Massimo Group: Form 10-Q for the period ended Jun 30, 2026

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 included elsewhere in this Quarterly Report on Form 10-Q (this “Report”), and with the audited financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (“fiscal 2025”), filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2026. 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, our Executive Chairman of the Board of Directors and former Chief Executive Officer, is the controlling shareholder (the “Controlling Shareholder”) of the Company.

In advance of our initial public offering and listing on Nasdaq, we completed a reorganization of the Company’s legal structure on June 1, 2023 (the “Reorganization”). At that time, the Controlling Shareholder transferred his 85% equity interest in Massimo Motor and 85% equity interest in Massimo Marine to Massimo. Together with the 15% non-controlling interests which were also transferred to the Company, after the Reorganization, Massimo owned 100% equity interests of Massimo Motor and Massimo Marine.

Before and after the Reorganization, we, together with our subsidiaries, are 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 our 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.

We currently generate most of our revenues from sales of UTVs, ATVs and electric bikes, which represented 94.1% and 97.7% of total revenue for the six months ended June 30, 2026 and 2025, respectively.

We also generate revenue from sales of Pontoon Boats, which represented 5.9% and 2.3% of total revenue for the six months ended June 30, 2026 and 2025, 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 Boat Industry is highly competitive. Competition in such markets is based upon a number of factors, including price, quality, 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 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. If we are not able to compete with new products, customer services, product features or models comparable or superior to those of our competitors, or attract new dealers, our business, results of operations or financial condition could be materially and adversely affected. 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 industries 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 our various 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, along with other economic, political and/or social developments in China may affect our China-based suppliers, which may adversely affect our business and operating results. We also import 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. Additionally, both U.S. and Chinese governments have imposed tariffs on certain products and taken other actions that have had an adverse impact on trade between the two countries.

Risk of unavailability of additional capital: We will require significant expenditures to fund future growth. We have funded our growth to date 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 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, 2025, 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 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 Pontoon Boats which we manufacture in our Dallas facility. For the period ended June 30, 2026, we purchased approximately 72% 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 and 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 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 our 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.

Risk of fluctuations in the sale of Pontoon Boats: A portion of our sales revenue generated from Massimo Marine has a seasonal sales pattern. For the period ended June 30, 2026 and 2025, our revenue generated from Massimo Marine was approximately 5.9% and 2.3% of our total revenue, respectively.

Results of Operations

For the Three and Six Months Ended June 30, 2026 and 2025

The following tables summarize our condensed consolidated results for the three and six months ended June 30, 2026 and 2025. Amounts are presented in U.S. dollars unless otherwise indicated.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

3

Revenues

Revenues decreased by $4.0 million, or 21.1%, from $18.9 million for the three months ended June 30, 2025 to $14.9 million for the three months ended June 30, 2026. The decrease primarily reflected lower sales of UTVs, ATVs and electric bikes.

Revenue by Type

Revenue from sales of UTVs, ATVs and e-bikes

Revenue from UTVs, ATVs and electric bikes decreased by $3.9 million, or 22.4%, from $17.6 million for the three months ended June 30, 2025 to $13.7 million for the three months ended June 30, 2026. The decrease was primarily attributable to a continued strategic reduction in wholesale shipments to our major big-box retail partners as we aligned shipment cadence with actual retail sell-through and customer inventory levels.

Tariff and trade-policy uncertainty continued to affect customers’ inventory planning and order timing, while challenging dealer floorplan-financing conditions constrained wholesale purchasing capacity. Inflationary pressure and elevated interest rates also continued to weigh on discretionary consumer spending. Consistent with our disciplined operating approach, we avoided pushing inventory into financially constrained distribution channels while continuing to evaluate higher-margin and more controllable sales channels, including our Direct-to-Consumer approach.

Revenue from sales of Pontoon Boats

Revenue from Pontoon Boats remained relatively stable, decreasing by approximately $55,640, or 4.3%, from $1.31 million for the three months ended June 30, 2025 to $1.25 million for the three months ended June 30, 2026. The decrease primarily reflected lower sales of Pontoon Boats.

Gross profit

Gross profit increased by $0.4 million, or 6.1%, from $6.9 million in the second quarter of 2025 to $7.3 million in the second quarter of 2026. Gross margin increased to 48.8% from 36.3%. The margin expansion was primarily attributable to a more favorable mix of higher-margin products, improved component sourcing and cost controls, and continued discipline over freight, duty and other landed costs. The second quarter of 2026 also benefited from lower tariff rates on certain imported products and refunds or credits for tariffs previously paid, which reduced cost of revenue and helped offset the impact of lower sales volume.

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

Cost of revenue for UTVs, ATVs and electric bikes decreased by $4.2 million, or 38.6%, from $10.9 million to $6.7 million, while gross profit increased by $0.3 million, or 3.8%, from $6.7 million to $7.0 million. Gross margin increased to 51.2% from 38.2%. The margin expansion was primarily driven by a favorable shift toward higher-margin models, improved component sourcing and cost controls, and lower freight and landed costs. In addition, lower tariff rates on certain imported products and refunds or credits for tariffs previously paid reduced freight and duty costs during the second quarter of 2026. These benefits more than offset the effect of lower wholesale shipment volume.

Cost of revenue for Pontoon Boats decreased by approximately $0.2 million, or 18.1%, from $1.2 million to $1.0 million, while gross profit increased by approximately $0.2 million, or 118.6%, from $0.1 million to $0.3 million. Gross margin increased to 23.2% from 10.1%, primarily reflecting a more favorable product mix, enhanced material-cost controls and improved management of inbound shipping and other landed costs.

Selling expenses

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fees and merchant service fees. Selling expenses decreased by $0.5 million, or 20.9%, from $2.2 million for the three months ended June 30, 2025 to $1.7 million for the three months ended June 30, 2026, representing 11.4% of revenue in both periods.

The decrease was primarily attributable to lower shipping and handling expenses associated with reduced wholesale shipment volumes to major big-box retail customers. It was also supported by lower warranty-related costs resulting from enhanced quality-control measures and the continued use of our traveling technician team. In addition, the second quarter of 2026 included the reversal and reclassification of certain advertising costs to sales discounts, which further reduced selling expenses.

General and administrative expenses

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent and depreciation expenses. General and administrative expenses decreased by $0.8 million, or 18.0%, from $4.4 million for the three months ended June 30, 2025 to $3.6 million for the three months ended June 30, 2026. These expenses represented 24.3% and 23.4% of revenue, respectively. The decrease primarily reflected lower salaries and benefits, professional fees and insurance expenses, partially offset by higher rent and other general administrative expenses.

Salaries and benefits decreased by approximately $0.7 million, or 33.0%, from $2.0 million for the three months ended June 30, 2025 to $1.3 million for the three months ended June 30, 2026, representing 45.1% and 36.8% of general and administrative expenses, respectively.

Rent expense increased by approximately $0.2 million, or 28.0%, from $0.6 million for the three months ended June 30, 2025 to $0.8 million for the three months ended June 30, 2026, representing 14.0% and 21.9% of general and administrative expenses, respectively. The increase primarily reflected higher renewal rental rates and the continued impact of lease arrangements entered into in prior periods.

Professional fees decreased by approximately $0.1 million, or 32.9%, from $0.4 million for the three months ended June 30, 2025 to $0.3 million for the three months ended June 30, 2026, representing 8.4% and 6.9% of general and administrative expenses, respectively. The decrease primarily reflected the timing of legal and other professional services.

Insurance expense decreased by approximately $0.3 million, or 53.7%, from $0.5 million for the three months ended June 30, 2025 to $0.2 million for the three months ended June 30, 2026, representing 11.9% and 6.7% of general and administrative expenses, respectively. The decrease was primarily attributable to the Company’s cost-control initiatives, including a review and optimization of its insurance coverage to better align with its operating needs.

Other general and administrative expenses, consisting principally of office and general expenses, travel, supplies, depreciation, bad-debt expense, bank charges and equipment costs, increased in the aggregate by approximately $0.1 million, or 10.2%, from $0.9 million for the three months ended June 30, 2025 to $1.0 million for the three months ended June 30, 2026.

Research and development expenses

Research and development expenses increased by approximately $0.2 million, or 200.0%, from $0.1 million for the three months ended June 30, 2025 to $0.3 million for the three months ended June 30, 2026. As a percentage of revenue, research and development expenses increased from 0.8% to 1.9%. The increase primarily reflected the timing and scope of selected vehicle-model development and product-enhancement activities during the second quarter of 2026.

Income from operations

Income from operations increased by approximately $1.5 million, from $0.1 million for the three months ended June 30, 2025 to $1.7 million for the three months ended June 30, 2026. The increase was attributable to the $0.4 million increase in gross profit and the $1.1 million decrease in total operating expenses discussed above.

Interest expenses

Interest expense decreased by approximately $55,200, or 86.6%, from $63,700 to $8,500, primarily because the Company had no outstanding bank borrowings during the second quarter of 2026.

Other income, net

Other income, net increased by approximately $106,000, or 398.5%, from $26,600 for the three months ended June 30, 2025 to $132,600 for the three months ended June 30, 2026. The increase was primarily attributable to interest income earned on cash balances, partially offset by losses on the disposal of property and equipment and other miscellaneous non-operating items.

Unrealized loss on crypto assets

We recorded an unrealized loss on crypto assets of approximately $52,900 for the three months ended June 30, 2026. No such unrealized loss was recorded for the three months ended June 30, 2025. The unrealized loss was attributable to changes in the fair value of crypto assets held by the Company during the period.

Income before income taxes

Income before income taxes increased by $1.6 million from $0.1 million for the three months ended June 30, 2025 to $1.7 million for the three months ended June 30, 2026. The increase was primarily attributable to higher gross profit and lower operating expenses, as discussed above, partially offset by the unrealized loss on crypto assets.

Provision for income taxes

Income tax expense increased by approximately $252,900, from $27,300 for the three months ended June 30, 2025 to $280,200 for the three months ended June 30, 2026. The increase was primarily attributable to the increase in income before income taxes and changes in temporary differences recognized during the respective periods. The effective tax rate was approximately 16.2% and 26.0%, respectively for the period ended June 30, 2025 and 2026.

Net income

Net income increased by approximately $1.4 million, from $0.1 million for the three months ended June 30, 2025 to $1.5 million for the three months ended June 30, 2026. The increase was primarily attributable to higher gross profit and lower operating expenses for the reasons discussed above, partially offset by higher income tax expense and the unrealized loss on crypto assets.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

6

Revenue

Revenues decreased by $6.2 million, or 18.3%, from $33.8 million for the six months ended June 30, 2025 to $27.6 million for the six months ended June 30, 2026. The decrease was primarily driven by lower revenue from UTVs, ATVs and electric bikes, partially offset by higher reported revenue from Pontoon Boats resulting principally from the absence in 2026 of the revenue reduction recorded in the first half of 2025 in connection with the repurchase of goods under a litigation settlement.

Revenue by Type

Revenue from sales of UTVs, ATVs and e-bikes

Revenue from UTVs, ATVs and electric bikes decreased by $7.0 million, or 21.3%, from $33.0 million for the six months ended June 30, 2025 to $26.0 million for the six months ended June 30, 2026. The decrease was primarily attributable to a continued strategic reduction in wholesale shipment volumes to major big-box retail partners as we aligned shipment cadence with retail sell-through and customer inventory levels.

Throughout the first half of 2026, tariff and trade-policy uncertainty affected customers’ inventory planning and order timing, while challenging dealer floorplan-financing conditions limited wholesale purchasing capacity. Certain large customers therefore maintained a conservative approach to inventory replenishment.

Inflationary pressure and elevated interest rates also continued to constrain discretionary consumer spending. Consistent with our operating approach, we avoided pushing inventory into financially constrained distribution channels while continuing to evaluate opportunities to expand higher-margin and more controllable sales channels, including our Direct-to-Consumer approach.

Revenue from sales of Pontoon Boats

Reported revenue from Pontoon Boats increased by approximately $0.8 million, or 106.5%, from $0.8 million for the six months ended June 30, 2025 to $1.6 million for the six months ended June 30, 2026. The increase principally reflected the absence in 2026 of the approximately $1.0 million reduction to revenue recorded in the first quarter of 2025 in connection with the repurchase of goods under a litigation settlement, partially offset by lower underlying Pontoon Boat sales under our disciplined wholesale shipment strategy.

Gross profit

Gross profit increased by $1.3 million, or 11.4%, from $11.1 million for the six months ended June 30, 2025 to $12.4 million for the six months ended June 30, 2026. Gross margin increased to 44.7% from 32.8%. The improvement was primarily attributable to a more favorable product mix, improved sourcing and cost controls, disciplined management of freight, duty and other landed costs, lower tariff rates on certain imported products, and refunds or credits for tariffs previously paid. The comparison also benefited from the absence in 2026 of the cost impact associated with the repurchase of inventory under the litigation settlement recorded in the first half of 2025.

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

Cost of revenue for UTVs, ATVs and electric bikes decreased by $7.8 million, or 35.7%, from $21.9 million to $14.1 million, while gross profit increased by $0.8 million, or 7.0%, from $11.2 million to $12.0 million. Gross margin increased to 46.0% from 33.8%. The margin expansion was primarily driven by a favorable shift toward higher-margin models, improved component sourcing and cost controls, and lower freight and landed costs. The first half of 2026 also benefited from lower tariff rates on certain imported products and refunds or credits for tariffs previously paid, which reduced cost of revenue and more than offset the effect of lower wholesale shipment volume.

Cost of revenue for Pontoon Boats decreased by $0.4 million, or 26.3%, from $1.7 million to $1.2 million, while gross profit increased from a loss of $0.9 million to a profit of $0.4 million. The improvement primarily reflected the absence of the prior-year litigation-related repurchase adjustment and improved product economics.

Selling expenses

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fees and merchant service fees. Selling expenses decreased by $1.1 million, or 26.2%, from $4.0 million for the six months ended June 30, 2025 to $3.0 million for the six months ended June 30, 2026, representing 11.9% and 10.7% of revenue, respectively.

The decrease was primarily attributable to lower shipping and handling expenses associated with reduced wholesale shipment volumes to major big-box retail customers. It was also supported by lower warranty-related costs resulting from enhanced quality-control measures and the continued use of our traveling technician team. In addition, the six months ended June 30, 2026 included the reversal and reclassification of certain advertising costs to sales discounts, which further reduced selling expenses.

General and administrative expenses

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent and depreciation expenses. General and administrative expenses decreased by $0.8 million, or 9.2%, from $8.6 million for the six months ended June 30, 2025 to $7.8 million for the six months ended June 30, 2026. These expenses represented 25.6% and 28.4% of revenue, respectively. The decrease primarily reflected lower salaries and benefits, professional fees, insurance expenses and other general administrative expenses, partially offset by higher rent.

Salaries and benefits decreased by approximately $0.2 million, or 7.3%, from $3.3 million for the six months ended June 30, 2025 to $3.1 million for the six months ended June 30, 2026, representing 38.6% and 39.4% of general and administrative expenses, respectively.

Rent expense increased by approximately $0.3 million, or 19.0%, from $1.5 million for the six months ended June 30, 2025 to $1.8 million for the six months ended June 30, 2026, representing 17.6% and 23.1% of general and administrative expenses, respectively. The increase primarily reflected higher renewal rental rates and the continued impact of lease arrangements entered into in prior periods.

Professional fees decreased by approximately $0.2 million, or 16.6%, from $0.9 million for the six months ended June 30, 2025 to $0.8 million for the six months ended June 30, 2026, representing 10.9% and 10.0% of general and administrative expenses, respectively. The decrease primarily reflected the timing of legal and other professional services.

Insurance expense decreased by approximately $0.5 million, or 50.8%, from $1.0 million for the six months ended June 30, 2025 to $0.5 million for the six months ended June 30, 2026, representing 11.0% and 6.0% of general and administrative expenses, respectively. The decrease was primarily attributable to the Company’s cost-control initiatives, including a review and optimization of its insurance coverage to better align with its operating needs.

Other general and administrative expenses, consisting principally of office and general expenses, travel, supplies, depreciation, bad-debt expense, bank charges and equipment costs, decreased in the aggregate by approximately $0.2 million, or 10.6%, from $1.9 million for the six months ended June 30, 2025 to $1.7 million for the six months ended June 30, 2026.

Research and development expenses

Research and development expenses decreased by approximately $67,700, or 6.9%, from $1.0 million for the six months ended June 30, 2025 to $0.9 million for the six months ended June 30, 2026. As a percentage of revenue, research and development expenses were 3.3% and 2.9%, respectively. The decrease primarily reflected the timing and completion of certain development initiatives, while we continued to focus spending on selected higher-margin vehicle models and product enhancements.

Income from operations

Income from operations increased by approximately $3.2 million, from a loss of $2.6 million for the six months ended June 30, 2025 to income of $0.6 million for the six months ended June 30, 2026. The improvement was attributable to the $1.3 million increase in gross profit and the $1.9 million decrease in total operating expenses discussed above.

Interest expenses

Interest expense decreased by approximately $50,500, or 78.0%, from $64,800 to $14,300 because the Company had no outstanding bank borrowings during the six months ended June 30, 2026.

Other income, net

Other income, net increased by approximately $30,100, or 28.6%, from $105,300 for the six months ended June 30, 2025 to $135,400 for the six months ended June 30, 2026. The increase was primarily attributable to interest income earned on cash balances, partially offset by losses on the disposal of property and equipment and other miscellaneous non-operating items.

Unrealized loss on crypto assets

We recorded an unrealized loss on crypto assets of approximately $188,000 for the six months ended June 30, 2026. No such unrealized loss was recorded for the six months ended June 30, 2025. The unrealized loss was attributable to changes in the fair value of crypto assets held by the Company during the period.

(Loss)Income before income taxes

Income before income taxes increased by $3.1 million, from a loss of $2.5 million for the six months ended June 30, 2025 to income of $0.6 million for the six months ended June 30, 2026. The improvement was primarily attributable to higher gross profit and lower operating expenses for the reasons discussed above, partially offset by the unrealized loss on crypto assets.

Provision for income taxes

Income tax expense increased by approximately $623,900, from an income tax benefit of $512,500 for the six months ended June 30, 2025 to income tax expense of $111,400 for the six months ended June 30, 2026. The change was primarily attributable to the increase in income before income taxes and changes in temporary differences recognized during the respective periods. Income tax expense for the six months ended June 30, 2026 consisted of current tax expense of approximately $256,600, partially offset by a deferred tax benefit of approximately $145,300.

Net income

Net income increased by approximately $2.5 million, from a net loss of approximately $2.0 million for the six months ended June 30, 2025 to net income of approximately $0.4 million for the six months ended June 30, 2026. The improvement was primarily attributable to higher gross profit and lower operating expenses for the reasons discussed above, partially offset by the unrealized loss on crypto assets and the change from an income tax benefit to income tax expense.

Cash Flows

For the Periods Ended June 30, 2026 and 2025

The following table summarizes our cash flows for the periods indicated:

Operating Activities

Net cash used in operating activities was approximately $0.1 million for the six months ended June 30, 2026, compared with approximately $4.7 million for the six months ended June 30, 2025, representing an improvement of approximately $4.7 million. For the six months ended June 30, 2026, net income of approximately $0.4 million was adjusted principally for non-cash operating lease expense of $1.0 million, an unrealized loss on crypto assets of $0.2 million, depreciation and other non-cash items, partially offset by a deferred tax benefit of $0.2 million and a stock-option compensation reversal of $0.1 million. Cash provided by working-capital changes included decreases in inventories of $2.4 million and accounts receivable of $0.3 million and increases in income tax payable of $0.3 million and contract liabilities of $0.2 million. These sources of cash were substantially offset by decreases in accounts payable of $2.4 million and operating lease liabilities of $1.0 million and an increase in prepaid and other current assets of $1.3 million.

For the six months ended June 30, 2025, the net loss of approximately $2.0 million was adjusted principally for non-cash operating lease expense of $1.0 million, restricted-stock-unit compensation of $0.3 million, stock-option compensation of $0.2 million and depreciation and other non-cash items, partially offset by a deferred tax benefit of $0.5 million. Cash provided by working-capital changes included a $3.8 million decrease in inventories and a $0.4 million increase in contract liabilities. These sources of cash were more than offset by increases in accounts receivable of $3.3 million and advance to suppliers of $0.2 million and decreases in accounts payable of $3.3 million, operating lease liabilities of $1.0 million, warranty liabilities of $0.2 million and return liabilities of $0.2 million.

Investing Activities

Net cash used in investing activities was approximately $1.1 million for the six months ended June 30, 2026, compared with nil for the same period in 2025. The 2026 amount consisted principally of approximately $0.7 million of purchases of property and equipment and approximately $0.4 million of purchases of intangible assets, partially offset by approximately $10,000 of proceeds from sales of property and equipment.

Financing Activities

Net cash used in financing activities was approximately $18,600 for the six months ended June 30, 2026, compared with approximately $3.0 million for the six months ended June 30, 2025. The 2026 amount consisted of repayments of finance lease liabilities. The 2025 amount consisted principally of approximately $3.0 million of repayments of a shareholder loan and approximately $21,500 of repayments of finance lease liabilities.

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 June 30, 2026, we had cash and cash equivalents of $4.6 million. Current assets were $37.3 million, including $5.0 million of accounts receivable, $23.6 million of inventories, $0.2 million of advances to suppliers and $3.8 million of prepaid and other current assets. Current liabilities were $20.1 million, including $5.4 million of accounts payable, $6.1 million of other payables and accrued liabilities, $0.8 million of contract liabilities, $3.9 million of income tax payable, $2.0 million due to a shareholder and $1.9 million of current lease liabilities. Working capital was $17.1 million.

Accounts receivable decreased from $5.3 million as of December 31, 2025 to $5.0 million as of June 30, 2026, primarily reflecting customer collections and the timing of sales.

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, as needed. Although there are uncertainties regarding the size and timing of any future capital raise, we are confident that we can continue to meet operational needs solely by utilizing cash flow generated from our operating activities for the next 12 months from the date of the issuance of the financial statements contained in this Report.

Capital Expenditures

Capital expenditures for property and equipment were approximately $0.7 million for the six months ended June 30, 2026 and nil for the six months ended June 30, 2025.

Contractual Commitments

As of June 30, 2026, the Company’s contractual obligations consisted principally of operating and finance lease commitments with aggregate undiscounted payments of approximately $7.3 million. Approximately $2.3 million was due within one year, $4.7 million was due within one to three years and $0.2 million was due within three to five years. No scheduled lease payments were due more than five years after June 30, 2026.

Off-balance Sheet Commitments and Arrangements

There was no off-balance sheet arrangements for the six months ended June 30, 2026 and 2025, 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.

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 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.

In designing periods specified in the SEC’s rules and forms, and that such information is accumulated and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Certifying Officers have concluded that the Company’s disclosure controls and procedures are effective in reaching that level of assurance.

At the end of the period being reported upon, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Certifying Officers, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Certifying Officers concluded that our disclosure controls and procedures were effective to ensure that the material information required to be included in our SEC reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms relating to the Company.

Remediated Material Weaknesses

As of March 31, 2026, material weaknesses were identified in internal controls due to (1) a lack of sufficient in-house personnel in our accounting department with sufficient knowledge of the generally accepted accounting principles in the United States of America (“U.S. GAAP”) and SEC reporting rules, and (2) inadequate segregation of duties resulting from limited accounting staff and resources.

In response to the above identified material weaknesses, in addition to engaging a third-party internal controls consulting firm, we have hired additional staff and engaged external accounting consultants with expertise in U.S. GAAP and SEC reporting. Additionally, we have integrated and automated our financial reporting system with our ERP system to minimize manual errors. We have also implemented a series of training programs across departments and enhanced supervision and controls over our comprehensive accounting policies and procedures manual in accordance with U.S. GAAP.

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 June 30, 2026, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as disclosed below, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on March 31, 2026. 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. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial position, or future results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

If we fail to satisfy the continued listing requirements of Nasdaq, our common stock could be delisted, which would severely impact the liquidity and market price of our shares. In addition, Nasdaq has proposed a new listing rule regarding a $5 million minimum market value of listed securities, which, if approved and implemented, could introduce additional delisting risks for issuers trading below this threshold.

In order to remain listed on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. In addition to existing requirements, Nasdaq has proposed a new listing rule that would require listed issuers to maintain a minimum market value of listed securities of at least $5 million. Under this proposed new rule, if the value of an issuer’s listed securities, as measured by each applicable trading day’s closing price, continues to be less than $5 million for a period of 30 consecutive trading days, the issuer’s securities would immediately be delisted, with no compliance or cure period. While the SEC initially approved this proposal on July 22, 2026, the SEC subsequently issued an administrative stay on July 29, 2026, pausing the rule’s implementation pending a full SEC review. Accordingly, the ultimate implementation timeline and final terms remain uncertain. If this rule is ultimately approved and implemented, companies with market values below the $5 million threshold, including potentially us depending on our future stock performance, could face heightened risks of rapid delisting.

We may be required to monitor our market value of listed securities closely and, if necessary, take actions such as issuing additional securities, raising additional capital or undertaking other corporate actions to seek to maintain compliance, any of which could dilute our existing shareholders, increase our costs, or divert management’s attention. The risk of a rapid loss of Nasdaq listing, or an actual delisting, could adversely affect investor confidence, the liquidity and trading price of our common stock, and our ability to access the capital markets, and could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance regarding our future stock performance or our ability to maintain compliance with Nasdaq’s listing standards as they evolve.