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 December 31, 2024 and 2023 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 People’s Republic of China, or 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. 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 of “ATXG”. We classify our businesses into three main segments: garment manufacturing, logistics services, and property management and subleasing. The Company previously engaged in the provision of epidemic prevention supplies, which included manufacturing, distribution and trading of epidemic prevention supplies. As the COVID-19 pandemic is near an endemic, the Company ceased to operate in this business in the first quarter of 2023. The remaining assets of this business segment were reclassified into the “Corporate and others” segment. The corresponding items of segment information for the earlier periods were restated to reflect the change of the new segment structure. 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) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (viii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (ix) Dongguan Au Te Si Garments Co., Ltd., a PRC company (“AOT”), (x) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”). “ 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) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (vi) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (vii) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”), and (viii) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”). “ 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”) 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 44 cities in 10 provinces and 2 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 two wholly owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co., Ltd (“XKJ”) and Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”), 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 currently have an aggregate of 56,238 square meters floor space and provide approximately 1,300 shop space to clients. We conduct our property management and subleasing operation through a wholly owned subsidiary acquired in September 2023, namely Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”), which is located in the Guangdong province, China. To focus on the core businesses of the Group, the Company dissolved one of its subsidiaries, Shenzhen Yingxi Tongda Logistic Co., Ltd, in April 2024 and received approval from RPC authorities. The Company dissolved another subsidiary, Zhuang Hao Jia (Dongguan) Decoration Engineering Co.,Ltd (“ZHJ”), in August 2024 and received approval from RPC authorities. 3 Business Objectives Garment Manufacturing Business We believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit. Logistics Services Business The business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide delivery and courier network in China. As of December 31, 2024, we provide logistics services to over 44 cities in approximately 10 provinces and 2 municipalities. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s profit for the remainder of 2024. 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 Company conduct the business through a wholly owned subsidiary acquired in December 2023, namely Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”). Seasonality of Business Garment Manufacturing Business We generally receive more purchase orders during our second and third quarters and fewer manufacture orders during May and June. Logistics Services Business We generally receive more delivery orders in our third and fourth quarters and are more vulnerable to shipping delays in the PRC during Chinese New Year due to traffic and port congestion, border crossing delays and customs clearance issues. Property Management and Subleasing Business There is no significant seasonality in our business. 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. Accounts receivable, net Accounts receivable, net are stated at the historical carrying amount net of allowance for doubtful accounts. Account receivables are classified as financial assets subsequently measured at amortized cost. Account receivables are recognized when the Company becomes a party to the contractual provisions of the receivables. They are measured, at initial recognition, at fair value plus transaction costs, if any and are subsequently measured at amortized cost. The amortized cost is the amount recognized on the receivable initially, minus principal repayments, plus cumulative amortization (interest) using the effective interest method of any difference between the initial amount and the maturity amount, adjusted for any loss allowance. A loss allowance for expected credit losses is recognized on account receivables and is updated at each reporting date. The Company determines the expected credit losses provisions based on ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASC 326’’) using a modified retrospective approach which did not have a material impact on the opening balance of accumulated deficit. To determine expected credit losses on account receivables, the Company will consider the historic credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions, and an assessment of both the current and forecasted direction of conditions at the reporting date, including the time value of money, where appropriate. The loss allowance is calculated on a collective basis for all trade and other receivables in totality. An impairment gain or loss is recognized in profit or loss with a corresponding adjustment to the carrying amount of account receivables, through use of a loss allowance account. The impairment loss is included in operating expenses as a movement in credit loss allowance. Receivables are written off when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Receivables written off may still be subject to enforcement activities under the Company’s recovery procedures, considering legal advice where appropriate. Any recoveries made are recognized in profit or loss. 6 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. Results of Operations for the three months ended December 31, 2024 and 2023 The following table summarize our results of operations for the three months ended December 31, 2024 and 2023. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Three Months Ended December 31, Changes in 2024 2024 2023 compared to 2023 (In U.S. dollars, except for percentages) Revenue $ 1,059,362 100.0 % $ 1,468,496 100 % $ (409,134 ) (27.9 )% Cost of revenues (976,543 ) (92.2 )% (1,306,169 ) (88.9 )% 329,626 (25.2 )% Gross profit 82,819 7.8 % 162,327 11.1 % (79,508 ) (49.0 )% Operating expenses (463,873 ) (43.8 )% (611,919 ) (41.7 )% 148,046 (24.2 )% Loss from operations (381,054 ) (36.0 )% (449,592 ) (30.6 )% 68,538 (15.2 )% Other income, net 71,187 6.7 % 111,566 7.6 % (40,379 ) (36.2 )% Fair value gain or loss (648,051 ) (61.2 )% (1,738,593 ) (118.4 )% 1,090,541 (62.7 )% Net finance cost (124,686 ) (11.8 )% (527,818 ) (35.9 )% 403,132 (76.4 )% Income tax expense (3,116 ) (0.3 )% (3,225 ) (0.2 )% 109 (3.4 )% Net loss $ (1,085,721 ) (102.5 )% $ (2,607,662 ) (177.6 )% $ 1,521,941 (58.4 )% Revenue Total revenue for the three months ended December 31, 2024 decreased by approximately $0.4 million, or 27.9%, as compared with the three months ended December 31, 2023. The decrease was mainly due to the decrease of $0.4 million in logistics services business. Revenue generated from our garment manufacturing business contributed approximately $0.03 million, or 3.2%, of our total revenue for the three months ended December 31, 2024. Revenue generated from garment manufacturing business contributed approximately $0.03 million or 1.8% of our total revenue for the three months ended December 31, 2023, respectively. The low level of sales was mainly due to factory facilities renewal and repairs, and the remaining factories cannot provide the same capacity as previously. We estimate the capacity will recover at the fiscal year ending 2025. 7 Revenue generated from our logistics services business contributed approximately $0.8 million, or 78.5%, of our total revenue for the three months ended December 31, 2024. Revenue generated from our logistic business contributed approximately $1.2 million or 81.0% of our total revenue for the three months ended December 31, 2023. Revenue generated from our property management and subleasing business was 0.2 million, or 18.4%, of our total revenue for the three months ended December 31, 2024. The revenue from this business segment was $0.3 million or 17.2% of our total revenue for the three months ended December 31, 2023. Cost of revenue Three months ended December 31, Increase (decrease) in 2024 2023 2024 compared to 2023 (In U.S. dollars, except for percentages) Net revenue for garment manufacturing $ 33,773 100.0 % $ 27,015 100 % $ 6,758 25.0 % Raw materials 11,907 35.3 % 4,238 15.7 % 7,669 181.0 % Labor 12,884 38.1 % 6,957 25.8 % 5,927 85.2 % Other and Overhead 3,361 10.0 % (1,293 ) (4.8 )% 4,653 (360.1 )% Total cost of revenue for garment manufacturing 28,152 83.4 % 9,902 36.7 % 18,249 184.3 % Gross profit for garment manufacturing 5,621 16.6 % 17,113 63.3 % (11,492 ) (67.2 )% Net revenue for logistics services 831,103 100.0 % 1,189,004 100.0 % (357,901 ) (30.1 )% Fuel, toll and other cost of logistics services 528,883 63.6 % 495,352 41.6 % 33,531 6.8 % Subcontracting fees 117,674 14.2 % 560,735 47.2 % (443,061 ) (79.0 )% Total cost of revenue for logistics services 646,557 77.8 % 1,056,087 88.8 % (409,530 ) (38.8 )% Gross Profit for logistics services 184,546 22.2 % 132,917 11.2 % 51,629 38.8 % Net revenue for property management and subleasing 194,486 100.0 % 252,477 100.0 % (57,991 ) (23.0 ) Total cost of revenue for property management and subleasing 301,834 155.2 % 236,291 93.6 % 65,543 27.7 Gross Profit for property management and subleasing (107,348 ) (55.2 )% 16,186 6.4 % (123,534 ) (763.2 )% Net revenue for corporate and others - - Merchandise/Finished goods/Raw materials 3,889 - (3,889 ) (100.0 )% Total cost of revenue for corporate and others 3,889 - (3,889 ) (100.0 )% Gross (loss) income for corporate and others (3,889 ) - 3,889 (100.0 )% Total cost of revenue $ 976,543 92.2 % $ 1,306,169 88.9 % $ (329,626 ) (25.2 )% Gross profit $ 82,819 7.8 % $ 162,327 11.1 % $ (79,508 ) (49.0 )% 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 35.3% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared with 15.7% for the three months ended December 31, 2023. The increase in percentage was mainly due to increased orders received. Labor costs for our garment manufacturing business was approximately 38.1% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared with 25.8% for the three months ended December 30, 2023. We maintained a sustainable level in wages, the decrease in portion of labor cost was mainly due to the increased in revenue. Overhead and other expenses for our garment manufacturing business accounted for approximately 10.0% of our total garment business revenue for the three months ended December 31, 2024, as compared with (4.8)% of total garment business revenue for the three months ended December 31, 2023. For our logistic business, we outsourced some of the business to our contractors. We relied on a few subcontractors, of which the subcontracting fees to our largest contractor represented approximately % and 53.1% of total cost of revenues for our service segment for the three months ended December 31, 2024 and 2023, respectively. The decrease was attributed to an increase in usage of our own logistics as compared to the subcontractor. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services providers. Fuel, toll and other costs for our service business for the three months ended December 31, 2024 were approximately $0.5 million as compared with $0.5 million for the three months ended December 31, 2023. Fuel, toll and other costs for our service business accounted for approximately 63.6% of our total service revenue for the three months ended December 31, 2024, as compared with 41.6% for the three months ended December 31, 2023. The increase was primarily attributable to a decrease of usage of subcontractors during the quarter. Subcontracting fees for our service business for the three months ended December 31, 2024 decreased approximately 79.0% to $0.1 from $0.6 million for the three months ended December 31, 2023. Subcontracting fees accounted for 14.2% and 47.2% of our total service business revenue in the three months ended December 31, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter. 9 For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The cost of revenue for property management and subleasing business for the three months ended December 31, 2024 was $301,834, approximately 155.2% of our total property management and subleasing business revenue, as compared with $236,291, or 93.6% of the total property management and subleasing business revenue for the three months ended December 31, 2023. Gross profit Garment manufacturing business gross profit for the three months ended December 31, 2024 was $5,620, as compared with $17,113 for the three months ended December 31, 2023. Gross profit accounted for 16.6% of our total garment manufacturing business revenue for the three months ended December 31, 2024, as compared to 63.3% for the three months ended December 31, 2023. The decrease of gross profit ratio was mainly due to the increased raw material costs. Gross profit in our logistics services business for the three months ended December 31, 2024 was approximately $184,545 and gross margin was 22.2%. Gross profit in our logistics services business for the three months ended December 31, 2023 was approximately $132,917 and gross margin was 11.2%. The increase of gross profit ratio was mainly because the Company re-allocated the orders received and reduced fuel cost. Gross loss in our property management and subleasing business for the three months ended December 31, 2024 was $107,346. Gross profit was $16,186 for the three months ended December 31, 2023. Gross loss accounted for (55.2)% of our total property management and subleasing business revenue for the three months ended December 31, 2024, as compared to 6.4% for the three months ended December 31, 2023. The decrease of gross profit ratio was mainly because the property management and subleasing business are still in preliminary stage. Three months ended December 31, Increase (decrease) in 2024 2023 2024 compared to 2023 (In U.S. dollars, except for percentages) Gross profit $ 82,819 100 % $ 162,327 100 % (79,508 ) (49.0 )% Operating expenses: Selling expenses (111,946 ) (135.2 )% (95,321 ) (58.7 )% (16,625 ) 17.4 % General and administrative expenses (351,927 ) (424.9 )% (516,598 ) (318.2 )% 164,671 (31.9 )% Total $ (463,873 ) (560.1 )% $ (611,919 ) (377.0 )% 148,046 (24.2 )% (Loss) Income from operations $ (381,054 ) (460.1 )% $ (449,592 ) (277.0 )% 68,538 (15.2 )% Selling, General and administrative expenses Our selling expenses for our garment manufacturing business for the three months ended December 31, 2024 and 2023 was approximately $28,818 and $13,504, respectively. The selling expenses for property management and subleasing business for the three months ended December 31, 2024 and 2023 was approximately $83,127 and $81,817, 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 December 31, 2024 and 2023 was approximately $8,021 and $34,007, respectively. Our general and administrative expenses in our logistics services segment for the three months ended December 31, 2024 and 2023 was approximately $175,837 and $174,618, respectively. The general and administrative expenses in our property management and subleasing business was approximately $43,790 and $132,336for the three months ended December 31, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the three months ended December 31, 2024 and 2023 was approximately $124,279 and $175,636, 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 December 31, 2024 decreased by approximately 31.9% to $0.4 million from $0.5 million for the three months ended December 31, 2023. Loss from operations Loss from operations for the three months ended December 31, 2024 and 2023 was approximately $381,054 and $449,592, respectively. Loss from operations of approximately $31,220 and loss from operation of $30,398 for the three months ended December 31, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $8,707 and loss from operation of $41,699 was attributed from our logistics services segment for the three months ended December 31, 2024 and 2023, respectively. Loss from operations of approximately $234,264 and $168,012 for the three months ended December 31, 2024 and 2023, respectively, which was attributed from our property management and subleasing business. We incurred expenses from operations in corporate office of approximately $124,277 and $209,483 for the three months ended December 31, 2024 and 2023, respectively. Income Tax Expenses Income tax expense for the three months ended December 31, 2024 and 2023 was approximately $3,116 and $3,225, respectively. Yingxi primarily operates in the PRC and files tax returns in the PRC jurisdictions. Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes. Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended December 31, 2024 and 2023. QYTG and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the three months ended December 31, 2024 and 2023. The majority of our subsidiaries are 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 2024. The preferential tax rates will be expired at end of year 2025. Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended December 31, 2024 and 2023. Net Loss We incurred net loss of approximately $1.1 million and $2.6 million for the three months ended December 31, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.19) and ($0.66) for the three months ended December 31, 2024 and 2023, respectively. 11 Results of Operations for the nine months ended December 31, 2024 and 2023 The following table summarize our results of operations for the nine months ended December 31, 2024 and 2023. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Nine Months Ended December 31, Changes in 2024 2024 2023 compared to 2023 (In U.S. dollars, except for percentages) Revenue $ 3,251,873 100.0 % $ 3,856,316 100 % $ (604,443 ) (15.7 )% Cost of revenues (2,637,818 ) (81.1 )% (3,054,193 ) (79.2 )% 416,375 (13.6 )% Gross profit 614,055 18.9 % 802,123 20.8 % ) (23.4 )% Operating expenses (1,745,191 ) (53.7 )% (1,817,596 ) (47.1 )% 72,405 ) (4.0 )% Loss from operations (1,131,136 ) (34.8 )% (1,015,473 ) (26.3 )% (115,663 ) 11.4 % Other income, net 182,586 5.6 % (357,848 ) (9.3 )% 540,434 (151.0 )% Fair value gain or loss (1,045,448 ) (32.1 )% (172,001 ) (4.5 )% (873,447 ) 507.8 % Net finance cost (1,029,704 ) (31.7 )% (2,420,935 ) (62.8 )% 1,391,231 (57.5 )% Income tax expense (4,662 ) (0.1 )% (7,726 ) (0.2 )% 3,064 (39.7 )% Net loss $ (3,028,364 ) (93.1 )% $ (3,973,983 ) (103.1 )% $ 945,619 ) (23.8 )% Revenue Total revenue for the nine months ended December 31, 2024 decreased by approximately $0.6 million, or 15.7%, as compared with the nine months ended December 31, 2023. The decrease was mainly due to the decrease of $1.1 million in logistics services, decrease of $0.1 million in garment manufacturing business and increase of $0.4 million in property management and subleasing business. Revenue generated from our garment manufacturing business contributed approximately $0.3 million, or 8.3%, of our total revenue for the nine months ended December 31, 2024. Revenue generated from garment manufacturing business contributed approximately $0.2 million or 4.5% of our total revenue for the nine months ended December 31, 2023, respectively. The low level of sales was mainly due to factory facilities renewal and repairs, and the remaining factories cannot provide the same capacity as previously. We estimate the capacity will recover at the fiscal year ending 2025. 12 Revenue generated from our logistics services business contributed approximately $2.3 million, or 70.2%, of our total revenue for the nine months ended December 31, 2024. Revenue generated from our logistic business contributed approximately $3.4 million or 87.5% of our total revenue for the nine months ended December 31, 2023. Revenue generated from our property management and subleasing business was 0.7 million, or 21.6%, of our total revenue for the nine months ended December 31, 2024. The revenue from this business segment was $0.3 million or 8.1% of our total revenue for the nine months ended December 31, 2023. Cost of revenue Nine months ended December 31, Increase (decrease) in 2024 2023 2024 compared to 2023 (In U.S. dollars, except for percentages) Net revenue for garment manufacturing $ 268,845 100.0 % $ 172,106 100.0 % $ 96,739 56.2 % Raw materials 136,866 50.9 % 30,187 17.5 % 106,679 353.4 % Labor 67,409 25.1 % 100,097 58.2 % (32,688 ) (32.7 )% Other and Overhead 14,008 5.2 % 1,389 0.8 % 12,619 908.5 % Total cost of revenue for garment manufacturing 218,283 81.2 % 131,673 76.5 % 86,610 65.8 % Gross profit for garment manufacturing 50,562 18.8 % 40,433 23.5 % 10,129 25.1 % Net revenue for logistics services 2,282,039 100.0 % 3,373,670 100.0 % (1,091,631 ) (32.4 )% Fuel, toll and other cost of logistics services 1,289,202 56.5 % 1,496,570 44.4 % (207,368 ) (13.9 )% Subcontracting fees 117,674 5.2 % 1,181,160 35.0 % (1,063,486 ) (90.0 )% Total cost of revenue for logistics services 1,406,876 61.6 % 2,677,730 79.4 % (1,270,854 ) (47.5 )% Gross Profit for logistics services 875,163 38.4 % 695,940 20.6 % 179,223 25.8 % Net revenue for property management and subleasing 700,989 100.0 % 310,540 100.0 % 390,449 125.7 % Total cost of revenue for property management and subleasing 1,012,659 144.5 % 240,900 77.6 % 771,759 320.4 % Gross Profit for property management and subleasing (311,670 ) (44.5 )% 69,639 22.4 % (381,309 ) (547.6 )% Net revenue for supplies corporate and others - Other and Overhead 3,889 (3,889 ) (100.0 )% Total cost of revenue for corporate and others 3,889 (3,889 ) (100.0 )% Gross (loss) income for corporate and others (3,889 ) 3,889 (100.0 )% Total cost of revenue $ 2,637,818 81.1 % $ 3,054,193 79.2 % $ (416,375 ) (13.6 )% Gross profit $ 614,055 18.9 % $ 802,123 20.8 % $ (188,068 ) (23.4 )% 13 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 50.9% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared with 17.5% for the nine months ended December 31, 2023. The increase in percentage was mainly due to the increased order received. Labor costs for our garment manufacturing business was approximately 25.1% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared with 58.2% for the nine months ended December 31, 2023. We maintained a sustainable level in wages, the decrease in portion of labor cost was mainly due to the increased in revenue. Overhead and other expenses for our garment manufacturing business accounted for approximately 5.2% of our total garment business revenue for the nine months ended December 31, 2024, as compared with 0.8% of total garment business revenue for the nine months ended December 31, 2023. For our logistic business, we outsourced some of the business to our contractors. We relied on a few subcontractors, which the subcontracting fees to our largest contractor represented approximately nil% and 36.1% of total cost of revenues for our service segment for the nine months ended December 31, 2024 and 2023, respectively. The decrease was attributed to an increase in usage of our own logistics as compared to the subcontractor. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services providers. Fuel, toll and other costs for our service business for the nine months ended December 31, 2024 were approximately $1.3 million as compared with $1.5 million for the nine months ended December 31, 2023. Fuel, toll and other costs for our service business accounted for approximately 56.5% of our total service revenue for the nine months ended December 31, 2024, as compared with 44.4% for the nine months ended December 31, 2023. The increase was primarily attributable to a decrease of usage of subcontractors during the quarter. Subcontracting fees for our service business for the nine months ended December 31, 2024 decreased approximately 90.0% to $0.1 million from $1.2 million for the nine months ended December 31, 2023. Subcontracting fees accounted for 5.2% and 35.0% of our total service business revenue in the nine months ended December 31, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease of usage of subcontractors during the quarter. 14 For property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing business. The cost of revenue for property management and subleasing business for the nine months ended December 31, 2024 was $1.0 million, approximately 144.5% of our total property management and subleasing business revenue, as compared with $0.2 million, approximately 77.6% of our total property managemet for the nine months ended December 31, 2023. Gross profit Garment manufacturing business gross profit for the nine months ended December 31, 2024 was $50,562, as compared with $40,433 for the nine months ended December 31, 2023. Gross profit accounted for 18.8% of our total garment manufacturing business revenue for the nine months ended December 31, 2024, as compared to 23.5% for the nine months ended December 31, 2023. The increase of gross profit ratio was mainly due to increased sales. Gross profit in our logistics services business for the nine months ended December 31, 2024 was approximately $875,162 and gross margin was 38.4%. Gross profit in our logistics services business for the nine months ended December 31, 2023 was approximately $695,940 and gross margin was 20.6%. The increase of gross profit ratio was mainly because the Company re-allocated the orders received and reduced fuel cost. Gross loss in our property management and subleasing business for the nine months ended December 31, 2024 was $311,669. Gross profit was $69,639 for the nine months ended December 31, 2023. Gross loss accounted for (44.5)% of our total property management and subleasing business revenue for the nine months ended December 31, 2024, as compared to gross profit of 22.4% for the nine months ended December 31, 2023. The decrease was due to disposal of DY. Nine months ended December 31, Increase (decrease) in 2024 2023 2024 compared to 2023 (In U.S. dollars, except for percentages) Gross profit $ 614,055 100 % $ 802,123 100 % (188,068 ) (23.4 )% Operating expenses: Selling expenses (273,657 ) (44.6 )% (132,533 ) (16.5 )% (141,124 ) 106.5 % General and administrative expenses (1,471,534 ) (239.6 )% (1,685,063 ) (210.1 )% 213,529 (12.7 )% Total $ (1,745,191 ) (284.2 )% $ (1,817,596 ) (226.6 )% 72,405 (4.0 )% (Loss) Income from operations $ (1,131,136 ) (184.2 )% $ (1,015,473 ) (126.6 )% (115,663 ) 11.4 % Selling, General and administrative expenses Our selling expenses for our garment manufacturing business for the nine months ended December 31, 2024 and 2023 was approximately $124,821 and $13,857, respectively. The selling expenses for property management and subleasing business for the nine months ended December 31, 2024 and 2023 was approximately $148,836 and $118,676, 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 nine months ended December 31, 2024 and 2023 was approximately $18,984 and $98,117, respectively. Our general and administrative expenses in our logistics services segment for the nine months ended December 31, 2024 and 2023 was approximately $615,462 and $562,696, respectively. The general and administrative expenses in our property management and subleasing business was approximately $180,056 and $132,336 for the nine months ended December 31, 2024 and 2023, respectively. Our general and administrative expenses in our corporate office for the nine months ended December 31, 2024 and 2023 was approximately $657,032 and $891,914, 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. 15 Total general and administrative expenses for the nine months ended December 31, 2024 decreased by approximately 12.7% to $1.5 million from $1.7 million for the nine months ended December 31, 2023. Loss from operations Loss from operations for the nine months ended December 31, 2024 and 2023 was approximately $1.1 and $1.0, respectively. Loss from operations of approximately $93,243 and $71,541 for the nine months ended December 31, 2024 and 2023, respectively, which was attributed from our garment manufacturing segment. Income from operations of approximately $259,144 and $132,530 was attributed from our logistics services segment for the nine months ended December 31, 2024 and 2023, respectively. Loss from operations of approximately $640,562 and $181,372 for the nine months ended December 31, 2024 and 2023, respectively, which was attributed from our property management and subleasing business. We incurred expenses from operations in corporate office of approximately $656,475 and $895,090 for the nine months ended December 31, 2024 and 2023, respectively. Income Tax Expenses Income tax expense for the nine months ended December 31, 2024 and 2023 was approximately $4,662 and $7,726, respectively. Yingxi primarily operates in the PRC and files tax returns in the PRC jurisdictions. Yingxi Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands, is not subject to income taxes. Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the nine months ended December 31, 2024 and 2023. QYTG and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes in the PRC has been made as QYTG and YX had no taxable income for the nine months ended December 31, 2024 and 2023. The majority of our subsidiaries are 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 2024. The preferential tax rates will be expired at end of year 2025. Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the nine months ended December 31, 2024 and 2023. Net Loss We incurred net loss of approximately $3.0 million and $4.0 million for the nine months ended December 31, 2024 and 2023, respectively. Our basic and diluted earnings per share were ($0.53) and ($1.0) for the nine months ended December 31, 2024 and 2023, respectively. Summary of cash flows Summary cash flows information for the three months ended December 31, 2024 and 2023 is as follow: Nine months ended December 31, 2024 2023 (In U.S. dollars) Net cash provided by (used in) operating activities $ 802,379 $ (1,521,802 ) Net cash used in investing activities (153,739 ) 90,863 Net cash (used in) provided by financing activities $ (986,341 ) $ 1,332,470 16 Net cash provided by operating activities in the nine months ended December 31, 2024 was approximately $0.8 million as compared to net cash used in operating activities of $1.5 million in the nine months ended December 31, 2023, which was approximately $2.3 million more than that of the nine months ended December 31, 2023. The increase was mainly due to (i) net loss adjusted to operating cash flow for the nine months ended December 31, 2024 was $0.6 million less than that of the nine months ended December 31, 2023; (ii) the movement of operating assets and liabilities of the three months ended December 31, 2024 resulted in cash outflow of approximately $0.1 million, which was $1.1 million less than that of 2023;. Net cash used in investing activities for the nine months ended December 31, 2024 was approximately $0.2 million, which was $0.3 million less than the nine months ended December 31, 2023. Net cash used in financing activities for the three months ended December 31, 2024 was approximately $1.0 million as compared to cash provided by financing activities of $1.3 million in the three months ended December 31, 2023. In the nine months ended December 31, 2024, the Company received proceeds of $0.2 million from bank borrowings, $0.6 million of proceeds from issue of ordinary shares, loan to related parties of $1.3 million, payment for redemption of convertible debts, and proceeds of $0.7 million from a private placement, while the Company had release of restricted cash of $3.85 million in the nine months ended December 31, 2023. Financial Condition, Liquidity and Capital Resources As of December 31, 2024, we had cash on hand of approximately $0.5 million, total current assets of approximately $27.8 million and current liabilities of approximately $3.2 million. We currently finance our operations from revenue, fund raising from public offering and private placement 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 debt or 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 December 31, 2024, the market foreign exchange rate was RMB 7.30 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 nine months ended December 31, 2024 and 2023 was approximately $0.06 million and $0.05 million, respectively. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 2024 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. 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to smaller reporting companies.