ATXG 10-K & 10-Q changes, risk factors and insider trading
Addentax Group Corp. · Nasdaq · Services-Mailing, Reproduction, Commercial Art & Photography · CIK 1650101 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our consulting service line is newly developed and may not generate sustainable revenue or profitability.”
New heading “Our consulting services may be affected by regulatory and licensing risks relating to insurance referral and related services.”
New heading “We depend on customer trust, third-party service providers and private-domain customer resources for our consulting business.”
New heading “U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of the operations of our operating subsidiaries in mainland China.”
New heading “We are required to fulfill the Trial Administrative Measures filing procedures and report relevant information to the CSRC; and, since further interpretation and implementation of the new regulations are still required, we cannot assure you that we will be able to complete the filings for any future offerings, and fully comply with the relevant new rules on a timely basis, if at all.”
New heading “As we are no longer an emerging growth company, we are subject to increased reporting, compliance and governance requirements, which may increase our costs and divert management’s attention from our business.”
New heading “Substantial doubt exists regarding our ability to continue as a going concern.”
New heading “Geopolitical conflicts involving the United States, Israel, Iran and other parties in the Middle East could adversely affect our business, financial condition and results of operations.”
New heading “If our Common Stock were delisted from Nasdaq and became subject to the SEC’s penny stock rules, the liquidity and marketability of our Common Stock could be adversely affected.”
Removed heading “Competition for tenants could impact our occupancy rates.”
Removed heading “Our performance depends on our ability to collect rent from tenants, including anchor tenants, our tenants’ financial condition and our tenants maintaining leases for our properties.”
Removed heading “Subleasing to smaller and growth-oriented businesses could adversely affect our cash flow and results of operations.”
Removed heading “A recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and the newly enacted “Holding Foreign Companies Accountable Act” all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to investing in us.”
Removed heading “There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC.”
Removed heading “We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.”
Removed heading “In the event that our shares are traded, they may trade under $5.00 per share and thus will be a penny stock. Trading in penny stocks has many restrictions and these restrictions could severely affect the price and liquidity of our shares.”
Removed heading “You may experience future dilution as a result of future equity offerings and other issuances of our securities.”
Largest changes
“On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which came into force on March 31, 2023. On the same date, the CSRC circulated the Guidance Rules on CSRC’s official website. The Trial Administrative Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. …”see in full comparison
“Our property management and subleasing operations rely heavily on our ability to collect rent from tenants, including anchor tenants, to maintain financial stability. The financial condition of our tenants directly impacts their ability to meet lease obligations. Economic downturns or adverse market conditions, such as inflation, labor shortages, supply chain disruptions, and changes in consumer spending habits, may weaken tenants’ financial positions. This could lead to delays in lease commencements, non-renewals, or defaults on rental payments. …”see in full comparison
“These events have contributed, and may continue to contribute, to fluctuations in commodity prices, fuel and transportation costs, inflation, interest rates, foreign exchange rates and capital markets conditions. In addition, the conflicts could result in cyberattacks, sanctions, export controls, supply chain disruptions, disruptions in the availability or pricing of inventory and raw materials, or other adverse effects on global commerce.”see in full comparison
“If our Common Stock were delisted from Nasdaq and became subject to the SEC’s penny stock rules, the liquidity and marketability of our Common Stock could be adversely affected.”see in full comparison
“The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in mainland China. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in mainland China. …”see in full comparison
“Furthermore, as Article 177 is a recently promulgated provision and, as the date of this Form 10-K, there have not been implementing rules or regulations regarding the application of Article 177, so it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. …”see in full comparison
Full comparison: every changed paragraph (113)
You
should carefully consider the risks described below and elsewhere in this annual report on Form 10-K, which could materially and adversely
affect our
business, results of operations or financial condition. Our business faces significant risks and the risks described below
may not be
the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may materially
affect affect
our business, results of operations, or financial condition. If any of these risks occur, the trading price of our commonCommon stockStock
could could
decline, and you may lose all or part of your investment. You should consider our business and prospects in light of the challenges
we we
face, including the ones discussed in this section. In the event that any of the events described in the risk factors below occur,
it it
could have a material adverse effect on our operations and cash flow and cause the value of our securities to decline in value or
become become
worthless.
Our
ability to adequately protect our trade names, trademarkstrademarks, copyrights and patentsdomain names could haveadversely an impact onaffect our brand images and ability to penetrate
newexpand markets.our business.
We believe that our trade names, trademarks, copyrighted logo designs and domain names are important assets and an element of our brand development strategy. We have obtained trademark registrations and copyright registrations in China in connection with our business and maintain domain names for corporate, branding and business development purposes. There can be no assurance that we will be able to adequately protect these intellectual property rights or prevent unauthorized use of our brands, logos, websites, domain names or other intellectual property by third parties. Any infringement, misappropriation or other unauthorized use of our intellectual property could adversely affect our brand image, reputation and customer relationships, which could in turn have a material adverse effect on our business, results of operations, financial condition and cash flows.
We
believe that our trade names, trademarks and patents are important assets and an essential element of our strategy. We have applied the
registration of these trade names, trademarks and patents in China and Hong Kong, and these registrations are currently pending approval
from the corresponding departments. There can be no assurance that we will obtain such registrations or that the registrations we obtain
will prevent the imitation of our products or infringement of our intellectual property rights by others. In particular, the laws of
certain foreign countries may not protect proprietary rights to the same extent as the laws of the U.S. If any third-party copies our
products or our stores in a manner that projects lesser quality or carries a negative connotation, it could have a material adverse effect
on our brand image and reputation as well as our results of operations, financial condition and cash flows.
OurA
top customers accounted for a majorsignificant portion of our total revenue foris derived from major customers or sales channels, and the yearsloss endedof Marchany 31,significant 2025customer andor 2024 andsales
channel may materially and adversely
affect our financial condition and results of operations.
For the year ended March 31, 2026, our garment manufacturing revenue was generated through multiple sales channels. Offline sales, product promotion/giveaway sales, Taobao platform sales, WeChat platform sales, accessory sales and Douyin platform sales accounted for approximately 50.2%, 30.4%, 12.2%, 5.4%, 1.1% and 0.6%, respectively, of the Company’s total garment manufacturing revenue. Accordingly, the Company’s garment manufacturing revenue for the year ended March 31, 2026 was more diversified by sales channel and was not dependent on a single individual customer in the same manner as in prior periods.
For the year ended March 31, 2026, 3 customers accounted for approximately 34.6%, 30.7% and 18.6%, respectively, of the Company’s total garment manufacturing revenue. For the year ended March 31, 2025, two customers accounted for approximately 73.9% and 22.1%, respectively, of the Company’s total garment manufacturing revenue.
For the year ended March 31, 2026, three customers accounted for approximately 22.7%, 17.6% and 12.4%, respectively, of the Company’s total logistics services revenue. For the year ended March 31, 2025, two customers accounted for approximately 16.7% and 14.3%, respectively, of the Company’s total logistics services revenue.
For the year ended March 31, 2026, three customers accounted for approximately 53.6%, 31.6% and 13.4%, respectively, of the Company’s total consulting service revenue. The Company did not generate consulting service revenue during the year ended March 31, 2025.
Our customers are not obligated to continue to purchase products or services from us at any specific level or at all. If any of our significant customers reduce their orders, delay payments, terminate their business relationship with us, or if we are unable to obtain replacement customers or sales channels on commercially reasonable terms, our revenue, business operations and financial performance may be materially and adversely affected.
For the year ended March 31, 2025,
one customer accounted for approximately 54.1% of the Company’s total garment manufacturing revenues. For the year ended March 31,
2024, two customers accounted for approximately 73.9% and 22.1%, respectively, of the Company’s total garment manufacturing revenues.
For the year ended March 31, 2025, two customers accounted for approximately 16.7% and 14.3% of the Company’s total logistic services
revenues. For the year ended March 31, 2024, one customer accounted for approximately 20.0% of the Company’s total logistic services
revenues. However, our top customers are not obligated in any way to continue to provide us with new business in the future at a level
similar to that in the past or at all. If any of our top customers reduce their orders with us or terminate their business relationship
with our Group and if we are not able to secure orders of a comparable size from other customers as replacement, our business operations
and financial performance may be materially and adversely affected.
We
are exposed to concentration risk due to heavy reliance on our major suppliersuppliers and service providers for the supply of our products,products and services,
and any shortageshortage, of,delay or delay
in, the supplydisruption may significantly impact our business and results of operation.operations.
During
the years ended March 31,
2025 2026 and 2024,2025, approximately 41.39%45.7% and 100.0%41.4%, respectively, of the Company’s total inventorypurchases purchasesand service
procurement were from the Company’s five largest suppliers,suppliers respectively.
and service providers. Our business, financial condition and operatingresults
of resultsoperations may depend on the continuouscontinued supply of products or services from our largest suppliers and service providers and on our
continuousability supplier-customerto relationshipmaintain stable relationships with them. OurAny heavy reliance on our largest suppliers for the supply of our products will have
significant impact on our business and results of operationdisruption in thesupply, eventdeterioration ofin anysupplier relationships, increase
in supplier costs, or shortage of, or delay in the supply.supply of materials or services may have a material adverse effect on our business and
results of operations.
For consulting service, the Company may also rely on third-party referral partners, channel partners, insurance brokers or other cooperating service providers to support customer coordination and service fulfillment. Any material disruption in these relationships, or any failure by such third parties to provide services in a timely and compliant manner, could adversely affect the Company’s consulting service business.
If we are unable to attract additional customers and clients to purchase our services or products (and future products we may develop or sell), it will have a negative effect on our ability to generate the revenue.
We
may be exposed to concentration risk due to heavy reliancerely on certain third-party contractors for portions of our logisticlogistics business,services, and any shortageshortage, ofdelay third-partyor disruption in subcontractor
contractorsservices may significantlyadversely impactaffect our businesslogistics and results of operation.operations.
The
Company reliedengages on a fewcertain subcontractors forto oursupport logisticits business,logistics inbusiness whichfrom time to time. For the years ended March 31, 2026 and 2025,
subcontracting fees paid or payable to our largest contractor
subcontractor represented approximately 5.2%7.3% and 42.0%5.2%, respectively, of total cost
of revenues for our logistics serviceservices segmentsegment. forBased on these percentages, management does not believe that the yearsCompany endedwas Marchheavily
reliant 31,on any single subcontractor during these periods. However, our logistics business may still be affected if subcontractors are
2025unable andor 2024,unwilling respectively.to Theprovide decreaseservices to us on commercially acceptable terms, or if there is any shortage, delay or disruption in subcontracting fee to the largest contractor was mainly due to decrease use of subcontractors. We have not experienced any disputes with our subcontractors, and we believe we maintain good relationships withsubcontractor
our contract logistic service provider.services.
We have not experienced any material disputes with our subcontractors, and we believe we maintain good relationships with our logistics service providers. If we are unable to engage suitable subcontractors when needed or maintain stable relationships with our logistics service providers, our logistics business, results of operations and financial condition may be adversely affected.
We engage subcontractors to carry out certain logistics services. Subcontracting fees for our logistics business accounted for approximately 8.9% and 5.5% of our total logistics services revenue for the years ended March 31, 2026 and 2025, respectively. If any of our significant subcontractors are unable or unwilling to provide services to us on commercially acceptable terms, or if there is any shortage, delay or disruption in subcontractor services, our logistics business, results of operations and financial condition may be materially and adversely affected.
We
engaged subcontractors to carry out logistics services. Subcontracting fees for our logistics business for the year ended March 31, 2025
decreased to approximately $0.2 million from $1.5 million for the year ended March 31, 2024, representing an decrease of approximately
89.0%. Subcontracting fees accounted for 5.5% and 34.9% of our total logistics business revenue in the years ended March 31, 2025 and
2024, respectively.
If
we are unable to control the reliance of subcontractors efficiently and effectively, our business prospects and results of operations
may be materially and adversely affected.
Our consulting service line is newly developed and may not generate sustainable revenue or profitability.
During the fiscal year ended March 31, 2026, we commenced a consulting service line. This business has a limited operating history and remains subject to significant uncertainty. Our ability to generate revenue from consulting services depends on our ability to attract and retain customers, maintain service quality, retain qualified personnel, coordinate effectively with third-party service providers, manage customer relationships and comply with applicable laws and regulations. If we are unable to successfully develop this business, our results of operations, financial condition and business prospects may be materially and adversely affected.
Our consulting services may be affected by regulatory and licensing risks relating to insurance referral and related services.
Our consulting services may involve referrals, coordination or administrative support relating to insurance, wealth management, identity planning, education planning or other cross-border services. These areas may be subject to licensing, regulatory, compliance, anti-money laundering, data protection and consumer protection requirements in relevant jurisdictions. We depend on third-party licensed service providers, including insurance companies and insurance brokers, where applicable. If we, our employees, referral partners or third-party service providers fail to comply with applicable regulatory requirements, or if a relevant license, approval or cooperation arrangement is suspended, terminated or not renewed, we may be unable to provide related services or receive related fees, and our business, results of operations and reputation may be materially and adversely affected.
Changes in commission structures or referral fee arrangements may reduce our revenue and cash flows. The revenue and cash flow of our consulting service line may be affected by changes in referral fee, commission payment or settlement arrangements among insurance companies, insurance brokers, referral parties and service providers. If referral fees are reduced, capped, deferred or paid over a longer period, our short-term revenue, working capital, cash flow and ability to invest in business development may be adversely affected. We may not be able to offset such impact by increasing consulting service fees or expanding non-insurance consulting revenue.
We depend on customer trust, third-party service providers and private-domain customer resources for our consulting business.
The success of our consulting business depends on our reputation, customer trust, private-domain customer resources, service quality and relationships with third-party service providers. Negative publicity, customer complaints, service failures, disputes with third-party service providers, data leakage or failure to protect customer information may harm our reputation and adversely affect our ability to attract or retain customers.
Competition
for tenants could impact our occupancy rates.
Our
property management and subleasing operations face significant competition for tenants within the garment market. Competitive factors
include rental rates, property location, lease terms, and the quality of properties offered. We compete directly with other landlords
and property operators offering similar leasing opportunities in our targeted areas. The presence of newer or better-located properties
could adversely affect our ability to attract tenants and the rental rates we can achieve.
Our
performance depends on our ability to collect rent from tenants, including anchor tenants, our tenants’ financial condition and
our tenants maintaining leases for our properties.
Our
property management and subleasing operations rely heavily on our ability to collect rent from tenants, including anchor tenants, to
maintain financial stability. The financial condition of our tenants directly impacts their ability to meet lease obligations. Economic
downturns or adverse market conditions, such as inflation, labor shortages, supply chain disruptions, and changes in consumer spending
habits, may weaken tenants’ financial positions. This could lead to delays in lease commencements, non-renewals, or defaults on
rental payments. In some cases, tenants may choose to close stores or declare bankruptcy, resulting in the termination of leases and
loss of rental income. Enforcing lease terms in case of default may incur delays and costs, potentially affecting our cash flow and financial
performance.
A
tenant filing for bankruptcy protection could prevent us from collecting pre-bankruptcy debts or recovering losses related to unpaid
rent or damages. The rejection of leases in bankruptcy proceedings would leave us with general unsecured claims, likely resulting in
partial or no recovery of outstanding balances. Multiple lease terminations or failures of tenants to occupy premises could lead to lease
terminations or reduced rents for remaining tenants under certain lease terms. In such scenarios, re-leasing vacant spaces at competitive
rates may be challenging, potentially reducing overall rental income and impacting financial results. The occurrence of these situations,
particularly involving significant tenants with leases across multiple locations, could materially affect our financial condition, operational
results, and cash flow.
Subleasing
to smaller and growth-oriented businesses could adversely affect our cash flow and results of operations.
A
portion of our tenant base consists of smaller, growth-oriented businesses in the garment industry. These tenants may have less financial
stability compared to larger corporations, increasing the risk of tenant defaults, turnover, or bankruptcies. Smaller businesses are
more susceptible to economic downturns or changes in market conditions, which could lead to challenges in rent payments, lease renewals,
or the need for alternative office spaces. Such tenant-related risks could impact our cash flow and financial performance.
Our
success is dependent upon the continued contributions made by our CEOCEO, President and President,Chairman of the Board of Directors of the Company,
Mr. Hong Zhida. We rely on his expertise in business
operations when we are developing new products and services. The Company has no
“Key Man” insurance to cover the resulting
losses in the event that any of our officer or directors should die or resign.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of the operations of our operating subsidiaries in mainland China.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in mainland China. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in mainland China. Mainland China adopted a revised securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of mainland China. Further, the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) provide that overseas securities regulatory authorities may conduct investigations or evidence collection relating to mainland China companies’ overseas offering and listing activities through the assistance of the CSRC under relevant cross-border securities regulatory cooperation mechanisms. Accordingly, without regulatory cooperation between the U.S. and China, no entity or individual in mainland China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of mainland China.
We are required to fulfill the Trial Administrative Measures filing procedures and report relevant information to the CSRC; and, since further interpretation and implementation of the new regulations are still required, we cannot assure you that we will be able to complete the filings for any future offerings, and fully comply with the relevant new rules on a timely basis, if at all.
On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly and Lawfully Cracking Down Illegal Securities Activities to crack down on illegal activities in the securities market and promote the high-quality development of the capital market (the “Opinions”), which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the capital market laws of mainland China.
On December 24, 2021, the CSRC published the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comment) (the “Draft Administrative Provisions”) and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comment) (the “Draft Filing Measures”). The Draft Administrative Provisions and the Draft Filing Measures lay out requirements for filing and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation.
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which came into force on March 31, 2023. On the same date, the CSRC circulated the Guidance Rules on CSRC’s official website. The Trial Administrative Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. The Trial Administrative Measures, together with the relevant guidance rules reiterate the basic principles of the Draft Administrative Provisions and Draft Filing Measures and impose substantially the same requirements for the overseas securities offering and listing by domestic enterprises, and clarified and emphasized several aspects, which include, but are not limited to: (i) comprehensive determination of the “indirect overseas offering and listing by domestic companies of mainland China” in compliance with the principle of “substance over form” and particularly, an issuer will be required to undertake the filing procedures under the Trial Administrative Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets, as documented in its audited consolidated financial statements for the most recent accounting year, is accounted for by domestic companies in mainland China, and b) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in mainland China; (ii) a negative list of types of issuers banned from listing or offering overseas, such as issuers under investigation for crimes or major violations of the law, or whose overseas offering and listing may endanger national security, or whose controlling shareholders and the actual controller have been convicted of crimes, such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (iii) issuers’ compliance with foreign investment, network security, data security, and other national security laws, regulations and relevant provisions; (iv) issuers’ filing and reporting obligations, such as the obligation to file with the CSRC after it submits an application for initial public offering to competent overseas regulators, and the obligation to file with the CSRC after it completes subsequent offerings in the same overseas market and to report to the CSRC within 3 working days on material events including change of control or voluntary or mandatory delisting of the issuer; and (v) the CSRC’s authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Administrative Measures, including failure to comply with the filing procedures or filing with materials on false, misleading statements or material omissions. As the Trial Administrative Measures are newly-issued, there remains uncertainty regarding their interpretation and implementation. Therefore, we cannot assure you that we will be able to complete the filings for any future offerings and fully comply with the relevant new rules on a timely basis, if at all.
A
recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed
rule changes submitted by Nasdaq, and the newly enacted “Holding Foreign Companies Accountable Act” all call for additional
and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially
the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to investing in us.
On
April 21, 2020, the SEC and the PCAOB released a joint statement highlighting the risks associated with investing in companies based
in or having substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack
of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On
May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating
in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors
for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the
qualifications of the company’s auditor.
On
December 18, 2020, the “Holding Foreign Companies Accountable Act” was signed by previous President of the United States
and became law. This legislation requires certain issuers of securities to establish that they are not owned or controlled by a foreign
government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer
has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect
the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trading on a national
exchange or through other methods.
On
March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure
requirements of the HFCAA. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report
on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that
jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required
to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction,
and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence
on, such a registrant.
Furthermore,
on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which, if
enacted, would amend the HFCAA and require 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. If the AHFCAA is enacted, and if we are
subject to it, it would decrease the number of “non-inspection years” from three years to two years, and thus, would reduce
the time before our securities may be prohibited from trading or delisted.
On
September 22, 2021, the PCAOB adopted rules to create a framework for the PCAOB to use when determining, as contemplated under the HFCAA,
whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because
of a position taken by one or more authorities in that jurisdiction.
On
December 2, 2021, the SEC issued amendments to finalize the interim final rules previously adopted in March 2021 to implement the submission
and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an Form 10-K with
an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable
to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction.
On
December 16, 2021, the PCAOB issued a Determination Report 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. The PCAOB has made such designations as mandated under the HFCAA. Pursuant
to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms
and thus are at risk of such suspensions in the future.
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.
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 Annual Report, 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.
There
are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies
to conduct investigations and collect evidence within the territory of the PRC.
On
December 28, 2019, the newly amended Securities Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective
on March 1, 2020. According to Article 177 of the PRC Securities Law (“Article 177”), the securities regulatory authority
of the State Council may establish a regulatory cooperation mechanism with securities regulatory authorities of another country or region
for the implementation of cross-border supervision and administration. Article 177 further provides that overseas securities regulatory
authorities shall not engage in activities pertaining to investigations or evidence collection directly conducted within the territories
of the PRC, and that no Chinese entities or individuals shall provide documents and information in connection with securities business
activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council
and the competent departments of the State Council. As
of the date of this Form 10-K, we are not aware of any implementing rules or regulations which have been published regarding application
of Article 177.
As
advised by our PRC counsel, Article 177 is only applicable where the activities of overseas authorities constitute a direct investigation
or evidence collection by such authorities within the territory of the PRC. Our principal business operation is conducted in the PRC.
In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an enforcement action by the Department
of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting an investigation or collecting evidence
directly within the territory of the PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory
agencies may have to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial
assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC.
However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation
in this particular case and/or establish such cooperation in a timely manner.
Furthermore,
as Article 177 is a recently promulgated provision and, as the date of this Form 10-K, there have not been implementing rules or
regulations regarding the application of Article 177, so it remains unclear as to how it will be interpreted, implemented or applied
by the Chinese Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the
procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within
the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk
that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from Nasdaq or
other applicable trading market within the US.
Natural
disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy,
and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power
shortages, pandemics and other events beyond our control. This may result in delivery delays, malfunctioning of facilities or shutdown
of logistic points. Such events could make it difficult or impossible for us to deliver our products and services to our customers and
could decrease demand for our services. In the past, there was no significant disruption of operation at our production facilities and
logistic points. However, we cannnotcannot assure you that the production facilities and logistic points will always operate normally in the
the future.
As we are no longer an emerging growth company, we are subject to increased reporting, compliance and governance requirements, which may increase our costs and divert management’s attention from our business.
We are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we are subject to additional reporting, disclosure, internal control, governance and other requirements applicable to public companies that are not emerging growth companies.
Management's Discussion & Analysis (MD&A)
New heading “Dispositions of Subsidiaries and Discontinued Operations”
New heading “Consulting Services Business”
New heading “Consulting Services Business”
New heading “Consulting Services Business”
New heading “Goodwill and Impairment Assessment”
New heading “Going Concern Assessment”
Removed heading “Property Management and Subleasing Business”
Removed heading “Estimates and Assumptions”
Removed heading “Revenue Recognition”
Removed heading “Accounts receivable, net”
Removed heading “Recently issued and adopted accounting pronouncements”
Largest changes
“The Company has incurred net losses and has used cash in operating activities. Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions.”see in full comparison
“The Company evaluates goodwill for impairment at least annually, and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The impairment assessment requires management to make estimates and assumptions regarding future operating results, cash flows, discount rates, market conditions and the Company’s ability to execute its business plans. …”see in full comparison
“Receivables are written off when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Receivables written off may still be subject to enforcement activities under the Company’s recovery procedures, considering legal advice where appropriate. Any recoveries made are recognized in profit or loss.”see in full comparison
“Management’s going concern assessment involves significant judgment, including assumptions regarding the Company’s ability to improve operating results, manage operating costs, collect receivables, obtain additional financing if necessary, and execute its business plans. Changes in these assumptions or the Company’s ability to execute its plans could affect management’s going concern assessment and related disclosures.”see in full comparison
Full comparison: every changed paragraph (85)
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 ownedwholly-owned subsidiary and its subsidiaries. We are not a Chinese operating company.
We are a holding company and do not directly
own any substantive business operations in China. Therefore, our investors will not directly
hold any equity interests in our operating
companies. Our holding company structure involves unique risks to investors. Chinese regulatory
authorities could disallow our operating
structure, which would likely result in a material change in our operations and/or the value
of our commonCommon stock,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”. WeDuring classifythe fiscal year
ended March 31, 2026, our businessescontinuing intooperations threeprimarily mainconsisted segments:of garment manufacturing,
logistics services,services and propertyconsulting management and subleasing.services.
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 our investors are investing.
Our
subsidiaries include (i) Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles company; (ii) Yingxi Industrial Chain Investment
Co., Ltd., a Hong Kong company (“Yingxi HK”); (iii) Qianhai Yingxi Textile & Garments Co., Ltd., a PRC company; (iv)
Shenzhen Qianhai Yingxi Industrial Chain Services Co., Ltd, a PRC company (“YX”), (v) Dongguan Heng Sheng Wei Garments Co.,
Ltd, a PRC company (“HSW”), (vi) Dongguan Yushang Clothing Co., Ltd, a PRC company (“YS”), (vii) Shenzhen Yingxi
Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (viii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”),
(ix) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”), (x) Dongguan Hongxiang Commercial Co., Ltd., a PRC company
(“HX”).
“PRC
Subsidiaries” refers to, collectively, (i) Qianhai Yingxi Textile & Garments Co., Ltd.; (ii) Shenzhen Qianhai Yingxi Industrial
Chain Services Co., Ltd (“YX”), (iii) Dongguan Heng Sheng Wei Garments Co., Ltd (“HSW”), (iv) Dongguan Yushang
Clothing Co., Ltd (“YS”); (v) Shenzhen Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (vi) Shenzhen
Xin Kuai Jie Transportation Co., Ltd, a PRC company (“XKJ”), (vii) Dongguan Aotesi Garments Co., Ltd.,, a PRC company (“AOT”),
(viii) Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).
“WFOE”
refers to Qianhai Yingxi Textile & Garments Co., Ltd, a wholly foreign owned enterprise in China, which is indirectly wholly owned
by Addentax Group Corp.
Our
garment manufacturing business consists of sales made principally to 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 fivethree whollywholly-owned ownedsubsidiaries,
subsidiaries, namely DongguanYX Heng Sheng Wei Garments Co., Ltd (“HSW”), Dongguan Yushang Clothing Co., Ltd (“YS”)
and Dongguan Aotesi Garments Co., Ltd., (“AOT”),YS, which are located in theGuangdong Guangdong
province, China.
Our
logistics business consists of delivery and courier services covering 4445 cities in 10 provinces and 2 municipalities in China. Although
we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows
us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow
seasons. We conduct our logistic operations through threetwo wholly ownedwholly-owned subsidiaries, namely Shenzhen Xin Kuai Jie Transportation Co.,
Ltd (“XKJ”) and Shenzhen Yingxi Peng Fa Logistic Co., Ltd (“PF”)PF, which are located in theGuangdong
province, Guangdong province,
China.
We provide business consulting and coordination services to customers seeking overseas wealth planning, insurance-related information and related cross-border service support. Our services primarily include customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. We conduct our consulting service business through our wholly owned subsidiary, Yingxi HK, which is located in Hong Kong, China.
On March 30, 2026, we completed the acquisition of KMFG, a Nevada corporation with headquarters in Shenzhen, China. KMFG operates two core business segments: (i) an apparel and garment trading business focused on the wholesale distribution of men’s and women’s apparel to distributors primarily in China, sourcing directly from manufacturers without maintaining its own production facilities; and (ii) a digital publishing business conducted through its wholly owned subsidiary, GW Reader Sdn. Bhd. in Malaysia, which operates a mobile-based online fiction platform utilizing a pay-per-chapter microtransaction model for global readers. As of March 31, 2026, KMFG’s revenue contribution was not significant, and management does not currently present KMFG as a separate business line or reportable segment. Management will continue to monitor KMFG’s operations, revenue contribution and business development and will reassess the related disclosure and segment presentation as necessary in future periods.
Dispositions of Subsidiaries and Discontinued Operations
During the fiscal year ended March 31, 2026, we disposed of Dongguan Aotesi Garments Co., Ltd., a PRC company (“AOT”), and Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”). AOT was previously engaged in the garment manufacturing business and was disposed of to the local management of AOT on May 6, 2025. After the disposition, AOT became a third party to the Company. The Company carries on the garment manufacturing business through its remaining subsidiaries, and the disposition of AOT did not qualify as discontinued operations. HX was previously engaged in the property management and subleasing business and was disposed of to the local management of HX on July 1, 2025. After the disposition, HX became a third party to the Company. Following the disposition, the Company no longer conducts the property management and subleasing business through HX or any other subsidiary. The property management and subleasing business has been classified as discontinued operations in the Company’s consolidated financial statements. AOT and HX were no longer subsidiaries of the Company as of March 31, 2026 and as of the date of this annual report.
Our
property management and subleasing business provides shops subleasing and property management services for garment wholesalers and retailers
in the garment market. business provides shops subleasing and property management services for garment wholesalers and retailers in the
garment market. 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.
The
business objective and future plan for our logistics services segment is to establish an efficient logistics system and to build a nationwide
delivery and courier network in China. As of March 31, 2025,2026, we provideprovided logistics services to over 4445 cities in approximately 10 provinces
and 2 municipalities. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s
profit in the year 2025.2026.
Consulting Services Business
The business objective of our consulting service line is to provide advisory, referral, coordination and administrative support services in connection with overseas insurance configuration, wealth management planning, identity planning, education planning and related cross-border service needs. We intend to develop this business as an asset-light service business with an emphasis on high-value consulting services, digital tools and private-domain customer management.
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. We conduct the business through
a wholly owned subsidiary acquired in September 2023, namely Dongguan Hongxiang Commercial Co., Ltd., a PRC company (“HX”).
Consulting Services Business
Management expects relatively stronger customer activity during June to September, October to December, holidays and weekends, while January to March is generally expected to be a traditional slower season due to the Chinese New Year period. Actual seasonality may vary based on customer demand, market conditions, regulatory developments and the availability of third-party service providers.
Property
Management and Subleasing Business
There
is no significant seasonality in our business.
Consulting Services Business
For consulting services, the credit period is generally 30 to 60 days, depending on the service arrangement, customer relationship, settlement cycle with third-party service providers and internal credit review. We do not directly collect customer insurance premiums. Premiums must be paid by customers directly to the relevant insurance company’s designated bank account or official payment gateway.
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.
SummaryCritical
of Critical Accounting PoliciesEstimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated financial statements and accompanying notes. Management evaluates its estimates on an ongoing basis based on historical experience, current conditions and other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates.
Management believes that the following accounting estimates involve a significant level of judgment or estimation uncertainty and are important to an understanding of our financial condition and results of operations. Management has discussed significant audit matters, including accounting estimates and related financial statement disclosures, with the Audit Committee in connection with the annual audit process.
Goodwill and Impairment Assessment
As a result of the acquisition of KMFG during the fiscal year ended March 31, 2026, the Company recognized goodwill in its consolidated financial statements. Goodwill represents the excess of the purchase consideration over the estimated fair value of identifiable net assets acquired and liabilities assumed in a business combination. The determination of goodwill requires management to make judgments and assumptions regarding the fair value of assets acquired and liabilities assumed, including assumptions related to future cash flows, discount rates, useful lives, market conditions and other valuation inputs.
The Company evaluates goodwill for impairment at least annually, and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The impairment assessment requires management to make estimates and assumptions regarding future operating results, cash flows, discount rates, market conditions and the Company’s ability to execute its business plans. If actual results are lower than management’s expectations, or if there are adverse changes in business, market or economic conditions, the Company may be required to recognize impairment charges, which could materially affect the Company’s results of operations and financial condition.
Going Concern Assessment
The Company has incurred net losses and has used cash in operating activities. Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions.
Management’s going concern assessment involves significant judgment, including assumptions regarding the Company’s ability to improve operating results, manage operating costs, collect receivables, obtain additional financing if necessary, and execute its business plans. Changes in these assumptions or the Company’s ability to execute its plans could affect management’s going concern assessment and related disclosures.
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:
The
Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled
to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606
at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which
of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated
to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s
performance obligations are transferred to customers at a point in time, typically upon delivery.
For
all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product and service revenue
contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Leases
Lessee
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in
property and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets.
ROU
assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental
borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement
date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
Lessor
As
a lessor, the Company’s leases are classified as operating leases under ASC 842. Leases, in which the Company is the lessor, are
substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Rental
income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred
in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line
basis over the lease term.
Accounts
receivable, net
Accounts
receivable, net are stated at the historical carrying amount net of allowance for doubtful accounts.
Account
receivables are classified as financial assets subsequently measured at amortized cost. Account receivables are recognized when the Company
becomes a party to the contractual provisions of the receivables. They are measured, at initial recognition, at fair value plus transaction
costs, if any and are subsequently measured at amortized cost. The amortized cost is the amount recognized on the receivable initially,
minus principal repayments, plus cumulative amortization (interest) using the effective interest method of any difference between the
initial amount and the maturity amount, adjusted for any loss allowance.
A
loss allowance for expected credit losses is recognized on account receivables and is updated at each reporting date. The Company determines
the expected credit losses provisions based on ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (‘‘ASC 326’’) using a modified retrospective approach which did not have
a material impact on the opening balance of accumulated deficit. To determine expected credit losses on account receivables, the Company
will consider the historic credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions,
and an assessment of both the current and forecasted direction of conditions at the reporting date, including the time value of money,
where appropriate.
The
loss allowance is calculated on a collective basis for all trade and other receivables in totality. An impairment gain or loss is recognized
in profit or loss with a corresponding adjustment to the carrying amount of account receivables, through use of a loss allowance account.
The impairment loss is included in operating expenses as a movement in credit loss allowance.
Receivables
are written off when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic
prospect of recovery, e.g., when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Receivables
written off may still be subject to enforcement activities under the Company’s recovery procedures, considering legal advice where
appropriate. Any recoveries made are recognized in profit or loss.
Recently
issued and adopted accounting pronouncements
Accounting
for Convertible Instruments: In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity (ASU 2020-06), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards
while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the
new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and
equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued
at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion
features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted”
method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current
accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the
fiscal year.
The
Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have
a significant impact on the Company’s consolidated financial statements.
Total
revenue for the year ended March 31, 20252026 significantly decreasedincreased by approximately $1.0$1.2 million, or approximately 18.9%,28.6%, as compared
with the year ended March 31, 2024.2025. The decreaseincrease was mainly due to therevenue decrease of revenuegenerated from the logisticsnewly servicesestablished business.business segment of consulting
services.
Revenue
generated from our garment manufacturing business contributed approximately $0.3 million, or approximately 6.8%, of our total revenue
for the year ended March 31, 2025. Revenue generated from the segment contributed approximately $0.2 million, or approximately 4.5%,
of our total revenue for the year ended March 31, 2024. The low amount of sales was mainly due to insufficient customer volume, we cannot
receive as large order quantity from remaining customers as before while new developed customer still at the start stage.
Revenue
generated from our logisticsgarment servicesmanufacturing business contributed approximately $3.0$0.04 million, or approximately 72.2%,0.8%, of our total revenue
for for
the year ended March 31, 2025.2026. Revenue generated from the segment contributed approximately $4.3$0.3 million, or approximately 84.3%,6.8%,
of of
our total revenue for the year ended March 31, 2024.2025. The decreaserelatively low level of approximately $1.3 millionsales was mainly due to marketinsufficient volatility.customer base.
In addition, order volumes from the remaining customers were lower than in prior periods, while newly developed customers remained in
the early stages of business development and had not yet generated significant sales.
Revenue
generated from our propertylogistics management and subleasingservices business contributed approximately $0.9$3.2 million, or approximately 21.0%,59.1%, of our total revenue for
the year ended March 31, 2026. Revenue generated from the segment contributed approximately $3.0 million, or approximately 72.2%, of
our total revenue for the year ended March 31, 2025. Revenue generated from our property management and subleasing business contributed approximately
$0.6 million, or approximately 11.3%, of our total revenue for the year ended March 31, 2024. The increase of approximately $0.3$0.2 million
was mainly due to improvedmarket rental rate.volatility.
What changed in the latest 10-Q
Risk Factors
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Consulting Services Business”
New heading “Financing Services Business”
New heading “Consulting Services Business”
New heading “Financing Services Business”
New heading “Consulting Services Business”
New heading “Financing Services Business”
New heading “Goodwill and Impairment Assessment”
New heading “Going Concern Assessment”
Removed heading “Property Management and Subleasing Business”
Removed heading “Estimates and Assumptions”
Removed heading “Results of Operations for the nine months ended December 31, 2025 and 2024”
Removed heading “Cost of revenue”
Removed heading “Selling, General and administrative expenses”
Removed heading “Loss from operations”
Removed heading “Income Tax Expenses”
Largest changes
“Management evaluates whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions.”see in full comparison
“The Company evaluates goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. During the three months ended June 30, 2026, management considered whether any events or changes in circumstances indicated potential impairment of goodwill, including the Company’s operating results, financial performance and other relevant business and market conditions. No impairment of goodwill was identified during the three months ended June 30, 2026.”see in full comparison
“Management expects customer demand for our financing services business to vary based on seasonal consumer spending patterns, short-term liquidity needs, marketing activities and general economic conditions in Hong Kong. Customer application activity may increase before holidays and during periods of higher consumer spending. Actual seasonality may vary depending on market conditions, borrower demand, competition, regulatory developments and our credit risk management considerations.”see in full comparison
“The Company has a history of net losses and operating losses and has used cash in operating activities, which have raised substantial doubt about its ability to continue as a going concern. During the three months ended June 30, 2026, the Company reported net income, primarily as a result of a non-cash fair value gain on derivative liabilities; however, the Company continued to incur a loss from operations and negative cash flows from operating activities.”see in full comparison
Full comparison: every changed paragraph (176)
The
following discussion and analysis of our financial condition and results of operations for the three and nine months ended DecemberJune 31,
202530, 2026 and 2024 2025
should be read in conjunction with the Financial Statements and corresponding notes included in this Report on Form 10-Q.
Our discussion
includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our
plans, objectives,
expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated
in these forward-looking
statements as a result of a number of factors, including those set forth under the Risk Factors and Special
Note Regarding Forward-Looking
Statements in this report. We use words such as “anticipate,” “estimate,” “plan,”
“project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,”
“will,” “should,” “could,” “target”, “forecast” and similar
expressions to
identify forward-looking statements.
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.
Therefore, our investors will not directly
hold any equity interests in our operating companies. Our holding company structure involves
unique risks to investors. Chinese regulatory
authorities could disallow our operating structure, which would likely result in a material
change in our operations and/or the value
of our commonCommon stock,Stock, including that it could cause the value of such securities to significantly
decline or become worthless. Our holding
company, Addentax Group Corp., is listed on the Nasdaq Capital Market under the symbol of “ATXG”. As of three months ended
WeJune classify30, 2026, our businessescontinuing intooperations threeprimarily mainconsisted segments:of garment manufacturing, logistics services, andconsulting property managementservices and subleasing.financing
services.
Unless
the context otherwise requires, all references in this quarter report to “Addentax” refer to Addentax Group Corp.,
a holding company, and references to “we,” “us,” “our,” the “Registrant”,
the “Company,” or “our company” refer to Addentax and/or its consolidated subsidiaries. Addentax
Group Corp., our Nevada holding company, is the entity in which our investors are investing.
Our
subsidiaries include (i) Yingxi Industrial Chain Group Co., Ltd., a Republic of Seychelles company; (ii) Yingxi Industrial Chain
Investment Co., Ltd., a Hong Kong company (“Yingxi HK”); (iii) Yingxi Textile & Garments Co., Ltd., a PRC company;
(iv) ShenzhenYingxi Industrial Chain Services Co., Ltd, a PRC company (“YX”), (v) Dongguan Heng Sheng Wei Garments Co.,
Ltd, a PRC company (“HSW”), (vi) Dongguan Yushang Clothing Co., Ltd, a PRC company (“YS”), (vii) Shenzhen
Yingxi Peng Fa Logistic Co., Ltd., a PRC company (“PF”); (viii) Shenzhen Xin Kuai Jie Transportation Co., Ltd, a PRC
company (“XKJ”), (ix) Dongguan Aotesi Garments Co., Ltd., a PRC company (“AOT”), and (x) Dongguan Hongxiang
Commercial Co., Ltd., a PRC company (“HX”).
Effective
July 2025, Shenzhen Yingxi Industrial Chain Services Co., Ltd, previously known as Shenzhen Qianhai Yingxi Industrial Chain Services
Co., Ltd, changed its name to Shenzhen Yingxi Industrial Chain Services Co., Ltd due to a relocation of its registered address. The name
change did not result in any material change to the subsidiary’s operations, financial position, or results.
“PRC
Subsidiaries” refers to, collectively, YX, HSW, YS, PF, XKJ, AOT and HX.
“WFOE”
refers to Yingxi Textile & Garments Co., Ltd or “QYTG”, a wholly foreign-owned enterprise in China, which is indirectly
wholly owned by Addentax Group Corp.
Effective
August 2025, Yingxi Textile & Garments Co., Ltd,
previously known as Qianhai Yingxi Textile & Garments Co., Ltd, changed its name to
Yingxi Textile & Garments Co., Ltd due to a relocation of its registered address. The
name change did not result in any material change to the subsidiary’s operations, financial position, or results.
Our
garment manufacturing business consists of sales made principally to wholesalers located in the PRC. We have our own manufacturing facilities,
with sufficient production capacity and skilled workers on production lines to ensure that we meet our high quality control standards
and delivery requirements for our customers. We conduct our garment manufacturing operations through threetwo wholly-owned subsidiaries, namely
namely HSW, YSYX and AOT,YS, which are located in the Guangdong province, China.
In
May 2025, the Company disposed of AOT to the management of AOT.
Our
logistics business consists of delivery and courier services covering 4445 cities in 10 provinces and 2 municipalities in China. Although
we have our own motor vehicles and drivers, we currently outsource some of the business to our contractors. We believe outsourcing allows
us to maximize our capacity and maintain flexibility while reducing capital expenditures and the costs of keeping drivers during slow
seasons. We conduct our logistic operations through two wholly-owned subsidiaries, namely XKJ and PF, which are located in the Guangdong
province, China.
We provide business consulting and coordination services to customers seeking overseas wealth planning, insurance-related information and related cross-border service support. Our services primarily include customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. We conduct our consulting service business through our wholly owned subsidiary, Yingxi HK, which is located in Hong Kong, China.
On March 30, 2026, we completed the acquisition of KMFG, a Nevada corporation with headquarters in Shenzhen, China. KMFG operates two core business segments: (i) an apparel and garment trading business focused on the wholesale distribution of men’s and women’s apparel to distributors primarily in China, sourcing directly from manufacturers without maintaining its own production facilities; and (ii) a digital publishing business conducted through its wholly owned subsidiary, GW Reader Sdn. Bhd. in Malaysia, which operates a mobile-based online fiction platform utilizing a pay-per-chapter microtransaction model for global readers. As of June 30, 2026, KMFG’s revenue contribution was not significant, and management does not currently present KMFG as a separate business line or reportable segment. Management will continue to monitor KMFG’s operations, revenue contribution and business development and will reassess the related disclosure and segment presentation as necessary in future periods.
On May 15, 2026, the Company completed the acquisition of 100% of the equity interests of Time Is Loan Limited (“Time Is Loan”), a Hong Kong company and licensed money lender. Time Is Loan is principally engaged in providing consumer and commercial financing services in Hong Kong, primarily through short-term personal loans and other financing arrangements. Its customers are primarily sourced through online advertising, social media, mobile applications and telephone marketing. Before approving and disbursing financing, Time Is Loan performs customer identification, credit assessment and sanctions screening in accordance with its internal credit and compliance procedures. The results of Time Is Loan have been included in the Company’s consolidated financial statements from the acquisition date.
Our
property management and subleasing business provides subleasing of shops and property management services to garment wholesalers and
retailers in the garment market. We currently have an aggregate of 56,238 square meters floor space and provide approximately 1,300 shop
space to clients. We conduct our property management and subleasing operation through a wholly-owned subsidiary acquired in September
2023, HX, which is located in the Guangdong province, China. On July 1, 2025, the Company disposed of HX to its management. As of date
of disposal, the net assets of HX was $6,972. The consideration was $13,829, resulting in an income of $6,857 from disposal.
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.delivery. The primary business objective for our garment manufacturing segment is to expand our customer base and improve
our profit.
The
business objective and future plan for our logistics services segment is to establish an efficient logistics system and to build a nationwide
delivery and courier network in China. As of DecemberJune 31,30, 2025,2026, we provideprovided logistics services to over 4445 cities in approximately 10 provinces
and 2
municipalities. We expect to develop 20 additional logistics routes in existing serving cities and improve the Company’s
profit profit
in the year 2026.2027.
Consulting Services Business
The business objective of our consulting service line is to provide advisory, referral, coordination and administrative support services in connection with overseas insurance configuration, wealth management planning, identity planning, education planning and related cross-border service needs. We intend to develop this business as an asset-light service business with an emphasis on high-value consulting services, digital tools and private-domain customer management.
Financing Services Business
The business objective of our financing services business is to provide consumer and commercial financing services in Hong Kong. We intend to expand our customer base through digital and other marketing channels while maintaining prudent credit assessment, regulatory compliance and effective risk management. We expect to continue developing this business and improve its contribution to the Company’s future growth.
Property
Management and Subleasing Business
The
business objective of our property management and subleasing segment was to integrate resources in a shopping mall, develop e-commerce
and the Internet celebrity economy and increase the value of the stores in that area.
The
Company conducted the business through a wholly-owned subsidiary, HX. In July 2025, the Company disposed of HX to the management of HX.
The property management and subleasing business was then classified as discontinued operation.
We
generally receive more purchase orders during our second and third quarters and fewer manufacturingmanufacture orders during May and June.
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.
Consulting Services Business
Management expects relatively stronger customer activity during June to September, October to December, holidays and weekends, while January to March is generally expected to be a traditional slower season due to the Chinese New Year period. Actual seasonality may vary based on customer demand, market conditions, regulatory developments and the availability of third-party service providers.
Financing Services Business
Management expects customer demand for our financing services business to vary based on seasonal consumer spending patterns, short-term liquidity needs, marketing activities and general economic conditions in Hong Kong. Customer application activity may increase before holidays and during periods of higher consumer spending. Actual seasonality may vary depending on market conditions, borrower demand, competition, regulatory developments and our credit risk management considerations.
Property
Management and Subleasing Business
There
is no significant seasonality in our 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 theirthe acknowledgementdelivery of receipt
offinished goods.
Consulting Services Business
For consulting services, the credit period is generally 30 to 60 days, depending on the service arrangement, customer relationship, settlement cycle with third-party service providers and internal credit review. We do not directly collect customer insurance premiums. Premiums must be paid by customers directly to the relevant insurance company’s designated bank account or official payment gateway.
Financing Services Business
For financing services, borrowers are required to repay principal and interest in accordance with the repayment schedule set out in the applicable loan agreement. Loan terms generally range from approximately half a month to 12 months. Before approving and disbursing financing, we perform customer identification, credit assessment and sanctions screening in accordance with our internal credit and compliance procedures. We monitor repayments on an ongoing basis, and past-due balances are subject to follow-up and collection procedures in accordance with our internal policies.
Property
management and subleasing business
For
property management and subleasing business, we generally collect rental and management fees for the following month each month in advance.
SummaryCritical
of Critical Accounting PoliciesEstimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated financial statements and accompanying notes. Management evaluates its estimates on an ongoing basis based on historical experience, current conditions and other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates.
Management believes that the following accounting estimates involve a significant level of judgment or estimation uncertainty and are important to an understanding of our financial condition and results of operations. Management has discussed significant audit matters, including accounting estimates and related financial statement disclosures, with the Audit Committee in connection with the annual audit process.
Goodwill and Impairment Assessment
As a result of the acquisition of KMFG during the fiscal year ended March 31, 2026, the Company recognized goodwill in its consolidated financial statements. Goodwill represents the excess of the purchase consideration over the estimated fair value of identifiable net assets acquired and liabilities assumed in a business combination. The determination of goodwill requires management to make judgments and assumptions regarding the fair value of assets acquired and liabilities assumed, including assumptions related to future cash flows, discount rates, useful lives, market conditions and other valuation inputs.
The Company evaluates goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. During the three months ended June 30, 2026, management considered whether any events or changes in circumstances indicated potential impairment of goodwill, including the Company’s operating results, financial performance and other relevant business and market conditions. No impairment of goodwill was identified during the three months ended June 30, 2026.
Going Concern Assessment
The Company has a history of net losses and operating losses and has used cash in operating activities, which have raised substantial doubt about its ability to continue as a going concern. During the three months ended June 30, 2026, the Company reported net income, primarily as a result of a non-cash fair value gain on derivative liabilities; however, the Company continued to incur a loss from operations and negative cash flows from operating activities.
Management evaluates whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment requires management to consider the Company’s liquidity, working capital, operating results, cash flows, debt obligations, available financing sources and management’s plans to mitigate adverse conditions.
Management’s going concern assessment involves significant judgment, including assumptions regarding the Company’s ability to improve operating results, manage operating costs, collect receivables, develop its consulting and financing services businesses and obtain additional financing when necessary. Changes in these assumptions or the Company’s ability to execute its plans could affect management’s going concern assessment and related disclosures.
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 from continuing operations is generated primarily from garment manufacturing, logistics services, consulting services and financing services. Revenue from contracts with customers relating to garment manufacturing, logistics services and consulting services is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Interest income generated from the Company’s financing services is not within the scope of ASC Topic 606 and is recognized over the contractual term of the underlying financing based on the outstanding principal and the applicable contractual interest rate or effective yield, as appropriate.
For revenue streams within the scope of ASC Topic 606, the Company applies the following five-step model to recognize revenue from contracts with customers: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, the Company satisfies the performance obligations.
The following table summarizes the Company’s major revenue streams for the three months ended June 30, 2026 and 2025:
For the garment manufacturing business, revenue is generated primarily from the sale of garments and related products to customers based on purchase orders or sales contracts. The Company generally recognizes revenue at a point in time when control of the products is transferred to the customer, which typically occurs upon delivery of the products to the customer or other delivery point specified in the relevant customer arrangement. At that time, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the products. Revenue is measured based on the transaction price specified in the customer contract or purchase order, net of applicable discounts, returns, allowances or other variable consideration, if any. The Company did not have any material discounts, returns, allowances or other variable consideration related to garment manufacturing revenue during the three months ended June 30, 2026.
For the logistics services business, revenue is generated primarily from the provision of delivery, transportation and related logistics services. The Company generally recognizes revenue at a point in time when the related logistics service has been completed in accordance with the customer arrangement. The Company’s performance obligation is typically satisfied when the goods have been delivered to the agreed destination or when the relevant delivery or logistics service has otherwise been completed and accepted by the customer. Revenue is measured based on the agreed service fee specified in the customer contract, delivery order, settlement statement or other relevant arrangement. The Company did not have any material rebates, credits or other variable consideration related to logistics services revenue during three months ended June 30, 2026.
For the consulting services business, revenue is generated through Yingxi HK, the Company’s Hong Kong subsidiary. The consulting services primarily includes customer consultation, appointment coordination, referral and liaison with third-party insurance brokers or other service providers, and related administrative support. The Company generally recognizes revenue when the agreed consulting, referral, coordination or administrative support services have been completed and the Company’s right to consideration has been established. If the consideration is contingent upon the successful completion or effectiveness of a customer arrangement with a third-party service provider, the Company recognizes revenue only when the contingency is resolved and it is probable that a significant reversal of revenue will not occur. The Company did not have any material refunds, clawbacks or other variable consideration related to consulting services revenue during the three months ended June 30, 2026.
The Company evaluates whether it acts as a principal or an agent in each consulting services arrangement. To the extent the Company acts as an agent and does not control the underlying insurance products or other third-party services before they are provided to customers, the Company recognizes revenue on a net basis for the consulting, referral or coordination fee to which it expects to be entitled, and does not recognize the gross amount of insurance premiums or other amounts charged by third-party service providers.
For the financing services business, the Company provides consumer and commercial financing services through Time Is Loan, the Company’s wholly owned Hong Kong subsidiary and a licensed money lender. The financing services business primarily generates interest income from short-term personal loans and other financing arrangements. Interest income is not within the scope of ASC Topic 606 and is recognized over the contractual term of the underlying financing based on the outstanding principal and the applicable contractual interest rate or effective yield, as appropriate. Principal repayments are applied against the related loans receivable and are not recognized as income. Loans receivable are carried at amortized cost, net of an allowance for expected credit losses.
ATXG insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 218,750 shares, about $1.1M) and open-market sales in 0 filings. Net open-market shares: 218,750 (purchases minus sales); net value about $1.1M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-18 | Hong Zhiwang |
Open-market purchase | 218,750 | $4.80 | $1.1M |
| 2026-05-15 | Wu Rui |
Other | 33,500 | $5.00 | $167.5K |
| 2026-04-08 | Hong Zhida |
Grant/award | 12,222 | — | — |
| 2026-04-08 | Hong Zhida |
Grant/award | 12,222 | — | — |
Well-known investors holding ATXG (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 21,777 | $66.0K | 0.0% | New position |