Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere
in this filing.
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 June 30, 2024 and 2023,
we had an active customer base of 105 and 83, respectively, for our warehousing and logistics services.
We have experienced rapid growth since our inception.
For the fiscal years ended June 30, 2024 and 2023, we had total revenue of $167.0 million, and $135.0 million respectively, and net income
of $7.4 million, and $13.9 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 fiscal years ended June 30, 2024 and 2023, we generated approximately
96% and 96% of our revenue from PRC-based customers, respectively. See “Item 1A. Risk Factors — Economic, Political,
and Market Risks — China’s economic, political, and social conditions, as well as governmental policies, could affect the
business environment and economic conditions in China, which may result in an adverse impact on the demand for our services, potentially
harming our financial condition and operating results.”
31
Key Factors Affecting Our Results of Operations
We believe the following key factors may affect
our financial condition and results of operations.
Supportive Cross-Border E-Commerce Business
Environment and Platform Policies that Facilitate Sales by PRC E-Commerce Merchants into the U.S. Market
The majority of our customers consist of PRC e-commerce
merchants who sell their merchandise into the U.S. market through e-commerce platforms. As such, our ability to acquire and maintain
new or existing customers for our warehousing and logistics services is heavily reliant on their continued willingness to conduct cross-border
e-commerce businesses, which may be significantly impacted by policies set by e-commerce platforms. For example, in early 2021, Amazon,
the world’s largest e-commerce platform, claimed that it had suspended the accounts of over 50,000 Chinese sellers for improper
use of review functions. Specifically, instead of earning great reviews through high-quality products, those PRC sellers manipulated reviews
by paying for positive product reviews or by giving away gift cards, which violates Amazon’s terms of service. It is estimated that
the 50,000 affected accounts caused approximately RMB100 billion in losses for the cross-border e-commerce industry in the PRC, which
has discouraged a growing number of PRC e-commerce sellers from selling their merchandise to the U.S. via Amazon. There is no guarantee
that our current or future international customers are fully compliant with the terms of service of all the international e-commerce platforms
they use, including Amazon, or that those e-commerce platforms will not from time to time initiate such a widespread suspension of PRC
sellers in the future. Such a crackdown on PRC sellers may significantly reduce the number of Chinese e-commerce sellers who intend to
sell in the U.S., who are our primary customers. The loss of our PRC customer base due to the widespread suspension of PRC sellers in
the cross-border e-commerce industry could be detrimental to our ongoing operations. See “Item 1A. Risk factors — Operational
Risks — The suspension of PRC sellers on using international e-commerce platforms, such as the crackdown on PRC sellers
by Amazon in early 2021, has discouraged and may continue to discourage a growing number of PRC e-commerce sellers from selling their
merchandise to the United States, thus adversely affecting our business, financial condition, and results of operations”
Our Ability to Maintain Our Major Customers
During the fiscal years ended June 30, 2024
and 2023, our five largest customers accounted for approximately 53.0% and 62.0% of our total revenue, respectively. While we strive to
maintain our competitive strengths, such as our quality warehousing and logistics services, competitive pricing, and quality customer
services (see “Item 1. Business — Our Competitive Strengths”) to maintain our customer base, there is no guarantee
that we will continue to maintain our business relationships with these major customers at the same level, or at all. In the event that
a significant customer terminates its relationship with us, we cannot assure that we will be able to secure an alternative arrangement
with another comparable customer in a timely manner, or at all. Losing one or more of these major customers could adversely affect our
revenue and profitability. See “Item 1A. Risk Factors — Operational Risks — Our largest customers
generate a significant portion of our revenue and our business may rely on one or more suppliers that account for more than 10% of our
total purchases, and interruption in operations of such significant customers or supplier may have an adverse effect on our business,
financial condition, and results of operations.”
Our Ability to Effectively Develop and Expand
our Labor Force
Our ability to increase our customer base and
achieve broader market acceptance will depend to a significant extent on our ability to expand our sales, marketing, and support operations,
as well as our ability to recruit and retain talented personnel. We plan to continue expanding our labor force in these areas of the business
and engaging additional partners. This expansion will require us to invest significant financial and other resources to attract and retain
a skilled workforce. Our business will be harmed if we are unable to hire, develop, and retain skilled and qualified personnel, if our
new personnel are unable to achieve desired productivity levels in a reasonable period of time, or if we are unable to retain our existing
personnel.
32
Results of Operations
The following table outlines our consolidated
statements of operations for the fiscal years ended June 30, 2024 and 2023:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Revenue
166,977,034
135,044,436
Costs of sales
148,894,227
109,310,993
Gross profit
18,082,807
25,733,443
Operating costs and expenses:
General and administrative
9,967,792
7,799,116
Total operating costs and expenses
9,967,792
7,799,116
Income from operations
8,115,015
17,934,327
Other (income) expenses:
Other income
(2,320,257 )
(1,408,634 )
Finance costs
47,649
60,419
Total other (income) expenses
(2,272,608 )
(1,348,215 )
Income before provision for income taxes
10,387,623
19,282,542
Current income tax expense
2,145,072
4,980,481
Deferred income tax expense
801,333
380,523
Total income tax expenses
2,946,405
5,361,004
Net income
7,441,218
13,921,538
Total comprehensive income
7,441,218
13,921,538
Basic & diluted net earnings per share
0.19
0.35
Weighted average number of shares of common stock-basic
40,205,836
40,000,000
Weighted average number of shares of common stock-diluted
40,216,109
40,000,000
33
Revenue, costs of sales, and gross profit
margin
The following table sets forth our revenue for
the fiscal years ended June 30, 2024 and 2023:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Revenue
166,977,034
135,044,436
Costs of sales
148,894,227
109,310,993
Gross profit
18,082,807
25,733,443
Gross profit margin %
10.8 %
19.1 %
The following table outlines the compositions
of our revenue streams:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Transportation services
115,323,654
97,072,485
Warehousing services
51,502,358
37,304,824
Other services
151,022
667,127
Total
166,977,034
135,044,436
Our revenue increased by $31.9 million, or
23.6%, to $167.0 million during the fiscal year ended June 30, 2024, compared to $135.0 million for the fiscal year ended June
30, 2023. The increase was due to the following factors:
1) Revenue from our transportation services increased by $18.3
million, or 18.8%, due to the rapid expansion of our business in 2024, as we expanded our warehouse operational capacities in California
and New Jersey.
2) Revenue from our warehousing services increased by $14.2 million,
or 38.1%. As an integrated part of our one-stop warehousing and logistics services, our warehousing services also increased as a result
of the growth in our transportation services.
3) Revenue from other services decreased by $0.5 million,
or 77.4%. 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 $39.6 million, or 36.2%, during the fiscal year ended June 30, 2024, compared
with the fiscal year ended June 30, 2023. The increase was in line with the significant increase of our revenue.
34
The following table sets forth a breakdown of
our costs of sales for the fiscal years ended June 30, 2024 and 2023:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Amortization
35,317
204,457
Depreciation
1,683,436
905,384
Rental expenses
30,421,614
14,801,588
Freight expenses
89,506,874
75,960,644
Port handling and customs fees
266,784
675,574
Salary and benefits
7,553,353
4,485,060
Temporary labor expenses
12,657,528
8,381,160
Warehouse expenses
5,705,059
3,122,911
Utilities
547,587
410,330
Other expenses
516,675
363,885
Total
148,894,227
109,310,993
Our rental expenses (primarily warehouse operating
lease expenses), freight expenses, temporary labor expenses, and salary and benefits increased significantly by $15.6 million, $13.5
million, $4.3 million, and $3.1 million, respectively, during the fiscal year ended June 30, 2024 compared to 2023. The increases
in these expenses were all due to the growth of our revenue in transportation services and warehouse services.
Our overall gross profit margin decreased from
19.1% for the fiscal year ended June 30, 2023 to 10.8% for the year ended June 30, 2024, primarily due to our expansion into the Fontana,
California warehouse and the temporary disruption of operations in California as inventory was relocated to a new facility. Although the
profit margins of our transportation services (e.g. FedEx, ocean freight, and truck deliveries) for the fiscal year ended June 30, 2024,
remained stable or slightly higher compared to the previous year, the profit margins for our warehousing services experienced a significant
decrease during the same period. This decline is attributable to increases in the rental expenses, salary and benefits, temporary labor
expenses, and warehouse expenses of approximately 106%, 68%, 51%, and 83%, respectively, despite a relatively modest increase in warehousing
services revenue of approximately 38.1%.
Operating expenses
Our operating expenses consist primarily of general
and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the fiscal years
ended June 30, 2024 and 2023:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Bank charges
99,850
17,546
Amortization
313,283
205,703
Office expenses
2,441,784
1,151,786
Professional fees
447,955
420,775
Rental expenses
427,014
479,597
Repairs and maintenance
1,130,378
689,737
Salary and benefits
4,312,408
3,878,888
Sundries
255,739
76,084
Tax and licenses
149,321
104,589
Vehicle expenses
180,378
99,390
Other expenses
114,988
95,731
Credit loss expenses
94,694
579,290
Total
9,967,792
7,799,116
Our general and administrative expenses increased
by $2.2 million, from $7.8 million for the fiscal year ended June 30, 2023 to $10.0 million for the fiscal year ended June
30, 2024, representing an increase of 28%. The increase was due to the following factors:
1) Office expenses increased by $1.3 million, or 112%, mainly
due to an increase of insurance by $1.0 million associated with the rapid expansion of our warehouses and the growth in our transportation
services.
2) Repairs and maintenance expenses increased by $0.4 million,
or 64%, as a result of the growth in our transportation services.
35
Income Tax
Our California subsidiaries are subject to the current California state
corporate income tax at a rate of 8.84% and federal income tax at a flat rate of 21%.
The following table sets forth a breakdown of our income tax expense:
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Current income tax expense
2,145,072
4,980,481
Deferred income tax expense
801,333
380,523
Total income tax expenses
2,946,405
5,361,004
Our income tax expense decreased by $2.4 million
in 2024, mainly due to the decrease in profit before tax by $8.9 million during the year.
Net income
As a result of the foregoing, our net income for
the fiscal year ended June 30, 2024 was $7.4 million, compared with the net income of $13.9 million for the fiscal year ended
June 30, 2023, representing a decrease by $6.5 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 annual report, we have financed our operations primarily through cash generated by operating activities
and capital contributions from stockholders. As of June 30, 2024 and 2023, we had cash and restricted cash of $10 million and $6.6 million,
respectively, which primarily consisted of cash deposited in banks.
Our working capital requirements mainly consist
of costs of sales and general and administrative expenses. We expect that our capital requirements will be met by cash generated from
our operating activities and financing activities from our principal stockholders. We believe that our current cash and cash generated
from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures
for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business
conditions or other developments.
Cash Flows for the Fiscal Years Ended
June 30, 2024 and 2023
Year
Ended
June 30,
2024
Year
Ended
June 30,
2023
US$
US$
Net cash provided by operating activities
3,040,538
11,803,407
Net cash used in investing activities
(7,437,605 )
(4,316,073 )
Net cash provided by (used in) financing activities
7,789,352
(3,177,995 )
Net increase in cash
3,392,285
4,309,339
Cash at beginning of year
6,558,099
2,248,760
Cash and restricted cash at end of year
9,950,384
6,558,099
36
We had a balance of cash and restricted cash of
$10.0 million as of June 30, 2024, compared with a balance of $6.6 million as of June 30, 2023. During the fiscal years
ended June 30, 2024 and 2023, we mainly derived our cash inflow from operating activities.
Operating Activities
Net cash provided by operating activities was
$3.0 million for the fiscal year ended June 30, 2024, compared to net cash provided in operating activities of $11.8 million
for the fiscal year ended June 30, 2023, representing a $8.8 million decrease in the net cash inflow provided by operating activities.
The decrease was primarily due to the following:
(i) We had net income of $7.4 million for the fiscal year
ended June 30, 2024. For the fiscal year ended June 30, 2023, we had net income of $13.9 million, which led to a $6.5 million
decrease in net cash inflow from operating activities.
(ii) Changes in accounts receivable and other receivables were
$8.2 million cash outflow for the fiscal year ended June 30, 2024. For the fiscal year ended June 30, 2023, changes in accounts
receivable and other receivables were $8.5 million cash outflow, which led to a $0.3 million decrease in net cash outflow from
operating activities.
(iii)
Changes
in accounts payable and accrued liabilities used $0.7 million
net cash outflow for the fiscal year ended June 30, 2024. For the fiscal year ended June 30, 2023, changes in accounts payable and
accrued liabilities provided net cash inflow of $2.5 million, which led to a $3.2 million
increase in net cash outflow from operating activities.
(iv) Changes in tax payable provided $2.6 million net cash
outflow for the fiscal year ended June 30, 2024. For the fiscal year ended June 30, 2023, changes in tax payable provided net cash inflow
of $2.3 million, which led to a $4.9 million decreased in net cash inflow from operating activities.
(v) Changes in non-cash items provided $8.1 million net
cash inflow for the fiscal year ended June 30, 2024. For the fiscal year ended June 30, 2023, changes in non-cash items provided net
cash inflow of $2.8 million, which led to a $5.3 million increase in net cash inflow from operating activities.
Investing Activities
Net cash used in investing activities was $7.4 million
for the fiscal year ended June 30, 2024, primarily attributable to $5.2 million cash used for the purchase of property and equipment,
and $2.2 million used for loans extended to others.
For the fiscal year ended June 30, 2023, net cash
used in investing activities was $4.3 million, primarily attributable to $1.8 million cash used for the purchase of property and equipment
and $2.4 million used for loans extended to others.
Financing Activities
For
the fiscal year ended June 30, 2024, we had net cash provided by financing activities of $7.8 million,
which was primarily attributable to the net effects of: (i) $7.5 million collected from our initial public offering; (ii)
$0.5 million collected from related parties for the repayment of loans we previously advanced to them;
(iii) $1.0 million used for expenses relating to the initial public offering; (iv) $0.2 million used to repay
finance lease liabilities; and (v) $1.0 million in capital contributions from stockholders.
For the fiscal year ended June 30, 2023,
we had net cash used in financing activities of $3.2 million, which was primarily attributable to the net effects of: (i) $2.5 million
used to repay to related parties; (ii) $0.5 million used for loans extended to related parties; (iii) $0.4 million
used for expenses relating to the initial public offering; (iv) $0.2 million used to repay finance lease liabilities; and (v) $0.5 million
in capital contributions from shareholders.
37
Commitments and Contractual Obligations
As of June 30, 2024, we had operating and finance
leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through August 2024 to July 2034 with options
to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of right-of-use
assets or lease liabilities, as there is no reasonable certainty, as of the date of this annual report, that these options will be exercised.
As of June 30, 2024, maturities of lease liabilities
for each of the following fiscal years ending June 30 and thereafter were as follows:
Operating
Finance
US$
US$
2025
25,755,542
175,880
2026
29,216,224
129,332
2027
28,967,443
61,194
2028
29,694,748
5,866
2029
17,613,484
-
2030 and beyond
30,913,470
-
Total minimum lease payment
162,160,911
372,272
Less: imputed interest
(44,818,373 )
(46,964 )
Total lease liabilities
117,342,538
325,308
Less: current potion
(24,216,446 )
(155,625 )
Non-current portion
93,126,092
169,683
Other than the above leases, we did not have significant
commitments, long-term obligations, or guarantees as of June 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 June 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 accounting principles generally accepted in the United States of America (“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 annual 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.
38
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 June 30, 2024 and 2023, the historical cost
of property and equipment was $14,773,842 and $9,566,674, respectively.
We recorded depreciation expenses of $1,827,231
and $1,111,088 during the fiscal years ended June 30, 2024 and 2023, respectively. Specifically, $1,513,947 and $905,384 of the depreciation
expenses were recorded in costs of sales for the fiscal years ended June 30, 2024 and 2023, respectively. $313,284 and $205,704 of the
depreciation expenses were recorded in general and administrative expenses for the fiscal years ended June 30, 2024 and 2023, respectively.
While our significant accounting policies are
more fully described in Note 2 — Summary of Significant Accounting Policies” in the notes to our consolidated financial
statements, we believe that there were no critical accounting policies that affected the preparation of financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller report company,
we are not required to provide the information required by this item.
39