BTOC 10-Q
Armlogi Holding Corp. (BTOC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 14, 2024,
there were
Armlogi Holding Corp.
Form 10-Q
For the Quarterly Period Ended September 30, 2024
Contents
i
ARMLOGI HOLDING CORP.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2024 AND JUNE 30, 2024
(US$, except share data, or otherwise noted)
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Unaudited | Audited | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | ||||||||
| Accounts receivable and other receivable, net | ||||||||
| Other current assets | ||||||||
| Prepaid expenses | ||||||||
| Loan receivables | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Restricted cash – non-current | ||||||||
| Long-term loan receivables | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets – operating leases | ||||||||
| Right-of-use assets – finance leases | ||||||||
| Other non-current assets | ||||||||
| Total assets | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Income taxes payable | ||||||||
| Due to related parties | ||||||||
| Accrued payroll liabilities | ||||||||
| Operating lease liabilities – current | ||||||||
| Finance lease liabilities – current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease liabilities – non-current | ||||||||
| Finance lease liabilities – non-current | ||||||||
| Deferred income tax liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, US$ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | ||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
1
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(US$, except share data, or otherwise noted)
| For The Three Months Ended September 30, 2024 | For The Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Unaudited | Unaudited | |||||||
| Revenue | ||||||||
| Costs of sales | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating costs and expenses: | ||||||||
| General and administrative | ||||||||
| Total operating costs and expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other (income) expenses: | ||||||||
| Other income, net | ( | ) | ( | ) | ||||
| Finance costs | ||||||||
| Total other (income) expenses | ( | ) | ( | ) | ||||
| Income (loss) before provision for income taxes | ( | ) | ||||||
| Current income tax expense (recovery) | ( | ) | ||||||
| Deferred income tax expense (recovery) | ( | ) | ||||||
| Total income tax expenses (recovery) | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Total comprehensive income (loss) | ( | ) | ||||||
| Basic & diluted net earnings per share | ( | ) | ||||||
| Weighted average number of shares of common stock-basic | ||||||||
| Weighted average number of shares of common stock-diluted | ||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
2
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKOLDERS’
EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(US$, except share data, or otherwise noted)
| Common Stock | Amount | Additional paid-in capital | Retained earnings | Total equity | ||||||||||||||||
| Three Months Ended | ||||||||||||||||||||
| Balance as of June 30, 2023 | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Contribution from stockholders | — | |||||||||||||||||||
| Balance as of September 30, 2023 (unaudited) | ||||||||||||||||||||
| Balance as of June 30, 2024 | ||||||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2024 (unaudited) | ||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
3
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
(US$, except share data, or otherwise noted)
| For The Three Months Ended September 30, 2024 | For The Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Unaudited | Unaudited | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | ( | ) | ||||||
| Adjustments for items not affecting cash: | ||||||||
| Depreciation of property and equipment and right-of-use financial assets | ||||||||
| Amortization | ||||||||
| Non-cash operating leases expense | ||||||||
| Current estimated credit loss | ( | ) | ||||||
| Accretion of finance lease liabilities | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Interest income | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable and other receivables | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Other non-current assets | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable & accrued liabilities | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Accrued payroll liabilities | ||||||||
| Net cash (used in) provided from operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Loan disbursement | ( | ) | ( | ) | ||||
| Proceeds from loan repayments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds received from (repaid to) related parties | ||||||||
| Proceeds (lend to) from related parties | ||||||||
| Repayments of finance lease liabilities | ( | ) | ( | ) | ||||
| Deferred issuance costs for initial public offering | ( | ) | ||||||
| Capital contributions from stockholders | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash, beginning of year | ||||||||
| Cash and restricted cash, end of year | ||||||||
The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
| Cash | ||||||||
| Restricted cash – non-current | ||||||||
| Total cash and restricted cash shown in the Consolidated Balance Sheet | ||||||||
| Supplemental Disclosure of Cash Flows Information: | ||||||||
| Non-cash Transactions: | ||||||||
| Right-of-use assets acquired in exchange for operating lease liabilities |
The accompanying notes form an integral part of these condensed consolidated financial statements.
4
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. Organization and principal activities
Armlogi Holding Corp. and its consolidated subsidiaries (the “Company”) operate as a third-party logistics company, providing multi-model transportation and logistics services primarily in the United States.
The Company’s primary transportation services involve arranging shipments, on behalf of its customers, of materials that are generally larger than shipments handled by integrated carriers of primarily small parcels, such as FedEx, and UPS, including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems. The Company also provides other value-added logistics services, including warehousing services, materials management and distribution services, and customs house brokerage services, to complement its core transportation service offering.
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our annual Report on Form 10-K for the year ended June 30, 2024.
In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements include all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of September 30, 2024, and its results of operations and cash flows for the three-month period then ended. Operating results for the three months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2025.
Principal of consolidation
The
unaudited interim condensed consolidated financial statements include the
financial statements of the Company and its subsidiaries.
| Principal activities | Percentage of ownership | Date of incorporation | Place of incorporation | |||||||
| Armlogi Holding Corp. | ||||||||||
| Armstrong Logistic Inc. | % | |||||||||
| Armlogi Truck Dispatching LLC | % | |||||||||
| Andtech Trucking LLC | % | |||||||||
| Armlogi Trucking LLC | % | |||||||||
| Andtech Customs Broker LLC | % | |||||||||
| Armlogi Group LLC | % | |||||||||
Use of Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States (‘U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. There were no critical accounting estimates affecting the unaudited condensed consolidated financial statements for the three months ended September 30, 2024 and 2023.
5
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Cash
Cash consists of petty cash on hand and cash held in banks, which is highly liquid and has original maturities of three months or less and is unrestricted as to withdrawal or use.
Restricted Cash
Restricted cash represents the cash restricted for two standby letters of credit with Eastwest Bank as collateral for certain of the Company’s lease agreements. The terms of the letters of credit start from August 1, 2023 and November 7, 2023, respectively. The letters of credit are renewable on an annual basis until the termination thereof.
Certain risks and concentration
The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and restricted cash, receivables, loan receivables and other current assets. As of September 30, 2024 and June 30, 2024, substantially all of the Company’s cash and restricted cash were held in EastWest Bank located in the U.S., which management considers to be of high credit quality.
Accounts receivable and other receivables
The Company’s receivables are recorded when billed and represent amounts owed by third-party customers. The carrying value of the Company’s receivables, net of the expected credit loss, represents their estimated net realizable value. The Company evaluates the expected credit loss of accounts receivable and other receivables on a loss rate method based on historical information adjusted for current conditions and future estimated economic performance.
Property and equipment
Property and equipment are recorded at cost, less
accumulated depreciation and impairment.
| Category | Depreciation method | Depreciation rate | ||
| Furniture and fixtures | ||||
| Auto & trucks | ||||
| Trailers & truck chassis | ||||
| Machinery & equipment | ||||
| Leasehold improvements | Shorter of lease term or |
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amounts of the relevant assets and are recognized in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
Long-Lived Assets
Long-lived assets, such as property and equipment, and definite-lived intangible assets, right-of-use assets (operating lease and finance lease) are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted expected future cash flows to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent the carrying amount of the asset or asset group exceeds the fair value. Fair values of long-lived assets are determined through various techniques, such as applying probability weighted, expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize or through the use of a third-party independent appraiser or valuation specialist. No impairment losses of long-lived assets were recorded during the three months ended September 30, 2024 and 2023.
Intangible assets consist of software and security systems, which are amortized using the straight-line method over to years.
6
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Revenue recognition
The Company provides one-stop logistic services. The Company’s revenue is primarily from transportation services, which include the arrangement of freight services. The Company generates its transportation services revenue by purchasing transportation from direct carriers and reselling those services to its customers.
In general, each shipment transaction or service
order constitutes a separate contract with the customer. A performance obligation is created once a customer agreement with an agreed-upon
transaction price exists. The transaction price is typically fixed and not contingent upon the occurrence or non-occurrence of any other
event. The Company’s transportation transactions provide for the arrangement of the movement of freight to a customer’s destination.
The transportation services that are provided to the customer, including certain ancillary services, such as loading/unloading, freight
insurance, and customs clearance, represent a single performance obligation, as these promises are not distinct in the context of the
contract. This performance obligation is satisfied over time and recognized in revenue upon the transfer of control of the services over
the requisite transit period as the customer’s goods move from origin to destination. The Company determines the period to recognize
revenue in transit based on the departure date and the delivery date. Determination of the transit period and the percentage of completion
of the shipment as of the reporting date will affect the timing of revenue recognition. The Company has determined that revenue recognition
over the transit period provides a reasonable estimate of the transfer of services to its customers as it depicts the pattern of the Company’s
performance under the contracts with its customers. The change in contract liabilities is due to the timing of customer deposits for orders,
offset by customer deposits recognized as revenue during the period. We expect to recognize revenue for any performance obligations within
a twelve-month period and have elected not to provide disclosures regarding remaining performance obligations for contracts with a term
of
The Company also provides warehousing services for its customers. These warehousing service contracts include two performance obligations: i) inventory management and order fulfilment and ii) storage services. The Company’s performance obligation for inventory management and order fulfilment is satisfied at a point in time as services are generally priced based on the number of items processed and handled. The benefits are consumed by the customers at the point in time when such specific services are performed by the Company. Performance of such services generally takes less than one day to process. The performance obligation for storage services is satisfied over time as the storage service is based on a term period and the customers simultaneously receive and consume the services provided by the Company as they are performed. The transaction price for the warehousing services is based on the consideration specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration component of a contract represents reimbursement for facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract. The variable consideration component is comprised of cost reimbursement per unit pricing for time and pricing for materials used and is determined based on cost plus a mark-up for hours of services provided and materials used and is recognized based on the level of activity volume.
Other services include primarily customs house brokerage services sold on a stand-alone basis as a single performance obligation. The Company recognizes revenue from this performance obligation at a point in time, which is the completion of the services. Duties and taxes collected from the customer and paid to the customs agent on behalf of the customers are excluded from revenue.
The Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services performance obligation, since it is in control of establishing the prices for the specified services, managing all aspects of the shipment process, and assuming the risk of loss for delivery and collection. Such transportation services revenue is presented on a gross basis in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
7
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Revenue recognition (cont.)
| September 30, 2024 | September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Transportation services | ||||||||
| Warehousing services | ||||||||
| Other services | ||||||||
| Total | ||||||||
Contract liabilities
Contract liabilities represent payments received
from customers in excess of revenue recognized. The contract liabilities are reported in a net position on a customer-by-customer basis
at the end of each reporting year. We classify these customer deposits as short-term contract liabilities, as we expect to satisfy these
obligations within our normal operating cycle, which is generally one year. For the three months ended September 30, 2024 and 2023, the
amounts transferred from contract liabilities at the beginning of the fiscal year to revenue were $
Practical Expedients
The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of the end of the period, as the Company’s contracts with its transportation customers have an expected duration of one year or less.
For the performance obligation to transfer warehousing services in contracts with customers, revenue is recognized in the amount for which the Company has the right to invoice the customer, as this amount corresponds directly with the value provided to the customer for the Company’s performance completed to date.
The Company also applies the practical expedient that permits the recognition of employee sales commissions related to transportation services as an expense when incurred, since the amortization period of such costs is less than one year. These costs are included in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
Leases
The Company determines if an arrangement is a lease at inception. Leases are classified as either operating leases or finance leases pursuant to ASC 842.
8
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Leases (cont.)
i) Operating leases
Operating leases are recognized as right-of-use (“ROU”) assets in non-current assets and lease liabilities in current and non-current liabilities in the consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less, the Company recognizes those lease payments on a straight-line basis over the lease term.
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 the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Lease expenses for lease payments are recognized on a straight-line basis over the lease term and are included in general and administrative expenses, costs of sales and other expenses.
ii) Finance leases
Finance lease ROU assets are included in ROU and current lease liabilities, and other non-current lease liabilities in the unaudited condensed consolidated balance sheets.
Finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expenses. The interest on the finance lease liabilities is included in interest expense.
The Company has elected the accounting policy to account for leases with both lease and non-lease components as a single lease component. For leases with an initial term of 12 months or less, the Company elected the exemption from recording ROU assets and lease liabilities for all leases that qualify, and records rent expenses on a straight-line basis over the lease term.
Taxation
Current income taxes are provided on the basis of net profit or loss for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operations in the period of the enactment of the change.
9
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Taxation (cont.)
The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income, including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
The
Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the
position will be sustained upon examination by a taxing authority.
Earnings per share
Basic earnings per share of common stock are computed by dividing net income allocable to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income allocable to common stockholders by the weighted average number of shares outstanding, plus the number of additional shares that would have been outstanding if the potential shares, such as restricted stock awards and stock options, had been issued and were considered dilutive.
Segment Reporting
The Company follows FASB ASC Topic 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.
Based on the guidance provided by ASC Topic 280, management has determined that the Company operates in one segment and consists of one reporting unit, given the similarities in economic characteristics between its operations and the common nature of its services and customers. All the Company’s business activities for the three months ended September 30, 2024 and 2023 were conducted in the U.S.
10
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | |
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The Company’s financial instruments include cash and restricted cash, accounts receivable and other receivables, loan receivables, long-term loan receivable, other current assets, accounts payable and accrued liabilities, income tax payable, due to related parties, and lease liabilities. The carrying amounts of cash and restricted cash, accounts receivable and other receivables, loan receivables, other current assets, accounts payable and accrued liabilities and income tax payable, due to related parties, and short-term lease liabilities approximate their fair values due to the short-term nature of these instruments. The carrying value of the Company’s long-term loan receivables and long-term lease liabilities would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring or non-recurring basis as of September 30, 2024 and June 30, 2024.
Costs of sales
Costs of sales primarily consist of amortization and depreciation, equipment lease and warehouse lease expenses, freight expenses, port handling and customs fees, salary and benefits, temporary labor expenses, warehouse expenses, utilities and other expenses.
General and administrative expenses
General and administrative expenses primarily consist of office equipment and furniture depreciation expenses, office expenses, professional fees, office space rental expenses, repairs and maintenance, salary and benefits, sundry costs, vehicle expenses, tax and licenses, credit loss expenses, and other expenses.
Recently issued accounting standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
11
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Accounts Receivable and Other Receivables, Net
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Accounts receivable – third parties | ||||||||
| Accounts receivable – a related party | ||||||||
| Other receivables – third parties* | ||||||||
| Other receivables – a related party* | ||||||||
| Gross total | ||||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Total | ||||||||
| * |
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Balance as of beginning | ||||||||
| Additional provision | ||||||||
| Write-off | ( | ) | ( | ) | ||||
| Ending balance | ||||||||
12
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. Property and Equipment, Net
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Furniture and fixtures | ||||||||
| Auto & Truck | ||||||||
| Trailers & track chassis | ||||||||
| Machinery & equipment | ||||||||
| Leasehold improvement | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Depreciation expenses are recorded in costs of
sales and general and administrative expenses. The Company recorded depreciation expenses of US$
5. Intangible Assets, Net
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Security Systems | ||||||||
| Software | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Intangible assets, net | ||||||||
The Company recorded amortization of US$
13
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Loan Receivable
The Company’s loan receivables were consisted of the following:
| i) | On February 8, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ | |
| ii) | On February 27, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ | |
| iii) | On March 24, 2023, the Company entered into a loan agreement with
Pundarika LLC for a principal of US$ | |
| iv) | On July 10, 2023, the Company entered into a loan agreement with
Pundarika LLC for a principal of US$ | |
| v) | On January 24, 2024, the Company entered into a loan agreement with
Paul Tam for a principal of US$ | |
| vi) | On January 24, 2024, the Company entered into a loan agreement with
Athena Home Inc. for a principal of US$ | |
| vii) | On May 22, 2024, the Company entered into a loan agreement with MYJW LLC. for a principal of US$ | |
| viii) | On May 28, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ | |
| ix) | On June 6, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ | |
| x) | On June 13, 2024, the Company entered into a loan agreement with Bacalar Enterprise Freight Inc. for a principal of US$ | |
| xi) | On August 29, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ |
As of September 30, 2024, the Company recorded
a loan receivable balance of US$
As of June 30, 2024, the Company recorded a loan
receivable balance of US$
14
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. Leases
As of September 30, 2024, the Company had operating and finance leases
for office space, warehouse space, and forklifts. Lease terms expire at various dates from February 2025 through July 2034 with options
to renew for varying terms at the Company’s sole discretion. The Company has not included these options to extend or terminate in
the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that
these options will be exercised. The Company had certain sublease contracts and recognized US$
As of September 30, 2024, the Company does not recognize any additional operating lease liabilities.
| September 30, 2024 | September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Operating: | ||||||||
| Operating lease expenses | ||||||||
| Financing: | ||||||||
| Accretion | ||||||||
| Amortization – included in costs of sales | ||||||||
| Total | ||||||||
The Company recorded operating lease expenses
of US$
| Operating | Finance | |||||||
| US$ | US$ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 and beyond | ||||||||
| Total minimum lease payment | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | ||||||||
| Less: current potion | ( | ) | ( | ) | ||||
| Non-current portion | ||||||||
15
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. Leases (cont.)
| Operating leases | ||||
| Finance leases |
| Operating leases | % | |||
| Finance leases | % |
8. Accounts Payable and Accrued Liabilities
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Accounts payable | ||||||||
| Credit card Payable | ||||||||
| Other liabilities | ||||||||
| Total | ||||||||
Other liabilities as of September 30, 2024 and June 30, 2024 mainly consisted of tenant’s deposit.
9. Other Income (Expenses)
| September 30, 2024 | September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Rental income | ||||||||
| Rental expense | ( | ) | ||||||
| Interest income | ||||||||
| Credit card rebate income | ||||||||
| Other income | ||||||||
| Total | ||||||||
16
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. Stockholders’ Equity
The Company is authorized to issue
On May 15, 2024, the Company closed its initial
public offering (the “IPO”) of
On May 15, 2024, the Company issued to the Representative
and its affiliates warrants, exercisable during the five-year period from the commencement of sales of this offering, entitling the Representative
to purchase an aggregate of up to
11. Earnings per Share
| September 30, 2024 | September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to stockholders – basic and diluted | ( | ) | ||||||
| Denominator: | ||||||||
| Weighted average number of shares of common stock outstanding – basic | ||||||||
| Earnings per share attributable to stockholders – basic | ( | ) | ||||||
| Weighted average number of shares of common stock outstanding – diluted | ||||||||
| Earnings per share attributable to stockholders – diluted | ( | ) | ||||||
Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares and dilutive share equivalents outstanding during the period.
17
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Commitments and Contingencies
Other commitments
Other than the standby letters of credit with
Eastwest Bank in the aggregate amount of $
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations taken as a whole. As of September 30, 2024 and 2023, the Company was not a party to any material legal or administrative proceedings.
13. Related Party Transactions and Balances
| Name of related parties | Relationship with the Company | |
| Jacky Chen | ||
| Aidy Chou | ||
| Tong Wu | ||
| DNA Motor Inc. | ||
| Junchu Inc. |
Related Party transactions
The Company had the following related party transactions:
| (i) | During the three months ended September 30, 2024, the Company’s related parties, Jacky Chen, Aidy Chou and Tong Wu, together advanced $ (2023: US$ |
| (ii) | DNA Motor Inc. (“DNA”), the landlord of five of the Company’s operating leases, is owned by Jacky Chen. During the three months ended September 30, 2024, for these operating leases, US$ |
| (iii) | During the three months ended September 30, 2024, the Company generated revenue of US$ |
18
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13. Related Party Transactions and Balances (cont.)
Related Party transactions (cont.)
| (v) | During
the three months ended September 30, 2024, the Company incurred general and administrative expenses of US$ |
Due to related party balance
| September 30, 2024 | June 30, 2024 | |||||||
| US$ | US$ | |||||||
| Tong Wu | ||||||||
| Jacky Chen | ||||||||
| Total | ||||||||
The due to related party balances as of September 30, 2024 and June 2024 are unsecured, interest-free, and are due on demand.
14. Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to September 30, 2024, through the date the consolidated financial statements were available to issue, and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the unaudited interim condensed consolidated financial statements.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our registration statement on Form S-1 (File No. 333-274667), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 25, 2023, as amended, and declared effective by the SEC on May 13, 2024.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.
The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our annual report on Form 10-K (File No. 001-42099), filed with the SEC on September 26, 2024.
20
Overview
We are a fast-growing U.S.-based warehousing and logistics service provider that offers a comprehensive package of supply-chain solutions relating to warehouse management and order fulfillment.
With the boom of e-commerce and Internet technology, along with the development of global supply chains, a growing number of merchants are seeking to sell their products through international e-commerce platforms, such as Amazon and eBay. These merchants, however, are confronted with major logistical challenges because of the complexities involved in shipping goods across borders. Specifically, when a foreign consumer places an order online, it can take a long time for the goods to be delivered from one country to another (especially for bulky items), while facing high damage rates and congestion during peak seasons. One of the solutions to such problems is to set up overseas warehouses, which are local storage facilities established in a foreign country where the cross-border merchants intend to sell their goods. Cross-border e-commerce merchants can export goods in batches in advance to overseas warehouses, which can then be delivered to overseas consumers once orders are placed via e-commerce platforms. As a result, the delivery time and the rate of damaged and lost packages may be reduced significantly, therefore enhancing the shopping experience of consumers.
We provide one-stop warehousing and logistics services to cross-border e-commerce merchants outside the U.S. who seek to sell in the U.S. market. We currently operate nine warehouses across the country, with an aggregate gross floor area of approximately 2,765,667 square feet. Aside from a nationwide footprint and large storage space, our warehouses are equipped with automated sorting systems, heavy-duty forklifts, and pallets and trays that are suitable for processing bulky items. As a one-stop warehousing and logistics service provider, we offer a full spectrum of services, including (i) customs brokerage services; (ii) transportation of merchandise to U.S. warehouses; and (iii) warehouse management and order fulfillment services, which further include (a) product storage and retrieval, (b) product packing and labeling, (c) kitting and repackaging, (d) order assembly and load consolidation, (e) inventory management and sales forecasting, (f) third-party distribution coordination, and (g) other value-added services. We also provide warehousing and logistics services to our U.S.-based commercial customers, who are typically domestic e-commerce merchants seeking efficient and reliable warehousing and logistics solutions to support their operations. In general, the warehousing and logistics services we provide to our domestic customers are similar to those we provide to our overseas customers. This allows us to provide integrated solutions for our customers, whether they need domestic or international warehousing and logistics support. As of September 30, 2024 and June 30, 2024 and 2023, we had an active customer base of 156, 105, and 83, respectively, for our warehousing and logistics services.
For the three months ended September 30, 2024 and 2023, we had total revenue of $42.5 million and $41.2 million, and net loss of $4.6 million and net income of $2.8 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant portion of our revenue from customers based in China. During the three months ended September 30, 2024 and 2023, we generated approximately 85% and 95% of our revenue from PRC-based customers, respectively.
21
Results of Operations
The following table outlines our consolidated statements of operations for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Revenue | 42,481,896 | 41,245,845 | ||||||
| Costs of sales | 46,088,686 | 36,019,413 | ||||||
| Gross profit (loss) | (3,606,790 | ) | 5,226,432 | |||||
| Operating costs and expenses: | ||||||||
| General and administrative | 3,668,825 | 1,908,156 | ||||||
| Total operating costs and expenses | 3,668,825 | 1,908,156 | ||||||
| Income (loss) from operations | (7,275,615 | ) | 3,318,276 | |||||
| Other (income) expenses: | ||||||||
| Other income | (1,205,665 | ) | (542,215 | ) | ||||
| Finance costs | 9,008 | 13,387 | ||||||
| Total other (income) expenses | (1,196,657 | ) | (528,828 | ) | ||||
| Income (loss) before provision for income taxes | (6,078,958 | ) | 3,847,104 | |||||
| Current income tax expense (recovery) | (57,589 | ) | 649,305 | |||||
| Deferred income tax expense (recovery) | (1,373,498 | ) | 443,023 | |||||
| Total income tax expenses (recovery) | (1,431,087 | ) | 1,092,328 | |||||
| Net income (loss) | (4,647,871 | ) | 2,754,776 | |||||
| Total comprehensive income (loss) | (4,647,871 | ) | 2,754,776 | |||||
| Basic & diluted net earnings per share | (0.11 | ) | 0.07 | |||||
| Weighted average number of shares of common stock-basic | 41,634,000 | 40,000,000 | ||||||
| Weighted average number of shares of common stock-diluted | 41,714,000 | 40,000,000 | ||||||
22
Revenue, costs of sales, and gross profit margin
The following table sets forth our revenue for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Revenue | 42,481,896 | 41,245,845 | ||||||
| Costs of sales | 46,088,686 | 36,019,413 | ||||||
| Gross profit (loss) | (3,606,790 | ) | 5,226,432 | |||||
| Gross profit (loss) margin % | (8.5 | )% | 12.7 | % | ||||
The following table outlines the compositions of our revenue streams:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Transportation services | 28,490,756 | 29,738,530 | ||||||
| Warehousing services | 13,973,694 | 11,289,613 | ||||||
| Other services | 17,446 | 217,702 | ||||||
| Total | 42,481,896 | 41,245,845 | ||||||
Our revenue increased by $1.2 million, or 3.0%, to $42.5 million during the three months ended September 30, 2024, compared to $41.2 million for the same period in 2023. The increase was due to the following factors:
| 1) | Revenue from our transportation services decreased by $1.2 million, or 4.2%, due to decreases in customer order volumes. Several major customers have significantly decreased serviced volume for the three months ended September 30, 2024. |
| 2) | Revenue from our warehousing services increased by $2.7 million, or 23.8%, driven by the addition of new warehouses acquired in the last fiscal quarter. |
| 3) | Revenue from other services decreased by $0.2 million, or 92%. Other revenue mainly consisted of revenue from our customs brokerage services. |
Our costs of sales mainly represented the costs incurred for the use of third-party direct freight service carriers, such as FedEx and UPS, warehouse rental expenses, costs of labor, and trucking expenses. Costs of sales increased by $10.1 million, or 28.0%, during the three months ended September 30, 2024, compared with the same period in 2023. The increase was driven by two main factors. First, there was a rise in freight expenses due to higher UPS shipping charges. Second, lease expenses, employee salary and benefits, and temporary labor costs increased as we expanded our warehouse and operations team to support growth.
23
The following table sets forth a breakdown of our costs of sales for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Amortization | 8,829 | 53,266 | ||||||
| Depreciation | 475,101 | 324,849 | ||||||
| Lease expenses | 9,106,604 | 6,803,740 | ||||||
| Freight expenses | 25,706,479 | 22,477,545 | ||||||
| Port handling and customs fees | 152,745 | 150,244 | ||||||
| Salary and benefits | 2,564,863 | 1,614,339 | ||||||
| Temporary labor expenses | 5,720,926 | 2,961,150 | ||||||
| Warehouse expenses | 2,059,111 | 1,388,731 | ||||||
| Utilities | 229,220 | 143,778 | ||||||
| Other expenses | 64,808 | 101,771 | ||||||
| Total | 46,088,686 | 36,019,413 | ||||||
Our lease expenses (primarily warehouse operating lease expenses), freight expenses, temporary labor expenses, and salary and benefits increased significantly by $2.3 million, $3.2 million, $2.8 million, and $1.0 million, respectively, during the three months ended September 30, 2024 compared to the same period in 2023. The increases in lease expenses are due to the additional operating leases acquired in the last fiscal quarter. The increases in freight expenses are due to the increase of the surcharge by FedEx. The increase in temporary labor expenses and salary and benefits is due to the expansion of the warehouse operations.
Our overall gross profit (loss) margin decreased from 12.7% for the for the three months ended September 30, 2023 to (8.5%) for the same period in 2024, primarily due to the increase of the surcharge by UPS and the decreases in customer order volume, as well as some of the recently leased warehouses that are not fully utilized.
Operating expenses
Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Bank charges | 40,390 | 57,103 | ||||||
| Amortization | 142,064 | 64,080 | ||||||
| Office expenses | 1,164,214 | 565,664 | ||||||
| Professional fees | 387,263 | 66,175 | ||||||
| Rental expenses | 113,354 | 116,988 | ||||||
| Repairs and maintenance | 339,068 | 162,100 | ||||||
| Salary and benefits | 1,181,280 | 976,994 | ||||||
| Sundries | 47,745 | 47,496 | ||||||
| Tax and licenses | 67,455 | 44,247 | ||||||
| Vehicle expenses | 33,638 | 95,668 | ||||||
| Other expenses | 25,418 | 46,979 | ||||||
| Credit loss expenses (recovery) | 126,936 | (335,338 | ) | |||||
| Total | 3,668,825 | 1,908,156 | ||||||
24
Our general and administrative expenses increased by $1.8 million, from $1.9 million for the three months ended September 30, 2023 to $3.7 million for the same period in 2024, representing an increase of 92%. The increase was due to the following factors:
| 1) | Office expenses increased by $0.6 million, or 106%, mainly due to an increase in general insurance by $0.5 million associated with the rapid expansion of our business. |
| 2) | Repairs and maintenance expenses increased by $0.2 million, or 109%, as a result of the growth in our transportation services. | |
| 3) | Professional fees increased by $0.3 million, or 485%, mainly due to increase of audit fees. |
Income Tax
Our income tax expense decreased by $2.5 million for the three months ended September 30, 2024 compared to the same period in 2023, mainly due to the decrease in profit before tax by $10 million during the three months ended September 30, 2024.
Net income (loss)
As a result of the foregoing, our net income (loss) for the three months ended September 30, 2024 was $(4.6) million, compared with the net income of $2.8 million for the same period in 2023, representing a decrease by $7.4 million.
Liquidity and Capital Resources
In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of the date of this Quarterly Report, we have financed our operations primarily through cash generated by operating activities and capital contributions from stockholders. As of September 30, 2024 and June 30, 2024, we had cash and restricted cash of $5.0 million and $10.0 million, respectively, which primarily consisted of cash deposited in banks.
Our working capital requirements mainly consist of costs of sales and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our operating activities and financing activities. We believe that our current cash and cash generated from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments.
Cash Flows for the three months Ended September 30, 2024 and 2023
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| US$ | US$ | |||||||
| Net cash provided by (used in) operating activities | (3,603,104 | ) | 3,061,420 | |||||
| Net cash used in investing activities | (1,316,592 | ) | (2,164,663 | ) | ||||
| Net cash provided by (used in) financing activities | (44,839 | ) | 939,344 | |||||
| Net increase (decrease) in cash | (4,964,535 | ) | 1,836,101 | |||||
| Cash and restricted cash at beginning of year | 9,950,384 | 6,558,099 | ||||||
| Cash and restricted cash at end of year | 4,985,849 | 8,394,200 | ||||||
25
We had a balance of cash and restricted cash of $5.0 million as of September 30, 2024, compared with a balance of $10.0 million as of June 30, 2024. During the three months ended September 30, 2024, changes in our cashflow were mainly due to the following activities:
Operating Activities
Net cash used in operating activities was $3.6 million for the three months ended September 30, 2024, compared to net cash provided by operating activities of $3.1 million for the same period in 2023, representing a $6.7 million decrease in the net cash inflow provided by operating activities. The decrease was primarily due to the following:
| (i) | We had net loss of $4.6 million for the three months ended September 30, 2024. For the three months ended September 30, 2023, we had net income of $2.8 million, which led to a $7.4 million decrease in net cash inflow from operating activities. |
| (ii) | Changes in accounts receivable and other receivables were $0.2 million cash inflow for the three months ended September 30, 2024. For the three months ended September 30, 2023, changes in accounts receivable and other receivables were $0.6 million cash inflow, which led to a $0.4 million decrease in net cash outflow from operating activities. |
| (iii) | Changes in accounts payable and accrued liabilities used $1.9 million net cash outflow for the three months ended September 30, 2024. For the three months ended September 30, 2023, changes in accounts payable and accrued liabilities provided net cash outflow of $2.1 million, which led to a $0.2 million decrease in net cash outflow from operating activities. |
| (iv) | Changes in tax payable provided $0.1 million net cash outflow for the three months ended September 30, 2024. For the three months ended September 30, 2023, changes in tax payable provided net cash inflow of $0.6 million, which led to a $0.7 million decreased in net cash inflow from operating activities. |
| (v) | Changes in non-cash items provided $2.0 million net cash inflow for the three months ended September 30, 2024. For the three months ended September 30, 2023, changes in non-cash items provided net cash inflow of $1.0 million, which led to a $1.0 million increase in net cash inflow from operating activities. |
Investing Activities
Net cash used in investing activities was $1.3 million for the three months ended September 30, 2024, primarily attributable to $1.4 million cash used for the purchase of property and equipment, $1.0 million cash used for loans extended to others, and $1.0 million proceeds received from loan repayments.
For the three months ended September 30, 2023, net cash used in investing activities was $2.2 million, primarily attributable to $1.1 million cash used for the purchase of property and equipment and $1.0 million used for loans extended to others.
Financing Activities
For the three months ended September 30, 2024, we had net cash used in financing activities of $0.05 million, which was primarily attributable to the net effects of $0.05 million used to repay finance lease liabilities.
For the three months ended September 30, 2023, we had net cash provided from financing activities of $1.0 million, which was primarily attributable to the net effects of: (i) $0.5 million collected from related parties for the repayments of loans the Company previously advanced to them; (ii) $0.5 million lent from related parties; (iii) $0.1 million used for expenses relating to the initial public offering; (iv) $0.05 million used to repay finance lease liabilities; and (v) $0.1 million in capital contributions from stockholders.
26
Commitments and Contractual Obligations
As of September 30, 2024, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through February 2025 to July 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised.
As of September 30, 2024, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows:
| Operating | Finance | |||||||
| US$ | US$ | |||||||
| 2025 | 20,326,296 | 133,049 | ||||||
| 2026 | 29,216,224 | 129,332 | ||||||
| 2027 | 28,967,443 | 61,194 | ||||||
| 2028 | 29,694,748 | 5,866 | ||||||
| 2029 and beyond | 48,526,954 | - | ||||||
| Total minimum lease payment | 156,731,665 | 329,441 | ||||||
| Less: imputed interest | (41,763,350 | ) | (39,964 | ) | ||||
| Total lease liabilities | 114,968,315 | 289,477 | ||||||
| Less: current potion | (26,272,945 | ) | (155,625 | ) | ||||
| Non-current portion | 88,695,370 | 133,852 | ||||||
Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of September 30, 2024.
Off-balance Sheet Commitments and Arrangements
Other than two standby letters of credit with Eastwest Bank in the aggregate amount of $2,061,673, we did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements as defined under the rules and regulations of the SEC, or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2024, we still have unused credit of $2,061,673 with Eastwest Bank.
Critical Accounting Policies and Estimates
The preparation of 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, contingent assets and liabilities, each as of the date of this Quarterly Report, and revenue and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.
Despite that management determines that there are no critical accounting estimates, the one that requires relatively significant estimates relates to useful lives of property and equipment.
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Property and equipment are recorded at cost, less accumulated depreciation and impairment. The estimation of useful lives impacts the level of annual depreciation expenses recorded and the estimation is a matter of judgment based on the experience of our Company and general industry practice with similar assets. The estimated annual deprecation rates of our property and equipment are generally as follows:
| Category | Depreciation method | Depreciation rate | ||
| Furniture and fixtures | Straight-line | 7 years | ||
| Auto & trucks | Straight-line | 5 – 8 years | ||
| Trailers & truck chassis | Straight-line | 15 – 17 years | ||
| Machinery & equipment | Straight-line | 2 – 7 years | ||
| Leasehold improvements | Straight-line | Shorter of lease term or 15 years |
As of September 30, 2024 and June 30, 2024, the historical cost of property and equipment was $16,127,139 and $14,773,842, respectively.
We recorded depreciation expenses of $578,432 and $388,929 during the three months ended September 30, 2024 and 2023, respectively. Specifically, $436,368 and $324,849 of the depreciation expenses were recorded in costs of sales for the three months ended September 30, 2024 and 2023, respectively. $142,064 and $64,080 of the depreciation expenses were recorded in general and administrative expenses for the three months ended September 30, 2024 and 2023, respectively.
Our significant accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies” in the notes to our unaudited consolidated financial statements. We believe that there were no critical accounting policies that affected the preparation of such financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.
In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2024 and determined that the disclosure controls and procedures were effective at a reasonable assurance level as of that date.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d -15(f) of the Exchange Act) during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ARMLOGI HOLDING CORP.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any material legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form S-1, as amended (File Number 333-274667), for our initial public offering, which was declared effective by the SEC on May 13, 2024. In May 2024, we completed our initial public offering in which we issued and sold an aggregate of 1,600,000 shares of common stock, at a price of $5.00 per share for $8,000,000. EF Hutton LLC was the representative of the underwriters of our initial public offering.
We incurred approximately $3.0 million in expenses in connection with our initial public offering, which included approximately $600,000 in underwriting discounts, approximately $25,000 in expenses paid to or for underwriters, and approximately $2.4 million in other expenses. None of the transaction expenses included payments to directors or officers of our Company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
The net proceeds raised from the initial public offering were $5,214,851 after deducting underwriting discounts and the offering expenses payable by us. As of the date of this Quarterly Report, we have used approximately $4,000,000 for working capital and other general corporate purposes in support of our current business. We intend to use the remaining proceeds from our initial public offering in the manner disclosed in our registration statement.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
Index to Exhibits
| Exhibit | Incorporated by Reference (Unless Otherwise Indicated) | |||||||||
| Number | Exhibit Title | Form | File | Exhibit | Filing Date | |||||
| 3.1 | Articles of Incorporation | S-1 | 333-274667 | 3.1 | September 22, 2023 | |||||
| 3.2 | Amendment to Articles of Incorporation of the Registrant, dated February 22, 2023, for correction of par value | S-1 | 333-274667 | 3.2 | September 22, 2023 | |||||
| 3.3 | Bylaws | S-1 | 333-274667 | 3.3 | September 22, 2023 | |||||
| 4.1 | Specimen Stock Certificate | S-1 | 333-274667 | 4.1 | September 22, 2023 | |||||
| 31.1 | — | — | — | Filed herewith | ||||||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | — | — | Filed herewith | |||||
| 32.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 32.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 101.INS | Inline XBRL Instance Document | — | — | — | Filed herewith | |||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | — | — | — | Filed herewith | |||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | — | — | — | Filed herewith | |||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | — | — | — | Filed herewith | |||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | — | — | — | Filed herewith | |||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | — | — | — | Filed herewith | |||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | — | — | — | Filed herewith | |||||
| * | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 14, 2024
| Armlogi Holding Corp. | ||
| By: | /s/ Aidy Chou | |
| Aidy Chou | ||
| Chief Executive Officer | ||
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