ADDENTAX GROUP CORP. 10-Q

Item 1. Financial Statements and Supplementary Data ADDENTAX GROUP CORP. FINANCIAL STATEMENTS For the three and six months ended September 30, 2024 and 2023 TABLE OF CONTENTS Condensed Consolidated Balance sheets as of September 30, 2024 (unaudited) and March 31, 2024 (audited) F-2 Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended September 30, 2024 and 2023 (unaudited) F-3 Condensed Consolidated Statements of Changes in Equity for the three and six months ended September 30, 2024 and 2023 (unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2024 and 2023 (unaudited) F-5 Notes to Condensed Consolidated Financial Statements for the three and six months ended September 30, 2024 and 2023 (unaudited) F-6 – F-15 F- 1 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In U.S. Dollars, except share data or otherwise stated) (UNAUDITED) September 30, 2024 March 31, 2024 ASSETS CURRENT ASSETS Cash and cash equivalents $ 810,545 $ 816,186 Restricted cash 2,750,000 2,750,000 Accounts receivables, net 1,207,409 2,106,451 Debt securities held-to-maturity 17,500,000 17,500,000 Inventories 191,708 63,505 Prepayments and other receivables 1,667,814 1,922,996 Advances to suppliers 320,964 1,009,362 Amount due from related party 3,840,154 3,012,892 Total current assets 28,288,594 29,181,392 NON-CURRENT ASSETS Plant and equipment, net 491,706 568,854 Operating lease right of use asset 19,060,635 19,796,564 Long-term prepayments 291,027 291,938 Long-term receivables 2,500,000 2,500,000 Total non-current assets 22,343,368 23,157,356 TOTAL ASSETS $ 50,631,962 $ 52,338,748 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loan $ 465,067 $ 440,671 Accounts payable 79,364 359,488 Amount due to related parties 177,750 1,146,745 Advances from customers 243,717 202,567 Accrued expenses and other payables 417,273 1,372,962 Operating lease liability current portion 1,068,257 1,059,497 Total current liabilities 2,451,428 4,581,930 NON-CURRENT LIABILITIES Convertible debts 3,214,514 2,684,697 Derivative liabilities 949,791 287,955 Operating lease liability 19,226,050 18,737,066 Total non-current liabilities 23,390,355 21,709,718 TOTAL LIABILITIES $ 25,841,783 $ 26,291,648 EQUITY Common stock ($ 0.001 par value, 250,000,000 shares authorized, 6,043,769 and 5,383,769 shares issued and outstanding at September 30 and March 31, 2024, respectively) $ 6,044 $ 5,384 Additional paid-in capital 35,240,981 34,510,869 Accumulated Deficit ( 10,511,833 ) ( 8,569,190 ) Statutory reserve 37,020 37,020 Accumulated other comprehensive loss 17,967 63,017 Total equity 24,790,179 26,047,100 TOTAL LIABILITIES AND EQUITY $ 50,631,962 $ 52,338,748 See accompanying notes to the unaudited condensed consolidated financial statements. F- 2 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In U.S. Dollars, except share data or otherwise stated) Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 REVENUES $ 1,341,478 $ 1,335,314 $ 2,192,511 $ 2,387,820 COST OF REVENUES ( 1,012,837 ) ( 932,427 ) ( 1,661,275 ) ( 1,748,024 ) GROSS PROFIT 328,641 402,887 531,236 639,796 OPERATING EXPENSES Selling and marketing ( 22,351 ) ( 37,212 ) ( 161,711 ) ( 37,212 ) General and administrative ( 551,356 ) ( 670,607 ) ( 1,119,607 ) ( 1,168,465 ) Total operating expenses ( 573,707 ) ( 707,819 ) ( 1,281,318 ) ( 1,205,677 ) INCOME (LOSS) FROM OPERATIONS ( 245,066 ) ( 304,932 ) ( 750,082 ) ( 565,881 ) Fair value gain or loss ( 531,614 ) 2,854,595 ( 397,397 ) 1,566,592 Interest income 342 1,693 710 3,417 Interest expenses ( 58,045 ) ( 603,819 ) ( 905,727 ) ( 1,896,534 ) Other income, net 113,913 ( 581,900 ) 111,399 ( 469,414 ) (LOSS) INCOME BEFORE INCOME TAX EXPENSE ( 720,470 ) 1,365,637 ( 1,941,097 ) ( 1,361,820 ) INCOME TAX EXPENSE ( 1,062 ) ( 3,237 ) ( 1,546 ) ( 4,501 ) NET (LOSS) INCOME ( 721,532 ) 1,362,400 ( 1,942,643 ) ( 1,366,321 ) Foreign currency translation gain ( 59,460 ) 2,302 ( 45,050 ) 89,752 TOTAL COMPREHENSIVE INCOME (LOSS) $ ( 780,992 ) $ 1,364,702 $ ( 1,987,693 ) $ ( 1,276,569 ) EARNINGS PER SHARE Basic and diluted ( 0.13 ) 0.37 ( 0.36 ) ( 0.37 ) Weighted average number of shares outstanding – Basic and diluted 5,360,143 3,656,442 5,360,143 3,656,442 See accompanying 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) Retained earnings Accumulated Additional (accumulated deficit) other Common Stock paid-in Statutory comprehensive Total Shares Amount capital Unrestricted reserve loss Equity BALANCE AT JULY 1, 2023 3,739,581 $ 3,740 $ 32,406,317 $ ( 8,179,930 ) $ 28,457 $ 67,977 $ 24,326,561 Issuance of new shares 755,398 755 ( 755 ) - - - - Additional paid-in capital from conversion of convertible debts - - 1,153,366 - - - 1,153,366 Foreign currency translation - - - - - 2,302 2,302 Net income for the period - - - 1,362,400 - - 1,362,400 BALANCE AT SEPTEMBER 30, 2023 4,494,979 $ 4,495 $ 33,558,928 $ ( 6,817,530 ) $ 28,457 $ 70,279 $ 26,844,629 BALANCE AT JULY 1, 2024 6,043,769 $ 6,044 $ 35,157,009 $ ( 9,790,301 ) $ 37,020 $ 77,427 $ 25,487,199 Additional paid-in capital from conversion of convertible debts - - 83,972 - - - 83,972 Foreign currency translation - - - - - ( 59,460 ) ( 59,460 ) Net income for the period - - - ( 721,532 ) - - ( 721,532 ) BALANCE AT SEPTEMBER 30, 2024 6,043,769 $ 6,044 $ 35,240,981 $ ( 10,511,833 ) $ 37,020 $ 17,967 $ 24,790,179 BALANCE AT APRIL 1, 2023 35,454,670 $ 35,455 $ 29,528,564 $ ( 5,451,209 ) $ 28,457 $ ( 19,473 ) $ 24,121,794 Issuance of new shares before reversed split 1,940,750 1,941 ( 1,941 ) - - - - Reverse stock split ( 33,655,878 ) ( 33,656 ) 33,656 - - - - New shares for round up of fragmental shares 39 0 0 - - - - Issuance of new shares after reversed split 755,398 755 ( 755 ) - - - - Additional paid-in capital from conversion of convertible debts - - 3,999,404 - - - 3,999,404 Foreign currency translation - - - - - 89,752 89,752 Net income for the period - - - ( 1,366,321 ) - - ( 1,366,321 ) BALANCE AT SEPTEMBER 30, 2023 4,494,979 $ 4,495 $ 33,558,928 $ ( 6,817,530 ) $ 28,457 $ 70,279 $ 26,844,629 BALANCE AT APRIL 1, 2024 5,383,769 $ 5,384 $ 34,510,869 $ ( 8,569,190 ) $ 37,020 $ 63,017 $ 26,047,100 Balance 5,383,769 $ 5,384 $ 34,510,869 $ ( 8,569,190 ) $ 37,020 $ 63,017 $ 26,047,100 Issuance of new shares 660,000 660 646,140 - - - 646,800 Additional paid-in capital from conversion of convertible debts - - 83,972 - - - 83,972 Foreign currency translation - - - - - ( 45,050 ) ( 45,050 ) Net income for the period - - - ( 1,942,643 ) - - ( 1,942,643 ) BALANCE AT SEPTEMBER 30, 2024 6,043,769 $ 6,044 $ 35,240,981 $ ( 10,511,833 ) $ 37,020 $ 17,967 $ 24,790,179 Balance 6,043,769 $ 6,044 $ 35,240,981 $ ( 10,511,833 ) $ 37,020 $ 17,967 $ 24,790,179 See accompanying notes to the unaudited condensed consolidated financial statements. F- 4 ADDENTAX GROUP CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In U.S. Dollars, except share data or otherwise stated) Six Months Ended September 30 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 1,942,643 ) $ ( 1,366,321 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 365,733 146,106 Non-cash financial cost 878,228 1,884,984 Investment income 330,000 ( 218,750 ) Fair value gain or loss 397,398 ( 1,566,592 ) Loss on debts extinguishment - 697,318 Gain on bargain purchase - ( 975 ) Loss from sale of property and equipment 43,081 - Loss on disposal of subsidiary 334,135 - Changes in operating assets and liabilities Accounts receivable 489,599 ( 202,150 ) Inventories ( 137,062 ) 35,155 Advances to suppliers ( 50,236 ) ( 816,464 ) Other receivables ( 74,993 ) ( 76,100 ) Accounts payables ( 280,124 ) ( 12,460 ) Accrued expenses and other payables 134,732 ( 65,645 ) Advances from customers 41,150 ( 17,592 ) Net cash provided by (used in) operating activities $ 528,998 $ ( 1,579,486 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment and intangible assets ( 107,432 ) ( 5,274 ) Cash decreased in disposal of subsidiary ( 8,219 ) - Net cash used in investing activities $ ( 115,651 ) $ ( 5,274 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from related party borrowings 151,574 1,960,902 Repayment of related party borrowings ( 273,632 ) ( 3,112,467 ) Release of restricted cash - 3,850,000 Proceeds from bank borrowings 695,343 - Repayment of bank borrowings ( 683,638 ) - Cash advance to related parties ( 2,962,753 ) - Repayment from related parties 2,010,740 - Proceeds from issue of ordinary shares 646,800 - Net cash provided by (used in) financing activities $ ( 415,566 ) $ 2,698,435 NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH ( 2,219 ) 1,113,675 Effect of exchange rate changes on cash and cash equivalents ( 3,422 ) 67,889 Cash and restricted cash, beginning of the period 816,186 562,711 CASH AND RESTRICTED CASH, END OF THE PERIOD $ 810,545 $ 1,744,275 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 26,731 $ - Cash paid during the period for income tax $ 1,546 $ 4,501 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations $ 1,233,672 $ 19,512,400 See accompanying notes to the unaudited condensed consolidated financial statements. F- 5 ADDENTAX GROUP CORP. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS ACQUISITIONS ATXG and its subsidiaries (the “Company”) are engaged in the business of garments manufacturing, providing logistic services, property leasing and management service in the People’s Republic of China (“PRC” or “China”). 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 necessarily 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, 2024 filed with the Securities and Exchange Commission (“SEC”) on July 15, 2024 (“2023 Form 10-K”). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. 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 in the accounting policies for the six months ended September 30, 2024. Recently issued accounting pronouncements 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. F- 6 4. DISPOSITION OF SUBSIDIARIES The Company disposed of its subsidiary Shantou Yi Bai Yi Garment Co., Ltd, a PRC Company (“YBY”), a manufacturing company in garment manufacturing segment at end of August 2024 to the local management of YBY. After disposition, YBY became third party to the Company. The Company will not have any businesses with YBY. The Company will carry on the garment manufacturing segment business through other subsidiaries. The disposition of YBY did not qualify as discontinued operations. Financial position of the entities at disposal date and gain or loss on disposal: Garment Manufacturing Segment SCHEDULE OF FINANCIAL POSITION OF ENTITIES AND GAIN OR LOSS ON DISPOSAL Financial position of YBY August 31, 2024, date of disposal Current assets $ 1,165,329 Noncurrent assets 134 Current liabilities ( 863,205 ) Net assets $ 302,258 The consideration was Nil , with the reversal of related foreign currency translation reserve brought forward, resulting in a loss of $ 334,135 recognized on the disposal. 5. RELATED PARTY TRANSACTIONS SCHEDULE OF RELATED PARTIES RELATIONSHIP WITH COMPANY Name of Related Parties Relationship with the Company Zhida Hong President, CEO, and a director of the Company Hongye Financial Consulting (Shenzhen) Co., Ltd. A company controlled by CEO, Mr. Zhida Hong Bihua Yang A legal representative of XKJ Dewu Huang A legal representative of YBY, ceased to be related party at August 31, 2024 when YBY was disposed. Jinlong Huang Management of HSW The Company leases Shenzhen XKJ office rent-free from Bihua Yang. Hongye Financial Consulting (Shenzhen) Co., Ltd. provided guarantee to the consideration receivable of transfer of a debt security to a third party. The Company had the following related party balances as of September 30, 2024 and March 31, 2024: SCHEDULE OF AMOUNT DUE FROM RELATED PARTY Amount due from related party September 30, 2024 March 31, 2024 Zhida Hong (1) $ 2,847,417 $ 2,154,759 Bihua Yang (2) 992,737 858,133 Amount due from related party $ 3,840,154 $ 3,012,892 (1) The increase of related party from Hong Zhida was short term loan to Hong Zhida, which is interest free and would be repaid in one year. (2) The increase of related party debt from Yang Bihua was mainly due to the cash paid in advance to Yang Bihua. During the quarter ended September 30, 2024, the Company provided a short term loan of approximately $0.31 million to Yang Bihua and received repayment of approximately $0.30 million from him. SCHEDULE OF RELATED PARTIES BORROWINGS Related party borrowings September 30, 2024 March 31, 2024 Hongye Financial Consulting (Shenzhen) Co., Ltd. 40,527 170,967 Dewu Huang (3) - 864,599 Jinlong Huang 137,223 111,179 Related party borrowings $ 177,750 $ 1,146,745 (1) The increase of related party debt from Hong Zhida was short term loan to Hong Zhida, which is interest free and to be repaid in one year. (2) The increase of related party debt from Yang Bihua was mainly due to the cash paid in advance to Yang Bihua. During the quarter ended September 30, 2024, the Company provided a short term loan of approximately $ 0.31 million to Yang Bihua and received repayment of approximately $ 0.3 million from him. (3) The Company received financial support from Huang Dewu to fund company’s daily operation. The decrease is because YBY was disposed of in August 2024. The borrowing balances with related parties are unsecured, non-interest bearing and repayable on demand. F- 7 6. DEBT SECURITIES HELD-TO-MATURITY SCHEDULE OF DEBT SECURITIES HELD TO MATURITY September 30, 2024 March 31, 2024 Debt securities held-to-maturity $ 17,500,000 $ 17,500,000 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 is renewable with one-year tenor on August 23, 2023 and 2.5 % p.a. coupon. On August 23, 2023, the Company entered into an agreement to transfer the principal and coupon receivable to a third party. During the quarter ended September 30, 2024, the Company received interest payment of $ 545,000 . As of September 30, and March 31, 2024, the coupon receivable was $ 330,000 and $ 437,500 . The debt is guaranteed by Hongye Financial Consulting (Shenzhen) Co., Ltd., the company controlled by our CEO, Mr. Hong Zhida. 7. INVENTORIES Inventories consist of the following as of September 30, 2024 and March 31, 2024: SCHEDULE OF INVENTORIES September 30, 2024 March 31, 2024 Raw materials $ 9,939 $ 20,947 Work in progress 6,836 - Finished goods 174,933 42,558 Total inventories $ 191,708 $ 63,505 8. 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. 9. PREPAYMENTS AND OTHER RECEIVABLES Prepayments and other receivables consist of the following as of September 30 and March 31, 2024: SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLES September 30, 2024 March 31, 2024 Prepayment 29,091 34,693 Deposit 755,345 741,465 Receivable of consideration on disposal of subsidiaries - 152,882 Receivable of interest income from debt security 330,000 437,500 Other receivables 553,378 556,456 Prepayments and other receivables $ 1,667,814 $ 1,922,996 10. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following as of September 30 and March 31, 2024: SCHEDULE OF PROPERTY PLANT AND EQUIPMENT September 30, 2024 March 31, 2024 Production plant $ 106,809 $ 105,738 Motor vehicles 846,852 1,047,121 Office equipment 53,997 52,486 Property, plant and equipment gross 1,007,659 1,205,345 Less: accumulated depreciation ( 515,953 ) ( 636,491 ) Plant and equipment, net $ 491,706 $ 568,854 Depreciation expense for the three and six months ended September 30, 2024 and 2023 was $ 26,942 and $ 23,019 , $ 75,919 and $ 57,002 , respectively. F- 8 11. LONG-TERM RECEIVABLES The Company entered into a long-term loan agreement with an independent third party in September 2022. The principal to the borrower is $ 2.5 million. The loan is interest free and will expire in August 2025. 12. 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 (RMB 1,000,000 ) for daily operations. The loans are guaranteed at no cost by the legal representative of HSW. As of September 30, 2024, the Company has borrowed $ 134,545 (RMB 944,255 ) (March 31, 2024: $ 130,779 ) under this line of credit with various annual interest rates from 4.34 % to 4.9 %. The outstanding loan balance was due on September 30, 2021. The Company was not able to renew the loan facility with the bank. The Company is negotiating with the bank on repayment schedule of the loan balance and interest payable. In February 2023, XKJ entered into a facility agreement with China Construction Bank and obtained a line of revolving credit, which allows the Company to borrow up to approximately $ 1,268,118 (RMB 9,000,000 ) for daily operations, with Loan Prime Rate of the day prior to the draw down day. The loans are guaranteed by the legal representative of XKJ at no cost. The first drawdown was in October 2023. Before that, the company did not exercise the agreement. As of September 30, 2024, the Company has borrowed $ 163,862 (RMB 1,150,000 ) (March 31, 2024: $ 110,799 ) under this line of credit with annual interest rate of 3.9 %. The revolving credit facility will be expired on February 1, 2026 . In December 2023, PF entered into a facility agreement with Sichuan Xinwang Bank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $ 68,800 (RMB 500,000 ) for daily operations. As of September 30, 2024, the Company has borrowed $ 44,527 (RMB 312,500 ) (March 31, 2024: $ 60,593 ) under this line of credit with annual interest rate of 16.2 %. The loan facility will be expired on December 26, 2025 . In March 2024, PF entered into a new facility agreement with WeBank Co., Ltd. and obtained a line of credit, which allows the Company to borrow up to approximately $ 137,602 (RMB 1,000,000 ) for daily operations. As of September 30, 2024, the Company has borrowed $ 122,133 (RMB 857,143 ) (March 31, 2024: $ 138,500 ) under this line of credit with annual interest rate of 8.244 %. The loan facility will expire on March 22, 2026 . 13. TAXATION (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. It is a 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 16.5 %. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended September 30, 2024 and 2023. YX, our wholly owned subsidiary, was 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 September 30, 2024 and 2023. 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 2024 and 2023. The preferential tax rate will be expired at end of year 2024 and the EIT rate will be 25% from year 2025. 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 September 30, 2024 and 2023. F- 9 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 Three months ended Six months ended September 30, September 30, 2024 2023 2024 2023 PRC statutory tax rate 25 % 25 % 25 % 25 % Computed expected benefits ( 180,118 ) 341,409 ( 485,275 ) ( 340,456 ) Temporary differences ( 30,436 ) ( 30,918 ) ( 6,245 ) ( 24,768 ) Permanent difference ( 78,809 ) ( 75,814 ) ( 46,196 ) 6,312 Changes in valuation allowance 290,425 ( 231,440 ) 539,262 363,413 Income tax expense $ 1,062 $ 3,237 1,546 4,501 Deferred tax assets had not been recognized in respect of any potential tax benefit that may be derived from non-capital loss carry forward and property and equipment due to past negative evidence of previous cumulative net losses and uncertainty upon restructuring. The management will continue to assess at each reporting period to determine the realizability of deferred tax assets. (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, YBY, AOT, ZHJ 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 YXPF enjoyed the preferential VAT rate of 3 % in 2024 and 2023. 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. 14. CONSOLIDATED SEGMENT DATA Segment information is consistent with how chief operating decision maker reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects this segment structure. The Company reports financial and operating information in the following four segments: (a) Garment manufacturing . Including manufacturing and distribution of garments; (b) Logistics services . Providing logistic services; and (c) 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”. F- 10 Selected information in the segment structure is presented in the following tables: Revenues by segment for the three and six months ended September 30, 2024 and 2023 are as follows: SCHEDULE OF SEGMENT REPORTING FOR REVENUE Three months ended Six months ended September 30, September 30, Revenues from external customers 2024 2023 2024 2023 Garments manufacturing segment 148,470 91,218 235,072 145,091 Logistics services segment 964,429 1,186,033 1,450,936 2,184,666 Property management and subleasing 228,579 58,063 506,503 58,063 Total of reportable segments and consolidated revenue $ 1,341,478 $ 1,335,314 $ 2,192,511 $ 2,387,820 Intersegment revenue Garments manufacturing segment - - - - Loss from operations by segment for the three and six ended September 30, 2024 and 2023 are as follows: SCHEDULE OF SEGMENT REPORTING FOR LOSS FROM OPERATION Three months ended Six months ended September 30, September 30, 2024 2023 2024 2023 Garments manufacturing segment 1,622 ( 18,988 ) ( 62,023 ) ( 41,143 ) Logistics services segment 229,558 172,295 250,437 174,229 Property management and subleasing ( 201,865 ) ( 13,360 ) ( 406,298 ) ( 13,360 ) Total of reportable segments $ 29,315 $ 139,947 $ ( 217,884 ) $ 119,726 Corporate and other ( 274,381 ) ( 444,879 ) ( 532,198 ) ( 685,607 ) Total consolidated income (loss) from operations ( 245,066 ) ( 304,932 ) ( 750,082 ) ( 565,881 ) Total assets by segment as of September 30 and March 31, 2024 are as follows: SCHEDULE OF SEGMENT REPORTING FOR ASSETS Total assets September 30, 2024 March 31, 2024 Garment manufacturing segment $ 249,407 $ 1,357,761 Logistics services segment 3,277,551 3,231,492 Property management and subleasing 20,249,178 20,931,431 Total of reportable segments 23,776,136 25,520,684 Corporate and other 26,855,826 26,818,064 Consolidated total assets $ 50,631,962 $ 52,338,748 Geographical Information The Company operates predominantly in China. In presenting information on the basis of geographical location, revenue is based on the geographical location of customers and long-lived assets are based on the geographical location of the assets. Geographic Information SCHEDULE OF GEOGRAPHICAL INFORMATION Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Revenues China 1,341,478 1,335,314 2,192,511 2,387,820 September 30, 2024 March 31, 2024 Long-Lived Assets China 22,343,368 23,157,356 F- 11 15. FINANCIAL INSTRUMENTS On January 4, 2023, the Company entered into a series of agreements with certain accredited investors, pursuant to which the Company received a net proceed of $ 15,000,000 in consideration of the issuance of: ● senior secured convertible notes in the aggregate original principal amount of approximately $ 16.7 million with interest rate of 5 % per annum (the “Convertible Notes”); The Convertible Notes shall be matured on July 4, 2024 . The conversion price is $ 1.25 , subject to adjustment under several conditions. ● warrants to purchase up to approximately 16.1 million shares of common stock of the Company (the “Common Stock”) until on or prior to 11:59 p.m. (New York time) on the five-year anniversary of the closing date at an exercise price of $ 1.25 per share, also subject to adjustment under several conditions. The Warrant is considered a freestanding instrument issued together with the Convertible Note and measured at its issuance date fair value. Proceeds received were first allocated to the Warrant based on its initial fair value. The initial fair value of the Warrant was $ 3.9 million. The Warrant were marked to the market with the changes in the fair value of warrant recorded in the consolidated statements of operations and comprehensive loss. As of September 30, 2024, the balance of the Warrant was approximately $ 0.3 million (March 31, 2024: $ 0.25 million). The Convertible Note is classified as a liability and is subsequently stated at amortized cost with any difference between the initial carrying value and the repayment amount as interest expenses using the effective interest method over the period from the issuance date to the maturity date. The embedded conversion feature should be bifurcated and separately accounted for using fair value, as this embedded feature is considered not clearly and closely related to the debt host. The bifurcated conversion feature was recorded at fair value with the changes recorded in the consolidated statements of operations and comprehensive loss. The initial fair value of the embedded conversion feature was $ 1.2 million. As of September 30, 2024, the fair value of the conversion option was $ 0.6 million (March 31, 2024: $ 0.04 million). The Company determined that the other embedded features do not require bifurcation as they either are clearly and closely related to the Convertible Note or do not meet the definition of a derivative. The total proceeds of the Convertible Note and the Warrants, net of issuance cost, of $ 15.0 million was received by the Company in January 2023, and allocated to each of the financial instruments as following: SCHEDULE OF FINANCIAL INSTRUMENTS As of January 4, 2023 Derivative liabilities – Fair value of the Warrants $ 3,858,521 Derivative liabilities – Embedded conversion feature 1,247,500 Convertible Note 9,893,979 $ 15,000,000 In January 2023, the Company also granted to the placement agent a warrant as partial of agent fee to purchase 0.7 million shares of common stock of the Company. The warrant is matured in five years with exercise price of $ 1.25 subject to adjustments under different conditions. The warrant was recognized as derivative liability and the initial fair value was $ 0.168 million. In July 2024, the Company entered into agreement with the holder of the convertible notes to extend the maturity date to July 4, 2025. Other than the extension of the maturity date, there is no other amendment to the original note. The original note continued in full force and effect. The Company’s convertible notes obligations were as the following for the three and six months ended September 30, 2024 and 2023: SCHEDULE OF CONVERTIBLE NOTES OBLIGATION Three months ended Six months ended September 30, September 30, 2024 2023 2024 2023 Carrying value – beginning balance $ 3,518,999 $ 8,510,226 $ 2,684,697 $ 11,219,519 Converted to ordinary shares ( 82,642 ) ( 813,366 ) ( 82,642 ) ( 3,695,810 ) Redemption - ( 5,687,056 ) - ( 5,687,056 ) Amortization of debt discount - 423,215 682,648 1,337,412 Deferred debt discount and cost of issuance ( 264,186 ) ( 20,645 ) ( 263,925 ) ( 1,138,313 ) Interest charge 44,187 170,950 195,580 547,572 Carrying value – ending balance $ 3,216,358 $ 2,583,324 $ 3,216,358 $ 2,583,324 During the three and six months ended September 30, 2024, approximately $ 82,642 of the convertible note was converted into approximately 132,994 ordinary shares, with average effective conversion price of $ 0.6214 per share. During the three and six months ended September 30, 2023, approximately $ 0.8 million and $ 3.7 million of the convertible notes was converted into approximately 0.4 and 3.1 million ordinary shares, with average effective conversion price of $ 2.264 and $ 3.1442 per share. The Company’s derivative liabilities were as the following for the three and six months ended September 30, 2024 and 2023: SCHEDULE OF DERIVATIVE LIABILITIES Three months ended Six months ended September 30, September 30, 2024 2023 2024 2023 Derivative liabilities –Warrants $ $ $ $ Beginning balance 117,440 2,818,563 251,657 2,013,261 Marked to the market 184,549 ( 2,550,128 ) 50,332 ( 1,744,826 ) Ending fair value 301,989 268,435 301,989 268,435 Derivative liabilities – Embedded conversion feature Beginning balance 36,036 1,763,997 36,298 277,222 Converted to ordinary shares ( 1,330 ) ( 339,999 ) ( 1,330 ) ( 453,594 ) Remeasurement on change of convertible price 264,186 20,645 263,925 1,138,314 Redemption - ( 1,115,627 ) - ( 1,115,627 ) Marked to the market 347,065 ( 304,467 ) 347,064 178,234 Ending fair value 645,957 24,549 645,957 24,549 Total Derivative fair value at end of period $ 947,946 $ 292,984 $ 947,946 $ 292,984 F- 12 16. LEASE As a lessee 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 September 30, 2024, with discounted rate of 4.9 %. 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 and property management services business for 16 years with an option to extend the lease. The following table summarizes the components of lease expense: SCHEDULE OF LEASE EXPENSES Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Operating lease cost 265,894 31,363 524,976 74,801 Short-term lease cost 32,408 34,493 68,871 58,050 Lease Cost $ 298,302 $ 65,856 $ 593,847 $ 132,851 The following table summarizes supplemental information related to leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow from operating leases $ 298,302 $ 65,856 593,847 132,851 Right-of-use assets obtained in exchange for new operating leases liabilities 1,096,683 19,511,181 1,233,672 19,512,400 Weighted average remaining lease term - Operating leases (years) 13.9 14.9 13.9 14.9 Weighted average discount rate - Operating leases 4.90 % 4.90 % 4.90 % 4.90 % The following table summarizes the maturity of operating lease liabilities: SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY Years ending September 30 Lease cost 2025 $ 1,120,463 2026 1,023,446 2027 1,023,446 2028 2,029,793 2029 and there after 24,796,599 Total lease payments 29,993,747 Less: Interest ( 9,699,440 ) Total $ 20,294,307 As a lessor The Company subleased its leased commercial building by entering into operating leases to third party garment wholesalers and retailers. These leases are negotiated for terms ranging from one to five years . All leases include the term to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Rental income from subleasing is disclosed in Note 14 segment data. The future minimum rental receivable under non-cancellable operating leases contracted for the reporting period are as follows: SCHEDULE OF FUTURE MINIMUM RENT RECEIVABLE Years ending September 30 Lease income 2025 $ 216,211 2026 286,740 2027 334,559 2028 89,745 2029 and there after - Total $ 927,255 F- 13 17. SHARE CAPITAL The Company effected the amendment and combination to the outstanding shares of our common stock into a lesser number of outstanding shares (the “Reverse Stock Split Amendment”) on a ratio of one-for-ten, with effected date on June 26, 2023. On April 29, 2024, the Company entered into two Private Placement Agreements (the “Agreement”) with certain individual investors (the “Investors”) who are independent third parties, pursuant to which the Company issued to each of the investor 330,000 shares of its common stock, par value $ 0.001 per share, at a price of $ 0.98 per share (the “Common Stock”), resulting in aggregate gross proceeds to the Company of $ 646,800 , which closed on the same day. Pursuant to the Agreement, the Company issued an aggregate of 660,000 unregistered shares of common stock to the Investors. There are 6,043,769 and 5,383,769 ordinary shares issued and outstanding at September 30, 2024 and March 31, 2024, respectively. 18. RISKS AND UNCERTAINTIES (a) Economic and Political Risks The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. (b) Foreign Currency Translation The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date, which was 7.02 and 7.22 as of September 30, 2024 and March 31, 2024, respectively. Revenue and expenses are translated at the average yearly exchange rates, which was 7.16 and 7.004 , 7.20 and 7.12 for the three and six months ended September 30, 2024 and 2023, 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. F- 14 (c) Concentration Risks The followings are the percentages of accounts receivable balance of the top customers over accounts receivable for each segment as of September 30, 2024 and March 31, 2024. Garment manufacturing segment SCHEDULE OF CONCENTRATION RISKS September 30, 2024 March 31, 2024 Customer A 65.2 % Nil % Customer B 34.8 % 3.3 % The high concentration as of September 30, 2024 was mainly due to business development of a large distributor of garments. Logistics services segment September 30, 2024 March 31, 2024 Customer A 19.7 % 1 3.9 % Customer B 19.4 % 8.2 % Customer C 1 4.7 % 2 1.6 % Customer D 6.9 % 9 .9 % Customer E 5.5 % 2.5 % Property management and subleasing segment There is no account receivable for Property management and subleasing segment as for September 30, and March 31, 2024. Concentration on customers For the three months ended September 30, 2024, two customers from Logistics services segment provided more than 10 % of total revenue of the Company, representing 31.4 % of total revenue of the Company for the three months. For the six months ended September 30, 2024, two customers from Logistics services segment provided more than 10% of total revenue of the Company, representing 28.1 % of total revenue of the Company for the six months. For the three months ended September 30, 2023, one customer from Logistics services segment provided more than 10 % of total revenue of the Company, representing 11.0 % of total revenue of the Company for the three months. For the six months ended September 30, 2023, two customers from Logistics services segment provided more than 10% of total revenue of the Company, representing 23.9 % of total revenue of the Company for the six months. Concentration on suppliers The following tables summarized the purchases from five largest suppliers of each of the reportable segments for the three months ended September 30, 2024 and 2023. SCHEDULE OF PURCHASES FROM SUPPLIERS Three months ended Six months ended September 30, September 30, 2024 2023 2024 2023 Garment manufacturing segment 60.6 % Nil % 41.8 % Nil % Logistics services segment 100 % 100.0 % 100 % 100.0 % Property management and subleasing 100.0 % 100.0 % 100.0 % 100.0 % (d) Interest Rate Risk The Company’s exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of September 30, 2024, the total outstanding borrowings amounted to $ 465,067 (RMB 3,263,898 ) with various interest rate from 4.34 % to 16.2 % p.a. (Note 12) F- 15