So we’re trying to catch back in terms of 2024 to grow beyond the revenue we had in 2022.
Jake Bartlett: But just so I understand, the offset to volume growth is negative mix or negative price, or else revenue would be higher than volume, I would assume. So why is revenue growth slower than volume growth?
Alan Yu: The pricing. You’re right. We are having to compete with our other vendors for pricing. So we’re doing both competing with other vendors as well as selling more higher price volume wise and online.
Jake Bartlett: And then Jian, the question on operating expense or G&A growth. I just want to make sure your comment, you said it was — you want to improve versus ’23, that’s on a percentage of sales basis. You don’t expect the absolute G&A or operating expenses to be lower year-over-year. So I just want to make sure that that’s the right message.
Jian Guo: That’s correct, Jake. It’s the leverage, the percentage.
Jake Bartlett: Percentage of sales. And then just on the adjustments for the online sales platform fees kind of moving from, I guess, going into selling — increasing selling expenses and retail sales. Also the production expenses moving out of G&A to cost of goods. How should we think of that just for modeling? You’re not telling us how much they were per quarter in ’23, but should we just divide those adjustments by 4 and assume that that’s the right kind of impact on a quarterly basis as we look to model ’24 and beyond?
Jian Guo: That should be pretty close with only target — well a couple of covers there is the online platform fee with a significant growth of our overall online sales, I would expect that amount to increase in 2024 compared to 2023. On the production expense, I would expect ’24 amount to be slightly below the ’23 amount because of the continued scale back of the overall domestic production activities here.
Jake Bartlett: And then lastly, on the import duty reserve. Is it the same kind of way to think about it there that it maybe should have been higher earlier, it was taken all at once here or is that not how that works? So just how would — by taking this reserve now, how would it impact the next three quarter COGS? Would it be higher because you would have — if that was a reserve was — if you reserved more appropriately on an ongoing basis, you’d have higher cost of goods sold. Is that how we should think about it?
Jian Guo: Can I just make sure I understand your question correctly, Jake? You’re talking about the reserve for the duty, import duty?
Jake Bartlett: Yes.
Jian Guo: So this year, we actually don’t expect a significant change in 2024 currently based on the best information that we currently have. The reason why we had an increase in the reserve in this charge, which you’re right, it impacted Q4 cost of goods sold. The reason why we had the impact was there was a change of estimate. It was a contingency — it was a loss contingency we previously reserved, took a charge reserves, based on our best estimate at that point in time that in the second quarter of 2023 we had an investigation going on. So we took a reserve back in Q2 2023. Fast forward to Q4 2023, we had some updates in — estimate updates in events and circumstances that helped us better estimate this reserve, this loss contingency, that’s the reason why we recorded an adjustment to this charge.
As of right now, based on the information and assistance provided from the counsel, we do not expect significant changes in 2024. That being said, as we think about this reserve amount as of 12/31/2023, this is best based on the best estimate that we currently have. There might be future options that we would look into. But as of right now, we don’t expect significant changes in 2024 related to this charge.
Alan Yu: Jake, let me add to what Jian just mentioned. This reserve is a special duty reserve. It’s based on an item that we have imported from overseas. And this — basically, all the investigation has confirmed and finalized. So in 2024 and onward, we won’t have to deal with this any type of importing issue on this particular product. But for the amount that we reserve, are we going to see a cash payout anytime soon? No. It might be a couple of years down the road since we are going to appeal. And this is — this $2.3 million or $3.5 million is the highest reserve we’re putting. And then we’re very likely this reserve would change to a different amount, which is we’re looking at a lower amount, the amount — dollar amount that would change. But this is the highest, the most we will see in terms of the duty that we’re liable for, basically.
