Massimo Group: Form 10-Q for the period ended Mar 31, 2025
Filed with the SEC on May 20, 2025 and accepted by EDGAR at May 20, 2025, 16:20 ET.
Management's discussion and analysis
As filed, 42,166 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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/A for the fiscal year ended December 31, 2024 (“fiscal 2024”), as filed with the Securities and Exchange Commission (the “SEC”), on May 20, 2025. 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 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 (the “Controlling Shareholder”) of the Company.
A Reorganization of the legal structure was completed on June 1, 2023. The Controlling Shareholder transferred his 85% equity interest in Massimo Motor and 85% equity interest in Massimo Marine to Massimo. Together with 15% non-controlling interests, after the reorganization, Massimo 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 condensed consolidated financial statements in accordance with ASC 805-50-45-5.
We currently generate most of our revenues from the sales of UTVs and ATVs, which represented 96.8% and 95.2% of total revenue for the period ended March 31, 2025 and 2024, respectively
We also generate revenue from the sales of Pontoon Boats, which represented 3.2% and 4.8% of our revenue for the period ended March 31, 2025 and 2024, 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. |
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- 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 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. 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 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 Pontoon Boats which we manufacture in our Dallas facility. For the period ended March 31, 2025, we purchased approximately 82% 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 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 seasonal sales of Pontoon Boats - A portion of our sales revenue generated from Massimo Marine has a seasonal sales pattern. For the period ended March 31, 2025 and 2024, our revenue generated from Massimo Marine was approximately 3.2% and 4.8% of our total revenue, respectively.
| ● | Uncertainty and impacts from recent US tariff policies - Governments have, and may continue to, turned to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. Under the current U.S. administration, there is significant and increasing uncertainty about the future relationship between the United States, China, and other exporting countries, including with respect to trade policies, treaties, government regulations, and tariffs. In January 2025, during the initial days of President Trump’s second term, the United States announced the imposition of additional substantial tariffs on imports from various countries, including China, Canada and Mexico. On March 4, 2025, the U.S. imposed 25% tariffs on imports from Mexico and Canada and enacted an extra 10% tariff on Chinese imports, therefore doubling the previously levied tariff from February to an additional 20% on existing tariffs. In response, China announced retaliatory tariffs on U.S. agricultural goods and export restrictions to the U.S., in addition to filing a lawsuit with the World Trade Organization. |
| On April 2, 2025, President Trump announced new tariffs on many U.S. trading partners, including a 34% tax on imports from China. These tariffs were in addition to the previous announcements of 25% taxes on auto imports, tariffs implemented against China, Canada and Mexico, and trade penalties on steel and aluminum. However, the 20% charge on imports from China was in addition to the 34% import tax announced. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. | |
| On April 9, 2025, President Trump increased tariffs on Chinese imports, culminating in a total tariff rate of 145%. This included a 20% “fentanyl tariff” and a 125% “reciprocal tariff” aimed at addressing trade imbalances and other concerns. On April 10, 2025, China raised tariff on all U.S. goods to 84% and further increased to 125% on April 12, 2025. | |
| On May 14, 2025, the United States and China have entered a 90-day trade truce, temporarily easing the heightened tariffs, and agreed to reduce tariffs for a 90-day period. The U.S. lowered tariffs on Chinese imports from a peak of 145% to 30%, while China reduced its duties on U.S. goods from 125% to 10%. | |
| Moreover, increasing trade protectionism may cause an increase in (i) the cost of goods exported from regions globally, particularly from the Asia-Pacific region, (ii) the length of time required to transport goods and (iii) the risks associated with exporting goods. Such increases may further reduce the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our customers’ business, operating results and financial condition and could thereby affect their ability to make timely payments to us and their orders quantity. This could have a material adverse effect on our business, operating results, cash flows and financial condition. |
Results of Operations
For the Three Months Ended March 31, 2025 and 2024
The following table summarizes the results of condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2025 and 2024 in U.S. dollars, and provides information regarding the dollar and percentage increase or (decrease) during such year.
| For the three months ended March 31, 2025 Amount | As % of Sales | 2024 Amount | As % of Sales | Amount Increase (Decrease) | Percentage Increase (Decrease) | |
|---|---|---|---|---|---|---|
| Sales | $14,901,722 | 100.0% | $30,151,677 | 100.0% | $(15,249,955) | (50.6)% |
| Cost of sales | 10,677,072 | 71.6% | 19,700,290 | 65.3% | (9,023,218) | (45.8)% |
| Gross profit | 4,224,650 | 28.4% | 10,451,387 | 34.7% | (6,226,737) | (59.6)% |
| Operating expenses | ||||||
| Selling expenses | 1,869,964 | 12.5% | 2,210,484 | 7.3% | (340,520) | (15.4)% |
| General and administrative expenses | 4,219,600 | 28.3% | 4,106,905 | 13.6% | 112,695 | 2.7% |
| Research and development | 841,196 | 5.6% | 162,250 | 0.5% | 678,946 | 418.5% |
| Total operating expenses | 6,930,760 | 46.5% | 6,479,639 | 21.5% | 451,121 | 7.0% |
| (Loss) income from operations | (2,706,110) | (18.2)% | 3,971,748 | 13.2% | (6,677,858) | (168.1)% |
| Other income (expenses): | ||||||
| Other income, net | 78,698 | 0.5% | 247,569 | 0.8% | (168,871) | (68.2)% |
| Interest expense | (1,090) | - | (137,694) | (0.5)% | 136,604 | (99.2)% |
| Total other income, net | 77,608 | 0.5% | 109,875 | 0.4% | (32,267) | (29.4)% |
| (Loss) income before income taxes | (2,628,502) | (17.6)% | 4,081,623 | 13.5% | (6,710,125) | (164.4)% |
| (Recovery of) provision for income taxes | (539,795) | (3.6)% | 900,341 | 3.0% | (1,440,136) | (160.0)% |
| Net (loss) income | $(2,088,707) | (14.0)% | $3,181,282 | 10.6% | $(5,269,989) | (165.7)% |
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Revenue
Revenues decreased by $15.3 million, or 50.6%, from $30.2 million in the first quarter of fiscal 2024 to $14.9 million in the first quarter of fiscal 2025. The decrease in revenue was primarily due to the contraction of the U.S. economy and reduced consumer spending. New tariffs contributed to rising inflation, with U.S. consumer inflation reported at 2.8% year-over-year in February 2025, and expectations of further increases. This inflationary environment, coupled with high, long-lasting interest rates, led to reduced spending and demand from retail end customers for discretionary goods, particularly luxury items like yachts and pontoon boats. At the same time, the uncertainty surrounding tariffs, trade restrictions, and potential trade barriers stemming from President Trump’s policies, which were further exacerbated in January 2025, caused our major big-box customers to reduce their orders.
Revenue by Type
| Revenue category | For the three months ended March 31, 2025 Revenue | % of total Revenue | 2024 Revenue | % of total Revenue | Amount Increase (Decrease) | Percentage Increase (Decrease) |
|---|---|---|---|---|---|---|
| UTVs, ATVs and e-bikes | $15,424,435 | 103.5% | $28,693,141 | 95.2% | $(13,268,706) | (46.2)% |
| Pontoon Boats | 514,194 | 3.5% | 1,458,536 | 4.8% | (944,342) | (64.7)% |
| Subtotal | 15,938,629 | 107.0% | 30,151,677 | 100.0% | (14,213,048) | (47.1)% |
| Repurchase of goods under litigation settlement | (1,036,907) | (7.0)% | - | - | (1,036,907) | NA |
| Total | $14,901,722 | 100.0% | $30,151,677 | 100.0% | $(15,249,955) | (50.6)% |
Revenue from sales of UTVs, ATVs and e-bikes
Revenue from sales of UTVs, ATVs and electric bikes decreased by $13.3 million, or 46.2%, from $28.7 million in the first quarter of fiscal 2024 to $15.4 million in the first quarter of fiscal 2025. The decrease in revenue was primarily attributed to a decline in sales volume from big box stores. Due to the uncertainty surrounding tariffs, trade restrictions, and potential trade barriers stemming from President Trump’s policies, which were further exacerbated in January 2025. These geopolitical factors have created a volatile market environment, leading to reduced confidence among our major retail customers, especially big-box stores that typically place large volume orders.
The uncertainty surrounding future tariffs and trade restrictions has made it difficult for these big-box customers to predict costs and plan inventories and orders effectively. As a result, many of them have taken a more conservative approach to ordering, significantly reducing their purchase volumes in anticipation of higher costs and possible delays in shipping. This has further contributed to the overall decline in sales.
Additionally, ongoing inflationary pressures, coupled with the prolonged impact of high interest rates, have put a strain on consumer spending. These macroeconomic factors have led to decreased demand for non-essential and higher-priced goods, including recreational vehicles like UTVs, ATVs, and electric bikes. Retailers, in turn, have been cautious about placing orders for items that may not move as quickly due to these reduced consumer spending patterns. The combination of geopolitical and economic uncertainties has resulted in an environment where both consumers and retailers are hesitant to make significant purchasing decisions, leading to the sharp decline in sales of these products.
Revenue from sales of Pontoon Boats
Revenue from sales of Pontoon Boats decreased by $1.0 million, or 64.7%, from $1.5 million in the first quarter of fiscal 2024 to $0.5 million in the first quarter of fiscal 2025. The decrease was primarily driven by an industry-wide downturn caused by high interest rates and inflation, which have impacted the consumption of non-essential goods. In addition, high rejection rates from floorplan financing providers such as Northpoint have directly affected the inventory level that dealers can maintain, thereby reducing our sales in this category. This trend aligns with broader industry challenges. Ongoing economic uncertainty in the U.S. has further reduced discretionary spending on luxury boats, negatively affecting sales of high-end models such as our yacht.
Gross profit
Our gross profit decreased by $6.3 million, or 59.6%, from $10.5 million in the first quarter of fiscal 2024 to $4.2 million in the first quarter of fiscal 2025. Gross margin was 28.4% in the first quarter of fiscal 2025, as compared with 34.7% in first quarter of fiscal 2024. The decrease in gross margin was mainly due to an increase in freight absorbed in cost of sales. The significant increase in tariff rates on Chinese imports in March 2025 has not yet been reflected in the cost of sales for the first quarter of fiscal 2025.
Our cost and gross profit by revenue types are as follows:
| Category | For the three months ended March 31, 2025 Cost of revenue | Gross profit (loss) | Gross Margin (%) | For the three months ended March 31, 2024 Cost of revenue | Gross profit | Gross margin (%) | Variance in Cost of revenue | Variance in gross profit | Variance in gross margin (%) |
|---|---|---|---|---|---|---|---|---|---|
| UTVs, ATVs and e-bikes | $10,982,604 | $4,441,831 | 28.8 | $18,463,616 | $10,229,525 | 35.7 | $(7,481,012) | $(5,787,694) | (6.9) |
| Pontoon Boats | 478,574 | 35,619 | 6.9 | 1,236,674 | 221,862 | 15.2 | (758,100) | (186,243) | (8.3) |
| 11,461,178 | 4,477,450 | 28.1 | 19,700,290 | $10,451,387 | 34.7 | (8,239,112) | (5,973,937) | (6.6) | |
| Cost of inventory recovered from litigation | (784,106) | (252,800) | 24.4 | - | - | - | (784,106) | (252,800) | 24.4 |
| Total | $10,677,072 | $4,224,650 | 28.4% | $19,700,290 | $10,451,387 | 34.7 | $(9,023,218) | $(6,226,737) | (6.3) |
Cost of revenue on UTVs, ATVs and electric bikes decreased by $7.5 million, or 40.5%, from $18.5 million in the first quarter of fiscal 2024 to $11.0 million in the first quarter of fiscal 2025 and gross profit decreased by $5.8 million, or 56.6%, from $10.2 million in the first quarter of fiscal 2024 to $4.4 million in the first quarter of fiscal 2025. Our gross margin decreased by 6.9%, from 35.7% in the first quarter of fiscal 2024 to 28.8% in the first quarter of fiscal 2025. The decrease in the cost of revenue was primarily due to decreased product purchase cost, resulting from the decrease in sales volume. The decline in gross margin was primarily driven by higher freight costs compared to the prior year.
Cost of revenue on Pontoon Boats decreased by $0.8 million, or 61%, from $1.2 million in the first quarter of fiscal 2024 to $0.5 million in the first quarter of fiscal 2025. Gross profit decreased by $0.2 million, or 84%, from a profit of $0.2 million in the first quarter of fiscal 2024 to a profit of $0.04 million in the first quarter of fiscal 2025. The decrease in cost of revenue was mainly due to lower products cost, resulting from decreased sales. Gross margin decreased by 8.3%, from 15.2% in the first quarter of fiscal 2024 to 6.9% in the first quarter of fiscal 2025, driven by the significant drop in sales. The gross loss occurred primarily due to two key factors. First, there was a significant decrease in revenue due to reduced consumer spending on recreational boats. Second, despite this decline in revenue, our fixed overhead costs remained high. These costs, such as rent and insurance, are not easily adjusted in the short term. As a result, the fixed overhead costs could not be absorbed by the reduced gross margin, leading to a gross loss for the period.
Repurchase of goods and cost of inventory recovered from litigation settlement
On February 19, 2025, we entered into a settlement agreement with a dealer to repurchase certain ATVs and pontoon boats at an agreed percentage of the original invoices amount. In connection with this settlement, we recorded a sales reduction of $1.0 million and recognized $0.8 million as the cost of repurchased inventory in the first quarter of fiscal 2025. As a result, our gross profit was reduced by $0.2 million.
Selling expenses
Our selling expenses mainly consist of warranty expense, advertising and promotion expense and shipping and handling fee. These expenses decreased by $0.3 million, or 15.4%, from $2.2 million in the first quarter of fiscal 2024 to $1.9 million in the first quarter of fiscal 2025, representing 12.5% and 7.3% of our total revenue in the first quarter of fiscal 2025 and the first quarter of fiscal 2024. The decrease was primarily driven by a $0.2 million reduction in warranty expenses, reflecting improvements in quality control and customer service. The launch of a traveling technician team enabled faster and more efficient responses to customer service requests, which helped lower overall repair costs. The decrease was partly offset by higher shipping and handling fees, which rose from approximately $1.1 million in the first quarter of fiscal 2024 to $1.3 million in the first quarter of fiscal 2025.
General and administrative expenses
Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, and depreciation expenses. General and administrative expenses increased by $0.1 million, or 2.7%, from $4.1 million in the first quarter of fiscal 2024 to $4.2 million in the first quarter of fiscal 2025. The increase was mainly due to increased salaries and benefit, insurance expense and professional fees that are related to being a public company, partly offset by a decrease in legal fee. Our general and administrative expenses represented 28.3% and 13.6% of our total revenue in the first quarter of fiscal 2025 and the first quarter of fiscal 2024, respectively.
Our salaries and benefits were $1.3 million and $1.1 million, representing 31.2% and 27.0% of our total general and administrative expenses in the first quarter of fiscal 2025 and 2024, respectively. The increase was primarily due to $0.3 million stock-based compensation expenses recognized for RSUs and stock option grants.
Our rent expenses increased by $0.2 million or 28.7%, from $0.7 million in the first quarter of fiscal 2024, to $0.9 million in the first quarter of fiscal 2025, representing 21.4% and 17.1% of our total general and administrative expenses for the three months ended March 31, 2025 and 2024, respectively. Our rent expense increased due to the higher renewal rent rate and the addition of a new lease agreement in the first quarter of fiscal 2025, compared to the first quarter of fiscal 2024.
Our legal and professional expense decreased by $0.2 million or 25.1%, from $0.8 million in the first quarter of fiscal 2024, to $0.6 million in the first quarter of fiscal 2025, representing 13.6% and 18.6% of our total general and administrative expenses in first quarter of fiscal 2025 and 2024, respectively. The decrease was primarily attributable to fewer ongoing lawsuits cases that require legal consulting service in the first quarter of fiscal 2025 when compared with same period in last year, partly offset by increased in professional fee that are related to being a public company.
Interest expenses
Our interest expense decreased by $0.1 million or 99.2%. Interest expense in the first quarter of fiscal 2024 primarily related to a bank loan. No such expense was recorded in the first quarter of fiscal 2025, as we did not have any bank loans during the period.
Other income, net
Other income decreased by $0.1 million, or 68.2%, from $0.2 million in the first quarter of fiscal 2024, to $0.1 million in the first quarter of fiscal 2025. We wrote off a vendor’s account payable balance by $177,147 as a result of a settlement between the vendor and the Company in the first quarter of fiscal 2024, which was one-off income. However, we did not have such income in the current quarter.
(Loss) income before income taxes
We had loss before income taxes of $2.6 million in the first quarter of fiscal 2025, compared to income before tax $4.0 million in the first quarter of fiscal 2024. The decrease was primarily attributable to a decrease of $6.2 million in gross profit, an increase of $0.7 million in research and development expenses, and other expenses as discussed above.
(Recovery of) Provision for income taxes
We did not have current income tax in the first quarter of fiscal 2025 due to net loss position and we recognized a deferred income tax recovery of $0.5 million due to temporary differences recognized and net operating loss carried forward. In the first quarter of fiscal 2024, we had current income tax of $0.9 million arising from net assessable income.
Net (loss) income
Net loss was $2.1 million in the first quarter of fiscal 2025, compared with net income of $3.2 million and 2024, respectively. The decrease was primarily due to decreased revenues and gross profit, offset by an increase in general and administrative expenses and a loss on litigation, as discussed above.
Cash Flows
For the Three Months ended March 31, 2025 and 2024
The following table sets forth summary of our cash flows for the periods indicated:
| Three months ended March 31, 2025 | 2024 | |
|---|---|---|
| Net cash used in operating activities | $(3,339,474) | $(636,990) |
| Net cash (used in) provided by investing activities | (3,000,000) | 23,574 |
| Net cash (used in) provided by financing activities | (3,026,986) | 54,739 |
| Net decrease in cash | (9,366,460) | (558,677) |
| Cash, beginning of the period | 10,210,084 | 765,814 |
| Cash, end of the period | $843,624 | $207,137 |
Operating Activities
Net cash used in operating activities was approximately $3.3 million in the first quarter of fiscal 2025, compared to net cash used operating activities of approximately $0.6 million in the first quarter of fiscal 2024, representing an increase in the net cash used in operating activities of $2.7 million in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024. The decrease is primarily due to the following:
- Net loss of $2.1 million in the first quarter of fiscal 2025 compared with net income of $3.2 million in the first quarter of fiscal 2024.
- Our net loss was adjusted for non-cash items, including non-cash operating lease expense, gain (loss) on disposal of fixed asset, impairment of advance to suppliers, amortization of stock-based compensation related to options and RSUs granted, amortization and depreciation, loss on litigation, deferred tax expense (recovery), inventories reserve, write-off of accounts receivable and provision (reversal of allowance) for expected credit loss. Non-cash items of approximately $0.3 million in the first quarter of fiscal 2025, compared to non-cash items of approximately $0.3 million during the first quarter of fiscal 2024.
- Account payable decreased by approximately $3.8 million in the first quarter of fiscal 2025, compared to an increase of approximately $2.1 million in the first quarter of fiscal 2024, because we reduced our purchase of inventories due to decreased sales and high tariff policy.
- Our tax payable remained unchanged in the first quarter of fiscal 2025, compared to an increase of approximately $1.1 million in the first quarter of fiscal 2024, primarily because we did not have current tax expense due to loss position.
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- Increase in payment of operating lease of $0.5 million in the first quarter of fiscal 2025, compared to $0.3 million in the first quarter of fiscal 2024, primary due to leasing additional warehouse space and rent increment upon the renewal of lease agreement.
- The balance was partly offset by a decrease in accounts receivable by approximately $0.8 million in the first quarter of fiscal 2025, compared to a decrease of approximately $4.9 million in the first quarter of fiscal 2024, and
- Decrease in inventories of approximately $2.9 million, compared to an increase of $1.4 million in the first quarter of fiscal 2024.
Investing Activities
Net cash used in investing activities was approximately $3.0 million in the first quarter of fiscal 2025, compared to net cash provided investing activities of $23,574 in the first quarter of fiscal 2024. We made a 7-month fixed deposit of $3.0 million with a bank in the first quarter of fiscal 2025. During the same period in fiscal 2024, we had proceeds from the sale of property and equipment totaling $128,001, partially offset by purchases of property and equipment amounting to $104,427.
Financing Activities
Net cash used in financing activities was approximately $3.0 million in the first quarter of fiscal 2025, compared to net cash provided by financing activities of approximately $0.1 million in the first quarter of fiscal 2024. The increase in net cash used in financing activities in the first quarter of fiscal 2025 was primarily attributable to repayment of shareholder withdrawal of $3.0 million. This compares to proceeds from the common shares’ subscription of $0.5 million, offset by the repayment of other loans of $0.3 million and the payment for initial public offering related costs of $0.1 million during the first quarter of fiscal 2024
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, 2025, we had cash and cash equivalents of approximately $0.8 million. Our current assets were approximately $35.1 million, including approximately $3.0 million short-term investment in Certificate of Deposit, approximately $5.6 million accounts receivable, approximately $24.4 million inventory, approximately $0.2 million advance to suppliers and approximately $1.1 million prepayment deposit and other receivables, and our current liabilities were approximately $19.6 million, including $5.7 million accounts payable to suppliers, $7.0 million other payable, accrued expenses and other current liabilities, $0.6 million contract liabilities, $1.1 million income tax payable, $2.5 million loan from a related party and $2.2 million liabilities from obligations under operating and financing leases, which resulted in a positive working capital of $15.5 million.
Our primary source of cash is currently generated from our business. 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 support our operational needs solely by utilizing cash flows generated from our operating activities organically for the next 12 months.
Capital Expenditure
Our capital expenditure consists primarily of the lease of fixed assets and equipment as a result of our business growth. Our capital expenditure amounted to approximately nil and $104,427 for the first quarter of fiscal 2025 and 2024, respectively.
Contractual Commitments
As of March 31, 2025, 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 | $10,820,752 | $2,892,711 | $4,754,541 | $3,173,500 | $– |
Off-balance Sheet Commitments and Arrangements
There was no off-balance sheet arrangements for the three months ended March 31, 2025 and 2024, 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, inventory provision, and the assessment and disclosure of contingent liabilities due to on-going lawsuit. Each of these are discussed below.
Sales returns
We provide a refund policy to accept returns from end customers, which varies and depends on the different products and customers. We are also obligated to repurchase from the dealer if the dealer defaults on payments to the financing sources that have the repurchase agreements with us. 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.” The factors affecting our sales return liabilities include the number of products currently within the return period, historical and anticipated rates of sales returns claimed on those products, and the estimated amount of returns that may be claimed within this period. If actual results differ from the estimates, it revises its estimated sales returns liability accordingly. Each period end, the Company reviews and reassesses the adequacy of its recorded sales returns liabilities and adjusts the amounts as necessary. As of March 31, 2025 and December 31, 2024, $99,605 and $261,588 of sales return liabilities associated with estimated product returns were recorded in the condensed consolidated balance sheet, respectively. During the three months ended March 31, 2025 and 2024, the Company recorded sales returns of $1,213,347 and $425,705 respectively.
Warranty
We generally provide a one-year limited warranty against defects in materials related to the sale of products. We consider the warranty as an assurance type warranty since the warranty provides the customers 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 factors affecting our warranty include the number of products currently under warranty, historical and anticipated rates of warranty claim on those products, and the estimates of repair and replacement costs to satisfy our warranty obligation. The anticipated rate of warranty claims is the primary estimate used in determining the warranty liability and is relatively predictable using historical experience of failure rates. The average remaining aggregate warranty period of the products sold is calculated, repair parts are generally already in stock or available at pre-determined prices, and labor rates are generally arranged at pre-established amount with service providers. If actual results differ from the estimates, we revise its estimated warranty liability. Each quarter, we re-evaluate its estimates and assess the adequacy of its recorded warranty liabilities and adjust the amounts as necessary. As of March 31, 2025 and December 31, 2024, $386,798 and $503,553 of product warranty were recorded in the condensed consolidated balance sheet, respectively. During the three months ended March 31, 2025 and 2024, the Company recorded warranty expenses of $119,732 and $386,959, respectively.
Allowance for credit loss
We 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. We have 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, we use 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 receivable, we use the individual specific valuation method to estimate the credit loss.
We wrote 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, 2025 and December 31, 2024, we recorded allowance for credit loss of $0.4 million and $0.4 million in the consolidated balance sheet, respectively.
Inventory provision
We assessed the net realizable value of each item of inventories and compared it to the cost on the book, which includes 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, we assessed all slow-moving or obsolete items for inventory valuation purposes. As of March 31, 2025 and December 31, 2024, the Company had inventory provision of $469,900 and $469,900, included in inventories, net in the condensed consolidated balance sheet. Impairment provision of inventories were nil and nil for the three months ended March 31, 2025 and 2024, respectively, included in cost of revenues in the condensed consolidated statement of operations and comprehensive income.
Contingencies
We may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects and other matters which, in general, are subject to uncertainties and in which the outcome are not predictable. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on the our unaudited condensed consolidated financial position or results of operations or liquidity as at March 31, 2025, except one litigation discussed below.
Controls and procedures
As filed, 3,847 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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.
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 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 a material weakness was present as of that date related to ineffective controls over information and communication and period end financial disclosure and reporting processes, including not effectively communicating internally between the sales department and the accounting department and externally with the client and lack of effectiveness of controls over accurate accounting and financial reporting and reviewing the underlying financial statement elements.
Remediated Material Weaknesses
We are committed to maintaining strong internal control over financial reporting. In relation to the material weaknesses, management, with oversight from the Company’s Audit Committee, is in the process of developing and implementing remediation plans in response to the identified material weaknesses described above by:
- designing and implementing control activities to ensure there is an appropriate periodic assessment of its internal control environment and period end disclosure and reporting processes. For example, new approval procedure is in place for any changes in product offerings or terms and conditions of the arrangements with customers;
- designing and implementing additional monitoring controls for its existing and new revenue streams; and
- designing and implementing effective communication between the sales department and the accounting department.
These material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time for management to conclude, through testing, that such controls are operating effectively. Management is committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal controls and will continue to review, optimize and enhance financial reporting controls and procedures.
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, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 568 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
As of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024 filed with the SEC on May 20, 2025. 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.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2025-03-31. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2025-01-01 to 2025-03-31 | $14.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months2025-01-01 to 2025-03-31 | $4.2m | us-gaap:GrossProfit |
| Research and development | 3 months2025-01-01 to 2025-03-31 | $841.2k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2025-01-01 to 2025-03-31 | −$2.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2025-01-01 to 2025-03-31 | $1.1k | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2025-01-01 to 2025-03-31 | −$539.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2025-01-01 to 2025-03-31 | −$2.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2025-01-01 to 2025-03-31 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2025-01-01 to 2025-03-31 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2025-01-01 to 2025-03-31 | 41,542,800 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months2025-01-01 to 2025-03-31 | −$3.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Current assets | At period end2025-03-31 | $35.1m | us-gaap:AssetsCurrent |
| Total assets | At period end2025-03-31 | $46.4m | us-gaap:Assets |
| Current liabilities | At period end2025-03-31 | $19.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2025-03-31 | $26.4m | us-gaap:Liabilities |
| Shareholders' equity | At period end2025-03-31 | $19.9m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001641172-25-011725. Last ingested by Listed: Nov 3, 2026, 08:27 ET. Listed shows no prices and gives no investment advice.