GigaCloud Technology Inc

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

GigaCloud Technology Inc (the “Company”), a limited liability company based in the Cayman Islands, with its subsidiaries (collectively referred to as the “Group”, “we” or “our”) are principally engaged in large parcel merchandise sales and the provision of ecommerce solutions for small cross-border business owners utilizing the Group’s online platform (“GigaCloud Marketplace”) and fulfillment centers primarily located in the United States, Japan and Europe.

Organization

The consolidated financial statements as of December 31, 2023 in the 2023 Form 10-K included the financial statements of the Company, its subsidiaries and consolidated VIEs.

In January 2024, the Company terminated the Account Control Agreements with four of its consolidated VIEs, B.T.M TRAVEL AND TRADING LTD, COMHARBOR LIMITED, BRIHOME LIMITED which are located in United Kingdom (the “U.K.”), and Decobus Handel GmbH which is located in Germany. Concurrently with the termination, the Company acquired 100% equity interest of thefour entities from its nominal shareholder with nominal consideration through capital contribution. As of March 31, 2024, the Group hadno consolidated VIEs. The accompanying unaudited condensed consolidated financial statements as of March 31, 2024 included the financial statements of the Company and its subsidiaries.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Group have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2023 Form 10-K.

There were no significant changes to our significant accounting policies as disclosed in the 2023 Form 10-K.

Restricted Cash

Cash that is restricted for withdrawal or use is reported separately on the unaudited condensed consolidated balance sheets. The Group’s restricted cash represents security deposits held in designated bank accounts for issuance of letters of guarantee. As of December 31, 2023 and March 31, 2024, the restricted cash, held by the Group at the United States financial institutions and denominated in U.S. Dollars, amounted to $885 thousand and $894 thousand, respectively.

A reconciliation of cash and restricted cash in the unaudited condensed consolidated balance sheets to the amounts in the unaudited condensed consolidated statements of cash flows is as follows:

Concentration and Risk

Concentration of customers and suppliers

No customers individually represented greater than 10.0% of total revenues of the Group for the three months ended March 31, 2023 and 2024.

One customer individually represented greater than 10.0% of total accounts receivable balance of the Group as of December 31, 2023 and two customers individually represented greater than 10.0% of total accounts receivable balance as of March 31, 2024.

*Less than 10.0% of total accounts receivable balance as of the period end.

During the three months ended March 31, 2024, one service provider individually represented 17.7% of total purchase, and no other vendor accounted for 10% or more of total purchases.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist principally of cash, restricted cash, investments, accounts receivable, and amounts due from third-party payment platforms.

The Group’s investment policy requires cash, restricted cash and investments to be placed with high quality financial institutions and to limit the amount of credit risk from any one institution. The Group regularly evaluates the credit standing of the counterparties or financial institutions.

Accounts receivable (Note 2), derived from product sales and provision of services on the Group’s GigaCloud Marketplace, as well as amounts due from third-party payment platforms derived from payment from individual customers collected by third-party payment platforms on behalf of the Group, are exposed to credit risk. The assessment of the counter parties’ creditworthiness is primarily based on past history of making payments when due and current ability to pay, taking into account information specific to the counter parties as well as pertaining to the economic environment in which the counter parties operate. Based on this analysis, the Group determines what credit terms, if any, to offer to each counter party individually. If the assessment indicates a likelihood of collection risk, the Group will not deliver the services or sell the products to or through the counter parties or require the counter parties to pay cash in time to secure payment.

Segment Reporting

The Group’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. For the purpose of internal reporting and management’s operation review, the Group’s chief executive officer and management personnel do not segregate the Group’s business by revenue stream or geography. Management has determined that the Group hasone operating segment.

Long-lived assets consist of property and equipment and operating lease right-of-use assets. The geographic information for long-lived assets as of December 31, 2023 and March 31, 2024 was as follows:

Revenues reported are attributed to geographic areas based on locations of the Company’s fulfillment centers, except for platform commission revenues which are attributed to Hong Kong, where the server of the GigaCloud Marketplace is located. Revenues by geographic regions for the three months ended March 31, 2023 and 2024 were as follows:

(1) No other individual region’s revenues exceeded 10% of the Company’s total revenues for the three months ended March 31, 2023 and 2024.

Fair Value of Financial Instruments

The fair values of cash, restricted cash, investments, receivables, payables approximated their carrying values because of the short-term nature of these instruments. As of March 31, 2024, our investments consisted of time deposit instruments that would be classified as Level 2 in the fair value hierarchy if they were measured at fair value in the financial statements.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to update reportable segment disclosure requirements. The amendment is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied retrospectively to all prior periods presented in the financial statements. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption permitted and can be applied on either a prospective or retroactive basis. The Group is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

2. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following:

The movement of the allowance for doubtful accounts is as follows:

3. INVENTORIES

Inventories consisted of the following:

4. LEASES

The Group leases its office space, fulfillment centers and other facilities under non-cancelable operating leases with various expiration dates. The Group also has equipment that is leased under non-cancelable finance leases. The Group considers various factors such as market conditions and the terms of any renewal options that may exist to determine whether it will renew or replace the lease. In the event the Group is reasonably certain to exercise the option to extend a lease, the Group will include the extended terms in the operating lease right-of-use asset and operating lease liability. Certain fulfillment center storage shelves are leased under finance leases, which have a fixed lease term ofthree years from the lease commencement dates. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Group recognizes lease expense for these leases on a straight-line basis over the lease term.

The gross amounts of assets and liabilities related to both operating and finance leases were as follows:

The components of lease cost were as follows:

Lease terms and discount rates are as follows:

Future minimum lease payments as of March 31, 2024, including rental payments for lease renewal options the Group was reasonably certain to exercise, were as follows:

5. ORDINARY SHARES

On July 1, 2022, the Group entered into an agreement with Aegis Capital Corp. (the “Underwriter”), pursuant to which, the Group agreed to issue warrants to the Underwriter upon the completion of its IPO as additional compensation for the Underwriter’s services, which entitles the Underwriter to purchase up to 1.0% of Class A ordinary shares sold in the IPO in the par value of $0.05 per share, at the exercise price of 150% of the public offering price of $12.25 per share.

In February 2024, the Underwriter exercised 29,400 of its warrants under cashless exercise for the Company to issue 13,372 Class A ordinary shares in aggregate. The shares were issued on February 16, 2024, February 23, 2024 and February 28, 2024. All warrants of the Underwriter have been exercised as of March 31, 2024.

In March 2024,1,250,000 Class B ordinary shares were converted into equivalent number of Class A ordinary shares.

6. SHARE-BASED COMPENSATION

Restricted shares (the “RS”)

A summary of the Company’s restricted shares for the three months ended March 31, 2024 was presented below:

As of March 31, 2024, unrecognized compensation expenses with trivial amount relating to the remaining 9,877 unvested restricted shares would cliff and cumulatively vested upon the satisfaction of the service condition.

Restricted share units (the “RSU”)

There were no RSU activities for the three months ended March 31, 2024. As of March 31, 2024, unrecognized compensation expenses of $67 thousand relating to the 159,773 unvested RSUs would be recognized in next twelve months.

7. INCOME TAX

The Company’s provision for income taxes for the three months ended March 31, 2023 and 2024 was $3,756 thousand, and $6,125 thousand respectively, representing effective income tax rates of 19.1% and 18.4%, respectively. The difference between the PRC income tax rate of 25.0% and GigaCloud Technology’s overall income tax rate was primarily due to an income tax benefit on a favorable foreign rate differential and GigaCloud Suzhou’s certificate for Advanced Technology Service Enterprise (“ATSE”) qualification, which entitles the company to the preferential tax rate of 15%.

8. NET INCOME PER ORDINARY SHARE

The following table sets forth the basic and diluted net income per ordinary share computation and provides a reconciliation of the numerator and denominator for the periods presented:

For the three months ended March 31, 2023,58,572 unvested restricted shares with the exercise price of US$7.48 per share are not included in the calculation of dilutive net income per ordinary share under the treasury stock method, as their exercise prices are higher than the fair market value of the Company’s ordinary shares as of March 31, 2023, representing out-of-the-money impact from the holder’s perspective.

For the three months ended March 31, 2024, the potential dilutive securities that have been included in the calculation of diluted net income per ordinary share are presented as follow:

9. REVENUES

The Group’s revenues are disaggregated by major products/service lines and timing of revenue recognition. Detailed information is specified as follows:

Contract Liabilities

Changes in the contract liabilities balances for the three months ended March 31, 2023 and 2024 were as follows:

Contract liabilities relate to considerations received in advance for merchandise sales and services provided on GigaCloud Marketplace for which control of the services occur at a later point in time. The contract liabilities will be recognized as revenue when the Group fulfills its performance obligations to transfer the promised products or services to customers, which is expected to occur withinone year.

The Group has elected the practical expedient under ASC 606-10-50-14(a) and does not disclose information regarding remaining performance obligations which are part of contracts that have an original expected duration of one year or less.

10. COMMITMENTS AND CONTINGENCIES

The Group leases offices and fulfillment centers under non-cancelable operating lease agreements. Future minimum lease payments under these noncancelable lease agreements with initial terms longer than three months are disclosed as maturity of lease liabilities in Note 4.

On March 9, 2024, one of our fulfillment centers in Japan experienced a fire. The fire destroyed our inventories located within the fulfillment center. The Group recognized losses of $1.8 million as a result of the fire. Based on the provisions of our insurance policies, the gross losses have been reduced by the estimated insurance proceeds expected to be received from our insurance carrier. The Group has determined that partial recovery of the incurred losses is probable and therefore recorded an insurance receivable and insurance recovery of $1.5 million for the three-month period ended March 31, 2024.

The Group is obligated to dispose of debris resulting from inventory damaged during the fire at the fulfillment center; we anticipate incurring costs associated with the disposal process. As of the date the unaudited condensed financial statements were issued, the Group is unable to reasonably estimate the extent of these costs. Consequently, we have not accrued a specific amount related to the disposal expenses associated with damaged inventory. We will continue to assess the situation and evaluate any developments that may impact the estimation of these costs in subsequent reporting periods.

The Group may incur certain costs in connection with the reconstruction efforts of the leased fulfillment center following the fire. Notably, our insurance coverage extends to damages incurred by third parties. As of the date the unaudited condensed financial statements were issued, the Group is unable to reasonably estimate the extent of these costs. Consequently, no specific provision has been accrued in our financial statements related to the reconstruction efforts of the leased fulfillment center. We remain committed to monitoring the situation closely and will adjust our estimates accordingly as more information becomes available in subsequent reporting periods. As of March 31, 2024, the Group did not expect liabilities arising from reconstruction efforts, net of insurance recoveries, to materially adversely affect the Group’s unaudited condensed consolidated results of operations or its financial condition.

The Group had no other material commitments or long-term obligations as of March 31, 2024.

11. SUBSEQUENT EVENTS

The Group evaluated subsequent events and transactions that occurred up to the date the unaudited condensed financial statements were issued. Based upon this review, the Group did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.