What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-13 · 148 added, 154 removed, 171 unchanged (64% 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-8 (File No.

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.

333-282153), which was filed with the SEC on September 16, 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 provider of warehousing and logistics services, historically in connection with the sale of parallel-import vehicles sourced in the U.S.

We are a provider of logistics and warehousing 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.

Sales of parallel-import vehicle to the PRC market represented a significant part of our revenue before 2024.

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

However, since the second half of 2022, our parallel-import vehicle business has been impacted negatively by the COVID-19 pandemic, the lockdowns in the PRC, and the weaker customer demand in the PRC caused by the deteriorated macroeconomic conditions.

The parallel-vehicle import market has continued to be significantly affected by the adverse market conditions resulting from significant price discounting by luxury import brands and a shift in consumer interest to domestic electric vehicles (“EVs”).

In 2023, we had a decrease in parallel-import vehicle sales by 30.5%, and net income by 87.5% compared to 2022.

During the nine months ended September 30, 2024, our parallel-import vehicle business sales decreased by 95.0% compared to the same period of 2023.

In February 2024, we acquired Edward Transit Express Group Inc.

(“Edward”) to expand our logistics and warehousing service operations.

Beginning in the second quarter of 2024, we increased our marketing staff to pursue new business opportunities and focus on international trade flows between the PRC and U.S.

Additionally, in July 2024, we relocated our headquarters from Charlotte, NC, to Irvine, CA, which we believe will enable a stronger management focus on our logistics and warehousing business due to Irvine’s proximity to the important ports of Los Angeles and Long Beach.

For the nine months ended September 30, 2024, we generated revenues of approximately $0.2 million from logistics and warehousing services.

While we believe that tangible results of these efforts may not be apparent for several quarters, we have confidence that we are positioning the Company for substantial future growth in this business.

Results of Operations

9 unchanged sentences

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.

As stated above, the parallel-import vehicle business has continued to decline since 2023.

During the nine months ended September 30, 2024, sales in the parallel-import vehicle business decreased by 95.0% compared to the same period in 2023, with no revenue generated during the three months ended September 30, 2024.

The Company has been transforming its business from parallel-import vehicles to logistics and warehousing services since the acquisition of Edward.

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.

4 unchanged sentences

Allowance for slow-moving inventories is also included in the cost of revenue when our cost of inventory is higher than net realizable value.

In line with the revenue decline in the parallel-import vehicle business since 2023, we recorded a 94.4% decrease in cost of revenues during the nine months ended September 30, 2024 compared to the same period in 2023.

Additionally, there was no cost of revenues recorded during the three months ended September 30, 2024.

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 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.

Interest Expenses

The Company 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.

Risks and Uncertainties

11 unchanged sentences

and the PRC, may negatively affect our business;

● Our business and financial condition may be substantially harmed by inventory losses caused by theft, vandalism, or accidents during transportation and/or warehousing;

● 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;

2 unchanged sentences

Comparison of Results of Operations for the periods presented:

Three months ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Parallel-import Vehicles

9 unchanged sentences

General and administrative expenses

Allowance of credit loss of accounts receivable

Share-based compensation expenses

Total operating expenses

(Loss) Income from Operations

Other (Expense) Income

Interest expense, net

Other income, net

Total other expense, net

Other Income (Expenses)

Interest income

Interest expenses

Total other income (expenses), net

(Loss) Income before Income Tax Provision

Income tax (benefit) provision

Income tax (benefits) 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 $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.

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

Revenue was $61,208 for the three months ended September 30, 2024, compared to $10.0 million for the same period of 2023, representing a decrease of $9.9 million, or 99.4%.

This decrease was primarily due to the continued downturn in our parallel-import vehicle business.

Revenues of $61,208 generated from logistics and warehousing services were our only source of revenues for the three months ended September 30, 2024.

Gross profit from the combined business segments in the third quarter of 2024 decreased by approximately $1.1 million, or 97.4%, compared to the third quarter of 2023.

As a percentage of revenue, the gross margin increased from 11.6% for the three months ended September 30, 2023, to 48.8% for the three months ended September 30, 2024.

Operating Expenses

General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

General and Administrative Expenses

8 unchanged sentences

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;

General and administrative expenses increased by $0.6 million, or 108.0%, to $1.1 million for the three months ended September 30, 2024 from $0.5 million for the three months ended September 30, 2023, primarily due to increases in (i) personnel-related expenses and rental 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,

Allowance of credit loss of accounts receivable

For the Three Months Ended September 30,

Allowance of credit loss of accounts receivable

Allowance of credit loss of accounts receivable was $1.1 million as compared to nil for the three months ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 2024, the Company assessed the collection of aged accounts receivable related to parallel-import vehicles business, and made $1.1 million of allowance of credit loss on accounts overdue by 210 days (see details on NOTE 3 — ACCOUNTS RECEIVABLE).

Management will continue to review the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

Share-based compensation expenses

For the Three Months Ended September 30,

Share-based compensation expenses

Shares-based compensation expenses was $0.3 million as compared to nil for the three months ended September 30, 2024 and 2023, respectively.

On August 16, 2024, the Board of Directors approved the adoption of the Amended and Restated 2024 Stock Incentive Plan (the “Plan”).

Subsequently, on September 30, 2024, the Company’s stockholders approved the Plan.

The total number of shares granted by the compensation committee of the Company’s board of directors on September 30, 2024 were 150,000, including 118,750 shares of Class A common stock and 31,250 shares of Class B common stock.

Share-based compensation expenses of $261,666 were recognized during the third quarter ended September 30, 2024.

See NOTE 13 — STOCK BASED COMPENSATION for more details.

Other (Expenses) Income

Interest Income

For the Three Months Ended September 30,

Total Interest income

Interest income was $88,459 and $107 for the three ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 2024, the Company recognized interest income on short-term loans receivable and certificates of deposits from the net proceeds of capital injections from IPO in August 2023 and follow-on offerings in July 2024 and May 2024.

During the three months ended September 30, 2023, the Company had interest income of $107 from the delayed sales tax refund from relevant state governments on parallel-import vehicles business.

Interest Expenses

For the Three Months Ended September 30,

Inventory Financing

3 unchanged sentences

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.

Premium Finance Interest

Total Interest Expenses

Interest expenses decreased by approximately $0.3 million, or 94.8%, to approximately $15,000 for the three months ended September 30, 2024, from approximately $290,000 for the three months ended September 30, 2023, primarily due to (i) no new inventory or LC financing activities during the three months ended September 30, 2024, 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.

Income tax (benefits) provision

Our income tax benefits were $0.6 million for the three months ended September 30, 2024, compared with income tax provision of approximately $44,217 for the same period in 2023.

As a result of the above factors, we had a net loss of $1.8 million for the nine months ended September 30, 2024 compared to a net income of $0.1 million for the same period of 2023.

Comparison of the Nine Months Ended September 30, 2024 and 2023

Revenues for the nine months ended September 30, 2024, were $1.9 million, compared to $32.5 million for the same period in 2023, representing a decrease of $30.6 million, or 94.3%.

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

Since the acquisition of Edward, we generated revenue of $231,605, representing approximately 12.4% of our total revenues for the nine months ended September 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

Revenues from vehicle sales decreased by $30.8 million, or 95.0%, from approximately $32.5 million for the nine months ended September 30, 2023, to $1.6 million for the nine months ended September 30, 2024.

This decrease was primarily due to the ongoing economic weakness in the PRC, resulting in reduced customer demands, significant price discounting by luxury import brands, and a shift in consumer interest toward domestic EVs, as reflected in the information below on sales amount and average selling price.

Nine Months Ended September 30, 2024

Nine Months Ended September 30, 2023

Average Selling Price Changes

5 unchanged sentences

Toyota Sequoia

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,

For the nine months ended September 30, 2024, we sold 14 vehicles, compared to 254 for the nine months ended September 30, 2023.

Nine Months Ended September 30,

Change Amount

2 unchanged sentences

Overseas market

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.

During the nine months ended September 30, 2024, our direct sales to the PRC market accounted for 87.7% of our total revenue from parallel-import vehicles, while for the nine months ended September 30, 2023, 74.9% of our total revenue from parallel-import vehicles was generated from overseas sales.

Cost of Revenue from Parallel-import Vehicles

Six Months Ended June 30,

Nine Months Ended September 30,

Change Amount

3 unchanged sentences

Total Cost of Revenue from parallel-import vehicles sold

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 by $27.3 million, or 94.0%, to $1.7 million for the nine months ended September 30, 2024 from $28.9 million for the same period of 2023.

For the nine months ended September 30, 2024 and 2023, total cost as a percentage of revenue was 101.5% and 89.0%, 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 $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.

Total cost of vehicles sold decreased by $25.7 million, or 94.4%, to $1.5 million for the nine months ended September 30, 2024 from $27.2 million for the nine months ended September 30, 2023.

We sold 14 vehicles during the nine months ended September 30, 2024, compared to 254 during the nine months ended September 30, 2023.

Fulfillment Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Change Amount

6 unchanged sentences

Total Fulfillment Expenses

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.

Fulfillment expenses decreased by approximately $1.6 million, or 91.8%, to $0.1 million for the nine months ended September 30, 2024 from $1.7 million for the nine months ended September 30, 2023.

This decrease stayed in line with the reduced revenue of parallel-import vehicles business.

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.

For the nine months ended September 30, 2024, the Company reported total revenue of $231,605 from logistics and warehousing services, which we began recording following the acquisition of Edward in February 2024.

Gross profit from the combined business segments during the nine months ended September 30, 2024 decreased by approximately $3.5 million, or 97.5%, compared with the same period of 2023.

As a percentage of revenue, the gross margin decreased from 11.0% for the nine months ended September 30, 2023, to 4.7% for the nine months ended September 30, 2024.

Operating Expenses

Selling Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Selling Expenses

2 unchanged sentences

Total Selling expenses

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.

Selling expenses decreased to approximately $0.1 million for the nine months ended September 30, 2024, from $0.6 million for the nine months ended September 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 6.3% and 1.9% for the nine months ended September 30, 2024 and 2023, respectively.

General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

General and Administrative Expenses

8 unchanged sentences

Total General and Administrative Expenses

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,

General and administrative expenses increased by $1.0 million, or 63.2%, to $2.7 million for the nine months ended September 30, 2024 from $1.7 million for the nine months ended September 30, 2023, primarily due to (i) an increase in personnel-related expenses by approximately $0.4 million, which was attributed to the hiring of additional staff to support the newly launched logistics and warehousing segment, (ii) an increase of $0.1 million in rental and leases following the acquisition of Edward with the addition of a new office workspace in California, (iii) an increase of $0.1 million 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 of $0.1 million in depreciation and amortization expenses, primarily due to the acquisition of new fixed assets and additional intangible assets, as detailed in Notes 6 & 8;

(v) an increase of $0.2 million in insurance expenses due to higher costs associated with directors and officers insurance, and (vi) an increase of $0.1 million in other miscellaneous general and administration expenses during the nine months ended September 30, 2024.

Allowance of credit loss of accounts receivable

For the Nine Months Ended September 30,

Allowance of credit loss of accounts receivable

Allowance of credit loss of accounts receivable was $1.1 million as compared to nil for the nine months ended September 30, 2024 and 2023, respectively.

During the third quarter ended September 30, 2024, the Company assessed the collection of aged accounts receivable related to parallel-import vehicles business, and made $1.1 million of allowance of credit loss on accounts overdue by 210 days (see details on NOTE 3 — ACCOUNTS RECEIVABLE).

Management will continue to review the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

Share-based compensation expenses

For the Nine Months Ended September 30,

Share-based compensation expenses

Share-based compensation expenses was $0.3 million as compared to nil for the nine months ended September 30, 2024 and 2023, respectively.

On August 16, 2024, the Board of Directors approved the adoption of the Amended and Restated 2024 Stock Incentive Plan (the “Plan”).

Subsequently, on September 30, 2024, the Company’s stockholders approved the Plan.

Share-based compensation expenses of $261,666 were recognized during the third quarter ended September 30, 2024.

See NOTE 13 — STOCK BASED COMPENSATION for more details.

Other Income (Expenses)

Interest Income

For the Nine Months Ended September 30,

Total Interest income

Interest income was $145,631 and $4,009 for the nine months ended September 30, 2024 and 2023, respectively.

During the nine months ended September 30, 2024, the Company recognized interest income on short-term loans receivable and certificates of deposits from the net proceeds of capital injections from IPO in August 2023 and follow-on offerings in July 2024 and May 2024.

During the nine months ended September 30, 2023, the Company had interest income of $4,009 from the delayed sales tax refund from relevant state governments on parallel-import vehicles business.

Interest Expenses

For the Nine Months Ended September 30,

Inventory Financing

4 unchanged sentences

Premium Finance Interest

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

Total Interest Expenses

Interest expenses decreased by approximately $1.0 million, or 89.2%, to approximately $0.1 million for the nine months ended September 30, 2024, from $1.1 million for the nine months ended September 30, 2023, primarily due to (i) significant declines in inventory financing, LC financing, and line of credit financing activities as the result of continuing reduction in vehicle sales and a decline in the need for such financing for parallel-import vehicles operation, and (ii) the Company’s paying down debts in line of credit financing and line of credits, using the capital infusion from its IPO in August 2023 and the follow-on offerings in May and July 2024.

As a result of the above factors, we had a net loss of $3.0 million for the nine months ended September 30, 2024 compared to a net income of $0.2 million for the same period of 2023.

Income Tax (Benefits) Provision

Our income tax benefits were $1.0 million for the nine months ended September 30, 2024 compared with income tax provision of approximately $59,000 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 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.

We reported cash and cash equivalents of $5.3 million as of September 30, 2024.

As of September 30, 2024, our working capital amounted to approximately $11.6 million.

As reflected in the accompanying unaudited condensed consolidated financial statements, we reported a net loss of $3.0 million for the nine months ended September 30, 2024.

We also reported cash provided by operating activities of $0.6 million for the nine months ended September 30, 2024, and total stockholders’ equity of $14.0 million as of September 30, 2024.

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.

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 proceeds from the capital infusion which were held in our cash and cash equivalents.

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

3 unchanged sentences

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,

Cash Flows for the Nine Months Ended September 30, 2024 and 2023

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

Nine Months ended September 30,

Net cash provided by operating activities

3 unchanged sentences

Operating Activities

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.

Net cash provided by operating activities was $0.6 million for the nine months ended September 30, 2024, compared to $2.8 million of the same period of 2023, primarily due to (i) a net loss of $3.0 million during the nine months ended September 30, 2024, compared to net income of $0.2 million for the same period of 2023;

(ii) an increase of $1.1 million in deferred income tax benefits and $0.2 million in other receivable;

and (iii) a decrease of $0.4 million in other payables and other current liabilities and $0.2 million in operating lease liabilities, partially offset by (iv) an increase of $1.1 million in allowance of credit loss of accounts receivable and $0.3 million in share-based compensation expenses, and (v) a decrease of $0.7 million in accounts receivable and $0.9 million in inventories.

Investing Activities

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.

Net cash used in investing activities was approximately $3.0 million for the nine months ended September 30, 2024, compared to nil for the same period of 2023.

The increase in investing activities consisted of (i) approximately $0.2 million in cash paid for the Edward acquisition, net of cash acquired, (ii) $2.3 million in short-term loans lent to third parties, and (iii) acquired new fixed assets of $0.4 million.

There were no investing activities for the nine months ended September 30, 2023.

Financing Activities

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;

Net cash provided by financing activities was $7.2 million for the nine months ended September 30, 2024, which consisted of (i) net proceeds from the July 2024 follow-on public offering of approximately $1.1 million, (ii) net proceeds from the May 2024 follow-on public offering of approximately $7.3 million, (iii) proceeds of $0.6 million from issuances of common stock under private placement;

(iv) net repayments of LC financing of $1.0 million;

(v) net repayments of premium finance of approximately $0.2;

and (vi) repayments to a line of credit of approximately $0.7 million.

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

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

4 unchanged sentences

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

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

(vii) issuance of common stock of $0.5 million;

and (viii) proceeds from initial public offering of approximately $3.7 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.

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

5 unchanged sentences

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