Cheetah Net Supply Chain Service Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023; filed November 9, 2023. Financial statements are unaudited. The company sources vehicles in the U.S. and sells primarily to parallel-import dealers, particularly in China.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $10.04 million | $11.91 million | $32.48 million | $45.52 million |
| Gross profit | $1.17 million | $1.54 million | $3.56 million | $3.32 million |
| Gross margin | 11.6% | 13.0% | 11.0% | 7.3% |
| Operating income | $0.45 million | $0.82 million | $1.28 million | $1.72 million |
| Net income | $0.12 million | $1.22 million | $0.17 million | $0.75 million |
| Interest expense, net | $0.29 million | $0.61 million | $1.06 million | $2.14 million |
Q3 revenue declined 15.7%, reflecting 79 vehicles sold versus 90 a year earlier and a 4.0% decrease in average selling price. Nine-month revenue fell 28.7%, with vehicle sales down to 254 from 386; average selling price rose 8.4%. Overseas revenue declined 42.0% for the nine-month period, partly offset by U.S. domestic revenue growth. Q3 gross margin contracted, while nine-month gross margin improved. The 2022 comparison includes $1.34 million of Business Recovery Grant subsidy income, which was absent in 2023 and contributed to the sharp year-over-year decline in Q3 net income.
Cash, liquidity and debt
- Cash was $0.70 million at September 30, 2023, versus $0.06 million at year-end 2022. Current assets were $12.65 million and current liabilities $5.14 million, for working capital of approximately $7.51 million.
- Nine-month operating cash flow was positive $2.87 million, compared with $2.50 million in 2022. Financing cash flow was negative $2.23 million; cash increased $0.65 million.
- Reported borrowings included $3.08 million of letter-of-credit financing, $0.87 million under revolving credit lines, $0.22 million of premium financing, and $0.69 million of long-term borrowings. Inventory financing was nil at quarter-end. LC and revolving facilities carry high stated rates: generally 15.0%–27.6% for LC financing and 18.0% for the revolving line.
- The company completed an IPO in August, selling 1.25 million Class A shares at $4.00 each. The filing reports differing net-proceeds figures in different sections; see investor verification points below.
Changes, outlook and risks
- Management attributed weaker revenue to reduced demand, including consumer interest in electric vehicles and a slowdown in China. It discontinued some luxury models and shifted toward models it considers better aligned with demand.
- Management is pursuing acquisitions of U.S. logistics and warehousing providers and describes a longer-term plan to combine these services with financing offerings. No quantified revenue or earnings guidance is provided.
- Management says the IPO improved financial flexibility and believes available resources, operating cash generation, debt financing and potential shareholder support will meet liquidity needs for at least 12 months from issuance of the statements.
- Customer concentration is substantial: three dealers generated 98.7% of nine-month revenue and represented 97.7% of accounts receivable at quarter-end. The company also cites exposure to U.S.–China political and regulatory changes, demand shifts, inflation, financing costs, and supply-chain disruption.
- Management concluded disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2023. It reported no material change in internal control over financial reporting during the quarter.
- Legal matters include a transport-services claim seeking $86,355; the company accrued $86,285. In a separate vehicle-misappropriation case, the vehicle was recovered and the company had obtained summary judgment on two claims, with damages still to be determined.
Important facts for investors to verify
- Reconcile IPO proceeds: the cash flow and equity statements show net proceeds of about $3.73 million, while the use-of-proceeds discussion states $4.23 million after expenses and about $3.53 million used. The filing text does not clearly reconcile these amounts.
- Review the customer concentration, collection risk, and the extent to which receivables pledged as collateral support outstanding LC borrowings.
- Assess whether reduced vehicle volumes and lower Q3 gross margin persist, and whether the planned logistics expansion can be executed and funded.
- Monitor the revolving credit facility maturity in April 2024, high-cost financing dependence, and management’s stated liquidity assumptions.
- Consider the control weakness and check for subsequent remediation disclosures. Class B shares carry 15 votes per share, versus one vote per Class A share.