Executive Summary / Key Takeaways

• CXJ Group Co., Limited (ECXJ) is undergoing a critical transformation, aiming to leverage its "Chejiangling Teenage Hero Car" brand and an expanding auto detailing store network in China, alongside new e-commerce initiatives, to overcome significant financial headwinds.
• The company reported a substantial 80.20% revenue decline to $458,632 and an increased net loss of $2.28 million for the fiscal year ended May 31, 2025, alongside a working capital deficit of $1.57 million, leading auditors to express substantial doubt about its ability to continue as a going concern.
• ECXJ's core strategy involves diversifying its product portfolio, strengthening supplier relationships, and expanding its franchise network to 1,000 stores within five years, while also exploring international markets in Southeast Asia.
• The rapid growth of electric vehicles (EVs) in China, now exceeding 50% of total motor vehicles, poses a significant long-term threat to ECXJ's traditional motor oil and auto parts segments, necessitating a swift adaptation of its business model.
• Significant operational and regulatory risks, including the inherent uncertainties of its Variable Interest Entity (VIE) structure in China, evolving data protection laws, and identified material weaknesses in internal controls, present considerable challenges to ECXJ's stability and growth trajectory.

Setting the Scene: ECXJ's Automotive Aftermarket Ambitions in a Shifting Landscape

CXJ Group Co., Limited (ECXJ) operates at the intersection of China's dynamic automotive aftermarket and its rapidly evolving technological landscape. Originally incorporated in Nevada in 1998 as Global II, Inc., the company remained largely dormant until a significant restructuring in 2019. This period saw a change in control to Xinrui Wang, the appointment of a new executive team including CEO Lixin Cai and CFO Cuiyao Luo, and a rebranding to CXJ Group Co., Limited. A pivotal strategic move in May 2020 was the acquisition of CXJ Investment Group Company Limited, establishing a Variable Interest Entity (VIE) structure crucial for operating in China's regulated market. This foundation positioned ECXJ as an automobile aftermarket products wholesaler and an auto detailing store consultancy.

The company's overarching strategy is to capture market share by building a recognizable brand, "Chejiangling Teenage Hero Car," for auto detailing stores across China. This involves a franchise-like model where ECXJ provides brand authorization, professional training, and operational guidelines to store owners. The aim is to create a network of "neighbor auto detailing stores" located within three kilometers or a 10-minute drive from residential areas, fostering local recognition and customer loyalty. This strategy is a direct response to the highly fragmented and intensely competitive nature of China's automotive aftermarket, where numerous large-scale manufacturers, distributors, and smaller counterparts vie for market share. ECXJ intends to distinguish itself through strong customer relationships, a competitive pricing model, and the quality of its products and store network.

However, ECXJ's business model faces a profound industry trend: the rapid ascent of electric vehicles (EVs) in China. By 2025, EVs have surpassed 50% of total motor vehicles in China, a development that directly threatens ECXJ's traditional motor oil and auto parts market. This shift necessitates a significant strategic pivot and rapid adaptation to remain relevant and financially viable in the long term. The company's future hinges on its ability to evolve its offerings and capitalize on new opportunities arising from this industry transformation, rather than being left behind by the declining demand for internal combustion engine (ICE) vehicle-related products.

The "Chejiangling Teenage Hero Car" Ecosystem: Technology and Brand as Differentiators

ECXJ's core technology and brand strategy are intertwined, aiming to create a cohesive ecosystem for its auto detailing store network. The "Chejiangling Teenage Hero Car" brand is central to its consultancy services, providing a standardized identity and operational framework for its franchise customers. This standardization extends to products, services, store decorations, and operating procedures, supported by professional training for store owners and employees. The tangible benefit for customers is a consistent, professional service experience, which ECXJ believes will enhance brand recognition and attract more end-users.

A key technological differentiator is the proprietary Enterprise Resource Planning (ERP) system developed for its customers. This system offers information management capabilities from both PC and mobile devices, streamlining daily store operations and significantly increasing management efficiency. This digital tool provides a competitive advantage by enabling better inventory control, customer relationship management, and overall operational oversight for its network of stores. The "so what" for investors is that this ERP system, by improving efficiency and standardization, can enhance the profitability and scalability of the franchise model, potentially leading to higher authorization fees and product sales within the network.

ECXJ's R&D initiatives are focused on expanding its online and offline marketing platform, including plans for a "Flash Lion e-commerce sales model" and a "Cloud chain" model incorporating WeChat, REDnote, and TikTok's short video e-commerce. These initiatives aim to broaden the customer base and supply channels, attracting new customers and improving sales reach. While specific quantitative targets for these platforms are not detailed, the strategic intent is clear: to adapt to modern retail trends and leverage digital channels for growth. This technological roadmap is crucial for ECXJ to counter the decline in traditional aftermarket segments and establish new revenue streams, thereby contributing to its competitive moat and long-term growth strategy.

Financial Performance Under Pressure: A Deep Dive into Recent Results

ECXJ's financial performance for the fiscal year ended May 31, 2025, reflects significant challenges and a critical need for strategic execution. The company reported a substantial revenue decline of 80.20%, falling to $458,632 from $2.32 million in the prior year. This decrement was broad-based, impacting automobile exhaust cleaner sales, brand name management fees, and motor oil and spare parts. Consequently, gross profit plummeted by $1.27 million to $372,657 from $1.65 million in 2024. The "Exhaust Gas Cleaner and Other" segment was particularly hard hit, experiencing a near-complete collapse in revenue and reporting a negative gross profit in 2025.

Despite a decrease in overall operating expenses by $1.17 million to $2.62 million, primarily due to reduced impairment of intangible assets and amortization, the company's net loss widened to $2.28 million in 2025, compared to $2.14 million in 2024. A notable factor in operating expenses was a significant goodwill impairment charge of $1.74 million in the fourth quarter of 2025. Management attributed this impairment to "changes to its projected revenue growth rates and timeline" and slower-than-anticipated revenue increases from new customers, alongside reduced forecasted spending on its HZ CXJ reporting unit. Furthermore, intangible assets were fully impaired in 2024 due to a lack of projected undiscounted cash flow.

The company's liquidity position is precarious, with a working capital deficit of $1.57 million as of May 31, 2025, a further decrease from the $1.44 million deficit in 2024. Negative cash flows from operating activities, totaling $418,525, and an accumulated deficit of $7.65 million, have led independent auditors to express "substantial doubt about the Companys ability to continue as a going concern." While cash flow from financing activities saw an increase to $423,172 in 2025, largely due to proceeds from share issuance ($369,728) and advances from directors ($75,440), this indicates a reliance on external funding to sustain operations. The company's stated intention to retain all available funds and future earnings for its VIE's business, coupled with no dividends paid from subsidiaries to date, underscores the tight financial situation.

Strategic Initiatives and Future Outlook: A Path to 1,000 Stores and Beyond

ECXJ's forward-looking strategy is centered on aggressive market expansion and product diversification to counteract recent financial setbacks and adapt to industry shifts. The company aims to significantly extend its market share by acquiring "quality businesses in the Automotive aftermarket industries." This acquisition strategy is designed to enhance its customer base, broaden supply channels, and integrate skilled employees and business connections. Key considerations for potential targets include financial performance, industry reputation, existing customer and supplier networks, and management expertise.

A concrete guidance figure for its core business is the ambitious target to "increase 1000 stores with our customers across China in the next five years." This expansion of the "Chejiangling Teenage Hero Car" network is critical for scaling its brand management and auto detailing consultancy services. Complementing this, ECXJ plans to diversify its existing product portfolio, offering a wider range of choices to customers and broadening its customer base. This includes solidifying relationships with current suppliers and identifying new ones to ensure a robust supply chain.

Beyond domestic growth, ECXJ has articulated plans for international expansion, specifically targeting Southeast Asia, with a particular focus on Malaysia. This move is expected to involve "spending a substantial amount in marketing and advertising in the coming years" to build brand awareness through print and online advertisements, and eventually leveraging social media platforms like Weibo, X, Instagram, and Facebook for overseas markets. These strategic initiatives, if successfully executed, are intended to generate sufficient funds to meet daily cash demands and improve profitability, addressing the going concern issues highlighted in its recent financial reports.

Navigating a Complex Terrain: Risks and Regulatory Headwinds

ECXJ operates within a highly complex and often unpredictable regulatory environment in China, which presents significant risks to its business model and investment thesis. A primary concern is the company's Variable Interest Entity (VIE) structure, which allows it to operate in sectors where direct foreign ownership is restricted. While ECXJ's PRC counsel advises that its VIE arrangements comply with current laws, the legality and enforceability of these contractual arrangements have not been tested in court, and the PRC government retains broad discretion to intervene. The "Foreign Investment Law," enacted in 2020, introduces further uncertainty, as it could potentially classify contractual arrangements as foreign investment, leading to violations of market access requirements. The risk of new rules being applied retroactively also looms, potentially causing ECXJ's shares to decline significantly or become worthless.

Beyond the VIE structure, ECXJ faces substantial government oversight and potential intervention in its business operations. Evolving laws and regulations concerning privacy and data protection, such as the PRC Cybersecurity Law, Data Security Law, and Personal Information Protection Law, introduce complex compliance requirements. Although ECXJ believes it does not currently meet the thresholds for certain stringent reviews (e.g., controlling over one million users' personal information), the "interpretation and application of consumer and data protection laws in China are often uncertain, in flux, and complicated." Non-compliance could lead to significant penalties, business suspension, or even delisting from U.S. exchanges.

Furthermore, as a U.S.-listed Chinese company, ECXJ is exposed to geopolitical tensions between the U.S. and China, including the risk of delisting under the Holding Foreign Companies Accountable Act (HFCAA) if its auditors' work papers become inaccessible to the PCAOB. While its current auditor is based in Malaysia, any future shift in work paper location to China or Hong Kong could trigger this risk. Internally, ECXJ's management has identified "material weaknesses" in its internal control over financial reporting as of May 31, 2025, including a lack of well-established procedures for related party transactions, inadequate controls for business combination accounting, and the absence of an audit committee financial expert on its board. These internal control deficiencies pose risks to financial reporting accuracy and investor confidence. Related party transactions, such as loans to and from officers and controlled entities, also warrant close scrutiny for potential conflicts of interest.

Competitive Arena: ECXJ's Position Against Industry Giants

ECXJ operates in a highly fragmented and intensely competitive automotive aftermarket in China, facing both large, well-funded global players and numerous smaller domestic counterparts. Its competitive positioning is largely that of a regional specialist, leveraging its "Chejiangling Teenage Hero Car" brand and localized service model.

Compared to global automotive suppliers like Magna International Inc. and Johnson Controls International plc , ECXJ's scale and technological breadth are significantly smaller. Magna and Johnson Controls benefit from extensive global supply chains, advanced engineering capabilities, and diversified product lines, often serving original equipment manufacturers (OEMs). ECXJ's strength lies in its agility and deep market penetration within specific Chinese aftermarket segments, particularly through its brand authorization and auto detailing store consultancy. While Magna (MGA) and Johnson Controls (JCI) might offer superior operational efficiency through scale, ECXJ's localized brand services and direct customer relationships could foster stronger loyalty in its niche. However, ECXJ likely lags in R&D investment and innovation speed compared to these global giants, which can lead to higher operational costs and reduced market share in technologically advanced areas.

Against Chinese automotive powerhouse BYD Company Limited , the competitive landscape is particularly stark due to BYD's strategic focus on electric vehicles and vertical integration. BYD's rapid revenue growth and improving profitability, driven by EV demand, highlight a significant divergence in market focus. ECXJ's reliance on traditional ICE-related products, such as motor oil and exhaust cleaners, places it at a disadvantage in the face of China's aggressive EV transition. While ECXJ's brand management services offer a unique value proposition for smaller, independent auto detailing stores, it struggles to compete with BYD's (BYDDY) innovation in EV components and its dominant market positioning in the future of automotive. BYDDY's financial health, characterized by strong cash flow and robust margins, contrasts sharply with ECXJ's current financial struggles and going concern issues.

Similarly, specialized players like Autoliv Inc. (ALV), focused on safety systems, and BorgWarner Inc. (BWA), a powertrain and exhaust component provider transitioning to electrification, demonstrate the industry's move towards higher-value, technologically advanced solutions. ECXJ's offerings, while essential for traditional vehicles, appear less sophisticated in comparison. Its competitive advantage in localized trading and brand services may not fully offset the technological gaps and the broader market shift towards electrification that these competitors are actively addressing. ECXJ's ability to attract and retain key personnel, particularly in technology and marketing, is also a critical competitive factor, as intense competition for skilled talent could increase compensation costs and hinder its strategic execution.

Conclusion

CXJ Group Co., Limited stands at a pivotal juncture, grappling with significant financial challenges and a rapidly transforming automotive landscape. The company's vision to expand its "Chejiangling Teenage Hero Car" network to 1,000 stores and diversify its offerings, supported by its ERP system and e-commerce initiatives, represents a strategic attempt to carve out a sustainable niche in China's competitive aftermarket. However, the substantial revenue decline, increased net losses, and a persistent working capital deficit, coupled with the auditors' going concern warning, underscore the urgency of its transformation.

The core investment thesis for ECXJ hinges on its ability to successfully execute its strategic pivot towards a more diversified and digitally integrated business model, while effectively mitigating the existential threat posed by China's rapid EV adoption. Its technological differentiators, such as the ERP system and planned e-commerce platforms, are crucial for enhancing operational efficiency and expanding market reach. Yet, the inherent risks of its VIE structure, stringent Chinese regulatory oversight, and identified internal control weaknesses present formidable hurdles. For discerning investors, ECXJ represents a high-risk, high-reward proposition, where successful adaptation to the EV era and robust execution of its brand-centric growth strategy are paramount to unlocking long-term value and overcoming its current financial precariousness.