What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-09-05 · 199 added, 171 removed, 184 unchanged (67% of the section changed)

11 unchanged sentences

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.

333-271185), as amended, which was initially filed with the SEC on April 7, 2023 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.

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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.

Business Overview and Outlook

We are a supplier of parallel-import vehicles sourced in the U.S.

to be sold in the PRC market.

We purchase automobiles, primarily luxury brands such as Mercedes, BMW, Porsche, Lexus, and Bentley, from authorized dealers in the U.S.

market and resell them to our customers, including both U.S.

and PRC based parallel-import car dealers.

We derive profits primarily from the price difference between our buying and selling prices for parallel-import vehicles.

Our expertise lies in our ability to identify the type of parallel-import vehicles that are in high demand and to procure them in a timely manner.

The primary driver for our industry is the continuing growth of wealthy groups in the PRC.

We are focusing our attention on the most popular of the luxury vehicles that provide us with the best profit opportunity.

We utilize third parties in the U.S.

to provide logistics and warehousing services and to truck transport our vehicles from the registered U.S.

dealer to the ultimate point of sale.

Changes in consumer demand in the PRC market may be occurring as a result of increased consumer interest in electric vehicles coupled with a slowdown in the PRC economy, both of which have contributed to our lower revenue since the second quarter of 2023.

We are proceeding with our plan to acquire U.S.-based logistics and warehousing service providers to augment our core operations, which we expect will reduce our transaction costs and provide the opportunity to generate revenue by selling these services to third-party parallel importers.

We believe we can overlay these services with the financial services plans we announced in October 2022 for inventory financing, such that we can essentially become a one-stop shop for small- and medium-sized traders within the global supply chain sector.

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.

The automobile models we plan to purchase and sell are among the most popular vehicles in the market, which we believe 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.

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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%.

As 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 is 18.0%.

Risks and Uncertainties

Our operations are in the U.S.

and our primary market is in the PRC.

Accordingly, our business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the U.S.

and the PRC, as well as by the general state of the U.S.

and the PRC economies.

Our results may be adversely affected by changes in the political, regulatory, and social conditions in the U.S.

Risks and uncertainties related to our business include, but are not limited to, the following:

● Changes in consumer demand in the Chinese market towards fuel-efficient vehicles and electric vehicles could adversely affect our vehicle sales volumes and results of operations;

● The PRC government policies on the purchase and ownership of automobiles and stricter emissions standards may reduce the market demand for the automobiles we sell and thus negatively affect our business and growth prospects;

● Any adverse change in political relations between the PRC and the U.S.

or any other country where those brands originate, including the ongoing trade conflicts between the U.S.

and the PRC, may negatively affect our business;

● The ongoing military conflicts between Russia and Ukraine and between Israel and Hamas could materially and adversely affect the global economy and capital markets, including significant volatility in commodity prices, especially energy prices, credit and capital markets, as well as supply chain interruptions;

● The inflation in the economy may result in higher interest rates and capital costs, shipping costs, supply shortages, and increased costs of labor, and may adversely affect our liquidity, business, financial condition, and results of operations, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.

Although we have not experienced losses from these situations and believes that we are in compliance with existing laws and regulations, including our organization and structure disclosed in Note 1, such experience may not be indicative of future results.

Our business, financial condition, and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics, and other catastrophic incidents, which could significantly disrupt our operations.

Our operations have been affected by the COVID-19 pandemic.

First, the COVID-19 pandemic has restricted our purchasing agents in the U.S.

from freely purchasing designated automobiles at U.S.

automobile dealerships, either because of the short supply of vehicles or because of store closings or limited opening hours due to the COVID-19 pandemic.

Second, the COVID-19 pandemic adversely affected the market demand for our products.

Due to the implementation of significant governmental measures in the PRC, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus, parallel-import vehicle consumers are less willing to spend, and their purchasing power has declined.

Consequently, the market demand for luxury cars, which make up the vast majority of our inventory, has decreased dramatically.

In early December 2022, the Chinese government announced a nationwide loosening of its zero-COVID policy, and the PRC faced a wave in infections after the lifting of these restrictions.

Although the spread of COVID-19 pandemic appears to be under control as of the date of this quarterly report, the extent to which the COVID-19 pandemic may impact our future financial results will depend on future developments, such as new information on the effectiveness of the mitigation strategies, the duration, spread, severity, and recurrence of COVID-19 and any COVID-19 variants, the related travel advisories and restrictions, the overall impact of the COVID-19 pandemic on the global economy and capital markets, and the efficacy of COVID-19 vaccines, which may also take extended time to be widely and adequately distributed, all of which remain highly uncertain and unpredictable.

Given this uncertainty, we are currently unable to quantify the expected impact of the COVID-19 pandemic on its future operations, financial condition, liquidity, and results of operations if the current situation continues.

Comparison of Results of Operations for the periods presented:

Three months ended June 30,

Six Months Ended June 30,

Three months ended September 30,

Nine Months Ended September 30,

Cost of Revenue

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Total cost of revenue

Gross Profit (Loss)

Selling expenses

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Total operating expenses

Income (Loss) From Operations

Income From Operations

Other Income (Expenses)

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Other income, net

Subsidy income from Business Recovery Grant Program

Total other expenses, net

Income (Loss) before Income Tax Provision

Provision for (Benefits of) Income Taxes

Net Income (Loss)

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.

Income before Income Tax Provision

Provision for Income Taxes

Comparison of the Three Months Ended September 30, 2023 and 2022

Revenue decreased by $1.9 million, or 15.7%, from approximately $11.9 million for the three months ended September 30, 2022 to $10.0 million for the three months ended September 30, 2023.

The decrease was primarily due to a lower number of vehicles sold.

Specifically:

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.

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

Three Months Ended September 30, 2023

Three Months Ended September 30, 2022

Average Selling Price Changes

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Mercedes GLS 450

Mercedes Maybach

Land Rover Range Rover

Toyota Sequoia

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.

For the three months ended September 30, 2023, we sold 79 vehicles compared with 90 for the three months ended September 30, 2022, mainly due to a decline in market demand.

During the three months ended September 30, 2023, we strategically restructured our product portfolio by discontinuing the sale of select luxury car models, such as the Porsche Cayenne, Mercedes G550, and MB S500.

This decision was driven by our objective to better align with market demand, streamline resource allocation toward higher-demand models, and improve our inventory cost management.

Our average selling price per vehicle for the three months ended September 30, 2023 and 2022 was $127,066 and $132,351, respectively, representing a decrease of $5,285, or 4.0%, per vehicle.

This decrease in the average selling price per vehicle signifies the need for adjusting our pricing strategy and underscores the impact of the portfolio restructuring on our revenue profile.

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,

market dealers/exporters accounted for 12.4%, or 10 cars, and 1.3%, or one car of our total revenue/vehicles for the three months ended September 30, 2023 and 2022, respectively.

Sales to overseas markets, which was mainly the PRC market for the three months ended September 30, 2023 and 2022, accounted for 87.6%, or 69 cars, and 98.7%, or 89 cars, of our total revenue/vehicles, respectively.

Three Months Ended September 30,

domestic market

Overseas market

Supported by our strong procurement group, we are able to purchase large numbers of vehicles within a short period of time;

Our large procurement group enables us 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.

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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.

The implementation of our strategy in 2022 to expand our sales channels and prioritize our long-term customers resulted in an increase in the share of our overseas sales in our revenue mix.

During the three months ended September 30, 2022, 98.7% of our total revenue was generated from overseas sales;

for the three months ended September 30, 2023, our direct sales to the PRC market accounted for 87.6% 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.

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Therefore, the percentage of sales to our U.S.

customers will fluctuate depending on specific market conditions.

customers will also fluctuate depending on specific market conditions.

Cost of Revenue

Three Months Ended June 30,

Three Months Ended September 30,

Cost of Revenue

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Total Cost of Revenue

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.

Our total cost of revenue decreased by $1.5 million, or 14.4%, from $10.4 million for the three months ended September 30, 2022 to $8.9 million for the three months ended September 30, 2023.

For the three months ended September 30, 2023 and 2022, our total cost as a percentage of our total revenue was 88.4% and 87.0%, respectively, reflecting the impact of lower number of vehicles sold, changes in the sales mix, and higher fulfillment expenses.

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%.

Total cost of vehicles sold decreased by $1.4 million, or 14.8%, from $9.8 million for the three months ended September 30, 2022 to $8.4 million for the three months ended September 30, 2023.

We sold 90 vehicles for the three months ended September 30, 2022, and 79 vehicles for the three months ended September 30, 2023.

The average purchase price per vehicle decreased from $109,116 for the three months ended September 30, 2022 to $105,895 for the three months ended September 30, 2023.This increase was primarily driven by the increased MSRP of the vehicles we acquired.

The cost of vehicles sold was approximately 83.3% and 82.4% of revenue for the three months ended September 30, 2023 and 2022, respectively.

This change can be attributed to transient fluctuations in vehicle procurement costs.

Our average procurement cost per vehicle decreased by only 3.0%, compared with the decrease in our average selling price per vehicle of 4.0%.

Fulfillment Expenses

Three Months Ended June 30,

Three Months Ended September 30,

Fulfillment expenses

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Total Fulfillment Expenses

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.

Fulfillment expenses decreased by $42,567, or 7.8%, from $0.5 million for the three months ended September 30, 2022, to $0.5 million for the three months ended September 30, 2023.

The decrease was mainly attributable to the cost reductions in payroll and benefits as well as the improved management of vehicle storage and towing costs.

The decrease was partially offset by an increase in buyer commissions, vehicle insurance expenses, consulting fees, and other miscellaneous 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.

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.

Additionally, the new strategy also streamlines shipping time and expedites receipt of payment through letters of credit, since it takes approximately 14 to 21 days 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.

As a result of the foregoing, our gross profit during the third quarter of 2023 decreased by approximately $0.4 million, or 24.4%, compared with the third quarter of 2022.

As of percentage of revenue, the gross margin decreased from 13.0% for the three months ended September 30, 2022, to 11.6% for the three months ended September 30, 2023.

The primary reasons for the decrease in gross margin were a slight rise in the cost of vehicles and strategic adjustments in the product portfolio.

Operating Expenses

Selling Expenses

Three Months Ended June 30,

Three Months Ended September 30,

Selling Expenses

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Total Selling expenses

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.

Selling expenses decreased significantly during the third quarter of 2023 to $0.2 million, from $0.3 million for the third quarter of 2022.

This reduction is primarily attributable to our strategic move to enhance the management of our ocean freight expenses through improved third-party partnerships.

Selling expenses as a percentage of revenue were 1.8% and 2.6% for the three months ended September 30, 2023 and 2022, respectively.

General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

General and Administrative Expenses

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Total General and Administrative Expenses

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.

General and administrative expenses increased by $0.1 million, or 28.9%, to $0.5 million for the three months ended September 30, 2023 from $0.4 million for the three months ended September 30, 2022, primarily due to (i) an increase in personnel-related expenses by approximately $100,000, or 124.1%, as a result of the recruitment of additional employees during the third quarter of 2023, (ii) the leasing of an additional office workplace in New York, resulting in increased rental and lease expenses, (iii) an increase in travel expenses, and (iv) an increase in other general and administrative expenses due to higher costs associated with directors and officers insurance.

We expect our general and administrative expenses to continue to increase in 2023 due to the increasing expenditures related to legal and other professional services.

For the three months ended September 30, 2023 and 2022, our general and administrative expenses as a percentage of revenue were 5.3% and 3.5%, respectively, due to the above-mentioned expense growth.

Other Income (Expenses)

Interest Expenses, net

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Inventory Financing

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Dealers Finance Charges

Other Loan Interest Expenses

Line of Credit

Other Loan Interest

Line of Credit Interest

Credit Card Interest

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.

Interest on Tax

Premium Finance Interest

Interest expenses decreased by approximately $0.3 million, or 52.9%, to $0.3 million for the three months ended September 30, 2023, from $0.6 million for the three months ended September 30, 2022, primarily due to (i) the absence of inventory financing activities and reduced LC financing activities and (ii) the completion of our IPO in the third quarter of 2023, which marked a significant financial milestone for us and resulted in a substantial capital infusion.

This financial event has played a key role in reducing our reliance on external financing and, subsequently, in the reduction of interest expenses.

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.

For the three months ended September 30, 2023, the total weighted average balance of funds we obtained through inventory financing was nil, and there were no interest expenses incurred during the period.

For the three months ended September 30, 2022, the total weighted average balance of funds we obtained through inventory financing was $5.2 million, the interest expenses incurred were $0.2 million, and the weighted average annual interest rate was 17.0%.

As we continue to develop our financial services, which are provided in the form of inventory financing, we intend to minimize our inventory financing obtained from other parties.

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%.

Generally, we borrow approximately 90% or more of the letter of credit amount with a monthly interest rate of approximately 1.5%.

As of September 30, 2023, the total weighted average balance of funds we obtained through LC financing decreased to $4.2 million, the interest expenses incurred were $0.2 million for three months ended September 30, 2023, and the weighted average annual interest rate was 19.6%.

For the three months ended September 30, 2022, the total weighted average balance of funds we obtained through LC financing was $7.9 million, the interest expenses incurred were $0.4 million, and the weighted average annual interest rate was 19.2%.

The period-over-period decrease in total weighted average balance of funds through LC financing and the related interest expenses incurred thereby for the three months ended September 30, 2023 reflected a lower volume of vehicles shipped and greater use of our revolving lines of credit.

As of September 30, 2023, the total weighted average balance of funds we obtained through revolving lines of credit was $1.4 million, the interest expenses incurred were $0.06 million for three months ended September 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.

Comparison of the Six Months Ended June 30, 2023 and 2022

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:

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.

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

Our provision for income tax was $0.04 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively.

Comparison of the Nine Months Ended September 30, 2023 and 2022

Revenue decreased by $13.0 million, or 28.7%, from approximately $45.5 million for the nine months ended September 30, 2022 to $32.5 million for the nine months ended September 30, 2023.

The decrease was primarily due to a reduction in the overall number of vehicles sold and the effect on revenue of the portfolio restructuring.

For the nine months ended September 30, 2023, we sold 254 vehicles compared with 386 for the nine months ended September 30, 2022.

Nine Months Ended September 30, 2023

Nine Months Ended September 30, 2022

Average Selling Price Changes

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Toyota Sequoia

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,

Our average selling price per vehicle for the nine months ended September 30, 2023 and 2022 was $127,857 and $117,924, respectively, representing an increase of $9,933, or 8.4%, per vehicle.

For the nine months ended September 30, 2023, the average selling prices for the majority of models increased compared with comparable models for the nine months ended September 30, 2022.

Sales to U.S.

market dealers/exporters accounted for 25.1%, or 73 cars, and 7.9%, or 26 cars of our total revenue/vehicles for the nine months ended September 30, 2023 and 2022, respectively, and sales to overseas markets, which was mainly the PRC market for the nine months ended September 30, 2023 and 2022, accounted for 74.9%, or 181 cars, and 92.1%, or 360 cars, of our total revenue/vehicles, respectively.

Nine Months Ended September 30,

domestic market

Overseas market

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

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.

By adjusting our sales channels and strategically fostering business partnerships with our clients beginning in 2022, our overseas sales have emerged as the primary driver of our revenue.

During the nine months ended September 30, 2022, sales to our overseas market amounted to almost 92.1% of total revenue.

Although that percentage decreased to 74.9% during the nine months ended September 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,

Nine Months Ended September 30,

Cost of Revenue

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Total Cost of Revenue

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.

Our total cost of revenue decreased by $13.3 million, or 31.5%, from $42.2 million for the nine months ended September 30, 2022 to $28.9 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2023 and 2022, our total cost as a percentage of our total revenue was 89.0% and 92.7%, respectively.

The change was mainly due to a lower number of vehicles sold, particularly in the first two quarters of the year.

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.

Total cost of vehicles sold decreased by $13.4 million, or 33.0%, from $40.6 million for the nine months ended September 30, 2022 to $27.2 million for the nine months ended September 30, 2023.

We sold 254 vehicles for the nine months ended September 30, 2023, and 386 vehicles for the nine months ended September 30, 2022.

The average purchase price per vehicle increased from $105,069 for the nine months ended September 30, 2022 to $107,048 for the nine months ended September 30, 2023.

This increase was primarily driven by the increased MSRP of vehicles we acquired.

For the nine months ended September 30, 2023, the cost of vehicles sold accounted for approximately 83.7% of revenue, contrasting with 89.1% 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,

Nine Months Ended September 30,

Fulfillment expenses

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Total Fulfillment Expenses

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.

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.

Fulfillment expenses increased by $78,977, or 4.8%, from $1.6 million for the nine months ended September 30, 2022 to $1.7 million for the nine months ended September 30, 2023.

The increase was mainly attributable to the increase in vehicle towing expenses and vehicle insurance expenses, partially offset by decreases in payroll and benefits and consulting fees.

As a result of the foregoing, our gross profit increased by $0.3 million, or 7.4%, from a profit of $3.3 million for the nine months ended September 30, 2022 to $3.6 million for the nine months ended September 30, 2023.

As of percentage of revenue, the gross margin increased from 11.0% for the nine months ended September 30, 2022 to 7.3% for the nine months ended September 30, 2023.

Operating Expenses

Selling Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Selling Expenses

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Total Selling expenses

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.

Selling expenses remained stable for the nine months ended September 30, 2023 and 2022.

The increase in payroll and other selling expenses were offset by the decrease in ocean freight expenses.

Selling expenses as a percentage of revenue were 1.9% and 1.3% for the nine months ended September 30, 2023 and 2022, respectively.

General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

General and Administrative Expenses

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Total General and Administrative Expenses

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.

General and administrative expenses increased by $0.7 million, or 68.6%, to $1.7 million for the nine months ended September 30, 2023 from $1.0 million for the nine months ended September 30, 2022.

The increase was primarily driven by increased payroll expenses, legal and accounting fees, and other general and administrative expenses due to costs associated with directors and officers insurance.

For the nine months ended September 30, 2023 and 2022, our general and administrative expenses as a percentage of revenue were 5.2% and 2.2%, respectively, due to the above-mentioned expense growth.

Other Income (Expenses)

Interest Expenses, net

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Inventory Financing

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Credit Card Interest

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.

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.

Premium Finance Interest

Interest expenses decreased by approximately $1.0 million, or 50.6%, to $1.1 million for the nine months ended September 30, 2023 from $2.1 million for the nine months ended September 30, 2022, primarily due to lower inventory financing and LC financing activities.

Liquidity and Capital Resources

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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.

As reflected in the accompanying unaudited condensed consolidated financial statements, we reported net income of $0.2 million for the nine months ended September 30, 2023.

We also reported cash provided by operating activities of $2.9 million for the nine months ended September 30, 2023, a positive working capital of $7.5 million and total stockholders’ equity of $7.0 million.

In August 2023, we completed our IPO of 1.25 million shares of Class A common stock and raised net proceeds of approximately $3.7 million after expenses.

We commenced using our revolving lines of credit during the second quarter of 2023, which has reduced our borrowings under our inventory and LC financing and reduce our interest expenses.

We entered into a series of loan agreements with third-party companies for working capital purposes during the nine months ended September 30, 2023.

Pursuant to these 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 $3,229,854 and $7,502,291 were pledged as collateral to guarantee our borrowings from these third-party companies as of September 30, 2023 and December 31, 2022, respectively.

In October 2022, we entered into 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 for a total of $15.0 million for a period of 12 months at a fixed interest rate of 1.5% per month.

In December 2022, we amended the Revolving Line of Credit Agreements to extend the maturity dates to April 2024.

In June 2022, we sold 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,

Net cash provided by (used in) operating activities

The balance of $0.6 million is expected to be paid within six months after our IPO.

In March 2022, we entered into an amended agreement with the SBA to borrow an additional $350,000 for 30 years as working capital to alleviate economic injury caused by the COVID-19 pandemic.

In aggregate, our SBA 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, 24 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.

In assessing our liquidity, we monitor and analyze our cash on-hand, our ability to generate sufficient revenue, 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 $0.7 million as of September 30, 2023.

As of September 30, 2023, we recorded a total of approximately $4.2 million loans payable, including approximately $3.0 loans payable from LC financing and $0.9 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

The completion of the IPO in the third quarter of 2023 provided us with a substantial influx of capital.

With improved access to funds as a result of being a public company, we now have the increased financial flexibility to operate without the current need for external financing and can manage our operations with a more comfortable cash flow position.

We are working to further 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 additional equity financing from outside investors.

Based on the current operating plan, management believes that the

above-mentioned measures collectively will provide sufficient liquidity to meet our future liquidity and capital requirements for at least 12 months from the issuance date of the consolidated financial statements.

Cash Flows for the Nine Months Ended September 30, 2023 and 2022

The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:

Nine Months ended September 30,

Net cash provided by operating activities

Net cash (used in) provided by financing activities

Net increase (decrease) in cash

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.

Net increase in cash

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.

Net cash provided by operating activities was $2.9 million for the nine months ended September 30, 2023.

This was primarily attributable to net earnings of $0.2 million, a collection of $1.5 million in accounts receivable, a $0.6 million decrease in inventory, $0.3 million decrease in other receivables, and other less significant factors.

Net cash provided by operating activities of $2.5 million for the nine months ended September 30, 2022 was due to net earnings of $0.7 million, adjusted primarily by a $6.6 million increase in accounts receivable, a $11.5 million decrease in inventory, a $0.4 million decrease in other receivable, a $1.7 million decrease in prepaid expenses, and a $1.8 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;

Net cash used in financing activities of $2.2 million for the nine months ended September 30, 2023, consisted of (i) net repayments of LC financing of $20.7 million;

(ii) net repayments of inventory financing of $4.2 million;

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(vi) proceeds from dealers financing of $0.4 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;

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.

On October 5, 2022, we entered into the Agreements with two third-party companies that have been providing financial support to us since 2021.

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.

(vii) proceeds from premium finance of $0.2 million;

(viii) a reduction in subscriptions receivable of $1.2 million;

and (ix) net proceeds from our IPO of $3.7 million.

Net cash used in financing activities of $2.3 million for the nine months ended September 30, 2022, consisted of (i) net repayment of LC financing of $27.9 million;

(ii) net repayment of inventory financing of $20.9 million;

(iii) repayment to a founder of $1.1 million;

and (iv) repayment of dealers financing of $0.1 million;

partially offset by (v) net proceeds from LC financing of $26.9 million, (vi) net proceeds from inventory financing of $19.3 million;

(vii)issuance of common stock of $0.6 million;

(viii) proceeds from dealers financing of $0.2 million;

(ix) net financing support from long-term borrowing of $0.4 million;

and (x) financial support of $0.3 million from a founder.

Contractual Obligations

The following table sets forth our contractual obligations as of June 30, 2023:

The following table sets forth our contractual obligations as of September 30, 2023:

Lease commitment

Long-term borrowings

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.

Except for those disclosed above, we did not have any significant capital or other commitments, long-term obligations, or guarantees outstanding as of September 30, 2023.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis