Armlogi Holding Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Item 1A. Risk Factors” included in our annual report on Form 10-K (File No. 001-42099) (the “Annual Report”), which was filed with the SEC on September 26, 2024. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law. The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report 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. 23 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 ten warehouses across the country, with an aggregate gross floor area of approximately 3,925,020 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 March 31, 2025 and June 30, 2024 and 2023, we had an active customer base of 395, 105, and 83, respectively, for our warehousing and logistics services. For the nine months ended March 31, 2025 and 2024, we had total revenue of $139.5 million and $121.7 million, and net loss of $10.1 million and net income of $7.2 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant portion of our revenue from customers based in China. During the nine months ended March 31, 2025 and 2024, we generated approximately 87.0% and 94.2% of our revenue from PRC-based customers, respectively. Results of Operations The following table outlines our consolidated statements of operations for the three and nine months ended March 31, 2025 and 2024: For Three Months Ended March 31, 2025 For Three Months Ended March 31, 2024 For Nine Months Ended March 31, 2025 For Nine Months Ended March 31, 2024 US$ US$ US$ US$ Revenue 45,844,322 38,439,935 139,469,900 121,689,863 Costs of sales 45,566,202 35,115,736 142,315,578 105,461,383 Gross profit 278,120 3,324,199 (2,845,678 ) 16,228,480 Operating costs and expenses: General and administrative 4,472,813 3,269,493 10,800,794 8,097,196 Total operating costs and expenses 4,472,813 3,269,493 10,800,794 8,097,196 Income (loss) from operations (4,194,693 ) 54,706 (13,646,472 ) 8,131,284 Other (income) expenses: Other income, net (718,025 ) (914,419 ) (2,488,346 ) (1,902,813 ) Loss on disposal of assets — — 43,625 — Finance costs 278,385 11,041 367,382 37,779 Total other (income) expenses (439,640 ) (903,378 ) (2,077,339 ) (1,865,034 ) Income (loss) before provision for income taxes (3,755,053 ) 958,084 (11,569,133 ) 9,996,318 Current income tax expense — 200,612 — 2,079,038 Deferred income tax expense (recovery) — 75,252 (1,506,969 ) 735,459 Total income tax expenses — 275,864 (1,506,969 ) 2,814,497 Net income (loss) (3,755,053 ) 682,220 (10,062,164 ) 7,181,821 Total comprehensive income (loss) (3,755,053 ) 682,220 (10,062,164 ) 7,181,821 Basic & diluted net earnings per share (0.09 ) 0.02 (0.24 ) 0.18 Weighted average number of shares of common stock-basic and diluted 41,714,608 40,000,000 41,651,007 40,000,000 24 Revenue, costs of sales, and gross profit margin The following table sets forth our revenue for the three and nine months ended March 31, 2025 and 2024: For the Three Months Ended March 31, 2025 For the Three Months Ended March 31, 2024 For the Nine Months Ended March 31, 2025 For the Nine Months Ended March 31, 2024 US$ US$ US$ US$ Revenue 45,844,322 38,439,935 139,469,900 121,689,863 Costs of sales 45,566,202 35,115,736 142,315,578 105,461,383 Gross profit (loss) 278,120 3,324,199 (2,845,678 ) 16,228,480 Gross profit (loss) margin % 0.6 % 8.6 % -2.0 % 13.3 % The following table outlines the compositions of our revenue streams: For the Three Months Ended March 31, 2025 For the Three Months Ended March 31, 2024 For the Nine Months Ended March 31, 2025 For the Nine Months Ended March 31, 2024 US$ US$ US$ US$ Transportation services 28,484,930 25,024,889 93,102,756 84,664,603 Warehousing services 17,345,315 13,372,014 46,323,371 36,606,859 Other services 14,077 43,032 43,773 418,401 Total 45,844,322 38,439,935 139,469,900 121,689,863 Three Months Ended March 31, 2025 and 2024 Our revenue increased by $7.4 million, or 19.3%, to $45.8 million during the three months ended March 31, 2025, compared to $38.4 million for the same period in 2024. The increase was due to the following factors: 1) Revenue from our transportation services increased by $3.5 million, or 13.8%, due to the addition of new warehouse locations, which has enabled an increase in shipment volume compared to the same period in 2024. 2) Revenue from our warehousing services increased by $4.0 million, or 29.7%, driven by the addition of new warehouses acquired in the last fiscal quarter. 3) Revenue from other services decreased by $0.03 million, or 67.3%. Other revenue mainly consisted of revenue from our customs brokerage services. Our costs of sales mainly represented the costs incurred for the use of third-party direct freight service carriers, such as FedEx and UPS, warehouse rental expenses, costs of labor, and trucking expenses. Costs of sales increased by $10.5 million, or 30.0%, during the three months ended March 31, 2025, compared with the same period in 2024. The increase was driven by two main factors. First , there was a rise in freight expenses due to higher UPS shipping charges. Second , lease expenses, employee salary and benefits, and temporary labor costs increased as we expanded our warehouse and operations team to support growth. 25 Nine Months Ended March 31, 2025 and 2024 Our revenue increased by $17.8 million, or 14.6%, to $139.5 million during the nine months ended March 31, 2025, compared to $121.7 million for the same period in 2024. The increase was due to the following factors: 1) Revenue from our transportation services increased by $8.4 million, or 10%, due to due to the addition of new warehouse locations, which has enabled an increase in shipment volume compared to the same period in the 2024. 2) Revenue from our warehousing services increased by $9.7 million, or 26.5%, driven by the addition of new warehouses acquired in the last fiscal quarter. 3) Revenue from other services decreased by $0.4 million, or 89.5%. 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 $36.9 million, or 35.0%, during the nine months ended March 31, 2025, compared with the same period in 2024. The increase was driven by two main factors. First , there was a rise in freight expenses due to higher UPS shipping charges. Second , lease expenses, employee salary and benefits, and temporary labor costs increased as we expanded our warehouse and operations team to support growth. The following table sets forth a breakdown of our costs of sales for the three months and nine months ended March 31, 2025 and 2024: For the Three Months Ended March 31, 2025 For the Three Months Ended March 31, 2024 For the Nine Months Ended March 31, 2025 For the Nine Months Ended March 31, 2024 US$ US$ US$ US$ Amortization 8,829 8,829 26,706 26,488 Depreciation 643,624 436,084 1,825,847 1,222,550 Lease expenses 10,408,649 7,633,143 28,458,977 20,837,098 Freight expenses 22,358,929 19,872,642 76,780,873 62,766,326 Port handling and customs fees 20,475 51,347 362,363 370,438 Salary and benefits 2,851,067 2,095,115 7,925,540 5,556,288 Temporary labor expenses 6,002,564 3,118,921 17,953,689 9,399,535 Warehouse expenses 2,516,595 1,767,328 6,815,924 4,235,306 Utilities 249,637 102,494 724,735 362,468 Other expenses 505,833 29,833 1,440,924 684,886 Total 45,566,202 35,115,736 142,315,578 105,461,383 26 Three Months Ended March 31, 2025 and 2024 Our freight expenses, lease expenses (primarily warehouse operating lease expenses), temporary labor, salary benefits, and warehouse expenses increased significantly by $2.5 million, $2.8 million, $2.9 million, $0.8 million, and $0.7 million, respectively, during the three months ended March 31, 2025, compared to the same period in 2024. The increases in lease expenses were due to the additional operating leases acquired in the last and current fiscal quarter. The increases in freight expenses were due to the increase in UPS expenses. The increases in salary and benefits were due to the expansion of the warehouse operations. Our overall gross profit margin decreased from 8.6% for the three months ended March 31, 2024 to 0.6% for the same period in 2025, primarily due to the increase in lease expenses, temporary labor expense for new warehouses, and UPS expenses. Nine Months Ended March 31, 2025 and 2024 Our freight expenses, lease expenses (primarily warehouse operating lease expenses), temporary labor expenses, salary and benefits, and warehouse expenses increased significantly by $14.0 million, $7.6 million, $8.6 million, $2.4 million and $2.6 million, respectively, during the nine months ended March 31, 2025 compared to the same period in 2024. The increases in lease expenses were due to the additional operating leases acquired in the last and current fiscal quarter. The increases in freight expenses were due to the increase in UPS expense. The increases in temporary labor expenses, warehouse expenses, and salary and benefits were due to the expansion of the warehouse operations. Our overall gross profit (loss) margin decreased from 13.3% for the for the nine months ended March 31, 2025 to (2.0%) for the same period in 2025, primarily due to the increase in lease expenses, temporary labor expense for new warehouses, and UPS expenses. Operating expenses Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three and nine months ended March 31, 2025 and 2024: For the Three Months Ended March 31, 2025 For the Three Months Ended March 31, 2024 For the Nine Months Ended March 31, 2025 For the Nine Months Ended March 31, 2024 US$ US$ US$ US$ Bank charges 37,230 2,347 90,347 51,890 Amortization 49,071 89,083 157,318 221,889 Office expenses 547,861 470,490 2,201,554 1,846,669 Professional fees 980,224 103,849 2,214,192 217,412 Rental expenses 1,267,649 1,056,224 1,486,673 1,258,030 Repairs and maintenance 215,279 383,941 637,028 816,717 Salary and benefits 1,008,032 950,441 3,010,275 3,190,431 Sundries 198,708 121,136 303,034 157,596 Tax and licenses 40,198 21,216 180,058 123,084 Vehicle expenses 32,010 47,209 95,255 145,697 Other expenses 96,551 21,821 196,697 90,608 Credit loss expenses (recovery) - 1,736 228,363 (22,827 ) Total 4,472,813 3,269,493 10,800,794 8,097,196 27 Three Months Ended March 31, 2025 and 2024 Our general and administrative expenses increased by $1.2 million, or 36.8%, from $3.3 million for the three months ended March 31, 2025 to $4.5 million for the same period in 2025. The increase was mainly due to the following factor: 1) Professional fees increased by $0.9 million, or 843.9%, mainly due to fees for the consulting services of two investment financial advisors. Nine Months Ended March 31, 2025 and 2024 Our general and administrative expenses increased by $2.7 million, or 33%, from $8.1 million for the nine months ended March 31, 2025 to $10.8 million for the same period in 2025. The increase was mainly due to the following factors: 1) Office expenses increased by $0.4 million, or 19%, mainly due to an increase in general insurance associated with the rapid expansion of our business. 2) Professional fees increased by $2.0 million, or 918%, mainly due to the fees for the consulting services of two investment financial advisors and audit fees. Income Tax Our income tax expense decreased by $0.3 million for the three months ended March 31, 2025, compared to the same period in 2024, mainly due to the decrease in profit before tax by $4.4 million during the three months ended March 31, 2025. Our income tax expense decreased by $4.3 million for the nine months ended March 31, 2025, compared to the same period in 2024, mainly due to the decrease in profit before tax by $21.3 million during the nine months ended March 31, 2025. Net income (loss) As a result of the foregoing, our net (loss) income for the three months ended March 31, 2025 was $(3.8) million, compared with the net income of $0.7 million for the same period in 2024, representing a decrease by $4.4 million. Our net (loss) income for the nine months ended March 31, 2025 was $(10.1) million, compared with the net income of $7.2 million for the same period in 2024, representing a decrease by $17.3 million. 28 Liquidity and Capital Resources In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of the date of this Quarterly Report, we have financed our operations primarily through cash generated by operating activities and proceeds from the Convertible Note. As of March 31, 2025 and June 30, 2024, we had cash and restricted cash of $9.4 million and $10.0 million, respectively, which primarily consisted of cash deposited in banks. Our working capital requirements mainly consist of costs of sales and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our financing activities. On November 25, 2024, we entered into the SEPA with the Investor, pursuant to which we have the right to sell to the Investor up to $50.0 million of our common stock. We believe that our current cash and cash generated from our financing activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments. Cash Flows for the Nine Months Ended March 31, 2025 and 2024 For the Nine Months Ended March 31, 2025 For the Nine Months Ended March 31, 2024 US$ US$ Net cash (used in) provided by operating activities (5,641,142 ) 3,954,416 Net cash used in investing activities (1,531,752 ) (4,680,643 ) Net cash provided by financing activities 6,633,329 214,804 Net increase (decrease) in cash and restricted cash (539,565 ) (511,423 ) Cash and restricted cash at beginning of nine months period 9,950,384 6,558,099 Cash and restricted cash at end of nine months period 9,410,819 6,046,676 We had a balance of cash and restricted cash of $9.4 million as of March 31, 2025, compared with a balance of $10.0 million as of June 30, 2024. During the nine months ended March 31, 2025, changes in our cashflow were mainly due to the following activities: Operating Activities Net cash used in operating activities was $5.6 million for the nine months ended March 31, 2025, compared to net cash provided by operating activities of $4.0 million for the same period in 2024, representing a $9.6 million decrease in the net cash inflow provided by operating activities. The decrease was primarily due to the following: (i) We had net loss of $10.1 million for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, we had net income of $7.2 million, which led to a $17.3 million decrease in net cash inflow from operating activities. (ii) Changes in accounts receivable and other receivables were $1.6 million cash outflow for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, changes in accounts receivable and other receivables were $7.7 million cash outflow, which led to a $6.1 million decrease in net cash outflow from operating activities. 29 (iii) Changes in accounts payable and accrued liabilities used $0.6 million net cash outflow for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, changes in accounts payable and accrued liabilities provided net cash outflow of $2.2 million, which led to a $1.6 million decrease in net cash outflow from operating activities. (iv) Changes in tax payable provided used $0.1 million net cash outflow for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, changes in tax payable provided net cash inflow of $1.9 million, which led to a $2.0 million decrease in net cash inflow from operating activities. (v) Changes in non-cash items provided $6.7 million net cash inflow for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, changes in non-cash items provided net cash inflow of $5.6 million, which led to a $1.2 million increase in net cash inflow from operating activities. Investing Activities Net cash used in investing activities was $1.5 million for the nine months ended March 31, 2025, primarily attributable to $2.6 million cash used for the purchase of property and equipment, $1.0 million cash used for loans extended to others, and $2.0 million proceeds received from loan repayments. For the nine months ended March 31, 2024, net cash used in investing activities was $4.7 million, primarily attributable to $3.1 million cash used for the purchase of property and equipment and $1.6 million used for loans extended to others. Financing Activities For the nine months ended March 31, 2024, we had net cash provided by financing activities of $0.2 million, which was primarily attributable to the net effects of: (i) $0.5 million collected from related parties for the repayment of loans we previously advanced to them; (ii) $0.6 million used for expenses relating to the initial public offering; (iii) $0.1 million used to repay finance lease liabilities; and (iv) $0.5 million in capital contributions from stockholders. For the nine months ended March 31, 2025, we had net cash provided from financing activities of $6.6 million, which was primarily attributable to the net effects of: (i) $0.4 million repayment to related parties; (ii) $8.1 million of net proceeds from the Pre-Paid Advance under the SEPA, (iii) $0.9 million repayment of SEPA, (iv) $0.1 million repayment of finance lease liabilities, and (v) $0.2 million repayment of commitment fee payable. Commitments and Contractual Obligations As of March 31, 2025, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through September 2025 to November 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised. 30 As of March 31, 2025, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows: Operating Finance US$ US$ 2025 7,456,884 43,019 2026 34,828,940 129,332 2027 36,840,342 61,194 2028 38,139,011 5,866 2029 and beyond 62,143,619 — Total minimum lease payment 179,408,796 239,411 Less: imputed interest (46,125,090 ) (23,038 ) Total lease liabilities 133,283,706 216,373 Less: current potion (28,297,648 ) (139,331 ) Non-current portion 104,986,058 77,042 Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of March 31, 2025. Off-balance Sheet Commitments and Arrangements Other than the standby letters of credit with Eastwest Bank in the aggregate amount of $3,779,572, 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 March 31, 2025, we still have unused credit of $3,779,572 with Eastwest Bank. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of this Quarterly Report, and revenue and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Despite that management determines that there are no critical accounting estimates, the one that requires relatively significant estimates relates to useful lives of property and equipment. 31 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 March 31, 2025 and June 30, 2024, the historical cost of property and equipment was $17,259,298 and $14,773,842, respectively. We recorded depreciation expenses of $1,874,681 and $1,313,684 during nine months ended March 31, 2025 and 2024, respectively. Specifically, $1,717,363 and $1,091,795 of the depreciation expenses were recorded in costs of sales for the nine months ended March 31, 2025 and 2024, respectively, $157,318 and $221,889 of the depreciation expenses were recorded in general and administrative expenses for the nine months ended March 31, 2025 and 2024, respectively. Our significant accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies” in the notes to our unaudited consolidated financial statements. We believe that there were no critical accounting policies that affected the preparation of such financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk . As a smaller reporting company, we are not required to provide this information.