# Fly-E Group, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Fly-E Group, Inc.](/companies/flye.md) (CIK 1975940)
- Form: 10-Q
- Filed: 2024-08-16
- Accepted by EDGAR: Aug 16, 2024, 16:15 ET
- Period: 2024-06-30
- Accession: 0001213900-24-070250
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1975940/000121390024070250/ea0211101-10q_flyegroup.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1975940/000121390024070250/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $7.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $4.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $3.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $145.6k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$45.5k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $72.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$179.5k | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 22,636,250 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-04-01 to 2024-06-30 | −$4.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-04-01 to 2024-06-30 | $351.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $4.5m | us-gaap:Cash |
| Current assets | at 2024-06-30 | $13.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $35.2m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $6.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $20.2m | us-gaap:Liabilities |
| Current portion of debt | at 2024-06-30 | $1.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-30 | $15.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,227 characters.

*The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in this Report. The following discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. See “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”.*

### Overview

We are an EV company that is principally engaged in designing, installing and selling E-motorcycles, E-bikes, E-scooters and related accessories under the brand “Fly E-Bike.” At Fly E-Bike, our commitment is to encourage people to incorporate eco-friendly transportation into their active lifestyles, ultimately contributing towards building a more environmentally friendly future.

Fly E-Bike was established in 2018 with its first store opened in New York. Our business has grown rapidly since then and we are now one of the leading providers of E-bikes for food delivery workers in New York City. As of August 15, 2024, we have 40 stores, including 39 retail stores in the U.S. and one retail store in Canada. We offer rental services from selected locations. We also operate one online store at flyebike.com, focusing on selling E-motorcycles, E-bikes and E-scooters, serving customers in the United States. In addition, we plan to open a second online store focusing on selling gas bikes in the future. We plan to expand our presence in the United States and extend our business into South America and Europe in the future.

We have a diversified product portfolio that is designed to satisfy the various demands of our customers and address different urban travel scenarios. Additionally, we aim to refresh our product offerings continuously to align with evolving market trends. As of August 15, 2024, we offered 21 E-motorcycle products, 21 E-bike products and 34 E-scooter products.

We are currently in the process of developing a Fly E-Bike app, which is a management service mobile software for our EVs. We aim to design an app that will bring users a comprehensive intelligent experience to create a safer and more satisfying riding life. The development of the app is still in its preliminary stage. We have launched a testing version of the app, which is currently unavailable to our customers. In December 2023, the Company engaged DF Technology US Inc (“DFT”) for certain technology services, for the development of the enterprise resource planning system (“ERP system”), and in July 2024, the Company engaged DFT to develop a mobile phone application for its renal services, the GO FLY APP. As of June 30, 2024, the Company paid $2,054,000 to DFT as prepayment for software development.

We source a significant portion of our vehicle components from China and the United States, and then assemble them into our vehicles in a facility located in Maspeth, New York. For the three months ended June 30, 2023, we produced 1,904 E-motorcycles, 2,058 E-bikes and 385 E-scooters at this facility. For the three months ended June 30, 2024, we produced 1,968 E-motorcycles, 1,513 E-bikes and 524 E-scooters at the same facility.

### Recent Developments

### Stock Split

In April 2024, we effected a stock split of our authorized and all issued and outstanding shares of our common stock and preferred stock at a split ratio of 1-for-110,000, where the par value of the Company’s common stock remained unchanged at $0.01 per share, and the number of authorized shares of the Company’s capital stock was increased from 440 to 48,400,000, with the number of authorized shares of common stock and preferred stock being increased from 400 to 44,000,000 and from 40 to 4,400,000, respectively. The issued and outstanding common stock and preferred stock increased at a split ratio of 1-for-110,000. The share number and related data in this Report has been updated to reflect the stock split referenced above.

### Initial Public Offering

On June 7, 2024, we sold 2,250,000 shares of common stock, at a price of $4.00 per share in our IPO. The gross proceeds of the offering were $9.0 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company. In addition, we granted the underwriters a 30-day option to purchase an additional 337,500 shares of common stock at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments. On June 25, 2024, we sold an additional 337,500 shares of common stock to the underwriters of our IPO for gross proceeds of $1.4 million upon full exercise of the underwriters’ over-allotment option. Net proceeds received by us from our initial public offering, including the exercise of the over-allotment option, were approximately $9.2 million. We also issued to The Benchmark Company, LLC, the representative of the underwriters, and its designees warrants to purchase 129,375 shares.

### Rental Services

The Company launched a new rental program to meet the increasing market demand for safe, UL-certified e-bikes in compliance with New York State regulations. The rental service is now available in New York City in select Fly E-Bike stores, offering users with a flexible and affordable e-bike rental option featuring the Fly-E Fly-11 Pro model. The Company is currently developing the GO FLY app, a mobile application designed for its rental services. As part of FLY-E’s growth strategy, the Company plans to expand the rental service to Miami, Toronto, and Los Angeles shortly.

### Impact of COVID-19

The United States Center for Disease Control announced that the COVID-19 public health emergency ended in May 2023, with the result that the COVID restrictions in the United States are no longer in effect and restrictions have been terminated worldwide. Although the anti-pandemic policies have been eased in China since the beginning of 2023, it is uncertain whether the Chinese government will tighten its restrictive policies and measures again in the future. Furthermore, the lingering impacts of COVID-19 may continue adversely affecting our supply chain, which in turn may materially and adversely affect our business and results of operations. We rely on a global supply chain network, with a significant portion of our supplies coming from China. Disruptions in this network, caused by factors such as COVID-19 lockdowns, port congestion, and geopolitical tensions, had resulted in supply shortages and increased freight costs. These issues had resulted in, and may continue to lead to, production delays and inventory shortages, affecting our ability to fulfill customer orders timely. Although our business operations were not materially impacted because of measures we took during the lockdown period in China in 2022, which included increasing order quantities for vehicle components and maintaining higher inventory levels, as well as avoiding heavy reliance on a single vendor, there can be no assurance as to whether and to what extent these mitigation measures will be effective in the event of future supply chain disruptions. Maintenance of high inventories can increase our costs and involve other risks. See “*Item 1A. Risk Factors – Risks Related to the Company’s Business, Operations, and Industry - Changes in our supply chain may result in increased cost. If we are unsuccessful in our efforts to control and reduce supplier costs and manage inventory at optimal levels, our operating results will suffer.”*

The global economic environment has experienced significant inflationary pressures, affecting various cost components, including labor, raw materials, and transportation. As a result, we face higher operating costs, which could impact our pricing strategies and profit margins. These challenges may lead to increased costs for raw materials, longer lead times, and potential delays in product availability, which could adversely affect our profitability and ability to meet customer demand.

In addition, if we encounter unexpected difficulties with our principal vendors, and if we are unable to fill these needs from other vendors in a timely manner, we could experience production delays and potential loss of access to important technology and parts for producing, servicing and supporting our vehicles. The loss of any vendors or the disruption in the supply of components from these vendors could lead to design changes and delays in product deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

We are actively monitoring these developments and implementing mitigation strategies, such as diversifying our supplier base, increasing inventory levels where feasible, and exploring alternative logistics solutions. However, there can be no assurance that these measures will fully offset the adverse effects of inflation and supply chain disruptions on our business.

### Key Factors that Affect Operating Results

Our results of operations and financial condition are affected by the general factors driving the U.S.’s electric two-wheeled vehicles industry, including, among others, the U.S.’s overall economic growth, the increase in per capita disposable income, the expansion of urbanization, the growth in consumer spending and consumption upgrades, the competitive environment, governmental policies and initiatives towards electric two-wheeled vehicles, as well as the general factors affecting the electric two-wheeled vehicles industry in overseas markets. Unfavorable changes in any of these general industry conditions could negatively affect demand for our products and materially and adversely affect our results of operations.

While our business is influenced by these general factors, our results of operations are more directly affected by company specific factors, including the following major factors:

### New Customers

Our growth will depend on our ability to achieve sales targets, including our ability to attract new customers, which in turn depends in part on our ability to execute on our retail strategy and produce effective marketing initiatives to expand our brand perception with prospective customers. As of August 15, 2024, we have 40 stores, including 39 retail stores in the U.S and one retail store in Canada. We offer rental services from selected locations. We also operate one online store, focusing on selling E-motorcycles, E-bikes, and E-scooters and selling our product in the United States. It is critical for us to successfully manage production ramp-up and quality control to deliver to customers in adequate volume and quality.

With respect to branding and marketing, we plan to raise brand awareness through both traditional and social media channels and connect with customers through physical touchpoints such as our retail stores and distributors. We believe that effective marketing can boost our brand awareness and contribute to increased sales. In addition, we intend to provide superior customer experience through our trained technicians who will provide after-sale maintenance and repair services at our retail stores. An inability to attract new customers would substantially impact our ability to grow revenue or improve our financial results.

### Product Sales Price and Volume

For the three months ended June 30, 2024, our net revenues increased by 0.4% to $7.9 million, compared to $7.8 million for the same period in 2023, which was primarily driven by sales from new stores and higher average sales price. In particular, the average sales price per EV increased by $46 or 4.6%, from $1,007 in the three months ended June 30, 2023 to $1,053 in the three months ended June 30, 2024.

In the future, our ability to increase our product sales price and volume will depend on our ability to innovate in design and technology and offer products that meet the customers’ demand. We currently have a streamlined product portfolio consisting of three categories, with multiple models and specifications for each category. Moreover, our ability to increase the sales price and volume will depend on our ability to continually enhance our brand to attract customers, as well as our ability to successfully operate our retail stores and expand our sales network both domestically and globally. However, our product sales price is influenced by various factors such as market demand and competitors’ pricing, and although we continue working on product improvements and retail expansion, there can be no guarantee of sustained sales price increase or improved sales volume. If our prices remain stable, increasing sales volume would become important for continued revenue growth, and failure to do so would significantly impact our ability to grow revenue or improve our financial results.

### Employees

Our payroll expenses were $1.0 million for the three months ended June 30, 2024, compared to $0.6 million for the three months ended June 30, 2023. As our business expands, we expect increased payroll expenses due to hiring more employees for our retail stores and corporate office. Each of our retail stores has a minimum of two employees, and additional office employees will be hired to support retail stores in customer service and marketing. In addition, to maintain excellent customer service in our retail stores, each store will have at least one trained repair professional, further contributing to the increase in payroll expenses. An inability to effectively manage payroll expenses while expanding the business would significantly impact our ability to grow revenue or improve our financial results.

### Vendor and Supply Management

During the three months ended June 30, 2024, we worked with three principal vendors, Depcl Corp.(previously known as Fly Wing E-Bike Inc.), Xiamen Innolabs Technology Co., Ltd. and Wuxi Chiao International Trade Co., Ltd., each of which respectively supplied approximately 40.6%, 37.6% and 7.0% of the accessories and components used in all our products for the three months ended June 30, 2024.

We have implemented a centralized vendor management system that streamlines purchasing, enhances our negotiating power and maintains strong vendor relationships. We believe this approach delivers cost savings, improved risk management and increased negotiating power, ultimately benefiting our operating results. Changes in costs related to our major vendors can significantly affect our financial condition and operating results.

### Market Trends and Competition

We operate in a rapidly growing EV market with a special focus on E-motorcycles, E-bikes and E-scooters. However, increased competition may pressure prices and margins, reducing sales volume, revenues, and sales margin for us. Additionally, marketing and advertising costs may rise as we differentiate ourselves and maintain our market position. Moreover, competitors may impact customer acquisition and retention, satisfaction and loyalty. While we believe we maintain competitive advantages in several areas, including brand, product design and quality, smart features, omnichannel retail model, customer satisfaction and loyalty, we must continuously innovate, invest in research and development and marketing to maintain our competitive edge and unique selling points.

### Regulatory Landscape

We operate in an industry that is subject to extensive environmental, safety and other laws and regulations, which include products safety and testing, as well as battery safety and disposal. These requirements create additional costs and possible production delay in connection with the testing and manufacturing of our products. We also benefit from environmental regulations in our target markets which include economic incentives to purchasers of EVs and tax credits for EV manufacturers. The Governor of New York State signed a legislative package in July 2024 aimed at raising awareness about the safe use of e-bikes and lithium-ion battery products, prohibiting the sale of non-compliant batteries, requiring safety protocols and training for first responders, mandating operating manuals for e-bike retailers, and improving accident reporting and registration processes for e-bikes and mopeds. Additionally, in July 2025, the New York City Department of Transportation announced that it anticipated to launch a $2 million trade-in program in early 2025, allowing eligible food delivery workers to replace their unsafe e-bikes, e-mobility devices, and batteries with certified, high-quality versions. While we expect relevant regulations to provide a tailwind to our growth, it is possible for other regulations to result in margin pressures.

### How to Assess Our Performance

In assessing performance, management considers a variety of performance and financial measures, including principal growth in net sales, gross profit, gross margin, selling, general and administrative expenses and EBITDA. The key measures that we use to evaluate the performance of our business are set forth below.

#### Net Sales

We generate revenue from sales of our EVs, their accessories and spare parts, and provision of repair services at our retail stores. Our net sales comprise gross sales net of discounts and return allowances. We do not record sales taxes as a component of retail revenues as we consider it a pass-through conduit for collecting and remitting sales taxes. Return allowances, which reduce net revenues, are estimated based on historical experience.

*E-bikes, E-motorcycles and E-scooters sales.* We generate a substantial majority of our revenues from sales of E-bikes, E-motorcycles and E-scooters directly to customers through our online store and retail stores, and to our distributors.

*Accessories and spare parts sales.* We also sell accessories and spare parts for our EVs, such as rear storage boxes and front baskets. In addition, we offer Fly E-Bike branded accessories and general merchandise, such as decorative car plates, key chains and apparel.

*Service revenues.* We also provide repair services at our retail stores for a fee.

#### Cost of Sales

Cost of sales includes product costs, warehouse rent expenses, payroll costs, depreciation costs, inventory reserves, warranty costs, and logistic costs. The logistic costs incurred to receive products from our vendors are included in our inventory and recognized as cost of sales upon sale of products to our customers.

#### Gross Profit and Gross Margin

We calculate gross profit as net sales less cost of revenue. Gross margin represents gross profit as a percentage of net sales.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily consist of retail operational expenses, salaries and benefits costs, marketing, advertising, and corporate overhead.

Marketing costs primarily consist of advertising and payroll and related expenses for personnel engaged in marketing and selling activities.

We expect that our selling and marketing expenses will continue to increase in the foreseeable future, as we plan to further expand our sales network and retail channels, and engage in more selling and marketing activities to enhance our brand and attract more purchases from new and existing customers.

General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses, facilities and equipment expenses, such as depreciation and amortization expense and rent, and professional fees. We expect that our general and administrative will increase in the foreseeable future, as we hire additional personnel and incur additional expenses related to the anticipated growth of our business and our operation as a public company after the completion of our initial public offering.

### Non-GAAP Financial Measures

To supplement our financial information presented in accordance with the generally accepted accounting principles in the United States (the “U.S. GAAP”), management periodically uses certain “non-GAAP financial measures,” as such term is defined under the rules of the SEC, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example, non-GAAP measures may exclude the impact of certain items such as acquisitions, divestitures, gains, losses and impairments, or items outside of management’s control. Management believes that the following non-GAAP financial measure provides investors and analysts useful insight into our financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative to, the most directly comparable measure determined in accordance with U.S. GAAP. Further, the calculation of these non-GAAP financial measures may differ from the calculation of similarly titled financial measures presented by other companies and therefore may not be comparable among companies.

We use EBITDA (earnings before interest, taxes, depreciation, and amortization) to evaluate our operating performance. We believe EBITDA provides additional insight into our underlying, ongoing operating performance and facilitates year-to-year comparisons by excluding the earnings impact of interest, tax, depreciation and amortization and that presenting EBITDA is more representative of our operational performance and may be more useful for investors.

We reconcile our non-GAAP financial measure to our net income, which is our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. EBITDA includes adjustments for provision for income taxes, as applicable, interest income and expense, depreciation, and amortization. EBITDA does not represent and should not be considered an alternative to net income as determined by U.S. GAAP, and our calculations thereof may not be comparable to those reported by other companies. We believe EBITDA is an important measure of operating performance and provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on U.S. GAAP measures and because it eliminates items that have less bearing on our operating performance. EBITDA, as presented herein, is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. We use non-GAAP financial measures as supplements to our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. EBITDA is a measure of operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net (loss) income as determined in accordance with U.S. GAAP.

EBITDA along with a reconciliation to net income is shown within the Results of Operations below.

#### Results of Operations for the Three Months Ended June 30, 2024 and 2023

The following table sets forth the components of our results of operations for the three months ended June 30, 2024 and 2023:

|  | For the Three Months Ended June 30, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues, Net | $7,873,426 | $7,842,346 | $31,080 | 0.4% |
| Cost of Revenues | 4,773,792 | 5,119,631 | (345,839) | (6.8)% |
| Gross Profit | 3,099,634 | 2,722,715 | 376,919 | 13.8% |
| Operating Expenses |  |  |  |  |
| Selling Expenses | 1,612,495 | 1,083,106 | 529,389 | 48.9% |
| General and Administrative Expenses | 1,532,638 | 872,065 | 660,573 | 75.7% |
| Total Operating Expenses | 3,145,133 | 1,955,171 | 1,189,962 | 60.9% |
| (Loss) Income from Operations | (45,499) | 767,544 | (813,043) | (105.9)% |
| Other Income (Expenses), Net | 6,518 | (11,078) | 17,596 | (158.8)% |
| Interest Expenses, Net | (68,082) | (32,623) | (35,459) | 108.7% |
| Provision for Income Taxes | (72,445) | (283,400) | 210,955 | (74.4)% |
| **Net (Loss) Income** | **$(179,508)** | **$440,443** | **$(619,951)** | **(140.8)%** |

36

#### Revenues

|  | For the Three Months Ended June 30, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Sales-Retail | $6,870,418 | $6,168,173 | $702,245 | 11.4% |
| Sales-Wholesale | $1,003,008 | $1,674,173 | $(671,165) | (40.1)% |
| **Total Net Revenues** | $7,873,426 | $7,842,346 | $31,080 | 0.4% |

Our net revenues were $7.9 million for the three months ended June 30, 2024, an increase of 0.4%, from $7.8 million for the three months ended June 30, 2023. The increase in our net revenues was driven primarily by the increase of the average sale price of our EVs by $46 or 4.6%, from $1,007 in the three months ended June 30, 2023 to $1,053 in the three months ended June 30, 2024.

Our retail sales revenue increased by $0.7 million, or 11.4%, from $6.2 million for the three months ended June 30, 2023 to $6.9 million for the three months ended June 30, 2024. Our wholesale revenue decreased by $0.7 million, or 40.1%, from $1.7 million for the three months ended June 30, 2023 to $1.0 million for the three months ended June 30, 2024.The increase in retail sales revenue is mainly due to the addition of seven new retail stores from June 2023 to June 2024. The decrease in wholesales revenue was driven primarily by the decrease in purchase from the top two customers who closed their stores.

#### Cost of Revenues

Cost of revenues decreased by 6.8%, from $5.1 million for the three months ended June 30, 2023, to $4.8 million for the three months ended June 30, 2024. The decrease in cost of revenues was primarily attributable to more favorable pricing we obtained from our suppliers, especially for the price of batteries. The unit cost for battery decreased by 56%, from $157.0 in the three months ended June 30, 2023, to $69.0 in the three months ended June 30, 2024.

#### Gross Margin

The following table shows our gross profit and gross margin for the three months ended June 30, 2024 and 2023:

|  | For the Three Months Ended June 30, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $3,099,634 | 2,722,715 | 376,919 | 13.8% |
| Gross Margin | 39.4% | 34.7% |  |  |

Gross profit for the three months ended June 30, 2024 and 2023 was $3.1 million and $2.7 million, respectively. Gross margin was 39.4% and 34.7% for the three months ended June 30, 2024 and 2023, respectively. The change was driven primarily by the increase of the average sale price of our EVs by $46 or 4.6%, from $1,007 in the three months ended June 30, 2023 to $1,053 in the three months ended June 30, 2024 and the decrease of the unit cost for battery by 56%, from $91.0 in the three months ended June 30, 2023, to $69.0 in the three months ended June 30, 2024

#### Total Operating Expenses

The following table sets forth the components of our total operating expenses for the three months ended June 30, 2024 and 2023:

|  | For the Three Months Ended June 30, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Selling Expenses | $1,612,495 | 1,083,106 | 529,389 | 48.9% |
| General and Administrative Expenses | 1,532,638 | 872,065 | 660,573 | 75.7% |
| Total Operating Expenses | $3,145,133 | 1,955,171 | 1,189,962 | 60.9% |
| Percentage of Revenue | 39.9% | 24.9% |  |  |

Total operating expenses were $3.1 million for the three months ended June 30, 2024, an increase of $1.2 million, or 60.9%, compared to $2.0 million for the three months ended June 30, 2023. The increase in operating expenses was attributable to the increase in our payroll expenses, rent expenses, meals and entertainment expenses, professional fees, and development expenses as we expanded our business as more fully discussed the below.

#### Selling Expenses

Selling expenses primarily consist of payroll expenses, rent, utilities expenses, and advertising expenses of retail stores. Total payroll expenses were $0.6 million for the three months ended June 30, 2024, compared to $0.4 million for the three months ended June 30, 2023. Rent expenses were $0.7 million for the three months ended June 30, 2024, compared to $0.5 million for the three months ended June 30, 2023. Utilities expenses were $45,825 for the three months ended June 30, 2024, compared to $28,383 for the three months ended June 30, 2023. Advertising expenses were $68,519 for the three months ended June 30, 2024, compared to $11,727 for the three months ended June 30, 2023. The increase in these expenses was primarily due to the increase in the number of new stores and new employees hired for these new stores in the three months ended June 30, 2024.

#### General and Administrative Expenses

Various general and administrative expenses increased during the three months ended June 30, 2024 compared to the previous year. Meals and entertainment expenses increased to $139,561 for the three months ended June 30, 2024, compared to $116,577 for the three months ended June 30, 2023, primarily due to increased meal expenses for employees who worked overtime. Professional fees increased to $0.4 million for the three months ended June 30, 2024, compared to $0.2 million for the three months ended June 30, 2023, primarily attributable to the increase in audit fee, consulting fee, and IR expenses associated with our initial public offering. Payroll expenses increased to $0.4 million for the three months ended June 30, 2024 from $0.2 million for the three months ended June 30, 2023 primarily due to additional employees hired in operation and accounting departments. Rent expenses increased to $0.1 million for the three months ended June 30, 2024, compared to $$0.1 million for the same quarter of prior year as a result of office space expansion in the three months ended June 30, 2024. Development fee increased to $0.1 million for the three months ended June 30, 2024, compared to $nil for the prior quarterly as a result of maintenance for Fly E-Bike app during the three months ended June 30, 2024.

#### Income Tax Provisions

Provision for income taxes were $72,445 for the three months ended June 30, 2024, a change of $0.2 million from $0.3 million income tax provision for the three months ended June 30, 2023. This decrease was due to our decreased taxable income for the three months ended June 30, 2024.

#### Net Income (Loss)

Net loss was $0.2 million for the three months ended June 30, 2024, a change of $0.6 million, or 140.8%, from net income of $0.4 million for the three months ended June 30, 2023, which was mainly attributable to the reasons discussed above.

#### EBITDA

The following table sets forth the components of our EBITDA for the three months ended June 30, 2024 and 2023:

|  | For the Three Months Ended June 30, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| (Loss) Income from Operations | $(179,508) | $440,443 | $(619,951) | (140.8)% |
| Income Tax provision | 72,445 | 283,400 | (210,955) | (74.4)% |
| Depreciation | 95,051 | 63,668 | 31,383 | 49.3% |
| Interest Expenses | 68,082 | 32,623 | 35,459 | 108.7% |
| Amortization | 951 | — | 951 | 100.0% |
| **EBITDA** | **$57,021** | **$820,134** | $(763,113) | (93.0)% |
| Percentage of Revenue | 0.7% | 10.5% |  | (9.7)% |

Before interest expenses, income tax, depreciation, and amortization, for the three months ended June 30, 2024, our net income was $57,021, a change of $0.8 million, compared to net income of $0.8 million for the three months ended June 30, 2023, which was mainly attributable to the increase in selling and general and administrative expense described above. The ratio of EBITDA to revenue was 0.7% and 10.5% for the three months ended June 30, 2024 and 2023, respectively.

### Liquidity and Capital Resources

As of June 30, 2024, we had cash of $4.5 million. We had working capital of $7.7 million and $0.3 million as of June 30, 2024 and March 31, 2024, respectively. We had net loss of $0.2 million and net income of $0.4 million for the three months ended June 30, 2024 and 2023, respectively.

We had funded our working capital and other capital requirements in the past primarily by equity contributions from our stockholders and net proceeds received from IPO, cash flow from operations, and bank loans. Our ability to repay our current obligation will depend on the future realization of our current assets. Management has considered the historical experience, the economy, trends in the retail industry, the expected collectability of the accounts receivable and the realization of the inventories as of June 30, 2024. Our ability to continue to fund working capital and other capital requirements may be affected by general economic, competitive and other factors, many of which are outside of our control.

On June 7, 2024, we sold 2,250,000 shares of common stock, at a price of $4.00 per share in our IPO. The gross proceeds of the offering were $9.0 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by us. Net proceeds received by us from IPO were approximately $7.9 million. On June 25, 2024, we sold an additional 337,500 shares of common stock to the underwriters of our IPO for gross proceeds of $1.4 million upon full exercise of the underwriters’ over-allotment option and received net proceeds of $1.2 million. We believe our cash on hand will be sufficient to meet our 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 expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash we have 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 our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

Our accounts receivable represent primarily accounts receivable from the distributors that purchased our EVs and other products. As of June 30, 2024 and March 31, 2024, our accounts receivable, net of allowance for credit losses, was $0.4 million and $0.2 million, respectively. Our accounts receivable turnover period decreased from 69 days in the year ended March 31, 2024 to 59 days in three months ended June 30, 2024, which was mainly attributable to a stricter credit policy implemented towards our U.S. distributors.

Our accounts payable represent primarily accounts payable to suppliers from whom we purchased accessories and components for our products. As of June 30, 2024 and March 31, 2024, our accounts payable were $0.4 million and $1.2 million, respectively. Our accounts payable turnover period decreased to 14 days for the three months ended June 30, 2024 from 25 days for the year ended March 31, 2024, which was primarily the result of the Company’s switch to a new vendor and the settlement of one vendor’s balance during this period.

Our prepayments and other receivables primarily represent prepayments to vendors and other service providers. These prepayments and receivables increased by $2.1 million, from $0.6 million as of March 31, 2024, to $2.7 million as of June 30, 2024. This significant increase is mainly due to the Company’s plans to launch E-bike rental services starting in September 2024, which will require additional inventory. As a result, during the three months ended June 30, 2024, the Company made substantial prepayments to vendors to secure inventory for the upcoming quarter.

Our inventories primarily include our EVs, their accessories and spare parts. As of June 30, 2024 and March 31, 2024, our inventories, net of allowance, were $6.1 million and $5.4 million, respectively. The increase in inventories was primarily due to our anticipation of future sales growth. Our inventory turnover days increased to 109 days in the three months ended June 30, 2024, from 89 days in the year ended March 31, 2024, which was primarily due to strategic inventory buildup, allowing us to open new stores and start new services.

For the three months ended June 30, 2024 and 2023, the interest expenses on our outstanding loans amounted to $68,082 and $32,623, respectively. See Note 8 to the Unaudited Condensed Consolidated Financial Statements included within this quarterly report for further information on details of our outstanding loans.

The following table summarizes our cash flow data for the three months ended June 30, 2024 and 2023:

|  | For the Three Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net Cash (Used in) Provided by Operating Activities | $(4,522,164) | $820,035 |
| Net Cash Used in Investing Activities | (1,066,130) | (390,055) |
| Net Cash Provided by (Used in) Financing Activities | 8,653,972 | (108,393) |
| Net Change in Cash | $3,065,678 | $321,587 |

#### Operating Activities

Net cash used in operating activities for the three months ended June 30, 2024 was $4.5 million, which was due to net loss of $0.2 million, a decrease in tax payable of $0.4 million, and a decrease in accrued expenses and other payables of $0.5 million, an increase in inventories of $0.9 million, a decrease in account payable of $0.8 million, a decrease in operating lease liabilities of $0.6 million, an increase in prepayments for operation services to related parties of $0.2 million and an increase in prepayments and other receivables of $2.1 million, partially offset by amortization of right-of-use assets of $0.8 million and a decrease in accounts receivables-related parties of $0.3 million.

Net cash provided by operating activities for the three months ended June 30, 2023 was $0.8 million, which was mainly comprised of net income of $0.4 million, an increase in accounts payable of $1.7 million, a noncash item of amortization of right-of-use assets of $0.5 million, offset by noncash item of an increase in inventories of $1.4 million and a decrease in operating lease liabilities of $0.5 million.

#### Investing Activities

Net cash used in investing activities was $1.1 million for the three months ended June 30, 2024, which was due to purchase of software from a related party of $0.8 million, prepayments for property of $0.1 million, and the purchase of equipment of $0.4 million, partially offset by the repayment from a related party of $0.2 million.

Net cash used in investing activities was $0.4 million for the three months ended June 30, 2023, which was due to the purchase of equipment of $0.4 million.

#### Financing Activities

Net cash provided by financing activities was $8.7 million for the three months ended June 30, 2024, which consisted of net proceeds of the IPO of $9.2 million, and borrowings from loan payable of $0.2 million, partially offset by repayments of loan payables of $0.4 million and payment of IPO costs of $0.3 million.

Net cash used in financing activities was $0.1 million for the three months ended June 30, 2023, which consisted of capital contributions from stockholders of $0.5 million, partially offset by repayments on loan payable of $0.3 million, advanced payments to related parties of $0.1 million and repayments to related parties of $0.2 million.

### Commitments and Contractual Obligations

The following table presents our material contractual obligations as of June 30, 2024:

| Contractual Obligations | Total | Less than 1 year | 1 – 2 years | 3 – 5 years | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating Lease Obligations and others | $16,768,100 | 3,092,721 | 6,314,056 | 5,055,516 | 2,305,807 |
| Loan Payable | 1,497,934 | 1,116,044 | 276,628 | 105,262 | — |
| Purchase Commitment of Office Property | 3,024,300 | 1,470,000 | 1,554,300 | — | — |
| **Total Contractual Obligations** | **$21,290,334** | **5,678,765** | **8,144,984** | **5,160,778** | **2,305,807** |

### Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

### Quantitative and Qualitative Disclosures about Market Risk

### Foreign Exchange Risk

A substantial majority of all of our revenues and expenses are denominated in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. In addition, as our business and operation expand in European and other overseas markets in the future, we may be exposed to increased foreign exchange risks for other currencies.

### Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest expenses on our short-term and long-term bank borrowings. Our short-term and long-term bank borrowing bears interests at fixed rates. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest expenses may exceed expectations due to changes in market interest rates. If we were to renew these short-term and long-term bank borrowings, we might be subject to interest rate risk.

### Critical Accounting Estimates

An accounting estimate is considered critical if it requires to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur periodically, could materially impact the unaudited condensed consolidated financial statements.

We prepare our unaudited condensed consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

When reading our unaudited condensed consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following: (i) revenue recognition; and (ii) income taxes. See “*Note 2 — Summary of Significant Accounting Policies”* to our unaudited condensed consolidated financial statements for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.

### Estimated Allowance for Inventories

Our estimated allowance for the inventory obsolescence reserves is based on our assessment of realization of inventory. Adjustments are recorded to write down the cost of inventories to the estimated net realizable value due to slow-moving merchandise and obsolescence, which is dependent upon factors such as inventory aging, historical and forecasted consumer demand, and market conditions that impact pricing. As of June 30, 2024 and March 31, 2024, we recorded inventory allowance balance of $558,163 and $514,021, respectively.

### Product Warranties

We provide a three-month warranty on our vehicles and the battery pack. We accrue warranty reserves at the time a vehicle is delivered to the customer. Warranty reserves include our best estimate of the projected cost to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact our evaluation of historical data. We review our reserves regularly to ensure that our accruals are adequate in meeting expected future warranty obligations, and we will adjust our estimates as needed. Factors that could have an impact on the warranty reserve include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods, product recalls and changes in sales volume. Warranty expense is recorded as a component of cost of revenues in the statement of operations. The portion of the warranty provision which is expected to be incurred within three months from the balance sheet date will be classified as current and classified as short-term liabilities. The Company accrued $16,452 and $27,714 of warranty reserves under accrued expenses and other payables as of June 30, 2024 and March 31, 2024, respectively.

### Income Taxes

We provide current income tax expenses in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, we are required to estimate our income taxes in each of the tax jurisdictions in which we operate, including New York State, New York City, New Jersey, Texas, Florida, California, Washington, D.C. and Canada.

We account for income taxes using the asset and liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years based on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to reverse.

A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized in the foreseeable future. As of June 30, 2024 and March 31, 2024, we did not record any valuation allowance deferred tax assets.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determines if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes, and (2) measures the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. An uncertain income tax provision will not be recognized if it has less than a 50 percent likelihood of being sustained.

We consider many factors when evaluating our tax positions and estimating its tax benefits, which may require periodic adjustments, and which may not accurately forecast actual outcomes. We will include interest and fines arising from the underpayment of income taxes as a component of the provision for income taxes (if anticipated). Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. For the three months ended June 30, 2024, the Company accrued $60,076 income tax related penalty included in taxes payable in the unaudited condensed consolidated balance sheets. For the three months ended June 30, 2023, $43,172 accrued related to underpayment of income tax are classified as income tax expense in the period incurred. As of June30, 2024 and March 31, 2024, we did not have any significant unrecognized uncertain tax positions.

## Controls and procedures

As filed, 4,022 characters.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified included our lack of (i) sufficient financial reporting and accounting personnel with appropriate knowledge of generally accepted accounting principles in the United States of America (the “U.S. GAAP”) and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements, (ii) formal internal control policies and internal independent supervision functions to establish formal risk assessment process and internal control framework, and (iii) sufficient controls designed and implemented in IT environment and IT general control activities, which are mainly associated with areas of logical access management, change management, computer operation, service organization management as well as cyber security management. We will devote resources to remediate these material weaknesses as we grow and such resources required for implementing proper internal controls for financial reporting are available. Our management performed additional analysis as deemed necessary to ensure that our unaudited condensed consolidated financial statements included in this Report were prepared in accordance with U.S. GAAP. Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Report present fairly, in all material respects, our financial position, results of operations and cash flows of the periods presented.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

## Risk factors

As filed, 2,126 characters.

Except for the additional risk factors set forth below, there have been no material changes to our Risk Factors as disclosed in our Annual Report on Form 10-K for the year ended March 31, 2024, as filed with the SEC on June 28, 2024.

***We maintain our cash at financial institutions, often in balances that exceed federally insured limits.***

The majority of our cash is held in accounts at US banking institutions. Cash held in our depository accounts may sometimes exceed the Federal Deposit Insurance Corporation (“FDIC”) standard deposit insurance limit of $250,000. As of June 30, 2024 and March 31, 2024, $2.5 million and $ nil cash deposited with banks was uninsured. If such banking institutions were to fail, such as Silicon Valley Bank when the FDIC took control in March 2023, we could lose all or a portion of those amounts held in excess of such insured amounts. In the future, our access to our cash in amounts adequate to finance our operations could be significantly impaired if the financial institutions with which we have arrangements encounter liquidity constraints or failures. Any future limitation on timely access to our funds or any material loss that we may experience in the future could have a material adverse effect on our financial condition and could materially impact our ability to pay our operating expenses or make other payments.

### Our planned rental service may not be successful.

As we launch our new rental program to meet increasing market demand for safe, UL-certified e-bikes, our success will depend on several critical factors, including our ability to launch the rental services on time, effectively scale operations, manage supply chain logistics, secure necessary rental licenses, maintain the high-quality standards of our e-bikes, and successfully develop and deploy our mobile app for user access. Delays, challenges in obtaining or renewing rental licenses, difficulties in expanding the service to planned locations, or issues with the mobile app's performance and user experience, could adversely affect our brand, business, financial condition, and future prospects.

Filed Aug 16, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-070250. Last ingested by Listed: Nov 11, 2026, 00:09 ET. No prices; not investment advice.