Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements
and the related notes included elsewhere in this Report. In addition to historical consolidated financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially
from those discussed in the forward-looking statements. All amounts included herein with respect to the fiscal years ended June 30,
2024 and 2023 are derived from our audited consolidated financial statements included elsewhere in this Report. Our financial statements
have been prepared in accordance with the U.S. GAAP.
Overview
We are a U.S.-based integrated
cross-border supply chain solution provider with a strategic focus on the Asian market including China and South Korea. We primarily
provide customized cross-border ocean freight solutions and airfreight solutions in the U.S. that specifically cater to our customers’
requirements and needs in transporting goods into the U.S. We offer a wide variety of integrated services under our cross-border
ocean freight solutions and cross-border airfreight solutions, including (i) cross-border freight consolidation and forwarding services,
(ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation
services.
Founded in Chicago, Illinois
in 2018, we are an Asian American-owned business rooted in the U.S. with in-depth understanding of both the U.S. and Asian
international trading and logistics service markets. Our customers are typically Asia- and U.S.-based logistics service companies serving
large e-commerce platforms, social commerce platforms and manufacturers to sell and transport consumer and industrial goods made in Asia
into the U.S. Since inception and as of June 30, 2024, we had served over 300 customers to fulfill over 41,000 cross-border supply
chain solution orders.
We have established an extensive
collaboration network of service providers, including global freight carriers for our cross-border freight consolidation and forwarding
services as well as domestic ground transportation carriers for our U.S. domestic transportation services. Since inception and as
of June 30, 2024, we had collaborated with almost all major global ocean and air carriers to forward 31,300 TEU of container loads and
47,800 tons of air cargo. As of June 30, 2024, we had also cooperated with over 200 domestic ground transportation carriers, including
almost all major U.S. domestic ground transportation carriers, on a long-term, short-term or order basis, as the case may be.
We operate two massive and
hyper-busy regional warehousing and distribution centers in the U.S., in Illinois and Texas. With an aggregate gross feet area of approximately
75,014 square feet and 34 docks, our regional warehousing and distribution centers have an aggregate daily floor load of up to 3,000
cubic meters of freight. In addition to our self-operated regional centers, we maintain close contact with over 150 warehouses and distribution
terminals in almost all transportation hubs in the U.S. which we have cooperated in the past to support the warehousing and distributing
services of our cross-border freight in case such freight requires storage, fulfilment, transloading, palletizing, packaging or distribution
in states other than Illinois and Texas. As of June 30, 2024, we had assisted with the customs clearance, in conjunction with our other
service offerings, of cross-border freight of an aggregate assessed value of over $38.0 million.
Leveraging our strong cross-border
supply chain service capabilities, extensive service provider network of cross-border freight carriers and U.S. domestic ground transportation
carriers, massive and hyper-busy regional warehousing and distribution centers as well as deep understanding of the Asian market, we have
been able to build up our brand and reputation and have achieved fast growth since our inception. For the fiscal years ended June 30,
2024 and 2023, our revenues amounted to $18.3 million and $12.9 million, respectively, and our gross profit amounted to $3.7 million and
$2.6 million during the same periods, respectively. As of June 30, 2024, we had fulfilled over 41,000 cross-border supply chain solution
orders for freight of an aggregate assessed value of $1.0 billion, delivered to thousands of business and residential addresses in
approximately 48 U.S. states.
15
Key Factors Affecting Our Results of Operations
We believe the most significant
factors that affect our business and results of operations include the following:
Our Ability to Expand Our Customer Base
Our results of operations are
dependent upon our ability to expand and maintain our customer base. Since inception and as of June 30, 2024, we had served over 300 customers
to fulfill over 41,000 cross-border supply chain solution orders. We will continue to expand our customer base to achieve a sustainable
business growth. We aim to attract new customers and maintain our existing customers. We plan to improve the quality and expand the variety
of our services to obtain more customers.
Our Ability to Control Costs
Our results of operations are
affected by our ability to control costs including transportation and delivery costs, warehouse service charges, custom declaration and
terminal charges, freight arrangement charges and other overhead cost allocation, which may be subject to factors, including, among other
things, fluctuations in wage rates, fuel prices, toll fees, and leasing costs. Effective cost-control measures have a direct impact on
our financial condition and results of operations. For example, our cross-border freight carrier and U.S. domestic ground transportation
carrier services providers use large quantities of fuel to operate vehicles, and therefore, hence the higher fuel cost incurred by them
may causes our higher fee rates cost charged on us by such the service providers. The availability and price of fuel and third-party transportation
capacity are subject to political, economic, and market factors that are beyond our control. We also incur a significant amount of costs
in relation to transportation and labor. Any unexpected increase in these costs, which is subject to factors beyond our control, could
adversely impact our profitability. We have adopted, and expect to adopt, additional cost control measures. However, the measures we have
adopted or will adopt in the future may not be as effective as expected. If we are not able to effectively control our costs and adjust
the level of fee rates based on operating costs and market conditions, our profitability and cash flow may be adversely affected.
Our Ability to Provide High-quality Services
Our results of operations depend
on our ability to maintain and further enhance our service quality. Together with our network of service providers, we provide integrated
cross-border ocean and air freight supply chain solutions and services to our customers. If we or our service providers are unable to
provide express delivery services in a timely, reliable, safe and secure manner, our reputation and customer loyalty could be negatively
affected. In additional, if our customer service personnel fail to satisfy customer needs or respond effectively to customer complaints,
we may lose potential or existing customers and experience a decrease in customer orders, which could have a material adverse effect on
our business, financial condition and results of operations.
16
Strategic Acquisitions and Investments
Our results of operations also
depend on our ability to pursue strategic acquisitions and investments in expanding our global footprints, diversifying our service offerings,
and advancing our technologies. We may selectively pursue mergers, acquisitions, investments, joint ventures and partnerships that we
believe are strategic and complementary to our operations and technology. However, we cannot assure you that we will make prudent decisions
at all times. Our ability to successfully execute or effectively operate, integrate, leverage and grow these investments or strategic
partnerships could impact our results of operations and financial conditions.
Impact of COVID-19
The global spread of COVID-19
and the efforts to control it have slowed global economic activity and disrupted, and reduced the efficiency of, normal business activities
in much of the world. The pandemic has resulted in authorities around the world implementing numerous unprecedented measures such as travel
restrictions, quarantines, shelter in place orders, and factory and office shutdowns. These measures have impacted and will likely continue
to impact our workforce and operations, and those of our customers and suppliers.
Delays and congestions at various
ports as a result of the COVID-19 restrictions during the pandemic also prolonged the delivery times for certain of our cross-border freight.
Additionally, ocean freight carriers have consolidated with the potential for more to occur in the future. COVID-19 has placed significant
stress on our global ocean and air freight carriers, U.S. domestic ground transportation carriers as well as other service providers,
which may result in reduced carrier capacity or availability, pricing volatility or more limited carrier transportation schedules and
other services that we utilize, which could adversely impact our business, financial condition and results of operations.
In response to governmental
directives and recommended safety measures, we have implemented personal safety measures at all of our facilities. However, these measures
may not be sufficient to mitigate the risk of infection by COVID-19. If a significant number of our employees, or third parties performing
key functions, including our chief executive officer and members of our board of directors, become ill, our business may be further adversely
impacted.
The impact of COVID-19 pandemic
on us in the future will depend on future developments which are highly unpredictable and beyond our control, such as the frequency, duration
and severity of the resurgence of COVID-19 and the emergence of new variants, as well as the measures that may be taken by governments
around the world in response to these developments, the impact of the pandemic on the global economy and the measures taken by governments
to stimulate the general economy. Therefore, we cannot guarantee that the pandemic will not continue to have an adverse effect on our
business and results of operations in the future, which may be material.
We will continue to actively
monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign
authorities, or that we determine are in the best interests of our employees, customers, service providers and stockholders.
Key Components of Results of Operations
Revenues . We
generate revenues primarily by providing customized cross-border ocean freight solutions and airfreight solutions to customers that specifically
cater to their requirements and needs in transporting goods into the U.S. Under the service agreements with our customers, we offer
a wide variety of integrated services under our cross-border ocean freight solutions and cross-border airfreight solutions, including
(i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and
distribution services and (iv) U.S. domestic ground transportation services.
Cost of Revenues . Our
cost of revenues mainly comprises transportation and delivery costs, warehouse service charges, custom declaration and terminal charges,
freight arrangement charges and other overhead cost allocation which includes operating and financing lease-related costs, depreciation
expenses of property and equipment and other miscellaneous expenses.
17
Selling Expenses . Our
selling expenses mainly represent commissions paid to unrelated parities for customer referrals.
General and Administrative
Expenses . Our general and administrative expenses primarily include salaries and staff benefits, repair
and maintenance expense, depreciation on property and equipment, lease expenses, travelling and entertainment, bank charges, legal and
professional fees, insurance expenses and other office expenses.
Other Income . Our
other income primarily consists of rental income and employee retention credit received, if any.
Interest
Expenses . Our interest expenses primarily consist of the interest expenses incurred for finance leases, equipment
loans, vehicle loans and other loans and interest for late paid for credit card.
Income Tax Expenses . Our
income tax expenses consist primarily of U.S. federal, state income taxes and replacement tax in the state of Illinois.
Fiscal Year Ended June 30, 2024 Compared
to Fiscal Year Ended June 30, 2023
Results of Operations
The following table summarizes
our consolidated results of operations and percentages of certain items in relation to total revenues for the fiscal years ended
June 30, 2024 and 2023. The operating results in any historical period are not necessarily indicative of the results that may be
expected for any future period.
For the fiscal year ended June 30,
2024
2023
Revenues
Amount
% of
total
Revenues
Amount
% of
total
Revenues
Amount
Increase
(Decrease)
Percentage
Increase
(Decrease)
Cross-border ocean freight solutions
$ 7,873,835
43.0 %
$ 8,073,685
62.7 %
$ (199,850 )
(2.5 )%
Cross-border airfreight solutions
10,441,320
57.0 %
4,799,206
37.3 %
5,642,114
117.6 %
Total revenues
18,315,155
100.0 %
12,872,891
100.0 %
5,442,264
42.3 %
Cost of revenues
14,599,198
79.7 %
10,308,602
80.1 %
4,290,596
41.6 %
Gross profit
$ 3,715,957
20.3 %
$ 2,564,289
19.9 %
$ 1,151,668
44.9 %
Revenues
Our total revenues increased
by $5.4 million, or 42.3%, from $12.9 million in the fiscal year ended June 30, 2023, to $18.3 million in the fiscal year ended June 30,
2024. The significant increase was primarily driven by higher revenues from our cross-border air freight solutions, partially offset by
a decrease in revenues from our cross-border ocean freight solutions.
Revenues generated from our
cross-border ocean freight solutions decreased by $0.2 million, or 2.5%, from $8.1 million in the fiscal year ended June 30, 2023,
to $7.9 million in the fiscal year ended June 30, 2024. The volume of cross-border ocean freights processed and forwarded increased
from 4,218 TEU in the fiscal year ended June 30, 2023, to 5,458 TEU in the fiscal year ended June 30, 2024. However, due to
fierce competition in ocean freight market and lower customer demand post COVID-19 pandemic, we offered more customized services that
involved only one or a few stages of the freight solution process for individual customers. This led to a decreased unit revenue per TEU
compared to the same period in the prior year. As a result, the gross revenue generated from our cross-border ocean freight solution slightly
decreased compared to the same period in the prior year.
18
Revenues generated from our
cross-border airfreight solutions increased by $5.6 million or 117.6% from $4.8 million in the fiscal year ended June 30, 2023, to
$10.4 million in the fiscal year ended June 30, 2024. The increase was primarily due to a rise in the volume of cross-border air
freight processed, from approximately 12,966 tons for the fiscal year ended June 30, 2023, to approximately 26,160 tons for the fiscal
year ended June 30, 2024. This surge can be attributed to our heightened focus on cross-border airfreight solutions in the second half
of the fiscal year ended June 30, 2023, in response to the growing demand for our services, fueled by the continued expansion of
the e-commerce industry.
We expect our revenues to continue
growing due to the resurgence of the U.S. economy post-COVID-19, ongoing reductions in ocean freight charges stimulating import and export
activities, and the persistent trend of online purchases. This trend highlights the need for prompt delivery to end-consumers with competitive
pricing.
Revenues by Customer Geographic
For the fiscal year ended June 30,
2024
2023
Revenues
Amount
% of
total
Revenues
Amount
% of
total
Revenues
Amount
Increase
(Decrease)
Percentage
Increase
(Decrease)
Asia-based customers
$ 13,081,165
71.4 %
$ 5,531,468
43.0 %
$ 7,549,697
136.5 %
U.S.-based customers
5,233,990
28.6 %
7,341,423
57.0 %
(2,107,433 )
(28.7 )%
Total revenues
18,315,155
100.0 %
12,872,891
100.0 %
5,442,264
42.3 %
Revenues generated from the
Asia-based customers increased by $7.5 million, or 136.5%, from $5.5 million in the fiscal year ended June 30, 2023, to $13.1 million
in the fiscal year ended June 30, 2024. Revenues generated from the U.S.-based customers decreased by $2.1 million, or 28.7%,
from $7.3 million in the fiscal year ended June 30, 2023 to $5.2 million in the fiscal year ended June 30, 2024.
The increase in revenues from
Asia-based customers in the fiscal year ended June 30, 2024, was driven by a surge in volume from these customers, particularly those
serving large e-commerce platforms. This growth can primarily be attributed to the rising demand for our services, which is a direct result
of the overall expansion of the e-commerce market in the U.S.
The decrease in revenue from
the U.S.-based customers in the fiscal year ended June 30, 2024, compared to the fiscal year ended June 30, 2023, was primarily
due to our shift in focus toward Asia-based e-commerce customers. Additionally, special projects with larger shipment volumes from U.S.
customers were completed in the fiscal year ended June 30, 2023, with no similar projects in the fiscal year ended June 30, 2024.
Cost of Revenues
A breakdown of our cost of
revenues for the fiscal years ended June 30, 2024 and 2023 is as follows:
For the fiscal year ended June 30,
Amount
Increase
Percentage
Increase
2024
2023
(Decrease)
(Decrease)
Transportation and delivery costs
$ 7,477,986
$ 5,860,066
$ 1,617,920
27.6 %
Warehouse service charges
2,886,406
1,391,081
1,495,325
107.5 %
Custom declaration and terminal charges
2,374,101
1,580,615
793,486
50.2 %
Freight arrangement charges
486,357
416,068
70,289
16.9 %
Overhead cost
1,374,348
1,060,772
313,576
29.6 %
Total cost of revenue
$ 14,599,198
$ 10,308,602
$ 4,290,596
41.6 %
19
Our cost of revenues increased
by $4.3 million, or 41.6%, from $10.3 million in the fiscal year ended June 30, 2023, to $14.6 million in the fiscal year ended June 30,
2024. The increase in cost of revenues was mainly due to the combined effects of:
(i) an increase in transportation and delivery costs, including trucking, drayage, chassis rental,
freight and delivery cost during the fiscal year ended June 30, 2024, which was consistent with the increase in revenues during
the same period;
(ii) an increase in our warehouse service charges, mainly representing labor costs at our regional warehousing
and distribution centers during the fiscal year ended June 30, 2024, due to (a) extended service hours to process higher volumes of cross-border
airfreight, and (b) the hiring of additional employees at our regional warehousing and distribution centers to support our growing business;
(iii) an increase in custom declaration and terminal charges, consisting of customs fees, handling
charges, and entry service fees charged by ports and terminals during the fiscal year ended June 30, 2024, resulting from the
higher assessed value of cross-border freight, particularly airfreight, during the same period;
(iv) an increase in freight arrangement charges, mainly representing scheduling and booking fees for
cross-border ocean freight during the fiscal year ended June 30, 2024, primarily due to increased business for cross
boarder shipping from the U.S. to China; and
(v)
a slight increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the fiscal year ended June 30, 2024. The increase was mainly attributable to a rise in warehouse and equipment lease expenses, from $1,010,345 in the fiscal year ended June 30, 2023, to $1,195,808 in the fiscal year ended June 30, 2024.
Gross Profit
Our gross profit increased
by $1.2 million, or 44.9%, from $2.6 million in the fiscal year ended June 30, 2023, to $3.7 million in the fiscal year ended June 30,
2024. Our gross profit margin was 20.3% for the fiscal year ended June 30, 2024, compared to 19.9% for the fiscal year ended June 30,
2023. The slight increase in gross profit margin was primarily attributable to the rise in sales and our promotion of a diverse range
of services, including warehousing, distribution, and customs clearance services, which we offered to current customers with a higher
mark-up.
Selling Expenses
Our selling expenses decreased
by $77,322, or 96.9%, from $79,822 in the fiscal year ended June 30, 2023, to $2,500 in the fiscal year ended June 30, 2024.
The decrease was mainly driven by fewer customer referrals from third parties during the fiscal year ended June 30, 2024.
20
General and Administrative Expenses
Our
general and administrative expenses increased by $1.8 million, or 77.5%, from $2.3 million in the fiscal year ended June 30,
2023, to $4.1 million in the fiscal year ended June 30, 2024. These expenses represented 22.6% and 18.1% of our total revenues
for the fiscal years ended June 30, 2024 and 2023, respectively. The increase was primarily attributed to higher salary
and employee benefit expenses, office expense and professional fee:
Our salaries and employee benefits expenses represented 66.1% and 61.4%
of our total general and administrative expenses for the fiscal years ended June 30, 2024 and 2023, respectively. The increase
was mainly due to the recruitment of additional sales, customer services, and back-office support personnel to support our business growth.
For our salaries and employee benefits expenses, (i) our payroll expenses increased by $1.1 million, or 94.5%, from $1.2 million in the
fiscal year ended June 30, 2023, to $2.3 million in the fiscal year ended June 30, 2024, and (ii) our employee benefit expenses,
which mainly consist of 401(k) company contribution, meal allowance and health insurance expenses, increased by $0.2 million, or 73.6%,
from $0.2 million in the fiscal year ended June 30, 2023, to $0.4 million in the fiscal year ended June 30, 2024, representing
9.9% and 10.1% of our total general and administrative expenses for the fiscal years ended June 30, 2024 and 2023, respectively.
The increase was mainly due to higher meal allowance for overtime compensation and rising employee health insurance premiums.
Our professional fee increased
by $0.3 million, or 266.6%, from $0.1 million in the fiscal year ended June 30, 2023, to $0.4 million in the fiscal year ended June 30,
2024. Our professional fee represented 9.2% and 4.5% of our total general and administrative expenses for the fiscal years ended
June 30, 2024 and 2023, respectively. The increase was primarily due to accrued audit fees, legal fees, and financial reporting service
fees of approximately $0.3 million for the annual audit for the fiscal year ended June 30, 2024. In the fiscal year ended June 30, 2023,
these expenses were not included in professional fees, as they were accounted for as deferred initial public offering assets.
Our office expense represented
9.5% and 7.7% of our total general and administrative expenses for fiscal years ended June 30, 2024 and 2023, respectively. The increase
was mainly due to office hardware including monitors and keyboard, printer ink, printer kits and charger purchased and more office supplies
consumed due to more staff hired.
Other Income, Net
Our other income decreased
by $0.6 million, or 61.8%, from $0.9 million in the fiscal year ended June 30, 2023, to $0.3 million in the fiscal year ended June 30,
2024. The decrease was primarily attributable to the termination of a sublease agreement for certain office and warehouse space with a
related party, which occurred from August 2023 to December 2023. Additionally, we received an employee retention credit of $0.3 million
in the fiscal year ended June 30, 2023, but we did not have such income in the fiscal year ended June 30, 2024.
Interest Expenses
Our interest expenses for
the fiscal year ended June 30, 2024, remained relatively stable compared to same period in last year.
Income (Loss) Before Income Taxes
We had loss before income
taxes of $295,614 for the fiscal year ended June 30, 2024, compared to income before taxes of $1,008,798 for the fiscal year ended
June 30, 2023. We were in a loss position before income taxes for the fiscal year ended June 30, 2024, was primarily attributable
to the net effects of: (i) the increase in gross profit, (ii) the rise in operating expenses; and (iii) the decrease in
other income for the fiscal year ended June 30, 2024 as mentioned above.
Income Tax Expense
We had income tax credit of
$67,337 and income tax expense of $65,068 in the fiscal year ended June 30, 2024 and 2023, respectively. We recognized a current
income tax provision of $46,996 for the fiscal year ended June 30, 2024, due to net assessable income, and a deferred income tax
credit $186,485 due to temporary differences recognized and a deferred income tax expense of $72,152 due to the change from an S Corporation
to a C Corporation upon the completion of our reorganization on September 23, 2023. For the fiscal year ended June 30, 2024 and 2023,
the Company was taxed at rates of 2.5% and 7.0% and 2.5% and 4.95% for the Illinois replacement tax and pass-through-entity tax, respectively.
Since our transition to a C Corporation on September 23, 2023, we are now obligated to pay federal tax at a rate of 21%. This tax obligation
was previously exempt for us as an S Corporation.
21
Net Income (Loss)
As a result of the foregoing, we had a net loss of $225,252 for the
fiscal year ended June 30, 2024, compared to our net income of $983,602 in the fiscal year ended June 30, 2023.
Liquidity and Capital Resources
As of June 30, 2024, we had
a cash balance of $0.1 million. Our current assets were $3.5 million, and our current liabilities were $5.9 million, resulting in
a current ratio of 0.6:1. Total stockholders’ equity as of June 30, 2024 was $0.6 million.
As of June 30, 2024 and
2023, we had accounts receivable net of allowance of $2.8 million and $1.4 million, respectively. We periodically review our accounts
receivable and allowance level to ensure our methodology for determining allowances is reasonable and to accrue additional allowances
if necessary. For the accounts receivable, as of June 30, 2024 and 2023, we provided a credit loss allowance of $54,066 and $25,909,
respectively.
In assessing our liquidity,
we monitor and analyze our cash on hand, our ability to generate sufficient revenue sources in the future, and our operating and capital
expenditure commitments. Historically, we have funded our working capital needs primarily through operations, loans, and working capital
loans from stockholders. Our working capital requirements are influenced by the efficiency of our operations, the volume and dollar value
of our revenue contracts, the progress or execution of customer contracts, and the timing of accounts receivable collections.
As of June 30, 2024, we had
a working capital deficit of $2.3 million. We are currently focused on improving our liquidity and securing additional capital sources
through various short-term and long-term strategies. In the short term, we intend to primarily focus on the followings:
(i)
enhancing the collection of outstanding accounts receivable balance, as a result of which, subsequent to June 30, 2024 and through the report date, we had collected approximately $2.8 million, representing 95.8% of the accounts receivable balance as of June 30, 2024, and our accounts receivable turnover days was 42 days for the fiscal year ended June 30, 2024;
(ii) collecting the balance of due from related parties in full
of approximately $0.4 million by December 31, 2024;
(iii) continued expansion of our business and service scope to
achieve anticipated levels of revenues, while continuing to control costs;
(iv) commitments by our stakeholders in providing working capital
loans to us when needed; and
(v) actively seeking favorable equity financings, including through
IPO with approximately $5.79 million which was closed on July 1, 2024, and obtaining additional bank loans to meet our capital requirements.
Our IPO was closed in July 2024, which is subsequent to the end of
the fiscal year of this report, we will have sufficient funds to fulfill its short-term financial obligations. In the long term, we anticipate
generating sufficient cash flow from our operations, obtaining additional bank loans and other borrowings to meet our capital requirements
to fund our operations and growth plans. Based on our current operating plan, our management is confident that we will have sufficient
working capital and other financial resources to fund its operations and fulfill financial obligations for at least twelve months from
the issuance date of the consolidated financial statement.
22
Cash Flows
The following table sets forth
summary of our cash flows for the periods indicated:
For the fiscal years ended
June 30,
2024
2023
(revised)*
Net cash (used in) provided by operating activities
$ (53,640 )
$ 39,303
Net cash used in investing activities
(78,799 )
(18,288 )
Net cash provided by (used in) financing activities
78,755
(253,088 )
Effect of exchange rate changes on cash
3,216
32,560
Net decrease in cash
(50,468 )
(199,513 )
Cash, beginning of the year
174,018
373,531
Cash, end of the year
$ 123,550
$ 174,018
* Revised to reflect reclassification of cash flows described
in Note 2 in the accompanying consolidated financial statements included elsewhere in this Report
Operating Activities
Net cash used in operating
activities was $53,640 in the fiscal year ended June 30, 2024, including net loss of $228,277, adjusted for non-cash items for $1,168,010
and changes in working capital of negative $993,373. The non-cash items primarily included $1,005,686 non-cash operating lease expense,
$144,637 depreciation, $30,712 depreciation of right-of-use finance assets and $28,157 from provision of allowance for expected credit
loss, offset by an increase of $114,333 from deferred tax credit. The adjustments for changes in working capital mainly included an increase
of $722,522 and $732,769 in accounts receivable — third parties and related parties, respectively, due to significant increase of
revenues in the fiscal year ended June 30, 2024, and an increase of $846,992 in operating lease liabilities, partially offset by an increase
of $468,284 in accrued liabilities and other payables due to unpaid IPO related expense, a decrease of $328,820 in due from related parties
because of settlement of rental income, an increase of $699,644 in accounts payable — third parties and an increase of $46,996 in
tax payable.
Net cash provided by operating
activities was $39,303 in the fiscal year ended June 30, 2023, including net income of $943,730, adjusted for non-cash items for $927,316
and changes in working capital of negative $1,831,743. The non-cash items primarily included $826,284 non-cash operating lease expense,
$130,755 depreciation, $31,780 depreciation of right-of-use finance assets, offset by $93,742 from reversal of allowance for expected
credit loss, and impacted by an increase of $32,239 from deferred state tax expense. The adjustments for changes in working capital mainly
included an increase of $506,152 in accounts receivable — third parties due to significant increase of revenues in the fiscal year
ended June 30, 2023, an increase of $579,496 in due from related parties because of unpaid rental income, a decrease of $101,896 in accounts
payable — related parties, and a decrease of $833,365 in operating lease liabilities, partially offset by an increase of $57,701
in accrued liabilities and other payables, a decrease of $54,441 in contract assets, an increase of $32,829 in tax payable and a decrease
of $18,672 in prepayment and other deposit.
The $92,943 decrease in cash used in operating activities in the fiscal
year ended June 30, 2024 compared to the prior year was primarily due to a net loss of $228,227 in the fiscal year ended June 30, 2024
compared to a net income of $943,730 in the prior fiscal year, offset by a decrease of $838,370 in cash outflow from working capital due
to timing of vendor payments, client payments and related parties payment.
23
In our ordinary course of business,
we typically grant a credit term of 15 days to customers that are independent third parties for their accounts receivable balances, while
our major vendors generally provide us with a credit term of 30 days. Historically, our credit terms with related parties were more flexible.
The decrease of $838,370 in cash outflow from the working capital in the fiscal year ended June 30, 2024 compared to the prior fiscal
year was primarily attributable to:
(i) a faster collection cycle from related-party customers for
both accounts receivable and advances from the related parties for the fiscal year ended June 30, 2024; and
(ii) an
increase in accounts payable to related parties as of June 30, 2024,
(iii) a significant increase in our revenue near fiscal year ended and completed shipment that we not invoiced
to our customers, which resulted in significantly higher accounts receivable balances from non-related-party customers as of June 30,
2024, thereby impacting our cash flow position.
Investing Activities
Net cash used in investing
activities was $78,799 in the fiscal year ended June 30, 2024, compared to $18,288 in the fiscal year ended June 30, 2023. On August 4,
2023, we reduced our unpaid registered capital contribution in our investee company in China, ABL Wuhan, while the third-party shareholders
increased their registered capital contribution accordingly. As a result, the third-party shareholders now hold 80% of equity interest
and we hold 20% of equity interest in ABL Wuhan. Consequently, ABL Wuhan ceased to be our subsidiary after August 4, 2023. This change
resulted in a cash outflow of $48,893 due to the deconsolidation of the subsidiary and a payment for registered capital of $29,906 during
the fiscal year ended June 30, 2024. Net cash used in investing activities for the fiscal year ended June 30, 2023, was primarily attributable
to our purchases of property and equipment.
Financing Activities
Net cash provided by financing
activities was $78,755 in the fiscal year ended June 30, 2024, compared to $253,088 net cash used in the fiscal year ended June 30, 2023.
The increase in net cash provided by financing activities was mainly due to the net proceeds of $185,014 from loans borrowed and proceeds
of $237,302 from stockholders, partially offset by payment of IPO related cost of $170,000, the repayment of equipment and vehicle loans
and principle payment of finance leases totaling of $149,592 during the fiscal year ended June 30, 2024. The net cash used in financing
activities for the fiscal year ended June 30, 2023, was primarily attributable to payment of IPO related cost of $90,000, the repayment
of equipment and vehicle loans amounting to $104,598, repayment of loans of $100,864 and net proceeds from stockholders totaling $63,014.
Capital Expenditures
Our capital expenditures are incurred primarily in connection with
the purchase of fixed assets, including machinery and equipment, furniture and fixtures, leasehold improvement and vehicles. Our capital
expenditures amounted to nil and $18,288 in the fiscal years ended June 30, 2024 and 2023, respectively.
We expect that our capital
expenditures will increase in the future as our business continues to develop and expand. We intend to fund our future capital expenditures
with our existing cash balance, proceeds of loans, working capitals loans from stockholders and the proceeds from our IPO which was closed
in July 2024.
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Commitments and Contractual Obligations
As of June 30, 2024, the Company’s contractual
obligations consist of the following:
Contractual Obligations
Total
Less than
1 year
1 – 3
years
3 – 5
years
More than
5 years
Operating lease obligations
$ 4,236,202
$ 1,391,267
$ 1,774,692
$ 1,070,243
$ —
Finance lease obligations
57,109
38,961
18,148
—
—
Vehicle loans
157,032
62,169
72,520
22,343
—
Equipment loans
91,714
53,988
37,726
—
—
Other loans
660,680
648,440
12,240
—
—
Total
$ 5,202,737
$ 2,194,825
$ 1,915,326
$ 1,092,586
$ —
Off-Balance Sheet Commitments and Arrangements
There were no off-balance sheet
arrangements as of and for the fiscal years ended June 30, 2024 and 2023, that have, or that in the opinion of management are
likely to have, a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
We prepare our consolidated
financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our
reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes
made to the accounting estimates and assumptions in the past two years, we continually evaluate these estimates and assumptions based
on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable
under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could
differ from our expectations as a result of changes in our estimates.
Despite the fact that the management
determines there are no critical accounting estimates, the most significant estimates relate to allowance for credit losses, for which
we are required to estimate the collectability of accounts receivable, and contract asset relating to shipment in transit.
The estimates were based on
a number of factors including historical experience, the age of the accounts receivable balances, the credit quality of customers, current
and reasonably expected future economic conditions, and other factors that may affect our ability to collect from customers.
The estimated contract asset
is based on the estimated completion percentage of the performance obligation. We believe that customers simultaneously benefit from the
comprehensive services it provides. For customers with goods entering the United States, we offer customs clearance, container unloading,
storage, unpacking, packing, and transportation services to customer-specified locations after the goods arrive at a U.S. seaport
or airport. For customers shipping goods overseas, we provide cargo space arrangement, storage, packing, export customs clearance, and
transportation to the seaport or airport for loading. The performance obligation is satisfied over time as customers receive the benefits
of these services during the process of transporting goods from one location to another. As a result, we recognize revenue over time.
We believe that the methodology employed is comparable to that of other global logistics companies and offers faithful depiction of the
services rendered to customers.
While our significant accounting
policies are more fully described in Note 2 — Summary of Significant Accounting Policies to our consolidated financial
statements, we believe that there were no critical accounting policies that affect the preparation of financial statements.
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Recent Accounting Pronouncements
We consider the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews newly issued accounting standards.
In August 2020, the FASB
issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required
under current U.S. GAAP. This ASU also removes certain settlement conditions that are required for equity-linked contracts to
qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The new standard
will become effective for us beginning January 1, 2024, using either a modified retrospective or a fully retrospective method of
transition and early adoption is permitted. Management is currently evaluating the impact of the new standard on our financial statements.
In June 2022, the FASB
issued ASU No. 2022-03, “ Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions ,” which clarifies and amends the guidance of measuring the fair value of equity securities subject
to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for years beginning after
December 15, 2023 and interim periods within those years. We do not expect the adoption to have a material impact on our consolidated
financial statements.
We do not believe other recently
issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets,
statements of income (loss) and comprehensive income (loss) and statements of cash flows.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
We are a smaller reporting
company and are not required to provide the information required under this item.
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