What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-13 · 207 added, 179 removed, 118 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.

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

333-280743), as amended, which was initially filed with the SEC on July 10, 2024 and declared effective by the SEC on July 15, 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.

3 unchanged sentences

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.

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.

We are a provider of warehousing and logistics services, historically in connection with the sale of parallel-import vehicles sourced in the U.S.

to be sold in the PRC market, and more recently for the transportation of other goods between the U.S.

We began our operations in 2016 exclusively as a parallel-import vehicle dealer for luxury brand automobiles but have now focused on facilitating non-vehicle trade in view of the continued weakness for imported automobiles in the PRC.

From 2016 to the first half of 2022, we experienced significant growth in sales volume, revenue, and gross profit due to our core strengths and a favorable economic climate.

Since 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 (“EVs”), 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 lately prevented us from generating a profit from the sale of parallel import vehicles.

These adverse market conditions have continued in the first half of 2024 and 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.

To diversify our revenue and further leverage our in-depth expertise in the parallel-import vehicle industry, we have embarked on a plan to acquire logistics and warehousing businesses with the goals to reduce costs and increase efficiency in managing the transaction cycle.

In February 2024, we successfully completed the acquisition of Edward Transit Express Group Inc.

(“Edward”) and started providing our own logistics and warehousing services.

For the six months ended June 30, 2024, we generated revenues of approximately $0.2 million from logistics and warehousing services, representing approximately 31.8% of our total revenues for the period.

We are committed to streamlining operations to reduce costs, enhance efficiency, and attract new clients.

Management believes these strategic initiatives will position the Company for sustainable growth and increased market share.

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.

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.

The Company operates in two business segments:

parallel-import vehicle sales and logistics and warehousing services.

Revenue from the parallel-import vehicle dealership business is generated from the sale of parallel-import vehicles to both domestic and overseas parallel-import car dealers.

We purchase automobiles from the U.S.

market through our team of professional purchasing agents, and resell them mainly to parallel-import car dealers in the U.S.

In accordance with ASC 606, we recognize revenue when the performance obligation has been satisfied and control of the vehicles has been transferred to the dealers.

For sales to U.S.

domestic parallel-import car dealers, revenue is recognized when a vehicle is delivered, and its title has been transferred to the dealers.

For overseas sales, the Company sells vehicles under CFR shipping terms, and revenue is recognized when a vehicle is loaded on a cargo ship and its title has been transferred to the dealers.

We account for the revenue generated from sales of vehicles on a gross basis as we are acting as a principal in these transactions, are subject to inventory risk, have latitude in establishing prices, and are responsible for fulfilling customer orders.

In the logistics and warehousing services segment, revenue from freight forwarding services, both export and import, is recognized when the services are provided, based on the relative transit time.

Our role as the principal in these services involves managing the entire shipping process from origin to destination, allowing revenue recognition on a gross basis throughout the transit period.

For warehousing services, revenue is primarily derived from storage fees, which are recognized based on the actual number of days the goods are stored in the warehouse while awaiting further transportation.

Cost of Revenues

3 unchanged sentences

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%.

Interest Expense, Net

In the past, to improve our cash flow and support parallel-import vehicles business, we obtained loans from finance companies through (i) LC financing by using letters of credit 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 expense.

Risks and Uncertainties

6 unchanged sentences

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;

● Changes in consumer demand in the Chinese market towards fuel-efficient vehicles and EVs, or a general declining purchasing power of PRC consumers, may 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;

2 unchanged sentences

and the PRC, may negatively affect our business;

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

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

● The ongoing military conflicts between Russia and Ukraine and between Israel and several of its regional adversaries 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;

● 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.

Comparison of Results of Operations for the periods presented:

Three months ended March 31,

Parallel-Import Vehicle

Three months ended June 30,

Six Months Ended June 30,

Parallel-import Vehicles

Logistics and Warehousing

9 unchanged sentences

Total operating expenses

Income (Loss) From Operations

Other Income (Expense)

Interest expenses, net

(Loss) Income From Operations

Other (Expense) Income

Interest expense, net

Other income, net

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

(Loss) Income before Income Tax Provision

Income tax (benefit) provision

Net (Loss) Income

Comparison of the Three Months Ended June 30, 2024 and 2023

For the three months ended June 30, 2024 and 2023, revenue decreased by $11.9 million, or 97.6%, from approximately $12.2 million to $0.3 million.

This substantial decrease was primarily due to the continued decline in our parallel-import vehicles business.

The newly established logistics and warehousing segment, operational since the acquisition of Edward in February 2024, generated revenue of $0.1 million, representing about 31.8% to our total revenues for the three months ended June 30, 2024.

Parallel-import Vehicles 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

Revenue from vehicle sales decreased by $12.0 million, or 98.4%, from approximately $12.2 million for the three months ended June 30, 2023 to $0.2 million for the three months ended June 30, 2024.

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

Additionally, more aggressive pricing strategies adopted by luxury import brand manufacturers have further compressed our margins in this segment.

These evolving market dynamics have led to a reduction in our vehicle sales volume and associated revenues.

For the three months ended June 30, 2024, we sold one vehicle, compared with 93 for the three months ended June 30, 2023.

Three Months Ended June 30,

Change Amount

Revenue from parallel-import vehicles:

domestic market

Overseas market

Cost of Revenue from Parallel-import Vehicles

Three Months Ended June 30,

Change Amount

Cost of Revenue from parallel-import vehicles sold

Cost of Vehicles sold

Fulfillment Expenses

Total Cost of Revenue from parallel-import vehicles sold

Our total cost of revenue from parallel-import vehicles sold decreased by approximately $10.8 million, or 98.0%, to $0.2 million for the three months ended June 30, 2024 from $11.0 million for the same period of 2023.

For the three months ended June 30, 2024 and 2023, total cost as a percentage of revenue was 107.8% and 89.8%, respectively.

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

Cost of Vehicles

Total cost of vehicles sold decreased by $10.1 million, or 98.1%, to $0.2 million for the three months ended June 30, 2024 from $10.3 million for the three months ended June 30, 2023.

We sold one vehicle during the three months ended June 30, 2024, and 93 vehicles during the three months ended June 30, 2023.

The cost of vehicles sold was 100.0% and approximately 84.4% of revenue from parallel-import vehicles for the three months ended June 30, 2024 and 2023, respectively.

We expedited the sale of the remaining inventory in response to weak market conditions in order to optimize asset turnover and manage inventory risk.

Fulfillment Expenses

Fulfillment expenses decreased by approximately $0.6 million, or 97.6%, to $15,537 for the three months ended June 30, 2024 from $0.6 million for the three months ended June 30, 2023.

This substantial reduction in fulfillment expenses resulted from the continued effect of our strategic decision in the fourth quarter of 2023 to halt new vehicle procurement.

As a consequence, during the second quarter of 2024, we sold only one vehicle, significantly reducing associated costs such as buyer commissions, vehicle storage and towing fees, insurance, and consulting fees.

Logistics and Warehousing Segment

For the three months ended June 30, 2024, we reported total revenue of $93,563 generated from logistics and warehousing services, of which $20,160 was derived from vehicle-related services.

The remaining service revenue amounting to $73,403 was generated from services for goods other than vehicles.

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

As of June 30, 2024, our logistics and warehousing services catered to 21 customers from various regions, including the PRC, Hong Kong, Vietnam, and the United States.

Gross profit from the combined business segments during the second quarter of 2024 decreased by approximately $1.2 million, or 97.4%, compared with the second quarter of 2023.

As a percentage of revenue, the gross margin increased from 10.2% for the three months ended June 30, 2023, to 11.0% for the three months ended June 30, 2024.

Operating Expenses

General and Administrative Expenses

Three Months Ended June 30,

General and Administrative Expenses

Payroll and Benefits

Rental and Leases

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 $0.3 million, or 53.1%, to $0.9 million for the three months ended June 30, 2024 from $0.6 million for the three months ended June 30, 2023, primarily due to increases in (i) personnel-related expenses to support the newly launched logistics and warehousing segment, (ii) recurring expenses associated with new business lines, aligning with our strategic shift towards logistics and warehousing, (iii) depreciation and amortization expenses, primarily due to the acquisition of new fixed assets and additional intangible assets from the Edward acquisition, as detailed in Notes 6 and 8;

and (iv) insurance expenses due to higher costs associated with directors and officers insurance.

Selling expenses decreased significantly during the second quarter of 2024 to approximately $20,000, from $0.1 million for the second quarter of 2023.

This decrease was the result of the contraction in vehicle sales volume, reflecting the current market demand dynamics.

Selling expense as a percentage of revenue was 6.6% and 1.2% for the three months ended June 30, 2024 and 2023, respectively.

Other (Expense) Income

Interest Expense, net

For the Three Months Ended June 30,

Inventory Financing

Dealers Finance Charges

Other Loan Interest

Line of Credit Interest

Credit Card Interest

Total Interest Expense

Interest expense decreased significantly by approximately $0.3 million, or 89.2%, to approximately $40,000 for the three months ended June 30, 2024, from $0.3 million for the three months ended June 30, 2023, primarily due to (i) no new inventory or LC financing activities, and (ii) cash generated from the completion of our IPO in the third quarter of 2023, followed by follow-on offerings in May and July 2024, which collectively resulted in a substantial capital infusion that was partially used to pay down debt.

Provision for Income Taxes

Our provision for income tax benefit was $0.2 million for the three months ended June 30, 2024, compared with a provision for income taxes of approximately $60,000 for the same period in 2023, respectively.

Comparison of the Six Months Ended June 30, 2024 and 2023

For the six months ended June 30, 2024 and 2023, revenue decreased by $20.6 million, or 92.0%, from approximately $22.4 million to $1.8 million.

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

The newly established logistics and warehousing segment, operational since the acquisition of Edward in February 2024, generated revenue of $170,397, representing about 9.5% of our total revenues for the six months ended June 30, 2024.

Parallel-import Vehicles Segment

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

Revenue from vehicle sales decreased by $20.8 million, or 92.7%, from approximately $22.4 million for the six months ended June 30, 2023 to $1.6 million for the six months ended June 30, 2024.

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

Six Months Ended June 30, 2024

Six Months Ended June 30, 2023

Average Selling Price Changes

5 unchanged sentences

Toyota Sequoia

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,

For the six months ended June 30, 2024, we sold 14 vehicles, compared with 175 for the six months ended June 30, 2023.

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

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

Six Months Ended June 30,

Change Amount

2 unchanged sentences

Overseas market

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.

During the six months ended June 30, 2024, our direct sales to the PRC market accounted for 87.7% of our total revenue from parallel-import vehicles, while for the six months ended June 30, 2023, 69.2% of our total revenue from parallel-import vehicles was generated from overseas sales.

Cost of Revenue from Parallel-import Vehicles

Three Months Ended March 31,

Six Months Ended June 30,

Change Amount

3 unchanged sentences

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.

Our total cost of revenue from parallel-import vehicles sold decreased by $18.4 million, or 91.7%, to $1.6 million for the six months ended June 30, 2024 from $20.0 million for the same period of 2023.

For the six months ended June 30, 2024 and 2023, total cost as a percentage of revenue was 101.5% and 89.3%, respectively.

Our total cost of revenue from parallel-import vehicles 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.

Total cost of vehicles sold decreased by $17.3 million, or 92.0%, to $1.5 million for the six months ended June 30, 2024 from $18.8 million for the six months ended June 30, 2023.

We sold 14 vehicles during the six months ended June 30, 2024, and 175 vehicles during the six months ended June 30, 2023.

The cost of vehicles sold was approximately 92.9% and 83.9% of revenue from parallel-import vehicles for the six months ended June 30, 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,

Six Months Ended June 30,

Change Amount

6 unchanged sentences

Total Fulfillment Expenses

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.

Fulfillment expenses decreased by approximately $1.1 million, or 88.4%, to $0.1 million for the six months ended June 30, 2024 from $1.2 million for the six months ended June 30, 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.

Logistics and Warehousing Segment

For the six months ended June 30, 2024, the Company reported total revenue of $170,397 generated from logistics and warehousing services, of which $33,835 was derived from vehicle-related services.

The rest $136,562 was generated from services for goods other than vehicles.

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

Gross profit from the combined business segments during the six months ended June 30, 2024 decreased by approximately $2.3 million, or 97.6%, compared with the same period of 2023.

As a percentage of revenue, the gross margin decreased from 10.7% for the six months ended June 30, 2023, to 3.2% for the six months ended June 30, 2024.

Operating Expenses

Selling Expenses

Three Months Ended March 31,

Six Months Ended June 30,

Selling Expenses

2 unchanged sentences

Total Selling expenses

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.

Selling expenses decreased significantly for the six months ended June 30, 2024 to approximately $0.1 million, from $0.4 million for the six months ended June 30, 2023.

This decrease was the result of the contraction in vehicle sales volume that naturally led to a reduction in associated selling activities, reflecting current market demand dynamics;

Selling expenses as a percentage of revenue was 5.5% and 1.9% for the six months ended June 30, 2024 and 2023, respectively.

General and Administrative Expenses

Three Months Ended March 31,

Six Months Ended June 30,

General and Administrative Expenses

8 unchanged sentences

Total General and Administrative 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 March 31,

General and administrative expenses increased by $0.5 million, or 42.4%, to $1.6 million for the six months ended June 30, 2024 from $1.1 million for the six months ended June 30, 2023, primarily due to (i) an increase in personnel-related expenses by approximately $0.2 million, or 61.4%, 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, (iii) an increase in recruiting expenses associated with the development of new business lines, aligning with the

company's strategic shift towards logistics and warehousing, (iv) an increase in depreciation and amortization expenses, primarily due to the acquisition of new fixed assets and additional intangible assets, as detailed in Notes 6 & 8;

and (v) an increase in insurance expenses due to higher costs associated with directors and officers insurance.

Other (Expense) Income

Interest Expense, net

For the Six Months Ended June 30,

Inventory Financing

2 unchanged sentences

Line of Credit Interest

Credit Card Rewards

Credit Card Interest

Premium Finance Interest

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%.

Total Interest Expense

Interest expense decreased by approximately $0.7 million, or 87.2%, to approximately $0.1 million for the six months ended June 30, 2024, from $0.8 million for the six months ended June 30, 2023, primarily due to (i) no new inventory or LC financing activities and (ii) cash generated from the completion of our IPO in the third quarter of 2023, followed by follow-on offerings in May and July 2024, which collectively resulted in a substantial capital infusion that was partially used to pay down debt.

To improve our liquidity and retain more cash to acquire new vehicles, we previously borrowed money on a short-term basis, pledging our inventory as collateral before the vehicles are delivered to our customers.

These loans accrued interest at rates ranging from 1.35% to 1.8% per month.

For the six months ended June 30, 2024, no funds for inventory financing were borrowed, resulting in no related interest expense.

For the six months ended June 30, 2023, interest expense incurred was $0.1 million, and the weighted average annual interest rate was 17.6%.

In addition to inventory financing, we previously financed our operations from time to time through short-term loans using letters of credit as collateral, which were typically received from our international customers in overseas sales of parallel-import vehicles.

Generally, these loans allowed us to borrow approximately 90% or more of the letter of credit amount with a monthly interest rate of 1.5%.

However, due to the significant reduction in vehicle sales and the resulting decline in the need for such financing, we did not utilize LC financing during the six months ended June 30, 2024.

The total weighted average balance of funds we obtained through LC financing decreased to $0.2 million, interest expense incurred was approximately $20,000 for the six-month period, and the weighted average annual interest rate was 18.8%.

For the six months ended June 30, 2023, the total weighted average balance of funds we obtained through LC financing was $6.0 million, interest expense incurred was $0.6 million, and the weighted average annual interest rate was 19.5%.

Starting from 2024, we ceased utilizing our revolving lines of credit, as the proceeds from our IPO and follow-on offerings provided sufficient liquidity.

There were no new borrowings under these credit lines during the six months ended June 30, 2024, reflecting a strategic decision to reduce reliance on external debt.

As of June 30, 2024, the total weighted average balance of funds we obtained through revolving lines of credit was $0.7 million, interest expense incurred was approximately $60,000 for the six months ended June 30, 2024, and the weighted average annual interest rate was 18.0%.

For the six months ended June 30, 2023, the total weighted average balance of funds we obtained through revolving lines of credit was $0.6 million, interest expense incurred was approximately $60,000, 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.

Our provision for income tax benefit was $0.5 million for the six months ended June 30, 2024 compared with income tax expense of approximately $14,000 for the same period in 2023.

Liquidity and Capital Resources

1 unchanged sentence

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 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,

We reported cash and cash equivalents of $6.3 million as of June 30, 2024.

As of June 30, 2024, our working capital amounted to approximately $12.4 million.

As reflected in the accompanying unaudited condensed consolidated financial statements, we reported a net loss of $1.2 million for the six months ended June 30, 2024.

We also reported cash provided by operating activities of $0.8 million, and total stockholders’ equity of $13.8 million.

Historically, our primary uses of cash have been to finance working capital needs.

We believe that we will be able to fund current operations and other commitments for at least the next 12 months from operating cash flow and our cash and cash equivalents.

Additional sources of cash may be needed due to unanticipated changes in business conditions or other future developments.

If additional resources are required, we may sell additional equity or debt securities.

The sale of additional equity or equity-linked securities could result in additional dilution to stockholders.

The incurrence of indebtedness would result in increased debt service obligations and could include operating and financial covenants that would restrict our operations.

Financing may not be available in amounts or on terms acceptable to us, or at all.

Cash Flows for the Six Months Ended June 30, 2024 and 2023

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:

Six Months ended June 30,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net increase in cash

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.

Net cash provided by operating activities was $0.8 million for the six months ended June 30, 2024.

This was primarily attributable to a collection of $1.4 million in accounts receivable, a $1.5 million decrease in inventory, a $0.5 million increase in other receivables, and other less significant factors.

Net cash provided by operating activities was $4.1 million for the six months ended June 30, 2023.

This was primarily attributable to a collection of $4.9 million in accounts receivable and partially offset by a $1.0 million increase in inventory and other factors of less significance.

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.

Net cash used in investing activities was approximately $0.9 million for the six months ended June 30, 2024.

The increase in investing activities consisted of (i) approximately $0.2 million in cash paid for the Edward acquisition, net of cash acquired, (ii) $1.0 million in short-term loans lent to third parties, (iii) collection of vehicle pledge loans extended to third parties of approximately 0.2 million, (iv) collection of short-term loans extended to a third party of $0.5 million, and (v) acquired new fixed assets of $0.4 million.

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.

Net cash provided by financing activities was $5.9 million for the six months ended June 30, 2024, which consisted of (i) net proceeds from the May 2024 follow-on public offering of approximately $7.3 million, (ii) net repayments of LC financing of $1.0 million;

(iii) net repayments of premium finance of approximately $150,000;

(iv) payment for the equity warrant termination of approximately $80,000;

and (v) repayments to a line of credit of approximately $0.1 million.

Net cash used in financing activities of $3.6 million for the six months ended June 30, 2023, consisted of (i) net repayments of LC financing of $14.9 million;

(ii) net repayments of inventory financing of $4.1 million;

(iii) net repayments of revolving lines of credit of $0.7 million;

and (iv) repayments of dealers financing of $0.2 million;

partially offset by (v) proceeds from LC financing of $12.7 million;

(vi) proceeds from revolving lines of credit of $2.5 million;

(vi) proceeds from dealers financing of $0.3 million;

and (vii) issuance of common stock of $0.7 million.

Off-Balance Sheet Arrangements

1 unchanged sentence

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.

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

Note 2, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk .

1 unchanged sentence

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