ATXG — Q2 2026 Financial Report Analysis

A paper profit on top of a business that is still losing money

Addentax, a small Shenzhen-based company that started out making clothes and running delivery trucks in Guangdong, reported a net profit of $2.39 million for the three months to June 30, 2026 (its fiscal first quarter of the year ending March 2027), against a $0.39 million loss a year earlier. Revenue quadrupled to $3.44 million. Neither headline means what it seems to: the entire profit came from a $3.02 million non-cash accounting gain on old warrants, and almost all of the revenue growth came from a new Hong Kong consulting business in which one customer supplied 60.8% of the company's total revenue. Strip out the warrant gain and the company lost about $0.64 million before tax, more than the year before.

At a glance

• $3.02M non-cash warrant gain vs $2.39M net profit: without the revaluation of warrants issued in 2023, the quarter was a pre-tax loss of about $0.64 million. The company itself says the profit is "primarily as a result of a non-cash fair value gain".
• Operating loss widened to $0.68M from $0.35M: the businesses that actually sell things lost more money, partly because of $0.45 million of share awards to the CEO and COO.
• Shares outstanding up 32% in one quarter (781,256 to 1,031,435): and roughly 1.07 million more shares were issued or agreed after the quarter ended, which would about double the share count again. The company's "going concern" doubt (a formal warning that the company may not be able to keep operating for the next year without new money) remains in place.

The numbers

Year-on-year percentage changes for net income and EPS are marked n/m (not meaningful) because the comparison is a loss turning into a profit, and that profit is an accounting gain rather than operations. Per-share figures reflect a 1-for-15 reverse stock split on March 30, 2026 (each 15 old shares became one), the company's second reverse split since 2023 after a 1-for-10 in June 2023.

Where the revenue came from

Addentax now reports four lines of business, and the mix has changed almost completely in a year:

• Consulting is the new engine and the main source of concern. It describes itself as helping clients with "overseas wealth planning, insurance-related information and related cross-border service support": consultation, appointment-setting and referrals to third-party insurance brokers. It booked $2.54 million of revenue but paid $2.35 million of that straight on to "third-party service providers and cooperation partners", keeping a 7.6% gross margin. One consulting customer provided 60.8% of all company revenue and accounts for 98.8% of the consulting unit's receivables (money owed by customers). In practice this is a pass-through arrangement whose revenue depends on one relationship.
• Logistics, the longest-running operating business, shrank 10.6% on "lower delivery volume and customer demand", and its gross margin fell from 23.2% to 14.7% as more work went to subcontractors (subcontracting fees more than doubled to $100,574). It swung from a small $13,481 operating loss to a $70,862 loss.
• Financing came from buying Time Is Loan Limited, a licensed Hong Kong money lender making short-term personal loans, on May 15, 2026, paid for with 137,790 new shares. In six weeks it earned $172,185 of mostly interest revenue but spent $95,079 on advertising and customer acquisition and lost $74,037 at the operating level. It also brought $3.4 million of borrowings onto the balance sheet.
• Garment manufacturing, the company's original business, produced no revenue at all. Management calls this "the continued scaling down" of the business.

What the headline numbers hide

The profit is a revaluation, not earnings. In January 2023 Addentax raised $15 million through convertible notes (loans that can be swapped for shares) bundled with warrants (rights to buy shares at a set price). The notes matured in July 2025 and none are outstanding, but the warrants are still on the books as a liability measured at market value. When their estimated value falls, the drop is booked as a gain. This quarter that liability fell from $4.50 million to $1.48 million, producing the $3.02 million gain. It brings in no cash and can reverse if the warrants' value rises again.

Underlying losses got bigger, not smaller. Operating expenses doubled to $1.09 million. The single biggest new item is $451,245 of stock-based compensation for share awards granted April 8, 2026 that vested immediately: 66,667 shares to COO Wu Rui and 12,222 shares to CEO Hong Zhida. Even excluding that, the operating loss would still have been about $0.22 million. Interest expense dropped from $583,019 to $8,633 because the convertible notes are gone, which flatters the comparison; on the other side, a year ago the company booked $364,583 of investment income and this quarter it booked none.

Cash did not follow the profit. Operating cash flow was a $24,366 outflow, better than the $458,163 outflow a year ago, but helped by a $627,020 jump in unpaid accrued expenses and other payables. Cash on hand was just $0.76 million at June 30 against $7.37 million of current liabilities (bills and debts due within a year), which more than doubled from $3.06 million in March, mostly because of the lender's $3.79 million of loans payable.

Most of the assets are IOUs, many tied to insiders. Of $34.1 million in total assets:

• $12.0 million is a note issued by an unnamed "third-party investment company", bought in August 2022 for $17.5 million at 2.5% interest and renewed annually. It is guaranteed by Hongye Financial Consulting, a company controlled by CEO Hong Zhida. The $437,500 of interest receivable on it was unchanged from March, and no investment income was recorded this quarter. Part of the note ($5.5 million) was handed over in March to pay for buying Keemo Fashion Group.
• $5.19 million is owed to the company by related parties, including $3.43 million by the CEO himself and $1.42 million by Bihua Yang, legal representative of one of the logistics subsidiaries, whom the company lent another $0.25 million to during the quarter. These balances are unsecured, interest-free and repayable on demand.
• $3.57 million is loans to an unnamed third party, up from $2.5 million, and $3.64 million is the new lender's loan book.
• $6.19 million is goodwill, the premium paid for acquisitions above the value of their assets.

Taken together, roughly $20 million of the company's assets are loans and receivables whose collectability depends on a small number of counterparties, several connected to management.

More insider dealing. On June 15 the company bought 41.67% of Riches Family Office Limited from a company controlled by its COO, Wu Rui, paying with 33,500 new shares. It already booked a $9,059 loss from that stake. After the quarter, two of the July 2026 private-placement buyers, Hong Zhihao and Hong Zhiwang, are described in the filing as related parties.

Heavy dilution. The share count rose from 402,918 at March 31, 2025 to 1,031,435 at June 30, 2026 (all on a post-split basis). After the quarter the company converted a $0.70 million loan into 146,539 shares at $4.80 and agreed to sell 927,084 more shares at $4.80 for about $4.45 million. If those placements close, existing holders will own roughly half as much of the company as they did at June 30. That cash would matter: it is several times what the company currently holds.

Takeaway: Addentax's $2.39 million profit is an accounting gain on warrants. The operating businesses lost $0.68 million, nearly two-thirds of revenue came from one consulting client on a 7.6% margin, and about $5.2 million of the company's assets are interest-free loans to insiders, including $3.4 million owed by the CEO. This is a company being rebuilt through share-funded acquisitions in Hong Kong finance, not a garment maker earning money.

Is this a real operating business?

Partly. The logistics unit runs its own trucks and drivers across Guangdong and has reported revenue for years; the lender is a licensed Hong Kong money lender with a disclosed loan book. But the original garment factories have stopped producing, the largest revenue stream is a referral business resting on one customer, and the company has relied on new shares and insider support to fund itself. The filing says operations are funded partly through "capital contributions or financial support from our chief executive officer, Mr. Hong Zhida", at the same time as Mr. Hong owes the company $3.43 million. Readers should treat reported revenue growth with caution until the consulting customer base broadens and the related-party balances are actually repaid.

Outlook

Management gives no revenue or profit guidance. Its stated plans are to add 20 logistics routes in existing cities and "improve the Company's profit in the year 2027", grow consulting as an "asset-light" service, and expand Hong Kong lending through online marketing. It also notes that the CEO "has indicated his intention and willingness to provide additional equity financing, if necessary." The going-concern warning carried over from the March 2026 annual report still applies.

Our read: the next few quarters depend on three things more than on any revenue figure. First, whether the July private placements actually close and bring in cash. Second, whether the $12 million note, its unpaid interest and the $5.2 million of insider loans start turning into cash. Third, whether consulting revenue holds up without its single large customer. Because the warrant liability is revalued every quarter, reported net income will keep swinging regardless of how the businesses perform; the operating line (-$0.68 million this quarter) and operating cash flow are the figures to watch. The next 10-Q, covering July to September 2026, is due around mid-November 2026.

This is our first analysis of Addentax, so there is no earlier outlook to check against.