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 3,946,620 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 December 31, 2025 and June 30, 2025, we had an active customer base of 588, and 505, respectively, for our warehousing and logistics services. For the six months ended December 31, 2025 and 2024, we had total revenue of $101.0 million and $93.6 million, and net loss of $10.4 million and $6.3 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant portion of our revenue from customers based in China. During the six months ended December 31, 2025 and 2024, we generated approximately 83% and 86% of our revenue from PRC-based customers, respectively. Results of Operations The following table outlines our consolidated statements of operations for the three and six months ended December 31, 2025 and 2024: For Three Months Ended December 31, 2025 For Three Months Ended December 31, 2024 For Six Months Ended December 31, 2025 For Six Months Ended December 31, 2024 US$ US$ US$ US$ Revenue 51,542,848 51,143,682 101,016,027 93,625,578 Costs of services 52,313,114 50,660,690 104,270,376 96,749,376 Gross profit (770,266 ) 482,992 (3,254,349 ) (3,123,798 ) Operating costs and expenses: General and administrative 3,328,550 2,659,156 7,545,856 6,327,981 Total operating costs and expenses 3,328,550 2,659,156 7,545,856 6,327,981 Loss from operations (4,098,816 ) (2,176,164 ) (10,800,205 ) (9,451,779 ) Other (income) expenses: Other income, net (302,280 ) (564,656 ) (1,040,872 ) (1,770,321 ) Loss on disposal of assets — 43,625 — 43,625 Finance costs 44,121 79,989 592,466 88,997 Total other (income) expenses (258,159 ) (441,042 ) (448,406 ) (1,637,699 ) Loss before provision for income taxes (3,840,657 ) (1,735,122 ) (10,351,799 ) (7,814,080 ) Current income tax expense 19,525 — 16,436 — Deferred income tax expense (recovery) — (75,882 ) — (1,506,969 ) Total income tax expenses (recovery) 19,525 (75,882 ) 16,436 (1,506,969 ) Net loss (3,860,182 ) (1,659,240 ) (10,368,235 ) (6,307,111 ) Total comprehensive loss (3,860,182 ) (1,659,240 ) (10,368,235 ) (6,307,111 ) Basic & diluted net earnings per share (0.08 ) (0.04 ) (0.24 ) (0.15 ) Weighted average number of shares of common stock-basic and diluted 45,443,079 41,642,442 43,952,643 41,638,221 25 Revenue, costs of services, and gross profit margin The following table sets forth our revenue for the three and six months ended December 31, 2025 and 2024: For the Three Months Ended December 31, 2025 For the Three Months Ended December 31, 2024 For the Six Months Ended December 31, 2025 For the Six Months Ended December 31, 2024 US$ US$ US$ US$ Revenue 51,542,848 51,143,682 101,016,027 93,625,578 Costs of services 52,313,114 50,660,690 104,270,376 96,749,376 Gross profit (loss) (770,266 ) 482,992 (3,254,349 ) (3,123,798 ) Gross profit (loss) margin % -1.5 % 0.9 % -3.2 % -3.3 % The following table outlines the compositions of our revenue streams: For the Three Months Ended December 31, 2025 For the Three Months Ended December 31, 2024 For the Six Months Ended December 31, 2025 For the Six Months Ended December 31, 2024 US$ US$ US$ US$ Transportation services 31,981,419 36,127,069 64,056,315 64,617,825 Warehousing services 19,545,895 15,010,370 36,926,802 28,984,064 Other services 15,534 6,243 32,910 23,689 Total 51,542,848 51,143,682 101,016,027 93,625,578 Three Months Ended December 31, 2025 and 2024 Our revenue slightly increased by $0.4 million, or 0.8%, to $51.5 million during the three months ended December 31, 2025, compared to $51.1 million for the same period in 2024. The increase was due to the following factors: 1) Revenue from our transportation services decreased by $4.1 million, or 11.5%, for the three months ended December 31, 2025, compared with the same period in 2024, due to a decreased proportion of traditional customer order volume and an increased proportion of Temu and TikTok order volume for the three months ended December 31, 2025. Aggressive market pushes by e-commerce platforms have incentivized sellers to ship orders through the platforms rather than directly to consumers. For example, more of our traditional customers are transferring orders in bulk to Amazon warehouses to sell through their Fullfillment by Amazon program instead of shipping individual items to buyers. Additionally, because Temu and TikTok orders typically only generate warehouse service revenue due to transportation services already being provided by the e-commerce platforms, the decrease in the volume of traditional orders and subsequent decrease in transportation services revenue is not offset by the general increase in order volume. While overall order volume has increased, the number of orders using our transportation services has decreased, resulting in a decrease in transportation service volume and revenue. 2) Revenue from our warehousing services increased by $4.5 million, or 30.2%, for the three months ended December 31, 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 optimizations of warehouse space usage and streamlining of workflow, and the Temu and TikTok customer bases have increased and contribute to a more significant portion of warehouse service volume. 26 Six Months Ended December 31, 2025 and 2024 Our revenue increased by $7.4 million, or 7.9%, to $101.0 million during the six months ended December 31, 2025, compared to $93.6 million for the same period in 2024. The increase was due to the following factors: 1) Revenue from our transportation services slightly decreased by $0.6 million, or 0.9%, for the six months ended December 31, 2025, compared with the same period in 2024, due to a decreased proportion of traditional customer order volume and an increased proportion of Temu and TikTok order volume for the six months ended December 31, 2025. Aggressive market pushes by e-commerce platforms have incentivized sellers to ship orders through the platforms rather than directly to consumers. For example, more of our traditional customers are transferring orders in bulk to Amazon warehouses to sell through their Fullfillment by Amazon program instead of shipping individual items to buyers. Additionally, because Temu and TikTok orders typically only generate warehouse service revenue due to transportation services already being provided by the e-commerce platforms, the decrease in the volume of traditional orders and subsequent decrease in transportation services revenue is not offset by the general increase in order volume. While overall order volume has increased, the number of orders using our transportation services has decreased, resulting in a decrease in transportation service volume and revenue.. 2) Revenue from our warehousing services increased by $8.0 million, or 27.4%, for the six months ended December 31, 2025, compared with the same period in 2024. As an integrated part of our one-stop warehousing and logistics services, revenue increase from our warehousing services was driven by optimizations of warehouse space usage and streamlining of workflow. The following table sets forth a breakdown of our costs of services for the three and six months ended December 31, 2025 and 2024: For the Three Months Ended December 31, 2025 For the Three Months Ended December 31, 2024 For the Six Months Ended December 31, 2025 For the Six Months Ended December 31, 2024 US$ US$ US$ US$ Amortization 11,662 8,830 23,257 17,659 Depreciation 852,347 707,122 1,581,788 1,182,223 Lease expenses 10,985,574 8,943,724 21,516,119 18,050,328 Freight expenses 27,759,467 28,715,466 55,439,752 54,421,945 Port handling and customs fees 39,206 189,143 118,086 341,888 Salary and benefits 2,309,593 2,509,610 4,831,688 5,074,473 Temporary labor expenses 7,747,988 6,230,201 14,829,526 11,951,127 Warehouse expenses 2,048,143 2,240,217 4,897,003 4,299,328 Utilities 248,095 245,877 563,236 475,097 Other expenses 311,039 870,500 469,921 935,308 Total 52,313,114 50,660,690 104,270,376 96,749,376 Three Months Ended December 31, 2025 and 2024 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 $1.7 million, or 3.3%, during the three months ended December 31, 2025, compared with the same period in 2024. The increase was primarily driven by the following two factors: i. Between December 31, 2024 and December 31, 2025, the Company expanded its operations through opening three 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 temporary labor expenses by $1.5 million, rental expenses by $2.0 million, and other related operating expenses. ii. Freight costs decreased by $1.0 million due to a decreased proportion of traditional customer order volume and an increased proportion of Temu and TikTok order volume. Aggressive market pushes by e-commerce platforms incentivizing sellers to ship orders through the platforms instead of directly to customers. While overall order volume has increased, freight costs have decreased due to fewer orders utilize our transportation and freight services. Traditional customers are much more likely to rely on our services for deliveries and transfers. 27 Our overall gross profit/(loss) margin decreased from 0.9% for the three months ended December 31, 2024 to -1.5% for the same period in 2025, primarily due to a decrease in the proportion of shipments using our shipping services, which typically has higher profit margins. Many of the new customers have come through the Temu and TikTok e-commerce platforms, which provide their own shipping labels. This has muted the holiday season increase in revenue from transportation services we typically see and we have had to cut profit margins of the shipping services to keep competitive prices. Additionally, the new warehouses added between December 31, 2024 and December 31, 2025 have been used for lower profit margin services, such as handling returned orders. Although revenue increased by $0.4 million during this period, the Company was unable to generate profit from warehouse-related expenditures. Six Months Ended December 31, 2025 and 2024 Costs of services increased by $7.5 million, or 7.8%, during the six months ended December 31, 2025, compared with the same period in 2024. The increase was primarily driven by the following two factors: i. Between December 31, 2024 and December 31, 2025, the Company expanded its operations through opening three 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 temporary labor expenses by $2.9 million, rental expenses by $3.5 million, and other related operating expenses. ii. Freight costs increased by $1.0 million due to additional order volume from the three new warehouses added between December 31, 2024 and December 31, 2025. While the new Illinois and California warehouses did not focus mainly on drop-shipped orders, they still handled a significant amount. The volume of orders at these two warehouses further increased during the three months ended June 30, 2025 and the three months ended December 31, 2025, respectively, when several larger customers started utilizing the new warehouses for drop-shipped orders. Our overall gross loss margin slightly improved from 3.3% for the six months ended December 31, 2024 to 3.2% for the same period in 2025, primarily due to the Company’s increased focus on overall warehouse efficiency. We have been expanding our selection of temporary labor service providers with the goal of decreasing costs without sacrificing warehouse output. Operating expenses Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three and six months ended December 31, 2025 and 2024: For the Three Months Ended December 31, 2025 For the Three Months Ended December 31, 2024 For the Six Months Ended December 31, 2025 For the Six Months Ended December 31, 2024 US$ US$ US$ US$ Bank charges 17,915 12,727 60,315 53,117 Amortization 49,072 55,808 98,143 108,247 Office expenses 676,220 351,217 1,808,457 1,605,056 Professional fees 287,056 846,705 694,714 1,233,968 Rental expenses 259,235 105,670 901,130 219,024 Repairs and maintenance 582,241 82,682 1,311,398 421,750 Salary and benefits 1,237,790 820,963 2,077,521 2,002,243 Sundries 66,063 111,252 114,074 158,997 Tax and licenses 62,795 72,405 189,316 139,860 Vehicle expenses 34,283 29,607 210,737 63,245 Other expenses 55,880 68,693 80,051 94,111 Credit loss expenses (recovery) - 101,427 - 228,363 Total 3,328,550 2,659,156 7,545,856 6,327,981 28 Three Months Ended December 31, 2025 and 2024 Our general and administrative expenses increased by $0.7 million, from $2.7 million for the three months ended December 31, 2024 to $3.3 million for the same period in 2025, representing an increase of 25.2%. The increase was due to the following factors: 1) Office expenses increased by $0.3 million, or 92.5% as a result of the growth in our dispatching services team. The increase in personnel necessitated an increased expenditure in office supplies and necessities. 2) Rental expenses increased by $0.2 million, or 145.3%. The increase is mainly due to new warehouse locations added between December 2024 and December 2025. 3) Repairs and maintenance expenses increased by $0.5 million, or 604.2%, mainly due to additional warehouse locations and growth in our truck fleet. 4) Salary and benefits increased by $0.4 million, or 50.8%, due to personnel increases from the additional warehouse locations and transportation service growth. 5) Professional fees decreased by $0.6 million, or 66.1%. The decrease is mainly due to fewer external consultants used in the three months ended December 31, 2025. Six Months Ended December 31, 2025 and 2024 Our general and administrative expenses increased by $1.2 million, from $6.3 million for the six months ended December 31, 2024 to $7.5 million for the same period in 2025, representing an increase of 19.2%. The increase was due to the following factors: 1) Rental expenses increased by $0.7 million, or 311.4%. The increase is mainly due to new warehouse locations added between December 2024 and December 2025. 2) Repairs and maintenance expenses increased by $0.9 million, or 210.9%, mainly due to additional warehouse locations and growth in our truck fleet. 3) Professional fees decreased by $0.5 million, or 43.7%. The decrease is mainly due to fewer external consultants used in the six months ended December 31, 2025. Income Tax Our income tax recovery decreased by $0.1 million for the three months ended December 31, 2025 compared to the same period in 2024, mainly due to the non-recurring reversal of recognized deferred tax liabilities during the three months ended December 31, 2024. Our income tax recovery decreased by $1.5 million for the six months ended December 31, 2025 compared to the same period in 2024, mainly due to the non-recurring reversal of previously recognized deferred tax liabilities during the six months ended December 31, 2024. 29 Net loss As a result of the foregoing, our net loss for the three months ended December 31, 2025 was $3.9 million, compared with $1.7 million for the same period in 2024, representing a decrease by $2.2 million. Our net loss for the six months ended December 31, 2025 was $10.4 million, compared with $6.3 million for the same period in 2024, representing a decrease by $4.1 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 $10.4 million during the six months ended December 31, 2025 and as of that date, had a net current liability of $15.8 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 December 31, 2025 and June 30, 2025, we had cash and cash equivalents and restricted cash of $9.4 million and $13.6 million, respectively, which primarily consisted of cash deposited in banks. Our working capital requirements mainly consist of costs of services and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our operating activities and financing activities. We believe that our current cash and cash generated from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments. Cash Flows for the six months Ended December 31, 2025 and 2024 For the Six Months Ended December 31, 2025 For the Six Months Ended December 31, 2024 US$ US$ Net cash used in operating activities (3,397,769 ) (9,232,468 ) Net cash provided by (used in) investing activities 1,556,442 (1,009,065 ) Net cash (used in) provided by financing activities (2,299,717 ) 7,669,896 Net decrease in cash and cash equivalents and restricted cash (4,141,044 ) (2,571,637 ) Cash and cash equivalents and restricted cash at beginning of six months period 13,577,827 9,950,384 Cash and cash equivalents and restricted cash at end of six months period 9,436,783 7,378,747 30 We had a balance of cash and cash equivalents and restricted cash of $9.4 million as of December 31, 2025, compared with a balance of $13.6 million as of June 30, 2025. During the six months ended December 31, 2025, changes in our cashflow were mainly due to the following activities: Operating Activities Net cash used in operating activities was $3.4 million for the six months ended December 31, 2025, compared to net cash used in operating activities of $9.2 million for the same period in 2024, representing a $5.8 million increase in the net cash inflow from operating activities. The increase was primarily due to the following: (i) We had net loss of $10.4 million for the six months ended December 31, 2025. For the six months ended December 31, 2024, we had net loss of $6.3 million, which led to a $4.1 million decrease in net cash inflow from operating activities. (ii) Changes in accounts receivable and other receivables were $2.7 million cash inflow for the six months ended December 31, 2025. For the six months ended December 31, 2024, changes in accounts receivable and other receivables were $6.0 million cash outflow, which led to an $8.7 million increase in net cash inflow from operating activities. (iii) Changes in accounts payable and accrued liabilities used $0.3 million net cash outflow for the six months ended December 31, 2025. For the six months ended December 31, 2024, changes in accounts payable and accrued liabilities provided net cash outflow of $2.0 million, which led to a $1.7 million increase in net cash inflow from operating activities. (iv) Changes in non-cash items provided $5.3 million net cash inflow for the six months ended December 31, 2025. For the six months ended December 31, 2024, changes in non-cash items provided net cash inflow of $4.4 million, which led to a $0.9 million increase in net cash inflow from operating activities. Investing Activities Net cash provided by investing activities was $1.6 million for the six months ended December 31, 2025, primarily attributable to $0.6 million cash used for the purchase of property and equipment, $2.4 million cash used for loans extended to others, and $4.6 million proceeds received from loan repayments. For the six months ended December 31, 2024, net cash used in investing activities was $1.0 million, primarily attributable to $2.1 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. Financing Activities For the six months ended December 31, 2025, we had net cash used in financing activities of $2.3 million, which was primarily attributable to the $0.3 million used to repay finance lease liabilities and $2.0 million used to repay convertible notes. For the six months ended December 31, 2024, we had net cash inflow from financing activities of $7.7 million, which was primarily attributable to the net effects of: (i) $0.4 million repayment to related parties; (ii) $8.1 million of net proceeds from the Pre-Paid Advance under the SEPA. 31 Commitments and Contractual Obligations As of December 31, 2025, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through June 2026 to November 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised. As of December 31, 2025, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows: Operating Finance US$ US$ 2026 16,901,998 412,924 2027 38,066,085 716,486 2028 38,508,454 483,964 2029 25,895,498 137,718 2030 and beyond 39,734,608 8,090 Total minimum lease payment 159,106,643 1,759,182 Less: imputed interest (36,637,956 ) (193,454 ) Total lease liabilities 122,468,687 1,565,728 Less: current potion (33,713,304 ) (763,696 ) Non-current portion 88,755,383 802,032 Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of December 31, 2025. Off-balance Sheet Commitments and Arrangements Other than six standby letters of credit with Eastwest Bank in the aggregate amount of $4,394,812, 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 December 31, 2025, we still have an unused line of credit of $4,394,812 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. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We consider accounting for the credit losses for accounts receivable and other receivables, and loan receivables to be critical accounting estimates. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. 32 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.