Armlogi Holding Corp. 10-Q

Item 1. Financial Statements ARMLOGI HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2024 (UNAUDITED) AND JUNE 30, 2023 (US$, except share data, or otherwise noted) March 31, 2024 June 30, 2023 US$ US$ Unaudited Audited Assets Current Assets Cash 3,985,003 6,558,099 Restricted cash 2,061,673 — Accounts receivable and other receivable, net 25,104,670 17,396,421 Other current assets 2,019,166 1,642,346 Deferred share issuance costs 1,942,943 1,304,712 Prepaid expenses 1,222,050 796,904 Loan receivable 4,135,179 2,449,956 Total current assets 40,470,684 30,148,438 Non-current assets Due from related parties — 511,353 Property and equipment, net 10,254,072 7,629,117 Intangible assets, net 101,538 128,027 Right-of-use assets – operating leases 119,515,548 49,659,047 Right-of-use assets – finance leases 348,229 478,984 Total assets 170,690,071 88,554,966 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Current liabilities Accounts payable and accrued liabilities 6,822,919 8,470,166 Income taxes payable 4,562,098 2,654,695 Due to related parties 350,209 351,909 Accrued payroll liabilities 463,162 263,356 Operating lease liabilities – current 23,890,833 12,111,309 Finance lease liabilities – current 170,531 198,448 Customer deposits 236,257 424,182 Total current liabilities 36,496,009 24,474,065 Non-current liabilities Operating lease liabilities – non-current 99,268,652 37,741,370 Finance lease liabilities – non-current 193,238 290,795 Deferred income tax liabilities 1,470,581 735,122 Total liabilities 137,428,480 63,241,352 Commitments and contingencies Stockholders’ equity Common stock, US$ 0.00001 par value, 100,000,000 shares authorized, 40,000,000 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively 400 400 Additional paid-in capital 9,751,163 8,985,007 Retained earnings 23,510,028 16,328,207 Total stockholders’ equity 33,261,591 25,313,614 Total liabilities and stockholders’ equity 170,690,071 88,554,966 The accompanying notes form an integral part of these unaudited condensed consolidated financial statements. 1 ARMLOGI HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED) (US$, except share data, or otherwise noted) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Nine Months Ended March 31, 2024 Nine Months Ended March 31, 2023 US$ US$ US$ US$ Unaudited Unaudited Unaudited Unaudited Revenue 38,439,935 30,133,445 121,689,863 86,961,574 Costs of sales 35,115,736 23,855,350 105,461,383 67,959,387 Gross profit 3,324,199 6,278,095 16,228,480 19,002,187 Operating costs and expenses: General and administrative 3,269,493 3,051,137 8,097,196 6,974,146 Total operating costs and expenses 3,269,493 3,051,137 8,097,196 6,974,146 Income from operations 54,706 3,226,958 8,131,284 12,028,041 Other (income) expenses: Other income ( 914,419 ) ( 293,016 ) ( 1,902,813 ) ( 954,447 ) Finance costs 11,041 15,650 37,779 45,885 Total other (income) expenses ( 903,378 ) ( 277,366 ) ( 1,865,034 ) ( 908,562 ) Income before provision for income taxes 958,084 3,504,324 9,996,318 12,936,603 Current income tax expense 200,612 1,335,189 2,079,038 3,495,908 Deferred income tax expense 75,252 ( 9,972 ) 735,459 480,002 Total income tax expenses 275,864 1,325,217 2,814,497 3,975,910 Net income 682,220 2,179,107 7,181,821 8,960,693 Total comprehensive income 682,220 2,179,107 7,181,821 8,960,693 Basic & diluted net earnings per share 0.02 0.05 0.18 0.22 Weighted average number of shares of common stock-basic and diluted 40,000,000 40,000,000 40,000,000 40,000,000 The accompanying notes form an integral part of these unaudited condensed consolidated financial statements. 2 ARMLOGI HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED) (US$, except share data, or otherwise noted) Common Stock Amount Additional paid-in capital Retained earnings Total equity Nine Months Ended Balance as of June 30, 2023 40,000,000 400 8,985,007 16,328,207 25,313,614 Net income — — — 7,181,821 7,181,821 Contribution from stockholders — — 766,156 — 766,156 Balance as of March 31, 2024 (unaudited) 40,000,000 400 9,751,163 23,510,028 33,261,591 Three Months ended Balance as of December 31, 2023 40,000,000 400 9,550,007 22,827,808 32,378,215 Net income — — — 682,220 682,220 Contribution from stockholders — — 201,156 — 201,156 Balance as of March 31, 2024 (unaudited) 40,000,000 400 9,751,163 23,510,028 33,261,591 Nine Months Ended Balance as of June 30, 2022 40,000,000 400 8,162,207 2,406,669 10,569,276 Net income — — — 8,960,693 8,960,693 Contribution from stockholders — — 350,000 — 350,000 Balance as of March 31, 2023 (unaudited) 40,000,000 400 8,512,207 11,367,362 19,879,969 Three Months ended Balance as of December 31, 2022 40,000,000 400 8,512,207 9,188,255 17,700,862 Net income — — — 2,179,107 2,179,107 Contribution from stockholders — — — — — Balance as of March 31, 2023 (unaudited) 40,000,000 400 8,512,207 11,367,362 19,879,969 The accompanying notes form an integral part of these unaudited condensed consolidated financial statements. 3 ARMLOGI HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED) (US$, except share data, or otherwise noted) For The Nine Months Ended March 31, 2024 For The Nine Months Ended March 31, 2023 US$ US$ Unaudited Unaudited Cash Flows from Operating Activities: Net income 7,181,821 8,960,693 Adjustments for items not affecting cash: Net loss from disposal of fixed assets 6,895 — Depreciation of property and equipment and right-of-use financial assets 1,444,441 918,112 Amortization 26,488 22,088 Non-cash operating leases expense 3,450,304 266,280 Current estimated credit loss ( 22,827 ) — Accretion of finance lease liabilities 37,779 45,885 Deferred income taxes 735,459 480,002 Interest income ( 87,923 ) ( 5,609 ) Changes in operating assets and liabilities Accounts receivable and other receivables ( 7,685,423 ) ( 2,553,582 ) Other current assets ( 376,820 ) ( 1,092,348 ) Prepaid expenses ( 425,146 ) ( 318,266 ) Accounts payable & accrued liabilities ( 2,212,137 ) 571,336 Customer deposits ( 187,925 ) — Income tax payable 1,907,403 2,852,182 Accrued payroll liabilities 199,806 326,673 Net cash provided from operating activities 3,992,195 10,473,446 Cash Flows from Investing Activities: Purchase of property and equipment ( 3,080,643 ) ( 1,789,248 ) Purchase of intangible assets — ( 51,464 ) Loan receivable ( 1,600,000 ) ( 2,425,000 ) Net cash used in investing activities ( 4,680,643 ) ( 4,265,712 ) Cash Flows from Financing Activities: Net proceeds received from (repaid to) related parties 1,000 ( 2,503,233 ) Proceeds (lend to) from related parties 511,353 ( 512,314 ) Repayments of finance lease liabilities ( 163,253 ) ( 153,561 ) Deferred issuance costs for initial public offering ( 638,231 ) ( 205,000 ) Capital contributions from stockholders 466,156 350,000 Net cash provided by (used in) financing activities 177,025 ( 3,024,108 ) Net increase in cash, cash equivalents and restricted cash ( 511,423 ) 3,183,626 Cash and cash equivalents, beginning of year 6,558,099 2,248,760 Cash and restricted cash, end of nine months period 6,046,676 5,432,386 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Income taxes paid ( 171,635 ) ( 643,726 ) NON-CASH TRANSACTIONS: Right-of-use assets acquired in exchange for operating lease liabilities 81,927,507 6,900,346 IPO expenses paid by stockholders 300,000 350,000 The accompanying notes form an integral part of these unaudited 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, Trucking, 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 financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments considered necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year ending June 30, 2024 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the years ended June 30, 2023 and 2022, included in the Company’s Registration Statement on Form S-1 (File No. 333-274667) . Principal of consolidation The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. Principal activities Percentage of ownership Date of incorporation Place of incorporation Armlogi Holding Corp. Holding company — September 27, 2022 Nevada, U.S. Armstrong Logistic Inc. Logistic services 100 % April 16, 2020 California, U.S. Armlogi Truck Dispatching LLC Truck dispatching services 100 % February 26, 2021 California, U.S. Andtech Trucking LLC Trucking services 100 % May 7, 2021 California, U.S. Armlogi Trucking LLC Trucking services 100 % March 25, 2021 California, U.S. Andtech Customs Broker LLC Customs house brokerage services 100 % June 8, 2021 California, U.S. Armlogi Group LLC Leasing services 100 % October 19, 2021 California, U.S. Use of estimates The preparation of financial statements and related disclosures in accordance with 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 nine months ended March 31, 2024 and 2023. Cash and restricted cash Cash consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. Restricted cash represents the cash restricted for two standby letters of credit with Eastwest Bank. The term of each of the letters of credit is one year starting from August 1, 2023 and November 7, 2023, respectively. 5 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of significant accounting policies (cont.) 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 receivable and other current assets. As of March 31, 2024 and June 30, 2023, substantially all of the Company’s cash and restricted cash were held in financial institutions located in the U.S., which management considers to be of high credit quality. During the nine months ended March 31, 2024 and 2023, our five largest customers accounted for approximately 55.0 % and 65.1 % of our total revenue, respectively. One supplier accounted for approximately 52 % and 58 % of the total purchases during the nine months ended March 31, 2024 and 2023, respectively, and no other suppliers accounted for more than 10% of the total purchases over the same period. As of March 31, 2024 and June 30, 2023, the largest three accounts receivable balances from customers accounted for 52 % and 41 % of the total balance of accounts receivable, respectively. 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. The Company’s credit term generally ranged from 3 to 30 days. If there is an approval from the board of the Company, the credit term can extend to 180 days. Property and equipment Property and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated on a straight-line basis, after consideration of expected useful lives and estimated residual values. The estimated annual deprecation rates of these assets 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 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 consolidated statements of operations and comprehensive income. Long-Lived Assets Long-lived assets, such as property and equipment, and definite-lived intangible assets, 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 nine months ended March 31, 2024 and 2023. Intangible assets consist of software and security systems, which are amortized using the straight-line method over five to seven 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 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 shipments process, and assuming the risk of loss for delivery and collection. Such transportation services revenue is presented on a gross basis in the consolidated statements of comprehensive income. 7 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of significant accounting policies (cont.) A summary of the Company’s revenue disaggregated by major service lines are as follows: March 31, 2024 March 31, 2023 US$ US$ Transportation services 84,664,603 61,998,726 Warehousing services 36,606,859 24,531,240 Other services 418,401 431,608 Total 121,689,863 86,961,574 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 consolidated statements of comprehensive income. Leases The Company adopted ASC 842 — Leases for its fiscal year beginning on July 1, 2021. There were some insignificant forklift finance leases subject to ASC 842 upon the adoption of the new standard. Since these forklift finance leases are classified as finance leases under ASC 842 and were also previously classified as finance leases under the legacy ASC 840, the adoption of the ASC 842 did not result in material adjustments to these finance leases compared to ASC 840. 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. 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 consolidated balance sheets. 8 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of significant accounting policies (cont.) 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. Annually, the Company performs an impairment analysis on ROU assets, and as of March 31, 2024, there was no material impairment to ROU assets. 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. Expenses for these short-term leases for the nine months ended March 31, 2024 and 2023 were immaterial. Taxation Current income taxes are provided on the basis of net profit 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. 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. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50 % likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’s effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. The Company did not have any unrecognized tax benefits as of March 31, 2024 and June 30, 2023. 9 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of significant accounting policies (cont.) Earnings per share Basic earnings per share of commons stock is 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 nine months ended March 31, 2024 and 2023 were conducted in the U.S. 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 receivable, other current assets, due from related parties, 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 receivable, other current assets, due from related parties, 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 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 March 31, 2024 and June 30, 2023. 10 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of significant accounting policies (cont.) 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 condensed consolidated financial statements. 3. Accounts receivable and other receivables, Net Accounts receivable and other receivables, net consisted of the following: March 31, 2024 June 30, 2023 US$ US$ Accounts receivable – third parties 19,823,881 17,780,426 Accounts receivable – related parties 1,040,750 282,526 Other receivables – third parties* 2,534,505 — Other receivables – related parties* 2,001,049 — Gross total 25,400,185 18,062,952 Less: allowance for credit loss ( 295,515 ) ( 666,531 ) Total 25,104,670 17,396,421 * The balance is comprised primarily of accounts receivable associated with service arrangements that are not within the scope of ASC 606. 4. Property and Equipment, Net Property and equipment, net consisted of the following: March 31, 2024 June 30, 2023 US$ US$ Furniture and fixtures 9,178,846 6,664,165 Auto & Truck 1,663,045 1,212,256 Trailers & track chassis 1,135,611 740,611 Machinery & equipment 1,452,362 875,545 Leasehold improvement 74,098 74,098 Total 13,503,962 9,566,675 Less: Accumulated depreciation ( 3,249,890 ) ( 1,937,558 ) Property and equipment, net 10,254,072 7,629,117 Depreciation expenses are recorded in costs of sales and general and administrative expenses. The Company recorded depreciation expenses of US$ 1,313,684 and US$ 788,699 during the nine months ended March 31, 2024 and 2023, respectively. Specifically, US$ 1,091,795 and US$ 641,222 of the depreciation expenses were recorded in costs of sales for the nine months ended March 31, 2024 and 2023, respectively. US$ 221,889 and US$ 147,477 of the depreciation 11 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Property and Equipment, Net (cont.) expenses were recorded in general and administrative expenses for the nine months ended March 31, 2024 and 2023, respectively. The Company recorded depreciation expenses of US$ 525,167 and US$ 289,689 during the three months ended March 31, 2024 and 2023, respectively. Specifically, US$ 436,084 and US$ 235,478 of the depreciation expenses was recorded in costs of sales for the three months ended March 31, 2024 and 2023, respectively. US$ 89,083 and US$ 54,211 of the depreciation expenses were recorded in general and administrative expenses for the three months ended March 31, 2024 and 2023, respectively. 5. Intangible Assets, Net Intangible assets, net consisted of the following: March 31, 2024 June 30, 2023 US$ US$ Security Systems 85,758 85,758 Software 100,021 100,021 Total 185,779 185,779 Less: Accumulated depreciation ( 84,241 ) ( 57,752 ) Intangible, net 101,538 128,027 The Company recorded amortization of US$ 26,488 and US$ 22,088 , which were included in costs of sales, for the nine months ended March 31, 2024 and 2023, respectively. The Company recorded amortization of US$ 8,829 and US$ 8,229 , which were included in costs of sales, for the three months ended March 31, 2024 and 2023, respectively. 6. Loan Receivable The Company’s loan receivable is consisted of the following: i) On February 8, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ 500,000 . The loan matures on February 15, 2024 and bears interest at a rate of 3.2 % annually. The loan was fully paid on May 29, 2024. ii) On February 27, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ 1,000,000 . The loan matures on March 25, 2024 and bears interest at a rate of 3.2 % annually. The loan was fully paid on May 29, 2024. iii) On March 24, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ 925,000 . The loan matures on April 30, 2024 and bears interest at a rate of 3.2 % annually. The loan was fully paid on June 6, 2024. iv) On July 10, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ 1,000,000 . The loan matures on August 31, 2024 and bears interest at a rate of 3.2 % annually. v) On January 24, 2024, the Company entered into a loan agreement with Paul Tam for a principal of US$ 150,000 . The loan matures on January 24, 2025 and bears interest at a rate of 3.2 % annually. The loan has been fully paid on February 13, 2024. vi) On January 24, 2024, the Company entered into a loan agreement with Athena Home Inc. for a principal of US$ 600,000 . The loan matures on January 24, 2025 and bears interest at a rate of 3.2 % annually. As of March 31, 2024, the Company recorded a loan receivable balance of US$ 4,135,179 , including accrued interest income of US$ 110,179 . 12 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. Leases As of March 31, 2024, the Company had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through April 2026 to November 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 right-of-use assets or lease liabilities, as there is no reasonable certainty, as of the date of this report, that these options will be exercised. The Company has certain sublease contracts and recognized US$ 2,133,436 and US$ 198,000 lease income during the nine months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, the Company recognized US$ 970,898 and US$ 69,000 lease income, respectively. As of March 31, 2024, the Company recognized additional operating lease liabilities of US$ 73,306,806 , compared to the balance of US$ 49,852,679 as of June 30, 2023, as the result of entering into three new operating lease agreements. The ROU assets were recognized at the discount rate range from 10.50 % to 10.75 %, resulting in US$ 81,927,507 on the commencement dates. As of March 31, 2024, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows: Operating Finance US$ US$ 2024 4,418,689 48,331 2025 28,620,864 175,880 2026 and beyond 138,682,715 196,392 Total minimum lease payment 171,722,268 420,603 Less: imputed interest ( 48,562,783 ) ( 56,834 ) Total lease liabilities 123,159,485 363,769 Less: current potion ( 23,890,833 ) ( 170,531 ) Non-current portion 99,268,652 193,238 13 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: March 31, 2024 June 30, 2023 US$ US$ Accounts payable 5,041,296 7,492,591 Credit card Payable 1,455,993 899,305 Other liabilities 325,630 78,270 Total 6,822,919 8,470,166 Other liabilities as of March 31, 2024 mainly consisted of tenant’s deposit. 9. Stockholders’ Equity The Company is authorized to issue 100,000,000 shares of common stock, par value US$ 0.00001 per share, and 40,000,000 shares were issued and outstanding as of March 31, 2024 and June 30, 2023, respectively. No additional shares were issued during the nine months ended March 31, 2024 and 2023. During the nine months ended March 31, 2024, the Company’s stockholders made a total of US$ 766,156 (2023: US$ 350,000 ) of capital contributions to the Company. 10. Earnings per Share Basic and diluted net earnings per share for the nine months ended March 31, 2024 and 2023 were as follows: March 31, 2024 March 31, 2023 US$ US$ Numerator: Net income attributable to stockholders – basic and diluted 7,181,821 8,960,693 Denominator: Weighted average number of shares of common stock outstanding – basic and diluted 40,000,000 40,000,000 Earnings per share attributable to stockholders – basic and diluted 0.18 0.22 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. 14 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. Commitments and Contingencies Other commitments Other than the standby letter of credit (note 2) and the operating and finance leases (note 7), the Company did not have other significant commitments, long-term obligations, or guarantees as of March 31, 2024 and June 30, 2023. 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 March 31, 2024, the Company was not a party to any material legal or administrative proceedings. 12. Related Party Transactions and Balances Related Parties Name of related parties Relationship with the Company Jacky Chen Former CEO of the Company’s significant operating subsidiary, Armstrong Logistic Inc. (from January 1, 2021 to December 31, 2021) Aidy Chou Founder, CEO, and substantial stockholder Tong Wu Founder, Secretary, Treasurer, director, and substantial stockholder DNA Motor Inc. A company wholly-owned by Jacky Chen Junchu Inc. A company wholly-owned by Tong Wu Related Party transactions The Company had the following related party transactions: (i) During the nine months ended March 31, 2024, the Company’s related parties, Jacky Chen, Aidy Chou and Tong Wu advanced an aggregate of US$ 1,000 to support the Company’s working capital needs. (ii) During the nine months ended March 31, 2024, Junchu Inc., a company wholly owned by Tong Wu, repaid the loan with a principal of US$ 500,000 and interest expense of US$ 11,353 . (iii) DNA Motor Inc., the landlord of five of the Company’s operating leases is owned by Jacky Chen. During the nine months ended March 31, 2024, for these operating leases, US$ 302,537 (2023: US$ 1,361,857 ) lease expense was recorded in general administrative expenses and US$ 8,724,422 (2023: US$ 8,772,503 ) was recorded in costs of sales and US$ 829,563 (2023: nil ) was recorded in other expenses. The aggregate lease liability associated with these operating leases as of March 31, 2024 was US$ 34,714,898 . (iii) During the nine months ended March 31, 2024, the Company generated revenue of US$ 1,362,898 for providing logistic services to DNA Motor Inc. (iv) During the nine months ended March 31, 2024, the Company incurred operating expenses that totaled US$ 52,000 for outside services provided by DNA Motor Inc. (v) On January 22, 2024, the Company entered into a loan agreement with Tony Wu for a principal of US$ 700,000 . The loan matures on January 24, 2025 and bears interest at a rate of 3.2 % annually. On March 6, 2024, the loan was repaid with the principal and interest expense of US$ 2,700 . 15 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 12. Related Party Transactions and Balances (cont.) Due from related party balance The Company’s balances due from related parties as of March 31, 2024 and June 30, 2023 were as follows: March 31, 2024 June 30, 2023 US$ US$ Junchu Inc. — 511,353 Total — 511,353 The due from related party balances as of June 30, 2023 are unsecured, bear interest at a rate of 3.2 %, and are due on demand. Due to related party balance The Company’s balances due to related parties as of March 31, 2024 and June 30, 2023 were as follows: March 31, 2024 June 30, 2023 US$ US$ Aidy Chou — — Tong Wu 181,971 184,671 Jacky Chen 168,238 167,238 Total 350,209 351,909 The due to related party balances as of March 31, 2024 and June 30, 2023 are unsecured, interest-free, and are due on demand. 13. Subsequent Events On May 13, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton LLC, as representative of the several underwriters listed on Schedule A to the Underwriting Agreement (the “Representative”), relating to the Company’s initial public offering (the “IPO”) of 1,600,000 shares of common stock, par value US$ 0.00001 per share, for a price of US$ 5.00 per share, less certain underwriting discounts. The Company also granted the underwriters a 45-day option to purchase up to 240,000 additional shares of common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the IPO. On May 15, 2024, the Company closed the IPO. The Company completed the IPO pursuant to its registration statement on Form S-1 (File No. 333-274667), which was initially filed with the SEC on September 25, 2023, as amended, and declared effective by the SEC on May 13, 2024. The offering was conducted on a firm commitment basis. The Company’s shares of common stock were previously approved for listing on the Nasdaq Global Market and commenced trading under the ticker symbol “BTOC” on May 14, 2024. 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 the offering, entitling the Representative to purchase an aggregate of up to 80,000 shares of common stock at a per share price equal to 125.0 % of the public offering price per share in the IPO, or US$ 6.25 . 16