Addentax(ATXG) - 2021 Q1 - Quarterly Report

Revenue and Profit Performance - Revenue for the three months ended June 30, 2020, was $5,918,215, a 167.9$2,209,492 in the same period in 2019[134] - Gross profit for the three months ended June 30, 2020, was $797,639, representing a 13.5$357,932 and a 16.2% gross margin in 2019[134] - Net income for the three months ended June 30, 2020, was $203,900, a significant improvement from a net loss of$367,348 in the same period in 2019[134] - Total revenue for Q2 2020 increased by 167.9% to $5,918,215 compared to$2,209,492 in Q2 2019, driven by growth in garment business and new epidemic prevention supplies business[139] - Gross profit for Q2 2020 was $797,639, a 122.8$357,932 in Q2 2019, with a gross margin of 13.5% compared to 16.2% in Q2 2019[150] - Income from operations for Q2 2020 was $188,432, a significant improvement from a loss of$353,741 in Q2 2019, driven by strong performance in the epidemic prevention supplies segment[157] - Net income for the three months ended June 30, 2020 was $203,900, compared to a net loss of$367,348 for the same period in 2019[162] Business Segment Performance - Revenue from the garment business contributed $1,274,806, or 21.5$551,317, or 25.0% in 2019[135] - Revenue from the logistics business contributed $1,533,381, or 25.9$1,658,175, or 75.0% in 2019, primarily due to COVID-19 disruptions[137] - Revenue from the epidemic prevention supplies business contributed $3,110,028, or 52.6$3,041,672, or 97.8%, coming from trading of merchandise[138] - Garment business revenue for Q2 2020 was $1,274,806, a 131.2$551,317 in Q2 2019, but gross margin decreased to 7.2% from 18.4% due to higher raw material and labor costs[140][151] - Epidemic prevention supplies business generated $3,110,028 in revenue in Q2 2020, with a gross margin of 14.7$1,533,381 compared to $1,658,175 in Q2 2019, with a gross margin of 16.1$902,065 in Q2 2020, accounting for 58.8% of total service revenue[147] - Total cost of revenue for Q2 2020 was $5,120,576, a 176.6$1,851,560 in Q2 2019, with cost of revenue as a percentage of total sales rising to 86.5% from 83.8%[150] Cash Flow and Financial Position - Net cash provided by operating activities was $798,391 for the three months ended June 30, 2020, compared to$328,769 for the same period in 2019[163] - Net cash used in investing activities was $143,148 for the three months ended June 30, 2020, compared to$90,140 for the same period in 2019[163] - Net cash provided by financing activities was $360,386 for the three months ended June 30, 2020, compared to$440,980 for the same period in 2019[163] - As of June 30, 2020, the company had cash on hand of $1,549,409, total current assets of$4,527,818, and current liabilities of $8,515,785[166] Internal Control and Risk Management - The company concluded that control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis[177] - Management concluded that the company did not maintain effective internal control over financial reporting as of June 30, 2020[179] Foreign Currency and Market Conditions - The foreign currency translation loss for the three months ended June 30, 2020 was$(4,455), compared to a gain of $37,002 for the same period in 2019[169] - The company anticipates operating losses until it can successfully implement its business strategy and develop a substantial and stable revenue base[168] Business Expansion and Strategy - The company plans to develop an additional 20 logistics points in existing serving cities by the end of 2020 to improve profit[114] - The company's garment business operates through five wholly owned subsidiaries located in Guangdong province, China[111] - The logistics business covers approximately 79 cities in seven provinces and two municipalities in China, with plans to expand further[112] Lease Accounting - The company recorded right-of-use assets and lease liabilities of$1.7 million and $1.8 million, respectively, as of June 30, 2020, under the new lease accounting standard[131] Earnings Per Share - Basic and diluted earnings per share were$0.01 and $0.00 for the three months ended June 30, 2020 and 2019, respectively[162]