Cheetah Net Supply Chain Service Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 13, 2024. The unaudited consolidated results include the company’s vehicle dealership business and, from February 2, 2024, Edward Transit Express Group’s logistics and warehousing operations.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.51 million | $10.21 million | Down 85.2% |
| Gross profit / margin | $25,051 / 1.7% | $1.14 million / 11.2% | Down 97.8% in gross profit |
| Operating income (loss) | $(821,431) | $284,204 | Declined $1.11 million |
| Net income (loss) | $(608,930) | $(107,933) | Loss increased $500,997 |
| Basic and diluted loss per share | $(0.03) | $(0.01) | |
| Cash from operating activities | $1.70 million | $4.11 million | Down $2.41 million |
Vehicle revenue was $1.43 million, down 86.0%; logistics and warehousing contributed $76,834. The company sold 13 vehicles versus 82 a year earlier. Average selling price fell 11.6% to $110,073. It reported no vehicle purchases during the quarter and ended March with $200,296 of inventory, down from $1.52 million at year-end.
Operating cash flow was positive despite the net loss, primarily reflecting collections of accounts receivable and a reduction in inventory. Investing activities used $47,617, including the Edward acquisition, net of cash acquired. Financing activities used $1.18 million, principally from repayments of letter-of-credit financing.
Balance sheet and liquidity
- Cash was $903,204 at March 31, up from $432,998 at December 31, 2023. Current assets were $7.84 million and current liabilities $1.54 million; working capital was approximately $6.3 million.
- Total assets were $9.93 million, total liabilities $2.82 million, and stockholders’ equity $7.12 million.
- Borrowings included $688,711 under a revolving line of credit, $74,908 of premium financing, and $669,544 of long-term borrowings. Letter-of-credit financing had no balance at quarter-end. Operating lease liabilities totaled $783,454.
- The revolving credit facilities, with stated aggregate capacity of $15 million and a 1.5% monthly rate, had been extended only through April 2024; the filing says no further extension or replacement agreement had been made. The company reported using an 18.0% annual rate in Q1 on the outstanding line balance.
- Management said planned operating cash generation, debt financing and, if needed, support from the principal stockholder were expected to provide sufficient liquidity for at least 12 months from the report’s issuance. The company also said it may seek additional equity financing.
Material changes, outlook and risks
- Management attributed the sharp vehicle-business decline to weak PRC economic conditions, demand shifting toward domestically produced electric vehicles, and discounting by luxury-brand dealers. It said these pressures continued into Q2 2024 and it did not anticipate a significant Q2 sales rebound; the timing of a return to favorable parallel-import vehicle pricing spreads was uncertain.
- The company is shifting from primarily trading vehicles toward diversified international trade services. It acquired Edward, a California logistics and warehousing provider, for stated gross consideration of $1.5 million, and plans to use its logistics capabilities to offset vehicle-market weakness. Q1 logistics revenue was recorded only from the acquisition date.
- Customer and collection exposure is significant: one parallel-import dealer generated 100% of Q1 vehicle revenue. Three dealers represented 97.4% of accounts receivable. Approximately $3.2 million of deferred-payment receivables were over 150 days past due; the company reported collecting about $1.8 million of overdue year-end balances and considered the remaining balances fully collectible, citing third-party guarantees. No doubtful-account allowance was recorded.
- Other cited risks include changes in PRC vehicle policy and consumer preferences, U.S.-PRC political or trade tensions, foreign-exchange and economic conditions, inflation, higher financing and shipping costs, and supply-chain disruptions.
- The Edward purchase-price allocation is preliminary. The filing’s acquisition disclosures are inconsistent: one passage says the stock consideration was initially valued at $1.2 million and later determined to have a $9 million fair value, while the purchase-price allocation reports total consideration of $1.2 million and the equity statement records $900,000 for acquisition shares. Investors should verify the final consideration and accounting.
- A New Jersey transport-services dispute was settled for $55,000, with the final payment made in March 2024. In a separate vehicle-misappropriation case, the Mercedes was recovered and returned; the company reported a favorable summary judgment on certain claims, with damages still to be determined.
The company reported disclosure controls were effective at a reasonable assurance level as of March 31, 2024, and no material change in internal control over financial reporting during the quarter. No specific forward revenue or earnings guidance was provided.
Investor verification priorities
- Assess collection timing and recoverability of the $3.0 million aged over 210 days and other overdue receivables, including the status and strength of guarantees and the basis for recording no allowance.
- Confirm whether the revolving credit facilities were extended, refinanced or repaid after their April 2024 maturity, and evaluate ongoing access to working capital at the disclosed rates.
- Reconcile Edward acquisition consideration, share valuation, purchase-price allocation and resulting goodwill and intangible-asset values.
- Track customer concentration, vehicle-market conditions, Q2 trading and whether logistics revenue and margins can scale enough to offset vehicle-business weakness.
- Monitor cash generation: Q1 operating cash flow benefited from receivable collections and inventory reductions, which may not recur at the same level.