SEC Form 10-Q filed by Armlogi Holding Corp.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
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As of June 6, 2024, there
were
Armlogi Holding Corp.
Form 10-Q
For the Quarterly Period Ended March 31, 2024
Contents
i
ARMLOGI HOLDING CORP.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2024 (UNAUDITED) AND JUNE 30, 2023
(US$, except share data, or otherwise noted)
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Unaudited | Audited | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| Restricted cash | ||||||||
| Accounts receivable and other receivable, net | ||||||||
| Other current assets | ||||||||
| Deferred share issuance costs | ||||||||
| Prepaid expenses | ||||||||
| Loan receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Due from related parties | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets – operating leases | ||||||||
| Right-of-use assets – finance leases | ||||||||
| Total assets | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Income taxes payable | ||||||||
| Due to related parties | ||||||||
| Accrued payroll liabilities | ||||||||
| Operating lease liabilities – current | ||||||||
| Finance lease liabilities – current | ||||||||
| Customer deposits | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease liabilities – non-current | ||||||||
| Finance lease liabilities – non-current | ||||||||
| Deferred income tax liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, US$ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | ||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
1
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
(US$, except share data, or otherwise noted)
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Revenue | ||||||||||||||||
| Costs of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other (income) expenses: | ||||||||||||||||
| Other income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Finance costs | ||||||||||||||||
| Total other (income) expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before provision for income taxes | ||||||||||||||||
| Current income tax expense | ||||||||||||||||
| Deferred income tax expense | ( | ) | ||||||||||||||
| Total income tax expenses | ||||||||||||||||
| Net income | ||||||||||||||||
| Total comprehensive income | ||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
2
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
(US$, except share data, or otherwise noted)
| Common Stock | Amount | Additional paid-in capital | Retained earnings | Total equity | ||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||
| Balance as of June 30, 2023 | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Contribution from stockholders | — | |||||||||||||||||||
| Balance as of March 31, 2024 (unaudited) | ||||||||||||||||||||
| Three Months ended | ||||||||||||||||||||
| Balance as of December 31, 2023 | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Contribution from stockholders | — | |||||||||||||||||||
| Balance as of March 31, 2024 (unaudited) | ||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||
| Balance as of June 30, 2022 | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Contribution from stockholders | — | |||||||||||||||||||
| Balance as of March 31, 2023 (unaudited) | ||||||||||||||||||||
| Three Months ended | ||||||||||||||||||||
| Balance as of December 31, 2022 | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Contribution from stockholders | — | |||||||||||||||||||
| Balance as of March 31, 2023 (unaudited) | ||||||||||||||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
3
ARMLOGI
HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
(US$, except share data, or otherwise noted)
| For The Nine Months Ended March 31, 2024 | For The Nine Months Ended March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Unaudited | Unaudited | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | ||||||||
| Adjustments for items not affecting cash: | ||||||||
| Net loss from disposal of fixed assets | ||||||||
| Depreciation of property and equipment and right-of-use financial assets | ||||||||
| Amortization | ||||||||
| Non-cash operating leases expense | ||||||||
| Current estimated credit loss | ( | ) | ||||||
| Accretion of finance lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable and other receivables | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable & accrued liabilities | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Income tax payable | ||||||||
| Accrued payroll liabilities | ||||||||
| Net cash provided from operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| Loan receivable | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds received from (repaid to) related parties | ( | ) | ||||||
| Proceeds (lend to) from related parties | ( | ) | ||||||
| Repayments of finance lease liabilities | ( | ) | ( | ) | ||||
| Deferred issuance costs for initial public offering | ( | ) | ( | ) | ||||
| Capital contributions from stockholders | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and restricted cash, end of nine months period | ||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
| Income taxes paid | ( | ) | ( | ) | ||||
| NON-CASH TRANSACTIONS: | ||||||||
| Right-of-use assets acquired in exchange for operating lease liabilities | ||||||||
| IPO expenses paid by stockholders | ||||||||
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
4
ARMLOGI HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and principal activities
Armlogi Holding Corp. and its consolidated subsidiaries (the “Company”) operate as a third-party logistics company, providing multi-model transportation and logistics services primarily in the United States.
The Company’s primary transportation services involve arranging shipments, on behalf of its customers, of materials that are generally larger than shipments handled by integrated carriers of primarily small parcels, such as FedEx, Trucking, and UPS, including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems. The Company also provides other value-added logistics services, including warehousing services, materials management and distribution services, and customs house brokerage services, to complement its core transportation service offering.
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments considered necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year ending June 30, 2024 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the years ended June 30, 2023 and 2022, included in the Company’s Registration Statement on Form S-1 (File No. 333-274667).
Principal of consolidation
| Principal activities | Percentage of ownership | Date of incorporation | Place of incorporation | |||||||||
| Armlogi Holding Corp. | ||||||||||||
| Armstrong Logistic Inc. | % | |||||||||||
| Armlogi Truck Dispatching LLC | % | |||||||||||
| Andtech Trucking LLC | % | |||||||||||
| Armlogi Trucking LLC | % | |||||||||||
| Andtech Customs Broker LLC | % | |||||||||||
| Armlogi Group LLC | % | |||||||||||
Use of estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. There were no critical accounting estimates affecting the unaudited condensed consolidated financial statements for the nine months ended March 31, 2024 and 2023.
Cash and restricted cash
Cash consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. Restricted cash represents the cash restricted for two standby letters of credit with Eastwest Bank. The term of each of the letters of credit is one year starting from August 1, 2023 and November 7, 2023, respectively.
5
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Certain risks and concentration
The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and restricted cash, receivables, loan receivable and other current assets. As of March 31, 2024 and June 30, 2023, substantially all of the Company’s cash and restricted cash were held in financial institutions located in the U.S., which management considers to be of high credit quality.
During the nine months ended March 31, 2024 and 2023, our five largest
customers accounted for approximately
As of March 31, 2024 and June 30, 2023, the largest three accounts
receivable balances from customers accounted for
Accounts receivable and other receivables
The Company’s receivables are recorded when billed and represent amounts owed by third-party customers. The carrying value of the Company’s receivables, net of the expected credit loss, represents their estimated net realizable value. The Company evaluates the expected credit loss of accounts receivable and other receivables on a loss rate method based on historical information adjusted for current conditions and future estimated economic performance. The Company’s credit term generally ranged from 3 to 30 days. If there is an approval from the board of the Company, the credit term can extend to 180 days.
Property and equipment
| Category | Depreciation method | Depreciation rate | ||
| Furniture and fixtures | Straight-line | |||
| Auto & trucks | Straight-line | |||
| Trailers & truck chassis | Straight-line | |||
| Machinery & equipment | Straight-line | |||
| Leasehold improvements | Straight-line | Shorter of lease term or |
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amounts of the relevant assets and are recognized in the consolidated statements of operations and comprehensive income.
Long-Lived Assets
Long-lived assets, such as property and equipment, and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted expected future cash flows to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent the carrying amount of the asset or asset group exceeds the fair value. Fair values of long-lived assets are determined through various techniques, such as applying probability weighted, expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize or through the use of a third-party independent appraiser or valuation specialist. No impairment losses of long-lived assets were recorded during the nine months ended March 31, 2024 and 2023.
Intangible assets consist of software and security systems, which are amortized using the straight-line method over to years.
6
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Revenue recognition
The Company provides one-stop logistic services. The Company’s revenue is primarily from transportation services, which include the arrangement of freight services. The Company generates its transportation services revenue by purchasing transportation from direct carriers and reselling those services to its customers.
In general, each shipment transaction or service order constitutes a separate contract with the customer. A performance obligation is created once a customer agreement with an agreed-upon transaction price exists. The transaction price is typically fixed and not contingent upon the occurrence or non-occurrence of any other event. The Company’s transportation transactions provide for the arrangement of the movement of freight to a customer’s destination. The transportation services that are provided to the customer, including certain ancillary services, such as loading/unloading, freight insurance, and customs clearance, represent a single performance obligation, as these promises are not distinct in the context of the contract. This performance obligation is satisfied over time and recognized in revenue upon the transfer of control of the services over the requisite transit period as the customer’s goods move from origin to destination. The Company determines the period to recognize revenue in transit based on the departure date and the delivery date. Determination of the transit period and the percentage of completion of the shipment as of the reporting date will affect the timing of revenue recognition. The Company has determined that revenue recognition over the transit period provides a reasonable estimate of the transfer of services to its customers as it depicts the pattern of the Company’s performance under the contracts with its customers.
The Company also provides warehousing services for its customers. These warehousing service contracts include two performance obligations: i) inventory management and order fulfilment and ii) storage services. The Company’s performance obligation for inventory management and order fulfilment is satisfied at a point in time as services are generally priced based on the number of items processed and handled. The benefits are consumed by the customers at the point in time when such specific services are performed by the Company. Performance of such services generally takes less than one day to process. The performance obligation for storage services is satisfied over time as the storage service is based on a term period and the customers simultaneously receive and consume the services provided by the Company as they are performed. The transaction price for the warehousing services is based on the consideration specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration component of a contract represents reimbursement for facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract. The variable consideration component is comprised of cost reimbursement per unit pricing for time and pricing for materials used and is determined based on cost plus a mark-up for hours of services provided and materials used and is recognized based on the level of activity volume.
Other services include primarily customs house brokerage services sold on a stand-alone basis as a single performance obligation. The Company recognizes revenue from this performance obligation at a point in time, which is the completion of the services. Duties and taxes collected from the customer and paid to the customs agent on behalf of the customers are excluded from revenue.
The Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments process, and assuming the risk of loss for delivery and collection. Such transportation services revenue is presented on a gross basis in the consolidated statements of comprehensive income.
7
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
| March 31, 2024 | March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Transportation services | ||||||||
| Warehousing services | ||||||||
| Other services | ||||||||
| Total | ||||||||
Practical Expedients
The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of the end of the period, as the Company’s contracts with its transportation customers have an expected duration of one year or less.
For the performance obligation to transfer warehousing services in contracts with customers, revenue is recognized in the amount for which the Company has the right to invoice the customer, as this amount corresponds directly with the value provided to the customer for the Company’s performance completed to date.
The Company also applies the practical expedient that permits the recognition of employee sales commissions related to transportation services as an expense when incurred, since the amortization period of such costs is less than one year. These costs are included in the consolidated statements of comprehensive income.
Leases
The Company adopted ASC 842 — Leases for its fiscal year beginning on July 1, 2021. There were some insignificant forklift finance leases subject to ASC 842 upon the adoption of the new standard. Since these forklift finance leases are classified as finance leases under ASC 842 and were also previously classified as finance leases under the legacy ASC 840, the adoption of the ASC 842 did not result in material adjustments to these finance leases compared to ASC 840.
The Company determines if an arrangement is a lease at inception. Leases are classified as either operating leases or finance leases pursuant to ASC 842.
i) Operating leases
Operating leases are recognized as right-of-use (“ROU”) assets in non-current assets and lease liabilities in current and non-current liabilities in the consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less, the Company recognizes those lease payments on a straight-line basis over the lease term.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Lease expenses for lease payments are recognized on a straight-line basis over the lease term and are included in general and administrative expenses, costs of sales and other expenses.
ii) Finance leases
Finance lease ROU assets are included in ROU and current lease liabilities, and other non-current lease liabilities in the consolidated balance sheets.
8
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expenses. The interest on the finance lease liabilities is included in interest expense.
Annually, the Company performs an impairment analysis on ROU assets, and as of March 31, 2024, there was no material impairment to ROU assets.
The Company has elected the accounting policy to account for leases with both lease and non-lease components as a single lease component. For leases with an initial term of 12 months or less, the Company elected the exemption from recording ROU assets and lease liabilities for all leases that qualify, and records rent expenses on a straight-line basis over the lease term. Expenses for these short-term leases for the nine months ended March 31, 2024 and 2023 were immaterial.
Taxation
Current income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operations in the period of the enactment of the change.
The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income, including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
The Company recognizes a tax benefit associated
with an uncertain tax position when, in its judgment, it is more likely than not that the position will be sustained upon examination
by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently
measures the tax benefit as the largest amount that the Company judges to have a greater than
9
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Earnings per share
Basic earnings per share of commons stock is computed by dividing net income allocable to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income allocable to common stockholders by the weighted average number of shares outstanding, plus the number of additional shares that would have been outstanding if the potential shares, such as restricted stock awards and stock options, had been issued and were considered dilutive.
Segment Reporting
The Company follows FASB ASC Topic 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.
Based on the guidance provided by ASC Topic 280, management has determined that the Company operates in one segment and consists of one reporting unit given the similarities in economic characteristics between its operations and the common nature of its services and customers. All the Company’s business activities for the nine months ended March 31, 2024 and 2023 were conducted in the U.S.
Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | |
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The Company’s financial instruments include cash and restricted cash, accounts receivable and other receivables, loan receivable, other current assets, due from related parties, accounts payable and accrued liabilities, income tax payable, due to related parties, and lease liabilities. The carrying amounts of cash and restricted cash, accounts receivable and other receivables, loan receivable, other current assets, due from related parties, accounts payable and accrued liabilities and income tax payable, due to related parties, and short-term lease liabilities approximate their fair values due to the short-term nature of these instruments. The carrying value of the Company’s long-term lease liabilities would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring or non-recurring basis as of March 31, 2024 and June 30, 2023.
10
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. Summary of significant accounting policies (cont.)
Costs of sales
Costs of sales primarily consist of amortization and depreciation, equipment lease and warehouse lease expenses, freight expenses, port handling and customs fees, salary and benefits, temporary labor expenses, warehouse expenses, utilities and other expenses.
General and administrative expenses
General and administrative expenses primarily consist of office equipment and furniture depreciation expenses, office expenses, professional fees, office space rental expenses, repairs and maintenance, salary and benefits, sundry costs, vehicle expenses, tax and licenses, credit loss expenses, and other expenses.
Recently issued accounting standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
3. Accounts receivable and other receivables, Net
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Accounts receivable – third parties | ||||||||
| Accounts receivable – related parties | ||||||||
| Other receivables – third parties* | ||||||||
| Other receivables – related parties* | ||||||||
| Gross total | ||||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Total | ||||||||
| * |
4. Property and Equipment, Net
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Furniture and fixtures | ||||||||
| Auto & Truck | ||||||||
| Trailers & track chassis | ||||||||
| Machinery & equipment | ||||||||
| Leasehold improvement | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Depreciation expenses are recorded in costs of sales and general and
administrative expenses. The Company recorded depreciation expenses of US$
11
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. Property and Equipment, Net (cont.)
expenses were recorded in general and administrative
expenses for the nine months ended March 31, 2024 and 2023, respectively. The Company recorded depreciation expenses of US$
5. Intangible Assets, Net
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Security Systems | ||||||||
| Software | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Intangible, net | ||||||||
The Company recorded amortization of US$
The Company recorded amortization of US$
6. Loan Receivable
The Company’s loan receivable is consisted of the following:
| i) | On February 8, 2023, the Company entered into a loan
agreement with Pundarika LLC for a principal of US$ |
| ii) | On February 27, 2023, the Company entered into a loan
agreement with Pundarika LLC for a principal of US$ |
| iii) | On
March 24, 2023, the Company entered into a loan agreement with Pundarika LLC for a principal of US$ |
| iv) | On July 10, 2023, the Company entered into a loan agreement
with Pundarika LLC for a principal of US$ |
| v) | On January 24, 2024, the Company entered into a loan agreement
with Paul Tam for a principal of US$ |
| vi) | On January 24, 2024, the Company entered into a loan agreement
with Athena Home Inc. for a principal of US$ |
As of March 31, 2024, the Company recorded a loan
receivable balance of US$
12
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. Leases
As of March 31, 2024, the Company had operating
and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through April 2026 to November
2034 with options to renew for varying terms at the Company’s sole discretion. The Company has not included these options to extend
or terminate in the calculation of right-of-use assets or lease liabilities, as there is no reasonable certainty, as of the date of this
report, that these options will be exercised. The Company has certain sublease contracts and recognized US$
As of March 31, 2024, the Company recognized additional
operating lease liabilities of US$
| Operating | Finance | |||||||
| US$ | US$ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 and beyond | ||||||||
| Total minimum lease payment | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | ||||||||
| Less: current potion | ( | ) | ( | ) | ||||
| Non-current portion | ||||||||
13
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. Accounts Payable and Accrued Liabilities
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Accounts payable | ||||||||
| Credit card Payable | ||||||||
| Other liabilities | ||||||||
| Total | ||||||||
Other liabilities as of March 31, 2024 mainly consisted of tenant’s deposit.
9. Stockholders’ Equity
The Company is authorized to issue
During the nine months ended March 31, 2024,
the Company’s stockholders made a total of US$
10. Earnings per Share
| March 31, 2024 | March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Numerator: | ||||||||
| Denominator: | ||||||||
Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares and dilutive share equivalents outstanding during the period.
14
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. Commitments and Contingencies
Other commitments
Other than the standby letter of credit (note 2) and the operating and finance leases (note 7), the Company did not have other significant commitments, long-term obligations, or guarantees as of March 31, 2024 and June 30, 2023.
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations taken as a whole. As of March 31, 2024, the Company was not a party to any material legal or administrative proceedings.
12. Related Party Transactions and Balances
Related Parties
| Name of related parties | Relationship with the Company | |
| Jacky Chen | ||
| Aidy Chou | ||
| Tong Wu | ||
| DNA Motor Inc. | ||
| Junchu Inc. |
Related Party transactions
The Company had the following related party transactions:
| (i) | During the nine months ended March 31, 2024, the Company’s
related parties, Jacky Chen, Aidy Chou and Tong Wu advanced an aggregate of US$ |
| (ii) | During the nine months ended March 31, 2024, Junchu Inc.,
a company wholly owned by Tong Wu, repaid the loan with a principal of US$ |
| (iii) | DNA Motor Inc., the landlord of five of the Company’s
operating leases is owned by Jacky Chen. During the nine months ended March 31, 2024, for these operating leases, US$ |
| (iii) | During the nine months ended March 31, 2024, the Company
generated revenue of US$ |
| (iv) | During the nine months ended March 31, 2024, the Company incurred
operating expenses that totaled US$ |
| (v) | On January 22, 2024, the Company entered into a loan agreement
with Tony Wu for a principal of US$ |
15
ARMLOGI
HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Related Party Transactions and Balances (cont.)
Due from related party balance
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Junchu Inc. | ||||||||
| Total | ||||||||
The due from related party balances as of June 30,
2023 are unsecured, bear interest at a rate of
Due to related party balance
| March 31, 2024 | June 30, 2023 | |||||||
| US$ | US$ | |||||||
| Aidy Chou | ||||||||
| Tong Wu | ||||||||
| Jacky Chen | ||||||||
| Total | ||||||||
The due to related party balances as of March 31, 2024 and June 30, 2023 are unsecured, interest-free, and are due on demand.
13. Subsequent Events
On May 13, 2024, the Company entered into an underwriting
agreement (the “Underwriting Agreement”) with EF Hutton LLC, as representative of the several underwriters listed on Schedule
A to the Underwriting Agreement (the “Representative”), relating to the Company’s initial public offering (the “IPO”)
of
On May 15, 2024, the Company closed the IPO. The
Company completed the IPO pursuant to its registration statement on Form S-1 (File No. 333-274667), which was initially filed with the
SEC on September 25, 2023, as amended, and declared effective by the SEC on May 13, 2024. The offering was conducted on a firm commitment
basis. The Company’s shares of common stock were previously approved for listing on the Nasdaq Global Market and commenced trading
under the ticker symbol “BTOC” on May 14, 2024. On May 15, 2024, the Company issued to the Representative and its affiliates
warrants, exercisable during the five-year period from the commencement of sales of the offering, entitling the Representative to purchase
an aggregate of up to
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our registration statement on Form S-1 (File No. 333-274667), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 25, 2023, as amended, and declared effective by the SEC on May 13, 2024.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.
The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our registration statement on Form S-1 (File No. 333-274667).
Results of Operations
The following table outlines our unaudited condensed consolidated statements of income for the three and nine months ended March 31, 2024 and 2023:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Revenue | 38,439,935 | 30,133,445 | 121,689,863 | 86,961,574 | ||||||||||||
| Costs of sales | 35,115,736 | 23,855,350 | 105,461,383 | 67,959,387 | ||||||||||||
| Gross profit | 3,324,199 | 6,278,095 | 16,228,480 | 19,002,187 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| General and administrative | 3,269,493 | 3,051,137 | 8,097,196 | 6,974,146 | ||||||||||||
| Total operating costs and expenses | 3,269,493 | 3,051,137 | 8,097,196 | 6,974,146 | ||||||||||||
| Income from operations | 54,706 | 3,226,958 | 8,131,284 | 12,028,041 | ||||||||||||
| Other (income) expenses: | ||||||||||||||||
| Other income | (914,419 | ) | (293,016 | ) | (1,902,813 | ) | (954,447 | ) | ||||||||
| Finance costs | 11,041 | 15,650 | 37,779 | 45,885 | ||||||||||||
| Total other (income) expenses | (903,378 | ) | (277,366 | ) | (1,865,034 | ) | (908,562 | ) | ||||||||
| Income before provision for income taxes | 958,084 | 3,504,324 | 9,996,318 | 12,936,603 | ||||||||||||
| Current income tax expense | 200,612 | 1,335,189 | 2,079,038 | 3,495,908 | ||||||||||||
| Deferred income tax expense | 75,252 | (9,972 | ) | 735,459 | 480,002 | |||||||||||
| Total income tax expenses | 275,864 | 1,325,217 | 2,814,497 | 3,975,910 | ||||||||||||
| Net income | 682,220 | 2,179,107 | 7,181,821 | 8,960,693 | ||||||||||||
| Total comprehensive income | 682,220 | 2,179,107 | 7,181,821 | 8,960,693 | ||||||||||||
| Basic & diluted net earnings per share | 0.02 | 0.05 | 0.18 | 0.22 | ||||||||||||
| Weighted average number of shares of common stock-basic and diluted | 40,000,000 | 40,000,000 | 40,000,000 | 40,000,000 | ||||||||||||
17
Revenue, costs of sales, and gross profit margin
The following table sets forth our revenue for the three and nine months ended March 31, 2024 and 2023:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Revenue | 38,439,935 | 30,133,445 | 121,689,863 | 86,961,574 | ||||||||||||
| Costs of sales | 35,115,736 | 23,855,350 | 105,461,383 | 67,959,387 | ||||||||||||
| Gross profit | 3,324,199 | 6,278,095 | 16,228,480 | 19,002,187 | ||||||||||||
| Gross profit margin % | 8.6 | % | 20.8 | % | 13.3 | % | 21.9 | % | ||||||||
The following table outlines the compositions of our revenue streams:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Transportation services | 25,024,889 | 21,166,120 | 84,664,603 | 61,998,726 | ||||||||||||
| Warehousing services | 13,372,014 | 8,885,368 | 36,606,859 | 24,531,240 | ||||||||||||
| Other services | 43,032 | 81,957 | 418,401 | 431,608 | ||||||||||||
| Total | 38,439,935 | 30,133,445 | 121,689,863 | 86,961,574 | ||||||||||||
Three Months Ended March 31, 2024 and 2023
Our revenue increased by $8.3 million, or 27.6%, to $38.4 million during the three months ended March 31, 2024, from $30.1 million for the same period in 2023. The increase was due to the effect of following factors:
| 1) | Revenue from our transportation services increased by $3.9 million, or 18.2%, due to the rapid expansion of our business in 2023, as we expanded our warehouse operational capacities in California and New Jersey. |
| 2) | Revenue from our warehousing services increased by $4.5 million, or 50.5%. As an integrated part of our one-stop warehousing and logistics services, our warehousing services also increased as a result of the growth in our transportation services. |
| 3) | Revenue from other services decreased by $0.04 million. Other revenue mainly consisted of revenue from our customs brokerage services. |
Our costs of sales mainly represented the costs incurred for the use of third-party direct freight service carriers, such as FedEx and UPS, warehouse rental expenses, costs of labor, and trucking expenses. Costs of sales increased by $11.3 million, or 47.2%, during the three months ended March 31, 2024, compared with the same period in 2023. The increase was in line with the increase of our revenue.
18
Nine Months Ended March 31, 2024 and 2023
Our revenue increased by $34.7 million, or 39.9%, to $121.7 million during the nine months ended March 31, 2024, compared to $87.0 million for the same period in 2023. The increase was due to the following factors:
| 1) | Revenue from our transportation services increased by $22.7 million, or 36.6%, due to the rapid expansion of our business in 2023, as we expanded our warehouse operational capacities in California and New Jersey. |
| 2) | Revenue from our warehousing services increased by $12.1 million, or 49.2%. As an integrated part of our one-stop warehousing and logistics services, our warehousing services also increased as a result of the growth in our transportation services. |
| 3) | Revenue from other services decreased by $0.01 million. Other revenue mainly consisted of revenue from our customs brokerage services. |
Our costs of sales mainly represented the costs incurred for the use of third-party direct freight service carriers, such as FedEx and UPS, warehouse rental expenses, costs of labor, and trucking expenses. Costs of sales increased by $37.5 million, or 55.2%, during the nine months ended March 31, 2024, compared with the same period in 2023. The increase was in line with the significant increase of our revenue.
The following table sets forth a breakdown of our costs of sales for the three and nine months ended March 31, 2024 and 2023:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Amortization | 8,829 | 8,229 | 26,488 | 151,501 | ||||||||||||
| Depreciation | 436,084 | 236,601 | 1,222,550 | 641,222 | ||||||||||||
| Rental expenses | 7,633,143 | 3,794,044 | 20,837,098 | 9,922,594 | ||||||||||||
| Freight expenses | 19,872,642 | 16,908,762 | 62,766,326 | 48,369,492 | ||||||||||||
| Port handling and customs fees | 51,347 | 762 | 370,438 | 99,461 | ||||||||||||
| Salary and benefits | 2,095,115 | 809,754 | 5,556,288 | 2,332,045 | ||||||||||||
| Temporary labor expenses | 3,118,921 | 1,619,054 | 9,399,535 | 5,370,568 | ||||||||||||
| Warehouse expenses | 1,767,328 | 265,570 | 4,235,306 | 633,086 | ||||||||||||
| Utilities | 102,494 | 102,924 | 362,468 | 303,594 | ||||||||||||
| Other expenses | 29,833 | 109,650 | 684,886 | 135,824 | ||||||||||||
| Total | 35,115,736 | 23,855,350 | 105,461,383 | 67,959,387 | ||||||||||||
Three Months Ended March 31, 2024 and 2023
Our freight expenses, rental expenses (primarily warehouse operating lease expenses), temporary labor expenses, and salary and benefits increased significantly by $3.0 million, $3.8 million, $1.5 million, and $1.3 million, respectively, during the three months ended March 31, 2024, compared to the same period in 2023. The increases in these expenses were all due to the growth of our revenue in transportation services and warehouse services.
Our overall gross profit margin decreased from 20.8% for the three months ended March 31, 2023 to 8.6% for the same period in 2024, primarily due to our expansion into the Fontana, California warehouse and the temporary disruption of operations in California as inventory was relocated to a new facility. Although the profit margins of our transportation services (e.g. FedEx, ocean freight, and truck deliveries) for the three months ended March 31, 2024, remained stable or slightly higher compared to the previous year, the profit margins for our warehousing services experienced a decrease during the same period. This decline is attributable to increases in the rental expenses, salary and benefits, temporary labor expenses, and warehouse expenses of approximately 101%, 159%, 93%, and 565%, respectively, despite a relatively modest increase in warehousing services revenue of approximately 50.5%.
19
Nine Months Ended March 31, 2024 and 2023
Our freight expenses, rental expenses (primarily warehouse operating lease expenses), temporary labor expenses, and salary and benefits increased significantly by $14.4 million, $10.9 million, $4 million, and $3.2 million, respectively, during the nine months ended March 31, 2024 compared to the same period in 2023. The increases in these expenses were all due to the growth of our revenue in transportation services and warehouse services.
Our overall gross profit margin decreased from 21.9% for the nine months ended March 31, 2023 to 13.3% for the same period in 2024, primarily due to our expansion into the Fontana, California warehouse and the temporary disruption of operations in California, as inventory was relocated to a new facility. Although the profit margins of our transportation services (e.g. FedEx, ocean freight, and truck deliveries) for the nine months ended March 31, 2024, remained stable or slightly higher compared to the previous year, the profit margins for our warehousing services experienced a significant decrease during the same period. This decline is attributable to increases in the rental expenses, salary and benefits, temporary labor expenses, and warehouse expenses of approximately 110%, 138%, 75%, and 569%, respectively, despite a relatively modest increase in warehousing services revenue of approximately 49.2%.
Operating expenses
Our operating expenses consist primarily of general and administrative expenses. The following table sets forth a breakdown of our general and administrative expenses for the three and nine months ended March 31, 2024 and 2023:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
| Bank charges | 2,347 | 1,390 | 51,890 | 12,306 | ||||||||||||
| Depreciation | 89,083 | 54,211 | 221,889 | 147,477 | ||||||||||||
| Office expenses | 470,490 | 240,431 | 1,846,669 | 808,027 | ||||||||||||
| Professional fees | 103,849 | 118,376 | 217,412 | 278,867 | ||||||||||||
| Rental expenses | 1,056,224 | 1,052,826 | 1,258,030 | 1,506,997 | ||||||||||||
| Repairs and maintenance | 383,941 | 170,916 | 816,717 | 359,766 | ||||||||||||
| Salary and benefits | 950,441 | 1,296,570 | 3,190,431 | 3,530,958 | ||||||||||||
| Sundries | 121,136 | 9,181 | 157,596 | 44,480 | ||||||||||||
| Tax and licenses | 21,216 | 45,443 | 123,084 | 78,366 | ||||||||||||
| Vehicle expenses | 47,209 | 55,130 | 145,697 | 160,122 | ||||||||||||
| Other expenses | 21,821 | 6,663 | 90,608 | 46,780 | ||||||||||||
| Credit loss expenses | 1,736 | — | (22,827 | ) | — | |||||||||||
| Total | 3,269,493 | 3,051,137 | 8,097,196 | 6,974,146 | ||||||||||||
Three Months Ended March 31, 2024 and 2023
Our general and administrative expenses increased by $0.2 million, from $3.1 million for the three months ended March 31, 2023, to $3.3 million for the same period in 2024, representing an increase of 7%. The increase was due to increased administrative activities primarily related to office supplies, and repairs and maintenance, to accommodate our business expansion.
Nine Months Ended March 31, 2024 and 2023
Our general and administrative expenses increased by $1.1 million, from $7.0 million for the nine months ended March 31, 2023 to $8.1 million for the same period in 2024, representing an increase of 16%. The increase was due to increased administrative activities primarily related to office supplies, and repairs and maintenance, to accommodate our business expansion.
Income Tax
Our income tax expense decreased by $1.0 million for the three months ended March 31, 2024 compared to the same period in 2023, mainly due to the decrease in profit before tax by $2.5 million during the three months ended March 31, 2024.
Our income tax expense decreased by $1.2 million for the nine months ended March 31, 2024 compared to the same period in 2023, mainly due to the decrease in profit before tax by $2.9 million during the nine months ended March 31, 2024.
Net income
As a result of the foregoing, our net income for the three months ended March 31, 2024 was $0.7 million, compared with the net income of $2.2 million for the same period in 2023, representing a decrease by $1.5 million.
Our net income for the nine months ended March 31, 2024 was $7.2 million, compared with the net income of $9.0 million for the same period in 2023, representing a decrease by $1.8 million.
20
Liquidity and Capital Resources
In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of the date of this Quarterly Report, we have financed our operations primarily through cash generated by operating activities and capital contributions from stockholders. As of March 31, 2024 and June 30, 2023, we had cash (including restricted cash) of $6.0 million and $6.6 million, respectively, which primarily consisted of cash deposited in banks.
Our working capital requirements mainly consist of costs of sales and general and administrative expenses. We expect that our capital requirements will be met by cash generated from our operating activities and financing activities from our principal stockholders. We believe that our current cash and cash generated from our operating activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in our business conditions or other developments.
Cash Flows for the Nine Months Ended March 31, 2024 and 2023
| For the Nine months Ended March 31, 2024 | For the Nine months Ended March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Net cash provided by operating activities | 3,992,195 | 10,473,446 | ||||||
| Net cash used in investing activities | (4,680,643 | ) | (4,265,712 | ) | ||||
| Net cash provided by (used in) financing activities | 177,025 | (3,024,108 | ) | |||||
| Net increase (decrease) in cash | (511,423 | ) | 3,183,626 | |||||
| Cash at beginning of period | 6,558,099 | 2,248,760 | ||||||
| Cash and restricted cash at end of period | 6,046,676 | 5,432,386 | ||||||
We had a balance of cash and restricted cash of $6.0 million as of March 31, 2024, compared with a balance of $6.6 million as of June 30, 2023. During the nine months ended March 31, 2024, we mainly derived our cash inflow from operating activities.
Operating Activities
Net cash provided by operating activities was $4.0 million for the nine months ended March 31, 2024, compared to net cash provided in operating activities of $10.5 million for the same period in 2023, representing a $6.5 million decrease in the net cash inflow provided by operating activities. The decrease was primarily due to the following:
| (i) | We had net income of $7.2 million for the nine months ended March 31, 2024. For the same period in 2023, we had net income of $9.0 million, which led to a $1.8 million decrease in net cash inflow from operating activities. |
| (ii) | Changes in accounts receivable and other receivables were $7.7 million cash outflow for the nine months ended March 31, 2024. For the same period in 2023, changes in accounts receivable and other receivables were $2.6 million cash outflow, which led to a $5.1 million increase in net cash outflow from operating activities. |
| (iii) | Changes in accounts payable and accrued liabilities used $2.2 million net cash outflow for the nine months ended March 31, 2024. For the same period in 2023, changes in accounts payable and accrued liabilities provided net cash inflow of $0.6 million, which led to a $2.8 million increase in net cash outflow from operating activities. |
| (iv) | Changes in tax payable provided $1.9 million net cash inflow for the nine months ended March 31, 2024. For the same period in 2023, changes in tax payable provided net cash inflow of $2.9 million, which led to a $0.9 million decreased in net cash inflow from operating activities. |
| (v) | Changes in payroll liabilities provided $0.2 million net cash inflow for the nine months ended March 31, 2024. For the same period in 2023, changes in payroll liabilities provided net cash inflow of $0.3 million, which led to a $0.1 million decrease in net cash inflow from operating activities. |
| (vi) | Changes in non-cash items provided $5.6 million net cash inflow for the nine months ended March 31, 2024. For the same period in 2023, changes in non-cash items provided net cash inflow of $1.7 million, which led to a $3.9 million increase in net cash inflow from operating activities. |
21
Investing Activities
Net cash used in investing activities was $4.7 million for the nine months ended March 31, 2024, primarily attributable to $3.1 million cash used for the purchase of property and equipment and $1.6 million used for loans extended to a customer for the nine months ended March 31, 2024.
For the same period in 2023, net cash used in investing activities was $4.3 million, primarily attributable to $1.8 million cash used for the purchase of property and equipment and $2.4 million used for loans extended to a customer.
Financing Activities
For the nine months ended March 31, 2024, we had net cash provided by financing activities of $0.2 million, which was primarily attributable to the net effects of: (i) $0.5 million collected from related parties for the repayment of loans we previously advanced to them; (ii) $0.6 million used for expenses relating to the initial public offering; (iii) $0.2 million used to repay finance lease liabilities; and (iv) $0.5 million in capital contributions from stockholders.
For the nine months ended March 31, 2023, we had net cash used in financing activities of $3.0 million, which was primarily attributable to the net effects of: (i) $2.5 million used to repay related parties; (ii) $0.5 million advanced to related parties; iii) $0.2 million used for expenses relating to the initial public offering; (iv) $0.2 million used to repay finance lease liabilities; and (v) $0.4 million in capital contributions from stockholders.
Commitments and Contractual Obligations
As of March 31, 2024, we had operating and finance leases for office space, warehouse space, and forklifts. Lease terms expire at various dates through April 2026 to November 2034 with options to renew for varying terms at our sole discretion. We have not included these options to extend or terminate in the calculation of right-of-use assets or lease liabilities, as there is no reasonable certainty, as of the date of this Quarterly Report, that these options will be exercised.
As of March 31, 2024, maturities of lease liabilities for each of the following fiscal years ending June 30 and thereafter were as follows:
| Operating | Finance | |||||||
| US$ | US$ | |||||||
| 2024 | 4,418,689 | 48,331 | ||||||
| 2025 | 28,620,864 | 175,880 | ||||||
| 2026 and beyond | 138,682,715 | 196,392 | ||||||
| Total minimum lease payment | 171,722,268 | 420,603 | ||||||
| Less: imputed interest | (48,562,783 | ) | (56,834 | ) | ||||
| Total lease liabilities | 123,159,485 | 363,769 | ||||||
| Less: current potion | (23,890,833 | ) | (170,531 | ) | ||||
| Non-current portion | 99,268,652 | 193,238 | ||||||
Other than the above leases, we did not have significant commitments, long-term obligations, or guarantees as of March 31, 2024.
Off-balance Sheet Commitments and Arrangements
Other than two one-year term standby letters of credit with Eastwest Bank in the aggregate amount of $2,061,673, we did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements as defined under the rules and regulations of the SEC, or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2024, we still have unused credit of $2,061,673 with Eastwest Bank.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of this Quarterly Report, and revenue and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.
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Despite that management determines that there are no critical accounting estimates, the one that requires relatively significant estimates relates to useful lives of property and equipment.
Property and equipment are recorded at cost, less accumulated depreciation and impairment. The estimation of useful lives impacts the level of annual depreciation expenses recorded and the estimation is a matter of judgment based on the experience of our Company and general industry practice with similar assets. The estimated annual deprecation rates of our property and equipment are generally as follows:
| Category | Depreciation method | Depreciation rate | ||
| Furniture and fixtures | Straight-line | 7 years | ||
| Auto & trucks | Straight-line | 5 – 8 years | ||
| Trailers & truck chassis | Straight-line | 15 – 17 years | ||
| Machinery & equipment | Straight-line | 2 – 7 years | ||
| Leasehold improvements | Straight-line | Shorter of lease term or 15 years |
As of March 31, 2024 and June 30, 2023, the historical cost of property and equipment was $13,503,962 and $9,566,675, respectively.
We recorded depreciation expenses of $1,313,684 and $788,699 during the nine months ended March 31, 2024 and 2023, respectively. For the nine months ended March 31, 2024 and 2023, we recorded depreciation expenses of $1,091,795 and $641,222 in costs of sales, respectively, and $221,889 and $147,477 in general and administrative expenses, respectively.
While our significant accounting policies are more fully described in “Note 2 — Summary of Significant Accounting Policies” in the notes to our unaudited financial statements, we believe that there were no critical accounting policies that affect the preparation of financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.
In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024 and determined that the disclosure controls and procedures were not effective at a reasonable assurance level as of that date.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d -15(f) of the Exchange Act) during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ARMLOGI HOLDING CORP.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any material legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form S-1, as amended (File Number 333-274667) for our initial public offering, which was declared effective by the SEC on May 13, 2024. In May 2024, we completed our initial public offering in which we issued and sold an aggregate of 1,600,000 shares of common stock, at a price of $5.00 per share for $8,000,000. EF Hutton LLC was the representative of the underwriters of our initial public offering.
We incurred approximately $3.0 million in expenses in connection with our initial public offering, which included approximately $600,000 in underwriting discounts, approximately $25,000 in expenses paid to or for underwriters, and approximately $2.4 million in other expenses. None of the transaction expenses included payments to directors or officers of our Company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
The net proceeds raised from the initial public offering were $7,315,630 after deducting underwriting discounts and the offering expenses payable by us. As of the date of this Quarterly Report, we have used approximately $3,031,243 for working capital and other general corporate purposes in support of our current business. We intend to use the remaining proceeds from our initial public offering in the manner disclosed in our registration statement on Form S-1, as amended (File Number 333-274667).
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.
Index to Exhibits
| Exhibit | Incorporated by Reference (Unless Otherwise Indicated) | |||||||||
| Number | Exhibit Title | Form | File | Exhibit | Filing Date | |||||
| 3.1 | Articles of Incorporation | S-1 | 333-274667 | 3.1 | September 22, 2023 | |||||
| 3.2 | Amendment to Articles of Incorporation of the Registrant, dated February 22, 2023, for correction of par value | S-1 | 333-274667 | 3.2 | September 22, 2023 | |||||
| 3.3 | Bylaws | S-1 | 333-274667 | 3.3 | September 22, 2023 | |||||
| 4.1 | Specimen Stock Certificate | S-1 | 333-274667 | 4.1 | September 22, 2023 | |||||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | — | — | Filed herewith | |||||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | — | — | — | Filed herewith | |||||
| 32.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 32.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | Furnished herewith | |||||
| 101.INS | Inline XBRL Instance Document | — | — | — | Filed herewith | |||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | — | — | — | Filed herewith | |||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | — | — | — | Filed herewith | |||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | — | — | — | Filed herewith | |||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | — | — | — | Filed herewith | |||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | — | — | — | Filed herewith | |||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | — | — | — | Filed herewith | |||||
| * | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 herewith are deemed to accompany this Form 10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: June 11, 2024
| Armlogi Holding Corp. | ||
| By: | /s/ Aidy Chou | |
| Aidy Chou | ||
| Chief Executive Officer | ||
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