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 under “Item 1A. Risk Factors” included in our annual report on Form 10-K (File No. 001-42099) for the fiscal year ended June 30, 2025, filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 25, 2025 (the “Annual Report”). 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. 24 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 3,905,020 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 September 30, 2025 and June 30, 2025, we had an active customer base of 607, and 505, respectively, for our warehousing and logistics services. For the three months ended September 30, 2025 and 2024, we had total revenue of $49.5 million and $42.5 million, and net loss of $6.5 million and $4.6 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant portion of our revenue from customers based in China. During the three months ended September 30, 2025 and 2024, we generated approximately 83% and 85% of our revenue from PRC-based customers, respectively. Results of Operations The following table outlines our consolidated statements of operations for the three months ended September 30, 2025 and 2024: For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Revenue 49,473,179 42,481,896 Costs of services 51,957,262 46,088,686 Gross loss (2,484,083 ) (3,606,790 ) Operating costs and expenses: General and administrative 4,217,306 3,668,825 Total operating costs and expenses 4,217,306 3,668,825 Loss from operations (6,701,389 ) (7,275,615 ) Other (income) expenses: Other income, net (738,592 ) (1,205,665 ) Finance costs 548,345 9,008 Total other (income) expenses (190,247 ) (1,196,657 ) Loss before provision for income taxes (6,511,142 ) (6,078,958 ) Current income tax recovery (3,089 ) (57,589 ) Deferred income tax recovery - (1,373,498 ) Total income tax recovery (3,089 ) (1,431,087 ) Net loss (6,508,053 ) (4,647,871 ) Total comprehensive loss (6,508,053 ) (4,647,871 ) Basic & diluted net loss per share (0.15 ) (0.11 ) Weighted average number of shares of common stock-basic and diluted 42,462,207 41,634,000 25 Revenue, costs of services, and gross profit margin The following table sets forth our revenue for the three months ended September 30, 2025 and 2024: For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Revenue 49,473,179 42,481,896 Costs of services 51,957,262 46,088,686 Gross loss (2,484,083 ) (3,606,790 Gross loss margin % (5.0 )% (8.5 )% The following table outlines the compositions of our revenue streams: For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Transportation services 32,075,786 28,490,756 Warehousing services 17,380,018 13,973,694 Other services 17,375 17,446 Total 49,473,179 42,481,896 Our revenue increased by $7.0 million, or 16.5%, to $49.5 million during the three months ended September 30, 2025, compared to $42.5 million for the same period in 2024. The increase was due to the following factors: 1) Revenue from our transportation services increased by $3.6 million, or 12.6%, for the three months ended September 30, 2025, compared with the same period in 2024, due to the addition of new warehouse locations, which resulted in an increase in shipment volume for the three months ended September 30, 2025. 2) Revenue from our warehousing services increased by $3.4 million, or 24.4%, for the three months ended September 30, 2025, compared with the same period in 2024. As an integrated part of our one-stop warehousing and logistics services, revenue increase from our warehousing services was driven by the growth in our transportation services and the addition of new warehouses acquired in 2025. The following table sets forth a breakdown of our costs of services for the three months ended September 30, 2025 and 2024: For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Amortization 11,595 8,829 Depreciation 729,441 475,101 Lease expenses 10,530,545 9,106,604 Freight expenses 27,680,285 25,706,479 Port handling and customs fees 78,880 152,745 Salary and benefits 2,522,095 2,564,863 Temporary labor expenses 7,081,538 5,720,926 Warehouse expenses 2,848,860 2,059,111 Utilities 315,141 229,220 Other expenses 158,882 64,808 Total 51,957,262 46,088,686 26 Our costs of services 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 services increased by $5.9 million, or 12.7%, during the three months ended September 30, 2025, compared with the same period in 2024. The increase was primarily driven by the following two factors: i. Between September 30, 2024 and September 30, 2025, the Company expanded its operations through opening two new warehouses, including a new warehouse in the State of Illinois. These new facilities focused less on the traditional drop-shipping model, instead operating as hubs for lower profit margin services such as transfers or returns. These dynamics resulted in a notable increase in warehouse labor, rental, and other related operating expenses. ii. Freight costs increased in line with the increase in revenue from transportation services. In addition, the Company’s gross profit margin on FedEx shipments increased to 6% during the three months ended September 30, 2025, compared to 2% during the same period in 2024. This increase is largely driven by the transition of part of the freight volume to third-party vendors shipping through FedEx that provided more competitive pricing for different shipment size and weight brackets, lowering costs, increasing shipping options, and stabilizing the cost structure. Our overall gross loss margin improved from (8.5%) for the three months ended September 30, 2024 to (5.0%) for the same period in 2025, primarily due to expanded shipping options and lowered shipping costs. Working with several different third-party FedEx vendors has allowed us to provide competitive shipping prices across a wider range of shipment sizes and weights compared to working only with FedEx directly. Although revenue increased by $7.0 million during this period, the Company was unable to generate profit from warehouse-related expenditures. Operating expenses Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three months ended September 30, 2025 and 2024: For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Bank charges 42,400 40,390 Amortization 49,071 142,064 Office expenses 1,029,752 1,164,214 Professional fees 407,658 387,263 Rental expenses 641,895 113,354 Repairs and maintenance 729,157 339,068 Salary and benefits 839,731 1,181,280 Sundries 48,011 47,745 Tax and licenses 126,521 67,455 Vehicle expenses 176,454 33,638 Other expenses 126,656 25,418 Credit loss expenses - 126,936 Total 4,217,306 3,668,825 27 Our general and administrative expenses increased by $0.5 million, from $3.7 million for the three months ended September 30, 2024 to $4.2 million for the same period in 2025, representing an increase of 14.9%. The increase was due to the following factors: 1) Rental expenses increased by $0.5 million, or 462.7%. The increase is mainly due to the reclassification of abnormal capacity portion of new warehouses (EWS1 and ONT1) from cost to general and administrative expenses. 2) Repairs and maintenance expenses increased by $0.4 million, or 107.9%, as a result of the growth in our transportation services. 3) Salary and benefits decreased by $0.3 million, or 28.9%, mainly due to the Company being overcharged for workers’ comp insurance in the three months ended September 30, 2024, which was refunded in December 2024. Income Tax Our income tax recovery decreased by $1.4 million for the three months ended September 30, 2025 compared to the same period in 2024, mainly due to the non-recurring reversal of previously recognized deferred tax liabilities during the three months ended September 30, 2024. Net loss As a result of the foregoing, our net loss for the three months ended September 30, 2025 was $6.5 million, compared with $4.6 million for the same period in 2024, representing an increase in net loss by $1.9 million. Liquidity and Capital Resources Going Concern These financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company incurred a net loss of $6.5 million during the three months ended September 30, 2025 and as of that date, had a net current liability of $11.1 million. Without additional financing, the Company may not be able to fund its ongoing operations. The Company is expanding its service offerings to new customers, optimizing warehouse utilization, and developing higher-margin logistics solutions to improve profitability and cash generation. Management is executing a cost optimization plan, including delaying certain non-essential capital expenditures, reducing third-party service costs, and improving operational efficiency across warehouse operations to preserve cash flow. In addition, the Company is in discussions with several financial institutions and investors to secure additional credit facilities and other forms of financing to strengthen working capital. There is no assurance that the Company will be able to obtain financings or obtain them on favorable terms. These uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. The Company will need to raise sufficient working capital to maintain operations. These financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of the date of this Quarterly Report, we have financed our operations primarily through cash generated by operating activities and capital contributions from stockholders. As of September 30, 2025 and June 30, 2025, we had cash and cash equivalents and restricted cash of $10.8 million and $13.6 million, respectively, which primarily consisted of cash deposited in banks. Our working capital requirements mainly consist of costs of services and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our operating activities and financing activities. We believe that our current cash and cash generated from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments. Cash Flows for the three months Ended September 30, 2025 and 2024 For the Three Months Ended September 30, 2025 For the Three Months Ended September 30, 2024 US$ US$ Net cash used in operating activities (1,929,402 ) (3,612,112 ) Net cash provided by (used in) investing activities 1,317,232 (1,316,592 ) Net cash used in financing activities (2,117,747 ) (35,831 ) Net decrease in cash and cash equivalents and restricted cash (2,729,917 ) (4,964,535 ) Cash and cash equivalents and restricted cash at beginning of the period 13,577,827 9,950,384 Cash and cash equivalents and restricted cash at end of the period 10,847,910 4,985,849 28 We had a balance of cash and cash equivalents and restricted cash of $10.8 million as of September 30, 2025, compared with a balance of $13.6 million as of June 30, 2025. During the three months ended September 30, 2025, changes in our cashflow were mainly due to the following activities: Operating Activities Net cash used in operating activities was $1.9 million for the three months ended September 30, 2025, compared to net cash used in operating activities of $3.6 million for the same period in 2024, representing a $1.7 million increase in the net cash inflow from operating activities. The increase was primarily due to the following: (i) We had net loss of $6.5 million for the three months ended September 30, 2025. For the three months ended September 30, 2024, we had net loss of $4.6 million, which led to a $1.9 million decrease in net cash inflow from operating activities. (ii) Changes in accounts receivable and other receivables were $3.8 million cash inflow for the three months ended September 30, 2025. For the three months ended September 30, 2024, changes in accounts receivable and other receivables were $0.2 million cash inflow, which led to a $3.6 million increase in net cash inflow from operating activities. (iii) Changes in accounts payable and accrued liabilities used $1.6 million net cash outflow for the three months ended September 30, 2025. For the three months ended September 30, 2024, changes in accounts payable and accrued liabilities provided net cash outflow of $1.9 million, which led to a $0.4 million increase in net cash inflow from operating activities. (iv) Changes in non-cash items provided $2.5 million net cash inflow for the three months ended September 30, 2025. For the three months ended September 30, 2024, changes in non-cash items provided net cash inflow of $2.0 million, which led to a $0.5 million increase in net cash inflow from operating activities. Investing Activities Net cash provided by investing activities was $1.3 million for the three months ended September 30, 2025, primarily attributable to $0.06 million cash used for the purchase of property and equipment, $2.4 million cash used for loans extended to others, and $3.7 million proceeds received from loan repayments. For the three months ended September 30, 2024, net cash used in investing activities was $1.3 million, primarily attributable to $1.4 million cash used for the purchase of property and equipment, $1.0 million cash used for loans extended to others, and $1.0 million proceeds received from loan repayments. Financing Activities For the three months ended September 30, 2025, we had net cash used in financing activities of $2.1 million, which was primarily attributable to the $0.1 million used to repay finance lease liabilities and $2.02 million used to repay convertible notes. For the three months ended September 30, 2024, we had net cash used in financing activities of $0.04 million, which was primarily attributable to the net effects of $0.04 million used to repay finance lease liabilities. Commitments and Contractual Obligations As of September 30, 2025, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through October 2025 to November 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised. As of September 30, 2025, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows: Operating Finance US$ US$ 2026 23,158,753 371,457 2027 36,578,138 382,257 2028 37,872,441 147,196 2029 25,804,167 77,250 2030 and beyond 39,734,608 - Total minimum lease payment 163,148,107 978,160 Less: imputed interest (39,545,031 ) (109,691 ) Total lease liabilities 123,603,076 868,469 Less: current potion (30,348,333 ) (447,338 ) Non-current portion 93,254,743 421,131 29 Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of September 30, 2025. Off-balance Sheet Commitments and Arrangements Other than two standby letters of credit with Eastwest Bank in the aggregate amount of $4,391,165, we did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements as defined under the rules and regulations of the SEC, or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2025, we still have an unused line of credit of $4,391,165 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, allowance for credit losses for accounts receivable and other receivables, and loan receivables. 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.