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 twelve 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 March 31, 2026 and June 30, 2025, we had an active customer base of 601, and 505, respectively, for our warehousing and logistics services. For the nine months ended March 31, 2026 and 2025, we had total revenue of $142.7 million and $139.5 million, and net loss of $15.4 million and $10.1 million, respectively. While we do not have any subsidiaries, assets, or employees in the PRC, we generate a significant portion of our revenue from customers based in China. During the nine months ended March 31, 2026 and 2025, we generated approximately 76% and 87% of our revenue from PRC-based customers, respectively. Results of Operations The following table outlines our consolidated statements of operations for the three and nine months ended March 31, 2026 and 2025: For Three Months Ended March 31, 2026 For Three Months Ended March 31, 2025 For Nine months Ended March 31, 2026 For Nine months Ended March 31, 2025 US$ US$ US$ US$ Revenue 41,678,009 45,844,322 142,694,036 139,469,900 Costs of services 43,543,277 45,566,202 147,813,653 142,315,578 Gross profit (1,865,268 ) 278,120 (5,119,617 ) (2,845,678 ) Operating costs and expenses: General and administrative 3,325,439 4,472,813 10,871,295 10,800,794 Total operating costs and expenses 3,325,439 4,472,813 10,871,295 10,800,794 Loss from operations (5,190,707 ) (4,194,693 ) (15,990,912 ) (13,646,472 ) Other (income) expenses: Other income, net (159,603 ) (718,025 ) (1,200,475 ) (2,488,346 ) Loss on disposal of assets — — — 43,625 Finance costs 36,373 278,385 628,839 367,382 Total other (income) expenses (123,230 ) (439,640 ) (571,636 ) (2,077,339 ) Loss before provision for income taxes (5,067,477 ) (3,755,053 ) (15,419,276 ) (11,569,133 ) Current income tax expense — — 16,436 — Deferred income tax expense (recovery) — — — (1,506,969 ) Total income tax expenses (recovery) — — 16,436 (1,506,969 ) Net loss (5,067,477 ) (3,755,053 ) (15,435,712 ) (10,062,164 ) Total comprehensive loss (5,067,477 ) (3,755,053 ) (15,435,712 ) (10,062,164 ) Basic & diluted net earnings per share (0.11 ) (0.09 ) (0.35 ) (0.24 ) Weighted average number of shares of common stock-basic and diluted 45,443,079 41,714,608 44,442,202 41,651,007 25 Revenue, costs of services, and gross profit margin The following table sets forth our revenue for the three and nine months ended March 31, 2026 and 2025: For the Three Months Ended March 31, 2026 For the Three Months Ended March 31, 2025 For the Nine months Ended March 31, 2026 For the Nine months Ended March 31, 2025 US$ US$ US$ US$ Revenue 41,678,009 45,844,322 142,694,036 139,469,900 Costs of services 43,543,277 45,566,202 147,813,653 142,315,578 Gross profit (loss) (1,865,268 ) 278,120 (5,119,617 ) (2,845,678 ) Gross profit (loss) margin % -4.5 % 0.6 % -3.6 % -2.0 % The following table outlines the compositions of our revenue streams: For the Three Months Ended March 31, 2026 For the Three Months Ended March 31, 2025 For the Nine months Ended March 31, 2026 For the Nine months Ended March 31, 2025 US$ US$ US$ US$ Transportation services 23,051,961 28,484,930 87,108,275 93,102,756 Warehousing services 18,608,523 17,345,315 55,535,326 46,323,371 Other services 17,525 14,077 50,435 43,773 Total 41,678,009 45,844,322 142,694,036 139,469,900 Three Months Ended March 31, 2026 and 2025 Our revenue decreased by $4.2 million, or 9.1%, to $41.7 million during the three months ended March 31, 2026, compared to $45.8 million for the same period in 2025. The decrease was mainly due to the following factors: 1) Revenue from our transportation services decreased by $5.4 million, or 19.1%, for the three months ended March 31, 2026, compared with the same period in 2025, 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 March 31, 2026. 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. More customers are opting to arrange their own order delivery services, rather than using one of our service options, resulting in a decrease in transportation service volume and revenue. Additionally, Temu and TikTok orders typically already have their order delivery services provided by the e-commerce platform, so the growth in those customer segments did not translate to an increase in transportation service revenue. 26 Nine months Ended March 31, 2026 and 2025 Our revenue increased by $3.2 million, or 2.3%, to $142.7 million during the nine months ended March 31, 2026, compared to $139.5 million for the same period in 2025. The increase was due to the following factors: 1) Revenue from our transportation services decreased by $6.0 million, or 6.4%, for the nine months ended March 31, 2026, compared with the same period in 2025, due to a decreased proportion of traditional customer order volume and an increased proportion of Temu and TikTok order volume for the nine months ended March 31, 2026. 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. More customers are opting to arrange their own order delivery services, rather than using one of our service options, resulting in a decrease in transportation service volume and revenue. Additionally, Temu and TikTok orders typically already have their order delivery services provided by the e-commerce platform, so the growth in those customer segments did not translate to an increase in transportation service revenue. 2) Revenue from our warehousing services increased by $9.2 million, or 19.9%, for the nine months ended March 31, 2026, compared with the same period in 2025. Between the two time periods, warehouse operations were significantly increased in Georgia and Illinois, market segments that were newly added shortly before or during the nine months ended March 31, 2025. A warehouse location in Ontario, California, was also expanded to during the nine months ended March 31, 2025, becoming the second highest revenue generating warehouse in California as of March 31, 2026. The Temu and TikTok customer segments were also expanded upon between the nine months ended March 31, 2025 and the same period in 2026. These customers typically have higher than average warehousing service charges per order compared to traditional customers. The following table sets forth a breakdown of our costs of services for the three and nine months ended March 31, 2026 and 2025: For the Three Months Ended March 31, 2026 For the Three Months Ended March 31, 2025 For the Nine months Ended March 31, 2026 For the Nine months Ended March 31, 2025 US$ US$ US$ US$ Amortization 9,111 8,829 32,368 26,706 Depreciation 839,716 643,624 2,421,504 1,825,847 Lease expenses 11,264,609 10,408,649 32,780,728 28,458,977 Freight expenses 19,355,660 22,358,929 74,795,412 76,780,873 Port handling and customs fees 33,551 20,475 151,637 362,363 Salary and benefits 2,227,028 2,851,067 7,058,716 7,925,540 Temporary labor expenses 7,331,830 6,002,564 22,161,356 17,953,689 Warehouse expenses 1,986,540 2,516,595 6,883,543 6,815,924 Utilities 272,852 249,637 836,088 724,735 Other expenses 222,380 505,833 692,301 1,440,924 Total 43,543,277 45,566,202 147,813,653 142,315,578 Three Months Ended March 31, 2026 and 2025 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 decreased by $2.0 million, or 4.4%, during the three months ended March 31, 2026, compared with the same period in 2025. The decrease was primarily driven by the following two factors: i. Labor expenses temporarily increased by $1.3 million for the three months ended March 31, 2026 due to inventory reorganization taking place among the California warehouses during that time period. There was a large increase in workload due to the organizing, packing, loading, moving, and unloading of a significant amount of warehouse customer inventory. ii. Freight costs decreased by $3.0 million due to a reduction in freight volume. Customers favored arranging their own shipment options for outbound orders rather than use services provided by our vendors. Our overall gross profit/(loss) margin decreased from 0.6% for the three months ended March 31, 2025 to negative 4.5% for the same period in 2026, primarily due to significant inventory reorganization taking place among the California warehouses during the three months ended March 31, 2026. The associated increase in workload and labor needs resulted in an increase to temporary labor expenses without a direct impact on revenue for that time period. 27 Nine months Ended March 31, 2026 and 2025 Costs of services increased by $5.5 million, or 3.9%, during the nine months ended March 31, 2026, compared with the same period in 2025. The increase was primarily driven by the following three factors: i. Between March 31, 2025 and March 31, 2026, the Company expanded its operations by the addition of a warehouse unit in Texas and an extension to the sublease of a location in California. Additionally, warehouse operations significantly increased in the Ontario, California location between the two time periods, reallocating a greater amount of its expense from operating expenses to cost of services. These factors lead to a $4.3 million increase in lease expenses for the nine months ended March 31, 2026 compared to the same period in 2025. ii. Temporary labor expenses increased by $4.2 million due to warehouse operations significantly increasing at the Georgia, Illinois, and California locations between March 31, 2025 and March 31, 2026, as well as significant inventory reorganization taking place among the California warehouses during the nine months ended March 31, 2026. The Georgia and Illinois locations were added during or just before the nine months ended March 31, 2025 and mainly used temporary labor services rather than employed warehouse workers, but operations had not reached capacity by the end of the period. The Ontario, California location was added during the nine months ended March 31, 2025 and also mainly used temporary labor services rather than employed warehouse workers. The location was underutilized until December 2025, when several larger customers started using the warehouse as their main California warehouse. iii. Freight costs decreased by $2.0 million due to a reduction in freight volume. Customers favored arranging their own shipment options for outbound orders rather than use services provided by our vendors. Our overall gross loss margin worsened from negative 2.0% for the nine months ended March 31, 2025 to negative 3.6% for the same period in 2026, primarily due to an increased in warehousing labor costs for the three months ended March 31, 2026 following significant warehouse inventory reorganization among the California warehouses during that time period. Operating expenses Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three and nine months ended March 31, 2026 and 2025: For the Three Months Ended March 31, 2026 For the Three Months Ended March 31, 2025 For the Nine months Ended March 31, 2026 For the Nine months Ended March 31, 2025 US$ US$ US$ US$ Bank charges 35,623 37,230 95,938 90,347 Amortization 48,442 49,071 146,585 157,318 Office expenses 963,740 547,861 2,772,197 2,201,554 Professional fees 437,935 980,224 1,132,649 2,214,192 Rental expenses 312,676 1,267,649 1,213,805 1,486,673 Repairs and maintenance 591,750 215,279 1,903,148 637,028 Salary and benefits 825,091 1,008,032 2,902,612 3,010,275 Sundries 21,094 198,708 135,168 303,034 Tax and licenses 12,655 40,198 201,971 180,058 Vehicle expenses 32,091 32,010 242,828 95,255 Other expenses 44,342 96,551 124,394 196,697 Credit loss expenses - - - 228,363 Total 3,325,439 4,472,813 10,871,295 10,800,794 28 Three Months Ended March 31, 2026 and 2025 Our general and administrative expenses decreased by $1.1 million, from $4.5 million for the three months ended March 31, 2025 to $3.3 million for the same period in 2026, representing a decrease of 25.7%. The decrease was due to the following factors: 1) Office expenses increased by $0.4 million, or 75.9% 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 decreased by $1.0 million, or 75.3%. The decrease is mainly due to increased warehouse operations at the Ontario, California location between March 31, 2025 and March 31, 2026 and the resulting reclassification of its general and administrative rental expenses to cost of services lease expenses. 3) Repairs and maintenance expenses increased by $0.4 million, or 174.9%, mainly due to additional warehouse locations and growth in our truck fleet. 4) Salary and benefits decreased by $0.2 million, or 18.1%, due to restructuring and consolidation of personnel following the termination of warehouse locations between March 2025 and March 2026. 5) Professional fees decreased by $0.5 million, or 55.3%. The decrease is mainly due to fewer external consultants used in the three months ended March 31, 2026. Nine months Ended March 31, 2026 and 2025 Our general and administrative expenses slightly increased by $0.1 million, from $10.8 million for the nine months ended March 31, 2025 to $10.9 million for the same period in 2026, representing an increase of 0.7%. The increase was due to the following factors: 1) Office expenses increased by $0.6 million, or 25.9% 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 decreased by $0.3 million, or 18.4%. The decrease is mainly due to increased warehouse operations at the Ontario, California location between March 31, 2025 and March 31, 2026 and the resulting reclassification of its general and administrative rental expenses to cost of services lease expenses. 3) Repairs and maintenance expenses increased by $1.3 million, or 198.8%, mainly due to additional warehouse locations and growth in our truck fleet. 4) Professional fees decreased by $1.1 million, or 48.8%. The decrease is mainly due to fewer external consultants used in the nine months ended March 31, 2026. Income Tax Our income tax recovery decreased by $1.5 million for the nine months ended March 31, 2026 compared to the same period in 2025, mainly due to the non-recurring reversal of previously recognized deferred tax liabilities during the nine months ended March 31, 2025. 29 Net loss As a result of the foregoing, our net loss for the three months ended March 31, 2026 was $5.1 million, compared with $3.8 million for the same period in 2025, representing an increase by $1.3 million. Our net loss for the nine months ended March 31, 2026 was $15.4 million, compared with $10.1 million for the same period in 2025, representing an increase by $5.4 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 $15.4 million and $5.5 million net cash used in operating activities during the nine months ended March 31, 2026 and as of that date, had a net current liability of $20.9 million and accumulated deficits of $7.0 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 March 31, 2026 and June 30, 2025, we had cash and cash equivalents and restricted cash of $7.1 million and $13.6 million, respectively, which primarily consisted of cash deposited in banks. Our working capital requirements mainly consist of costs of services and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our operating activities and financing activities. We believe that our current cash and cash generated from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments. Cash Flows for the nine months Ended March 31, 2026 and 2025 For the Nine months Ended March 31, 2026 For the Nine months Ended March 31, 2025 US$ US$ Net cash used in operating activities (5,512,701 ) (5,641,142 ) Net cash provided by (used in) investing activities 1,480,482 (1,531,752 ) Net cash (used in) provided by financing activities (2,478,892 ) 6,633,329 Net decrease in cash and cash equivalents and restricted cash (6,511,111 ) (539,565 ) Cash and cash equivalents and restricted cash at beginning of nine months period 13,577,827 9,950,384 Cash and cash equivalents and restricted cash at end of nine months period 7,066,716 9,410,819 30 We had a balance of cash and cash equivalents and restricted cash of $7.1 million as of March 31, 2026, compared with a balance of $13.6 million as of June 30, 2025. During the nine months ended March 31, 2026, changes in our cashflow were mainly due to the following activities: Operating Activities Net cash used in operating activities was $5.5 million for the nine months ended March 31, 2026, compared to net cash used in operating activities of $5.6 million for the same period in 2025, representing a $0.1 million increase in the net cash inflow from operating activities. The increase was primarily due to the following: (i) We had net loss of $15.4 million for the nine months ended March 31, 2026. For the nine months ended March 31, 2025, we had net loss of $10.1 million, which led to a $5.4 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 nine months ended March 31, 2026. For the nine months ended March 31, 2025, changes in accounts receivable and other receivables were $1.6 million cash outflow, which led to a $5.4 million increase in net cash inflow from operating activities. (iii) Changes in accounts payable and accrued liabilities used $1.3 million net cash outflow for the nine months ended March 31, 2026. For the nine months ended March 31, 2025, changes in accounts payable and accrued liabilities used net cash outflow of $0.6 million, which led to a $0.7 million decrease in net cash inflow from operating activities. (iv) Changes in non-cash items provided $7.3 million net cash inflow for the nine months ended March 31, 2026. For the nine months ended March 31, 2025, changes in non-cash items provided net cash inflow of $6.7 million, which led to a $0.6 million increase in net cash inflow from operating activities. Investing Activities Net cash provided by investing activities was $1.5 million for the nine months ended March 31, 2026, primarily attributable to $0.8 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 nine months ended March 31, 2025, net cash used in investing activities was $1.5 million, 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. Financing Activities For the nine months ended March 31, 2026, we had net cash used in financing activities of $2.5 million, which was primarily attributable to the $0.5 million used to repay finance lease liabilities and $2.0 million used to repay convertible notes. For the nine months ended March 31, 2025, we had net cash inflow 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) $7.2 million of net proceeds from the Pre-Paid Advance under the SEPA; (iii) $0.2 million used to repay commitment fee payable; and (iv) $0.1 million used to repay finance lease liabilities. 31 Commitments and Contractual Obligations As of March 31, 2026, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through June 2026 to November 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of ROU assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised. As of March 31, 2026, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows: Operating Finance US$ US$ 2026 8,723,297 209,022 2027 38,396,649 745,248 2028 38,851,414 510,186 2029 26,251,319 155,590 2030 and beyond 41,226,447 8,090 Total minimum lease payment 153,449,126 1,628,136 Less: imputed interest (34,275,417 ) (165,817 ) Total lease liabilities 119,173,709 1,462,319 Less: current potion (35,351,135 ) (759,787 ) Non-current portion 83,822,574 702,532 Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of March 31, 2026. Off-balance Sheet Commitments and Arrangements Other than six standby letters of credit with Eastwest Bank in the aggregate amount of $4,398,412, 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, 2026, we still have an unused line of credit of $4,398,412 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. 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. 32 Item 3. Quantitative and Qualitative Disclosures About Market Risk . As a smaller reporting company, we are not required to provide the information required by this item.