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 December 31, 2024, we had served over 300 customers to fulfill over 48,000 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 December 31, 2024, we had collaborated with almost all major global ocean and air carriers to forward 33,800 TEU of container loads and 59,600 tons of air cargo. As of December 31, 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 December 31, 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 $46.5 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. As of December 31, 2024, we had fulfilled over 48,000 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. During the three and six months ended December 31, 2024, we had a new business segment through acquired 100% equity interest of Hupan Pharmaceutical, a comprehensive pharmaceutical distribution and supply chain service provider headquartered in Wuhan, China with verticals in brand promotion and healthcare technology support. We have partnered with some pharmaceutical manufacturers to supply infusion fluids, which are our major pharmaceutical products sold and distributed during this quarter. For the six months ended December 31, 2024 and 2023, our total revenues amounted to $7.7 million and $9.1 million, respectively, and our gross profit amounted to $0.5 million and $1.7 million during the same periods, respectively. For the three months ended December 31, 2024 and 2023, our revenues amounted to $3.6 million and $4.9 million, respectively, and our gross profit amounted to negative $0.04 million and $1.1 million during the same periods, respectively. 37 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 December 31, 2024, we had served over 300 customers to fulfill over 48,000 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. 38 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. From December 2024, we started to generate revenues from the distribution of pharmaceutical and medial products. We order from the manufacturer, receive and carry the products at a designated warehouse, and deliver the products to the customers’ warehouses or designated locations. Cost of Revenues . Our cost of revenues from customized cross-border ocean and air freight solutions 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. Our cost of revenues from the distribution of pharmaceutical and medical products also comprises cost of pharmaceutical products from manufacturers, freight arrangement charges and other overhead costs. Selling Expenses . Our selling expenses primarily include salaries expense of sales team engaged in developing potential customers and maintaining customer relationships. General and Administrative Expenses . Our general and administrative expenses primarily include salaries and staff benefits, repair and maintenance expenses, depreciation on property and equipment, lease expenses, travelling and entertainment expenses, 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. 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. 39 Results of Operations The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three and six months ended December 31, 2024 and 2023 in U.S. dollars. Six Months Ended December 31, Three Months Ended December 31, 2024 2023 2024 2023 Revenue from cross-border freight solutions – third party $ 6,702,063 $ 8,639,983 $ 3,102,276 $ 4,585,696 Revenue from cross-border freight solutions – related parties 756,994 424,596 275,227 330,407 Revenue from distribution of pharmaceutical products - third parties 218,086 - 218,086 - Total revenue 7,677,143 9,064,579 3,595,589 4,916,103 Cost of revenue from cross-border freight solutions – third party 6,153,994 6,329,650 3,159,709 3,424,053 Cost of revenue from cross-border freight solutions – related party 921,050 1,022,877 356,320 427,541 Cost of revenue from pharmaceutical products - related parties 121,791 - 121,791 - Total cost of revenue 7,196,835 7,352,527 3,637,820 3,851,594 Gross profit (loss) 480,308 1,712,052 (42,231 ) 1,064,509 Operating expenses: Selling expenses 54,488 — 54,488 — General and administrative expenses 3,749,059 1,840,831 1,911,853 985,053 Loss from deconsolidation of a subsidiary — 73,151 — — Provision (reversal) of allowance for expected credit loss 1,956 49,591 (10,881 ) (2,531 ) Total operating expenses 3,805,503 1,963,573 1,955,460 982,522 Income (loss) from operations (3,325,195 ) (251,521 ) (1,997,691 ) 81,987 Other income Other income, net 201,541 88,449 91,753 41,500 Interest expense (68,992 ) (53,864 ) (40,882 ) (31,079 ) Total other income 132,549 34,585 50,871 10,421 (Loss) income before income taxes (3,192,646 ) (216,936 ) (1,946,820 ) 92,408 Income tax expense (credit) 89,581 26,125 — 28,184 Net (loss) income (3,282,227 ) (243,061 ) (1,946,820 ) 64,224 Less: net loss attributable to non-controlling interest — (3,025 ) — — Net (loss) income attributable to the Company (3,282,227 ) (240,036 ) (1,946,820 ) 64,224 Other comprehensive (loss) income: Foreign currency translation income (12,186 ) 3,122 (25,179 ) — Comprehensive (loss) income (3,294,413 ) (239,939 ) (1,971,999 ) 64,224 Less: comprehensive loss attributable to non-controlling interest — (3,119 ) — — Comprehensive(loss) income attributable to the Company $ (3,294,413 ) $ (236,820 ) $ (1,971,999 ) $ 64,224 ( Loss) earnings per share – basic and diluted $ (0.44 ) $ (0.04 ) $ (0.26 ) $ 0.01 Weighted Average Shares Outstanding – basic and diluted 7,500,000 6,000,000 7,500,000 6,000,000 40 For the Three Months Ended December 31, 2024 Compared to the Three Months Ended December 31, 2023 The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the three months ended December 31, 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 December 31, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Cross-border ocean freight solutions $ 1,374,805 38.2 % $ 1,813,001 36.9 % $ (438,196 ) (24.2 )% Cross-border airfreight solutions 2,002,698 55.7 % 3,103,102 63.1 % (1,100,404 ) (35.5 )% Subtotal 3,377,503 93.9 % 4,916,103 100.0 % (1,538,600 ) (31.3 )% Revenue from distribution of pharmaceutical products 218,086 6.1 % - - 218,086 NA Total revenues 3,595,589 100.0 % 4,916,103 100.0 % (1,320,514 ) (26.9 )% Cost of revenues – cross-border freight solution 3,516,029 97.8 % 3,851,594 78.3 % (335,565 ) (8.7 )% Cost of revenues –pharmaceutical products 121,791 3.4 % - - 121,791 NA Total cost of revenues 3,637,820 101.2 % 3,851,594 78.3 % (213,774 ) (5.6 )% Gross profit – cross-border freight solution (138,526 ) (3.9 )% 1,064,509 21.7 % (1,203,035 ) (113.0 )% Gross profit –pharmaceutical products 96,295 2.7 % - - 96,295 NA Total gross (loss) profit $ (42,231 ) (1.2 )% $ 1,064,509 21.7 % $ (1,106,740 ) (104.0 )% Revenues Our total revenues from cross-border freight solutions decreased by $1.5 million, or 31.3%, from $4.9 million for the three months ended December 31, 2023, to $3.4 million for the three months ended December 31, 2024. The decrease was primarily driven by a significant decline in volume we handled from our cross-border airfreight solutions. Revenues from our cross-border airfreight solutions decreased by $1.1 million or 35.5%, from $3.1 million in the three months ended December 31, 2023, to $2.0 million in the three months ended December 31, 2024. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 8,217 tons for the three months ended December 31, 2023, to approximately 4,459 tons for the three months ended December 31, 2024. Some of our customers reduced their orders and uncertainty in political regulations regarding tariffs, leading to a significant decline in our revenue. Revenues from our cross-border ocean freight solutions decreased by $0.4 million, or 24.2%, from $1.8 million in the three months ended December 31, 2023, to $1.4 million in the three months ended December 31, 2024. This reduction was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 1,330 TEU in the three months ended December 31, 2023, to 1,046 TEU in the three months ended December 31, 2024. Additionally, a slowdown in consumer spending and business investments, impacted by overall economic downturn, reduced the demand for imported goods, leading to lower container volumes. 41 Starting from December 2024, we established a new revenue stream through the distribution of pharmaceutical products. We procured pharmaceuticals—primarily pharmaceutical solutions—directly from manufacturers and supplied them to distributors, hospitals, and clinics. For the three months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year. We anticipate a lower revenue in the next quarter in the competitive and uncertain economic environment. Despite of decreasing air freight volume and the upcoming new rules to curtail small package and low value shipment from China to the U.S., we are committed to exploring new customers opportunities while maintaining strong relationship with existing customers. We believe that 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 December 31, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Asia-based customers $ 2,750,202 76.5 % $ 2,602,745 52.9 % $ 147,457 5.7 % U.S.-based customers 627,301 17.4 % 2,313,358 47.1 % (1,686,057 ) (72.9 )% 3,377,503 93.9 % 4,916,103 100.0 % (1,538,600 ) (31.3 )% Revenue from distribution of pharmaceuticals Asia-based customers 218,086 6.1 % - - 218,086 N/A Total revenues $ 3,595,589 100.0 % $ 4,916,103 100.0 % $ (1,320,514 ) (26.9 )% Revenues from cross-border freight solutions for the Asia-based customers increased by $0.1 million, or 5.7%, from $2.6 million in the three months ended December 31, 2023, to $2.8 million in the three months ended December 31, 2024. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $1.7 million, or 72.9%, from $2.3 million in the three months ended December 31, 2023 to $0.6 million in the same period in 2024. The increase in revenues from Asia-based customers in the three months ended December 31, 2024, was driven by a surge in volume from a new Aisa-based customer since June 2024, which was partly offset by decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendment of de minimis rule. The decrease in revenue from the U.S.-based customers in the three months ended December 31, 2024, compared to the same period in 2023, was primarily due to our strategic shift toward Asia-based e-commerce customers, in addition to the overall decline in revenue discussed earlier. Additionally, one-off special projects with larger shipment volumes from U.S. customers were completed in the three months ended December 31, 2023, with no comparable projects in the same period in 2024. Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the three months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year. 42 Cost of Revenues A breakdown of our cost of revenues for the three months ended December 31, 2024 and 2023 is as follows: For the three months ended December 31, Amount Increase Percentage Increase 2024 2023 (Decrease) (Decrease) Cost of revenue from cross-border freight solutions Transportation and delivery costs $ 1,401,927 $ 1,562,128 $ (160,201 ) (10.3 )% Warehouse service charges 867,098 980,896 (113,798 ) (11.6 )% Custom declaration and terminal charges 583,471 879,869 (296,398 ) (33.7 )% Freight arrangement charges 128,205 125,314 2,891 2.3 % Overhead cost 535,328 303,387 231,941 76.5 % Subtotal 3,516,029 3,851,594 (335,565 ) (8.7 )% Cost of revenue from distribution of pharmaceuticals Cost of goods sold 121,791 - 121,791 NA Total cost of revenue $ 3,637,820 $ 3,851,594 $ (213,774 ) (5.6 )% Our cost of revenues from cross-border freight solutions decreased by $0.3 million, or 8.7%, from $3.9 million in the three months ended December 31, 2023, to $3.5 million in the three months ended December 31, 2024. The increase in cost of revenues was mainly due to the combined effects of: (i) a decrease in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the three months ended December 31, 2024, which was primarily due to a reduction in delivery service provided to customers. However, our reduction in transportation and delivery costs are significantly lower than the decline in revenue, due to high inflation in gasoline and labor cost over past year. Additionally, the forwarding service for airfreights have strict timing requirements, preventing us from fully utilizing the capacity of each delivery, often resulting in trucks operating at half capacity; (ii) a decrease 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 December 31, 2024, resulting from a drop in volume of cross-border freight we handled, particularly airfreight, during the same period; (iii) a decrease in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the three months ended December 31, 2024. This was due to a reduction in staffing costs related to unpacking shipments into smaller packages. We gradually reduced the warehouse labor shifts; however, adjusting to new labor schedules takes time; (iv) no material change in freight arrangement charges, mainly representing scheduling and booking fees for cross-border ocean freight during the three months ended December 31, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and (v) 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 December 31, 2024. The warehouse and equipment lease expenses increased significantly, from $ 255,654 in the three months ended December 31, 2023, to $499,021 in the three months ended December 31, 2024. The increase was primarily because we had two more warehouse lease agreements during the three months ended December 31, 2024, compared to the same period last year. These agreements were negotiated before the significant decline in our revenue. To mitigate costs and improve our gross profit margin, we plan to sublease one of the warehouse at Chicago in the next fiscal quarter. 43 Gross Profit (loss) Our overall gross loss was $42,231 in the three months ended December 31, 2024, compared to gross profit of $1,064,509 in same period last year. The gross loss occurred primarily due to two key factors. First, there was a significant decrease in revenue due to stricter enforcement on the de minimis shipments regulations for the six months ended December 31, 2024. Second, despite this decline in revenue, the company’s fixed overhead costs remained high. These costs, such as rent and warehouse labour are not easily adjusted in the short term. As a result, the fixed overhead costs could not be covered by the ordinary gross margin, leading to a gross loss for the period. Additionally, while other cost of revenue decreased in line with lower revenue, the reduction in costs lagged behind due to time constraints. Our gross margin of cross-border freight business remains a lower but positive number by not taking fixed overhead cost into consideration. Our gross margin of distribution of pharmaceutical was 44.2% for the three months ended December 31, 2024. It is a new business segment during current quarter and thus no gross margin was noted compared to same period in prior year. Selling Expenses Our selling expenses amounted to $54,488 for the three months ended December 31, 2024, compared to nil for the same period in 2023. The increase was primarily driven by salaries for our sales team, which were incurred as part of the new pharmaceutical product business launched during the current quarter. General and Administrative Expenses Our general and administrative expenses increased by $0.9 million, or 94.1%, from $1.0 million in the three months ended December 31, 2023, to $1.9 million in the three months ended December 31, 2024. These expenses represented 53.2% and 20.0% of our total revenues for the three months ended December 31, 2024 and 2023, respectively. The increase was primarily attributed to higher salary and employee benefit expenses and professional fee operating as a listed company. Our salaries and employee benefits expenses increased by $0.4 million, or 64.1%, from $0.6 million in the three months ended December 31, 2023, to $1.1 million in the three months ended December 31, 2024. Our salaries and employee benefits expenses represented 55.8% and 66.0% of our total general and administrative expenses for the three months ended December 31, 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 in first half of 2024, along with the salary expenses associated with the two new subsidiaries in China. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $0.4 million, or 70.7%, from $0.6 million in the three months ended December 31, 2023, to $1.0 million in the three months ended December 31, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, employee defined contribution plan in China, meal allowance and health insurance expenses, increased by $21,914, or 23.9%, from $91,674 in the three months ended December 31, 2023, to $113,588 in the three months ended December 31, 2024, representing 5.9% and 9.3% of our total general and administrative expenses for the three months ended December 31, 2024 and 2023, respectively. The increase was mainly due to rising employee health insurance premiums. Our professional fee increased by $0.2 million, or 1,359.3%, from $14,802 in the three months ended December 31, 2023, to $216,012 in the three months ended December 31, 2024. Our professional fee represented 11.3% and 1.5% of our total general and administrative expenses for the three months ended December 31, 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 December 31, 2024. In the three months ended December 31, 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 traveling and entertainment expense increased by $0.2 million, or 224.8%, from $87,900 in the three months ended December 31, 2023, to $285,541 in the three months ended December 31, 2024. Our traveling and entertainment expense represented 14.9% and 8.9% of our total general and administrative expenses for three months ended December 31, 2024 and 2023, respectively. The increase was mainly due to higher entertainment and gift expenses related to networking with our business partners as we started a new business through the new subsidiary acquired. 44 Other Income, Net Our other income, net, increased by $50,253, or 121.1%, from $41,500 in the three months ended December 31, 2023, to $91,753 in the three months ended December 31, 2024. The increase was primarily becuase we did not rent out part of our warehouse space to our related party, Weship, during the three months ended December 31, 2023. Interest Expenses Our interest expenses for the three months ended December 31, 2024, remained relatively stable compared to same period in last year. Income (Loss) Before Income Taxes We had loss before income taxes of $1.9 million for the three months ended December 31, 2024, compared to income before income taxes of $92,408 for the three months ended December 31, 2023. We were in a loss position before income taxes for the three months ended December 31, 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 December 31, 2024 as mentioned above. Income Tax Expense We had income tax expense of $nil and $28,184 in the three months ended December 31, 2024 and 2023, respectively. We did not have current income tax provision in the three months ended December 31, 2024, due to net operating loss, and we recognized a net deferred income tax asset of $585,197 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $585,197 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 income tax expense of $nil in the three months ended December 31, 2024. We did not have current income tax provision in the three months ended December 31, 2023, due to net loss, however, we recognized a deferred income tax asset of $71,909, due to temporary differences recognized and a deferred income tax expense of $28,184 due to temporary differences recognized. Net Income (Loss) As a result of the foregoing, we had a net loss of $1.9 million and a net income of $64,224 for the three months ended December 31, 2024 and 2023, respectively. For the Six Months Ended December 31, 2024 Compared to the Six Months Ended December 31, 2023 The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the six months ended December 31, 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 six months ended December 31, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Cross-border ocean freight solutions $ 3,211,396 41.8 % $ 3,516,658 38.8 % $ (305,262 ) (8.7 )% Cross-border airfreight solutions 4,247,661 55.4 % 5,547,921 61.2 % (1,300,260 ) (23.4 )% Subtotal 7,459,057 97.2 % 9,064,579 100.0 % (1,605,522 ) (17.7 )% Revenue from distribution of pharmaceutical products 218,086 2.8 % - - 218,086 NA Total revenues 7,677,143 100.0 % 9,064,579 100.0 % (1,387,436 ) (15.3 )% Cost of revenues – cross-border solution 7,075,044 92.2 % 7,352,527 81.1 % (277,483 ) (3.8 )% Cost of revenues –pharmaceutical products 121,791 1.5 % - - 121,791 NA Total cost of revenues 7,196,835 93.7 % 7,352,527 81.1 % (155,692 ) (2.1 )% Gross profit – cross-border freight solution 384,013 5.0 % 1,712,052 18.9 % (1,328,039 ) (77.6 )% Gross profit –pharmaceutical products 96,295 1.3 % - - 96,295 NA Gross profit $ 480,308 6.3 % $ 1,712,052 18.9 % $ (1,231,744 ) (71.9 )% 45 Revenues Our total revenues from cross-border freight solution decreased by $1.6 million, or 17.7%, from $9.1 million for the six months ended December 31, 2023, to $7.5 million for the six months ended December 31, 2024. The decrease was primarily driven by a significant decline in volume we handled from our cross-border airfreight solutions. Revenues from our cross-border airfreight solutions decreased by $1.3 million or 23.4%, from $5.5 million in the six months ended December 31, 2023, to $4.2 million in the six months ended December 31, 2024. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 16,034 tons for the six months ended December 31, 2023, to approximately 11,732 tons for the six months ended December 31, 2024. Some of our customers reduced their orders and uncertainty in political regulations regarding tariffs, leading to a significant decline in our revenue. Revenues from our cross-border ocean freight solutions decreased by $0.3 million, or 8.7%, from $3.5 million in the six months ended December 31, 2023, to $3.2 million in the six months ended December 31, 2024. This growth was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 2,620 TEU in the six months ended December 31, 2023, to 2,476 TEU in the six months ended December 31, 2024. Additionally, a slowdown in consumer spending and business investments, impacted by overall economic downturn, reduced the demand for imported goods, leading to lower container volumes. Starting from December 2024, we established a new revenue stream through the distribution of pharmaceutical products. We procured pharmaceuticals—primarily pharmaceutical solutions—directly from manufacturers and supplied them to distributors, hospitals, and clinics. For the six months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year. Revenues by Customer Geographic For the six months ended December 31, 2024 2023 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Asia-based customers $ 5,559,837 72.5 % $ 4,296,968 47.4 % $ 1,262,869 29.4 % U.S.-based customers 1,899,220 24.7 % 4,767,611 52.6 % (2,868,391 ) (60.2 )% 7,459,057 97.2 % 9,064,579 100.0 % (1,605,522 ) (17.7 )% Revenue from distribution of pharmaceuticals Asia-based customers 218,086 2.8 % - - 218,086 N/A Total revenues $ 7,677,143 100.0 % $ 9,064,579 100.0 % $ (1,387,436 ) (15.3 )% Revenues from cross-border freight solutions for the Asia-based customers increased by $1.3 million, or 29.4%, from $4.3 million in the six months ended December 31, 2023, to $5.6 million in the six months ended December 31, 2024. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $2.9 million, or 60.2%, from $4.8 million in the six months ended December 31, 2023 to $1.9 million in the same period in 2024. 46 The increase in revenues from Asia-based customers in the six months ended December 31, 2024, was driven by a surge in volume from a new Aisa-based customer since June 2024, which was partly offset by decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendment of de minimis rule. The decrease in revenue from the U.S.-based customers in the six months ended December 31, 2024, compared to the same period in 2023, was primarily due to our strategic shift toward Asia-based e-commerce customers, in addition to the overall decline in revenue discussed earlier. Additionally, one-off special projects with larger shipment volumes from U.S. customers were completed in the six months ended December 31, 2023, with no comparable projects in the same period in 2024. Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the six months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year. Cost of Revenues A breakdown of our cost of revenues for the six months ended December 31, 2024 and 2023 is as follows: For the six months ended December 31, Amount Increase Percentage Increase 2024 2023 (Decrease) (Decrease) Cost of revenue from cross-border freight solutions Transportation and delivery costs $ 3,035,817 $ 3,523,139 $ (487,322 ) (13.8 )% Warehouse service charges 1,637,200 1,693,810 (56,610 ) (3.3 )% Custom declaration and terminal charges 1,025,095 1,300,192 (275,097 ) (21.2 )% Freight arrangement charges 292,545 228,492 64,053 28.0 % Overhead cost 1,084,387 606,894 477,493 78.7 % Subtotal 7,075,044 7,352,527 (277,483 ) (3.8 )% Cost of revenue from distribution of pharmaceuticals Cost of goods sold 121,791 - 121,791 NA Total cost of revenue $ 7,196,835 $ 7,352,527 $ (155,692 ) (2.1 )% Our cost of revenues decreased by $0.2 million, or 2.1%, from $7.4 million in the six months ended December 31, 2023, to $7.2 million in the six months ended December 31, 2024. The decrease in cost of revenues was mainly due to the combined effects of: (i) a decrease in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the six months ended December 31, 2024, which was primarily due to a reduction in delivery service provided to customers. However, our reduction in transportation and delivery costs are significantly lower than the decline in revenue, due to high inflation in gasoline and labor cost over past year. Additionally, the forwarding service for airfreights have strict timing requirements, preventing us from fully utilizing the capacity of each delivery, often resulting in trucks operating at half capacity; (ii) a decrease in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the six months ended December 31, 2024, due to decrease in staff cost in connection with unpackaging shipment into small packages. We gradually reduced the warehouse labor shifts; however, adjusting to new labor schedules takes time; (iii) a decrease in custom declaration and terminal charges, consisting of customs fees, handling charges, and entry service fees charged by ports and terminals during the six months ended December 31, 2024，resulting from a drop in volume of cross-border freight we handled, 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 six months ended December 31, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and (v) an increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the six months ended December 31, 2024. The warehouse and equipment lease expenses increased significantly, from $527,759 in the six months ended December 31, 2023, to $1,002,820 in the six months ended December 31, 2024. The increase was primarily we had two more warehouse lease agreements during the three months ended December 31, 2024, compared to the same period last year. These agreements were negotiated before the significant decline in our revenue. To mitigate costs and improve our gross profit margin, we plan to sublease one of the warehouse at Chicago in the next fiscal quarter. 47 Gross Profit Our overall gross profit decreased by $1.2 million, or 71.9%, from $1.7 million in the six months ended December 31, 2023, to $0.5 million in the six months ended December 31, 2024. Our gross margin of cross-border freight solution was 5.1% for the six months ended December 31, 2024, compared to 18.9% for the six months ended December 31, 2023. The decline in gross margin was primarily attributable to (i) revenue from the airfreight and ocean freight solution decreased to a greater extend to decrease in our cost of revenue, such as transportation and delivery cost, warehouse services, custom declaration and terminal charges, and (ii) increased overhead costs allocated, as discussed above. Our gross margin of distribution of pharmaceutical was 44.2% for the six months ended December 31, 2024. It is a new business segment during current quarter and thus no gross margin was noted compared to same period in prior year. Selling Expenses Our selling expenses amounted to $54,488 for the six months ended December 31, 2024, compared to nil for the same period in 2023. The increase was primarily driven by salaries for our sales team, which were incurred as part of the new pharmaceutical product business launched during the current quarter. General and Administrative Expenses Our general and administrative expenses increased by $1.9 million, or 103.7%, from $1.8 million in the six months ended December 31, 2023, to $3.7 million in the six months ended December 31, 2024. These expenses represented 48.8% and 20.3% of our total revenues for the six months ended December 31, 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 $0.8 million, or 63.0%, from $1.2 million in the six months ended December 31, 2023, to $2.0 million in the six months ended December 31, 2024. Our salaries and employee benefits expenses represented 53.1% and 66.3% of our total general and administrative expenses for the six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to (i) the recruitment of additional sales, customer services, and back-office support personnel to support our business in first half 2024, and (ii) salaries of management and operation team for our new business in China. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $0.7 million, or 67.5%, from $1.0 million in the six months ended December 31, 2023, to $1.7 million in the six months ended December 31, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, employee defined contribution plan in China, meal allowance and health insurance expenses, increased by $0.1 million, or 39.8%, from $0.2 million in the six months ended December 31, 2023, to $0.3 million in the six months ended December 31, 2024, representing 7.4% and 10.8% of our total general and administrative expenses for the six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to rising employee health insurance premiums. Our professional fee increased by $0.5 million, or 1,619.8%, from $32,337 in the six months ended December 31, 2023, to $556,126 in the six months ended December 31, 2024. Our professional fee represented 14.8% and 1.8% of our total general and administrative expenses for the six months ended December 31, 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 six months ended December 31, 2024. In the six months ended December 31, 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 insurance expense increased by $0.1 million, or 1,701.0%, from $6,948 in the six months ended December 31, 2023, to $125,131 in the six months ended December 31, 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 11.0% and 8.7% of our total general and administrative expenses for six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to higher entertainment and gift expenses related to networking with our business partners as well as more business trips during recent quarter. 48 Other Income, Net Our other income, net, increased by $0.1 million, or 127.9%, from $0.1 million in the six months ended December 31, 2023, to $0.2 million in the six months ended December 31, 2024. The increase was primarily due to renting out part of our warehouse space to our related party, Weship, for an additional five months during the six months ended December 31, 2024. Interest Expenses Our interest expenses increased by $15,128, or 28.1%, from $53,864 in the six months ended December 31, 2024, to $68,992 in the six months ended December 31, 2024. Increase interest expense was mainly due to late credit card payments. Loss Before Income Taxes We had loss before income taxes of $3.2 million and $0.2 million for the six months ended December 31, 2024 and 2023. Our loss before income taxes increased 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 six months ended December 31, 2024 as mentioned above. Income Tax Expense We had income tax expense of $89,581 and $26,125 in the six months ended December 31, 2024 and 2023, respectively. We did not have current income tax provision in the six months ended December 31, 2024, due to net operating loss, and we recognized a deferred income tax asset of $959,094 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $1,048,675 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 income tax expense of $89,581 in the six months ended December 31, 2024. We did not have current income tax provision in the six months ended December 31, 2023, due to net loss, however, we recognized a deferred income tax asset of $8,231, due to temporary differences recognized and a deferred income tax expense of $17,894 due to the change from an S Corporation to a C Corporation upon the completion of our reorganization on September 23, 2023. Net Loss As a result of the foregoing, we had a net loss of $3.3 million and $0.2 million for the six months ended December 31, 2024 and 2023, respectively. Liquidity and Capital Resources As of December 31, 2024, we had a cash and cash equivalent balance of $1.1 million. Our current assets were $4.4 million, and our current liabilities were $5.4 million, resulting in a current ratio of 0.81:1 and a negative working capital of $1.1 million. Total stockholders’ equity as of December 31, 2024 was $1.6 million. As of December 31, 2024 and June 30, 2024, we had accounts receivable net of allowance of $1.9 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 December 31, 2024 and June 30, 2024, we provided a credit loss allowance of $56,022 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. 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. 49 Cash Flows The following table sets forth summary of our cash flows for the periods indicated: For the six months ended December 31, 2024 2023 Net cash (used in) provided by operating activities $ (1,933,000 ) $ 257,836 Net cash used in investing activities (1,350,498 ) (78,799 ) Net cash provided by (used in) financing activities 4,295,361 (15,538 ) Effect of exchange rate changes on cash (11,999 ) 3,216 Net increase in cash and cash equivalent 999,864 166,715 Cash, beginning of the period 123,550 174,018 Cash, end of the period $ 1,123,414 $ 340,733 Operating Activities Net cash used in operating activities was $1,933,000 in the six months ended December 31, 2024, including net loss of $3,282,227, adjusted for non-cash items for $1,183,152 and changes in working capital of positive $166,075. The non-cash items primarily included $989,003 amortization and interest expense of operating lease assets, $87,132 depreciation included in G&A and cost of revenue, $15,480 depreciation of right-of-use finance assets and $1,956 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 $424,648 and $565,766 in accounts receivable — third parties and related parties, respectively, due to a decrease of revenues near period end and an increase of $312,722 in accrued expense and other payable, partially offset by an increase in prepayment of $112,620, a decrease of $742,649 in operating lease liabilities and a decrease of $156,165 in accounts payable — related parties. Net cash provided by operating activities was $257,836 for the six months ended December 31, 2023, including net loss of $243,061, adjusted for non-cash items for $674,713, and changes in working capital of negative $173,816. The non-cash items primarily included $439,142 non-cash operating lease expense, $72,319 depreciation and amortization, $49,591 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 (i) an increase of $192,609 in accounts receivable — related parties, (ii) an increase of $479,056 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 and (iii) an increase of $27,169 in contract assets, partially offset by (i) an increase of $539,542 in accounts payable — third parties, (ii) an increase of $241,721 in accounts payable — related parties and (iii) an increase of $122,547 in accrued expenses and other payables. The $2,190,836 increase in cash used in operating activities in the six months ended December 31, 2024 compared to the prior year was primarily due to an increase in net loss of $3,039,166 in the six months ended December 31, 2024 compared to same period in the prior year, partly offset by an increase of $339,891 in cash flow from working capital due to timing of vendor payments, client payments and related parties payment. Investing Activities Net cash used in investing activities was $1,350,498 and $78,799 for the six months ended December 31, 2024 and 2023, respectively. Net cash used in investing activities for the six months ended December 31, 2024, was primarily attributable to net cash payment of $552,721 for intangible assets through acquisition of 100% equity interest in Hupan Pharmaceutical and we had a loan of $686,697 to a third party. We also purchased property and equipment, conducted office renovation for our operation of subsidiaries in Mainland China. 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 six months ended December 31, 2023. 50 Financing Activities Net cash provided by financing activities was $4,295,361 for the six months ended December 31, 2024, compared to net cash used in financing activities of $15,538 for same period in prior year, respectively. The increase in net cash provided by financing activities was mainly due to the net proceeds of $5,351,281 from the offering and proceeds from loan borrowing of $195,000 and a loan from a third party of $276,365, partly offset by repayment of $805,345 to shareholders and loans repayment of $339,914 during the six months ended December 31, 2024. The net cash provided by financing activities for the six months ended December 31, 2023, mainly due to the proceeds from loans of $225,000 that we borrowed, and net proceeds from shareholders by $158,455, partially offset by repayment of loans, vehicle loans and equipment loans of $245,564, and the payment for deferred offering cost of 140,000. 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 $256,314 and $nil in the six months ended December 31, 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. Commitments and Contractual Obligations As of December 31, 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 $ 5,051,427 $ 2,439,066 $ 1,724,121 $ 888,240 $ — Finance lease obligations 148,472 56,205 52,565 39,702 — Construction-in-progress project 87,491 54,548 32,943 — — Vehicle loans 255,933 72,858 104,298 60,206 18,571 Equipment loans 63,136 45,295 17,841 — — Other loans 535,306 535,306 — — — Total $ 6,141,765 $ 3,203,278 $ 1,931,768 $ 988,148 $ 18,571 Off-Balance Sheet Commitments and Arrangements There were no off-balance sheet arrangements as of and for the six months ended December 31, 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. 51 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. 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. 52