Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q.
Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our registration statement on Form S-1 (File No. 333-276300), 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. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this quarterly report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.
The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this quarterly report on Form 10-Q, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report.
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, Lexus, Range Rover, RAM, and Toyota, 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 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 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.
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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 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. As such, we consider market conditions, capital costs, and other factors when determining the models and categories we purchase and the prices at which we sell them. While the brands, models, and their price ranges at which we sell may be adjusted, we intend to maintain the highest gross profit opportunities to improve the overall efficiency of our capital and maximize our earnings potential.
Revenues
We generate revenue by selling vehicles to U.S. 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. The selling price is finalized as the manufacturer’s suggested retail price (“MSRP”) plus adjustments, which are determined upon comprehensive consideration of the overall market conditions for vehicles as well as the customer’s payment method. In addition to those specific factors that impact the parallel-import vehicle market, our revenue may be impacted by global economic factors, including the U.S. dollar/RMB exchange rate, overall financial and economic conditions in the PRC, and any significant change in relevant import or export regulations.
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.
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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.
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
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. and the PRC.
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; and
● 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.
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.
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Comparison of Results of Operations for the periods presented:
Three months ended March 31,
Change
2024
2023
Amount
%
USD
%
USD
%
Revenues
Parallel-Import Vehicle
$
1,430,951
94.9
%
$
10,214,442
100.0
%
$
(8,783,491)
(86.0)
%
Logistics and warehousing
76,834
5.1
%
—
—
%
76,834
100.0
%
Total Revenues
1,507,785
100.0
%
10,214,442
100.0
%
(8,706,657)
(85.2)
%
Cost of Revenues
Cost of vehicles
1,314,973
87.3
%
8,504,503
83.3
%
(7,189,530)
(84.5)
%
Fulfillment expenses
125,261
8.3
%
566,882
5.5
%
(441,621)
(77.9)
%
Ocean Freight Costs
42,500
2.8
%
—
—
%
42,500
100.0
%
Total cost of revenues
1,482,734
98.4
%
9,071,385
88.8
%
(7,631,151)
(84.1)
%
Gross Profit (Loss)
25,051
1.7
%
1,143,057
11.2
%
(1,118,006)
(97.8)
%
Selling expenses
78,840
5.2
%
277,783
2.7
%
(198,943)
(71.6)
%
General and administrative expenses
767,642
50.9
%
581,070
5.7
%
186,572
32.1
%
Total operating expenses
846,482
56.1
%
858,853
8.4
%
(12,371)
(1.4)
%
Income (Loss) From Operations
(821,431)
(54.5)
%
284,204
2.8
%
(1,105,635)
(389.0)
%
Other Income (Expense)
Interest expenses, net
(62,765)
(4.2)
%
(437,059)
(4.3)
%
374,294
(85.6)
%
Other income, net
29,552
2.0
%
1,934
—
%
27,618
1,428.0
%
Total other expense, net
(33,213)
(2.2)
%
(435,125)
(4.3)
%
401,912
(92.4)
%
Loss before Income Tax Provision
(854,644)
(56.7)
%
(150,921)
(1.5)
%
(703,723)
466.3
%
Provision for (Benefits of) Income Taxes
(245,714)
(16.3)
%
(42,988)
(0.4)
%
(202,726)
471.6
%
Net Loss
$
(608,930)
(40.4)
%
$
(107,933)
(1.1)
%
$
(500,997)
464.2
%
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenues
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
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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
No.
Sales Amount
Ave Selling Price
No.
Sales Amount
Ave Selling Price
Amount
%
BMW X7
—
$
—
$
—
5
$
480,210
$
96,042
$
—
—
%
Mercedes GLS 450
11
1,175,116
106,829
26
2,876,834
110,647
(3,819)
(3.5)
%
Mercedes Benz GLS600
—
—
—
3
703,202
234,401
—
—
%
RAM Trucks
—
—
—
14
1,698,061
121,290
—
—
Land Rover Range Rover
—
—
—
7
1,115,189
159,313
—
—
%
Toyota Sequoia
—
—
—
16
1,631,222
101,951
—
—
LEXUS LX600
2
255,835
127,917
11
1,709,723
155,429
(27,512)
(17.7)
%
Total
13
$
1,430,951
$
110,073
82
$
10,214,442
$
124,566
$
(14,493)
(11.6)
%
(i)
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.
(ii)
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.
(iii)
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,
2024
2023
Change Amount
Change %
Revenue from parallel-import vehicles:
U.S. domestic market
$
—
$
1,658,235
$
(1,658,235)
(100.0)
%
Overseas market
1,430,951
8,556,207
(7,125,256)
(83.3)
%
Total
$
1,430,951
$
10,214,442
$
(8,783,491)
(86.0)
%
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. Our strategy remains to maximize the overall profit of each vehicle through efficient allocation of our capital. Therefore, the percentage of sales to our U.S. customers will also fluctuate depending on specific market conditions.
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Cost of Revenue from Parallel-import Vehicles
Three Months Ended March 31,
2024
2023
Change Amount
Change %
Cost of Revenue from parallel-import vehicles sold
Cost of Vehicles sold
$
1,314,973
$
8,504,503
$
(7,189,530)
(84.5)
%
Fulfillment Expenses
125,261
566,882
(441,621)
(77.9)
%
Total Cost of Revenue from parallel-import vehicles sold
$
1,440,234
$
9,071,385
$
(7,631,151)
(84.1)
%
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 $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 March 31,
2024
2023
Change Amount
Change %
Fulfillment expenses
Payroll and Benefits
$
83,855
$
336,802
$
(252,947)
(75.1)
%
Buyer Commission
750
86,253
(85,503)
(99.1)
%
Vehicle Storage and Towing
—
84,950
(84,950)
(100.0)
%
Vehicle Insurance Expenses
—
24,581
(24,581)
(100.0)
%
Consulting Fee
—
18,100
(18,100)
(100.0)
%
Others
40,656
16,196
24,460
151.0
%
Total Fulfillment Expenses
$
125,261
$
566,882
$
(441,621)
(77.9)
%
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.
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Gross Profit
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 March 31,
2024
2023
Amount
%
Selling Expenses
Payroll and benefits
$
58,230
$
60,002
$
(1,772)
(3.0)
%
Ocean Freight
20,610
213,460
(192,850)
(90.3)
%
Others
—
4,321
(4,321)
(100.0)
%
Total Selling expenses
$
78,840
$
277,783
$
(198,943)
(71.6)
%
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 March 31,
2024
2023
Amount
%
General and Administrative Expenses
Payroll and Benefits
$
196,422
$
150,112
$
46,310
30.9
%
Rental and Leases
86,205
55,605
30,600
55.0
%
Travel and Entertainment
19,483
2,883
16,600
575.8
%
Legal and Accounting Fees
309,916
321,185
(11,269)
(3.5)
%
Recruiting Fees
3,486
1,332
2,154
161.8
%
Bank charges and fees
4,195
16,023
(11,828)
(73.8)
%
Insurance Expenses
87,973
4,867
83,106
1,707.7
%
Depreciation and Amortization Expenses
10,886
—
10,886
100.0
%
Others
49,076
29,063
20,013
68.9
%
Total General and Administrative Expenses
$
767,642
$
581,070
$
186,572
32.1
%
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.
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Other Income (Expense)
Interest Expenses, net
For the Three Months Ended March 31,
2024
2023
Amount
%
Inventory Financing
$
—
$
98,523
$
(98,523)
(100.0)
%
LC Financing
23,123
330,424
(307,301)
(93.0)
%
Dealers Finance Charges
—
167
(167)
(100.0)
%
Other Loan Interest
7,552
7,945
(393)
(4.9)
%
Line of Credit Interest
31,336
—
31,336
100.0
%
Credit Card Rewards
(242)
—
(242)
100.0
%
Premium Finance Interest
996
—
996
100.0
%
Total
$
62,765
$
437,059
$
(374,294)
(85.6)
%
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 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 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 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
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.
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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 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 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 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 $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. 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.
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 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,
2024
2023
Net cash provided by operating activities
$
1,695,717
$
4,106,711
Net cash used in investing activities
(47,617)
—
Net cash used in financing activities
(1,177,894)
(4,104,422)
Net increase in cash
$
470,206
$
2,289
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Operating Activities
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 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
We did not have during the period presented, and we do not currently have, any off-balance sheet financing arrangements as defined under the rules and regulations of the SEC, or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
As of the date of this quarterly report, there have been changes to our critical accounting policies due to the recent acquisition, which was discussed under the significant accounting policies footnote in this quarterly report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk .
As a smaller reporting company, we are not required to provide this information.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.