Armlogi Holding Corp. 10-Q

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 2,924,176 7,888,711 Accounts receivable and other receivable, net 25,177,485 25,465,044 Other current assets 1,875,381 1,624,611 Prepaid expenses 812,691 1,129,435 Loan receivables 861,554 1,877,131 Total current assets 31,651,287 37,984,932 Non-current assets Restricted cash – non-current 2,061,673 2,061,673 Long-term loan receivables 3,921,243 2,908,636 Property and equipment, net 11,785,272 11,010,407 Intangible assets, net 83,880 92,708 Right-of-use assets – operating leases 106,899,045 111,955,448 Right-of-use assets – finance leases 270,762 309,496 Other non-current assets 817,641 711,556 Total assets 157,490,803 167,034,856 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Current liabilities Accounts payable and accrued liabilities 5,574,620 7,502,339 Contract liabilities 774,711 276,463 Income taxes payable - 57,589 Due to related parties 350,209 350,209 Accrued payroll liabilities 779,680 405,250 Operating lease liabilities – current 26,272,945 24,216,446 Finance lease liabilities – current 155,625 155,625 Total current liabilities 33,907,790 32,963,921 Non-current liabilities Operating lease liabilities – non-current 88,695,370 93,126,092 Finance lease liabilities – non-current 133,852 169,683 Deferred income tax liabilities 162,957 1,536,455 Total liabilities 122,899,969 127,796,151 Commitments and contingencies Stockholders’ equity Common stock, US$ 0.00001 par value, 100,000,000 shares authorized, 41,634,000 issued and outstanding as of September 30, 2024 and June 30, 2024, respectively 416 416 Additional paid-in capital 15,468,864 15,468,864 Retained earnings 19,121,554 23,769,425 Total stockholders’ equity 34,590,834 39,238,705 Total liabilities and stockholders’ equity 157,490,803 167,034,856 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 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, net ( 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 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$, except share data, or otherwise noted) Common Stock Amount Additional paid-in capital Retained earnings Total equity Three Months Ended Balance as of June 30, 2023 40,000,000 400 8,985,007 16,328,207 25,313,614 Net income — — — 2,754,776 2,754,776 Contribution from stockholders — — 95,000 — 95,000 Balance as of September 30, 2023 (unaudited) 40,000,000 400 9,080,007 19,082,983 28,163,390 Balance as of June 30, 2024 41,634,000 416 15,468,864 23,769,425 39,238,705 Net income (loss) — — — ( 4,647,871 ) ( 4,647,871 ) Balance as of September 30, 2024 (unaudited) 41,634,000 416 15,468,864 19,121,554 34,590,834 The accompanying notes form an integral part of these condensed consolidated financial statements. 3 ARMLOGI HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (UNAUDITED) (US$, 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) ( 4,647,871 ) 2,754,776 Adjustments for items not affecting cash: Depreciation of property and equipment and right-of-use financial assets 617,166 433,366 Amortization 8,829 8,829 Non-cash operating leases expense 2,682,178 423,085 Current estimated credit loss 126,936 ( 335,336 ) Accretion of finance lease liabilities 9,008 13,387 Deferred income taxes ( 1,373,498 ) 443,023 Interest income ( 33,736 ) — Changes in operating assets and liabilities Accounts receivable and other receivables 160,623 569,051 Other current assets ( 250,770 ) ( 51,242 ) Other non-current assets ( 106,085 ) — Prepaid expenses 316,745 ( 98,833 ) Accounts payable & accrued liabilities ( 1,927,718 ) ( 2,130,478 ) Contract liabilities 498,249 ( 8,966 ) Income tax payable ( 57,589 ) 649,305 Accrued payroll liabilities 374,429 391,453 Net cash (used in) provided from operating activities ( 3,603,104 ) 3,061,420 Cash Flows from Investing Activities: Purchase of property and equipment ( 1,353,297 ) ( 1,145,104 ) Loan disbursement ( 1,000,000 ) ( 1,019,559 ) Proceeds from loan repayments 1,036,705 — Net cash used in investing activities ( 1,316,592 ) ( 2,164,663 ) Cash Flows from Financing Activities: Net proceeds received from (repaid to) related parties — 491,978 Proceeds (lend to) from related parties — 511,353 Repayments of finance lease liabilities ( 44,839 ) ( 54,938 ) Deferred issuance costs for initial public offering — ( 104,049 ) Capital contributions from stockholders — 95,000 Net cash provided by (used in) financing activities ( 44,839 ) 939,344 Net increase (decrease) in cash and restricted cash ( 4,964,535 ) 1,836,101 Cash and restricted cash, beginning of year 9,950,384 6,558,099 Cash and restricted cash, end of year 4,985,849 8,394,200 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 2,924,176 6,682,527 Restricted cash – non-current 2,061,673 1,711,673 Total cash and restricted cash shown in the Consolidated Balance Sheet 4,985,849 8,394,200 Supplemental Disclosure of Cash Flows Information: Non-cash Transactions: Right-of-use assets acquired in exchange for operating lease liabilities — 37,607,178 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. 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 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. 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 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 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 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 one year or less. 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.) A summary of the Company’s revenue disaggregated by major service lines is as follows: September 30, 2024 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 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 $ 276,463 and nil , respectively. 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. 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 September 30, 2024 and June 30, 2024. 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 Accounts receivable and other receivables, net consisted of the following: September 30, 2024 June 30, 2024 US$ US$ Accounts receivable – third parties 23,814,041 24,239,599 Accounts receivable – a related party 891,465 1,067,729 Other receivables – third parties* 255,701 65,835 Other receivables – a related party* 748,556 499,063 Gross total 25,709,763 25,872,226 Less: allowance for credit loss ( 532,278 ) ( 407,182 ) Total 25,177,485 25,465,044 * The balance is comprised primarily of accounts receivable associated with service arrangements that are not within the scope of ASC 606. The movement of allowance for credit loss for the three months ended September 30, 2024 and the fiscal year ended June 30, 2024: September 30, 2024 June 30, 2024 US$ US$ Balance as of beginning 407,182 666,531 Additional provision 126,936 94,694 Write-off ( 1,840 ) ( 354,043 ) Ending balance 532,278 407,182 12 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Property and Equipment, Net Property and equipment, net consisted of the following: September 30, 2024 June 30, 2024 US$ US$ Furniture and fixtures 10,050,978 9,845,383 Auto & Truck 2,740,094 2,080,830 Trailers & track chassis 1,489,811 1,161,811 Machinery & equipment 1,706,714 1,611,720 Leasehold improvement 139,542 74,098 Total 16,127,139 14,773,842 Less: Accumulated depreciation ( 4,341,867 ) ( 3,763,435 ) Property and equipment, net 11,785,272 11,010,407 Depreciation expenses are recorded in costs of sales and general and administrative expenses. The Company recorded depreciation expenses of US$ 578,432 and US$ 388,929 during the three months ended September 30, 2024 and 2023, respectively. Specifically, US$ 436,368 and US$ 324,849 of the depreciation expenses were recorded in costs of sales for the three months ended September 30, 2024 and 2023, respectively. US$ 142,064 and US$ 64,080 of the depreciation expenses were recorded in general and administrative expenses for the three months ended September 30, 2024 and 2023, respectively. 5. Intangible Assets, Net Intangible assets, net consisted of the following: September 30, 2024 June 30, 2024 US$ US$ Security Systems 85,758 85,758 Software 100,021 100,021 Total 185,779 185,779 Less: Accumulated depreciation ( 101,899 ) ( 93,071 ) Intangible assets, net 83,880 92,708 The Company recorded amortization of US$ 8,829 and US$ 8,829 , which were included in costs of sales, for the three months ended September 30, 2024 and 2023, respectively. 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$ 500,000 . The loan matured on February 15, 2024 and bore interest at an annual rate of 3.2 %. 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 matured on March 25, 2024 and bore interest at an annual rate of 3.2 %. 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 matured on April 30, 2024 and bore interest at an annual rate of 3.2 %. 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 matured on August 31, 2024 and bore interest at a rate of 3.2 % annually. The loan was fully paid on August 30, 2024 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 was 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. The Company expects to repay the loan upon maturity. vii) On May 22, 2024, the Company entered into a loan agreement with MYJW LLC. for a principal of US$ 400,000 . The loan matures on December 31, 2025 and bears interest at a rate of 3.2 % annually. The Company expects to repay the loan upon maturity. viii) On May 28, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ 1.5 million. The loan matures on December 31, 2025 and bears interest at a rate of 3.2 % annually. The Company expects to repay the loan upon maturity. ix) On June 6, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ 1.0 million. The loan matures on December 31, 2025 and bears interest at a rate of 3.2 % annually. The Company expects to repay the loan upon maturity. x) On June 13, 2024, the Company entered into a loan agreement with Bacalar Enterprise Freight Inc. for a principal of US$ 250,000 . The loan matures on June 13, 2025 and bears interest at a rate of 3.2 % annually. The Company expects to repay the loan upon maturity. xi) On August 29, 2024, the Company entered into a loan agreement with Pundarika LLC. for a principal of US$ 1.0 million. The loan matures on December 31, 2025 and bears interest at a rate of 3.2 % annually. The Company expects to repay the loan upon maturity. As of September 30, 2024, the Company recorded a loan receivable balance of US$ 861,554 and long-term loan receivable of US$ 3,921,243 , including accrued interest income of US$ 32,797 . As of June 30, 2024, the Company recorded a loan receivable balance of US$ 1,877,131 and long-term loan receivable of US$ 2,908,636 , including accrued interest income of US$ 35,767 . 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$ 727,498 and US$ 239,478 lease income, recorded in other income, during the three months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company does not recognize any additional operating lease liabilities. The components of lease expenses were as follows: September 30, 2024 September 30, 2023 US$ US$ Operating: Operating lease expenses 8,111,425 5,218,558 Financing: Accretion 9,008 13,387 Amortization – included in costs of sales 38,733 44,437 Total 47,741 57,824 The Company recorded operating lease expenses of US$ 8,111,425 and US$ 5,218,558 during the three months ended September 30, 2024 and 2023, respectively. Specifically, US$ 7,621,771 and US$ 5,119,738 of operating lease expenses were recorded in costs of sales for the three months ended September 30, 2024 and 2023, respectively. US$ 93,000 and US$ 98,820 of operating lease expenses were recorded in general and administrative expenses for the three months ended September 30, 2024 and 2023, respectively. US$ 396,654 and nil of operating lease expenses were recorded in other expenses for the three months ended September 30, 2024 and 2023, respectively. 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 15 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. Leases (cont.) Weighted average remaining lease term: Operating leases 5.06 years Finance leases 2.11 years Weighted average discount rate: Operating leases 10.28 % Finance leases 11.25 % 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: September 30, 2024 June 30, 2024 US$ US$ Accounts payable 5,398,988 6,003,542 Credit card Payable 116,932 1,446,549 Other liabilities 58,700 52,248 Total 5,574,620 7,502,339 Other liabilities as of September 30, 2024 and June 30, 2024 mainly consisted of tenant’s deposit. 9. Other Income (Expenses) Other income and expenses consisted of the following: September 30, 2024 September 30, 2023 US$ US$ Rental income 727,498 239,478 Rental expense ( 408,098 ) - Interest income 33,736 23,592 Credit card rebate income 317,989 276,088 Other income 534,540 3,057 Total 1,205,665 542,215 16 ARMLOGI HOLDING CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 10. Stockholders’ Equity The Company is authorized to issue 100,000,000 shares of common stock, par value US$ 0.00001 per share, 41,634,000 shares were issued and outstanding as of September 30, 2024 and June 30, 2024, respectively. On May 15, 2024, the Company closed its initial public offering (the “IPO”) of 1,600,000 shares of common stock, par value of US$ 0.00001 per share, for a price of US$ 5.00 per share for aggregate gross proceeds of $ 8 million from the offering. The total net proceeds to the Company from the IPO, less certain underwriting discounts and expenses, were approximately $ 5.2 million. In connection with the IPO, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton LLC, and granted a 45 -day option to purchase up to 240,000 additional shares of common stock from the Company at the offering price of US$ 5.00 per share. As of June 30, 2024, the underwriter had exercised the option to purchase 34,000 additional shares of common stock from the Company. The remaining options have expired as of the date of this Quarterly Report. 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 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 (the “Representative’s Warrants”). The fair value of US$ 268,430 of the Representative’s Warrants, using the Black Scholes Model with the following weighted-average assumptions: market value of underlying share of $ 4.62 , risk free rate of 4.46 %, expected term of five years ; exercise price of the warrants of $ 6.25 , volatility of 100 %; and expected future dividends of nil , was recorded in the Additional Paid-in Capital. 11. Earnings per Share Basic and diluted net earnings per share for the three months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 US$ US$ Numerator: Net income (loss) attributable to stockholders – basic and diluted ( 4,647,871 ) 2,754,776 Denominator: Weighted average number of shares of common stock outstanding – basic 41,634,000 40,000,000 Earnings per share attributable to stockholders – basic ( 0.11 ) 0.07 Weighted average number of shares of common stock outstanding – diluted 41,714,000 40,000,000 Earnings per share attributable to stockholders – diluted ( 0.11 ) 0.07 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 $ 2,061,673 (see Note 2) and the operating and finance leases (See Note 7), the Company did not have other significant commitments, long-term obligations, or guarantees as of September 30, 2024 and June 30, 2024. 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 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 three months ended September 30, 2024, the Company’s related parties, Jacky Chen, Aidy Chou and Tong Wu, together advanced $ nil (2023: US$ 491,978 ) to support the Company’s working capital needs. (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$ 94,829 (2023: US$ 116,988 ) lease expense was recorded in general and administrative expenses, US$ 2,989,368 (2023: US$ 3,180,657 ) was recorded in costs of sales and US$ 408,098 (2023: nil ) was recorded in other expenses. The aggregate lease liability associated with these operating leases as of September 30, 2024 and June 30, 2024 was US$ 31,063,361 and US$ 32,853,612 , respectively. (iii) During the three months ended September 30, 2024, the Company generated revenue of US$ 553 (2023: US$ 140,959 ) for providing logistic services to DNA. During the three months ended September 30, 2024, the Company generated revenue of US$ 884,700 (2023: US$ 125,813 ) for providing warehouse services to DNA. During the three months ended September 30, 2024, the Company paid expenses in the total amount of US$ 716,789 on behalf of DNA. The amount due from DNA is included in accounts receivable and other receivables from a related party as disclosed in Note 3. 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$ 607 for outside services, warehouse supplies, freight expenses and operating expenses provided by DNA. During the three months ended September 30, 2023, the Company incurred operating expenses that totaled US$ 15,000 for outside service provided by DNA. Due to related party balance The Company’s balances due to related parties as of September 30, 2024 and June 30, 2024 were as follows: September 30, 2024 June 30, 2024 US$ US$ Tong Wu 181,971 181,971 Jacky Chen 168,238 168,238 Total 350,209 350,209 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