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 March 31, 2025, we had served over 400 customers to fulfill over 51,500 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 March 31, 2025, we had collaborated with almost all major global ocean and air carriers to forward 34,900 TEU of container loads and 63,300 tons of air cargo. As of March 31, 2025, 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 March 31, 2025, 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 $50.0 million. Leveraging our strong cross-border supply chain service capabilities, extensive service provider network of cross-border freight carriers and U.S. domestic ground transportation carriers, massive and hyper-busy regional warehousing and distribution centers as well as deep understanding of the Asian market, we have been able to build up our brand and reputation and have achieved fast growth since our inception. As of March 31, 2025, we had fulfilled over 51,500 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 nine months ended March 31, 2025, 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. 41 For the nine months ended March 31, 2025 and 2024, our total revenues amounted to $11.5 million and $13.5 million, respectively, and our gross profit amounted to $1.2 million and $2.7 million during the same periods, respectively. For the three months ended March 31, 2025 and 2024, our revenues amounted to $3.8 million and $4.5 million, respectively, and our gross profit amounted to negative $0.7 million and $1.0 million during the same periods, respectively. 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 March 31, 2025, we had served over 400 customers to fulfill over 51,500 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. 42 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. Uncertainty and Impacts on the Recent U.S. Tarriff Policies and Regulations Our results of operations also depend on our ability to respond with the recent tariff and other restrictions placed on imports. The U.S. government recently increased U.S. special tariffs and proposed amendments to the de minimis rule significantly impacts companies operating in the cross-border freight forwarding industry. The heightened tariffs—particularly those targeting Chinese-origin goods and extending globally—raise the cost of imported goods, prompting clients to reduce shipment volumes, shift sourcing strategies, or consolidate cargo to offset rising expenses. On March 4, 2025, the U.S. imposed 25% tariffs on imports from Mexico and Canada and enacted an extra 10% tariff on Chinese imports, therefore doubling the previously levied tariff from February to an additional 20% on existing tariffs. On March 6, 2025, President Trump announced that the U.S. will pause the 25% tariffs on U.S. imports from Mexico and Canada that are covered under a 2020 United States-Mexico-Canada Agreement, or USMCA, trade agreement until April 2, 2025. Goods that are not covered by the agreement remain subject to tariffs. On April 2, 2025, President Trump announced new tariffs on many U.S. trading partners, including a 34% tax on imports from China, a 20% tax on products from the E.U., and a baseline 10% tax on imports from many countries. These tariffs were in addition to the previous announcements of 25% taxes on auto imports, tariffs implemented against China, Canada and Mexico, and trade penalties on steel and aluminum. However, the 20% charge on imports from China was in addition to the 34% import tax announced. On April 9, 2025, President Trump has increased the tariffs on Chinese imports to a total tariff rate of 145%. This included a 20% "fentanyl tariff" and a 125% "reciprocal tariff" aimed at addressing trade imbalances and other concerns. On April 10, 2025, China raised tariff on all U.S. goods to 84% and further increased to 125% on April 12, 2025. Meanwhile, amendments to the de minimis rule, which previously allowed low-value shipments (under $800) to enter the U.S. duty-free, now impose tighter restrictions, including exclusion of certain countries like China and increased scrutiny or disqualification of bulk shipments. These changes increase customs complexity, slow clearance times, and reduce the volume of low-value parcels traditionally handled by freight forwarders. In May 2025, the US and China have agreed a truce to lower import taxes on goods being traded between the two countries for 90 days. Under the terms of the agreement, both countries committed to pausing the imposition of new tariffs and partially rolling back existing duties on select goods, primarily in the technology, agricultural, and consumer product sectors. Although the agreement marks a major de-escalation of the trade war between the two countries, there is still a high degree of uncertainty surrounding U.S. tariff policy, how it will be implemented, and how other countries will react to it. It also remains uncertain whether increased tariffs and trade tensions will create further disruptions and uncertainties to the international trade and lead to a downturn to the global economy. Moreover, increasing trade protectionism may cause an increase in (i) the cost of goods exported from regions globally, particularly from the Asia-Pacific region, (ii) the length of time required to transport goods and (iii) the risks associated with exporting goods. Such increases may further reduce the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our customers’ business, operating results and financial condition and could thereby affect their ability to make timely payments to us and their orders quantity. This could have a material adverse effect on our business, operating results, cash flows and financial condition. We will continue to actively monitor the situation and actively consider strategic adaptation to maintain service levels and profitability. 43 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 medical 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 comprises cost of pharmaceutical products from manufacturers, freight arrangement charges and other overhead costs. Selling Expenses. Our selling expenses primarily include salaries expense and traveling expense of sales team engaged in developing potential customers and maintaining customer relationships and transportation cost for selling pharmaceutical products. 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, convertible notes, 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. 44 Results of Operations The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three and nine months ended March 31, 2025 and 2024 in U.S. dollars. Nine Months Ended March 31, Three Months Ended March 31, 2025 2024 2025 2024 Revenue from cross-border freight solutions – third party $ 9,559,567 $ 12,457,709 $ 2,857,504 $ 3,817,726 Revenue from cross-border freight solutions – related parties 1,205,354 1,067,633 448,360 643,037 Revenue from distribution of pharmaceutical products – third parties 715,362 — 497,276 — Total revenue 11,480,283 13,525,342 3,803,140 4,460,763 Cost of revenue from cross-border freight solutions – third party 8,756,778 9,367,882 2,602,784 3,038,231 Cost of revenue from cross-border freight solutions – related party 1,286,380 1,469,845 365,330 446,968 Cost of revenue from pharmaceutical products – third parties 240,966 — 119,175 — Total cost of revenue 10,284,124 10,837,727 3,087,289 3,485,199 Gross profit 1,196,159 2,687,615 715,851 975,564 Operating expenses: Selling expenses 158,118 — 103,630 — General and administrative expenses 5,429,398 2,803,311 1,680,339 962,481 Loss from deconsolidation of a subsidiary — 73,151 — — Provision (reversal) of allowance for expected credit loss 8,021 22,198 6,065 (27,393 ) Total operating expenses 5,595,537 2,898,660 1,790,034 935,088 (Loss) income from operations (4,399,378 ) (211,045 ) (1,074,183 ) 40,476 Other income Other income, net 310,796 190,887 109,255 102,438 Interest expense (156,266 ) (79,400 ) (87,274 ) (25,536 ) Total other income 154,530 111,487 21,981 76,902 (Loss) income before income taxes (4,244,848 ) (99,558 ) (1,052,202 ) 117,378 Income tax expense 108,175 130,735 18,594 104,610 Net (loss) income (4,353,023 ) (230,293 ) (1,070,796 ) 12,768 Less: net loss attributable to non-controlling interest — (3,025 ) — — Net (loss) income attributable to the Company (4,353,023 ) (227,268 ) (1,070,796 ) 12,768 Other comprehensive (loss) income: Foreign currency translation (loss) income (8,603 ) 3,122 3,583 — Comprehensive (loss) income (4,361,626 ) (227,171 ) (1,067,213 ) 12,768 Less: comprehensive loss attributable to non-controlling interest — (3,119 ) — — Comprehensive (loss) income attributable to the Company $ (4,361,626 ) $ (224,052 ) $ (1,067,213 ) $ 12,768 Loss per share – basic and diluted $ (0.58 ) $ (0.04 ) $ (0.14 ) $ — Weighted Average Shares Outstanding – basic and diluted 7,500,000 6,000,000 7,500,000 6,000,000 45 Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the three months ended March 31, 2025 and 2024, 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 March 31, 2025 2024 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 $ 1,278,903 33.6 % $ 2,116,106 47.4 % $ (837,203 ) (39.6 )% Cross-border airfreight solutions 2,026,961 53.3 % 2,344,657 52.6 % (317,696 ) (13.5 )% Subtotal 3,305,864 86.9 % 4,460,763 100.0 % (1,154,899 ) (25.9 )% Revenue from distribution of pharmaceutical products 497,276 13.1 % - - 497,276 NA Total revenues 3,803,140 100.0 % 4,460,763 100.0 % (657,623 ) (14.7 )% Cost of revenues – cross-border freight solution 2,968,114 78.0 % 3,485,199 78.1 % (517,085 ) (14.8 )% Cost of revenues – pharmaceutical products 119,175 3.1 % - - 119,175 NA Total cost of revenues 3,087,289 81.1 % 3,485,199 78.1 % (397,910 ) (11.4 )% Gross profit – cross-border freight solution 337,750 10.2 % 975,564 21.9 % (637,814 ) (65.4 )% Gross profit – pharmaceutical products 378,101 76.0 % - - 378,101 NA Total gross profit $ 715,851 18.8 % $ 975,564 21.9 % $ (259,713 ) (26.6 )% Revenues Our total revenues from cross-border freight solutions decreased by $1.2 million, or 25.9%, from $4.5 million for the three months ended March 31, 2024, to $3.3 million for the three months ended March 31, 2025. The decrease was primarily driven by a significant decline in volume we handled from our cross-border airfreight solutions. Revenues from our cross-border ocean freight solutions decreased by $0.8 million, or 39.6%, from $2.1 million for the three months ended March 31, 2024, to $1.3 million for the three months ended March 31, 2025. This reduction was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 1,355 TEU in the three months ended March 31, 2024, to 1,118 TEU for the three months ended March 31, 2025. Additionally, a slowdown in consumer spending and business investments, impacted by the overall economic downturn, reduced the demand for imported goods, leading to lower container volumes. Furthermore, due to a reduction in market volume and increased competition, the service price charged to customers also decreased. Revenues from our cross-border airfreight solutions decreased by $0.3 million or 13.5%, from $2.3 million for the three months ended March 31, 2024, to $2.0 million for the three months ended March 31, 2025. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 4,040 tons for the three months ended March 31, 2024, to approximately 3,775 tons for the three months ended March 31, 2025. Some of our customers reduced their orders due to the uncertainty in trade policies and higher tariffs since March 4, 2025, leading to a decline in our revenue. 46 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 March 31, 2025, our total revenue from pharmaceutical product distribution amounted to $0.5 million. We did not generate any revenue from this segment in the same period of the prior year. We anticipate further revenue declines in the next quarter due the competitive and uncertain economic environment. In addition to decreasing air freight volumes and new regulations that became effective in May 2025 and aimed at curtailing small-package and low-value shipments from China to the U.S., newly imposed tariffs on Chinese imports introduced in April 2025 are expected to further disrupt cross-border trade. These measures may significantly reduce the volume of goods imported into the U.S. and moving through e-commerce channels due to increased import costs. Despite these headwinds, we remain committed to exploring new customer opportunities while maintaining strong relationships with our existing clients. Revenues by Customer Geographic For the three months ended March 31, 2025 2024 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Asia-based customers $ 2,851,137 75.0 % 3,822,169 85.7 % $ (971,032 ) (25.4 )% U.S.-based customers 454,727 12.0 % 638,594 14.3 % (183,867 ) (28.8 )% 3,305,864 87.0 % 4,460,763 100.0 % (1,154,899 ) (25.9 )% Revenue from distribution of pharmaceuticals Asia-based customers 497,276 13.0 % - - 497,276 N/A Total revenues $ 3,803,140 100.0 % $ 4,460,763 100.0 % $ (657,623 ) (14.7 )% Revenues from cross-border freight solutions for the Asia-based customers decreased by $1.0 million, or 25.4%, from $3.8 million for the three months ended March 31, 2024, to $2.8 million for the three months ended March 31, 2025. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $0.1 million, or 28.8%, from $0.6 million for the three months ended March 31, 2024 to $0.5 million for the same period in 2025. The decrease in revenues from Asia-based customers for the three months ended March 31, 2025, was contributed by a decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendments to the de minimis rule and the imposition of higher tariffs on Chinese goods. The decrease in revenue from the U.S.-based customers for the three months ended March 31, 2025, compared to the same period in 2024, was primarily driven by concerns over a potential economic downturn and reduced consumer spending power in the U.S., which led to a decrease in shipment volumes. Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the three months ended March 31, 2025, our total revenue from pharmaceutical product distribution amounted to $0.5 million. We did not generate any revenue from this segment in the same period of the prior year. 47 Cost of Revenues A breakdown of our cost of revenues for the three months ended March 31, 2025 and 2024 is as follows: For the three months ended March 31, Amount Increase Percentage Increase 2025 2024 (Decrease) (Decrease) Cost of revenue from cross-border freight solutions Transportation and delivery costs $ 1,144,508 $ 1,691,940 $ (547,432 ) (32.4 )% Warehouse service charges 667,073 858,489 (191,416 ) (22.3 )% Custom declaration and terminal charges 438,237 513,180 (74,943 ) (14.6 )% Freight arrangement charges 102,806 129,580 (26,774 ) (20.7 )% Overhead cost 615,490 292,010 323,480 110.8 % Subtotal 2,968,114 3,485,199 (517,085 ) (14.8 )% Cost of revenue from distribution of pharmaceuticals Cost of goods sold 119,175 - 119,175 NA Total cost of revenue $ 3,087,289 $ 3,485,199 $ (397,910 ) (11.4 )% Our cost of revenues from cross-border freight solutions decreased by $0.5 million, or 14.8%, from $3.5 million for the three months ended March 31, 2024, to $3.0 million for the three months ended March 31, 2025. 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 three months ended March 31, 2025, which was primarily due to a reduction in delivery service provided to customers. Our transportation and delivery costs decreased more significantly than our revenue decline, due to high inflation in gasoline and labor cost over past year. Additionally, the forwarding service for airfreights has strict timing requirements, which often prevents us from fully utilizing truck capacity of each delivery, often resulting in vehicles operating at partial loads; (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 March 31, 2025, 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 March 31, 2025. This was due to a reduction in staffing costs related to unpacking shipments into smaller packages; (iv) a decrease in freight arrangement charges, mainly representing scheduling and booking fees for cross-border ocean freight during the three months ended March 31, 2025, primarily due to decreased business volumes 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 March 31, 2025. The warehouse and equipment lease expenses increased significantly, from $258,219 for the three months ended March 31, 2024, to $555,278 for the three months ended March 31, 2025. The increase was primarily because we had two more warehouse lease agreements during the three months ended March 31, 2025, 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. 48 Gross Profit Our overall gross profit was $0.8 for the three months ended March 31, 2025, compared to gross profit of $1.0 in same period last year. Our gross margin of cross-border freight solution was 10.2% for the three months ended March 31, 2025, compared to 21.9% for the three months ended March 31, 2024. The decline in gross margin was primarily attributable to (i) disproportionate decrease in our revenue from the airfreight and ocean freight solution compared to the 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 76.0% for the three months ended March 31, 2025. This comparatively high margin was primarily due to favorable purchase discounts offered by our suppliers, who extended these incentives to support the establishment of a long-term partnership as we entered this market as a new customer. Excluding the favorable purchase discounts of $171,274, the gross margin for pharmaceutical distribution would be approximately 42% for the current quarter. It is a new business segment for the current quarter and thus no gross margin was noted compared to the same period of the prior year. Selling Expenses Our selling expenses amounted to $0.1 million for the three months ended March 31, 2025, compared to nil for the same period in 2024. The increase was primarily driven by salaries for our sales team, which were incurred as part of the new pharmaceutical distribution service launched during the last quarter. General and Administrative Expenses Our general and administrative expenses increased by $0.7 million, or 74.6%, from $1.0 million for the three months ended March 31, 2024, to $1.7 million for the three months ended March 31, 2025. These expenses represented 44.2% and 21.6% of our total revenues for the three months ended March 31, 2025 and 2024, respectively. The increase was primarily attributed to higher salary and employee benefit expenses and professional fees operating as a listed company. Additionally, the launch of our new pharmaceutical distribution segment in the second quarter of the fiscal year contributed to the rise in operating costs. Our salaries and employee benefits expenses increased by $0.2 million, or 22.7%, from $0.7 million for the three months ended March 31, 2024, to $0.9 million for the three months ended March 31, 2025. Our salaries and employee benefits expenses represented 54.5% and 77.6% of our total general and administrative expenses for the three months ended March 31, 2025 and 2024, respectively. The increase was mainly due to the salary expenses associated with the two new subsidiaries to support our operation in new business segment starting from second quarter of the fiscal year in China. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $0.2 million, or 23.5% from $0.6 million for the three months ended March 31, 2024, to $0.8 million for the three months ended March 31, 2025, 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 $23,150, or 18.9%, from $122,312 for the three months ended March 31, 2024, to $145,462 for the three months ended March 31, 2025, representing 8.7% and 12.7% of our total general and administrative expenses for the three months ended March 31, 2025 and 2024, respectively. The increase was mainly due to rising employee health insurance premiums. Our professional fee increased by $0.2 million, or 884.3%, from $24,063 for the three months ended March 31, 2024, to $235,858 for the three months ended March 31, 2025. Our professional fee represented 14.1% and 2.5% of our total general and administrative expenses for the three months ended March 31, 2025 and 2024, respectively. The increase was primarily due to audit fees, legal fees, consulting expenses, investor-related expenses and financial reporting service fees for the three months ended March 31, 2025. For the three months ended March 31, 2024, most expenses directly related to offering that were not included in professional fees, as they were accounted for as deferred initial public offering assets. 49 Other Income, net Our other income, net, decreased by $6,817, or 6.7%, from $102,438 for the three months ended March 31, 2024, to $109,255 for the three months ended March 31, 2025, remained relatively stable compared to same period in last year. Interest Expenses Our interest expenses decreased by $61,738, or 241.8%, from $25,536 for the three months ended March 31, 2024, to $87,274 for the three months ended March 31, 2025. Increase in interest expense was mainly due to late credit card payments and interest expense in connection with convertible note for the three months ended March 31, 2025. Income (Loss) Before Income Taxes We had a net loss before income taxes of $1.1 million for the three months ended March 31, 2025, compared to a net income before income taxes of $0.1 million for the three months ended March 31, 2024. We were in a loss position before income taxes for the three months ended March 31, 2025, primarily attributable to the net effects of: (i) the decrease in gross profit, (ii) the rise in operating expenses, and (iii) the increase in interest expense for the three months ended March 31, 2025 as mentioned above. Income Tax Expense We had income tax expenses of $18,594 and $104,610 for the three months ended March 31, 2025 and 2024, respectively. A current income tax provision of $26,608 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the three months ended March 31, 2025. We recognized a recovery of deferred income tax of $8,014 due to amortization of intangible assets, resulting in a net income tax expense of $18,594 for the three months ended March 31, 2025. We recognized a current income tax provision of 94,471 for the three months ended March 31, 2024 due to income before income tax of $117,378 for the three months ended March 31, 2024 and we recognized a deferred income tax expense of $10,139 due to temporary differences recognized. Net Income (Loss) As a result of the foregoing, we had a net loss of $1.1 million and a net income of $12,768 for the three months ended March 31, 2025 and 2024, respectively. 50 For the Nine Months Ended March 31, 2025 Compared to the Nine Months Ended March 31, 2024 The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the nine months ended March 31, 2025 and 2024, 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 nine months ended March 31, 2025 2024 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 $ 4,490,299 39.1 % $ 5,632,765 41.6 % $ (1,142,466 ) (20.3 )% Cross-border airfreight solutions 6,274,622 54.7 % 7,892,577 58.4 % (1,617,955 ) (20.5 )% Subtotal 10,764,921 93.8 % 13,525,342 100.0 % (2,760,421 ) (20.4 )% Revenue from distribution of pharmaceutical products 715,362 6.2 % - - 715,362 NA Total revenues 11,480,283 100.0 % 13,525,342 100.0 % (2,045,059 ) (15.1 )% Cost of revenues – cross-border solution 10,043,158 87.5 % 10,837,727 80.1 % (794,569 ) (7.3 )% Cost of revenues – pharmaceutical products 240,966 2.1 % - - 240,966 NA Total cost of revenues 10,284,124 89.6 % 10,837,727 80.1 % (553,603 ) (5.1 )% Gross profit – cross-border freight solution 721,763 6.7 % 2,687,615 19.9 % (1,965,852 ) (73.1 )% Gross profit – pharmaceutical products 474,396 66.3 % - - 474,396 NA Gross profit $ 1,196,159 10.4 % $ 2,687,615 19.9 % $ (1,491,456 ) (55.5 )% Revenues Our total revenues from cross-border freight solution decreased by $2.8 million, or 20.4%, from $13.5 million for the nine months ended March 31, 2024, to $10.7 million for the nine months ended March 31, 2025. The decrease was primarily driven by a decline in volume we handled from our cross-border airfreight solutions. Revenues from our cross-border ocean freight solutions decreased by $1.1 million, or 20.3%, from $5.6 million for the nine months ended March 31, 2024, to $4.5 million for the nine months ended March 31, 2025. It was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 3,895 TEU for the nine months ended March 31, 2024, to 3,594 TEU for the nine months ended March 31, 2025. 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. Furthermore, due to a reduction in market volume and increased competition, the service price charged to customers also decreased. Revenues from our cross-border airfreight solutions decreased by $1.7 million or 20.5%, from $7.9 million for the nine months ended March 31, 2024, to $6.3 million for the nine months ended March 31, 2025. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 20,074 tons for the nine months ended March 31, 2024, to approximately 15,507 tons for the nine months ended March 31, 2025. Some of our customers reduced their orders due to the uncertainty in political regulations and higher tariffs since March 2025, leading to a significant decline in our revenue. Starting from December 2025, 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 nine months ended March 31, 2025, our total revenue from pharmaceutical product distribution amounted to $0.7 million, compared to no revenue from this segment for the same period of the prior year. 51 Revenues by Customer Geographic For the nine months ended March 31, 2025 2024 Revenues Amount % of total Revenues Amount % of total Revenues Amount Increase (Decrease) Percentage Increase (Decrease) Revenue from cross-border freight solutions Asia-based customers $ 8,410,974 73.3 % $ 8,119,136 60.0 % $ 291,838 3.6 % U.S.-based customers 2,353,947 20.5 % 5,406,206 40.0 % (3,052,259 ) (56.5 )% 10,764,921 93.8 % 13,525,342 100.0 % (2,760,422 ) (20.4 )% Revenue from distribution of pharmaceuticals Asia-based customers 715,362 6.2 % - - 715,362 N/A Total revenues $ 11,480,283 100.0 % $ 13,525,342 100.0 % $ (2,045,060 ) (15.1 )% Revenues from cross-border freight solutions for the Asia-based customers increased by $0.3 million, or 3.6%, from $8.1 million for the nine months ended March 31, 2024, to $8.4 million for the nine months ended March 31, 2025. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $3.0 million, or 56.5%, from 5.4 million for the nine months ended March 31, 2024 to $2.4 million for the same period in 2025. The slightly increase in revenues from Asia-based customers for the nine months ended March 31, 2025, was driven by increases volume from Aisa-based customer, which was partly offset by recent decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendment of de minimis rule and imposition of tariff on Chinese goods, The decrease in revenue from the U.S.-based customers for the nine months ended March 31, 2025, compared to the same period in 2024, was primarily due to decreased in shipments volume. Additionally, one-off special projects with larger shipment volumes from U.S. customers were completed for the nine months ended March 31, 2024, with no comparable projects for the same period in 2025. Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the nine months ended March 31, 2025, our total revenue from pharmaceutical product distribution amounted to $0.7 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 nine months ended March 31, 2025 and 2024 is as follows: For the nine months ended March 31, Amount Increase Percentage Increase 2025 2024 (Decrease) (Decrease) Cost of revenue from cross-border freight solutions Transportation and delivery costs $ 4,180,325 $ 5,215,079 $ (1,034,754 ) (19.8 )% Warehouse service charges 2,304,273 2,552,299 (248,026 ) (9.7 )% Custom declaration and terminal charges 1,463,332 1,813,372 (350,040 ) (19.3 )% Freight arrangement charges 395,351 358,073 37,278 10.4 % Overhead cost 1,699,877 898,904 800,973 89.1 % Subtotal 10,043,158 10,837,727 (794,569 ) (7.3 )% Cost of revenue from distribution of pharmaceuticals Cost of goods sold 240,966 - 240,966 NA Total cost of revenue $ 10,284,124 $ 10,837,727 $ (553,603 ) (5.1 )% 52 Our cost of revenues decreased by $0.5 million, or 5.1%, from $10.8 million for the nine months ended March 31, 2024, to $10.3 million for the nine months ended March 31, 2025. 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 nine months ended March 31, 2025, which was primarily due to a reduction in delivery service provided to customers; (ii) a decrease in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the nine months ended March 31, 2025, 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 nine months ended March 31, 2025，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 nine months ended March 31, 2025, 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 nine months ended March 31, 2025. The warehouse and equipment lease expenses increased significantly, from $794,978 for the nine months ended March 31, 2024, to $1,558,099 for the nine months ended March 31, 2025. The increase was primarily we had two more warehouse lease agreements during the nine months ended March 31, 2025, 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. Gross Profit Our overall gross profit decreased by $1.5 million, or 55.5%, from $2.7 million for the nine months ended March 31, 2024, to $1.2 million for the nine months ended March 31, 2025. Our gross margin of cross-border freight solution was 6.7% for the nine months ended March 31, 2025, compared to 19.9% for the nine months ended March 31, 2024. The decline in gross margin was primarily attributable to (i) revenue from the airfreight and ocean freight solution decreased to a greater extent 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 66.3% for the nine months ended March 31, 2025. This comparatively high margin was primarily due to favorable purchase discounts offered by our suppliers, who extended these incentives to support the establishment of a long-term partnership as we entered this market as a new customer. It is a new business segment for the current quarter and thus no gross margin was noted compared to same period in prior year. Selling Expenses Our selling expenses amounted to $0.2 million for the nine months ended March 31, 2025, compared to nil for the same period in 2024. The increase was primarily driven by salaries for our sales team and transportation expense for selling pharmaceutical products, which were incurred as part of the new pharmaceutical product business launched during the current quarter. 53 General and Administrative Expenses Our general and administrative expenses increased by $2.6 million, or 93.7%, from $2.8 million in the nine months ended March 31, 2024, to $5.4 million for the nine months ended March 31, 2025. These expenses represented 47.3% and 20.7% of our total revenues for the nine months ended March 31, 2025 and 2024, 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 $0.9 million, or 47.7%, from $2.0 million in the nine months ended March 31, 2024, to $2.9 million for the nine months ended March 31, 2025. Our salaries and employee benefits expenses represented 53.5% and 70.2% of our total general and administrative expenses for the nine months ended March 31, 2025 and 2024, 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 2025, 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 $0.8 million, or 50.8%, from $1.6 million for the nine months ended March 31, 2024, to $2.4 million for the nine months ended March 31, 2025, 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 31.8%, from $0.3 million for the nine months ended March 31, 2024, to $0.4 million for the nine months ended March 31, 2025, representing 7.8% and 11.5% of our total general and administrative expenses for the nine months ended March 31, 2025 and 2024, respectively. The increase was mainly due to rising employee health insurance premiums. Our professional fee increased by $0.7 million, or 1,306.0%, from $56,400 for the nine months ended March 31, 2024, to $792,984 for the nine months ended March 31, 2025. Our professional fee represented 14.6% and 2.0% of our total general and administrative expenses for the nine months ended March 31, 2025 and 2024, respectively. The increase was primarily due to audit fees, legal fees, consulting expenses, investor-related expenses and financial reporting service fees for the nine months ended March 31, 2025. For the nine months ended March 31, 2024, 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 $170,153, or 850.7%, from $20,001 for the nine months ended March 31, 2024, to $190,154 for the nine months ended March 31, 2025. The increase was primarily due to purchasing insurance premiums for our directors and officers, as we became a public company in July 2025. Our traveling and entertainment expense represented 8.3% and 5.7% of our total general and administrative expenses for nine months ended March 31, 2025 and 2024, 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. Other Income, Net Our other income, net, increased by $0.1 million, or 62.8%, from $0.2 million for the nine months ended March 31, 2024, to $0.3 million for the nine months ended March 31, 2025. The increase was primarily due to renting out part of our warehouse space to our related party, Weship, for an additional five months and renting out part of our two warehouse space to our related party, Intermodal, during the nine months ended March 31, 2025. Interest Expenses Our interest expenses increased by $76,866, or 96.8%, from $79,400 for the nine months ended March 31, 2025, to $156,266 for the nine months ended March 31, 2025. Increase expense was mainly due to late credit card payments and interest expense in connection with convertible note issued in March 2025. 54 Loss Before Income Taxes We had net loss before income taxes of $4.2 million and of $0.1 million for the nine months ended March 31, 2025 and 2024. 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 interest expense for the nine months ended March 31, 2025 as mentioned above. Income Tax Expense We had an income tax expense of $108,175 and $130,735 for the nine months ended March 31, 2025 and 2024, respectively. A current income tax provision of $26,608 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the nine months ended March 31, 2025. We recognized a net deferred income tax expense of $81,567 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $1,360,798 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 $108,175 for the nine months ended March 31, 2025. We recognized a current income tax provision of $94,471 for the nine months ended March 31, 2024 due to net assessable income, and a deferred income tax expense $18,370 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. For the nine months ended March 31, 2024, the Company was taxed at rates of 2.5% and 28.0% for the replacement tax and pass-through-entity tax, respectively. Net Loss As a result of the foregoing, we had a net loss of $4.3 million and $0.2 million for the nine months ended March 31, 2025 and 2024, respectively. Liquidity and Capital Resources As of March 31, 2025, we had a cash and cash equivalent balance of $1.5 million. Our current assets were $5.0 million, and our current liabilities were $6.8 million, resulting in a current ratio of 0.73:1 and a negative working capital of $1.7 million. Total stockholders’ equity as of March 31, 2025 was $0.8 million. As of March 31, 2025 and June 30, 2024, we had accounts receivable net of allowance of $1.7 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 March 31, 2025 and June 30, 2024, we provided a credit loss allowance of $62,087 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, issuance of convertible notes, loans, initial public offerings 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. 55 Cash Flows The following table sets forth summary of our cash flows for the periods indicated: For the nine months ended March 31, 2025 2024 Net cash (used in) provided by operating activities $ (2,171,304 ) $ 161,644 Net cash used in investing activities (1,227,150 ) (78,799 ) Net cash provided by (used in) financing activities 4,782,547 (67,964 ) Effect of exchange rate changes on cash (8,386 ) 3,216 Net increase in cash and cash equivalent 1,375,707 18,097 Cash, beginning of the period 123,550 174,018 Cash, end of the period $ 1,499,257 $ 192,115 Operating Activities Net cash used in operating activities was $2,171,304 for the nine months ended March 31, 2025, including net loss of $4,353,023, adjusted for non-cash items for $1,839,163 and changes in working capital of positive $342,556. The non-cash items primarily included $1,515,688 amortization and interest expense of operating lease assets, $148,854 depreciation included in G&A and cost of revenue, $24,081 depreciation of right-of-use finance assets, $32,056 amortization of intangible asset, $40,541 interest expense of convertible notes, $11,645 uncollected interest income from a third party loan, $8,021 from provision of allowance for expected credit loss and a decrease of $81,567 from deferred tax asset due to recognition of valuation allowance. The adjustments for changes in working capital mainly included a decrease of $666,858 and $466,764 in accounts receivable from third parties and related parties, respectively, due to a decrease of revenues near period end, an increase of $415,186 in accounts payable from third parties and an increase of $393,633 in accrued expense and other payable, partially offset by an increase in prepayment of $158,359, a decrease of $1,151,931 in operating lease liabilities and a decrease of $158,827 in accounts payable to related parties. Net cash provided by operating activities was $161,644 for the nine months ended March 31, 2024, including net loss of $230,293, adjusted for non-cash items for $921,352, and changes in working capital of negative $529,415. The non-cash items primarily included $658,713 non-cash operating lease expense, $108,478 depreciation and amortization, $22,198 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 $565,824 in accounts receivable from related parties, (ii) an increase of $283,936 in accounts receivable from third parties reflecting the revenue growth near period end, (iii) an increase of $58,498 in contract assets, and (iv) an increase of 606,756 in change in operating lease liabilities, partially offset by (i) an increase of $493,085 in accounts payable to third parties, (ii) an increase of $57,420 in accounts payable to related parties, (iii) an increase of $111,122 in accrued expenses and other payables, and (iv) an increase of $94,471 in tax payable. The $2,332,948 increase in cash used in operating activities for the nine months ended March 31, 2025 compared to the prior year was primarily due to an increase in net loss of $4,122,730 for the nine months ended March 31, 2025 compared to same period in the prior year, partly offset by an increase of $871,971 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 $1,227,150 and $78,799 for the nine months ended March 31, 2025 and 2024, respectively. Net cash used in investing activities for the nine months ended March 31, 2025, 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 $561,901 to a third party. We also purchased property and equipment, conducted office renovation for our operation of subsidiaries in Mainland China. On August 4, 2024, 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, 2024. Therefore, we had cash outflow of $48,893 upon deconsolidation of a subsidiary and payment for registered capital of $29,906 during the nine months ended March 31, 2024. 56 Financing Activities Net cash provided by financing activities was $4,782,547 for the nine months ended March 31, 2025, compared to net cash used in financing activities of $67,964 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, net proceeds of $755,512 from issuance of convertible note, proceeds from loan borrowing of $294,975 and Advances of $276,365 from Hupan Pharmaceutical prior to acquisition, partly offset by repayment of $805,345 to shareholders, advance to related parties of $685,247 and loans repayment of $420,765 during the nine months ended March 31, 2025. The net cash provided by financing activities for the nine months ended March 31, 2024, 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 $289,934, and the payment for deferred offering cost of 140,000. Capital Expenditure Our capital expenditure is 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 $337,954 and $nil for the nine months ended March 31, 2025 and 2024, respectively. We expect that our capital expenditure will increase in the future as our business continues to develop and expand. We intend to fund our future capital expenditure with our existing cash balance, proceeds of loans and issuance of convertible notes. Commitments and Contractual Obligations As of March 31, 2025, the Company’s contractual obligations consist of the following: Contractual Obligations Total Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Operating lease obligations $ 4,643,998 $ 2,595,757 $ 1,306,541 $ 741,700 $ — Finance lease obligations 138,610 55,477 48,845 34,288 — Vehicle loans 234,820 66,154 98,812 56,854 13,000 Equipment loans 49,952 39,114 10,838 — — Other loans 539,275 539,275 — — — Convertible note 1,000,000 840,000 160,000 — — Loan payable to a related party 124,176 — 124,176 — — Total $ 6,730,831 $ 4,135,777 $ 1,749,212 $ 832,842 $ 13,000 Off-Balance Sheet Commitments and Arrangements There were no off-balance sheet arrangements as of and for the nine months ended March 31, 2025 and 2024, 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 condensed 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. Actual results could materially differ from those estimates. We have identified the following critical accounting policies: Common Stock Warrants Instruments The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own ordinary shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company determined, upon further review of the warrant agreement, that the common stock warrant issued pursuant to the warrant agreement qualifies for equity accounting treatment. The fair value of equity-classified warrants is estimated as of the date of issuance using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control. 57 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 they provide. Refer to the notes to the condensed consolidated financial statements included in this report for further discussion of our significant accounting policies and the effect on our condensed consolidated 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 2024, the FASB issued ASU No. 2024-07, “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, 2024, and interim periods within fiscal years beginning after December 15, 2025. 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 expects to adopt them for the year ending June 30, 2025. In December 2024, the FASB issued ASU No. 2024-09, “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, 2025. 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 audited condensed 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 condensed consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows. 58 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.