Cheetah Net Supply Chain Service Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. The company buys vehicles in the U.S. and resells them to parallel-import dealers, primarily in the U.S. and China.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.22 million | $20.79 million | $22.44 million | $33.61 million |
| Gross profit / margin | $1.25 million / 10.3% | $1.31 million / 6.3% | $2.40 million / 10.7% | $1.77 million / 5.3% |
| Operating income | $0.55 million | $0.92 million | $0.83 million | $0.90 million |
| Net income (loss) | $0.16 million | $0.08 million | $0.05 million | ($0.47 million) |
| Interest expense, net | $0.33 million | $0.82 million | $0.77 million | $1.53 million |
- Revenue declined 41.2% in Q2 and 33.2% for the first half, mainly because vehicle sales fell: 93 versus 175 in Q2, and 175 versus 296 for the first half. Average selling prices rose 10.4% in Q2 and 12.9% for the first half.
- First-half gross profit increased 35.0% and gross margin improved to 10.7%, as vehicle costs fell as a share of revenue. Q2 gross profit was down 4.3% year over year, though gross margin improved to 10.3%.
- Operating expenses rose 84.0% in Q2 and 79.5% for the first half. Higher G&A reflected IPO-related legal and accounting costs, added personnel, and additional office space.
- Operating cash flow was $4.15 million for the first half, versus a $1.67 million outflow a year earlier. The 2023 inflow was principally driven by $4.94 million of accounts-receivable collections and partly offset by a $1.00 million inventory increase. Financing activities used $3.61 million; cash increased $0.53 million to $0.59 million.
Balance sheet and liquidity
- At June 30, 2023, cash was $592,126; current assets were $10.83 million and current liabilities $7.71 million, implying working capital of approximately $3.12 million and a current ratio of about 1.4.
- Total assets were $11.14 million, total liabilities $8.55 million, and stockholders’ equity $2.59 million. Inventory was $6.96 million and accounts receivable $2.15 million.
- Borrowings included $4.95 million of letter-of-credit financing, $1.87 million under revolving credit lines, $0.17 million of dealer financing, and $0.69 million of long-term borrowings; inventory financing was nil. The revolving facilities total $15 million, carry a stated rate of 1.5% monthly, and mature in April 2024. LC financing rates are 15.0%–27.6% in the notes; the MD&A gives a narrower current range of 15.0%–18.0%.
- Management believes operating cash generation, credit facilities, possible founder support, and other financing will be sufficient for at least 12 months from issuance of the financial statements. This is management’s assessment, not a guarantee.
Outlook, risks, and notable items
- No quantified revenue or earnings guidance is provided. Management expects overseas sales to remain significant, but says the domestic/overseas mix may vary with market conditions. It expects selling and G&A expenses to rise as it expands sales, hiring, and professional services.
- Management attributes weaker sales volume to a short-term decline in demand. Risks cited include changing Chinese consumer preferences and vehicle policies, emissions rules, U.S.–China trade and political conditions, inflation, higher financing and shipping costs, and broader economic or supply-chain disruption.
- Customer concentration is substantial: three dealers represented 100% of first-half 2023 revenue; two dealers accounted for 97.7% of period-end receivables. This heightens exposure to customer payment and demand changes.
- Disclosure controls and procedures were assessed as not effective at a reasonable assurance level as of June 30, 2023. No material change in internal control over financial reporting was reported during the quarter.
- A New Jersey transport-services lawsuit seeks $86,355; the company recorded an $86,285 payable. In a separate vehicle-misappropriation case, the company obtained a favorable summary judgment and received the vehicle title on August 8, 2023; the damages inquest remained pending as of the report.
- After quarter-end, the company completed its IPO on August 3, 2023, selling 1.25 million shares at $4 each for $5.0 million gross proceeds and $4.23 million net proceeds. It reported using approximately $2.58 million for working capital and general corporate purposes as of the report date.
- The filing reports that the company had not filed all required Exchange Act reports during the preceding 12 months. The filing provides no further explanation in the supplied text.
Investor verification priorities
- Assess whether the sales-volume decline and dealer concentration are temporary, and verify the status and collectability of receivables from the two dominant customers.
- Review the terms, collateral, actual borrowing availability, and April 2024 maturity of revolving credit lines, alongside the high rates on short-term financing.
- Track cash conversion: first-half operating cash flow benefited materially from receivables collection while inventory increased.
- Verify progress on remediating ineffective disclosure controls and the explanation for the reported filing-compliance checkbox.
- Confirm use of IPO proceeds, receipt of the remaining private-placement subscription proceeds, and outcomes of the pending litigation matters.