Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q.
Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our registration statement on Form S-8 (File No. 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. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this quarterly report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law.
The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this quarterly report on Form 10-Q, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report.
Business Overview and Recent Developing Trends
We are a 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. and the PRC. 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.
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.
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Results of Operations
Revenues
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. and the PRC. 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.
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. 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
Our cost of revenue from parallel-import vehicles sold mainly comprises (i) the purchase cost of vehicles, including dealership service fees and non-refundable taxes incurred during procurement, and (ii) fulfillment expenses, mainly including (a) compensation and bonuses for staff in the purchasing department, (b) commission paid to purchasing agents, (c) transportation and storage costs for vehicles, and (d) consulting fees paid to dealer experts to assist us in making the best purchase decisions. Allowance for slow-moving inventories is also included in the cost of revenue when our cost of inventory is higher than net realizable value.
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 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
Our operations are in the U.S. and our primary market is in the PRC. Accordingly, our business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the U.S. and the PRC, as well as by the general state of the U.S. and the PRC economies. Our results may be adversely affected by changes in the political, regulatory, and social conditions in the U.S. and the PRC.
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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 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;
● Any adverse change in political relations between the PRC and the U.S. or any other country where those brands originate, including the ongoing trade conflicts between the U.S. and the PRC, may negatively affect our business;
● 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; and
● 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 September 30,
Change
Nine Months Ended September 30,
Change
2024
2023
Amount
%
2024
2023
Amount
%
USD
%
USD
%
USD
%
USD
%
Revenues
Parallel-import Vehicles
$
—
—
%
$
10,038,246
100.0
%
$
(10,038,246)
(100.0)
%
$
1,631,248
87.6
%
$
32,475,714
100.0
%
$
(30,844,466)
(95.0)
%
Logistics and Warehousing
61,208
100.0
%
—
—
%
61,208
100.0
%
231,605
12.4
%
—
—
%
231,605
100.0
%
Total Revenues
61,208
100.0
%
10,038,246
100.0
%
(9,977,038)
(99.4)
%
1,862,853
100.0
%
32,475,714
100.0
%
(30,612,861)
(94.3)
%
Cost of Revenues
Cost of vehicles
—
—
%
8,365,730
83.3
%
(8,365,730)
(100.0)
%
1,515,270
81.4
%
27,190,224
83.7
%
(25,674,954)
(94.4)
%
Fulfillment expenses
—
—
%
505,156
5.0
%
(505,156)
(100.0)
%
140,798
7.6
%
1,722,704
5.3
%
(1,581,906)
(91.8)
%
Ocean Freight Costs
31,339
51.2
%
—
—
%
31,339
100.0
%
119,437
6.4
%
—
—
%
119,437
100.0
%
Total cost of revenues
31,339
51.2
%
8,870,886
(99.6)
%
(8,839,547)
(99.6)
%
1,775,505
95.4
%
28,912,928
89.0
%
(27,137,423)
(93.9)
%
Gross Profit (Loss)
29,869
48.8
%
1,167,360
11.6
%
(1,137,491)
(97.4)
%
87,348
4.7
%
3,562,786
11.0
%
(3,475,438)
(97.5)
%
Selling expenses
19,557
32.0
%
184,061
1.8
%
(164,504)
(89.4)
%
117,819
6.3
%
603,184
1.9
%
(485,365)
(80.5)
%
General and administrative expenses
1,102,454
1,801.2
%
530,089
5.3
%
572,365
108.0
%
2,735,450
146.8
%
1,676,559
5.2
%
1,058,891
63.2
%
Allowance of credit loss of accounts receivable
1,095,094
1,789.1
%
—
—
%
1,095,094
100.0
%
1,095,094
58.8
%
—
—
%
1,095,094
100.0
%
Share-based compensation expenses
261,666
427.5
%
—
—
%
261,666
100.0
%
261,666
14.0
%
—
—
%
261,666
100.0
%
Total operating expenses
2,478,771
4,049.8
%
714,150
7.1
%
1,764,621
247.1
%
4,210,029
225.9
%
2,279,743
7.1
%
1,930,286
84.7
%
(Loss) Income from Operations
(2,488,902)
(4,001.0)
%
453,210
4.5
%
(2,902,112)
(640.3)
%
(4,122,681)
(221.3)
%
1,283,043
4.0
%
(5,405,724)
(421.3)
%
Other Income (Expenses)
Interest income
88,459
144.5
%
107
0.0
%
88,352
82,572.0
%
145,631
7.8
%
4,009
—
%
141,622
3,532.6
%
Interest expenses
(14,865)
(24.3)
%
(286,197)
(2.9)
%
271,332
(94.8)
%
(113,830)
(6.1)
%
(1,058,111)
(3.3)
%
944,281
(89.2)
%
Other income
36
0.1
%
—
—
%
36
100.0
%
809
0.0
%
—
—
%
809
100.0
%
Total other income (expenses), net
73,630
120.3
%
(286,090)
(2.9)
%
359,720
(125.7)
%
32,610
1.8
%
(1,054,102)
(3.3)
%
1,086,712
(103.1)
%
(Loss) Income before Income Tax Provision
(2,375,272)
(3,880.7)
%
167,120
1.6
%
(2,542,392)
(1,521.3)
%
(4,090,071)
(219.5)
%
228,941
0.7
%
(4,319,012)
(1,886.5)
%
Income tax (benefits) provision
(559,980)
(914.9)
%
44,217
0.4
%
(604,197)
(1,366.4)
%
(1,052,969)
(56.5)
%
58,226
0.2
%
(1,111,195)
(1,908.4)
%
Net (Loss) Income
$
(1,815,292)
(2,965.8)
%
$
122,903
1.2
%
$
(1,938,195)
(1,577.0)
%
$
(3,037,102)
(163.0)
%
$
170,715
0.5
%
$
(3,207,817)
(1,879.0)
%
29
Table of Contents
Comparison of the Three Months Ended September 30, 2024 and 2023
Revenues
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
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 September 30,
2024
2023
Amount
%
General and Administrative Expenses
Payroll and Benefits
$
399,389
$
176,932
$
222,457
125.7
%
Rental and Leases
168,739
85,369
83,370
97.7
%
Travel and Entertainment
57,717
28,813
28,904
100.3
%
Legal and Accounting Fees
152,828
112,418
40,410
35.9
%
Recruiting Fees
60,497
2,365
58,132
2,458.0
%
Bank charges and fees
1,515
13,370
(11,855)
(88.7)
%
Insurance Expenses
74,180
59,754
14,426
24.1
%
Depreciation and Amortization Expenses
22,954
—
22,954
100.0
%
Others
164,635
51,068
113,567
222.4
%
Total General and Administrative Expenses
$
1,102,454
$
530,089
$
572,365
108.0
%
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.
Allowance of credit loss of accounts receivable
For the Three Months Ended September 30,
2024
2023
Amount
%
Allowance of credit loss of accounts receivable
$
1,095,094
$
—
$
1,095,094
N/A
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.
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Table of Contents
Share-based compensation expenses
For the Three Months Ended September 30,
2024
2023
Amount
%
Share-based compensation expenses
$
261,666
$
—
$
261,666
N/A
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,
2024
2023
Amount
%
Total Interest income
$
88,459
$
107
$
88,352
82,572.0
%
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,
2024
2023
Amount
%
Inventory Financing
$
—
$
—
$
—
0
%
LC Financing
—
207,648
(207,648)
(100.0)
%
Dealers Finance Charges
—
959
(959)
(100.0)
%
Other Loan Interest
7,027
7,751
(724)
(9.3)
%
Line of Credit Interest
6,430
63,277
(56,847)
(89.8)
%
Credit Card Interest
4
2,978
(2,974)
(99.9)
%
Premium Finance Interest
1,404
3,584
(2,180)
(60.8)
%
Total Interest Expenses
$
14,865
$
286,197
$
(271,332)
(94.8)
%
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.
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Net Loss
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
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.
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Table of Contents
Parallel-import Vehicles Segment
We continue to face significant challenges in the parallel-import vehicle market. 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
No.
Sales Amount
Ave Selling Price
No.
Sales Amount
Ave Selling Price
Amount
%
BMW X7
—
$
—
$
—
5
$
480,210
$
96,042
$
(96,042)
—
%
Mercedes G63
1
200,297
$
200,297
—
—
—
—
—
%
Mercedes GLS 450
11
1,175,116
106,829
125
14,033,750
112,270
(5,441)
(4.8)
%
Mercedes Benz GLS600
—
—
—
12
2,877,516
239,793
(239,793)
—
%
RAM Trucks
—
—
—
14
1,698,061
121,290
(121,290)
—
%
Land Rover Range Rover
—
—
—
15
2,359,979
157,332
(157,332)
—
%
Toyota Sequoia
—
—
—
31
3,144,186
101,425
(101,425)
—
%
LEXUS LX600
2
255,834
127,917
52
7,882,011
151,577
(23,660)
(15.6)
%
Total
14
$
1,631,247
$
116,518
254
$
32,475,714
$
127,857
$
(11,339)
(8.9)
%
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,
2024
2023
Change Amount
Change %
Revenue from parallel-import vehicles:
U.S. domestic market
$
200,297
$
8,160,395
$
(7,960,098)
(97.5)
%
Overseas market
1,430,951
24,315,319
(22,884,368)
(94.1)
%
Total
$
1,631,248
$
32,475,714
$
(30,844,466)
(95.0)
%
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
Nine Months Ended September 30,
2024
2023
Change Amount
Change %
Cost of Revenue from parallel-import vehicles sold
Cost of Vehicles sold
$
1,515,270
$
27,190,224
$
(25,674,954)
(94.4)
%
Fulfillment Expenses
140,798
1,722,704
(1,581,906)
(91.8)
%
Total Cost of Revenue from parallel-import vehicles sold
$
1,656,068
$
28,912,928
$
(27,256,860)
(94.3)
%
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 $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.
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Table of Contents
Fulfillment Expenses
Nine Months Ended September 30,
2024
2023
Change Amount
Change %
Fulfillment expenses
Payroll and Benefits
$
83,855
$
955,683
$
(871,828)
(91.2)
%
Buyer Commission
750
266,253
(265,503)
(99.7)
%
Vehicle Storage and Towing
—
318,300
(318,300)
(100.0)
%
Vehicle Insurance Expenses
42
90,044
(90,002)
(100.0)
%
Consulting Fee
—
61,049
(61,049)
(100.0)
%
Others
56,151
31,375
24,776
79.0
%
Total Fulfillment Expenses
$
140,798
$
1,722,704
$
(1,581,906)
(91.8)
%
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 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
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
Nine Months Ended September 30,
2024
2023
Amount
%
Selling Expenses
Payroll and benefits
$
97,029
$
175,321
$
(78,292)
(44.7)
%
Ocean Freight
20,610
405,182
(384,572)
(94.9)
%
Others
180
22,681
(22,501)
(99.2)
%
Total Selling expenses
$
117,819
$
603,184
$
(485,365)
(80.5)
%
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.
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General and Administrative Expenses
Nine Months Ended September 30,
2024
2023
Amount
%
General and Administrative Expenses
Payroll and Benefits
$
931,679
$
506,783
$
424,896
83.8
%
Rental and Leases
336,291
215,649
120,642
55.9
%
Travel and Entertainment
85,162
49,001
36,161
73.8
%
Legal and Accounting Fees
658,890
661,275
(2,385)
(0.4)
%
Recruiting Fees
145,581
6,809
138,772
2,038.1
%
Bank charges and fees
7,255
47,233
(39,978)
(84.6)
%
Insurance Expenses
248,619
67,739
180,880
267.0
%
Depreciation and Amortization Expenses
52,376
—
52,376
100.0
%
Others
269,597
122,070
147,527
120.9
%
Total General and Administrative Expenses
$
2,735,450
$
1,676,559
$
1,058,891
63.2
%
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,
2024
2023
Amount
%
Allowance of credit loss of accounts receivable
$
1,095,094
$
—
$
1,095,094
N/A
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,
2024
2023
Amount
%
Share-based compensation expenses
$
261,666
$
—
$
261,666
N/A
Share-based compensation expenses was $0.3 million as compared to nil for the nine months ended September 30, 2024 and 2023, respectively.
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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 Income (Expenses)
Interest Income
For the Nine Months Ended September 30,
2024
2023
Amount
%
Total Interest income
$
145,631
$
4,009
$
145,631
3,532.6
%
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,
2024
2023
Amount
%
Inventory Financing
$
—
$
112,769
$
(112,769)
(100.0)
%
LC Financing
23,123
789,104
(765,981)
(97.1)
%
Dealers Finance Charges
—
3,975
(3,975)
(100.0)
%
Other Loan Interest
22,590
23,545
(955)
(4.1)
%
Line of Credit Interest
65,665
120,675
(55,010)
(45.6)
%
Credit Card Interest
52
4,459
(4,407)
(98.8)
%
Premium Finance Interest
2,400
3,584
(1,184)
(33.0)
%
Total Interest Expenses
$
113,830
$
1,058,111
$
(944,281)
(89.2)
%
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.
Net Loss
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.
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Liquidity and Capital Resources
Cash Flows and Working Capital
In assessing our liquidity, we monitor and analyze our cash on-hand, our ability to generate sufficient revenue, the collection of our accounts receivable, our ability to obtain additional financial support in the future, and our operating and capital expenditure commitments.
We reported cash 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 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. 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 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,
2024
2023
Net cash provided by operating activities
$
601,526
$
2,871,734
Net cash used in investing activities
(2,970,912)
—
Net cash provided by (used in) financing activities
7,223,764
(2,225,246)
Net increase in cash
$
4,854,378
$
646,488
Operating Activities
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 $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.
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Financing Activities
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; (iii) net repayments of revolving lines of credit of $2.4 million; and (iv) repayments of dealers financing of $0.4 million; partially offset by (v) proceeds from LC financing of $16.7 million; (vi) proceeds from revolving lines of credit of $3.2 million; (vi) proceeds from dealers financing of $0.4 million; (vii) 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 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
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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk .
As a smaller reporting company, we are not required to provide this information.