Item 1. Business
Item
1. Business
Addentax
Group Corp. was incorporated in the State of Nevada on October 28, 2014. We were originally incorporated to produce images on multiple
surfaces, such as glass, leather, plastic, ceramic, textile, and others using a 3D sublimation vacuum heat transfer machine. We no longer
pursue opportunities related to 3D printing positioning.
On
December 28, 2016, we entered into a Sale and Purchase Agreement (“SPA”) with Yingxi Industrial Chain Group Co., Ltd.
(“YICG”), which was incorporated under the laws of the Republic of Seychelles and principally engaged in garment
manufacture, where we agreed to acquire 100% of the equity interest in YICG and to issue two million five hundred thousand
(2,500,000) restricted common shares of the Company to former owners of YICG (after giving effect to all subsequent share splits, combinations or similar transactions). The completion of the SPA took place on September 25,
2017. Following the completion of the SPA, YICG’s business became our business.
We
have a fiscal year-end of March 31. The business office is located at Kingkey 100, Block A, Room 4805, Luohu District, Shenzhen City,
China 518000. Our telephone number is +(86) 755 8233 0336.
Current
Business
We
(Addentax Group Corp.) are a Nevada holding company with no material operations of our own. We conduct substantially all of our
operations through our operating companies established in the PRC, primarily 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 became an endemic, only 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 Form 10-K 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 investors are investing.
Our
subsidiaries include (i) Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles company; (ii) Yingxi HK; (iii) Qianhai
Yingxi Textile & Garments Co., Ltd., a PRC company; (iv) 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) XKJ, (ix) Dongguan Au Te Si Garments Co., Ltd., a PRC company
(“AOT”), and (x) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).
“PRC
Subsidiaries” refer to, collectively, (i) Qianhai Yingxi Textile & Garments Co., Ltd.; (ii) YX, (iii) HSW, (iv) YS; (v) PF; (vi) Shenzhen
Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (vii) 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.
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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 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 logistics 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 shop subleasing and property management services for garment wholesalers and
retailers in the garment market. We currently have an aggregate of 56,238 square meters of floor space and provide approximately
1,300 shop spaces 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.
Competitive
Strengths
We
believe we have the following competitive strengths:
Cost-effective
production. We have adopted a vertical integration production process. We produce garments in our own production facilities and employ
our in-house transport teams to deliver garments to our customers. This one-stop service optimizes production efficiency and saves costs
by lowering the cost per unit, thereby achieving economies of scale.
Stringent
quality control process. As of March 31, 2025, we had 20 employees in the production department
that are responsible for conducting our quality control process. We implement a stringent quality control process which monitors various
stages of our garment manufacturing business, including sampling checks of semi-finished products and finished products. We prepare inspection
reports to address the quality problems and make recommendations to improve the quality of our products. During final product inspection,
we pay special attention to the measurements, workmanship, ironing and packaging of our products to help best ensure that the quality
of our products comply with the specifications, standards and requirements of our customers.
Strong
design capabilities. Our design team works closely with our customers to understand their needs and make recommendations to them.
Our design team also conducts market research and attends industry exhibitions to understand the latest market trends. As of March 31,
2025, our design team consisted of 3 members.
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Extensive
delivery network. Our logistics business has nine routes and covers 45 cities in 10 provinces and 2 municipalities in the PRC.
Strategic
location and infrastructure. Our property management and subleasing business operates through Dongguan Hongxiang Commercial Co.,
Ltd. (HX), located in Guangdong province, China, which is a key area for the garment market. By securing a prime location and
developing a well-maintained infrastructure, we provide attractive and convenient spaces for garment wholesalers and retailers,
enhancing their operational efficiency and appeal to customers.
Comprehensive
property services. We provide a wide range of property management services, including security, maintenance, and customer support,
to ensure a high standard of service for our tenants. This comprehensive solution helps to foster a favorable business environment for
garment wholesalers and retailers, enhancing tenant satisfaction and retentions.
Business
Strategies
Key
elements of our business and growth strategies include the following:
Sales
of raw materials. We intend to enter into exclusive agreements with textile and garment suppliers in Southeast China to be their
exclusive agent and supply their textiles and garments to our customers. To execute this plan, we intend to set up several retailers
for the sales of textiles and garments to retail customers and supply the textiles and garments exclusively to various high-end fashion
brands.
Development
of our own brands. We intend to develop our own brands that focus on fast fashion with teenagers being our primary target customers.
We plan to adopt a low-cost strategy at the early stage and improve the quality of our products after increasing our market share. We
are in the process of registering a trademark for our own brand and intend to start our advertising campaign after the registration of
this trademark. We plan to distribute our products in different channels, including our own retailers, co-operative retailers and franchisees.
Expand
our delivery network. As of March 31, 2025, we provided logistics services to over 45 cities in 10 provinces and 2 municipalities
in the PRC. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s profits in
the year 2025.
Develop
international logistics services and warehousing services. We intend to develop international logistics services for customers located
all over the world and international warehousing services.
Develop
E-commerce business. We integrated resources in shopping malls and we intend to develop e-commerce bases and the internet celebrity
economy together to increase the value of the stores in the area.
Enhance
tenant experience through value-added services. We aim to offer a range of value-added services to our tenants, including property
maintenance, marketing support, and business consulting. These services are designed to help tenants improve their business operations,
attract more customers, and increase their profitability, thereby enhancing tenant retention and satisfaction.
Develop
digital solutions for property management. We plan to implement advanced digital solutions to streamline our property management
processes. This includes the use of property management software for lease administration, tenant communication, and maintenance scheduling.
By leveraging technology, we aim to improve operational efficiency and provide a seamless experience for our tenants.
Leverage
data analytics for informed decision-making. We plan to utilize data analytics to gain insights into market trends, tenant preferences,
and property performance. By analyzing this data, we can make informed decisions on property acquisitions, rental pricing, and tenant
services, ultimately optimizing our property management and subleasing operations.
Enhance
customer service and support. We intend to improve our customer service and support by providing dedicated tenant support teams and
implementing tenant feedback mechanisms. Exceptional customer service will help build strong relationships with tenants and improve overall
satisfaction.
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Our
garment manufacturing business
We
manufacture garments for various high-end fashion brands through our wholly-owned subsidiaries, HSW, YS, AOT, which are located in Guangdong
province, the PRC.
Operations
Our
customer relationship team is responsible for cultivating and maintaining our relationship with customers.
Our
design team works closely with our customer relationship team to understand our customers’ needs and make recommendations to them
based on their designs.
Our
fabric team leverages our experience in fabric sourcing as well as our understanding of fabric features to recommend the types of fabric
to be used in our customers’ products. Our fabric team may also suggest alternative fabrics to our customers. Our fabric team works
with our research and development team to understand fabric types and aims to identify different fabric we source and improve the quality
and comfort of the fabric we produce.
Our
product and technical team are mainly responsible for development samples of products, preparing structural and production guidance of
products as well as producing paper patterns for our garment production team. Upon order confirmation from our customers, our customer
relationship team informs our fabric team to carry out raw material sourcing.
We
source finished fabric and yarns from our suppliers for garment production. The procedures for fabric production are normally divided
into the following stages: (i) spinning; (ii) weaving or knitting; (iii) dyeing or printing; and (iv) finishing. Generally, our fabric
team requires four to six weeks to source raw materials from our suppliers.
Our
garment production team is responsible for producing garments based on the raw materials we source. The major stages involved in garment
production include: (i) paper patterning; (ii) fabric cutting; (iii) sewing; (iv) interim quality inspection; (v) trimming; (vi) washing;
and (vii) ironing.
Seasonality
We
generally receive more purchase orders during our second and third quarters and fewer manufacture orders during May and June.
Credit
period
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. For our new customers, we generally require advances or deposits to be made when placing orders.
Our
logistics business
We
pack products and provide logistics service to our customers through our wholly-owned subsidiaries, XKJ and PF which are located in Guangdong
province, the PRC. Our in-house logistics teams deliver to approximately 10 provinces and 2 municipalities in the PRC.
Where
a customer is located in an area not covered by our delivery fleet or where our in-house logistics teams are fully engaged, we will outsource
delivery to third-party contractors. We believe outsourcing allows us to maximize our delivery capacity and improve inventory flexibility
while minimizing capital expenditures, such as shipping costs and the costs of additional drivers during low seasons.
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Our
logistics services
We
provide comprehensive logistics services to our customers, which include storage, transportation, warehousing, handling, packaging and
order processing. We also provide customs declaration and tax clearance services to our customers who export goods overseas.
Our
network
We
have 114 logistics points and they are located in 10 provinces and 2 municipalities which cover 45 cities in the PRC.
Our
internal management
Our
management in the logistics business is responsible for setting out business strategies and managing the daily operation. Specifically,
they have regular meetings with different departments, conduct inspections and supervise the finance department, operation department
and administration department.
Seasonality
We
generally receive more delivery orders in our third and fourth quarters and are more vulnerable to shipping delays in the PRC during
the Chinese New Year due to traffic and port congestion, border crossing delays and customs clearance issues.
Credit
period
We
generally require payments from the customers between 30 to 90 days following their acknowledgement of receipt of goods.
Customers
and Suppliers
Customers
Our
customer base is diverse. Our customers are as follows: (i) our customers in the garment manufacturing business are mainly garment
wholesalers and retailers, (ii) our customers in the logistics business are mainly trading companies and logistic companies, and
(iii) our customers in the property management and subleasing business are manufacturing companies and e-commerce companies. There
were two customers that accounted for more than 10% of our net sales for the years ended March 31, 2025 and 2024.
Suppliers
We
procure our garments through various textile companies in our garment manufacturing business. For our logistics business, we procure
from packing companies and transportation companies. For our property management and subleasing business, our suppliers are property
owners. There was one supplier that accounted for more than 10% of our total cost for both years ended March 31, 2025 and
2024.
Inventory
Garment
manufacturing business . We maintain our raw materials in our storage facilities. We review our inventory levels in order to identify
slow-moving materials and broken assortments.
Logistics
business . Since we deliver products as soon as we receive orders from customers, we do not operate distribution centers and hence
do not need to carry a significant amount of inventory.
Our
property management and subleasing business. We do not need to carry a significant amount of inventory due to the nature of the business.
Intellectual
Property
The
Company, through its subsidiary YX, received the approval
of the trademarks below in relation to its business from PRC government.
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Competition
While
the PRC is still the world’s largest clothing manufacturer with enormous production capacity, oversupply, increasing labor costs
and rising local protectionism have eroded its competitiveness.
The
principal competitive factors in the garment manufacturing market include:
●
brand
awareness and focus;
●
breadth
of product offerings; and
●
quality
control.
The
principal competitive factors in the logistics market include:
●
delivery
time; and
●
network
coverage.
The
principal competitive factors in the property management and subleasing market include:
●
Cost
control; and
●
network
coverage.
We
believe we compete favorably with our competitors on the basis of the above factors as a result of our market position and customer base.
By offering one-stop-shop services and affordable price points, we provide services to our customers that are difficult for other competitors
to address.
Employees
As
of March 31, 2025, we had approximately 112 employees and there was no labor union established by our employees. The following table
sets out a breakdown of the number of employees by function as of March 31, 2025:
Function
Number
of
employees
Administration
20
Finance
10
Logistics
7
Marketing
6
Operation
30
Productive
20
Total
112
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According
to PRC regulations, we must participate in various employee social security plans organized by local governments, including pension,
unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are also required
under PRC law to contribute to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the local government from time to time.
We
believe that we maintain a good working relationship with our employees, and to date we have not experienced any significant labor disputes.
Recent
Developments
Company
investment
On
January 8, 2025, we entered into that certain securities purchase agreement (the “Agreement”) to purchase 3,750,000
shares of common stock, $0.001 par value per share (“Well Common Stock”), of Well Information Technology Corporation
(“Well InfoTech”), a company incorporated in the State of Nevada, for a total cash consideration of USD $750,000 (the
“Shares”). The Shares would constitute approximately 2.5% of the number of shares of Well Common Stock of Well InfoTech
immediately prior to the issuance of such Shares.
Supply
Chian Development
On
November 21, 2024, we signed a memorandum of understanding (the “MOU”) with Shenzhen Yingbin Brand Development Co., Ltd.
(“Yingbin Brand”), to establish the foundation for a nationwide strategic collaboration between the two companies which aims
to enhance company’s brand supply chain, product supply chain, and marketing supply chain services in China.
Government
Regulations
The
PRC government has corresponding industrial regulatory measures and policies for garment manufacturing business, logistics business and
property management and subleasing business. Our PRC subsidiaries currently comply with these regulatory requirements and have not received
any action from industry regulators for conduct of their business. The PRC government may, however, from time to time institute rules
and regulations on such businesses which makes it difficult or impossible for us to operate successfully, if at all, in the PRC. Please
see the section on “Risk Factors” for further details.
The
PRC government encourages small to medium-sized companies in traditional industries, such as garment manufacturing, to modernize their
business models with technological updates in order to sharpen their competitive edge in global markets.
PRC
Limitation on Overseas Listing and Share Issuances
Currently,
each of our PRC Subsidiaries holds and maintains a business license issued by the local market supervision and administration bureau,
and has received all requisite permissions and approvals in order to conduct and operate our business. Based on our understanding of
the PRC laws and regulations, our PRC businesses hold all the business licenses issued and approved from the relevant local authorities
and other administrative license required by its business, and do not require any other permissions or approvals to operate their PRC
business operations. As of the date of this report, none of our PRC Subsidiaries has been denied or punished by relevant governmental
authorities due to its business qualifications. In addition, we (Addentax Group Corp.) and our non-PRC subsidiaries have also received
all requisite permissions and approvals in order to conduct and operate our business.
In
order to promote domestic enterprises to carry out overseas capital market activities in accordance with law and compliance, the CSRC
issued the “Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” and five supporting
guidelines (collectively referred to as the Overseas Listing Filing Rules) on February 17, 2023, and took effect on March 31, 2023. The
Overseas Listing Filing Rules clarify the relevant rules of the Chinese government on the management of overseas issuance, including
but not limited to (i) Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after
the relevant application is submitted overseas. Subsequent securities offerings of an issuer in the same overseas market where it has
previously offered and listed securities shall be filed with the CSRC within 3 working days after the offering is completed. Subsequent
securities offerings and listings of an issuer in other overseas markets than where it has offered and listed shall be filed as Initial
public offerings; (ii) A negative list that prohibits overseas offering and listing; (iii) The reporting obligations of the issuer after
filing, such as the change of control, voluntary or mandatory delisting and other major changes after overseas issuance or listing, the
issuer should bear the obligation to report to the CSRC; (iv) Legal liability, such as failure to fulfill the filing procedures, or violation
of relevant regulations in overseas listing, the CSRC shall order rectification, issue warnings to such domestic company, and impose
a fine of between RMB 1,000,000 yuan and RMB 10,000,000 yuan. Directly liable persons-in-charge and other directly liable persons shall
be warned and each imposed a fine of between RMB 500,000 yuan and RMB 5,000,000 yuan.
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According
to the Overseas Listing Filing Rules, the company, as an enterprise that has been listed on the Nasdaq Capital Market before the new
regulations come into effect, does not need to apply to the CSRC for filing immediately. If it is issued and listed in other overseas
markets, it shall be filed in accordance with relevant regulations. On April 29, 2024, the Company entered into two private placement agreements with certain
individual investors for 330,000 shares of Common Stock each at a unit price of $0.98 per share and for a total of $646,800. After the transactions,
we shall be filed with the CSRC within three working days after the issuance of shares is completed. The Company has submitted the filing
application to the China Securities Regulatory Commission. As of June 29, 2025, the application is still pending. Accordingly, the Company’s
overseas issuances and subsequent additional issuances comply with the relevant provisions of the overseas listing filing regulation.
As the overseas listing filing process has not yet been completed, the outcome and subsequent requirements remain uncertain. As a result,
we cannot assure you that we will be able to complete all requirement for our future issuance in a timely manner and fully comply with
the relevant new rules, if any. In addition, we cannot guarantee that we will not be subject to greater regulatory scrutiny or subsequent
interference by the Chinese government.
Transfers
of Cash to and from our Subsidiaries
We
(Addentax Group Corp.) are a Nevada holding company with no material operations of our own. We conduct substantially all of our operations
through the operating companies established in the PRC, primarily Shenzhen Qianhai Yingxi Industrial Chain Service Co., Ltd. (“YX”),
our wholly owned subsidiary and its subsidiaries. We are not a Chinese operating company. We are a holding company and do not directly
own any substantive business operations in China. As a result, although other means are available for us to obtain financing at the holding
company level, Addentax’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends
paid by our PRC Subsidiaries. If any of our subsidiaries incurs debt on its own in the future, the instruments governing such debt may
restrict its ability to pay dividends to Addentax. In addition, our PRC Subsidiaries are required to make appropriations to certain statutory
reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies.
Current
PRC regulations permit our PRC Subsidiaries to pay dividends to us through Yingxi HK, our intermediate holding subsidiary in Hong Kong,
only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition,
each of our PRC Subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve
until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion
of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion
of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate
future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except
in the event of liquidation.
14
The
PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC.
Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency
for the payment of dividends from our profits, if any. Furthermore, if our PRC Subsidiaries incur debt on their own in the future, the
instruments governing the debt may restrict their ability to pay dividends or make other payments.
Cash
dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes,
any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding
tax at a rate of up to 10.0%.
In
order for us to pay dividends to our shareholders, we will rely on the distribution of dividends, through the WFOE, to Yingxi HK from
our PRC Subsidiaries. As of the date hereof, none of our PRC Subsidiaries has distributed any dividends to Yingxi HK.
Pursuant
to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and
Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong
resident enterprise owns no less than 25% of a PRC enterprise. However, the 5% withholding tax rate does not automatically apply and
certain requirements must be satisfied, including without limitation that (a) the Hong Kong enterprise must be the beneficial owner
of the relevant dividends; and (b) the Hong Kong enterprise must directly hold no less than 25% share ownership in the PRC enterprise
during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong enterprise must obtain a tax
resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax
authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain
the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under
the Double Taxation Arrangement with respect to dividends to be paid by our WFOE to its immediate holding company, Yingxi HK. As of
the date of this Form 10-K, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority.
Yingxi HK intends to apply for the tax resident certificate when WFOE plans to declare and pay dividends to Yingxi HK.
As
of the date hereof, we have had no transactions that involved the transfer of cash or assets throughout our corporate structure. The
PRC Subsidiaries have not transferred cash or other assets to Addentax, including by way of dividends. However, to the extent cash in
the business is in the PRC/Hong Kong or is in our PRC or Hong Kong subsidiaries, there can be no assurance that the PRC government will
not intervene or impose restrictions or limitations on the ability of Addentax or Addentax’s subsidiaries to transfer cash. As
a result, such funds may not be available to fund operations or for other use outside of the PRC or Hong Kong. Addentax does not currently
plan or anticipate transferring cash or other assets from our operations in China to any non-Chinese entity. We intend to retain most,
if not all, of available funds and any future earnings after this offering to the development and growth of our business in China. As
of the date hereof, no transfers, dividends, or distributions have been made to our investors. Further, our management is directly supervising
cash management. Our finance department is responsible for establishing the cash management policies and procedures among our departments
and the operating entities. Each department or operating entity initiates a cash request by putting forward a cash demand plan, which
explains the specific amount and timing of cash requested, and submitting it to designated management members of our Company, based on
the amount and the use of cash requested. The designated management member examines and approves the allocation of cash based on the
sources of cash and the priorities of the needs, and submits it to the cashier specialists of our finance department for a second review.
Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred nor
a written policy that addresses how we will handle any limitations on cash transfers due to PRC law.
Holding
Foreign Company Accountable Act
Trading
in our securities may be prohibited under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB determines that it cannot inspect or investigate completely our auditor.
Pursuant
to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate
completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of
a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the
PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific
registered public accounting firms which are subject to these determinations.
The
PCAOB is currently unable to conduct inspections in China without the approval of Chinese government authorities. If it is later determined
that the PCAOB is unable to inspect or investigate our auditor completely, investors may be deprived of the benefits of such inspection.
Any audit reports not issued by auditors that are completely inspected by the PCAOB, or a lack of PCAOB inspections of audit work undertaken
in China that prevents the PCAOB from regularly evaluating our auditors’ audits and their quality control procedures, could result
in a lack of assurance that our financial statements and disclosures are adequate and accurate.
15
Our
auditor, Pan-China Singapore PAC, the independent registered public accounting firm that issued the audit report included in this
Form 10-K, is subject to PCAOB inspections. Pan-China Singapore PAC is headquartered in Singapore and there are no limitations in
Singapore on PCAOB inspections. Therefore, we believe that, as of the date of this Form 10-K, our auditor is not subject to the
determinations announced by the PCAOB on December 16, 2021 relating to the PCAOB’s inability to inspect or investigate
completely registered public accounting firms headquartered in the PRC or Hong Kong because of a position taken by one or more
authorities in the PRC or Hong Kong. However, to the extent that our auditor’s work papers may, in the future, become located
in China, such work papers will not be subject to inspection by the PCAOB because the PCAOB is currently unable to conduct
inspections without the approval of the Chinese authorities. Inspections of certain other firms that the PCAOB has conducted outside
of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed
as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of our
auditors’ work papers in China would make it more difficult to evaluate the effectiveness of our auditor’s audit
procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. As a
result, our investors may be deprived of the benefits of the PCAOB’s oversight of our auditor through such inspections and
they may lose confidence in our reported financial information and procedures and the quality of our financial statements. We cannot
assure you whether Nasdaq or other regulatory authorities will apply additional or more stringent criteria to us. Such uncertainty
could cause the market price of our Common Stock to be materially and adversely affected.
On
August 26, 2022, the PCAOB announced that it had signed the “Protocol” with the CSRC and the MOF, which governs inspections
and investigations of audit firms based in mainland China and Hong Kong. The Protocol remains unpublished and is subject to further explanation
and implementation. Pursuant to the fact sheet with respect to the Protocol released by the SEC, the PCAOB shall have independent discretion
to select any issuer audits for inspection or investigation and the unfettered ability to transfer information to the SEC. According
to the PCAOB, its December 2021 determinations under the HFCAA remain in effect. On December 15, 2022, the PCAOB announced that it has
completed a test inspection of two selected auditing firms in mainland China and Hong Kong and has voted to vacate its previous Determination
Report, which concluded in December 2021 that the PCAOB could not inspect or investigate completely registered public accounting firms
based in mainland China or Hong Kong. On December 23, 2022, the AHFCAA was enacted, which amended the HFCAA by requiring the SEC to prohibit
an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive
years instead of three and such act was signed into law on December 29, 2022. It is possible that the PCAOB may reassess its determinations
in the future, and it could determine that it is still unable to inspect or investigate completely registered public accounting firms
in mainland China and Hong Kong. The Holding Foreign Companies Accountable Act and related regulations currently previously did not affect
the Company as the Company’s auditor is subject to PCAOB’s inspections and investigations.
Moreover,
if trading in our securities is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully
investigate our auditor at such a future time, an exchange may determine to delist our securities.
Furthermore,
on June 22, 2021, the U.S. Senate passed AHFCAA and on December 29, 2022, the Consolidated Appropriations Act was signed into law by
President Biden, which contained, among other things, an identical provision to AHFCAA and amended the Holding Foreign Companies Accountable
Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject
to PCAOB inspections for two consecutive years instead of three, thus reducing the time before your securities may be prohibited from
trading or delisted. The delisting or the cessation of trading of our Common Stock, or the threat of their being delisted or prohibited
from being traded, may materially and adversely affect the value of your investment. The PCAOB continues to demand complete access in
mainland China and Hong Kong moving forward and has resumed regular inspections since March 2023. Moreover, if trading in our securities
is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such
future time, an exchange may determine to delist our securities.
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