ADDENTAX GROUP CORP. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the three months ended June 30, 2026 and 2025 should be read in conjunction with the Financial Statements and corresponding notes included in this Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements. Overview Our Business We are a Nevada holding company with no material operations of our own. We conduct substantially all of our operations through our operating companies established in the PRC, primarily YX, our wholly-owned subsidiary and its subsidiaries. We are not a Chinese operating company. We are a holding company and do not directly own any substantive business operations in China. Therefore, our investors will not directly hold any equity interests in our operating companies. Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our operating structure, which would likely result in a material change in our operations and/or the value of our Common Stock, including that it could cause the value of such securities to significantly decline or become worthless. Our holding company, Addentax Group Corp., is listed on the Nasdaq Capital Market under the symbol of “ATXG”. As of three months ended June 30, 2026, our continuing operations primarily consisted of garment manufacturing, logistics services, consulting services and financing services. Our garment manufacturing business consists of sales made principally to wholesalers 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 delivery requirements for our customers. We conduct our garment manufacturing operations through two wholly-owned subsidiaries, namely YX and YS, which are located in Guangdong province, China. Our logistics business consists of delivery and courier services covering 45 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 XKJ and PF, which are located in Guangdong province, China. We provide business consulting and coordination services to customers seeking overseas wealth planning, insurance-related information and related cross-border service support. Our services primarily include customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. We conduct our consulting service business through our wholly owned subsidiary, Yingxi HK, which is located in Hong Kong, China. On March 30, 2026, we completed the acquisition of KMFG, a Nevada corporation with headquarters in Shenzhen, China. KMFG operates two core business segments: (i) an apparel and garment trading business focused on the wholesale distribution of men’s and women’s apparel to distributors primarily in China, sourcing directly from manufacturers without maintaining its own production facilities; and (ii) a digital publishing business conducted through its wholly owned subsidiary, GW Reader Sdn. Bhd. in Malaysia, which operates a mobile-based online fiction platform utilizing a pay-per-chapter microtransaction model for global readers. As of June 30, 2026, KMFG’s revenue contribution was not significant, and management does not currently present KMFG as a separate business line or reportable segment. Management will continue to monitor KMFG’s operations, revenue contribution and business development and will reassess the related disclosure and segment presentation as necessary in future periods. On May 15, 2026, the Company completed the acquisition of 100% of the equity interests of Time Is Loan Limited (“Time Is Loan”), a Hong Kong company and licensed money lender. Time Is Loan is principally engaged in providing consumer and commercial financing services in Hong Kong, primarily through short-term personal loans and other financing arrangements. Its customers are primarily sourced through online advertising, social media, mobile applications and telephone marketing. Before approving and disbursing financing, Time Is Loan performs customer identification, credit assessment and sanctions screening in accordance with its internal credit and compliance procedures. The results of Time Is Loan have been included in the Company’s consolidated financial statements from the acquisition date. 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. The primary business objective for our garment manufacturing segment is to expand our customer base and improve our profit. 3 Logistics Services Business The business objective and future plan for our logistics services segment is to establish an efficient logistics system and to build a nationwide delivery and courier network in China. As of June 30, 2026, we provided logistics services to over 45 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 in the year 2027. Consulting Services Business The business objective of our consulting service line is to provide advisory, referral, coordination and administrative support services in connection with overseas insurance configuration, wealth management planning, identity planning, education planning and related cross-border service needs. We intend to develop this business as an asset-light service business with an emphasis on high-value consulting services, digital tools and private-domain customer management. Financing Services Business The business objective of our financing services business is to provide consumer and commercial financing services in Hong Kong. We intend to expand our customer base through digital and other marketing channels while maintaining prudent credit assessment, regulatory compliance and effective risk management. We expect to continue developing this business and improve its contribution to the Company’s future growth. 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. Consulting Services Business Management expects relatively stronger customer activity during June to September, October to December, holidays and weekends, while January to March is generally expected to be a traditional slower season due to the Chinese New Year period. Actual seasonality may vary based on customer demand, market conditions, regulatory developments and the availability of third-party service providers. Financing Services Business Management expects customer demand for our financing services business to vary based on seasonal consumer spending patterns, short-term liquidity needs, marketing activities and general economic conditions in Hong Kong. Customer application activity may increase before holidays and during periods of higher consumer spending. Actual seasonality may vary depending on market conditions, borrower demand, competition, regulatory developments and our credit risk management considerations. Collection Policy Garment manufacturing Business For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished 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. Consulting Services Business For consulting services, the credit period is generally 30 to 60 days, depending on the service arrangement, customer relationship, settlement cycle with third-party service providers and internal credit review. We do not directly collect customer insurance premiums. Premiums must be paid by customers directly to the relevant insurance company’s designated bank account or official payment gateway. Financing Services Business For financing services, borrowers are required to repay principal and interest in accordance with the repayment schedule set out in the applicable loan agreement. Loan terms generally range from approximately half a month to 12 months. Before approving and disbursing financing, we perform customer identification, credit assessment and sanctions screening in accordance with our internal credit and compliance procedures. We monitor repayments on an ongoing basis, and past-due balances are subject to follow-up and collection procedures in accordance with our internal policies. 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. Critical Accounting Estimates The preparation of our 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, revenues and expenses, and related disclosures in the consolidated financial statements and accompanying notes. Management evaluates its estimates on an ongoing basis based on historical experience, current conditions and other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates. Management believes that the following accounting estimates involve a significant level of judgment or estimation uncertainty and are important to an understanding of our financial condition and results of operations. Management has discussed significant audit matters, including accounting estimates and related financial statement disclosures, with the Audit Committee in connection with the annual audit process. Goodwill and Impairment Assessment As a result of the acquisition of KMFG during the fiscal year ended March 31, 2026, the Company recognized goodwill in its consolidated financial statements. Goodwill represents the excess of the purchase consideration over the estimated fair value of identifiable net assets acquired and liabilities assumed in a business combination. The determination of goodwill requires management to make judgments and assumptions regarding the fair value of assets acquired and liabilities assumed, including assumptions related to future cash flows, discount rates, useful lives, market conditions and other valuation inputs. The Company evaluates goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. During the three months ended June 30, 2026, management considered whether any events or changes in circumstances indicated potential impairment of goodwill, including the Company’s operating results, financial performance and other relevant business and market conditions. No impairment of goodwill was identified during the three months ended June 30, 2026. Going Concern Assessment The Company has a history of net losses and operating losses and has used cash in operating activities, which have raised substantial doubt about its ability to continue as a going concern. During the three months ended June 30, 2026, the Company reported net income, primarily as a result of a non-cash fair value gain on derivative liabilities; however, the Company continued to incur a loss from operations and negative cash flows from operating activities. Management evaluates whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions. Management’s going concern assessment involves significant judgment, including assumptions regarding the Company’s ability to improve operating results, manage operating costs, collect receivables, develop its consulting and financing services businesses and obtain additional financing when necessary. Changes in these assumptions or the Company’s ability to execute its plans could affect management’s going concern assessment and related disclosures. Revenue Recognition Revenue from continuing operations is generated primarily from garment manufacturing, logistics services, consulting services and financing services. Revenue from contracts with customers relating to garment manufacturing, logistics services and consulting services is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Interest income generated from the Company’s financing services is not within the scope of ASC Topic 606 and is recognized over the contractual term of the underlying financing based on the outstanding principal and the applicable contractual interest rate or effective yield, as appropriate. For revenue streams within the scope of ASC Topic 606, the Company applies the following five-step model to recognize revenue from contracts with customers: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, the Company satisfies the performance obligations. 5 The following table summarizes the Company’s major revenue streams for the three months ended June 30, 2026 and 2025: Type of Revenue Amount for the three months ended June 30, 2026 Amount for the three months ended June 30, 2025 Principal/Agent Assessment Timing of Revenue Recognition Garment Manufacturing Business $ - $ 19,896 Principal Point in time Logistics Service $ 721,196 $ 806,458 Principal Point in time Consulting Services $ 2,542,196 $ Nil Agent Point in time Financing Service $ 172,185 $ Nil N/A Over the contractual financing term Others $ 2,062 $ Nil Principal Point in time Property Management Business (discontinued operations; excluded from total) $  Nil/ Discontinued operation $ Discontinued operation Principal Overtime Total revenue from continuing operations $ 3,437,639 $ 826,354 For the garment manufacturing business, revenue is generated primarily from the sale of garments and related products to customers based on purchase orders or sales contracts. The Company generally recognizes revenue at a point in time when control of the products is transferred to the customer, which typically occurs upon delivery of the products to the customer or other delivery point specified in the relevant customer arrangement. At that time, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the products. Revenue is measured based on the transaction price specified in the customer contract or purchase order, net of applicable discounts, returns, allowances or other variable consideration, if any. The Company did not have any material discounts, returns, allowances or other variable consideration related to garment manufacturing revenue during the three months ended June 30, 2026. For the logistics services business, revenue is generated primarily from the provision of delivery, transportation and related logistics services. The Company generally recognizes revenue at a point in time when the related logistics service has been completed in accordance with the customer arrangement. The Company’s performance obligation is typically satisfied when the goods have been delivered to the agreed destination or when the relevant delivery or logistics service has otherwise been completed and accepted by the customer. Revenue is measured based on the agreed service fee specified in the customer contract, delivery order, settlement statement or other relevant arrangement. The Company did not have any material rebates, credits or other variable consideration related to logistics services revenue during three months ended June 30, 2026. For the consulting services business, revenue is generated through Yingxi HK, the Company’s Hong Kong subsidiary. The consulting services primarily includes customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. The Company generally recognizes revenue when the agreed consulting, referral, coordination or administrative support services have been completed and the Company’s right to consideration has been established. If the consideration is contingent upon the successful completion or effectiveness of a customer arrangement with a third-party service provider, the Company recognizes revenue only when the contingency is resolved and it is probable that a significant reversal of revenue will not occur. The Company did not have any material refunds, clawbacks or other variable consideration related to consulting services revenue during the three months ended June 30, 2026. The Company evaluates whether it acts as a principal or an agent in each consulting services arrangement. To the extent the Company acts as an agent and does not control the underlying insurance products or other third-party services before they are provided to customers, the Company recognizes revenue on a net basis for the consulting, referral or coordination fee to which it expects to be entitled, and does not recognize the gross amount of insurance premiums or other amounts charged by third-party service providers. For the financing services business, the Company provides consumer and commercial financing services through Time Is Loan, the Company’s wholly owned Hong Kong subsidiary and a licensed money lender. The financing services business primarily generates interest income from short-term personal loans and other financing arrangements. Interest income is not within the scope of ASC Topic 606 and is recognized over the contractual term of the underlying financing based on the outstanding principal and the applicable contractual interest rate or effective yield, as appropriate. Principal repayments are applied against the related loans receivable and are not recognized as income. Loans receivable are carried at amortized cost, net of an allowance for expected credit losses. The Company’s property management and subleasing business was disposed of during the fiscal year ended March 31, 2026 and has been classified as discontinued operations. Accordingly, the revenue recognition policies described above relate only to the Company’s continuing operations. For contracts with customers within the scope of ASC Topic 606, the Company generally does not have a significant financing component, as the period between the transfer of the promised goods or services and payment is generally one year or less. Accounts receivable related to such contracts are recorded when the Company has an unconditional right to consideration. Amounts received from customers before the Company satisfies its performance obligations are recorded as contract liabilities or deferred revenue and are recognized as revenue when the related performance obligations are satisfied. The foregoing treatment does not apply to the Company’s financing services business, for which loans receivable and related interest income are accounted for under the applicable financial instrument and credit loss guidance. 6 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. 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 uses 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 and Loan Receivables, Net Accounts receivable are classified as financial assets measured at amortized cost and are stated at their historical carrying amounts, net of an allowance for expected credit losses. Accounts receivable are recognized when the Company has an unconditional right to consideration. The amortized cost represents the amount recognized on initial recognition, adjusted for subsequent collections, amortization, if applicable, and any allowance for expected credit losses. The Company recognizes an allowance for expected credit losses on accounts receivable in accordance with ASC Topic 326, Financial Instruments—Credit Losses (“ASC 326”). In estimating expected credit losses, the Company considers historical credit loss experience, customer payment history, aging of receivables, debtor-specific factors, current economic conditions and reasonable and supportable forecasts of future conditions, where appropriate. Receivables that share similar risk characteristics are generally evaluated on a collective basis, while receivables that do not share similar risk characteristics are evaluated individually. Receivables are written off when available information indicates that the counterparty is experiencing severe financial difficulty and there is no reasonable expectation of recovery, including, where applicable, when the counterparty has entered into liquidation or bankruptcy proceedings. Receivables written off may remain subject to collection or enforcement activities where appropriate. Any subsequent recoveries are recognized in profit or loss. Following the acquisition of Time Is Loan Limited (“Time Is Loan”) on May 15, 2026, the Company also has loan receivables arising from its financing services business. Loan receivables are measured at amortized cost, net of an allowance for expected credit losses. Interest income is recognized over the contractual term of the underlying financing based on the outstanding principal and the applicable contractual interest rate or effective yield, as appropriate. Principal repayments are applied against the related loan receivables and are not recognized as income. The allowance for expected credit losses on loan receivables represents management’s estimate of credit losses expected over the contractual life of the loans. In estimating expected credit losses, management considers relevant information including historical loss experience, borrower credit profiles, delinquency status, repayment history, collateral values, if applicable, current portfolio and economic conditions, and reasonable and supportable forecasts. Loans with similar risk characteristics are evaluated on a collective basis, while loans that no longer share similar risk characteristics are evaluated individually. As of June 30, 2026 and March 31, 2026, the allowance for expected credit losses related to trade and other receivables was approximately $52,515 and $51,629, respectively. Except for the addition of accounting policies related to loan receivables, interest income and the related allowance for expected credit losses following the acquisition of Time Is Loan, there were no material changes to the Company’s accounting policies during the three months ended June 30, 2026. Other than the changes described above, there is no change in the accounting policies for the three months ended June 30, 2026. 7 Recently issued and adopted accounting pronouncements The Company reviews new accounting standards as issued by the Financial Accounting Standards Board, or FASB, and evaluates the potential impact of such standards on the Company’s consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires enhanced disclosures about significant segment expenses and other segment items and applies to all public entities, including entities with a single reportable segment. The Company adopted ASU 2023-07 for the fiscal year ended March 31, 2026. The adoption of ASU 2023-07 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, but resulted in enhanced segment-related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires enhanced income tax disclosures, including additional disaggregation of information in the rate reconciliation and income taxes paid by jurisdiction. The Company adopted ASU 2023-09 for the fiscal year ended March 31, 2026. The adoption of ASU 2023-09 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, but resulted in enhanced income tax-related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires public business entities to provide additional disclosures about certain categories of expenses included in relevant income statement captions. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statement disclosures. In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. Management has not identified any other recently issued accounting standards that are expected to have a material impact on the Company’s consolidated financial statements or related disclosures. Results of Operations for the three months ended June 30, 2026 and 2025 The following table summarizes our results of operations for the three months ended June 30, 2026 and 2025. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Three Months Ended June 30, Changes in 2026 2026 2025 compared to 2025 (In U.S. dollars, except for percentages) Revenue $ 3,437,639 100.0 % $ 826,354 100.0 % $ 2,611,285 316.0 % Cost of revenues (3,023,014 ) (87.9 )% (635,940 ) (77.0 )% (2,387,074 ) 375.4 % Gross profit 414,625 12.1 % 190,414 23.0 % 224,211 117.7 % Operating expenses (1,090,696 ) (31.7 )% (545,289 ) (66.0 )% (545,407 ) 100.0 % Loss from operations (676,071 ) (19.7 )% (354,875 ) (42.9 )% (321,196 ) (90.5 )% Share of net loss of equity method investee (9,059 ) (0.3 )% - - (9,059 ) Other income, net 58,196 1.7 % 353,651 42.8 % (295,455 ) (83.5 )% Fair value gain or loss 3,024,540 88.0 % 453,448 46.2 % 2,571,092 567.0 % Net finance cost (8,322 ) (0.2 )% (582,732 ) (70.5 )% 574,410 (98.6 )% Income tax expense (2 ) (0.1 )% (764 ) (0.1 )% 762 (99.7 )% Income (loss) from continuing operations $ 2,389,282 69.5 % $ (131,272 ) (15.9 )% $ 2,520,554 (1,920 )% Loss from discontinued operations - - (261,166 ) (31.6 )% 261,166 (100.0 )% Net income (loss) $ 2,389,282 69.5 % $ (392,438 ) (47.5 )% $ 2,781,720 (708.8 )% Revenue Revenue for the three months ended June 30, 2026 was approximately $3.4 million. The increase compared with the corresponding period in 2025 was primarily attributable to approximately $2.5 million of consulting services revenue and approximately $0.17 million of financing services revenue following the acquisition of Time Is Loan, partially offset by lower logistics services revenue and the continued contraction of the garment manufacturing business. The Company did not generate garment manufacturing revenue during the three months ended June 30, 2026, compared with approximately $19,896 during the corresponding period in 2025. The decrease primarily reflected the continued scaling down of the garment manufacturing business and lower customer order volume. Revenue from logistics services was approximately $721,196 for the three months ended June 30, 2026, compared with approximately $806,458 for the corresponding period in 2025, representing a decrease of approximately $85,000, or 10.6%. The decrease primarily reflected lower delivery volume and customer demand. The decrease in logistics services as a percentage of total revenue also reflected the significant contribution from consulting and financing services during the current period. Revenue generated from our consulting services business was approximately $2.5 million, or 74.0% of our total revenue, for the three months ended June 30, 2026. The increase primarily reflected the continued development and expansion of our consulting services business during the period. The Company did not generate consulting services revenue during the three months ended June 30, 2025. 8 Revenue generated from our financing services business was approximately $0.2 million, or 5.0% of our total revenue, for the three months ended June 30, 2026. The financing services business was added following the Company’s acquisition of Time Is Loan Limited on May 15, 2026, and its results have been included in the Company’s consolidated results from the acquisition date. Accordingly, the Company did not generate financing services revenue during the three months ended June 30, 2025. The results of the property management and subleasing business for the comparative period have been classified as discontinued operations following the disposal of HX. Cost of revenue Three months ended June 30, Increase (decrease) in 2026 2025 2026 compared to 2025 (In U.S. dollars, except for percentages) Net revenue for garment manufacturing $ - - $ 19,896 100 % $ (19,896 ) (100 )% Raw materials - - 7,022 35.3 % (7,022 ) (100 )% Labor - - 8,120 40.8 % (8,120 ) (100 )% Other and Overhead - - 1,230 6.2 % (1,230 ) (100 )% Total cost of revenue for garment manufacturing - - 16,372 82.3 % (16,372 ) (100 )% Gross profit for garment manufacturing - - 3,524 17.7 % 3,524 (100 )% Net revenue for logistics services 721,196 100.0 % 806,458 100.0 % (85,262 ) (10.6 )% Fuel, toll and other cost of logistics services 514,913 71.4 % 571,083 70.8 % (56,170 ) (9.8 )% Subcontracting fees 100,574 13.9 % 48,485 6.0 % 52,089 107.4 % Total cost of revenue for logistics services 615,487 85.3 % 619,568 76.8 % (4,081 ) (0.7 )% Gross Profit for logistics services 105,709 14.7 % 186,890 23.2 % (81,181 ) (43.4 )% Net revenue for consulting service 2,542,196 100.0 % - - 2,542,196 Total cost of revenue for consulting service 2,349,034 92.4 % - - 2,349,034 Gross Profit for consulting service 193,162 7.6 % - - 193,162 Net revenue for financing service 172,185 100.0 % - - 172,185 Total cost of revenue for financing service 56,837 33.0 % - - 56,837 Gross Profit for financing service 115,348 67.0 % - - 115,348 Net revenue for other 2,062 100.0 % - - 2,062 Total cost of revenue for other 1,656 80.3 % - - 1,656 Gross Profit for other 406 19.7 % - - 406 Total cost of revenue from continuing operations $ 3,023,014 87.9 % $ 635,940 77.0 % $ 2,387,074 375.4 % Gross profit from continuing operations $ 414,625 12.1 % $ 190,414 23.0 % $ 224,211 117.8 % For our garment manufacturing business, we did not generate revenue for the three months ended June 30, 2026. Accordingly, no material cost of revenue was incurred in connection with the garment manufacturing business during the period. Subcontracting fees for our logistics services business were approximately $100,574 for the three months ended June 30, 2026, compared with approximately $48,485 for the corresponding period in 2025, representing an increase of approximately $52,089, or 107.4%. Subcontracting fees represented approximately 13.9% and 6.0% of logistics services revenue for the respective periods. The increase primarily reflected greater utilization of third-party contractors during the current period. Fuel, toll and other transportation-related costs for our logistics services business were approximately $0.5 million for the three months ended June 30, 2026, compared with approximately $0.6 million for the three months ended June 30, 2025. Such costs represented approximately 71.4% and 70.8% of the revenue generated from our logistics services business for the three months ended June 30, 2026 and 2025, respectively. The increase in such costs as a percentage of logistics services revenue was primarily attributable to lower logistics revenue during the current period and the increased use of third-party contractors. 9 The Company continued to develop its consulting services business during the three months ended June 30, 2026. Cost of revenue related to the consulting services business was approximately $2.3 million, representing approximately 92.4% of consulting services revenue for the period. Such costs primarily consisted of service fees and other amounts payable to third-party service providers and cooperation partners in connection with the delivery of consulting and coordination services. On May 15, 2026, the Company completed the acquisition of Time Is Loan Limited, a Hong Kong company and licensed money lender, and commenced consolidating its financing services business from the acquisition date. Cost of revenue related to the financing services business was approximately $56,837 for the three months ended June 30, 2026, representing approximately 33.0% of financing services revenue for the period. Gross profit Our garment manufacturing business did not generate gross profit for the three months ended June 30, 2026, as no revenue was generated from this business during the period. By comparison, gross profit from our garment manufacturing business was approximately $3,524 for the three months ended June 30, 2025, representing a gross margin of approximately 17.7%. The decrease was primarily attributable to the continued scaling down of our garment manufacturing business and a significant reduction in customer orders, which resulted in no material garment manufacturing revenue being recognized during the three months ended June 30, 2026. Gross profit from our logistics services business for the three months ended June 30, 2026 was approximately $105,709, representing a gross margin of approximately 14.7%, compared with approximately $186,890 and a gross margin of approximately 23.2% for the three months ended June 30, 2025. The decrease in gross profit and gross margin was primarily attributable to lower logistics services revenue during the current period, together with increased utilization of third-party contractors and relatively higher transportation and other operating costs as a percentage of revenue. Gross profit from our consulting services business for the three months ended June 30, 2026 was approximately $193,162, representing a gross margin of approximately 7.6%. The relatively low gross margin primarily reflected the significant service fees and other amounts payable to third-party service providers and cooperation partners in connection with the delivery of consulting and coordination services. Gross profit from our financing services business for the three months ended June 30, 2026 was approximately $115,348, representing a gross margin of approximately 67.0%. The financing services business was included in the Company’s consolidated results following the acquisition of Time Is Loan Limited on May 15, 2026. The gross margin primarily reflected interest income generated from the financing portfolio, net of costs directly associated with the operation of the financing services business. Three months ended June 30, Increase (decrease) in 2026 2025 2026 compared to 2025 (In U.S. dollars, except for percentages) Gross profit $ 414,625 100 % $ 190,414 100 % 224,211 117.7 % Operating expenses: Selling expenses (99,458 ) (24.0 )% (6,661 ) (3.5 )% (92,797 ) 1,393.1 % General and administrative expenses (991,238 ) (239.0 )% (538,628 ) (282.9 )% (452,610 ) 84.0 % Total $ (1,090,696 ) (263.1 )% $ (545,289 ) (286.4 )% (545,407 ) 100.0 % Loss from operations $ (676,071 ) (163.1 )% $ (354,875 ) (186.4 )% (321,196 ) 90.5 % Selling, General and administrative expenses Selling expenses from continuing operations were approximately $99,458 for the three months ended June 30, 2026, compared with approximately $6,661 for the three months ended June 30, 2025, representing an increase of approximately $92,797, or 1,393.1%. The increase was primarily attributable to selling and marketing expenses incurred by our newly acquired financing services business. Selling expenses attributable to the financing services business were approximately $95,079 for the three months ended June 30, 2026, primarily consisting of advertising and customer acquisition-related expenses. Other selling expenses mainly consisted of local transportation, unloading and product inspection expenses associated with the Company’s other continuing operations. General and administrative expenses of our garment manufacturing business were approximately $1,654 and $26,450 for the three months ended June 30, 2026 and 2025, respectively. The decrease was consistent with the continued scaling down of our garment manufacturing operations during the current period. General and administrative expenses of our logistics services business were approximately $176,571 and $200,372 for the three months ended June 30, 2026 and 2025, respectively. The Company disposed of its property management and subleasing business in July 2025. General and administrative expenses attributable to that business for the three months ended June 30, 2025 were approximately $41,131 and are included in discontinued operations rather than in general and administrative expenses from continuing operations. General and administrative expenses of our consulting services business were approximately $99,738 for the three months ended June 30, 2026. General and administrative expenses of our financing services business were approximately $94,306 for the three months ended June 30, 2026. The financing services business was included in the Company’s consolidated operations following the acquisition of Time Is Loan Limited on May 15, 2026. 10 General and administrative expenses classified as other were approximately $19,097 for the three months ended June 30, 2026, primarily representing expenses incurred by Keemo Fashion Group Limited and its subsidiaries. General and administrative expenses of our corporate office were approximately $148,627 and $311,806 for the three months ended June 30, 2026 and 2025, respectively. General and administrative expenses primarily consisted of administrative salaries, office expenses, depreciation and amortization, repairs and maintenance, legal and professional fees and other expenses that were not directly attributable to revenue-generating activities. General and administrative expenses increased during the three months ended June 30, 2026 compared with the corresponding period in 2025. The increase was primarily attributable to approximately $0.45 million of stock-based compensation expense recognized in connection with fully vested equity awards granted on April 8, 2026, together with expenses associated with the consulting services and financing services businesses and KMFG, partially offset by lower recurring corporate and logistics-related expenses. Loss from operations Loss from continuing operations before non-operating items for the three months ended June 30, 2026 and 2025 was approximately $676,071 and $354,875, respectively, representing an increase of approximately $321,196, or 90.5%. Loss from operations attributable to our garment manufacturing business was approximately $1,654 and $29,587 for the three months ended June 30, 2026 and 2025, respectively. Loss from operations attributable to our logistics services business was approximately $70,862 and $13,481 for the three months ended June 30, 2026 and 2025, respectively. Income from operations attributable to our consulting services business was approximately $93,425 for the three months ended June 30, 2026. Loss from operations attributable to our financing services business was approximately $74,037 for the three months ended June 30, 2026. Other operating loss was approximately $19,097, primarily attributable to Keemo Fashion Group Limited and its subsidiaries. Corporate operating expenses were approximately $603,843 and $311,807 for the three months ended June 30, 2026 and 2025, respectively. The increase in overall loss from operations was primarily attributable to higher corporate operating expenses and the operating contribution from our consulting services business, and increased losses from our logistics services business and expenses associated with our financing services business and Keemo Fashion Group Limited. Income Tax Expenses Income tax expense for the three months ended June 30, 2026 and 2025 was approximately $2 and $764, respectively. YX primarily operates in the PRC and files tax returns in the PRC jurisdictions. Yingxi Seychelles was incorporated in the Republic of Seychelles and, under the current laws of Seychelles, is not subject to income taxes. Yingxi HK was incorporated in Hong Kong and is subject to Hong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes in Hong Kong has been made as Yingxi HK had no taxable income for the three months ended June 30, 2026 and 2025. WFOE and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate of 25%. No provision for income taxes in the PRC has been made as WFOE and YX had no taxable income for the three months ended June 30, 2026 and 2025. PRC operating companies are governed by the Income Tax Laws of the PRC. All YX’s operating companies are subject to progressive EIT rates from 5% to 15% in 2026. The preferential tax rates will expire at end of year 2026. Addentax Group Corp. is a U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Addentax Group Corp. had no United States taxable income for the three months ended June 30, 2026 and 2025. Net Income (Loss) We reported net income of approximately $2.4 million for the three months ended June 30, 2026 and net loss of approximately $0.4 million for the three months ended June 30, 2025. Income from continuing operations for the 2026 period was approximately $2.4 million, while loss from continuing operations and loss from discontinued operations for the 2025 period were approximately $0.1 million and $0.3 million, respectively. Basic and diluted income (loss) per share from continuing operations was $2.93 and ($0.30) for the 2026 and 2025 periods, respectively; loss per share from discontinued operations was nil and ($0.61), respectively; and total basic and diluted income (loss) per share was $2.93 and ($0.91), respectively. 11 Summary of cash flows Summary cash flow information for the three months ended June 30, 2026 and 2025 is as follows: Three months ended June 30, 2026 2025 (In U.S. dollars) Net cash used in operating activities $ (24,366 ) $ (458,163 ) Net cash used in investing activities (432,121 ) (79,455 ) Net cash provided by financing activities $ 645,682 $ 553,822 Net cash used in operating activities in the three months ended June 30, 2026 decreased by approximately $0.43 million compared with that of the three months ended June 30, 2025. The decrease was because (i) net loss adjusted to operating cash flow for the three months ended June 30, 2026 was $0.1 million less than that of the three months ended June 30, 2025; (ii) the movement of operating assets and liabilities in the three months ended June 30, 2026 resulted in cash inflow of approximately $0.1 million, which was $0.2 million more than that of the corresponding period in 2025. Net cash used in investing activities for the three months ended June 30, 2026 was approximately $0.4 million more than that of 2025. It was mainly due to payment of approximately $0.6 million for long-term loans in our financing service business and cash inflow of $0.2 million from acquired subsidiary by transfer of common stock of the Company. Net cash provided by financing activities for the three months ended June 30, 2026 increased by approximately $0.1 million, compared to the three months ended June 30, 2025. The increase was mainly because in the three months ended June 30, 2026, the related parties repaid $0.2 million to the Company, and received proceeds from loan payable of $0.4 million. While in the three months ended June 30, 2025, the Company had release of restricted cash of $1.3 million, paid net cash advance of $0.9 million to related parties, and received net proceeds from bank loans of $0.1 million. Financial Condition, Liquidity and Capital Resources As of June 30, 2026, we had cash on hand of approximately $0.8 million, total current assets of approximately $27.4 million and current liabilities of approximately $7.4 million. We presently finance our operations primarily through cash flows from revenue, existing cash resources, capital contributions or financial support from our chief executive officer, Mr. Hong Zhida, and, if necessary, potential future financing activities, including equity financing, debt financing, private placements or other financing arrangements. There can be no assurance that additional financing will be available to us on commercially acceptable terms, or at all. 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, Mr. Hong has indicated his intention and willingness to provide additional equity financing, if necessary. Foreign Currency Translation Risk Our operations are located primarily in China and Hong Kong, 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”) and Hong Kong dollar (“HKD”). Our sales are primarily denominated in RMB, while sales generated by our Hong Kong operations are denominated in HKD. In the past years, RMB continued to appreciate against the U.S. dollar. As of June 30, 2026, the market foreign exchange rates were RMB 6.80 and HKD 7.84 to one U.S. dollar, respectively. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation (loss) for the three months ended June 30, 2026 and 2025 was approximately $(0.06) million and ($0.04) million, respectively. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2026 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to smaller reporting companies.