ADDENTAX GROUP CORP. The following discussion and analysis of our financial condition and results of operations for the three and nine months endedDecember 31, 2022 and 2021 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 garment manufacturer and logistics services provider based inChina . We are listed on the Nasdaq Capital Market under the symbol of "ATXG". We classify our businesses into three segments: Garment manufacturing, Logistics services, and Property management and subleasing. We used to have an operating segment named "Epidemic prevention supplies", which included manufacturing, distribution and trading of epidemic prevention supplies. As the COVID-19 pandemic is getting better, the Company ceased to operate in the Epidemic prevention supplies business at the beginning of the quarter. Our garment manufacturing business consists of sales made principally to wholesaler located inthe People's Republic of China ("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 delivery requirement for our customers. We conduct our garment manufacturing operations through three wholly owned subsidiaries, namelyDongguan Heng Sheng Wei Garments Co., Ltd ("HSW"),Dongguan Yushang Clothing Co., Ltd ("YS"), andShantou Yi Bai Yi Garments Co., Ltd ("YBY") which are located in theGuangdong province,China . Our logistic business consists of delivery and courier services covering approximately 79 cities in approximately seven provinces and two municipalities inChina . Although we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow seasons. We conduct our logistic operations through three wholly owned subsidiaries, namelyShenzhen Xin Kuai Jie Transportation Co., Ltd ("XKJ"),Shenzhen Yingxi Peng Fa Logistic Co., Ltd ("PF") andShenzhen Yingxi Tongda Logistic Co., Ltd ("TD"), which are located in theGuangdong province,China . Our property management and subleasing provides shops subleasing and property management services for garment wholesalers and retailers in garment market. We conduct our property management and subleasing operation through a wholly owned subsidiary, namelyDongguan Yingxi Daying Commercial Co., Ltd ("DY"). 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 inChina . As ofDecember 31, 2022 , we provide logistics services to over 79 cities in approximately seven provinces and two municipalities. We expect to develop an additional 20 logistics points in existing serving cities and improve the Company's profit in the year end of 2023.
Property Management and Subleasing Business
The business objective of our property management and subleasing segment is to integrate resources in shopping mall, develop e-commerce bases and the Internet celebrity economy together to drive to increase the value of the stores in the area. The short-term goal for the year is to increase the occupancy rate of stores in the mall to more than 70%. Seasonality of Business
Our business is affected by seasonal trends, with higher levels of garment sales in our second and third quarters and higher logistics services revenue in our third and fourth quarters. These trends primarily result from the timing of seasonal garment manufacturing shipments and holiday periods in the logistics services segment. Collection Policy
Garment manufacturing business
For our new customers, we generally require orders placed to be backed by advances or deposits. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following their acknowledgement of receipt of goods.
Logistics services business
For logistics services, we generally receive payments from the customers between 30 to 90 days following the date of the registration of our receipt of packages.
Property management and subleasing business
For property management and subleasing business, we generally collect rental and management fees of the following month each month in advance.
4 Economic Uncertainty
Our business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy inChina 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 inChina . 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 inChina , 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;
determination of whether the promised goods and services are performance
(ii) obligations, including whether they are distinct in the context of the
contract;
(iii) measurement of the transaction price, including the constraint on variable
consideration;
(iv) allocation of the transaction price to the performance obligations; and
(v) recognition of revenue when (or as) the Company satisfies each performance
obligation.
5
The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration it is entitled to in exchange
for the goods or services it transfers to the customer. Once a contract is
determined to be within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations the Company must
deliver and which of these performance obligations are distinct. The Company
recognizes as revenues the amount of the transaction price that is allocated to
the respective performance obligation when the performance obligation is
satisfied or as it is satisfied. Generally, the Company's performance
obligations are transferred to customers at a point in time, typically upon
delivery.
For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Leases Lessee
The Company determines if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use ("ROU") assets, other
current liabilities, and operating lease liabilities in our consolidated balance
sheets. Finance leases are included in property and equipment, other current
liabilities, and other long-term liabilities in the consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and
lease liabilities represent the obligation to make lease payments arising from
the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease
term. As most of the leases do not provide an implicit rate, The Company
generally use the incremental borrowing rate based on the estimated rate of
interest for collateralized borrowing over a similar term of the lease payments
at commencement date. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
Lessor
As a lessor, the Company's leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis
over the lease term.
Recently issued accounting pronouncements
InJune 2016 , the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company onApril 1, 2023 . The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
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 endedDecember 31, 2022 and 2021 The following tables summarize our results of operations for the three months endedDecember 31, 2022 and 2021. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Three Months Ended December 31, Changes in 2022 2022 2021 compared to 2021 (In U.S. dollars, except for percentages) Revenue$ 2,122,242 100.0 %$ 2,791,470 100 %$ (669,228 ) (24.0 )% Cost of revenues (1,514,780 ) (71.4 )% (2,323,716 ) (83.2 )% 808,936 34.8 % Gross profit 607,462 28.6 % 467,754 16.8 % 139,708 29.9 % Operating expenses (700,429 ) (33.0 )%
(495,430 ) (17.8 )% (204,999 ) (41.4 )% (Loss) income from operations
(92,967 ) (4.4 )% (27,676 ) (1.0 )% (65,291 ) (235.9 )%
Other income, net 19,232 0.9 % 43,958 1.6 % (24,726 ) (56.2 )%
Net finance cost (299 ) (0.0 )% (2,454 ) (0.1 )% 2,155 14.2 %
Income tax expense (8,184 ) (0.4 )% (2,209 ) (0.1 )% (5,975 ) (270.5 )%
Net (loss) income $ (82,218 ) (3.9 )% $ 11,619 0.4 % $ (93,837 ) (807.6 )%
Revenue
Total revenue for the three months ended December 31, 2022 decreased by
approximately $0.7 million , or 24.0%, as compared with the three months ended
December 31, 2021 . The decrease was mainly due to an increase of approximately
$0.1 million in garment manufacturing, a decrease of approximately $0.5 million
in logistics services business, and a decrease of approximately $0.3 million in
property management and subleasing business.
The revenue generated from our garment manufacturing business was $0.1 million ,
or approximately 4.7%, of total revenue for the three months ended December 31,
2022 . The revenue generated from the segment was $0.03 million , or approximately
0.9%, of total revenue for the three months ended December 31, 2021 . The low
revenue was mainly due to factory facilities renewals and repairs, and the
remaining factories cannot provide as much capacity as previously. We estimate
the manufacturing capacity will recover at end of the fiscal year 2023.
6
Revenue generated from our logistics services business contributed approximately
$1.2 million , or 57.2%, of our total revenue for the three months ended December
31, 2022 . Revenue generated from our logistic business contributed approximately
$1.7 million , or 61.6%, of our total revenue for the three months ended December
31, 2021 .
Revenue generated from our property management and subleasing business
contributed approximately $0.8 million , or 37.5%, of our total revenue for the
three months ended December 31, 2022 . The revenue from this business segment was
$1.0 million , or 37.5%, of our total revenue of this business for the three
months ended December 31, 2021 .
Cost of revenue
Three months ended December 31, Increase (decrease) in
2022 2021 2022 compared to 2021
(In U.S. dollars, except for percentages)
Net revenue for garment
manufacturing $ 100,723 100.0 % $ 25,641 100 % $ 75,082 292.8 %
Raw materials 771 0.8 % 8,829 34.4 % (8,058 ) (91.3 )%
Labor 64,108 63.7 % 12,783 49.9 % 51,325 401.5 %
Other and Overhead 2,761 2.7 % 6,306 24.6 % (3,545 ) (56.2 )%
Total cost of revenue for garment
manufacturing 67,640 67.2 % 27,918 108.9 % 39,722 142.3 %
Gross profit (loss) for garment
manufacturing 33,083 32.8 % (2,277 ) (8.9 )% 35,360 1,552.9 %
Net revenue for logistics
services 1,213,530 100.0 % 1,719,202 100.0 % (505,672 ) (29.4 )%
Fuel, toll and other cost of
logistics services 648,971 53.5 % 568,726 33.1 % 80,245 14.1 %
Subcontracting fees 253,359 20.9 % 842,510 49.0 % (589,151 ) (69.9 )%
Total cost of revenue for
logistics services 902,330 74.4 % 1,411,236 82.1 % (508,906 ) (36.1 )%
Gross Profit for logistics
services 311,200 25.6 % 307,967 17.9 % 3,233 1.0 %
Net revenue for property
management and subleasing 796,343 100.0 % 1,046,627 100.0 % (250,284 ) (23.9 )%
Total cost of revenue for
property management and
subleasing 536,732 67.4 % 884,556 84.5 % (347,824 ) (39.3 )%
Gross Profit for property
management and subleasing 259,611 32.6 % 162,071 15.5 % 97,540 60.2 %
Net revenue for corporate and
others $ 11,646 100.0 % $ - 11,646
Merchandise/Finished goods/Raw
materials 8,078 69.4 % 6 8,072
Total cost of revenue for
corporate and others 8,078 69.4 % 6 8,072
Gross income (loss) for corporate
and others 3,568 30.6 % (6 ) 3,574
Total cost of revenue $ 1,514,780 71.4 % $
2,323,716 83.2 %
$ 607,462 28.6 %$ 467,754 16.8 %$ 139,708 29.9 % 7
For our garment manufacturing business, we purchased the majority of our raw materials directly from numerous local fabric and accessories suppliers.
Raw material costs for our garment manufacturing business was
Labor costs for our garment manufacturing business was$64,108 , approximately 63.7% of our total garment manufacturing business revenue in the three months endedDecember 31, 2022 , as compared with$12,783 , approximately 49.9% in the three months endedDecember 31, 2021 . The increase was mainly due to the rising wages in the PRC. Overhead and other expenses for our garment manufacturing business accounted for$2,761 , approximately 2.7% of our total garment business revenue for the three months endedDecember 31, 2022 , as compared with$6,306 , approximately 24.6% of total garment business revenue for the three months endedDecember 31, 2021 . For our logistic business, we outsource some of the business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest contractor represented approximately 20.9% and 29.9% of total cost of revenues for our service segment for the three months endedDecember 31, 2022 and 2021, respectively. The decrease was mainly due to our usage of our own logistics more than the subcontractors during the COVID-19 epidemic. We have not experienced any disputes with our subcontractors and we believe we maintain good relationships with our contract logistics services provider. Fuel, toll and other costs for our service business for the three months endedDecember 31, 2022 were approximately$0.6 million as compared with$0.6 million for the three months endedDecember 31, 2021 . Fuel, toll and other costs for our service business accounted for approximately 53.5% of our total service revenue for the three months endedDecember 31, 2022 , as compared with approximately 33.1% for the three months endedDecember 31, 2021 . The increase was primarily attributable to a decrease in the use of subcontractors under the COVID-19 epidemic circumstance. Subcontracting fees for our service business for the three months endedDecember 31, 2022 decreased significantly by approximately 69.9% to approximately$0.3 million from$0.8 million for the three months endedDecember 31, 2021 . Subcontracting fees accounted for approximately 20.9% and 49.0% of our total service business revenue in the three months endedDecember 31, 2022 and 2021, respectively. The decrease was primarily due to the Company used less subcontractors under the COVID-19 epidemic circumstance. 8 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 endedDecember 31, 2022 was$536,732 , approximately 67.4% of our total property management and subleasing business revenue, as compared with$884,556 , approximately 84.5% of total property management and subleasing business revenue for the three months endedDecember 31, 2022 . Gross profit Garment manufacturing business gross profit for the three months endedDecember 31, 2022 was approximately$33,082 , as compared with a gross loss of approximately$2,278 for the three months endedDecember 31, 2021 . Gross profit accounted for 32.8% of our total Garment manufacturing business revenue for the three months endedDecember 31, 2022 , as compared with a gross loss of 8.9% for the three months endedDecember 31, 2021 . Gross profit in our logistics services business for the three months endedDecember 31, 2022 was approximately$0.3 million and gross margin was 25.6%. Gross profit in our logistics services business for the three months endedDecember 31, 2021 was approximately$0.3 million and gross margin was 17.9%. The increase of gross profit margin was mainly attributable to a decrease of operating expenses due to replacement of old vehicles and shifting our strategic focus on high margin customers. Gross profit in our property management and subleasing business for the three months endedDecember 31, 2022 was approximately$0.3 million , or 32.6%, of our total property management and subleasing business revenue. It was approximately$0.2 million , or 15.5%, for the three months endedDecember 31, 2021 . Three months ended December 31, Increase (decrease) in 2022 2021 2022 compared to 2021 (In U.S. dollars, except for percentages) Gross profit$ 607,462 100 %$ 467,754 100 % 139,708 29.9 % Operating expenses: Selling expenses (24,511 ) (4.0 )% (43,118 ) (9.2 )% 18,607 43.2 % General and administrative expenses (675,918 ) (111.3 )% (452,312 ) (96.7 )% (223,606 ) (49.4 )% Total$ (700,429 ) (115.3 )%$ (495,430 ) (105.9 )% (204,999 ) (41.4 )% Loss from operations$ (92,967 ) (15.3 )%$ (27,676 ) (5.9 )% (65,291 ) (235.9 )%
Selling, General and administrative expenses
Our selling expenses were mainly incurred for our property management and subleasing business. It was approximately$0.02 million and$0.04 million for the three months endedDecember 31, 2022 and 2021, respectively. Selling expenses consist 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 endedDecember 31, 2022 and 2021 was both approximately$0.03 million . Our general and administrative expenses in our logistics services segment, for the three months endedDecember 31, 2022 and 2021 was both approximately$0.2 million . The general and administrative expenses in our property management and subleasing business remained stable at approximately$0.1 million for the three months endedDecember 31, 2022 and 2021. Our general and administrative expenses for the three months endedDecember 31, 2022 and 2021 was approximately$0.3 million and$0.1 million , respectively. General and administrative expenses consist 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. Total general and administrative expenses for the three months endedDecember 31, 2022 increased by approximately 0.2% to approximately$0.68 million from$0.45 million for the three months endedDecember 31, 2021 . 9 Loss from operations
Loss from operations for the three months endedDecember 31, 2022 and 2021 was approximately$0.09 million and$0.03 million , respectively. Income (loss) from operations of approximately$7,745 and ($28,473 ) was attributed from our garment manufacturing segment for the three months endedDecember 31, 2022 and 2021, respectively. Income from operations of approximately$91,147 and$100,769 was attributed from our logistics services segment for the three months endedDecember 31, 2022 and 2021, respectively. Income from operations of approximately$131,213 and$14,844 was attributed from our property management and subleasing business for the three months endedDecember 31, 2022 and 2021, respectively. We incurred a loss from operations in corporate office of approximately$0.3 million and$0.1 million for the three months endedDecember 31, 2022 and 2021. The loss was mainly due to increase in administrative expenses. Income Tax Expenses Income tax expense for the three months endedDecember 31, 2022 and 2021 was approximately$8,184 and$2,209 million , respectively. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi HK was incorporated inHong Kong and is subject toHong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes inHong Kong have been made as Yingxi HK had no taxable income for the three months endedDecember 31, 2022 and 2021. 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 have been made as QYTG and YX had no taxable income for the three months endedDecember 31, 2022 and 2021. The Company is governed by the Income Tax Laws of the PRC. All Yingxi's operating companies are subject to progressive EIT rates from 5% to 15% in 2022. The preferential tax rates will be expired at end of year 2022 and the EIT
rate will be 25% from year 2023. The Company's parent entity,Addentax Group Corp. is aU.S entity and is subject tothe United States federal income tax. No provision for income taxes inthe United States have been made asAddentax Group Corp. had noUnited States taxable income for the three months endedDecember 31, 2022 and 2021. Net Income (Loss)
We incurred net loss of approximately$0.08 million and net income of$0.01 million for the three months endedDecember 31, 2022 and 2021, respectively. Our basic and diluted earnings per share were$0.00 and$0.00 for the three months endedDecember 31, 2022 and 2021, respectively. 10
Results of Operations for the nine months endedDecember 31, 2022 and 2021 The following tables summarize our results of operations for the nine months endedDecember 31, 2022 and 2021. The table and the discussion below should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Nine months Ended December 31, Changes in 2022 2022 2021 compared to 2021 (In U.S. dollars, except for percentages) Revenue$ 6,652,645 100.0 % $
9,835,733 100.0 %
(5,023,338 ) (75.5 )% (8,314,149 ) (84.5 )% 3,290,811 39.6 % Gross profit
1,629,307 24.5 % 1,521,584 15.5 % 107,723 7.1 % Operating expenses
(1,606,020 ) (24.1 )% (1,510,823 ) (15.4 )% (95,197 ) (6.3 )%
Income from operations 23,287 0.4 % 10,761 0.1 % 12,526 116.4 %
Other income, net 93,288 1.4 % 132,959 1.3 % (39,671 ) (29.8 )%
Net finance cost 34 (0.0 )% (3,240 ) (0.0 )% 3,274 142.4 %
Income tax expense (18,939 ) (0.3 )% (17,893 ) (0.2 )% (1,046 ) (5.8 )%
Net income $ 97,670 1.5 % $ 122,587 1.2 % $ (24,917 ) (20.3 )%
Revenue
Total revenue for the nine months ended December 31, 2022 decreased by
approximately $3.2 million , or 32.4%, as compared with the nine months ended
December 31, 2021 . The decrease was mainly due to the significant decrease of
Garment Manufacturing Business.
Revenue generated from our garment manufacturing business contributed
approximately $0.1 million (4.7%) and $2.5 million (25.3%) of total revenue for
the nine months ended December 31, 2022 and 2021, respectively. The decrease
mainly due to factory facilities renewal and repair, remaining factories cannot
provide as much capacity as previously. We estimate the capacity will appear to
recover by end of FY2023.
11
Revenue generated from our logistics services business contributed approximately
$3.8 million , or 57.5%, of our total revenue for the nine months ended December
31, 2022 . Revenue generated from our logistic business contributed approximately
$4.1 million , or 42.1%, of our total revenue for the nine months ended December
31, 2021 . The decrease of $0.3 million was due to decrease of revenue from YXPF
compared to the nine months ended December 31, 2021 .
Revenue generated from our property management and subleasing business
contributed approximately $2.7 million , or 40.2%, of our total revenue for the
nine months ended December 31, 2022 . Revenue generated from our property
management and subleasing business contributed approximately $3.2 million , or
32.6%, of our total revenue for the nine months ended December 31, 2021 .
Cost of revenue
Nine months ended December 31, Increase (decrease) in
2022 2021 2022 compared to 2021
(In U.S. dollars, except for percentages)
Net revenue for garment
manufacturing $ 142,010 100.0 % $ 2,488,173 100.0 % $ (2,346,163 ) (94.3 )%
Raw materials 28,323 19.9 % 1,719,420 69.1 % (1,691,097 ) (98.4 )%
Labor 73,376 51.7 % 542,118 21.8 % (468,742 ) (86.5 )%
Other and Overhead 4,380 3.1 % 23,124 0.9 % (18,744 ) (81.1 )%
Total cost of revenue for
garment manufacturing 106,079 74.7 % 2,284,662 91.8 % (2,178,583 ) (95.4 )%
Gross profit for garment
manufacturing 35,931 25.3 % 203,511 8.2 % (167,580 ) (82.3 )%
Net revenue for logistics
services 3,826,070 100.0 % 4,144,604 100.0 % (318,534 ) (7.7 )%
Fuel, toll and other cost of
logistics services 1,916,957 50.1 % 1,410,231 34.0 % 506,726 35.9 %
Subcontracting fees 890,660 23.3 % 1,868,648 45.1 % (977,988 ) (52.3 )%
Total cost of revenue for
logistics services 2,807,617 73.4 % 3,278,879 79.1 % (471,262 ) (14.4 )%
Gross Profit for logistics
services 1,018,453 26.6 % 865,725 20.9 % 152,728 17.6 %
Net revenue for property
management and subleasing 2,671,379 100.0 % 3,202,956 100.0 % (531,577 ) (16.6 )%
Total cost of revenue for
property management and
subleasing 2,099,050 78.6 % 2,749,114 85.8 % (650,064 ) (23.6 )%
Gross Profit for property
management and subleasing 572,329 21.4 % 453,842 14.2 % 118,487 26.1 %
Net revenue for corporate and
others $ 13,186 100.0 % $ - 13,186
Other and Overhead 10,592 80.3 % 1,494 9,098 609.0 %
Total cost of revenue for
corporate and others 10,592 80.3 % 1,494 9,098 609.0 %
Gross profit (loss) for
corporate and others 2,594 19.7 % (1,494 ) 4,088 273.6 %
Total cost of revenue $ 5,023,338 75.5 % $ 8,314,149 84.5 % $ (3,290,811 ) (39.6 )%
Gross profit $ 1,629,307 24.5 % $ 1,521,584 15.5 % $ 107,723 7.1 %
12
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$28,313 , approximately 19.9% of our total garment manufacturing business revenue in the nine months endedDecember 31, 2022 , as compared with$1,719,420 , approximately 69.1% in the nine months endedDecember 31, 2021 . The decrease was mainly due to the decrease of the average purchase cost of the raw materials. Labor costs for our garment manufacturing business were$73,376 , approximately 51.7% of our total garment manufacturing business revenue in the nine months endedDecember 31, 2022 , as compared with$542,118 , approximately 21.8% in the nine months endedDecember 31, 2021 . The increase was mainly due to the rising wages in the PRC. Overhead and other expenses for our garment manufacturing business accounted for$4,380 , approximately 3.1% of our total garment business revenue for the nine months endedDecember 31, 2022 , as compared with$23,124 , 0.9% of total garment business revenue for the nine months endedDecember 31, 2021 . For our logistic business, we outsourced some of the business to our contractors. The Company relied on a few subcontractors, in which the subcontracting fees to our largest subcontractor represented approximately 25.8% and 30.3% of total cost of revenues for our service segment for the nine months endedDecember 31, 2022 and 2021, respectively. The percentage decreased was due to the usage of our own logistics more than usage of the subcontractors under COVID-19 epidemic. 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 endedDecember 31, 2022 were approximately$1.9 million compared with$1.4 million for the nine months endedDecember 31, 2021 . Fuel, toll and other costs for our service business accounted for approximately 50.1% of our total service revenue for the nine months endedDecember 31, 2022 , as compared with 34.0% for the nine months endedDecember 31, 2021 . The increase was primarily attributable to the decrease of use of subcontractors under the COVID-19 epidemic circumstance. Subcontracting fees for our service business for the nine months endedDecember 31, 2022 decreased approximately 52.3% to approximately$0.9 million from$1.9 million for the nine months endedDecember 31, 2021 . Subcontracting fees accounted for approximately 23.3% and 45.1% of our total service business revenue in the nine months endedDecember 31, 2022 and 2021, respectively. This decrease was primarily because the Company used less subcontractors under the epidemic circumstance. 13 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 endedDecember 31, 2022 was$2,099,050 , approximately 78.6% of our total property management and subleasing business revenue, as compared with$2,749,114 , approximately 85.8% of total property management and subleasing business revenue for the nine months endedDecember 31, 2022 . Gross profit Garment manufacturing business generated a gross profit of approximately$35,931 for the nine months endedDecember 31, 2022 . There was approximately$0.2 million gross profit for the nine months endedDecember 31, 2021 . Gross profit accounted for 25.3% of our total Garment manufacturing business revenue for the nine months endedDecember 31, 2022 , as compared to a gross profit of 8.2% for the nine months endedDecember 31, 2021 . Gross profit in our logistics services business for the nine months endedDecember 31, 2022 was approximately$1.0 million and gross margin was 26.6%. Gross profit in our logistics services business for the nine months endedDecember 31, 2021 was approximately$0.9 million and gross margin was 20.9%. The increase of gross profit ratio was mainly attributable to a decrease of subcontracting fees under the COVID-19 epidemic circumstances and a decrease of operating expenses due to replacement of old vehicles and shifting our strategic focus on high margin customers. Gross profit in our property management and subleasing business for the nine months endedDecember 31, 2022 and 2021was approximately$0.6 million and$0.5 million , respectively. It accounted for approximately 21.4% and 14.2% of our total property management and subleasing business revenue for the nine months endedDecember 31, 2022 and 2021, respectively. Increase Nine months ended December 31, (decrease) in 2022 2021 2022 compared to 2021 (In U.S. dollars, except for percentages) Gross profit$ 1,629,307 100 %$ 1,521,584 100 % 107,723 7.1 % Operating expenses: Selling expenses (60,155 ) (3.7 )% (135,310 ) (8.9 )% 75,155 55.5 % General and administrative expenses (1,545,865 ) (94.9 )% (1,375,513 ) (90.4 )% (170,352 ) (12.4 )% Total$ (1,606,020 ) (98.6 )%$ (1,510,823 ) (99.3 )% (95,197 ) (6.3 )% Income from operations$ 23,287 1.4 %$ 10,761 0.7 % 12,526 116.4 %
Selling, General and administrative expenses
Our selling expenses in our Garment manufacturing business segment for the nine months endedDecember 31, 2022 and 2021 was approximately$110 and$261 , respectively. Our selling expenses in our logistics services segment was nil for the nine months endedDecember 31, 2022 and 2021. Selling expenses in our property management and subleasing business was$0.06 million and$0.1 million for the nine months endedDecember 31, 2022 and 2021, respectively. Selling expenses consist primarily of advertisement, local transportation, unloading charges and product inspection charges. Total selling expenses for the nine months endedDecember 31, 2022 decreased significantly by approximately 64.1% to$0.1 million from$0.4 million for the nine months endedDecember 31, 2021 . Our general and administrative expenses in our Garment manufacturing business segment was approximately$0.08 million and$0.1 million for the nine months endedDecember 31, 2022 and 2021, respectively. Our general and administrative expenses in our logistics services segment, for the nine months endedDecember 31, 2022 and 2021 was both approximately$0.7 million . The general and administrative expenses in our property management and subleasing business was approximately$0.3 million for both the nine months endedDecember 31, 2022 and 2021. Our general and administrative expenses in our corporate office for the nine months endedDecember 31, 2022 and 2021 was approximately$0.5 million and$0.3 million , respectively. General and administrative expenses consist 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. Total general and administrative expenses for the nine months endedDecember 31, 2022 was as approximately$0.2 million , or 12.4% higher than as compared to the nine months endedDecember 31, 2021 . 14 Income from operations Income from operations was approximately$0.02 million and$0.01 million for the nine months endedDecember 31, 2022 and 2021, respectively. Loss from operations of approximately$0.05 million was attributed from our garment manufacturing segment for the nine months endedDecember 31, 2022 . Income from operations of approximately$0.1 million was attributed from our garment manufacturing segment for the nine months endedDecember 31, 2021 . Income from operations of approximately$0.4 million and$0.2 million was attributed from our logistics services segment for the nine months endedDecember 31, 2022 and 2021, respectively. Our property management and subleasing business segment generated approximately$0.3 million and$0.05 million income from operations for the nine months endedDecember 31, 2022 and 2021, respectively. We incurred a loss from operations in corporate office of approximately$0.5 million and$0.3 million for the nine months endedDecember 31, 2022 and 2021, respectively. The loss was mainly due to an increase in administrative expenses. Income Tax Expenses
Income tax expense for the nine months ended
Yingxi HK was incorporated inHong Kong and is subject toHong Kong income tax at a progressive tax rate of 16.5%. No provision for income taxes inHong Kong have been made as Yingxi HK had no taxable income for the nine months endedDecember 31, 2022 and 2021. 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 have been made as QYTG and YX had no taxable income for the nine months endedDecember 31, 2022 and 2021. The Company is governed by the Income Tax Laws of the PRC. All Yingxi's operating companies are subject to progressive EIT rates from 5% to 15% in 2022. The preferential tax rates will be expired at end of year 2022 and the EIT
rate will be 25% from year 2023. The Company's parent entity,Addentax Group Corp. is aU.S entity and is subject tothe United States federal income tax. No provision for income taxes inthe United States have been made asAddentax Group Corp. had noUnited States taxable income for the nine months endedDecember 31, 2022 and 2021. Net Income (Loss) We incurred a net income of approximately$0.1 million for both the nine months endedDecember 31, 2022 and 2021. Our basic and diluted earnings per share were$0.00 and$0.00 for the nine months endedDecember 31, 2022 and 2021, respectively. Summary of cash flows Summary cash flows information for the nine months endedDecember 31, 2022 and 2021 is as follow: Nine months endedDecember 31, 2022 2021 (InU.S. dollars)
Net cash (used in) provided by operating activities
$ 383,825 Net cash used in investing activities$ (17,500,000 ) $ (176,268 ) Net cash provided by (used in) financing activities$ 19,240,977
$ (1,543,573 )
Net cash provided by operating activities in the nine months endedDecember 31, 2022 was approximately$1.7 million less as compared to the nine months endedDecember 31, 2021 . The decrease was predominately due to the movement of operating assets and liabilities of the nine months endedDecember 31, 2022 resulted in cash outflow of approximately$1.9 million , while the movement of operating assets and liabilities of the nine months endedDecember 31, 2021 resulted in cash inflow of approximately$0.2 million . We will continue to improve our operating cash flow by closely monitoring the timely collection of accounts and other receivables. We generally do not hold any significant inventory for more than ninety days, as we typically manufacture upon customers' orders. Net cash used in investing activities for the nine months endedDecember 31, 2022 was approximately$17.5 million , which was approximately$17.3 million more as compared to the nine months endedDecember 31, 2021 . The increase was predominately due to a purchase of debt securities in the nine months endedDecember 31, 2022 . Net cash provided by financing activities for the nine months endedDecember 31, 2022 was approximately$20.8 million more than the nine months endedDecember 31, 2021 . The increase was predominately due to the Company received approximately$20.2 million proceeds from its initial public offering, and the net cash repayment of related party borrowings in current period was approximately$0.5 million less as compared to the nine months endedDecember 31, 2021 .
Financial Condition, Liquidity and Capital Resources
As ofDecember 31, 2022 , we had cash on hand of approximately$1.6 million , total current assets of approximately$27.3 million and current liabilities of approximately$8.5 million . Currently, we finance our operations by using the cash flows from revenue, fund raising from our initial public offering proceedings and capital contributions from our chief executive officer, Mr.Hong Zhida (the "CEO"). In the event that the Company requires additional funding to finance the growth of the Company's current and expected future operations as well as to achieve our strategic objectives, the CEO has indicated the intent and ability to provide additional equity financing.
Foreign Currency Translation Risk
Our operations are located inChina , which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates between theU.S. dollar and the Chinese Renminbi ("RMB"). All of our sales are in RMB. In the past years, RMB continued to appreciate against theU.S. dollar. As ofDecember 31, 2022 , the market foreign exchange rate wasRMB6.909 toone U.S. dollar . Our financial statements are translated intoU.S. dollars using the closing rate method. The balance sheet items are translated intoU.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 endedDecember 31, 2022 and 2021 was approximately$0.2 million and$(0.06) 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 ofDecember 31, 2022 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.
15
© Edgar Online, source
