months ended June 30, 2022. Gross profit in our logistics services business for the three months ended June 30, 2023 was approximately $229,000 and gross margin was 23.0%. Gross profit in our logistics services business for the three months ended June 30, 2022 was approximately $347,000 and gross margin was 25.0%. The decrease of gross profit ratio was mainly because the Company did not generate as many orders as before but the operating expenses is fixed which caused a decrease in gross profit. Gross profit in our property management and subleasing business for the three months ended June 30, 2023 was nil. It was approximately $106,000, or 11.1% for the three months ended June 30, 2022. Three months ended June 30, Increase (decrease) in 2023 2022 2023 compared to 2022 (In U.S. dollars, except for percentages) Gross profit $ 236,909 100 % $ 456,684 100 % (219,775 ) (48.1 )% Operating expenses: Selling expenses - - (5,642 ) (1.2 )% 5,642 100.0 % General and administrative expenses (497,858 ) (210.1 )% (404,940 ) (88.7 )% 92,918 22.9 % Total $ (497,858 ) (210.1 )% $ (410,582 ) (89.9 )% 87,276 21.3 % (Loss) Income from operations $ (260,949 ) (110.1 )% $ 46,102 10.1 % (307,051 ) (666.0 )% Selling, General and administrative expenses Our selling expenses were mainly incurred for our property management and subleasing business. It was nil and approximately $6,000 for the three months ended June 30, 2023 and 2022, respectively. Selling expenses consisted primarily of advertisement, local transportation, unloading charges and product inspection charges. Our general and administrative expenses in our garment manufacturing business segment for the three months ended June 30, 2023 and 2022 was both approximately $32,000, respectively. Our general and administrative expenses in our logistics services segment for the three months ended June 30, 2023 and 2022 was both approximately $227,000, respectively. The general and administrative expenses in our property management and subleasing business was approximately nil and $67,000 for the three months ended June 30, 2023 and 2022, respectively. Our general and administrative expenses in our corporate office for the three months ended June 30, 2023 and 2022 was approximately $241,000 and $79,000, respectively. General and administrative expenses consisted primarily of administrative salaries, office expense, certain depreciation and amortization charges, repairs and maintenance, legal and professional fees, warehousing costs and other expenses that are not directly attributable to our revenues. 10 Total general and administrative expenses for the three months ended June 30, 2023 increased by approximately 22.9% to $498,000 from $405,000 for the three months ended June 30, 2022. (Loss) Income from operations Loss from operations for the three months ended June 30, 2023 was approximately $261,000, while income from operations for the three months ended June 30, 2022 was $46,000. Loss from operations of approximately $22,000 and $29,000 for the three months ended June 30, 2023 and 2022 was attributed from our garment manufacturing segment, respectively. Income from operations of approximately $2,000 and $120,000 was attributed from our logistics services segment for the three months ended June 30, 2023 and 2022, respectively. Income from operations of approximately nil and $34,000 for the three months ended June 30, 2023 and 2022 was attributed from our property management and subleasing business, respectively. We incurred expenses from operations in corporate office of approximately $241,000 and $79,000 for the three months ended June 30, 2023 and 2022, respectively. The increase of expenses 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 June 30, 2023 and 2022 was both approximately $1,000, respectively. 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 June 30, 2023 and 2022. 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 June 30, 2023 and 2022. 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 2023. The preferential tax rates will be expired at end of 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, 2023 and 2022. Net Income (Loss) We incurred net loss of approximately $2.7 million for the three months ended June 30, 2023 and a net income of approximately $0.1 million for the three months ended June 30, 2022. Our basic and diluted earnings per share were ($0.83) and $0.00 for the three months ended June 30, 2023 and 2022, respectively. 11 Summary of cash flows Summary cash flows information for the three months ended June 30, 2023 and 2022 is as follow: Three months ended June 30, 2023 2022 (In U.S. dollars) Net cash provided by (used in) operating activities $ (1,110,878 ) $ 278,018 Net cash provided by financing activities $ 969,784 $ 615,848 Net cash (used in) provided by operating activities in the three months ended June 30, 2023 was approximately $1.4 million less than that of the three months ended June 30, 2022. It was mainly due to (i) net loss with adjustments to reconcile net loss to cash flow of $0.2 million for the three months ended June 30, 2023 compared to the net income after adjustments to cash flow of $0.1 million for the three months ended June 30, 2022, (ii) the movement of operating assets and liabilities of the three months ended June 30, 2023 resulted in cash outflow of approximately $0.93 million, while the movement of operating assets and liabilities of the three months ended June 30, 2022 resulted in cash inflow of approximately $0.14 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. Net cash provided by financing activities for the three months ended June 30, 2023 was approximately $0.4 million more than the three months ended June 30, 2022. It was mainly due to the release of restricted cash of approximately $1.6 million more than that of the three months ended June 30, 2022. Financial Condition, Liquidity and Capital Resources As of June 30, 2023, we had cash on hand of approximately $0.5 million, total current assets of approximately $37.2 million and current liabilities of approximately $3.1 million. We presently finance our operations from revenue, fund raising from our initial public offering proceeds and capital contributions from our chief executive officer, Mr. Hong Zhida (the “CEO”). In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing. Foreign Currency Translation Risk Our operations are located in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In the past years, RMB continued to appreciate against the U.S. dollar. As of June 30, 2023, the market foreign exchange rate was RMB 7.25 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation gain (loss) for the three months ended June 30, 2023 and 2022 was approximately $0.09 million and $0.11 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 June 30, 2023 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. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to smaller reporting companies.