Quanome Technologies, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. 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 September 30, 2024, we had served over 300 customers to fulfill over 45,000 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 September 30, 2024, we had collaborated with almost all major global ocean and air carriers to forward 32,800 TEU of container loads and 55,100 tons of air cargo. As of September 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 three 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 142,484 square feet and 52 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 September 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 $42.6 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 three months ended September 30, 2024 and 2023, our revenues amounted to $4.1 million and $4.1 million, respectively, and our gross profit amounted to $0.5 million and $0.6 million during the same periods, respectively. As of September 30, 2024, we had fulfilled over 45,000 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. 31 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 September 30, 2024, we had served over 300 customers to fulfill over 45,000 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. 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. 32 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. 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, 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 credit card payment. 33 Income Tax Expenses . Our income tax expenses consist primarily of U.S. federal, state income taxes, replacement tax in the state of Illinois and PRC enterprise income tax. Results of Operations For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three months ended September 30, 2024 and 2023 in U.S. dollars. For the Three Months Ended September 30, 2024 2023 Revenue 4,081,554 4,148,476 Cost of revenue 3,559,015 3,500,933 Gross profit 522,539 647,543 Operating expenses: General and administrative expenses 1,837,206 855,778 Loss from deconsolidation of a subsidiary - 73,151 Provision of allowance for expected credit loss 12,837 52,122 Total operating expenses 1,850,043 981,051 Loss from operations (1,327,504 ) (333,508 ) Other income (expense): Other income, net 109,788 46,949 Interest expense (28,110 ) (22,785 ) Total other income, net 81,678 24,164 Loss before income taxes (1,245,826 ) (309,344 ) Income taxes expense (recovery) 89,581 (2,059 ) Net loss and comprehensive loss (1,335,407 ) (307,285 ) Net loss attributable to non-controlling interest - (3,025 ) Net loss attributable to common stockholders (1,335,407 ) (304,260 ) Other comprehensive loss Foreign currency translation gain 12,993 3,122 Comprehensive loss (1,322,414 ) (304,163 ) Less: comprehensive loss attributable to non-controlling interest - (3,119 ) Comprehensive loss attributable to the common shareholders $ (1,322,414 ) $ (301,044 ) The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the three months ended September 30, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period. For the three months ended September 30, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Cross-border ocean freight solutions $ 1,836,591 45.0 % $ 1,703,657 41.1 % $ 132,934 7.8 % Cross-border airfreight solutions 2,244,963 55.0 % 2,444,819 58.9 % (199,856 ) (8.2 )% Total revenues 4,081,554 100.0 % 4,148,476 100.0 % (66,922 ) (1.6 )% Cost of revenues 3,559,015 87.2 % 3,500,933 84.4 % 58,082 1.7 % Gross profit $ 522,539 12.8 % $ 647,543 15.6 % $ (125,004 ) (19.3 )% 34 Revenues Our total revenues decreased by $66,922, or 1.6%, from $4,148,476 for the three months ended September 30, 2023, to $4,081,554 for the three months ended September 30, 2024. The decrease was primarily driven by a decrease in revenues from our cross-border airfreight solutions, partially offset by an increase in revenues from our cross-border ocean freight solutions. Revenues from our cross-border airfreight solutions decreased by $0.2 million or 8.2%, from $2.4 million in the three months ended September 30, 2023, to $2.2 million in the three months ended September 30, 2024. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 7,816 tons for the three months ended September 30, 2023, to approximately 7,273 tons for the three months ended September 30, 2024. Revenues from our cross-border ocean freight solutions increased by $0.1 million, or 7.8%, from $1.7 million in the three months ended September 30, 2023, to $1.8 million in the three months ended September 30, 2024. This growth was primarily due to an increase in the volume of cross-border ocean freights processed and forwarded, rising from 1,290 TEU in the three months ended September 30, 2023, to 1,430 TEU in the three months ended September 30, 2024. We anticipate a revenue rebound in the next quarter, driven by increased air freight demand for the upcoming holiday season as online purchases surge. In response to rising customer demand, we have expanded our production capacity and are now equipped to handle a higher volume of purchase orders. Additionally, the continued decline in ocean freight charges is stimulating import and export activities, while the ongoing trend toward online shopping highlights the need for timely and competitively priced deliveries to end consumers. Revenues by Customer Geographic For the three months ended September 30, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Asia-based customers $ 2,809,636 68.8 % $ 1,694,223 40.8 % $ 1,115,413 65.8 % U.S.-based customers 1,271,918 31.2 % 2,454,253 59.2 % (1,182,335 ) (48.2 )% Total revenues $ 4,081,554 100.0 % $ 4,148,476 100.0 % $ (66,922 ) (1.6 )% Revenues from the Asia-based customers increased by $1.1 million, or 65.8%, from $1.7 million in the three months ended September 30, 2023, to $2.8 million in the three months ended September 30, 2024. Revenues from the U.S.-based customers decreased by $1.2 million, or 48.2%, from $2.5 million in the three months ended September 30, 2023 to $1.3 million in the same period in 2024. The increase in revenues from Asia-based customers in the three months ended September 30, 2024, was driven by a surge in volume from these customers, particularly those serving large e-commerce platforms. This growth reflects the rising demand for our services, a direct result of the overall expansion of the U.S. e-commerce market. 35 The decrease in revenue from the U.S.-based customers in the three months ended September 30, 2024, compared to the same period in 2023, was primarily due to our strategic shift toward Asia-based e-commerce customers. Additionally, special projects with larger shipment volumes from U.S. customers were completed in the three months ended September 30, 2023, with no comparable projects in the same period in 2024. Cost of Revenues A breakdown of our cost of revenues for the three months ended September 30, 2024 and 2023 is as follows: For the three months ended September 30, Amount Increase Percentage Increase 2024 2023 (Decrease) (Decrease) Transportation and delivery costs $ 1,633,890 $ 1,961,011 $ (327,121 ) (16.7 )% Warehouse service charges 770,102 712,914 57,188 8.0 % Custom declaration and terminal charges 441,624 420,323 21,301 5.1 % Freight arrangement charges 164,340 103,178 61,162 59.3 % Overhead cost 549,059 303,507 245,552 80.9 % Total cost of revenue $ 3,559,015 $ 3,500,933 $ 58,082 1.7 % Our cost of revenues increased by $0.1 million, or 1.7%, from $3.5 million in the three months ended September 30, 2023, to $3.6 million in the three months ended September 30, 2024. The increase in cost of revenues was mainly due to the combined effects of: (i) an increase in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the three months ended September 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; (ii) 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 three months ended September 30, 2024, resulting from the higher assessed value of cross-border freight, particularly airfreight, during the same period; (iii) an increase in freight arrangement charges, mainly representing scheduling and booking fees for cross-border ocean freight during the three months ended September 30, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and (iv) an increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the three months ended September 30, 2024. The warehouse and equipment lease expenses increased significantly, from $207,807 in the three months ended September 30, 2023, to $410,193 in the three months ended September 30, 2024. The increase in lease expenses was primarily due to the addition of two warehouse agreements in the three months ended September 30, 2024, compared to the same period last year, and (v) A decrease in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the three months ended September 30, 2024, which was primarily due to a reduction in delivery service provided to customers. Instead, we offered a more comprehensive service package, which included warehouse and transloading services. Gross Profit Our gross profit decreased by $0.1 million, or 19.3%, from $0.6 million in the three months ended September 30, 2023, to $0.5 million in the three months ended September 30, 2024. Our gross margin was 12.8% for the three months ended September 30, 2024, compared to 15.6% for the three months ended September 30, 2023. The decline in gross margin was primarily attributable to (i) reduced revenue from the airfreight solution, and (ii) an increase in our cost of revenue in warehouse services, custom declaration and terminal charges, frights arrange charge and overhead costs allocated, as discussed above. 36 General and Administrative Expenses Our general and administrative expenses increased by $1.0 million, or 114.7%, from $0.9 million in the three months ended September 30, 2023, to $1.8 million in the three months ended September 30, 2024. These expenses represented 45.0% and 20.6% of our total revenues for the three months ended September 30, 2024 and 2023, respectively. The increase was primarily attributed to higher salary and employee benefit expenses, professional fee, office expense and traveling, insurance expense and entertainment expense: Our salaries and employee benefits expenses increased by $0.3 million, or 116.9%, from $0.5 million in the three months ended September 30, 2023, to $0.8 million in the three months ended September 30, 2024. Our salaries and employee benefits expenses represented 50.3% and 66.8% of our total general and administrative expenses for the three months ended September 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 $0.3 million, or 63.6%, from $0.5 million in the three months ended September 30, 2023, to $0.8 million in the three months ended September 30, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, meal allowance and health insurance expenses, increased by $0.01 million, or 53.3%, from $0.1 million in the three months ended September 30, 2023, to $0.2 million in the three months ended September 30, 2024, representing 8.9% and 12.5% of our total general and administrative expenses for the three months ended September 30, 2024 and 2023, respectively. The increase was mainly due to rising employee health insurance premiums. Our professional fee increased by $0.3 million, or 1,839.6%, from $17,535 in the three months ended September 30, 2023, to $340,114 in the three months ended September 30, 2024. Our professional fee represented 18.5% and 2.0% of our total general and administrative expenses for the three months ended September 30, 2024 and 2023, respectively. The increase was primarily due to audit fee, legal fee, consulting expense, investor-related expenses and financial reporting service fees for the three months ended September 30, 2024. In the three months ended September 30, 2023, most of the expenses directly related to offering that were not included in professional fees, as they were accounted for as deferred initial public offering assets. Our office expense represented 9.0% and 8.2% of our total general and administrative expenses for three months ended September 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. Our insurance expense increased by $68,937, or 1,452.6%, from $4,746 in the three months ended September 30, 2023, to $73,683 in the three months ended September 30, 2024. The increase was primarily due to purchasing insurance premiums for our directors and officers, as we became a public company in July 2024. Our traveling and entertainment expense represented 6.9% and 8.4% of our total general and administrative expenses for three months ended September 30, 2024 and 2023, respectively. The increase was mainly due to higher entertainment and gift expenses related to networking with our business partners. Other Income, Net Our other income, net, increased by $62,839, or 133.8%, from $46,949 in the three months ended September 30, 2023, to $109,788 in the three months ended September 30, 2024. The increase was primarily due to renting out part of our office space to our related party, Weship, for an additional two months during the three months ended September 30, 2024. Interest Expenses Our interest expenses for the three months ended September 30, 2024, remained relatively stable compared to same period in last year. 37 Loss Before Income Taxes We had loss before income taxes of $1.2 million for the three months ended September 30, 2024, compared to loss before income taxes of $0.3 million for the three months ended September 30, 2023. We were in a loss position before income taxes for the three months ended September 30, 2024, primarily attributable to the net effects of: (i) the decrease in gross profit, (ii) the rise in operating expenses; and (iii) the increase in other income for the three months ended September 30, 2024 as mentioned above. Income Tax Expense We had income tax expense of $89,581 and income tax recovery of $2,059 in the three months ended September 30, 2024 and 2023, respectively. We did not have current income tax provision in the three months ended September 30, 2024, due to net operating loss, and we recognized a deferred income tax asset of $373,897 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $463,478 to write off our deferred tax asset since we are uncertain that we will be able to utilize the deferred tax asset to offset future taxable income, resulting in a net deferred tax expense of $89,581 in the three months ended September 30, 2024. We did not have current income tax provision in the three months ended September 30, 2023, due to net operating loss, and we recognized a deferred income tax asset of $2,059, due to temporary differences recognized and a deferred income tax expense of $373,897 due to the change from an S Corporation to a C Corporation upon the completion of our reorganization on September 23, 2023. Since our transition to a C Corporation on September 23, 2023, ABL Chicago, our subsidiary in the U.S. is now obligated to pay federal tax at a rate of 21% and Illinois state tax at a rate of 7.5%. This tax obligation was previously exempt for us as an S Corporation. Net Loss As a result of the foregoing, we had a net loss of $1.3 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively. Liquidity and Capital Resources As of September 30, 2024, we had a cash and cash equivalent balance of $2.7 million. Our current assets were $5.8 million, and our current liabilities were $4.4 million, resulting in a current ratio of 1.3:1 and a positive working capital of $1.4 million. Total stockholders’ equity as of September 30, 2024 was $3.6 million. As of September 30, 2024 and June 30, 2023, we had accounts receivable net of allowance of $2.3 million and $2.8 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 September 30, 2024 and June 30, 2023, we provided a credit loss allowance of $66,903 and $54,066, 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. Since our offering closed in July 2024, we plan to use the proceeds to meet our ongoing working capital requirements. 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. Cash Flows The following table sets forth summary of our cash flows for the periods indicated: For the periods ended September 30, 2024 2023 Net cash (used in) provided by operating activities $ (1,402,784 ) $ 40,357 Net cash used in investing activities (38,279 ) (78,799 ) Net cash provided by financing activities 4,044,402 66,760 Effect of exchange rate changes on cash 12,386 3,216 Net increase in cash and cash equivalent 2,615,725 31,534 Cash and cash equivalent, beginning of the period 123,550 174,018 Cash and cash equivalent, end of the period $ 2,739,275 $ 205,552 38 Operating Activities Net cash used in operating activities was $1,402,784 in the three months ended September 30, 2024, including net loss of $1,335,407, adjusted for non-cash items for $612,895 and changes in working capital of negative $680,272. The non-cash items primarily included $466,723 amortization of operating lease assets, $36,159 depreciation included in G&A and cost of revenue, $7,595 depreciation of right-of-use finance assets and $12,837 from provision of allowance for expected credit loss and a decrease of $89,581 from deferred tax asset due to recognition of valuation allowance. The adjustments for changes in working capital mainly included a decrease of $402,895 and $156,850 in accounts payable — third parties and related parties, respectively, an increase of $77,812 in due from related parties because of rental income recognized for the three months ended September 30, 2024, a decrease of $470,260 in operating lease liabilities and a decrease of $24,876 in accrued expense and other payable, partially offset by a decrease of $282,864 and $257,924 in accounts receivable — third parties and related parties, respectively, due to a decrease of revenues near period end. Net cash provided by operating activities was $40,357 for the three months ended September 30, 2023, including net loss of $307,285, adjusted for non-cash items for $386,277, and changes in working capital of negative $38,635. The non-cash items primarily included $219,571 amortization of operating lease assets, $36,160 depreciation included in G&A and cost of revenue, $52,122 from provision of allowance for expected credit loss, and impacted by a loss of $73,151 from deconsolidation of a subsidiary. The adjustments for changes in working capital mainly included a decrease of $225,023 in operating lease liabilities, a decrease of $49,182 in due from related parties , an increase of $65,995 in accounts receivable — related parties and an increase of $138,491 in accounts receivable — third parties reflecting the impact of revenue growth combined with the timing of payments to third party providers, related parties and collections from clients on net working capital, partially offset by an increase of $133,904 in accounts payable — third parties, an increase of $141,213 in accounts payable — related parties, an increase of $37,739 in accrued expenses and other payables, and a decrease of $26,213 in contract assets. The $1,443,141 increase in cash used in operating activities in the three months ended September 30, 2024 compared to the prior year was primarily due to an increase in net loss of $1,028,122 in the three months ended September 30, 2024 compared to same period in the prior year, together with an increase of $641,637 in cash outflow from working capital due to timing of vendor payments, client payments and related parties payment. Investing Activities Net cash used in investing activities was $38,279 and $78,799 for the three months ended September 30, 2024 and 2023, respectively. Net cash used in investing activities for the three months ended September 30, 2024, was primarily attributable to our purchases of property and equipment and the prepayment for the installation of a security system which was still in progress as of the period ended. On August 4, 2023, we reduced our unpaid registered capital contribution in our investee company in China, namely ABL Wuhan, and concurrently, the third-party shareholders increased their registered capital contribution accordingly. Following this change, the third-party shareholders own 80% of equity interest and we own 20% of equity interest in ABL Wuhan. Consequently, ABL Wuhan ceased to be the Company’s subsidiary after August 4, 2023. Therefore, we had cash outflow of $48,893 upon deconsolidation of a subsidiary and payment for registered capital of $29,906 during the three months ended September 30, 2023. Financing Activities Net cash provided by financing activities was $4,044,402 and $66,760 in the three months ended September 30, 2024 and 2023, respectively. The increase in net cash provided by financing activities was mainly due to the net proceeds of approximately $5,351,281 from the offering, partly offset by repayment of $879,574 to shareholders, loans repayment of $265,456 and advancement to related party of $126,227 during the three months ended September 30, 2024. The net cash provided by financing activities for the three months ended September 30, 2023, was primarily attributable proceeds from net proceed of loans of $102,863. 39 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 $38,279 and $nil in the three months ended September 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. Commitments and Contractual Obligations As of September 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 $ 5,104,017 $ 2,149,231 $ 2,020,342 $ 934,444 $ — Finance lease obligations 49,055 35,354 13,701 — — Vehicle loans 141,490 57,279 65,219 18,992 — Equipment loans 76,320 48,823 27,497 — — Other loans 392,320 392,320 — — — Total $ 5,763,202 $ 2,683,007 $ 2,126,759 $ 953,436 $ — Off-Balance Sheet Commitments and Arrangements There were no off-balance sheet arrangements as of and for the three months ended September 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. 40 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. Recent Accounting Pronouncements The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. In November 2023, the FASB issued ASU No. 2023-07, “Improvements to Reportable Segment Disclosures” (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. Management is currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025. In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income tax paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in the required additional disclosures being included in the Company’s consolidated financial statements, once adopted. The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.