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, 2021 and 2020
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 in China. We are listed on the OTCQB under the symbol of “ATXG”.
We classify our businesses into four segments: Garment manufacturing, Logistics services, Property management and subleasing, and Epidemic
prevention supplies.
Our
garment manufacturing business consists of sales made principally to wholesaler located in the 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 five wholly owned subsidiaries, namely Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), Shantou Chenghai Dai Tou
Garments Co., Ltd (“DT”), Dongguan Yushang Clothing Co., Ltd (“YS”), and Shantou Yi Bai Yi Garments Co., Ltd
(“YBY”) which are located in the Guangdong province, China. In October 2020, the Company disposed of DT to a third party
at fair value, which was also its carrying value as of September 30, 2020.
Our
logistic business consists of delivery and courier services covering approximately 79 cities in approximately seven provinces and two
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 services operations through four wholly owned subsidiaries, namely Shenzhen
Xin Kuai Jie Transportation Co., Ltd (“XKJ”), Shenzhen Yingxi Peng Fa Logistic Co., Ltd., which was incorporated in November
2020, and Shenzhen Hua Peng Fa Logistic Co., Ltd (“HPF”), Shenzhen Yingxi Tongda Logistic Co., Ltd (“TD”), which
are located in the Guangdong province, China. In November, the Company disposed of HPF to a third party at fair value, which was also
its carrying value as of November 30, 2020.
The
business operations, customers and suppliers of DT and HPF were retained by the Company; therefore, the disposition of the two subsidiaries
did not qualify as discontinued operations.
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, namely Dongguan Yingxi
Daying Commercial Co., Ltd (“DY”).
Our
epidemic prevention supplies business consists of manufacturing and distribution of epidemic prevention products and resale of epidemic
prevention supplies purchased from third party in both domestic and overseas markets. We conduct our manufacturing of the epidemic prevention
products in Dongguan Yushang Clothing Co., Ltd (“YS”). We conduct the trading of epidemic prevention suppliers through Addentax
Group Corp. (“ATXG”) and Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd (“YX”), a wholly owned subsidiary
of the Company.
Business
Objectives
Garment
Manufacturing Business
We
believe the strength of our garment manufacturing business is mainly due to our consistent emphasis on exceptional quality and timely
delivery of our products. The primary business objective for our garment manufacturing segment is to expand our customer base and improve
our profit.
Logistics
Services Business
The
business objective and future plan for our logistics services segment is to establish an efficient logistic system and to build a nationwide
delivery and courier network in China. As of June 30, 2021, 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 2021.
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%.
Epidemic
Prevention Supplies Business
The
primary objective of our epidemic prevention supplies business is to take the advantage of our resource in supply chain from the garment
manufacturing business segment to facilitate and maximize the production, distribution and resale of epidemic prevention supplies, in
order to increase our revenue base and improve our net profit.
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.
Epidemic
prevention supplies business
For
Epidemic prevention supplies business, we generally receive payment from the customers within 30 days following the delivery of finished
goods. We would also give our long-term customers with a 12 months long credit term policy to maintain a good business relationship.
Economic
Uncertainty
Our
business is dependent on consumer demand for our products and services. We believe that the significant uncertainty in the economy in
China has increased our clients’ sensitivity to the cost of our products and services. We have experienced continued pricing pressure.
If the economic environment becomes weak, the economic conditions could have a negative impact on our sales growth and operating margins,
cash position and collection of accounts receivable. Additionally, business credit and liquidity have tightened in China. Some of our
suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently
have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation
will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters.
Despite
the various risks and uncertainties associated with the current economy in China, we believe our core strengths will continue to allow
us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.
Summary
of Critical Accounting Policies
We
have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operation involved could result in material changes to our financial position or results of operations under
different conditions or using different assumptions.
Estimates
and Assumptions
We
regularly evaluate the accounting estimates that we use to prepare our financial statements. In general, management’s estimates
are based on historical experience, on information from third party professionals, and on various other assumptions that are believed
to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Revenue
Recognition
Revenue
is generated through sale of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods
or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive
in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount:
|
|
(i)
|
identification
of the promised goods and services in the contract;
|
|
|
|
|
|
|
(ii)
|
determination
of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the
contract;
|
|
|
|
|
|
|
(iii)
|
measurement
of the transaction price, including the constraint on variable consideration;
|
|
|
|
|
|
|
(iv)
|
allocation
of the transaction price to the performance obligations; and
|
|
|
|
|
|
|
(v)
|
recognition
of revenue when (or as) the Company satisfies each performance obligation.
|
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
In
June 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 on April 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 ended June 30, 2021 and 2020
The
following tables summarize our results of operations for the three months ended June 30, 2021 and 2020. 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,
|
|
|
Increase (decrease)
in 2021
|
|
|
|
|
2021
|
|
|
2020
|
|
|
compared to 2020
|
|
|
|
|
|
(In U.S. dollars, except for percentages)
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,286,431
|
|
|
|
100.0
|
%
|
|
$
|
5,918,215
|
|
|
|
100
|
%
|
|
$
|
(1,631,784
|
)
|
|
|
(27.6
|
)%
|
|
Cost of revenues
|
|
|
(3,703,026
|
)
|
|
|
(86.4
|
)%
|
|
|
(5,120,576
|
)
|
|
|
(86.5
|
)%
|
|
|
1,417,550
|
|
|
|
27.7
|
%
|
|
Gross profit
|
|
|
583,405
|
|
|
|
13.6
|
%
|
|
|
797,639
|
|
|
|
13.5
|
%
|
|
|
(214,234
|
)
|
|
|
(26.9
|
)%
|
|
Operating expenses
|
|
|
(506,705
|
)
|
|
|
(11.8
|
)%
|
|
|
(609,207
|
)
|
|
|
(10.3
|
)%
|
|
|
102,502
|
|
|
|
16.8
|
%
|
|
Income from operations
|
|
|
76,700
|
|
|
|
1.8
|
%
|
|
|
188,432
|
|
|
|
3.2
|
%
|
|
|
(111,732
|
)
|
|
|
59.3
|
%
|
|
Other income, net
|
|
|
13,237
|
|
|
|
0.3
|
%
|
|
|
23,745
|
|
|
|
0.4
|
%
|
|
|
(10,508
|
)
|
|
|
(44.3
|
)%
|
|
Net finance cost
|
|
|
(265
|
)
|
|
|
(0.0
|
)%
|
|
|
(4,918
|
)
|
|
|
(0.1
|
)%
|
|
|
4,653
|
|
|
|
4,527.2
|
%
|
|
Income tax expense
|
|
|
(10,725
|
)
|
|
|
(0.3
|
)%
|
|
|
(3,359
|
)
|
|
|
(0.1
|
)%
|
|
|
(7,366
|
)
|
|
|
(219.3
|
)%
|
|
Net income
|
|
$
|
78,947
|
|
|
|
1.8
|
%
|
|
$
|
203,900
|
|
|
|
3.4
|
%
|
|
$
|
(124,953
|
)
|
|
|
61.3
|
%
|
Revenue
Total
revenue for the three months ended June 30, 2021 decreased by approximately $1.6 million, or 27.6%, as compared with the three months
ended June 30, 2020. The significant decrease was mainly because of the decrease of epidemic supply business and logistics services
business offset by increases in garment manufacturing business and property management and leasing business.
Revenue
generated from our garment manufacturing business contributed approximately $2.1 million (48.3%) and $1.3 million (21.5%) of total
revenue for the three months ended June 30, 2021 and 2020, respectively. The $0.8 million increase was mainly due
to recovery of economic when the epidemic was well controlled.
Revenue
generated from our logistics services business contributed approximately $1.1 million or 25.8% of our total revenue for the three months
ended June 30, 2021. Revenue generated from our logistic business contributed approximately $1.5 million or 25.9% of our total revenue
for the three months ended June 30, 2020. The $0.4 million decrease mainly because the Company disposed of a subsidiary, HPF,
in September 2020 and set up a new subsidiary, YXPF. The new subsidiary took time to develop the business gradually to
replace the business of HPF.
Revenue
generated from our property management and subleasing business contributed approximately $1.1 million increase or 25.9% of our
total revenue for the three months ended June 30, 2021. This is a new business segment developed in current period and there was no revenue
for the three months ended June 30, 2020.
There
was no revenue generated from our epidemic prevention supplies business for the three months ended June 30, 2021 because no profitable
orders were obtained in the quarter. The Company accepted sales orders very cautiously to make sure the sales orders can be matched with
stable suppliers to secure profitability of each order. Revenue generated from our epidemic prevention supplies business contributed
approximately $3.1 million decrease, or 52.6% of our total revenue for the three months ended June 30, 2020.
Cost
of revenue
|
|
|
Three months ended June 30,
|
|
|
Increase
(decrease) in
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021 compared to 2020
|
|
|
|
|
|
(In U.S. dollars, except for percentages)
|
|
|
|
|
|
|
|
|
|
|
Net revenue for garment manufacturing
|
|
$
|
2,069,141
|
|
|
|
100.0
|
%
|
|
$
|
1,274,806
|
|
|
|
100
|
%
|
|
$
|
794,335
|
|
|
|
62.3
|
%
|
|
Raw materials
|
|
|
1,441,333
|
|
|
|
69.7
|
%
|
|
|
945,284
|
|
|
|
74.2
|
%
|
|
|
496,049
|
|
|
|
52.5
|
%
|
|
Labor
|
|
|
443,290
|
|
|
|
21.4
|
%
|
|
|
229,096
|
|
|
|
18.0
|
%
|
|
|
214,194
|
|
|
|
93.5
|
%
|
|
Other and Overhead
|
|
|
10,399
|
|
|
|
0.5
|
%
|
|
|
8,427
|
|
|
|
0.6
|
%
|
|
|
1,972
|
|
|
|
23.4
|
%
|
|
Total cost of revenue for garment manufacturing
|
|
|
1,895,022
|
|
|
|
91.6
|
%
|
|
|
1,182,807
|
|
|
|
92.8
|
%
|
|
|
712,215
|
|
|
|
60.2
|
%
|
|
Gross profit for garment manufacturing
|
|
|
174,119
|
|
|
|
8.4
|
%
|
|
|
91,999
|
|
|
|
7.2
|
%
|
|
|
82,120
|
|
|
|
89.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
Net revenue for logistics services
|
|
|
1,108,042
|
|
|
|
100.0
|
%
|
|
|
1,533,381
|
|
|
|
100.0
|
%
|
|
|
(425,339
|
)
|
|
|
(27.7
|
)%
|
|
Fuel, toll and other cost of logistics services
|
|
|
393,150
|
|
|
|
35.5
|
%
|
|
|
384,229
|
|
|
|
25.1
|
%
|
|
|
8,921
|
|
|
|
2.3
|
%
|
|
Subcontracting fees
|
|
|
486,722
|
|
|
|
43.9
|
%
|
|
|
902,065
|
|
|
|
58.8
|
%
|
|
|
(415,343
|
)
|
|
|
(46.0
|
)%
|
|
Total cost of revenue for logistics services
|
|
|
879,872
|
|
|
|
79.4
|
%
|
|
|
1,286,294
|
|
|
|
83.9
|
%
|
|
|
(406,422
|
)
|
|
|
(31.6
|
)%
|
|
Gross Profit for logistics services
|
|
|
228,170
|
|
|
|
20.6
|
%
|
|
|
247,087
|
|
|
|
16.1
|
%
|
|
|
(18,917
|
)
|
|
|
(7.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue for property management and subleasing
|
|
|
1,109,248
|
|
|
|
100.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
1,109,248
|
|
|
|
|
|
|
Total cost of revenue for property management and subleasing
|
|
|
926,642
|
|
|
|
83.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
926,642
|
|
|
|
|
|
|
Gross Profit for property management and subleasing
|
|
|
182,606
|
|
|
|
16.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
182,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue for epidemic prevention supplies
|
|
$
|
-
|
|
|
|
|
|
|
$
|
3,110,028
|
|
|
|
-
|
|
|
|
(3,110,028
|
)
|
|
|
(100.0
|
)%
|
|
Merchandise/Finished goods/Raw materials
|
|
|
-
|
|
|
|
|
|
|
|
2,546,955
|
|
|
|
81.9
|
%
|
|
|
(2,546,955
|
)
|
|
|
(100.0
|
)%
|
|
Labor
|
|
|
-
|
|
|
|
|
|
|
|
64,946
|
|
|
|
2.1
|
%
|
|
|
(64,946
|
)
|
|
|
(100.0
|
)%
|
|
Other and Overhead
|
|
|
1,490
|
|
|
|
|
|
|
|
39,574
|
|
|
|
1.3
|
%
|
|
|
(38,084
|
)
|
|
|
(96.2
|
)%
|
|
Total cost of revenue for epidemic prevention supplies
|
|
|
1,490
|
|
|
|
|
|
|
|
2,651,475
|
|
|
|
85.3
|
%
|
|
|
(2,649,985
|
)
|
|
|
(99.9
|
)%
|
|
Gross (loss) income for epidemic prevention supplies
|
|
|
(1,490
|
)
|
|
|
|
|
|
|
458,553
|
|
|
|
14.7
|
%
|
|
|
(460,043
|
)
|
|
|
(100.3
|
)%
|
|
Total cost of revenue
|
|
$
|
3,703,026
|
|
|
|
86.4
|
%
|
|
$
|
5,120,576
|
|
|
|
86.5
|
%
|
|
$
|
-(1,417,550 )
|
|
|
|
(27.7
|
)%
|
|
Gross profit
|
|
$
|
583,405
|
|
|
|
13.6
|
%
|
|
$
|
797,639
|
|
|
|
13.5
|
%
|
|
$
|
-214,234
|
)
|
|
|
(26.9
|
)%
|
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 69.7% of our total garment manufacturing business revenue in the three months
ended June 30, 2021, compared with 74.2% in the three months ended June 30, 2020. The decreased in percentages was mainly due to the
purchase cost of the raw materials dropped.
Labor
costs for our garment manufacturing business were 21.4% of our total garment manufacturing business revenue in the three months ended
June 30, 2021, compared with 18.0% in the three months ended June 30, 2020. The increase in percentages was mainly due to the rising
wages in the PRC.
Overhead
and other expenses for our garment manufacturing business accounted for 0.5% of our total garment business revenue for the three months
ended June 30, 2021, compared with 0.7% of total garment business revenue for the three months ended June 30, 2020.
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 33.4% and 34.4% of total cost of revenues for our service segment
for the three months ended June 30, 2021 and 2020, respectively. The percentage decreased as we used our own logistics more than the
subcontractors under COVID-19 epidemic. We have not experienced any disputes with our subcontractor 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 ended June 30, 2021 were approximately $0.4 million compared with
$0.4 million for the three months ended June 30, 2020. Fuel, toll and other costs for our service business accounted for 35.5% of our
total service revenue for the three months ended June 30, 2021, compared with 25.1% for the three months ended June 30, 2020. The increase
in percentages was primarily attributable to decrease of use of subcontractors under the epidemic circumstance.
Subcontracting
fees for our service business for the three months ended June 30, 2021 decreased 46.0% to approximately $0.5 million from $0.9 million
for the three months ended June 30, 2020. Subcontracting fees accounted for 43.9% and 58.8% of our total service business revenue in
the three months ended June 30, 2021 and 2020, respectively. This decrease in percentages was primarily because the Company used less
subcontractors under the epidemic circumstance.
For
property management and subleasing business, the cost of revenue was mainly the amortization of operating lease assets for the subleasing
business.
For
epidemic prevention supplies business, we have trading and own production. The cost of revenue included cost of merchandise and cost
of our own products. The other cost of the quarter represented depreciation of machinery.
Gross
profit
Garment
manufacturing business gross profit for the three months ended June 30, 2021 was approximately $0.2 million, as compared with approximately
$0.1 million for the three months ended June 30, 2020. Gross profit accounted for 8.4% of our total Garment manufacturing business revenue
for the three months ended June 30, 2021, compared with 7.2% for the three months ended June 30, 2020. The gross margin was 1.2% higher
due to higher raw material cost in the quarter ended June 30, 2020.
Gross
profit in our logistics services business for the three months ended June 30, 2021 was approximately $0.2 million and gross margin was
20.6%. Gross profit in our logistics services business for the three months ended June 30, 2020 was approximately $0.2 million and gross
margin was 16.1%. The increase of gross profit ratio was mainly because of 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 ended June 30, 2021 was approximately $0.2 million, or
16.5% of our total property management and subleasing business revenue. This is a new business developed in last quarter.
Gross
loss in our epidemic prevention supplies business for the three months ended June 30, 2021 was approximately $0.001 million.
|
|
|
Three months ended June 30,
|
|
|
Increase
(decrease) in
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021 compared to 2020
|
|
|
|
|
|
(In U.S. dollars, except for percentages)
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
583,405
|
|
|
|
100
|
%
|
|
$
|
797,639
|
|
|
|
100
|
%
|
|
|
(214,233
|
)
|
|
|
(26.9
|
)%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
(46,390
|
)
|
|
|
(8.0
|
)%
|
|
|
(153,245
|
)
|
|
|
(23.1
|
)%
|
|
|
106,855
|
|
|
|
69.7
|
%
|
|
General and administrative expenses
|
|
|
(460,315
|
)
|
|
|
(78.9
|
)%
|
|
|
(455,962
|
)
|
|
|
(68.9
|
)%
|
|
|
(4,353
|
)
|
|
|
(1.0
|
)%
|
|
Total
|
|
$
|
(506,705
|
)
|
|
|
(86.9
|
)%
|
|
$
|
(609,207
|
)
|
|
|
(92.0
|
)%
|
|
|
102,502
|
|
|
|
16.8
|
%
|
|
Income from operations
|
|
$
|
76,700
|
|
|
|
13.1
|
%
|
|
$
|
188,432
|
|
|
|
8.0
|
%
|
|
|
(111,731
|
)
|
|
|
(59.3
|
)%
|
Selling,
General and administrative expenses
Our
selling expenses in our Garment manufacturing business segment for the three months ended June 30, 2021 and 2020 was nil and approximately
$0.001 million, respectively. Our selling expenses in our logistics services segment was nil for the three months ended June 30, 2021
and 2020, respectively. Selling expenses in our property management and subleasing business was nil for the three months ended June 30,
2021 and 2020, respectively. Selling expenses in our epidemic prevention supplies segment was nil and approximately $0.2 million for
the three months ended June 30, 2021 and 2020, respectively. Selling expenses consist primarily of advertisement, local transportation,
unloading charges and product inspection charges. Total selling expenses for the three months ended June 30, 2021 decreased 69.7% to
$0.05 million from $0.2 million for the three months ended June 30, 2020. It was mainly due to decrease of marketing expenses of epidemic
prevention supplies business.
Our
general and administrative expenses in our Garment manufacturing business segment for the three months ended June 30, 2021 and 2020 was
approximately $0.05 million and $0.03 million, respectively. Our general and administrative expenses in our logistics services segment,
for the three months ended June 30, 2021 and 2020 was approximately $0.2 million and $0.2 million, respectively. The general and administrative
expenses in our property management and subleasing business was approximately $0.08 million for the three months ended June 30, 2021.
Our general and administrative expenses in our epidemic prevention supplies segment was nil and approximately $0.02 million for the three
months ended June 30, 2021 and 2020, respectively. Our general and administrative expenses in our corporate office for the three months
ended June 30, 2021 and 2020 was approximately $0.1 million and $0.2 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 ended June 30, 2021 decreased slightly by 1.0% to approximately $0.46 million
from $0.45 million for the three months ended June 30, 2020.
Income
from operations
Income
from operations for the three months ended June 30, 2021 and 2020 was approximately $0.08 million and $0.2 million, respectively. Income
from operations of approximately $0.1 million and $0.07 million was attributed from our garment manufacturing segment for the three months
ended June 30, 2021 and 2020, respectively. Income from operations of approximately $0.005 million and $0.001 million was attributed
from our logistics services segment for the three months ended June 30, 2021 and 2020, respectively. Income from operations of approximately
$0.06 million was attributed from our newly developed property management and subleasing business. Income from operations of nil and
approximately $0.4 million was attributed from our epidemic prevention supplies segment for the three months ended June 30, 2021 and
2020, respectively. We incurred a loss from operations in corporate office of approximately $0.1 million and $0.3 million for the three
months ended June 30, 2021 and 2020, respectively. The loss from our corporate office was mainly due to increase in legal and professional
fees to comply with the SEC accounting, disclosure and reporting requirements.
Income
Tax Expenses
Income
tax expense for the three months ended June 30, 2021 and 2020 was approximately $0.01 million and $0.003 million, respectively, a two
times increase compared to 2020. The Company operates in the PRC and files tax returns in the PRC jurisdictions.
Yingxi
Industrial Chain Group Co., Ltd was incorporated in the Republic of Seychelles and, under the current laws of the British Virgin Islands,
is not subject to income taxes.
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, 2021 and 2020.
QYTG
and YX were incorporated in the PRC and is subject to the PRC Enterprise Income Tax (EIT) rate is 25%. No provision for income taxes
in the PRC has been made as QYTG and YX had no taxable income for the three months ended June 30, 2021 and 2020.
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 2021. 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 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, 2021 and 2020.
Net
Income
We
incurred a net income of approximately $0.08 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively.
Our basic and diluted earnings per share were $0.00 and $0.01 for the three months ended June 30, 2021 and 2020, respectively.
Summary
of cash flows
Summary
cash flows information for the three months ended June 30, 2021 and 2020 is as follow:
|
|
|
Three months ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
(In U.S. dollars)
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(1,250,664
|
)
|
|
$
|
798,391
|
|
|
Net cash used in investing activities
|
|
$
|
(104,235
|
)
|
|
$
|
(143,148
|
)
|
|
Net cash provided by financing activities
|
|
$
|
485,962
|
|
|
$
|
360,386
|
|
Net
cash used in operating activities in the three months ended June 30, 2021 was approximately $2.1 million more than that of the three
months ended June 30, 2020. It was mainly because the net income of the three months ended June 30, 2021 was approximately $0.1 million
less than the net income of the three months ended June 30, 2020. The movement of operating assets and liabilities of the three months
ended June 30, 2021 resulted in negative cash flow of approximately $1.4 million, while the movement of operating assets and liabilities
of the three months ended June 30, 2020 resulted in positive cash inflow of approximately $0.6 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’ order.
Net
cash used in investing activities for the three months ended June 30, 2021 was approximately $0.04 million less than that of the three
months ended June 30, 2020. It was mainly because the purchase of plant and equipment and other assets in the three months ended June
30, 2021 was approximately $0.04 million less than the purchase of plant and equipment in the three months ended June 30, 2020.
Net
cash provided by financing activities for the three months ended June 30, 2021 was approximately $0.1 million more than the three months
ended June 30, 2020. It was mainly because the net proceeds from related party borrowings increased approximately $0.1 million.
Financial
Condition, Liquidity and Capital Resources
As
of June 30, 2021, we had cash on hand of approximately $1.0 million, total current assets of approximately $10.1 million and current
liabilities of approximately $14.7 million. We presently finance our operations primarily from cash flows from borrowings from related
parties and third parties. We aim to improve our operating cash flows and anticipate that cash flows from our operations and borrowings
from related parties and third parties will continue to be our primary source of funds to finance our short-term cash needs. The Company’s
financial conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue
as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing
to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company expects to
finance operations primarily through cash flow from revenue and capital contributions from the CEO. During the year, the CEO has provided
financial support for the operations of the Company. 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.
The
growth and development of our business will require a significant amount of additional working capital. We currently have limited financial
resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern.
We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have
a dilutive effect on our existing stockholders.
We
are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry.
Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete, we anticipate operating
losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is
new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven.
We may never ever achieve profitable operations. Our future operating results depend on many factors, including demand for our services,
the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the
market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional
development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you
that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a
going concern.
Foreign
Currency Translation Risk
Our
operations are located in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility
in foreign exchange rates between the U.S. dollar and the Chinese Renminbi (“RMB”). All of our sales are in RMB. In the past
years, RMB continued to appreciate against the U.S. dollar. As of June 30, 2021, the market foreign exchange rate had decreased to RMB
6.46 to one U.S. dollar. Our financial statements are translated into U.S. dollars using the closing rate method. The balance sheet items
are translated into U.S. dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are
translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at
the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement
of equity. The foreign currency translation loss for the three months ended June 30, 2021 and 2020 was approximately $0.03 million and
$0.004 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, 2021 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.