Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The business of the Company is conducted through ASGL, the Company's direct, wholly-owned subsidiary, and ASGL's subsidiaries.

A. Operating Results

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this annual report.

Business Overview

We are a leading provider of cloud and mobile app-based auto eInsurance services, technology services, and auto services in China. We generate revenue from selling our auto eInsurance services, technology services, and auto services.

For our auto eInsurance business, we facilitate the sale of auto insurance products underwritten by major insurance companies in China. We receive commissions from these insurance companies which are typically a percentage of the premium paid by the policy holder. We implement, automate, and streamline the insurance purchasing process through our proprietary cloud and mobile apps which connect our customers to the full spectrum of products from the leading insurers in China.

We operate our technology services business by providing technical software and consulting related to auto eInsurance and auto services. We have built modular software tools such as customer relationship management (CRM), order management, finance management, and visual analysis systems, which run on our proprietary hybrid cloud platform. Our insurance sales partners and auto services providers use all or some of these online tools to manage their daily work, allowing them the opportunity to monetize the software we have built.

We operate our auto service business by offering customized auto services to our enterprise customers (our "auto service partners"), who include major banks, insurance companies, and other enterprises all of whom have end customer demands for auto services. These auto services include necessary maintenance as well as regular detailing services. Our auto services are ultimately provided to the end-consumers of our enterprise customers by the auto service providers we select to be suppliers on our service network.

Significant Factors Impacting Financial Results

Relationships with Customers

For the auto eInsurance business, we distribute auto insurance products on behalf of well-known insurance companies in China. For the auto service business, our customers are enterprises mainly consisting of banks, insurance companies, telecom companies, airlines and other large corporations. It is critical for us to maintain good relationships and obtain recognition from both our enterprise customers and their end customers. We need to keep growing our business, building our brand influence, and improving the quality of service to attract new customers, solidify relationships with existing customers, and deliver a satisfactory service experience to the end-consumer. Positive feedback from the end-consumer encourages our customers to deepen their business relations with us.

Cooperation with Service Providers

For the auto eInsurance business, we collaborate with a variety of external referral sources to expand our market penetration and broaden our customer base. We have built up a network of external sales partners, including offline after-sales networks who have frequent exposure to car owners, major online platforms with significant user traffic, and emerging EV OEMs and service providers. Our strong relationships with external referral sources are crucial for us to attract end customers for our auto eInsurance business.

For the auto service business, we rely on auto service providers to deliver a variety of auto-related services to the end customers of our enterprise customers. Positive feedback from end customers is dependent on the quality of service provided by our service providers. If our relationships with our service providers deteriorate, our business, financial condition, and results of operations may be materially and adversely affected.

Operating Efficiency of our Business

While we expect our operating costs and expenses to increase as our business grows, we also expect them to decrease as a percentage of revenues as we improve our operating efficiency and achieve greater economies of scale.

The synergies between our auto eInsurance and auto service businesses enable the symbiotic growth of both segments. As we continue to develop our nationwide automotive service provider network, these service providers become sales partners in our auto eInsurance business. Conversely, when we engage with insurance companies to sell their insurance products, we also engage them as customers of our auto service.

Our business is built on a multi-tenant cloud platform which we have continued to integrate into both our customers systems as well as our service and sales networks. We are in the process of adding AI intelligence and digital processes to all our internal workflows as well as to the related business processes of our partners, empowering them with efficient and user-friendly tools and systems. We continue to deploy cutting-edge technology including AI, big data, and Robotics Process Automation ("RPA"), to iteratively upgrade our platform with new features and better performance.

Regulations

Our auto eInsurance business, like all insurance-related businesses in China, is extensively regulated by the China Banking and Insurance Regulatory Commission ("CBIRC"), and subject to regulations including but not limited to PRC Insurance Law and Regulatory Provisions on Professional Insurance Agencies. Aspects of our auto eInsurance business which are regulated include terms and premium rates of the insurance products we distribute for major insurance companies, the commission rates we earn, as well as the way we operate our auto eInsurance business in general. Regulations or administrative measures further restricting or reducing insurance premiums or insurance agency commissions could have material adverse impacts on the revenue and profitability of our auto eInsurance business. This is particularly the case if we are not able to increase our policy volume and sales efficiency to compensate for the effect of such regulatory changes or pass on any downward impact on our revenue to external participants in the insurance supply chain.

Impact of Global Inflationary Pressures

We face two types of possible inflationary pressure: a general pressure from an inflation-related economic slowdown, and a specific pressure from inflation on the price of fuel. First, we consider the impact of inflation on the business is immaterial as the operations are in China and China's inflation rates have been relatively stable in the last three and a half years: approximately 2.0%, 0.2% and 0.2%for the years ended December 31, 2022, 2023 and 2024, respectively. Second, since the 2022 inflation episode was triggered by the conflict in Ukraine and the resulting increase in fossil fuel prices, it specifically impacted the automobile industry which still primarily relies on fossil fuel to power vehicles. Thus, with increasing fuel price, people may drive less and less people may choose to buy cars. As such, automotive- related industries, including insurance, technology services, and auto service industries, where we operate, would also be adversely impacted. However, we anticipate the pressure to be limited, since we have been working with car manufacturers directly and indirectly require the insurance companies to develop insurance products designed for EVs. We believe that, as EVs become increasingly popular, insurance for EVs can effectively increase our revenues and offset the adverse impact brought by the increased fuel prices.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates, and assumptions. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates and assumptions on our historical data and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates and assumptions on an ongoing basis.

Our expectations regarding the future are based on available information and assumptions that we believe to be reasonable and accurate, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

The critical accounting policies, judgments, and estimates that we believe to have the most significant impact on our consolidated financial statements are described below, which should be read in conjunction with our consolidated financial statements and accompanying notes and other disclosures included in this Annual Report. When reviewing its financial statements, you should consider:

	●	our selection of critical accounting policies;
	●	the judgments and other uncertainties affecting the application of such policies;
	●	the sensitivity of reported results to changes in conditions and assumptions.

We consider an accounting estimates to be critical if: (i) the accounting estimates requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimates that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We consider our critical accounting estimates include (i) revenue recognition; (ii) allowance for credit losses; (iii) valuation allowances of deferred tax assets; and (iv) useful lives of software and equipment.

Revenue Recognition

Revenues from our continuing operations are mainly generated from providing auto eInsurance services, technology services, and auto services.

Auto eInsurance

We provide auto eInsurance distributing automobile insurance on behalf of the insurance companies and charging insurance companies intermediation service commissions. The commissions are determined as a percentage of premiums paid by the insured. Auto eInsurance services are considered to be rendered and completed, and revenue is recognized, at the time an insurance policy becomes effective, that is, when the signed insurance policy is in place and the premium has been collected from the insured. We have satisfied the performance obligation to recognize revenue when the premiums are collected by the respective insurance companies and not before, because collectability is not ensured until receipt of the premium. Accordingly, we do not accrue any auto eInsurance service commissions or fees prior to the receipt of the related premiums. No allowance for policy cancellations has been provided for intermediation services as cancellation of policies rarely occurs.

Technology Services

We provide technology services including technical software and consulting related to automobile services and insurance, such as customer relationship management (CRM), order management, finance management and visual analysis systems. We charge service fees based on monthly fixed price contracts for services provided, and recognize revenue over time during the service period.

Auto Services

We define enterprise customers as our customers and we sell auto service coupons to enterprise customers, where each coupon represents one specific auto service. There are various service types including vehicle washing, waxing, maintenance, transportation services and roadside assistance. We only provide one specific service among various service types for each specific service coupon. We identify each specific service coupon as a contract that establishes enforceable rights and obligations for each party. We charge the service fee at a fixed price per service when the service is performed. For service coupons with limited duration, we either charge the service fee at a fixed price per service when the service is performed or when the coupon expires, whether or not the service has been performed. We consider each service coupon to be a distinct service that is capable of providing a benefit to the customer on its own according to ASC 606-10-25-14(a). Therefore, we identify only one performance obligation under a contract, which is to provide a specific service or to stand ready to perform a specific service within a limited duration. We act as a principal as we control access to the services before the services are provided to customers and we have the ability to direct other parties to provide the services to customers on our behalf. Specifically, we have the ability to choose service providers, and are primarily responsible for the acceptability for the service meeting customer specifications, bears inventory risk after transfer of control of services to customers, and has the discretion in establishing the price with customers and with service providers and bears credit risk. We recognize revenue in the gross amount of consideration at a point of time when the service is provided, or when the service coupon expires. We do not provide refunds to the customers when a coupon is expired but not used.

Allowance for Credit Losses

Accounts receivable, net are stated at the original amounts less allowances for credit losses. Accounts receivable are recognized in the period when we have provided services to our customers and when our right to consideration is unconditional. We adopted ASC Topic 326, Financial Instruments-Credit Losses (Topic 326) from January 1, 2023 using modified-retrospective transition approach with a cumulative-effect adjustment to shareholders' equity amounting to US$0.5 million recognized as of January 1, 2023. We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist, primarily based on similar business lines, and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status, the age of the accounts receivable balances, credit quality of our customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers.

For the years ended December 31, 2022, 2023 and 2024, we recognized US$26.0 million, reversed credit losses of accounts receivable of US$4.1 million and recognized credit losses of US$1.3 million, respectively. A 10% increase in our credit losses provision (reversal) would have increased (decreased) our loss before income tax by 24%, (3)% and 0.2% for the years ended December 31, 2023 and 2024, respectively.

Valuation Allowance of Deferred Tax Assets

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We consider positive and negative evidence when determining whether a portion or all of our deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with tax attributes expiring unused, and our tax planning strategies. The ultimate realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, we have considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.

For the years ended December 31, 2022, 2023 and 2024, We recognized a valuation allowance of deferred tax assets of US$5.4 million, US$4.5 million and US$2.3 million, respectively. A 10% increase in our valuation allowance of deferred tax assets would have increased net losses from continuing operations by 5%, 3% and 0.4% respectively, for the years ended December 31, 2022, 2023, and 2024.

Useful Lives of Property, Software and Equipment

The estimated useful lives of the property, software and equipment are based on the management's best estimation, which were as follows:

Category		Estimated useful lives
Vehicles		3-5 years
Office equipment and furniture		3-5 years
Electronic equipment		3 years
Building		20 years
Computer software		5, 10 years
Leasehold improvements		Over the shorter of the lease term or the estimated useful lives of the assets

Key Components of Results of Operations

Revenue

Our Revenues are derived from auto eInsurance service, auto service, and technology service. The following table sets forth the breakdown of our total revenues, both in absolute amount and as a percentage of our total revenues, for the years indicated.

		For the Year Ended December 31,
		2022								2023								2024
		(in thousands, except for percentages)
Auto eInsurance service		$	67,640				24	%			118,109				32	%		$	170,549				39	%
Technology service			15,479				5	%			30,658				8	%			44,892				10	%
Auto service			199,294				71	%			214,979				60	%			226,456				51	%
Total		$	282,413				100	%		$	363,746				100	%		$	441,897				100	%

Auto eInsurance Service. We provide auto eInsurance service distributing automobile insurance products on behalf of insurance companies. Auto eInsurance services are considered to be rendered and completed and revenue is recognized at the time an insurance policy becomes effective, i.e. when the signed insurance policy is in place and the premium is collected from the insured. We recognize revenue when the premiums are collected by the respective insurance companies, because collectability is not ensured until receipt of the premium. Accordingly, we do not accrue any commission and fees prior to the receipt of the relevant premiums.

Technology Service. We operate our technology service business by providing technical software and consulting related to automobile services and insurance, including modular management tools such as customer relationship management, order management, finance management and visual analysis systems. For the use of our technology services, we charge technology service fees based on fixed prices per service period (usually one month) for service provided, and recognize revenue over time during the service period.

Auto Service. We provide customized auto service to enterprises, who ultimately offer them to their end customers. These services include necessary maintenance as well as regular services such as car wash, oil change, tire repair, car beautification, road assistance, flight pickup, designated driving, VIP lounge, etc. We charge a service fee either based on the number of service items completed at a fixed price per item, or, charge for service coupons with a limited duration term, whether or not the services have been performed. We act as the principal supplier and control the access to the services before providing them to end customers. Therefore, we recognize revenue in the gross amount of consideration at the point of time when the service is provided, or when the service coupons with limited duration term have expired.

Operating costs and expenses

The following table sets forth our operating costs and expenses, both in absolute amounts and as a percentage of total revenues, for the years indicated.

		For the Year Ended December 31,
		2022								2023								2024
		(In thousands, except for percentages)
Integrated service cost		$	166,793				59	%		$	209,553				58	%		$	226,172				51	%
Promotional service expenses			65,500				23	%			112,504				31	%			164,262				37	%
Selling expenses			16,477				6	%			20,578				6	%			22,587				5	%
General and administrative expenses			37,742				13	%			22,462				6	%			46,995				11	%
Research and development expenses			8,478				3	%			14,111				4	%			40,244				9	%
Total		$	294,990				104	%		$	379,208				105	%		$	500,260				113	%

Integrated service cost. The integrated service cost primarily consists of (i) service fees paid to suppliers engaged to provide technical support for our technology service; and (ii) service fees paid to auto service providers to provide customized service for end customers of its enterprise customers. The service fee is determined based on and recognized in the period of the actual services rendered.

Promotional Service Expenses. Promotional service expenses represent (i) promotional service fees to expand extensive networks primarily of auto eInsurance sales partners; and (ii) service fees we pay to promotion channels, including but not limited to offline after-sales networks, online platforms, and emerging EV OEMs and service providers. Promotional service expenses are recognized in the period incurred.

Selling Expenses. Selling expenses primarily consist of (i) salaries and employment benefits for employees who work in the service lines; (ii) promotional service fees; (iii) communication and travel expenses, and (iv) depreciation expenses related to sales. Depreciation expenses are calculated on a straight-line basis over the estimated useful lives of the assets.

General and Administrative Expenses. General and administrative expenses primarily consist of (i) staff costs, rental and depreciation expenses related to general and administrative personnel; (ii) share-based compensation expenses; and (iii) other corporate expenses.

Research and Development Expenses. Research and development expenses primarily consist of payroll and employee benefits for research and development employees, rental expenses, utilities, and other related expenses to design, develop, and maintain the technology service platform and to support its internal and external customers, and for share-based compensation expenses.

Results of Operations

Year ended December 31, 2024 compared with year ended December 31, 2023

The following table sets forth a summary of audited consolidated results of operations for the years indicated. This information should be read together with audited consolidated financial statements and related notes included elsewhere in this Annual Report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

		For the Years Ended December 31,								Change
		2023				2024				Amount				%
Revenues
Auto eInsurance service		$	118,109			$	170,549			$	52,440				44	%
Technology service			30,658				44,892				14,234				46	%
Auto service			214,979				226,456				11,477				5	%
Total revenues			363,746				441,897				78,151				21	%
Operating costs and expenses
Integrated service cost			(209,553	)			(226,172	)			(16,619	)			8	%
Promotional service expenses			(112,504	)			(164,262	)			(51,758	)			46	%
Selling expenses			(20,578	)			(22,587	)			(2,009	)			10	%
General and administrative expenses			(22,462	)			(46,995	)			(24,533	)			109	%
Research and development expenses			(14,111	)			(40,244	)			(26,133	)			185	%
Total operating costs and expenses			(379,208	)			(500,260	)			(121,052	)			32	%
Operating loss			(15,462	)			(58,363	)			(42,901	)			277	%
Other income/(expenses)
Financial expenses, net			(4,435	)			(4,529	)			(94	)			2	%
Investment income			518				784				266				51	%
Change of fair value of warrant liabilities			(629	)			(286	)			343				-55	%
Other income, net			5,001				794				(4,207	)			-84	%
Total other income, net			455				(3,237	)			(3,692	)			-811	%
Loss before income tax expense			(15,007	)			(61,600	)			(46,593	)			310	%
Income tax expense			(2,572	)			(2,853	)			(281	)			11	%
Loss from continuing operations, net			(17,579	)			(64,453	)			(46,874	)			267	%
Net loss			(17,579	)			(64,453	)			(46,874	)			267	%
Other comprehensive loss
Foreign currency translation difference			(1,137	)			(1,524	)			(387	)			34	%
Total comprehensive loss		$	(18,716	)		$	(65,977	)		$	(47,261	)			253	%

Revenue

Our total revenue increased by 21% from US$363.7 million for the year ended December 31, 2023 to US$441.9 million for the year ended December 31, 2024.

Auto eInsurance service. Auto eInsurance service revenue increased by 44% from US$118.1 million for the year ended December 31, 2023 to US$170.5 million for the year ended December 31, 2024, which was driven by the increasing number of insurance policies sold for the year ended December 31, 2024. We ranked first in terms of auto insurance premiums for EVs in China. EV sales have increased sharply in recent years, and thus, our auto eInsurance business has expanded rapidly.

Technology service. Technology service revenue increased by 46% from US$30.7 million for the year ended December 31, 2023 to US$44.9 million for the year ended December 31, 2024. With growing demands to efficiently manage their businesses, more enterprise customers are now paying for our online tools to streamline their business workflows, manage their customer relationships and automate orders processing. With the iterative upgrades of our technology, we are working on developing a SaaS model product offering and plan to gradually tuour enterprise customers into our technology service customers. Through the application of our Private Cloud Platform, our development process was simplified, and we can easily integrate various tools for software development, testing, operations and maintenance. This has strengthened our software platform and increased its business capacity to better serve the customers' needs.

Auto service. Auto service revenue increased by 5% from US$215.0 million for the year ended December 31, 2023 to US$226.5 million for the year ended December 31, 2024. The increase was driven by the increase of service orders in 2024. The extensive service network we developed was able to serve more enterprise customers and complete more auto services in 2024.

Operating costs and expenses. Operating costs and expenses increased by 32% from US$379.2 million for the year ended December 31, 2023 to US$500.3 million for the year ended December 31, 2024.

Integrated service cost. Integrated service cost increased by 8% from US$209.6 million for the year ended December 31, 2023 to US$226.2 million for the year ended December 31, 2024. The increase of integrated service costs was in line with the increase of revenue in our technology service and the significant increase in auto service revenue.

Promotional service expenses. Promotional service expenses increased by 46% from US$112.5 million for the year ended December 31, 2023 to US$164.3 million for the year ended December 31, 2024. The increase in promotional service expenses was in line with the increase of revenue in our auto eInsurance service.

Selling expenses. Selling expenses increased by 10% from US$20.6 million for the year ended December 31, 2023 to US$22.6 million for the year ended December 31, 2024, primarily due to an increase in promotional expense of US$5.3 million for market expansion and partially offset by decrease of US$2.3 million for compensation for part-time sales personnel and decrease of $1.2 million for depreciation of fixed assets.

General and administrative expenses. General and administrative expenses increased by 109% from US$22.5 million for the year ended December 31, 2023 to US$47.0 million for the year ended December 31, 2024, primarily due to the increase of share-based compensation expense related to 2024 Equity Incentive Plan of US$31.0 million and US$5.4 million credit losses, and partially offset by the decrease of earnout payment of US$9.8 million and US$3.0 consulting fees.

Research and development expenses. Research and development expenses increased by 185% from US$14.1 million for the year ended December 31, 2023 to US$40.2 million for the year ended December 31, 2024, primarily due to the increase of share-based compensation expense related to 2024 Equity Incentive Plan of US$31.0 million, and partially offset by decrease of US$4.9 million technology service fees due to a reduction on external services.

Net loss and Adjusted EBITDA. Net loss increased by US$46.9 million, to US$64.5 million for the year ended December 31, 2024. Adjusted EBITDA increased by US$8.1 million, to US$9.8 million in the year ended December 31, 2024. See our reconciliation of Net loss to Adjusted EBITDA within the section titled "Non-GAAP Financial Measures.

Year ended December 31, 2023 compared with the year ended December 31, 2022

The following table sets forth a summary of audited consolidated results of operations for the years indicated. This information should be read together with audited consolidated financial statements and related notes included elsewhere in this Annual Report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

		For the Years Ended December 31,								Change
		2022				2023				Amount				%
Revenues
Auto eInsurance service		$	67,640			$	118,109			$	50,469				75	%
Technology service			15,479				30,658				15,179				98	%
Auto service			199,294				214,979				15,685				8	%
Total revenues			282,413				363,746				81,333				29	%
Operating costs and expenses
Integrated service cost			(166,793	)			(209,553	)			(42,760	)			26	%
Promotional service expenses			(65,500	)			(112,504	)			(47,004	)			72	%
Selling expenses			(16,477	)			(20,578	)			(4,101	)			25	%
General and administrative expenses			(37,742	)			(22,462	)			15,280				-40	%
Research and development expenses			(8,478	)			(14,111	)			(5,633	)			66	%
Total operating costs and expenses			(294,990	)			(379,208	)			(84,218	)			29	%
Operating loss			(12,577	)			(15,462	)			(2,885	)			23	%
Other income/(expenses)
Financial expenses, net			(3,659	)			(4,435	)			(776	)			21	%
Investment income			441				518				77				17	%
Change of fair value of warrant liabilities			-				(629	)			(629	)			N/A
Other income, net			5,121				5,001				(120	)			-2	%
Total other income, net			1,903				455				(1,448	)			-76	%
Loss before income tax expense			(10,674	)			(15,007	)			(4,333	)			41	%
Income tax expense			(231	)			(2,572	)			(2,341	)			1013	%
Loss from continuing operations, net			(10,905	)			(17,579	)			(6,674	)			61	%
Discontinued operations:
Net loss from discontinued operations			(994	)			-				994				-100	%
Net loss			(11,899	)			(17,579	)			(5,680	)			48	%
Other comprehensive loss
Foreign currency translation difference			(2,410	)			(1,137	)			1,273				-53	%
Total comprehensive loss		$	(14,309	)		$	(18,716	)		$	(4,407	)			31	%

Revenue

Our total revenue increased by 29% from US$282.4 million for the year ended December 31, 2022 to US$363.7 million for the year ended December 31, 2023.

Auto eInsurance service. Auto eInsurance service revenue increased by 75% from US$67.6 million for the year ended December 31, 2022 to US$118.1 million for the year ended December 31, 2023, driven by the increasing number of insurance policies sold for the year ended December 31, 2023. We ranked first in terms of auto insurance premiums for EVs in China. EV sales have increased sharply in recent years, and thus, our auto eInsurance business has expanded rapidly. Therefore, while the average commission for the year ended December 31, 2023 decreased by 12% compared with the year of 2022 due to the regulatory requirements and normal market fluctuations, this decrease was offset by the increase in the number of insurance policies by 108% compared with those for the year ended December 31, 2022.

Technology service. Technology service revenue increased by US$15.2 million from US$15.5 million for the year ended December 31, 2022 to US$30.7 million for the year ended December 31, 2023. Technology service is a new business focus of ours starting in 2021 and the revenue increase is due to our continuous expansion in new business to acquire more market share. The increase is also due to the increasing reliance of our insurance company partners on our insurance app as their online business develops, which brings more cooperation in the technology service segment. Through the application of our Private Cloud Platform, we have simplified our development process and we were able to easily integrate various tools for software development, testing, operation, and maintenance. Together, these strengthened our software platform to be able to increase its capacity and better serve the customers.

Auto service. Auto service revenue increased by 8% from US$199.3 million for the year ended December 31, 2022 to US$215.0 million for the year ended December 31, 2023. The increase was driven by the increase of service orders in 2023. The extensive service network we developed served more enterprise customers and completed more auto service orders in 2023.

Operating costs and expenses. Operating costs and expenses increased by 29% from US$295.0 million for the year ended December 31, 2022 to US$379.2 million for the year ended December 31, 2023.

Integrated service cost. Integrated service cost increased by 26% from US$166.8 million for the year ended December 31, 2022 to US$209.6 million for the year ended December 31, 2023. The increase of integrated service costs was in line with the increase in revenue in our technology service business and significant increase in the auto service business.

Promotional service expenses. Promotional service expenses increased by 72% from US$65.5 million for the year ended December 31, 2022 to US$112.5 million for the year ended December 31, 2023. The increase in promotional service expenses was in line with the increase of revenue in our auto eInsurance service and auto service.

Selling expenses. Selling expenses increased by 25% from US$16.5 million for the year ended December 31, 2022 to US$20.6 million for the year ended December 31, 2023, primarily due to (i) an increase in promotion expense of US$1.1 million for market expansion after the public listing; and (ii) an increase in compensation of US$2.9 million for part-time sales personnels the number of service centers nationwide increased.

General and administrative expenses. General and administrative expenses decreased by 40% from US$37.7 million for the year ended December 31, 2022 to US$22.5 million for the year ended December 31, 2023, primarily due to the decrease of bad debt expense of US$30.1 million for the year ended December 31, 2023 since the adoption of ASC326, offset by (i) the increase of professional service expense of US$4.7 million due to the public listing, and (ii) the increase of share-based compensation expense related to Earnout Shares of US$9.7 million.

Research and development expenses. Research and development expenses increased by 66% from US$8.5 million for the year ended December 31, 2022 to US$14.1 million for year ended December 31, 2023, primarily due to more research expenditures on the software used in the auto eInsurance service and technology service businesses.

Net loss and Adjusted EBITDA. Net loss increased by $5.7 million, to $17.6 million for the year ended December 31, 2023. Adjusted EBITDA increased by US$7.2 million, to US$1.6 million in year ended December 31, 2023. See our reconciliation of Net loss to Adjusted EBITDA within the section titled "Non-GAAP Financial Measures."

Discontinued operations

On March 1, 2022, we entered into a share purchase agreement with Jiachen Information Technology (Shanghai) Co., Ltd. ("Jiachen"), an affiliate of Mr. Ye Zaichang, to transfer the total equity of Shengda Group at a nominal consideration of RMB1. The disposal transaction was completed as of March 1, 2022. As the disposal of Shengda Group was under common control, no gain or loss was recorded as the result of the disposal, and instead impacts were charged to additional paid-in capital.

Non-GAAP Financial Measures

In addition to our results being determined in accordance with GAAP, the Company's management believes that Adjusted EBITDA, which is a non-GAAP measure that excludes certain non-recurring items such as costs and expenses related to the Business Combination and prior and subsequent capital raises, is useful in evaluating our operational performance. The Company uses this non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes. We believe that this non-GAAP financial information, when taken collectively with GAAP measures, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies, which may or may not present similar non-GAAP financial measures to investors. Our computation of these non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate these measures in the same fashion. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the most directly comparable GAAP measure and a description of the reconciling items and adjustments to derive the non-GAAP measure. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures on a supplemental basis.

Adjusted EBITDA

We believe that Adjusted EBITDA, as defined below, is useful in evaluating our operational performance distinct and apart from certain expenses that may not be indicative of our recurring core business operating results and non-operational expenses. Adjusted EBITDA is defined as Net loss adjusted for depreciation and amortization, financial expenses, net, investment income, change of fair value of warrant liabilities, other non-recurring income, net, income tax expense, share-based compensation and non-recurring expenses related to the Business Combination and prior and subsequent capital raises.

Net loss Margin is defined as net loss divided by total revenues, and Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total revenues.

The following table reconciles Net loss to Adjusted EBITDA for the years ended December 31, 2022, 2023 and 2024.

		For the years ended December 31,
		2022				2023				2024
		(In thousands)
Net loss		$	(11,899	)		$	(17,579	)		$	(64,453	)
Depreciation and amortization			5,078				4,114				4,503
Financial expenses, net			3,659				4,435				4,529
Investment income			(441	)			(518	)			(784	)
Change of fair value of warrant liabilities			-				629				286
Other non-recurring income, net			(5,121	)			(5,001	)			(794	)
Income tax expense			231				2,572				2,853
Share-based compensation (1)			1,599				11,295				63,535
Transaction fees (2)			357				1,702				79
Net loss from the discontinued operation, net of tax			994				-				-
Adjusted EBITDA		$	(5,543	)		$	1,649			$	9,754
Net loss Margin			(4.2	)%			(4.8	)%			(14.6	)%
Adjusted EBITDA Margin			(2.0	)%			0.5	%			2.2	%

(1)

Non-cash expense related to compensation costs for equity classified awards (both for the subsidiary and the Group).

(2)

Includes non-recurring transaction related fees and expenses associated with the Company's Business Combination and prior and subsequent capital raises.

Taxation

Cayman Islands

Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Our subsidiaries incorporated in the BVI are not subject to taxation in the British Virgin Islands.

Hong Kong

According to Tax (Amendment) (No. 3) Ordinance 2018 published by Hong Kong government, form April 1, 2018, under the two-tiered profits tax rates regime, the profits tax rate for the first HKD2 million of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations, and the remaining profits will continue to be taxed at the existing tax rate, 16.5%. No provision for Hong Kong profits tax had been made to China Auto Market Group Ltd., a subsidiary of us, during the years ended December 31, 2022, 2023 and 2024 as it did not have assessable profit during the periods presented.

PRC

Generally, our subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%.

According to Taxation [2019] No. 13 which was effective from January 1, 2019 to December 31, 2021 and Taxation [2021] No. 12 which was effective from January 1, 2021 to December 31, 2022, an enterprise is recognized as a small-scale and low-profit enterprise when its taxable income is less than RMB3 million. A small-scale and low-profit enterprise receives a tax preference including a preferential tax rate of 2.5% on its taxable income below RMB1 million and another preferential tax rate of 10% on its taxable income between RMB1 million and RMB3 million in 2021 and 2022. According to Taxation [2022] No. 13 which was effective from January 1, 2022 to December 31, 2024, a small-scale and low-profit enterprise receives a tax preference including a preferential tax rate of 5% on its taxable income between RMB1 million and RMB3 million. According to Taxation [2023] No. 06 which was effective from January 1, 2023 to December 31, 2024, a small-scale and low-profit enterprise receives a tax preference including a preferential tax rate of 5% on its taxable income below RMB1 million.

High and new technology enterprises enjoy a preferential tax rate of 15% under PRC tax law. Shanghai Chengle Network Technology Co., Limited, one of our subsidiaries, currently qualifies as a "new high-tech enterprise", and has been entitled to the preferential rate of 15% from 2018 through 2021, and successfully renewed the qualification in December 2021, which would be effective within 3 years. Shengda Automobile, one of our key subsidiaries, qualified as a "new high-tech enterprise" and was entitled to a preferential tax rate of 15% from 2018 through 2021, and successfully renewed the qualification in December 2021, which would be effective within 3 years.

Dividends paid by its wholly foreign-owned subsidiaries in China to its intermediary holding companies in Hong Kong will be subject to a withholding tax rate of 10%, unless they qualify for a special exemption. If its intermediary holding companies in Hong Kong satisfy all the requirements under the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income and receive approval from the relevant tax authority, then dividends paid to them by its wholly foreign-owned subsidiaries in China will be subject to a withholding tax rate of 5% instead.

If our holding company in the Cayman Islands or any of its subsidiaries outside of China were deemed to be a "resident enterprise" under the Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%.

Liquidity and Capital Resources

		For the years ended December 31,
		2022				2023				2024
		(in thousands)
Net cash (used in) provided by operating activities of continuing operations		$	(16,092	)		$	(27,651	)		$	11,841
Net cash used in operating activities of discontinued operations			(52	)			-				-
Net cash used in investing activities of continuing operations			(5,402	)			(2,394	)			(12,147	)
Net cash used in investing activities of discontinued operations			(517	)			-				-
Net cash provided by (used in) financing activities of continuing operations			10,636				40,434				(2,951	)
Effect of exchange rate changes			(2,573	)			(711	)			(826	)
Net (decrease) increase in cash and restricted cash		$	(14,000	)		$	9,678			$	(4,083	)

Our principal sources of liquidity have been cash provided from bank borrowings and revenue generated from business operations. As of December 31, 2024, we had US$26.9 million in cash, and US$2.6 million restricted cash, of which almost all was denominated in Renminbi. Most of the cash and restricted cash were held at banks located in China.

We believe that our current cash on hand, short-term investments, and cash provided by equity securities will be sufficient to meet the current and anticipated needs for general corporate purposes for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditures, or similar actions. If we determine that the cash requirements exceed the amount of cash on hand, we may seek to issue equity or equity-linked securities or obtain debt financing. The issuance and sale of additional equity would result in further dilution to the shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.

We expect that substantially all of our future revenues will be denominated in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.

Operating Activities

Net cash provided by operating activities of continuing operations for the year ended December 31, 2024 was US$11.8 million, as compared to net loss from continuing operations of US$64.5 million. The difference between net loss and net cash provided by operating activities was primarily attributable to (i) a non-cash adjustment of share-based compensation of US$63.5 million, depreciation of US$4.5 million, provision for credit losses of US$1.3 million, deferred income tax expense of US$1.2 million, (ii) increase of accounts payable of US$31.3 million primarily due to the growth of our auto service business, (iii) increase of accrued expenses and other current liabilities of US$1.4 million and US$1.9 million amounts due to related parties, offset by an increase of accounts receivable of US$22.7 million due to the increase of sales, and an increase of prepaid expenses and other current assets of US$6.7 million due to the increase of advances to suppliers for the expansion of business.

Net cash used in operating activities of continuing operations for the year ended December 31, 2023 was US$27.7 million, as compared to net loss from continuing operations of US$17.6 million. The principal changes accounting for the difference between net loss and net cash used in operating activities in 2023 were an adjustment of US$13.7 million non-cash items including the change of share-based compensation of the Group of US$9.8 million and depreciation of US$4.1 million offset by the reversal of allowance of accounts receivable of US$4.1 million, an increase of prepaid expenses and other current assets of US$55.9 million, offset by a decrease of accounts receivable of US$30.8 million due to good collections, an increase of accounts payable of US$3.1 million. The increase of prepaid expenses and other current assets was primarily due to a significant increase of pre-recharge funds to auto service providers for the purpose of getting more preferential service prices. The increase in accounts payable was primarily due to the growth of our technology service business.

Net cash used in operating activities of continuing operations for the year ended December 31, 2022 was US$16.1 million, as compared to net loss from continuing operations of US$10.9 million. The difference between net loss and net cash used in operating activities was primarily attributable to an increase of accounts receivable, net of US$32.6 million, an increase of prepaid expenses and other current assets of US$3.9 million, and a decrease of accounts payable of US$5.0 million, offset by the provision of doubtful accounts of US$26.0 million, and depreciation and amortization of US$5.1 million.

Investing Activities

Net cash used in investing activities of continuing operations for the year ended December 31, 2024 was US$12.1 million, primarily consisting of US$11.6 million in non-current assets purchased related to the development of cloud infrastructure, and the purchase of a short-term investment of US$21.6 million, and offset by the proceeds from sale of short-term investment of US$21.7 million.

Net cash used in investing activities of continuing operations for the year ended December 31, 2023 was US$2.4 million, primarily consisting of US$4.9 million in software and equipment purchase, and US$1.7 million in purchase of other non-current assets, offset by proceeds from the redemption of short-term investments of US$4.7 million.

Net cash used in investing activities of continuing operations for the year ended December 31, 2022 was US$5.4 million, primarily consisting of US$4.4 million in software and equipment purchases, and US$1.2 million in purchase of other non-current assets.

Financing Activities

Net cash used in financing activities of continuing operations for the year ended December 31, 2024 was US$3.0 million, consisting primarily of repayments of short-term bank borrowings of US$103.0 million repurchase of non-controlling interests of US$4.1 and repayments to related parties of US$1.7 million, and offset by US$105.9 million from short-term bank borrowings.

Net cash provided by financing activities of continuing operations for the year ended December 31, 2023 was US$40.4 million, consisting primarily of US$104.5 million from short-term bank borrowings, proceeds from Private Placement of US$21.7 million and proceeds from issuance of ordinary shares, net of issuance cost of US$18.5 million, offset by repayment of short-term bank borrowings of US$94.0 million and repayments of payables to related parties of US$10.0 million.

Net cash used in the financing activities of continuing operations for the year ended December 31, 2022 was US$10.7 million, consisting primarily of US$122.2 million from short-term bank borrowings, offset by repayment of short-term bank borrowings of US$111.1 million.

Capital Expenditures

Our capital expenditures are primarily incurred for the purchase of software and equipment, and the development of our private cloud. Its capital expenditures were US$5.6 million, US$6.6 million and US$12.2 million, for the years ended December 31, 2022, 2023 and 2024, respectively. We intend to fund our future capital expenditures with our existing cash balance and bank borrowings. We will continue to incur capital expenditures as needed to meet the expected growth of our business.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to its shares and classified as shareholder's equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to it or engages in leasing, hedging or product development services with it.

Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2024.

		Payment Due by Period
		Within one year				1-3 years				Total
Operating lease payment		$	554			$	21			$	575
Lease payment of property management fee and short-term lease		$	80			$	1			$	81
Capital payment		$	4,837			$	-			$	4,837
Short-term borrowings		$	83,597			$	-			$	83,597

We recorded rental expenses of US$0.6 million, US$0.9 million and US$1.0 million for the years ended December 31, 2022, 2023 and 2024, respectively. Other than what is disclosed above, we did not have other significant commitments, long-term obligations, or guarantees as of December 31, 2024.

We also have certain capital commitments that are primarily related to commitments for the purchase and installation of a private cloud system. Total capital commitments contracted but not yet reflected in the consolidated financial statement was US$4.8 million as of December 31, 2024. All of the capital commitments will be fulfilled according to the investment payment schedule.

From time to time, we take out borrowings with commercial banks to provide for its working capital for daily operation. See "Index to Financial Statements-Borrowings".

Related Party Transaction

Shengda Automobile Service Group Co., Limited and its subsidiaries ("Shengda Group"), owned by Mr. Ye Zaichang, the Chairman of the Board of Directors, was disposed on March 1, 2022, such disposition has been completed as of that date. In addition, we were liable to Jiachen of RMB281.8 million (US$40.9 million) for the transfer of SUNCAR Online as of December 31, 2022. Additionally, we were liable to Shengda Group of $4.7 million for the ordinary course of operation, which was interest-free, unsecured, and could be settled on demand. In the share purchase agreement dated March 1, 2022, we agreed to repay the debt owed to Shengda Group by full before June 1, 2023. In April 2023, we negotiated with Jiachen and consented to have an extension of payment to extend the repayment date to December 31, 2025, with an annual interest rate of 1% from June 30, 2023 to the completion of the repayment.

In 2023, we repaid the debt owed to Shengda Group of US$10 million. In the first three quarters of 2024, we repaid the debt owned to Shengda Group through transfer of shares of SunCar Online at an aggregate amount of US$6.2 million. The non-cash gains from the difference of repurchase price and transfer price of US$4.5 million were charged to additional-paid-in capital.

As of December 31, 2024, the payables due to the transfer of SunCar Online was US$22.8 million, and other payables were US$5.7 million to Shengda Group and US$0.5 million to Mr. Lei Zhunfu for the ordinary course of operation, which were interest free, unsecure and could be settled on demand.

B. Liquidity and Capital Resources

Please see Item 5.A. "Operating Results-Liquidity and Capital Resources" above.

C. Research and Development, Patents and Licenses, etc.

For the years ended December 31, 2022, 2023 and 2024, our research and development expenses were US$8.5 million, US$14.1 million, and US$40.2 million, respectively. Research and development expenses consist primarily of payroll and employee benefits for research and development, employees, rental expense, utilities, and other related expenses related to designing, developing, and maintaining the technology service platform to support its internal and external customers. We expect spending in research and development to continue to be significant over time as SunCar plans to continue to invest in its technology and innovation to enhance customer experience and provide value to its business partners.

D. Trend Information

Other than as disclosed in this Report, SunCar is not aware of any trends, uncertainties, demands, commitments or events as of December 31, 2024 that are reasonably likely to have a material and adverse effect on its net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.

E. Critical Accounting Estimates

Please see Item 5.A. "Operating Results-Critical Accounting Estimates" above.

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SunCar Technology Group Inc. published this content on April 28, 2025, and is solely responsible for the information contained herein. Distributed via EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system operated by the U.S. Securities and Exchange Commission, on April 28, 2025 at 20:16 UTC.