# Massimo Group: Form 10-Q for the period ended Mar 31, 2024

- Company: [Massimo Group](/companies/mamo.md) (CIK 1952853)
- Form: 10-Q
- Filed: 2024-05-14
- Accepted by EDGAR: May 13, 2024, 19:00 ET
- Period: 2024-03-31
- Accession: 0001493152-24-018997
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1952853/000149315224018997/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1952853/000149315224018997/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $30.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $19.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $10.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $162.3k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $4.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $137.7k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $900.3k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $3.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 40,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$635.7k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $104.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-03-31 | $43.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $47.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $20.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $29.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $18.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,665 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Report and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”), on April 15, 2024. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Note Regarding Forward-Looking Statements .”*

### Overview of Company

Massimo Group is a holding company established on October 10, 2022 under the laws of the State of Nevada. The Company, through its subsidiaries, is primarily engaged in the manufacturing and sales of a wide selection of farm and ranch tested UTVs, recreational ATVs, and Pontoon Boats. Mr. David Shan, the Chairman of the Board and Chief Executive Officer, is the Controlling Shareholder of the Company.

A Reorganization of the legal structure was completed on June 1, 2023. The Controlling Shareholder transferred his 100% equity interest in Massimo Motor and 100% equity interest in Massimo Marine to Massimo Group. After this Reorganization, Massimo Group ultimately owns 100% equity interests of Massimo Motor and Massimo Marine.

Before and after the Reorganization, the Company, together with its subsidiaries, is effectively controlled by the same Controlling Shareholder, and therefore, the Reorganization is considered as a recapitalization of entities under common control in accordance with ASC 805-50-25. The consolidation of the Company and its subsidiaries have been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements in accordance with ASC 805-50-45-5.

Massimo Group currently generates most of its revenues from the sales of UTVs and ATVs, which represented 95.2% and 87.5% of total revenue for the first quarter of fiscal 2024 and 2023, respectively. We also generate revenue from the sales of Pontoon Boats, which represented 4.8% and 12.5% of our revenue for the for the first quarter of fiscal 2024 and 2023, respectively.

### Trends and Key Factors that Affect Operating Results

We believe the most significant factors that affect our business and results of operations include the following:

- **Risk of intense competition in the industry** - The powersports vehicles and boats industry in the United States is highly competitive. Competition in such markets is based upon a number of factors, including price, quality, service, reliability, styling, product features and warranties. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as financing, joint advertising programs and cooperative advertising). Certain of our competitors are more diversified and have financial and marketing resources which are substantially greater than ours, which allow these competitors to invest more heavily in intellectual property, product development, and sales and marketing support. Failure to compete effectively with rival products, features, or models, or to draw in new dealers, could significantly harm our business, financial condition, or operating results. We are subject to competitive pricing. Such pricing pressure may limit our ability to maintain prices or to increase prices for our products in response to raw material, component and other cost increases and so negatively affect our profit margins.
- **Risk of economic and policy changes within China –** We import our products from various Chinese suppliers. The Chinese government continues to play a significant role in regulating industry within China by imposing industrial policies, providing subsidies and heavily regulating or prohibiting unwanted activities. There is no assurance the Chinese government will not interfere with the operations of Linhai Powersports (with which we have a significant partnership) or any of our other suppliers. In addition, the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth in China. These measures, or other economic, political, or social developments in China may affect our China-based suppliers, which may adversely affect our business and operating results. We also import our products from Taiwan. The Taiwan issue is a longstanding point of contention between China and the United States. The U.S. maintains unofficial relations with Taiwan, while also recognizing the One China policy, which acknowledges Beijing as the legitimate government of Taiwan. Both China and the U.S. have engaged in military posturing around the Taiwan Strait. This increases the risk of accidental clashes or misunderstandings that could escalate into conflict, which will affect both our China-mainland-based and Taiwan-based suppliers.
- **Risk of unavailability of additional capital -** We will require significant expenditures to fund future growth. We intend to fund our growth out of the proceeds of the IPO and internal sources of liquidity or through additional financing from external sources. Our ability to obtain external financing in the future at a reasonable cost is subject to a variety of uncertainties, including our future financial condition, results of operations and cash flows and the condition of the global and domestic financial markets. If we require additional funds and cannot obtain them on acceptable terms when required or at all, we may be unable to fulfill our working capital needs, upgrade our existing facilities or expand our business and may have to reduce the level of our operations. These factors may also prevent us from entering into transactions that would otherwise benefit our business or implementing our future strategies. Any debt financing that we undertake may be expensive and might impose covenants that restrict our operations and strategic initiatives, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our capital stock, make investments and engage in mergers, consolidations and asset sale transactions. Equity financings may be on terms that are dilutive or potentially dilutive to our shareholders, and the prices at which new investors would be willing to purchase our equity securities may be lower than the trading prices of such equities. If new sources of financing are required, but are unattractive, insufficient or unavailable, then we could be required to modify our business plans or growth strategy which could have a material adverse effect on our business, results of operations or financial condition.
- **Risk of uncertainty in the cost and production level of raw materials -** We depend on third-party suppliers to manufacture many of the products we sell, in particular, ATVs and UTVs, as opposed to our recreational boats which we manufacture in our Dallas facility. For the three months ended March 31, 2024, we purchased approximately 72.33% of our products from two of these suppliers. Competition for the output of these suppliers is intense. If these independent suppliers were unwilling or unable to supply us with products at prices which enable us to maintain our gross margins, it would materially adversely affect our business, results of operations or financial condition. Although we are looking to broaden our supplier base and to reduce our dependence upon a limited number of suppliers, there is no assurance we will be able to do so and increasing the number of suppliers from which we purchase products may increase our costs.
- **Risk related to overseas freights fluctuation –** The inflation rate and supply chain crisis experienced in 2021 and 2022 led to a significant increase in overseas freight costs. However, by December 31, 2023, there was a notable easing in both inflation and freight costs, reflecting an improvement in economic conditions and a stabilization in the supply chain.
- **Risk related to inflation –** In recent years, our China-based suppliers have increased the cost of their products due to inflation. We may not be able to pass along price increases in raw materials, parts, or components to customers. As a result, an increase in the cost of the raw materials, parts, and components our suppliers use in the manufacture of our products could reduce our profitability and have a material adverse effect on our business, results of operations or financial condition.

2

- **Risk of fluctuations in the sale of Pontoon Boats -** A segment of our sales revenue stemming from Massimo Marine exhibits a seasonal sales pattern. The boat sale is also influenced by the financing arrangements for boat purchases, which are susceptible to fluctuations in interest rates. For the years ended March 31, 2024 and 2023, our revenue generated from Massimo Marine was approximately 4.8% and 12.5% of our total revenue, respectively.

### Results of Operations

### For the Three Months Ended March 2024 and 2023

The following table summarizes the results of consolidated statements of operations and comprehensive income for the three months ended March 31, 2024 and 2023 and provides information regarding the dollar and percentage increase or (decrease) during such period.

|  | For the three months ended March 31, 2024 Amount | As % of Sales | 2023 Amount | As % of Sales | Amount Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $30,151,677 | 100.0% | $18,840,415 | 100.0% | $11,311,262 | 60.0% |
| Cost of sales | 19,700,290 | 65.3% | 13,223,421 | 70.2% | 6,476,869 | 49.0% |
| Gross profit | 10,451,387 | 34.7% | 5,616,994 | 29.8% | 4,834,393 | 86.1% |
| Operating expenses |  |  |  |  |  |  |
| Selling expenses | 2,210,484 | 7.3% | 1,950,285 | 10.4% | 260,199 | 13.3% |
| General and administrative expenses | 4,106,905 | 13.6% | 2,984,262 | 15.8% | 1,122,643 | 37.6% |
| Research and development expenses | 162,250 | 0.5% | - | - | 162,250 | NA |
| Total operating expenses | 6,479,639 | 21.5% | 4,934,547 | 26.2% | 1,545,092 | 31.3% |
| Income from operations | 3,971,748 | 13.2% | 682,447 | 3.6% | 3,289,301 | 482.0% |
| Other income (expenses) |  |  |  |  |  |  |
| Other income, net | 247,569 | 0.8% | 44,895 | 0.2% | 202,674 | 451.4% |
| Interest expense | (137,694) | (0.5)% | (155,098) | (0.8)% | 17,404 | (11.2)% |
| Total other income/(expenses) | 109,875 | 0.4% | (110,203) | (0.6)% | 220,078 | (199.7)% |
| Income before income taxes | 4,081,623 | 13.5% | 572,244 | 3.0% | 3,509,379 | 613.3% |
| Provision for income taxes | 900,341 | 3.0% | 24,079 | 0.1% | 876,262 | 3,639.1% |
| Net income | $3,181,282 | 10.6% | $548,165 | 2.9% | $2,633,117 | 480.4% |

### Revenues.

Revenues increased by $11.3 million, or 60.0%, from $18.8 million in the first quarter of fiscal 2023 to $30.1 million in the first quarter of fiscal 2024. The increase in revenue was primarily due to combined effected of rising demand in the U.S. ATV and UTV market and our modified sales strategy. In 2024, we continued to expand our distribution network with various retailers to increase our products’ market penetration. We strategically focused our efforts on big box retailers that offer their own financing plans, while moving away from retailers that have liberal return policies. Over 80% of our sales in the first quarter of fiscal 2024 were from retailers, compared to 39% of our sales in the first quarter of fiscal 2023.

### Revenue by Type

| Revenue category | For the three months ended March 31, 2024 Revenue | % of total Revenue | 2023 Revenue | % of total Revenue | Amount Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| UTVs, ATVs and electric bikes | $28,693,141 | 95.2% | $16,481,157 | 87.5% | $12,211,984 | 74.1% |
| Pontoon Boats | 1,458,536 | 4.8% | 2,359,258 | 12.5% | (900,722) | (38.2)% |
| Total | $30,151,677 | 100.0% | $18,840,415 | 100.0% | $11,311,262 | 60.0% |

### Revenue from sales of UTVs, ATVs and electric bikes

Revenue from sales of UTVs, ATVs and electric bikes was increased by $12.2 million, or 74.1%, from $16.5 million in the first quarter of fiscal 2023 to $28.7 million in the first quarter of fiscal 2024. Increase in revenue was primarily attributed to the expansion into more large retail stores in US (as “big box stores”). In the first quarter of fiscal 2023, our sales to those big box stores were $6.5 million. They increased to $22.7 million in the first quarter of fiscal 2024, with $19.7 million of its sales from one new customer since fiscal 2023. This surge is due to a shift in our sales strategy, focusing mostly on in-store sales at TSC, which generally involve larger volumes and fewer returns. In addition, sales to TSC consist of high-turnover inventory products that are of high quality and have a strong customer reputation. This enhances the efficiency of our capital utilization.

### Revenue from sales of Pontoon Boats

Revenue from sales of Pontoon Boats decreased by $0.9 million, or 38.2%, from $2.4 million in the first quarter of fiscal 2023 to $1.5 million in the first quarter of fiscal 2024. The decrease in revenue was primarily attributable to the fact that we shifted from retailing in Q1 2023 to dealer sales in Q1 2024 and the dealers have experienced high rejection rates at the floorplan financing providers such as Northpoint. This is consistent with industry-wide trend.

### Gross profit

Our gross profit was increased by $4.8 million, or 16.3%, from $5.6 million in the first quarter of fiscal 2023 to $10.5 million in the first quarter of fiscal 2024. Gross profit margin was 34.7% in the first quarter of fiscal 2024, as compared with 29.8% in same period last year. The increase of 4.8% in the gross profit margin was primarily attributable to higher net sales partly due to decreased return, as well as the lower cost of sales due to reduced freight costs in the first quarter of fiscal 2023 as compared with last year.

Our cost and gross profit by revenue types are as follows:

| Category | For the three months ended March 31, 2024 Cost of revenue | Gross profit | Gross profit % | For the three months ended March 31, 2023 Cost of revenue | Gross profit | Gross profit % | Variance in Cost of revenue | Variance in gross profit | Variance in gross profit % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| UTVs, ATVs and electric bikes | $18,463,616 | $10,229,525 | 35.7 | $11,280,156 | $5,201,001 | 31.6 | $7,183,460 | $5,028,524 | 4.1 |
| Pontoon Boats | 1,236,674 | 221,862 | 15.2 | 1,943,265 | 415,993 | 17.6 | (706,591) | (194,131) | (2.4) |
| Total | $19,700,290 | $10,451,387 | 34.7 | $13,223,421 | $5,616,994 | 29.8 | $6,476,869 | $4,834,393 | 4.8 |

4

Cost of revenue on UTVs, ATVs and electric bikes was increased by $7.2 million, or 63.7%, from $11.3 million in the first quarter of fiscal 2023 to $18.5 million in the first quarter of fiscal 2024 and gross profit was increased by $5.0 million, or 96.7%, from $5.2 million in the first quarter of fiscal 2023 to $10.2 million in the first quarter of fiscal 2024. Gross margin was increased by 4.1%, from 31.6% in the first quarter of fiscal 2023 to 35.7% in the first quarter of fiscal 2024. The increase in the cost of revenue was in line with the increase in sales. The increase in gross profit margin was mainly due to a decline in global container freight. Our freight costs dropped in the first quarter of fiscal 2024 when compared with last year.

Cost of revenue on Pontoon Boats was decreased by $0.7 million, or 36.4%, from $1.9 million in the first quarter of fiscal 2023 to $1.2 million in the first quarter of fiscal 2024, and gross profit was decreased by $0.2 million, or 46.7%, from $0.4 million in the first quarter of fiscal 2023 to $0.2 million in the first quarter of fiscal 2024. Gross margin was decreased by 2.4%, from 17.6% in the first quarter of fiscal 2023 to 15.2% in the first quarter of fiscal 2024. The decrease in gross margin was primarily because that we had higher portion of dealership sales which have a lower gross margin in the first quarter of fiscal 2024 compared to that in the first quarter of fiscal 2023.

### Selling expenses

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fee and merchant service fee. It increased by $0.3 million, or 13.3%, from $2.0 million in the first quarter of fiscal 2023 to $2.2 million in the first quarter of fiscal 2024, representing 7.3% and 10.4% of our total revenue in the first quarter of fiscal 2024 and the first quarter of fiscal 2023, respectively. Approximately $0.3 million and $0.1 million merchant service fees were recognized for the first quarter of fiscal 2024 and the first quarter of fiscal 2023 respectively. This is consistent with the fact that the chargebacks from new big box customer has been increased as a result of increased sales.

### General and administrative expenses

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent expense and depreciation expenses. General and administrative expenses increased by $1.1 million, or 37.6%, from $3.0 million in the first quarter of fiscal 2024 to $4.1 million in the first quarter of fiscal 2023. The increase was mainly due to the increased rent expense and professional fees. Our general and administrative expenses represented 13.6% and 15.8% of our total revenue in the first quarter of fiscal 2024 and in the first quarter of fiscal 2023, respectively.

Our salaries and benefits were $1.1 million and $1.1 million, representing 27.0% and 36.8% of our total general and administrative expenses in the first quarter of fiscal 2024 and in the first quarter of fiscal 2023, respectively. We had no material fluctuation on salaries and benefits expense in the first quarter of fiscal 2024 when compared with same period last year.

Our professional fee were increased by $0.1 million or 13.6%, from $0.7 million in the first quarter of fiscal 2023 to $0.8 million in the first quarter of fiscal 2024, representing 18.6% and 22.5% of our total general and administrative expenses in the first quarter of fiscal 2024 and in the first quarter of fiscal 2023, respectively. The increase was mainly due to legal fees arising from ongoing lawsuits.

Our rent expenses were increased by $0.3 million or 90.5%, from $0.4 million in the first quarter of fiscal 2023 to $0.7 million in the first quarter of fiscal 2024, representing 17.1% and 12.3% of our total general and administrative expenses in the first quarter of fiscal 2024 and in the first quarter of fiscal 2023, respectively. We had a rent increase of $0.1 million in the first quarter of fiscal 2024 since May 2023. Our property taxes included in the rent expenses were increased by $0.2 million in the first quarter of fiscal 2024 compared to the same period in prior year.

### Interest expenses

Our interest expense was decreased by $17,404 or 11.2%, from $155,098 in the first quarter of fiscal 2023 to $137,694 in the first quarter of fiscal 2024. The decrease in interest expense was mainly because we lowered the loan balance during the year in light of increasing interest rates and repaid all the loan balance in November 2023.

### Other income, net

Our other income of $247,569 in the first quarter of fiscal 2024, as compared with $44,895 in the first quarter of fiscal 2023, was increased by $202,674, or 451.4%. The increase was primarily because we wrote off a vendor’s account payable balance by $177,147 as a result of a settlement between the vendor and us. The write-off has increased the other income in the first quarter of fiscal 2024.

### Income before income taxes

We had an increase of $3.5 million in income before income taxes from $0.6 million in the first quarter of fiscal 2023 to approximately $4.1 million in the first quarter of fiscal 2024, respectively. The increase was primarily attributable to the increase of revenue by $11.3 million and gross profit by $4.8 million, which was partly offset by increase of general and administrative expenses by approximately $1.1 million in the first quarter of fiscal 2024, as well as other expenses as discussed above.

### Provision for income taxes

The income tax expense was approximately $0.9 million and $0.02 million for the first quarter of fiscal 2024 and 2023, respectively. We terminated our status as a S Corporation as of June 1, 2023, in connection with the Reorganization and became a taxable C Corporation. As such, the income tax provision for the first quarter of fiscal 2024 combined both federal income tax of 21% and the state margin tax at Texas as a C Corporation, and the income tax provision for the first quarter of fiscal 2024 only reflected state margin tax at Texas as a S Corporation.

### Net income

We had net income of $3.2 million and $0.5 million in the first quarter of fiscal 2024 and 2023, respectively. The increase was primarily attributable to the increased revenues and gross profit as discussed above.

### Cash Flows

### For the Periods Ended March 31, 2024 and 2023

The following table sets forth summary of our cash flows for the periods indicated:

|  | Three Months Periods Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(635,659) | $760,212 |
| Net cash provided by investing activities | 23,574 | - |
| Net cash provided by (used in) financing activities | 53,408 | (695,536) |
| Net (decrease) increase in cash and cash equivalents | (558,677) | 64,676 |
| Cash and cash equivalents, beginning of the period | 765,814 | 947,971 |
| Cash and cash equivalents, end of the period | $207,137 | $1,012,647 |

### Operating Activities

Net cash used in operating activities was approximately $0.6 million for the first quarter of fiscal 2024, compared to net cash provided by operating activities of approximately $0.8 million during the first quarter of fiscal 2023, representing an increase in the net cash used in operating activities of $1.4 million during the first quarter of fiscal 2024 compared with the same period in 2023, primarily due to the following:

- Accounts receivable increased by approximately $4.9 million during the first quarter of fiscal 2024, compared to a decrease by approximately $0.1 million during the first quarter of fiscal 2023 as we had more sales near period end for the first quarter of fiscal 2024 compared to the same period last year.
- Inventory was increased by approximately $1.4 million during the first quarter of fiscal 2024 compared to an increase by approximately $0.7 million during the first quarter of fiscal 2023.
- Contract liabilities decreased by $0.8 million during the first quarter of fiscal 2024 compared to an increase by approximately $0.4 million during the first quarter of fiscal 2023.
- The balance was partly offset by increase in net income by approximately $2.6 million during the first quarter of fiscal 2024 compared with same period in 2023.
- Our net income was adjusted for non-cash items, including written-off of account receivables, non-cash operating lease expense, inventories reserve, deferred tax expense (recovery) and provision (reversal of allowance) for expected credit loss. Non-cash items of approximately $0.3 million during the first quarter of fiscal 2024, compared to non-cash items of approximately $0.3 million during the same period in 2023.
- Account payable increased by approximately $2.1 million during the first quarter of fiscal 2024, compared to a decrease of approximately $0.5 million during the first quarter of fiscal 2023, primarily due to the timing of payments for inventory during the first quarter of fiscal 2024 compared with the same period in last year.

### Investing Activities

Net cash provided by investing activities was approximately $23,574 during the first quarter of fiscal 2024, compared to net cash from investing activities of $nil during the first quarter of fiscal 2023. The increase in net cash provided by investing activities was primarily attributable to the proceeds of $128,001 from the sales of property and equipment, offset by costs of $104,427 for additions of property and equipment during the first quarter of fiscal 2024.

### Financing Activities

Net cash provided by financing activities was approximately $53,408 during the first quarter of fiscal 2024, compared to net cash used in financing activities of approximately $0.7 million during the first quarter of fiscal 2023. The increase in net cash provided by financing activities during the first quarter of fiscal 2024 was primarily attributable to the proceeds from the common shares subscription of $0.5 million, offset by the repayment of other loas of $0.3 million and the payment for initial public offering related costs of $0.1 million during the first quarter of fiscal 2024; combined with the repayment of bank loan of $0.9 million offset by the proceeds of $0.3 million from new bank loan during the first quarter of fiscal 2023.

### Liquidity and Capital Resources

### Overview

The general objectives of our capital management strategy reside in the preservation of our capacity to continue operating, in providing benefits to our stakeholders and in providing an adequate return on investment to our shareholders by selling our products at a price commensurate with the level of operating risk assumed by us.

We thus determine the total amount of capital required consistent with risk levels. This capital structure is adjusted on a timely basis depending on changes in the economic environment and risks of the underlying assets. We are not subject to any externally imposed capital requirements.

### Working Capital

As of March 31, 2024, we had cash and cash equivalents of approximately $0.2 million. Our current assets were approximately $43.7 million, including approximately $14.2 million accounts receivable, approximately $27.2 million inventory, approximately $1.4 million advance to suppliers and approximately $0.7 million prepayment and other receivables, and our current liabilities were approximately $20.6 million, including $14.8 million accounts payable to suppliers, $1.1 million contract liabilities, $3.2 million income tax payable, and $0.7 million liabilities from obligations under operating and financing leases, which resulted in a positive working capital of $23.0 million.

Our primary source of cash is currently generated from our business and bank borrowings. In the coming years, we will be looking to other sources, such as raising additional capital by issuing shares of stock, to meet our cash needs. While facing uncertainties regarding the size and timing of capital raise, we are confident that we can continue to meet operational needs solely by utilizing cash flows generated from our operating activities.

### Loan Balance

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Other loans - Northpoint (1) | $- | $205,440 |
| Other loans – BAC (2) | - | 98,143 |
| Total | $- | $303,583 |

(1) On April 19, 2022, the Company’s subsidiary Massimo Marine obtained a $2.0 million pay as sold line of credit from Northpoint Commercial Finance LLC (“Northpoint”) for acquisition, financing and/or refinancing by inventory. This line of credit is also personally guaranteed by Mr. David Shan, the Controlling Shareholder, and Massimo Motor Sports, an affiliated company. As of March 31, 2024 and December 31, 2023, the outstanding balance was $nil and $205,440, respectively.

(2) On February 18, 2022, the Company’s subsidiary Massimo Marine obtained a credit facility for Mercury Marine in the amount of $1.75 million from Brunswick Acceptance Company LLC (“BAC”) to finance purchase of inventory. This line of credit is also personally guaranteed by Mr. David Shan. As of March 31, 2024 and December 31, 2023, the outstanding balance was $nil and $98,143, respectively.

### Capital Expenditures

Our capital expenditures consist primarily of expenditures for the purchase of fixed assets and equipment leases as a result of our business growth. Our capital expenditures amounted to approximately $128,001 and $nil for the first quarter of fiscal 2024 and 2023, respectively.

### Contractual Commitments

As of March 31, 2024, the Company’s contractual obligations consisted of the following:

| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Lease commitment | $1,429,347 | $811,094 | $610,276 | $7,977 | $– |

8

### Off-balance Sheet Commitments and Arrangements

There were no off-balance sheet arrangements for the first quarter of fiscal 2024 and 2023, that have, or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

### Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenue and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.

Management has determined that, while there are no critical accounting estimates, the most significant estimates relate to sales returns, products warranty, allowance for credit loss and inventory provision. Each of these are discussed below.

### Sales returns

The Company provides a refund policy to accept returns from end customer, which varies and depends on the difference products and customers. The estimated sales returns are determined based upon an analysis of historical sales returns. Return allowances are recorded as a reduction in sales with corresponding sales return liabilities which are included in “Accrued return liabilities.” The estimated cost of returned inventory is recorded as a reduction to cost of sales and an increase of right of return assets which is included in “Inventories.” As of March 31, 2024 and December 31, 2023, we recorded $138,229 and $283,276 of sales return liabilities associated with estimated product returns in the consolidated balance sheet, respectively.

### Warranty

The Company generally provides a one-year limited warranty against defects in materials related to the sale of products. The Company considers the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in cost of product sales in the period in which the related revenue is recognized. The determination of the Company’s warranty accrual is based on actual historical experience with the product, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors. As of March 31, 2024 and December 31, 2023, we recorded $640,525 and $619,113 of products warranty in the consolidated balance sheet, respectively.

### Allowance for credit loss

The Company considered various factors, including nature, historical collection experience, the age of the accounts receivable balances and the contract assets, credit quality and specific risk characteristics of its customers, current economic conditions, forecasts of future economic conditions, reversion period, and qualitative and quantitative adjustments to develop an estimate of credit losses. The Company has adopted loss rate method to calculate the credit loss and considered the relevant factors of the historical and future conditions of the Company to make reasonable estimation of the risk rate. For accounts receivable aged less than one year and non-overdue contract assets, the Company uses the loss rate method, which is a combination of historical rate method and adjustment rate method, to estimate the credit loss. For accounts receivable aged over one year and overdue retainage receivable, the Company uses the individual specific valuation method to estimate the credit loss.

The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected. As of March 31, 2024 and December 31, 2023, the Company recorded allowance for credit loss of $0.8 million and $0.6 million in the consolidated balance sheet, respectively.

### Inventory provision

The Company assessed the net realizable value of each item of inventories and compared to the cost on the book, which include the cost of raw materials, freight and duty for raw materials, direct labor costs, and the overhead costs for finished goods at the end of each reporting period. In addition, the Company assessed all slow-moving or obsolete items for inventory valuation purposes. As of March 31, 2024 and December 31, 2023, the Company had inventory provision of $0.4 million and $0.4 million in the consolidated balance sheet respectively.

Although our significant accounting policies are elaborated upon in Note 2 – Summary of Significant Accounting Policies in our consolidated financial statements, we maintain that there were no critical accounting policies.

### Recent Developments

#### Initial Public Offering

On April 4, 2024, we closed our IPO of 1,300,000 shares of our common stock at an IPO price of $4.50 per share for aggregate gross proceeds of approximately $5.85 million from the offering, before deducting underwriting discounts and commissions and other offering expenses payable by our Company. Pursuant to the terms and conditions of the Underwriting Agreement, the underwriters may exercise the Overallotment Option, exercisable for 45 days from April 1, 2024, to purchase up to an additional 195,000 shares from the Company at the offering price less the underwriting discount and commissions to cover over-allotments. Following the closing of the offering, we have a total of 41,300,000 common shares issued and outstanding. In connection with the offering, our common shares began trading on the Nasdaq Capital Market under the trading symbol “MAMO.”

#### Representative’s Warrants

Pursuant to the Underwriting Agreement, we issued to the Representative and its designee Representative’s Warrants to purchase 87,100 shares of common stock. In the event the Representative exercises its Overallotment Option, the Representative will be entitled to purchase an additional 13,065 shares of common stock. The Representative’s Warrants will be exercisable at a per share exercise price equal to $5.625 and are exercisable at any time and from time to time, in whole or in part, during the period commencing on October 4, 2024 and terminating on April 4, 2029. Neither the Representative’s Warrants nor any of the shares issued upon exercise of the Representative’s Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of six (6) months immediately following the commencement of sales of the offering.

## Controls and procedures

As filed, 4,414 characters.

### Evaluation of Disclosure Controls and Procedures

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 Securities Exchange Act of 1934, as amended (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 management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, 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. Specifically, we concluded that our controls over the classification of related party payables, and accounting for related party notes payable was not effectively designed or maintained. Our management performed additional analysis as deemed necessary to ensure that our unaudited financial statements included in this Report were prepared in accordance with U.S. GAAP. Accordingly, management believes that the unaudited 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.

In light of the material weakness described above, our management team has performed additional accounting and financial analyses and other post-closing procedures. We have enhanced, and will continue to enhance, internal controls and procedures, including access to accounting literature, identification and consideration of third-party professionals with whom to consult regarding complex accounting applications and implementing additional layers of reviews in the financial close process. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we plan to continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.

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.

### Changes in Internal Control over Financial Reporting

Other than as discussed above, there have been no changes to our internal control over financial reporting during the quarterly period ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 823 characters.

As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, as of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our (i) Registration Statement on Form S-1/A filed with the SEC on March 1, 2024 (the “Registration Statement”) and (ii) Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Filed May 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-018997. Last ingested by Listed: Nov 3, 2026, 08:27 ET. No prices; not investment advice.