What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-09 · 169 added, 255 removed, 128 unchanged (77% 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), as amended, which was initially filed with the SEC on April 7, 2023 and declared effective by the SEC on July 31, 2023.

333-276300), as amended, which was initially filed with the SEC on December 28, 2023 and declared effective by the SEC on April 26, 2024.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed.

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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.

Business Overview and Outlook

Business Overview and Recent Developing Trends

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.

We purchase automobiles, primarily luxury brands such as Mercedes, Lexus, Range Rover, RAM, and Toyota, from authorized dealers in the U.S.

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

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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.

The primary driver for our industry is the continuing growth of high-net-worth individuals 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.

We provide or utilize third parties in the U.S.

to provide logistics and warehousing services and to truck transport our vehicles from an authorized dealer in the U.S.

to the ultimate point of sale.

Beginning in the second half of 2023, the market for new luxury vehicles in the PRC has been negatively impacted by weak economic conditions and a shift in consumer demand towards electric vehicles, mainly those produced domestically by PRC manufacturers.

Luxury import brand dealers have responded to these threats by discounting the sale price of their vehicles, which has significantly challenged our ability to generate a profit from the sale of parallel import vehicles.

Consistent with our strategy to focus only on profitable parallel-import vehicle transactions, our unit sales during the first quarter of 2024 fell to 13 vehicles, an 84.1% decrease from the first quarter of 2023 and a 73.5% decrease from unit sales in the fourth quarter of 2023, which resulted in $1.4 million in vehicle revenues and our recognition of a net loss of $0.6 million during the first quarter of 2024.

These adverse market conditions are continuing into the second quarter of 2024 and we do not anticipate a significant sales rebound during the second quarter.

We are unable to predict the point at which a positive spread between the price of vehicles sourced from brand manufacturers’ official distribution systems compared with those sourced via the parallel-import market will return.

In response to the significant downturn in our core parallel-import vehicle business, we are undergoing a strategic shift from being primarily a parallel-import vehicle trader to becoming a more diversified international trade service provider and facilitator.

An important first step in this shift was the acquisition of Edward.

This strategic acquisition diversified our business model and enhanced our capabilities to respond more effectively to evolving market demands.

By integrating Edward’s logistics and warehousing services into our operations, we aim to mitigate the adverse impact of declining vehicle sales and to facilitate our entry into other service areas, adapting to current market dynamics.

Additionally, we are actively implementing cost reduction measures and maintaining a very low level of inventory to mitigate financial risks.

These efforts are complemented by using our cash flow to enhance our logistics and warehouse capabilities and cover overhead costs.

While the market conditions for the parallel-import vehicle sector remain challenging and unpredictable, our long-term ambition is to transcend these immediate hurdles and evolve into an integrated provider of international trade services for small- and medium-sized traders.

By shifting our focus from being solely a trader to become a provider of more comprehensive services, we are laying the groundwork for our transformation into a diversified business model.

This model is designed to adapt to the changing market dynamics and to serve a broader range of trading needs, ultimately positioning us as a more comprehensive participant in the global trade ecosystem.

Results of Operations

Major Components of Results of Operations

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.

The specific vehicles we 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 vehicles 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.

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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.

parallel-import vehicle exporters and PRC parallel-import vehicle dealers, and by providing logistics and warehousing services to third-party parallel-import vehicle dealers and other companies engaged in international trade.

The pricing and profitability of vehicles that we sell into the parallel-import vehicle market 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.

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dollar/RMB exchange rate, overall financial and economic conditions in the PRC, and any significant change in relevant import or export regulations.

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.

Our subsidiary, Edward, operates as a licensed Non-Vessel Operating Common Carrier (NVOCC).

It provides ancillary warehouse and logistics services by managing freight forwarding, including shipment consolidation and carrier selection, aimed at optimizing shipping operations.

Edward also provides warehousing services encompassing fulfillment, storage, and inventory management, crucial for supporting both internal operations and external client logistical needs.

Edward is located in California and is active as a warehousing and logistics provider to parallel-import vehicle dealers and to other international traders not involved in the parallel-import business.

Cost of Revenues

Our cost of revenue from parallel-import vehicles sold 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 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%.

Our cost of revenue from logistics and warehousing service mainly includes the associated costs of freight and fulfillment expenses.

We act as a principal, controlling the goods and services, bearing inventory and pricing risks, and fulfill performance obligations directly.

Interest Expenses, Net

To improve our cash flow and expand our business, we obtain loans from finance companies through (i) LC financing by using letters of credit received from our international customers in overseas sales of parallel-import vehicles as collateral, and (ii) accessing revolving lines of credit to further support our operations and strategic initiatives.

Accrued interest is recorded as interest expenses.

As of the date of this quarterly report, our LC financing annual interest rate is 18.0%, and our revolving line of credit interest rate is also 18.0%.

Risks and Uncertainties

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● 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 September 30,

Nine Months Ended September 30,

Cost of Revenue

Three months ended March 31,

Parallel-Import Vehicle

Logistics and warehousing

Total Revenues

Cost of Revenues

Cost of vehicles

Fulfillment expenses

Total cost of revenue

Ocean Freight Costs

Total cost of revenues

Gross Profit (Loss)

Selling expenses

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Total operating expenses

Income From Operations

Other Income (Expenses)

Income (Loss) From Operations

Other Income (Expense)

Interest expenses, net

Other income, net

Subsidy income from Business Recovery Grant Program

Total other expenses, net

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.

Three Months Ended September 30, 2023

Three Months Ended September 30, 2022

Total other expense, net

Loss before Income Tax Provision

Provision for (Benefits of) Income Taxes

Comparison of the Three Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024 and 2023, revenue decreased by $8.7 million, or 85.2%, from approximately $10.2 million to $1.5 million.

This substantial decrease was primarily due to a significant decline in our parallel-import vehicle business.

Revenue generated from vehicle sales was $1.43 million in the first quarter of 2024, compared to $10.2 million for the same period in 2023.

The newly established logistics and warehousing segment, operational since the acquisition of Edward in February 2024, contributed $76,834 to our revenue.

This revenue represents about 5.1% of our total revenue for the first quarter of 2024, reflecting its initial integration into our business operations.

We began recording revenue from this business as of the February 2, 2024 acquisition date.

Parallel-import Vehicle Segment

We continue to face significant challenges in the parallel-import vehicle market.

Revenue from vehicle sales decreased by $8.8 million, or 86.0%, from approximately $10.2 million for the three months ended March 31, 2023 to $1.4 million for the three months ended March 31, 2024.

The decrease was primarily due to the ongoing economic weakness in the PRC and a shift in consumer preferences towards domestically produced electric vehicles.

These factors have persisted since the second half of 2023.

The reduced demand for

luxury import vehicles, compounded by aggressive pricing strategies from luxury import brand manufacturers, has negatively impacted our sales volume and profitability.

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023

Average Selling Price Changes

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Ave Selling Price

Porsche Cayenne

Mercedes G550

Mercedes GLS 450

Mercedes Benz GLS600

Land Rover Range Rover

Toyota Sequoia

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 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,

For the three months ended March 31, 2024, we sold 13 vehicles, compared with 82 for the three months ended March 31, 2023.

The significant decrease in vehicle sales can be attributed to ongoing market volatility in the PRC, especially price fluctuations that initially led to a halt in our vehicle procurement starting in the fourth quarter of 2023.

This pause has continued into the second quarter of 2024 and is directly impacting our sales volume.

During the first quarter of 2024, the strategic adjustments made to our product portfolio at the end of 2023 continued to influence our operations.

Specifically, we discontinued the sale of select luxury car models, including Porsche Cayenne, Mercedes G550, and MB S500.

This decision, initiated in the fourth quarter of 2023, was a response to market dynamics such as discounted pricing by import dealers and was aimed at minimizing losses by halting the procurement of vehicles that were underperforming in the current economic climate.

In conjunction with these portfolio adjustments, our average selling price per vehicle for the three months ended March 31, 2024 and 2023 was $110,073 and $124,566, respectively, representing a decrease of $14,493, or 11.6%, per vehicle.

This reduction in average selling price was primarily the result of our strategic decision to adjust pricing in response to continued market volatility and competitive pressures.

Three Months Ended March 31,

Change Amount

Revenue from parallel-import vehicles:

domestic market

Overseas market

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.

Our work with selected U.S.

counterparts generally improves our cash flow without compromising our ability to deliver vehicles to our PRC clients.

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.

During the three months ended March 31, 2023, 83.3% of our total revenue from parallel-import vehicles was generated from overseas sales;

for the three months ended March 31, 2024, our direct sales to the PRC market accounted for 100.0% of our total revenue from parallel-import vehicles.

We expect to incur significant variability in the portion of our revenue from parallel-import vehicles from the overseas market compared with the U.S.

domestic market.

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customers will also fluctuate depending on specific market conditions.

Cost of Revenue

Three Months Ended September 30,

Cost of Revenue

Cost of Vehicles

Cost of Revenue from Parallel-import Vehicles

Three Months Ended March 31,

Change Amount

Cost of Revenue from parallel-import vehicles sold

Cost of Vehicles sold

Fulfillment Expenses

Total Cost of Revenue

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.

Total Cost of Revenue from parallel-import vehicles sold

Our total cost of revenue from parallel-import vehicle sold decreased by $7.6 million, or 84.1%, from $9.1 million for the three months ended March 31, 2024 to $1.4 million for the same period of 2023.

For the three months ended March 31, 2024 and 2023, total cost as a percentage of revenue was 100.6% and 88.9%, respectively.

Our total cost of revenue from parallel-import vehicle sold decreased in line with the reduced revenue.

Cost of Vehicles

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%.

Total cost of vehicles sold decreased by $7.2 million, or 84.5%, to $1.3 million for the three months ended March 31, 2024 from $8.5 million for the three months ended March 31, 2023.

We sold 13 vehicles during the three months ended March 31, 2024, and 82 vehicles during the three months ended March 31, 2023.

The average purchase price per vehicle remained relatively stable, changing from $110,626 for the three months ended March 31, 2023 to $110,787 for the three months ended March 31, 2024.

The cost of vehicles sold was approximately 91.9% and 83.3% of revenue from parallel-import vehicle for the three months ended March 31, 2024 and 2023, respectively.

This unfavorable change can be attributed to our strategic decision to adjust pricing in response to continued market volatility and competitive pressures.

Fulfillment Expenses

Three Months Ended September 30,

Three Months Ended March 31,

Change Amount

Fulfillment expenses

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Vehicle Storage and Towing

Vehicle Insurance Expense

Vehicle Insurance Expenses

Consulting Fee

Total Fulfillment 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 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.

Fulfillment expenses decreased by approximately $0.5 million, or 77.9%, to $0.1 million for the three months ended March 31, 2024 from $0.6 million for the three months ended March 31, 2023.

This substantial reduction stems from our strategic decision initiated in the fourth quarter of 2023 to halt new vehicle procurements.

This pause has continued to significantly reduce related costs such as buyer commission, vehicle storage and towing costs, vehicle insurance, and consulting fees.

The ongoing adjustment in our procurement strategy reflects our proactive response to the market dynamics and has directly led to the marked decrease in overall fulfillment expenses.

Logistic and Warehousing Segment

For the three months ended March 31, 2024, the Company reported total revenue of $76,834 generated from logistics and warehousing services, of which $13,675 was derived from vehicle-related services.

The remaining service revenue, amounting to $63,159, was generated from services for goods other than vehicles.

We began recording logistic and warehousing revenue as of the date of the Edward acquisition on February 2, 2024.

Gross profit from the combined business segments during the first quarter of 2024 decreased by approximately $1.1 million, or 97.8%, compared with the first quarter of 2023.

As a percentage of revenue, the gross margin decreased from 11.2% for the three months ended March 31, 2023, to 1.7% for the three months ended March 31, 2024.

Operating Expenses

Selling Expenses

Three Months Ended September 30,

Three Months Ended March 31,

Selling Expenses

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Total Selling expenses

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.

Selling expenses decreased significantly during the first quarter of 2024 to approximately $79,000, from $0.3 million for the first quarter of 2023.

This decrease is the result of two primary factors:

(i) the contraction in vehicle sales volume naturally led to a reduction in associated selling activities, reflecting the to the current market demand dynamics;

and (ii) the strategic shift to utilize our own ocean freight services, instead of relying on third-party providers, effectively lowered the costs associated with these logistics services.

Selling expenses as a percentage of revenue was 5.2% and 2.7% for the three months ended March 31, 2024 and 2023, respectively.

General and Administrative Expenses

Three Months Ended September 30,

Three Months Ended March 31,

General and Administrative Expenses

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Rental and Leases

Travel & Entertainment

Legal & Accounting Fees

Travel and Entertainment

Legal and Accounting Fees

Recruiting Fees

Bank charges and fees

Insurance Expenses

Depreciation and Amortization Expenses

Total General and Administrative Expenses

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)

General and administrative expenses increased by $0.2 million, or 32.1%, to $0.8 million for the three months ended March 31, 2024 from $0.6 million for the three months ended March 31, 2023, primarily due to (i) an increase in personnel-related expenses by approximately $50,000, or 30.9%, which was attributed to the hiring of additional staff to support the newly launched logistics and warehousing segment, (ii) the acquisition of Edward, which resulted in the addition of a new office workspace in California, increasing our rental and lease expenses, and (iii) an increase in insurance expenses due to higher costs associated with directors and officers insurance.

Other Income (Expense)

Interest Expenses, net

For the Three Months Ended September 30,

For the Three Months Ended March 31,

Inventory Financing

Letter of Credit Financing

Dealers Finance Charges

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Line of Credit Interest

Credit Card Interest

Interest on Tax

Credit Card Rewards

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.

Interest expenses decreased significantly by approximately $0.4 million, or 85.6%, to approximately $63,000 for the three months ended March 31, 2024, from $0.4 million for the three months ended March 31, 2023, primarily due to (i) no new inventory financing activities together with reduced LC financing activities and (ii) the completion of our IPO in the third quarter of 2023, which resulted in a substantial capital infusion, which we used substantially to pay down debt.

To improve our liquidity and retain more cash to acquire new vehicles, 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 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.

For the three months ended March 31, 2024, we borrowed no funds for inventory financing, and therefore no interest expense was incurred.

For the three months ended March 31, 2023, the total weighted average balance of funds we obtained through inventory financing was $2.3 million, the interest expense incurred was $0.1 million, and the weighted average annual interest rate was 17.2%.

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 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%.

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

As of March 31, 2024, the total weighted average balance of funds we obtained through LC financing decreased to $0.5 million, the interest expense incurred was $0.02 million for three months period, and the weighted average annual interest rate was 18.8%.

For the three months ended March 31, 2023, the total weighted average balance of funds we obtained through LC financing was $6.8 million, the interest expense incurred was $0.3 million, and the weighted average annual interest rate was 19.5%.

The period-over-period decrease in total weighted average balance of funds through LC financing and the related interest expense incurred thereby for the three months ended March 31, 2024 reflected a lower volume of vehicles shipped and greater use of our revolving lines of credit.

As of March 31, 2024, the total weighted average balance of funds we obtained through revolving lines of credit was $0.7 million, the interest expense incurred was $0.03 million for three months ended March 31, 2024, and the weighted average annual interest rate was 18.0%.

Provision for Income Taxes

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

Ave Selling Price

Porsche Cayenne

Mercedes G550

Mercedes GLS 450

Mercedes Maybach

Land Rover Range Rover

Toyota Sequoia

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

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

Nine Months Ended September 30,

Cost of Revenue

Cost of Vehicles

Fulfillment Expenses

Total Cost of Revenue

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 $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.

Fulfillment Expenses

Nine Months Ended September 30,

Fulfillment expenses

Payroll and Benefits

Buyer Commission

Vehicle Storage and Towing

Vehicle Insurance Expense

Consulting Fee

Total Fulfillment Expenses

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

Nine Months Ended September 30,

Selling Expenses

Payroll and benefits

Ocean Freight

Total Selling expenses

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

Nine Months Ended September 30,

General and Administrative Expenses

Payroll and Benefits

Rental and Leases

Travel & Entertainment

Legal & Accounting Fees

Recruiting Fees

Bank charges and fees

Total General and Administrative Expenses

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 Nine Months Ended September 30,

Inventory Financing

Letter of Credit Financing

Dealers Finance Charges

Other Loan Interest Expenses

Line of Credit

Credit Card Interest

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.

Our provision for income tax benefit was $0.2 million and $43,000 for the three months ended March 31, 2024 and 2023, respectively.

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 $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 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 $0.9 million as of March 31, 2024.

As of March 31, 2024, our working capital amounted to approximately $6.3 million.

As reflected in the accompanying unaudited condensed consolidated financial statements, we reported a net loss of $0.6 million for the three months ended March 31, 2024.

We also reported cash provided by operating activities of $1.7 million, a positive working capital of $6.3 million, and total stockholders’ equity of $7.1 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.

We entered into a series of loan agreements with third-party companies for working capital purposes during the three months ended March 31, 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.

The accounts receivable in connection with letters of credit with book value of $5,875,265 were pledged as collateral to guarantee our borrowings from these third-party companies as of March 31, 2023.

There were none pledged as collateral as of March 31, 2024.

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 December 2022, we amended the revolving line of credit agreements to extend their maturity dates to April 2024.

We have not entered into any new agreements to modify the terms or extend the duration of these facilities.

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

The net proceeds were approximately $2.7 million, of which approximately $1.2 million was received in 2022 and $1.2 million in 2023, for a total receipt of approximately $2.4 million.

After negotiations between Rapid, one of the Investors, and the Company regarding the fund’s release terms, an agreement was reached on November 2, 2023, stipulating that the outstanding $600,000 would be paid by Rapid within six months following the Company’s IPO.

On March 13, 2024, considering the impact of market volatility and the long-term benefits of continued cooperation, Rapid requested and the Company agreed to extend the payment due date of the outstanding $600,000 to September 30, 2024.

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.

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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.

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,

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 this quarterly report.

Cash Flows for the Three Months Ended March 31, 2024 and 2023

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

Three Months ended March 31,

Net cash provided by operating activities

Net cash (used in) provided by financing activities

Net cash used in investing activities

Net cash used in financing activities

Net increase in cash

Operating Activities

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.

Net cash provided by operating activities was $1.7 million for the three months ended March 31, 2024.

This was primarily attributable to a collection of $1.6 million in accounts receivable, a $1.3 million decrease in inventory, a $0.5 million increase in other receivables, a $0.1 million increase in other payable, and other less significant factors.

Net cash provided by operating activities was $4.1 million for the three months ended March 31, 2023.

This was primarily attributable to a collection of $4.3 million in accounts receivable and increased deferred revenue because customer prepayment and deposit have been recognized as revenue when revenue recognition criteria have been met during the first quarter of 2023, partially offset by a $1.7 million increase in inventory and other less significant factors.

Investing Activities

Net cash used in investing activities was approximately $48,000 for the three months ended March 31, 2024.

The increase in investing activities consisted of (i) approximately $0.2 million in cash paid for the Edward acquisition, net of cash acquired, and (ii) approximately $0.2 million in collection of vehicle pledge loans extended to third parties.

Financing Activities

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;

(iii) net repayments of revolving lines of credit of $2.4 million;

(iv) repayments of dealers financing of $0.4 million;

partially offset by (v) proceeds from LC financing of $16.7 million;

(vi) proceeds from revolving lines of credit of $3.2 million;

(vi) proceeds from dealers financing of $0.4 million;

(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 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 September 30, 2023.

Net cash used in financing activities was $1.2 million for the three months ended March 31, 2024, which consisted of (i) net repayments of LC financing of $1.0 million;

(ii) net repayments of premium finance of approximately $74,000;

(iii) payment for the equity-classified equity warrant termination of approximately $80,000;

and (iv) net repayments to a related party of approximately $14,000;

partially offset by (v) proceeds from LC financing of approximately $26,000;

Net cash used in financing activities of $4.1 million for the three months ended March 31, 2023 consisted of (i) net repayments of LC financing of $8.0 million;

and (ii) net repayments of inventory financing of $3.2 million;

partially offset by (iii) proceeds from LC financing of $6.5 million and (iv) issuance of common stock of $0.7 million.

Off-Balance Sheet Arrangements

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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.

As of the date of this quarterly report, there have been changes to our critical accounting policies due to the recent acquisition, which was discussed under the significant accounting policies footnote in this quarterly report.

Quantitative and Qualitative Disclosures About Market Risk .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis