CHEETAH NET SUPPLY CHAIN SERVICE INC. 10-Q

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. 333-271185), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 7, 2023, as amended, and declared effective by the SEC on July 31, 2023. 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 on Form 10-Q, 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. 333-271185). Results of Operations Major Components of Results of Operations Overall, the parallel import market is a seller’s market, and the automobile models we plan to purchase and sell are among the most popular vehicles in the market, which provide lucrative profit opportunities. Our selection of customers and the models we plan to purchase are based on our efforts to maximize the overall profitability of each vehicle sale. We will continue to apply this guiding principle in developing and refining our procurement and sales strategies. As such, we consider market conditions, capital costs, and other factors when determining the models and categories we purchase and the prices at which we sell them. While the brands, models, and their price ranges at which we sell may be adjusted, we intend to maintain the highest gross profit opportunities to improve the overall efficiency of our capital and maximize our earnings potential. Revenue We generate revenue by selling vehicles to U.S. parallel-import vehicle exporters and PRC parallel-import vehicle dealers. A specific vehicle model’s pricing and profitability vary based on the market demand and supply for that model. We set our selling prices based on multiple factors, including the price of the same model sold by authorized dealers in China, the normal commercial terms, customer payment methods, and anticipated workload for trading activities. The selling price is finalized as the manufacturer’s suggested retail price (“MSRP”) plus adjustments, which are determined upon comprehensive consideration of the overall market conditions for vehicles as well as the customer’s payment method. In addition to those specific factors that impact the parallel-import vehicle market, our revenue may be impacted by global economic factors including the U.S. dollar/RMB exchange rate, overall financial and economic conditions in the PRC, and any significant change in relevant import or export regulations. 21 Table of Contents Cost of Revenue Our cost of revenue mainly comprises (i) the purchase cost of vehicles including dealership service fees and non-refundable taxes incurred during procurement, and (ii) fulfillment expenses, mainly including (a) compensation and bonuses for staff in the purchasing department, (b) commission paid to purchasing agents, (c) transportation and storage costs for vehicles, and (d) consulting fees paid to dealer experts to assist us in making the best purchase decisions. Allowance for slow-moving inventories is also included in the cost of revenue when our cost of inventory is higher than net realizable value. Interest Expense, Net To improve our cash flow and expand our business, we obtain loans from financing companies through (i) inventory financing by keeping inventories not intended for immediate sale as collateral, (ii) LC financing by using letters of credit received from our international customers in overseas sales of parallel-import vehicles as collateral, and (iii) accessing revolving lines of credit to further support our operations and strategic initiatives. Accrued interest is recorded as interest expense. As of the date of this quarterly report, our inventory financing annual interest rates range from 16.2% to 27.6%, our LC financing annual interest rates range from 15.0% to 18.0%, and our revolving line of credit interest rate was 18.0%. ​ ​ 22 Table of Contents ​ Comparison of Results of Operations for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, Change Six Months Ended June 30, Change ​ 2023 2022 Amount % 2023 2022 Amount % ​ ​ USD % ​ USD % ​ ​ ​ ​ ​ ​ USD % ​ USD % ​ ​ ​ ​ ​ Revenue ​ $ 12,223,026 100.0 % $ 20,788,964 100.0 % $ (8,565,938) (41.2) % $ 22,437,468 100.0 % $ 33,607,035 100.0 % $ (11,169,567) (33.2) % Cost of Revenue ​ ​ ​ ​ ​ ​ ​ Cost of vehicles ​ 10,319,991 84.4 % 18,977,349 91.3 % (8,657,358) (45.6) % 18,824,494 83.9 % 30,736,345 91.4 % (11,911,851) (38.8) % Fulfillment expenses ​ 650,666 5.3 % 503,452 2.4 % 147,214 29.2 % 1,217,548 5.4 % 1,096,004 3.3 % 121,544 11.1 % Total cost of revenue ​ 10,970,657 89.7 % 19,480,801 93.7 % (8,510,144) (43.7) % 20,042,042 89.3 % 31,832,349 94.7 % (11,790,307) (37.0) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit (Loss) ​ 1,252,369 10.3 % 1,308,163 6.3 % (55,794) (4.3) % 2,395,426 10.7 % 1,774,686 5.3 % 620,740 35.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling expenses ​ 141,340 1.2 % 36,720 0.2 % 104,620 284.9 % 419,123 1.9 % 289,107 0.9 % 130,016 45.0 % General and administrative expenses ​ 565,400 4.6 % 347,302 1.7 % 218,098 62.8 % 1,146,470 5.1 % 582,850 1.7 % 563,620 96.7 % Total operating expenses ​ 706,740 5.8 % 384,022 1.9 % 322,718 84.0 % 1,565,593 7.0 % 871,957 2.6 % 693,636 79.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (Loss) From Operations ​ 545,629 4.5 % 924,141 4.4 % (378,512) (41.0) % 829,833 3.7 % 902,729 2.7 % (72,896) (8.1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Income (Expenses) ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expenses, net ​ (334,855) (2.7) % (819,921) (3.9) % 485,066 (59.2) % (771,914) (3.4) % (1,533,109) (4.6) % 761,195 (49.7) % Other income, net ​ 1,968 — ​ 2,134 — ​ (166) (7.8) % 3,902 — ​ 4,246 — % (344) (8.1) % Total other expenses, net ​ (332,887) (2.7) % (817,787) (3.9) % 484,900 (59.3) % (768,012) (3.4) % (1,528,863) (4.6) % 760,851 (49.8) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (Loss) before Income Tax Provision ​ 212,742 1.8 % 106,354 0.5 % 106,388 100.0 % 61,821 0.3 % (626,134) (1.9) % 687,955 (109.9) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for (Benefits of) Income Taxes ​ 56,997 0.5 % 24,549 0.1 % 32,448 132.2 % 14,009 0.1 % (153,242) (0.5) % 167,251 (109.1) % Net Income (Loss) ​ $ 155,745 1.3 % $ 81,805 0.4 % $ 73,940 90.4 % $ 47,812 0.2 % $ (472,892) (1.4) % $ 520,704 (110.1) % ​ ​ ​ ​ 23 Table of Contents Comparison of the Three Months Ended June 30, 2023 and 2022 Revenue decreased by $8.6 million, or 41.2%, from approximately $20.8 million for the three months ended June 30, 2022 to $12.2 million for the three months ended June 30, 2023. The decrease was primarily due to a lower number of vehicles sold. Specifically: (i) For the three months ended June 30, 2023, we sold 93 vehicles compared with 175 for the three months ended June 30, 2022, mainly due to a short-term decline in market demand. (ii) Our average selling price per vehicle for the three months ended June 30, 2023 and 2022 was $131,430 and $118,794, respectively, representing an increase of $12,636, or 10.4%, per vehicle. This positive trend underscores our ability to command higher prices for our vehicles and reflects the successful implementation of our pricing strategies. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Average Selling Price Changes ​ ​ No. ​ Sales Amount ​ Ave Selling Price ​ No. ​ Sales Amount ​ Ave Selling Price ​ Amount ​ % ​ Bentley ​ — ​ $ — ​ $ — ​ 1 ​ $ 276,448 ​ $ 276,448 ​ $ — ​ — % BMW X7 ​ — ​ ​ — ​ ​ — ​ 18 ​ ​ 1,561,248 ​ ​ 86,736 ​ ​ — ​ — % Porsche Cayenne — ​ — ​ — 9 ​ 817,587 ​ 90,843 ​ — — % Mercedes G550 — ​ — ​ 6 ​ 1,183,338 ​ 197,223 ​ — — % Mercedes G63 — ​ — ​ — 5 ​ 1,321,171 ​ 264,234 ​ — ​ — % Mercedes GLS 450 57 ​ 6,295,570 ​ 110,449 92 ​ 9,527,051 ​ 103,555 ​ 6,894 6.6 % Mercedes Maybach 9 ​ 2,174,314 ​ 241,590 — ​ — ​ — ​ — — % MB S500 — ​ — ​ — 20 ​ 2,747,157 ​ 137,358 ​ — — % Land Rover Range Rover 3 ​ 499,232 ​ 166,411 1 ​ 162,039 ​ 162,039 ​ 4,372 2.7 % Toyota Sequoia 8 ​ 802,637 ​ 100,330 — ​ — ​ — ​ — — ​ LEXUS LX570 — ​ — ​ — 2 ​ 212,054 ​ 106,027 ​ — — ​ LEXUS LX600 16 ​ 2,451,273 ​ 153,204 21 ​ 2,980,871 ​ 141,946 ​ 11,258 7.9 % Total 93 ​ $ 12,223,026 ​ $ 131,430 175 ​ $ 20,788,964 ​ $ 118,794 ​ $ 12,636 10.4 % ​ For the three months ended June 30, 2023, the average selling prices for the majority of models sold increased compared with comparable models for the three months ended June 30, 2022. In addition, while we did not sell several models this quarter compared with the same period in 2022, we were able to add two important new models to our sales lineup. (iii) Sales to U.S. market dealers/exporters accounted for 43.0%, or 48 cars, and 6.4%, or eight cars of our total revenue/vehicles for the three months ended June 30, 2023 and 2022, respectively. Sales to overseas markets, which was mainly the PRC market for the three months ended June 30, 2023 and 2022, accounted for 57.0%, or 45 cars, and 93.6%, or 167 cars, of our total revenue/vehicles, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2023 2022 Amount % Revenue: ​ ​ ​ ​ ​ ​ ​ U.S. domestic market ​ $ 5,257,545 ​ $ 1,320,876 ​ $ 3,936,669 ​ 298.0 % Overseas market ​ 6,965,481 ​ 19,468,088 ​ (12,502,607) ​ (64.2) % Total ​ $ 12,223,026 ​ $ 20,788,964 ​ $ (8,565,938) ​ (41.2) % ​ Supported by our strong procurement group, we are able to purchase large numbers of vehicles within a short period of time; therefore, many of our U.S.-based peers turn to us for vehicle purchasing. Our work with selected U.S. counterparts generally improves our cash flow without compromising our ability to deliver vehicles to our PRC clients. As we expanded our sales channels and strategically prioritized our long-term customers from 2022, our overseas sales market generated 93.6% of our total revenue during the second quarter of 2022. For the three months ended June 30, 2023, our direct sales to the PRC market accounted for 57.0% of our total revenue. We expect to incur significant variability in the portion of our revenue from the overseas market compared with the U.S. domestic market. Our strategy remains to maximize the overall profit of each vehicle through efficient allocation of our capital. Therefore, the percentage of sales to our U.S. customers will fluctuate depending on specific market conditions. 24 Table of Contents Cost of Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2023 2022 Amount % Cost of Revenue ​ ​ ​ ​ Cost of Vehicles ​ $ 10,319,991 ​ $ 18,977,349 ​ $ (8,657,358) (45.6) % Fulfillment Expenses ​ 650,666 ​ 503,452 ​ 147,214 29.2 % Total Cost of Revenue ​ $ 10,970,657 ​ $ 19,480,801 ​ $ (8,510,144) (43.7) % ​ Our total cost of revenue decreased by $8.5 million, or 43.7%, from $19.5 million for the three months ended June 30, 2022 to $11.0 million for the three months ended June 30, 2023. For the three months ended June 30, 2023 and 2022, our total cost as a percentage of our total revenue was 89.7% and 93.7%, respectively. The reduced cost-to-revenue ratio was mainly due to a decrease in vehicle purchase costs. Cost of Vehicles Total cost of vehicles sold decreased by $8.7 million, or 45.6%, from $19.0 million for the three months ended June 30, 2022 to $10.3 million for the three months ended June 30, 2023. We sold 175 vehicles for the three months ended June 30, 2022, and 93 vehicles for the three months ended June 30, 2023. The average purchase price per vehicle increased from $108,784 for the three months ended June 30, 2022 to $110,968 for the three months ended June 30, 2023. This was primarily driven by the higher purchase prices of vehicles we acquired for the three months ended June 30, 2023. The cost of vehicles sold was approximately 84.4% and 91.3% of revenue for the three months ended June 30, 2023 and 2022, respectively. This ratio change demonstrates the company’s ability to optimize its cost management and adapt to market dynamics to enhance overall financial performance. Our average procurement cost per vehicle increased by only 6.0%, compared with the increase in our average selling price per vehicle of 10.6%. Fulfillment Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2023 2022 Amount % Fulfillment expenses ​ ​ ​ ​ ​ ​ ​ Payroll and Benefits ​ $ 334,697 ​ $ 328,117 ​ $ 16,580 ​ 5.1 % Buyer Commission ​ 108,100 ​ 86,950 ​ 21,150 ​ 24.3 % Vehicle Storage and Towing ​ 141,950 ​ 49,253 ​ 92,697 ​ 188.2 % Vehicle Insurance Expense ​ 33,096 ​ 17,495 ​ 15,601 ​ 89.2 % Consulting Fee ​ 12,430 ​ 12,794 ​ (364) ​ (2.8) % Others ​ 10,393 ​ 8,843 ​ 1,550 ​ 17.5 % Total Fulfillment Expenses ​ $ 650,666 ​ $ 503,452 ​ $ 147,214 ​ 29.2 % ​ Fulfillment expenses increased by $0.1 million, or 29.2%, from $0.5 million for the three months ended June 30, 2022 to $0.6 million for the three months ended June 30, 2023. The increase was mainly attributable to an increase in vehicle towing expenses. A noteworthy shift in our procurement strategy involved transporting a majority of the vehicles to the West Coast. While this decision resulted in an increase in procurement costs, it was offset by a decrease in selling expenses. Additionally, the new strategy also streamlines shipping time and expedites receipt of payment through letters of credit, since it only takes approximately two to three weeks to deliver a purchased vehicle to a customer overseas through the West Coast ports (compared with 40 to 60 days if through the East Coast ones), resulting in significantly shorter payment cycles. Gross Profit As a result of the foregoing, our gross profit during the second quarter of 2023 decreased slightly by approximately $60,000, or 4.3%, compared with the second quarter 2022. As of percentage of revenue, the gross margin increased from 6.3% for the three months ended June 30, 2022 to 10.3% for the three months ended June 30, 2023. The gross margin increased mainly because costs decreased more than revenue did due to the increase in selling prices. 25 Table of Contents Operating Expenses Selling Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2023 2022 Amount % Selling Expenses ​ ​ ​ ​ ​ ​ ​ Payroll and benefits ​ $ 57,673 ​ $ 43,880 ​ $ 13,793 ​ 31.4 % Ocean Freight ​ 78,252 ​ (7,160) ​ 85,412 ​ 1,192.9 % Others ​ 5,415 ​ — ​ 5,415 ​ 100.0 % Total Selling expenses ​ $ 141,340 ​ $ 36,720 ​ $ 104,620 ​ 284.9 % ​ Selling expenses increased significantly during the second quarter of 2023 to $0.1 million, from an unusually low expenses of $36,720 for the second quarter of 2022, due to higher payroll and a significant change in ocean freight expenses. During the second quarter of 2022, we recorded a one-time net credit of approximately $7,000 as we received a vendor credit of $270,000 for ocean freight expenses in June 2022. The credit was recorded in the ocean freight expense account and was used to offset expenses incurred in the six months ended June 30, 2022. Selling expenses as a percentage of revenue were 1.2% and 0.2% for the three months ended June 30, 2023 and 2022, respectively. We expect our selling expenses to increase as we plan to hire more employers in the sales department and increase marketing activities to expand direct sales to the PRC market. General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2023 2022 Amount % General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ Payroll and Benefits ​ $ 179,739 ​ $ 97,062 ​ $ 82,677 ​ 85.2 % Rental and Leases ​ 74,675 ​ 54,191 ​ 20,484 ​ 37.8 % Travel & Entertainment ​ 17,305 ​ 14,053 ​ 3,252 ​ 23.1 % Legal & Accounting Fees ​ 227,672 ​ 135,112 ​ 92,559 ​ 68.5 % Recruiting Fees ​ 3,112 ​ 11,655 ​ (8,542) ​ (73.3) % Bank charges and fees ​ 17,840 ​ 8,366 ​ 9,474 ​ 113.3 % Others ​ 45,057 ​ 26,863 ​ 18,194 ​ 67.7 % Total General and Administrative Expenses ​ $ 565,400 ​ $ 347,302 ​ $ 218,098 ​ 62.8 % ​ General and administrative expenses increased by $0.2 million, or 62.8%, to $0.5 million for the three months ended June 30, 2023 from $0.3 million for the three months ended June 30, 2022, primarily due to (i) increased legal and accounting fees related to our initial public offering; (ii) an increase in personnel-related expenses by approximately $80,000, or 85.2%, as a result of the recruitment of additional employees during the second quarter of 2023, and (iii) the leasing of an additional office workplace in the New York area, resulting in increased rental and lease expenses. We expect our general and administrative expenses to continue to increase in 2023 due to increasing expenditures related to hiring additional employees, legal services, and other professional services. For the three months ended June 30, 2023 and 2022, our general and administrative expenses as a percentage of revenue were 4.6% and 1.7%, respectively, due to the above-mentioned expense growth. 26 Table of Contents Other Income (Expenses) Interest Expenses, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended June 30, ​ ​ ​ ​ 2023 2022 Amount % Inventory Financing ​ $ 14,246 ​ $ 301,868 ​ $ (287,622) ​ (95.3) % Letter of Credit Financing ​ 251,031 ​ 512,509 ​ (261,478) ​ (51.0) % Dealers Finance Charges ​ 2,850 ​ 109 ​ 2,741 ​ 2,266.9 % Other Loan Interest Expenses ​ 7,849 ​ 5,023 ​ 2,826 ​ 56.3 % Line of Credit ​ 57,398 ​ — ​ 57,398 ​ 100 % Credit Card Interest ​ 1,481 ​ 412 ​ 1,069 ​ 259.5 % Total ​ $ 334,855 ​ $ 819,921 ​ $ (485,066) ​ (59.2) % ​ Interest expenses decreased by approximately $0.5 million, or 59.2%, to $0.3 million for the three months ended June 30, 2023 from $0.8 million for the three months ended June 30, 2022, primarily due to reduced inventory financing and LC financing activities. In order to improve our liquidity and retain more cash to acquire new cars, we may enter into short-term loans from time to time, pledging our inventory as collateral before the vehicles are delivered to our customers. We incur interest expenses on such inventory financing, provided mainly by small lenders, generally at a rate of 1.35% to 1.80% per month. For the three months ended June 30, 2023, the total weighted average balance of funds we obtained through inventory financing decreased to $0.3 million, the interest expenses incurred were $0.01 million, and the weighted average annual interest rate was 20.9%. For the three months ended June 30, 2022, the total weighted average balance of funds we obtained through inventory financing was $7.4 million, the interest expenses incurred were $0.3 million, and the weighted average annual interest rate was 16.4%. As we continue to develop our financial services, which are provided in the form of inventory financing, we intend to minimize our inventory financing as a debtor from other parties in order to avoid business conflicts. As a result, we expect our inventory financing interest expenses to decrease in 2023. We may also finance our operations from time to time through short-term loans using letters of credit, typically received from our international customers in overseas sales of parallel-import vehicles, as collateral. Generally, we borrow approximately 90% or more of the LC amount with a monthly interest rate of approximately 1.5%. As of June 30, 2023, the total weighted average balance of funds we obtained through LC financing decreased to $5.1 million, the interest expenses incurred were $0.25 million for three months ended June 30, 2023, and the weighted average annual interest rate was 19.5%. For the three months ended June 30, 2022, the total weighted average balance of funds we obtained through letters of credit financing was $10.7 million, the interest expenses incurred were $0.5 million, and the weighted average annual interest rate was 19.1%. The period-over-period decrease in total weighted average balance of funds through LC financing and the interest expenses incurred thereby for the three months ended June 30, 2023 was primarily due to the decrease in the amount of LC we received from our international customers, as a result of the decrease in our sales volume, compared with the same period in 2022. As of June 30, 2023, the total weighted average balance of funds we obtained through revolving lines of credit was $1.3 million, the interest expenses incurred were $0.06 million for three months ended June 30, 2023, and the weighted average annual interest rate was 18.0%. Provision for Income Taxes Our provision for income tax benefit was $0.07 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, as a result of the available benefits generated during 2022. 27 Table of Contents Comparison of the Six Months Ended June 30, 2023 and 2022 Revenue Revenue decreased by $11.2 million, or 33.2%, from approximately $33.6 million for the six months ended June 30, 2022 to $22.4 million for the six months ended June 30, 2023. The decrease was primarily due to the lower number of vehicles sold. Specifically: (i) For the six months ended June 30, 2023, we sold 175 vehicles compared with 296 for the six months ended June 30, 2022, mainly due to the short-term decline in market demand. (ii) Our average selling price per vehicle for the six months ended June 30, 2023 and 2022 was $128,214 and $113,537, respectively, representing an increase of $14,677, or 12.9%, per vehicle. In addition to a slight increase in market vehicle purchase costs, this increase can be attributed primarily to changes in the product sales mix from the same time last year. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Average Selling Price Changes ​ No. Sales Amount Ave Selling Price No. Sales Amount Ave Selling Price Amount % Bentley ​ — ​ $ — ​ $ — ​ 1 ​ $ 276,448 ​ $ 276,448 ​ $ — ​ — % BMW X7 ​ 5 ​ ​ 480,210 ​ ​ 96,042 ​ 52 ​ ​ 4,515,193 ​ ​ 86,831 ​ ​ 9,211 ​ 10.6 % Porsche Cayenne ​ — ​ — ​ — ​ 17 ​ 1,530,837 ​ 90,049 ​ ​ — — % Mercedes G550 ​ — ​ — ​ — ​ 7 ​ 1,332,738 ​ 190,391 ​ ​ — — % Mercedes G63 ​ — ​ — ​ — ​ 8 ​ 1,917,066 ​ 239,633 ​ ​ — ​ — % Mercedes GLS 450 ​ 83 ​ 9,172,404 ​ 110,511 ​ 139 ​ 14,183,865 ​ 102,042 ​ ​ 8,469 8.3 % Mercedes Maybach ​ 12 ​ 2,877,516 ​ 239,793 ​ — ​ — ​ — ​ ​ — — % MB S500 ​ — ​ — ​ — ​ 47 ​ 6,389,475 ​ 135,945 ​ ​ — — % RAM Trucks ​ 14 ​ 1,698,061 ​ 121,290 ​ — ​ — ​ — ​ ​ — — ​ Land Rover Range Rover ​ 10 ​ 1,614,422 ​ 161,442 ​ 1 ​ 162,039 ​ 162,039 ​ ​ (597) (0.4) % Toyota Sequoia ​ 24 ​ 2,433,859 ​ 101,411 ​ — ​ — ​ — ​ ​ — — ​ LEXUS LX570 ​ — ​ — ​ — ​ 3 ​ 318,503 ​ 106,168 ​ ​ — — ​ LEXUS LX600 ​ 27 ​ 4,160,996 ​ 154,111 ​ 21 ​ 2,980,871 ​ 141,946 ​ ​ 12,165 8.6 % Total ​ 175 ​ $ 22,437,468 ​ $ 128,214 ​ 296 ​ $ 33,607,035 ​ $ 113,537 ​ $ 14,677 12.9 % ​ For the six months ended June 30, 2023, the average selling prices for the majority of models increased compared with comparable models for the six months ended June 30, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2023 2022 Amount % Revenue: ​ ​ ​ ​ ​ ​ ​ U.S. domestic market ​ $ 6,915,780 ​ $ 3,431,478 ​ $ 3,484,302 ​ 101.5 % Overseas market ​ 15,521,688 ​ 30,175,557 ​ (14,653,869) ​ (48.6) % Total ​ $ 22,437,468 ​ $ 33,607,035 ​ $ (11,169,567) ​ (33.2) % ​ (iii) Sales to U.S. market dealers/exporters accounted for 30.8%, or 63 cars, and 10.2%, or 25 cars of our total revenue/vehicles for the six months ended June 30, 2023 and 2022, respectively, and sales to overseas markets, which was mainly the PRC market for the six months ended June 30, 2023 and 2022, accounted for 69.2%, or 112 cars, and 89.8%, or 271 cars, of our total revenue/vehicles, respectively. By expanding our sales channels and strategically fostering business partnerships with our clients starting from 2022, our overseas sales have emerged as the primary driver of our revenue. During the six months ended June 30, 2022, sales to our overseas market amounted 28 Table of Contents to almost 90% of total revenue. Although that percentage declined to 69% during the six months ended June 30, 2023, we expect our overseas market revenue to remain a significant portion of our total revenue. Cost of Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ 2023 ​ 2022 Amount % Cost of Revenue ​ ​ ​ ​ Cost of Vehicles ​ $ 18,824,494 ​ $ 30,736,345 ​ $ (11,911,851) (38.8) % Fulfillment Expenses ​ 1,217,548 ​ 1,096,004 ​ 121,544 11.12 % Total Cost of Revenue ​ $ 20,042,042 ​ $ 31,832,349 ​ $ (11,790,307) (37.0) % Our total cost of revenue decreased by $11.8 million, or 37.0%, from $31.8 million for the six months ended June 30, 2022 to $20.0 million for the six months ended June 30, 2023. For the six months ended June 30, 2023 and 2022, our total cost as a percentage of our total revenue was 89.3% and 94.7%, respectively. The change was mainly due to the decrease in vehicle purchase costs. Cost of Vehicles Total cost of vehicles sold decreased by $11.9 million, or 38.8%, from $30.7 million for the six months ended June 30, 2022 to $18.8 million for the six months ended June 30, 2023. We sold 296 vehicles for the six months ended June 30, 2022, and 175 vehicles for the six months ended June 30, 2023. The average purchase price per vehicle increased from $103,839 for the six months ended June 30, 2022 to $107,569 for the six months ended June 30, 2023. This increase was primarily driven by the higher purchase prices of vehicles we acquired for the six months ended June 30, 2023. For the six months ended June 30, 2023, the cost of vehicles sold accounted for approximately 83.9% of revenue, contrasting with 91.4% during the same period in 2022. This ratio change demonstrates our ability to optimize our cost management and adapt to market dynamics to enhance overall financial performance. Notably, our average procurement cost per vehicle registered a modest increase of 3.6%, in contrast to the more substantial 12.9% increase in our average selling price per vehicle. Fulfillment Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2023 2022 Amount % Fulfillment expenses ​ ​ ​ ​ ​ ​ ​ Payroll and Benefits ​ $ 681,499 ​ $ 707,061 ​ $ (25,562) ​ (3.6) % Buyer Commission ​ 194,353 ​ 181,133 ​ 13,220 ​ 7.3 % Vehicle Storage and Towing ​ 226,900 ​ 93,783 ​ 133,117 ​ 141.9 % Vehicle Insurance Expense ​ 57,677 ​ 42,326 ​ 15,351 ​ 36.3 % Consulting Fee ​ 30,530 ​ 56,419 ​ (25,889) ​ (45.9) % Others ​ 26,589 ​ 15,282 ​ 11,307 ​ 74.0 % Total Fulfillment Expenses ​ $ 1,217,548 ​ $ 1,096,004 ​ $ 121,544 ​ 11.1 % ​ Fulfillment expenses increased by $121,544, or 11.1%, from $1.1 million for the six months ended June 30, 2022 to $1.2 million for the six months ended June 30, 2023. The increase was mainly attributable to the increase in vehicle towing expenses; partially offset by decreases in payroll and benefits and consulting fees. Gross Profit As a result of the foregoing, our gross profit increased by $0.6 million, or 35.0%, from a profit of $1.8 million for the six months ended June 30, 2022 to $2.4 million for the six months ended June 30, 2023. As of percentage of revenue, the gross margin increased from 5.3% for the six months ended June 30, 2022 to 10.7% for the six months ended June 30, 2023. 29 Table of Contents Operating Expenses Selling Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2023 2022 Amount % Selling Expenses ​ ​ ​ ​ ​ ​ ​ Payroll and benefits ​ $ 117,676 ​ $ 88,342 ​ $ 29,334 ​ 33.2 % Ocean Freight ​ 291,712 ​ 200,765 ​ 90,947 ​ 45.3 % Others ​ 9,735 ​ — ​ 9,735 ​ 100.0 % Total Selling expenses ​ $ 419,123 ​ $ 289,107 ​ $ 130,016 ​ 45.0 % ​ Selling expenses increased by $0.1 million, or 45.0%, to $0.4 million for the six months ended June 30, 2023 as compared to $0.3 million for the six months ended June 30, 2022, due to increased payroll and ocean freight expenses, which were caused by limited ocean freight resources and increased difficulty in ordering cargo positions. Selling expenses as a percentage of revenue were 1.9% and 0.9% for the six months ended June 30, 2023 and 2022, respectively. General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ 2023 2022 Amount % General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ Payroll and Benefits ​ $ 329,851 ​ $ 205,975 ​ $ 123,876 ​ 60.1 % Rental and Leases ​ 130,280 ​ 107,653 ​ 22,627 ​ 21.0 % Travel & Entertainment ​ 20,188 ​ 23,398 ​ (3,210) ​ (13.7) % Legal & Accounting Fees ​ 548,857 ​ 154,452 ​ 394,405 ​ 255.4 % Recruiting Fees ​ 4,444 ​ 19,101 ​ (14,657) ​ (76.7) % Bank charges and fees ​ 33,863 ​ 31,343 ​ 2,520 ​ 8.0 % Others ​ 78,987 ​ 40,928 ​ 38,059 ​ 93.0 % Total General and Administrative Expenses ​ $ 1,146,470 ​ $ 582,850 ​ $ 563,620 ​ 96.7 % ​ General and administrative expenses increased by $0.6 million, or 96.7%, to $1.1 million for the six months ended June 30, 2023 from $0.5 million for the six months ended June 30, 2022. The increase was primarily driven by increased legal and accounting fees. For the six months ended June 30, 2023 and 2022, our general and administrative expenses as a percentage of revenue were 5.1% and 1.7%, respectively, due to the above-mentioned expense growth. Other Income (Expenses) Interest Expenses, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, ​ ​ 2023 2022 Amount % Inventory Financing ​ $ 112,769 ​ $ 545,306 ​ $ (432,537) ​ (79.3) % Letter of Credit Financing ​ 581,456 ​ 976,800 ​ (395,344) ​ (40.5) % Dealers Finance Charges ​ 3,016 ​ 109 ​ 2,907 ​ 100.0 % Other Loan Interest Expenses ​ 15,794 ​ 7,654 ​ 8,140 ​ 106.3 % Line of Credit ​ 57,398 ​ — ​ 57,398 ​ — % Credit Card Interest ​ 1,481 ​ 3,240 ​ (1,759) ​ (54.3) % Total ​ $ 771,914 ​ $ 1,533,109 ​ $ (761,195) ​ (49.7) % ​ Interest expenses decreased by approximately $0.77 million, or 49.7%, to $0.76 million for the six months ended June 30, 2023 from $1.5 million for the six months ended June 30, 2022, primarily due to less inventory financing and LC financing activities. 30 Table of Contents As part of our efforts to strengthen liquidity, we have successfully utilized the existing line of credit and intend to continue using it moving forward. We initiated access to the revolving line of credit starting from the second quarter of 2023. Liquidity and Capital Resources Cash Flows and Working Capital We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. We have relied primarily upon cash provided by operations and financing activities, including as necessary third-party loans and financial support from our founders. As reflected in the accompanying unaudited condensed consolidated financial statements, we reported net income of $155,745 and $47,812 for the six months ended June 30, 2023. We also reported cash provided by operating activities of $4.1 million for the six months ended June 30, 2023, a positive working capital of $3.1 million and total stockholders’ equity of $2.6 million as of June 30, 2023. In assessing our liquidity, we monitor and analyze our cash on-hand, our ability to generate sufficient revenue sources, the collection of our accounts receivable, our ability to obtain additional financial support in the future, and our operating and capital expenditure commitments. We reported cash of $0.6 million as of June 30, 2023. As of June 30, 2023, we recorded a total of approximately $7.0 millions loans payable, including approximately $4.9 loans payable from LC financing and $1.9 million loans payable from revolving line of credit. We expect that we will be able to continue borrowing under our existing credit facilities based on past experience, our good credit history, and well-established relationship with the lenders. We have also from time to time in the past several years been supported with loans from our principal stockholder, and we believe such support would be available in the future, if needed. In addition, on June 27, 2022, we entered into a subscription agreement with the Investors, whereby we agreed to sell, and the Investors agreed to purchase, up to 1,666,000 shares of Class A common stock at a purchase price of $1.80 per share. The gross proceeds were approximately $3.0 million, before deducting the offering expenses of approximately $0.3 million. The net proceeds were approximately $2.7 million, of which approximately $0.6 million was received in September 2022, $0.5 million in November 2022, $0.1 million in December 2022, $0.7 million in March 2023 and $0.5 million in July 2023, for a total receipt of approximately $2.4 million. The remaining $0.6 million proceeds are expected to be received in full before the end of the third quarter of 2023. On October 5, 2022, we entered into the Agreements with two third-party companies that have been providing financial support to us since 2021. Pursuant to the Agreements, we can borrow under revolving lines of credit of up to $10.0 million and $5.0 million, respectively, from these two third-party companies with a total of $15.0 million for a period of 12 months at a fixed interest rate of 1.5% per month. On December 12, 2022, we amended the Agreements to extend the maturity date to April 2024. Currently, we are working to improve our liquidity and capital sources primarily by generating cash from operations, debt financing, and, if needed, financial support from our principal stockholder. In order to fully implement our business plan and sustain continued growth, we may also seek equity financing from outside investors. Based on the current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for our Company to meet its future liquidity and capital requirements for at least 12 months from the issuance date of the consolidated financial statements. Cash Flows for the Six Months Ended June 30, 2023 and 2022 The following table summarizes our cash flows for the six months ended June 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ Six Months ended June 30, ​ ​ 2023 2022 Net cash provided by (used in) operating activities ​ $ 4,145,363 ​ $ (1,668,223) Net cash (used in) provided by financing activities ​ (3,611,618) ​ 1,372,452 Net increase (decrease) in cash ​ $ 533,745 ​ $ (295,771) ​ As of the date of this quarterly report, we have financed our operating activities primarily through (i) cash generated from operating activities and cash from LC financing and revolving lines of credit; and (ii) proceeds from issuance of common stock. 31 Table of Contents Operating Activities Net cash provided by operating activities was $4.1 million for the six months ended June 30, 2023. This was primarily attributable to a collection of $4.9 million in accounts receivable and partially offset by a $1.0 million increase in inventory and other factors of less significance. Net cash used in operating activities of $1.7 million for the six months ended June 30, 2022 was due to net loss of $0.5 million, adjusted primarily by a $8.0 million increase in accounts receivable, $8.9 million decrease in inventory, $0.1 million decrease in other receivable, $1.5 million decrease in deferred revenue, as well as other less significant factors. Financing Activities Net cash used in financing activities of $3.6 million for the six months ended June 30, 2023, consisted of (i) net repayments of LC financing of $14.9 million; (ii) net repayments of inventory financing of $4.1 million; (iii) net repayments of revolving lines of credit of $0.7 million; (iv) repayments of dealers financing of $0.2 million; partially offset by (v) proceeds from LC financing of $12.7 million; (vi) proceeds from revolving lines of credit of $2.5 million; (vi) proceeds from dealers financing of $0.3 million; and (vii) issuance of common stock of $0.7 million. Net cash provided by financing activities of $1.4 million for the six months ended June 30, 2022, consisted of (i) net proceeds from LC financing of $20.2 million; (ii) net proceeds from inventory financing of $15.0 million; (iii) net financing support from long-term borrowing of $0.35 million, and (iv) financial support of $0.3 million from a founder; partially offset by (iv) repayments for LC financing of $19.5 million, and (v) repayments for inventory financing of $15.0 million; Debt We entered into a series of loan agreements with third-party companies for working capital purposes during the six months ended June 30, 2023. Pursuant to the agreements, loan payables from LC financing were collateralized by letters of credit from overseas sales of parallel-import vehicles. The accounts receivable in connection with letters of credit with book values of $5,097,778 and $7,502,291 were pledged as collateral to guarantee our borrowings from these third-party companies as of June 30, 2023 and December 31, 2022, respectively. On May 15, 2020, we entered into a loan agreement with Thread Capital to borrow $50,000 as working capital with a maturity date of November 1, 2024. The loan bore a fixed interest rate of 5.50% per annum. This loan agreement was subsequently terminated on May 17, 2021, and we entered into a new loan agreement with Thread Capital to borrow an additional $171,300 as working capital. In aggregate, our borrowings from Thread Capital amounted to $221,300 with a maturity date of May 1, 2031. The interest was charged at a fixed annual interest rate of 0.25% between June 1, 2021 and November 30, 2022. Beginning from December 1, 2022, the loan bears a fixed annual interest rate of 5.5%, and we are required to make a monthly installment payment of $2,721 within the remaining term of the loan, with the last installment to be paid in May 2031. On May 24, 2020, we entered into a loan agreement with the SBA to borrow $150,000 for thirty years, with a maturity date of May 23, 2050. Under the terms of the SBA loan, the loan proceeds are used as working capital to alleviate economic injury caused by the COVID-19 pandemic. The loan bears a fixed interest rate of 3.75% per annum. Beginning twelve months from the date of this loan agreement, the Company is required to make a monthly installment payment of $731 within the term of the SBA loan, with the last installment to be paid in May 2050. On March 16, 2022, we entered into an amended agreement with SBA to borrow an additional $350,000 for thirty years as working capital to alleviate economic injury caused by the COVID-19 pandemic. In aggregate, our borrowings amounted to $500,000 with a maturity date of May 23, 2050. The amended loan bears a fixed interest rate of 3.75% per annum. Beginning from March 2022, twenty-four months from the date of the original loan agreement, we are required to make a new monthly installment payment of $2,485 within the remaining term of the loan, with the last installment to be paid in May 2050. 32 Table of Contents On October 5, 2022, we entered into the Agreements with two third-party companies that have been providing financial support to us since 2021. Pursuant to the Agreements, we can borrow under revolving lines of credit of up to $10.0 million and $5.0 million, respectively, from these two third-party companies with a total of $15.0 million for a period of 12 months at a fixed interest rate of 1.5% per month. On December 12, 2022, we amended the Agreements to extend the maturity date to April 2024. The outstanding balance under the revolving lines of credit amounted to $1,871,154 and nil as of June 30, 2023 and December 31, 2022, respectively. The interest expenses for revolving lines of credit were $57,398 and nil for three and six months ended June 30, 2023, respectively. Contractual Obligations The following table sets forth our contractual obligations as of June 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 1 1 to 5 Above 5 ​ ​ Total ​ Year ​ years ​ years Lease commitment ​ $ 298,120 ​ $ 77,196 ​ $ 220,924 ​ $ — Long-term borrowings ​ 693,449 ​ 32,074 ​ 145,655 ​ 515,720 Total ​ $ 991,569 ​ $ 109,270 ​ $ 366,579 ​ $ 515,720 ​ Except for those disclosed above, we did not have any significant capital or other commitments, long-term obligations, or guarantees outstanding as of June 30, 2023. Off-Balance Sheet Arrangements 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. Critical Accounting Policies We prepare our financial statements in conformity with U.S. GAAP, which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. As of the date of this quarterly report, there have been no material changes to our critical accounting policies as discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our registration statement on Form S-1 (File No. 333-271185). Item 3. Quantitative and Qualitative Disclosures About Market Risk . As a smaller reporting company, we are not required to provide this information. 33 Table of Contents