Massimo Group

Previous wording

We currently generate most of our revenues from the sales of UTVs and ATVs, which represented 96.7% and 83.5% of total revenue for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, revenue from sales of UTVs and ATVs represented 96.0% and 85.2% of total revenue, respectively.

Current wording

We currently generate most of our revenues from the sales of UTVs and ATVs, which represented 98.0% and 90.1% of total revenue for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, revenue from sales of UTVs and ATVs represented 96.5% and 87.1% of total revenue, respectively.

Previous wording

We also generate revenue from the sales of Pontoon Boats, which represented 3.3% and 16.5% of our revenue for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, revenue from the sales of Pontoon Boats represented 4.0% and 14.8% of our revenue, respectively.

Current wording

We also generate revenue from the sales of Pontoon Boats, which represented 2.0% and 9.9% of our revenue for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, revenue from the sales of Pontoon Boats represented 3.5% and 12.9% of our revenue, respectively.

Previous wording

The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three and six months ended June 30, 2024 and 2023 in U.S. dollars, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

Current wording

The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three and nine months ended September 30, 2024 and 2023 in U.S. dollars, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

Previous wording

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fee and merchant service fee. They increased by $0.6 million, or 24.6%, from $2.5 million in the second quarter of fiscal 2023 to $3.1 million in the second quarter of fiscal 2024, representing 8.7% and 9.3% of our total revenue in the second quarter of fiscal 2024 and fiscal 2023, respectively. The increase in selling expenses was mainly due to an increase in shipping and handling fees, which were approximately $2.0 million and $1.3 million in the second quarter of fiscal 2024 and fiscal 2023, respectively. The increase is consistent with the increase in sales.

Current wording

Our selling expenses mainly include warranty expense, advertising and promotion expense, interest expense incurred for selling products, shipping and handling fee and merchant service fee. Our selling expenses increased by $0.5 million, or 24.9%, from $2.1 million in the third quarter of fiscal 2023 to $2.6 million in the third quarter of fiscal 2024, representing 10.3% and 7.0% of our total revenue in the third quarter of fiscal 2024 and fiscal 2023, respectively. The increase in selling expenses was mainly due to an increase in shipping and handling fees, which were approximately $1.5 million and $0.7 million in the third quarter of fiscal 2024 and fiscal 2023, respectively. The increase was partly offset by a decrease in warranty expense of approximately $0.4 million, due to enhanced quality control and customer service measures. The adoption of a traveling technician team has enabled timely responses to customer requests, reducing repair costs.

Previous wording

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent expense and depreciation expenses. General and administrative expenses increased by $0.8 million, or 22.7%, from $3.3 million in the second quarter of fiscal 2023 to $4.1 million in the second quarter of fiscal 2024. The increase was mainly due to increased salaries and benefits, impairment loss and rent expense, which were partly offset by a decrease in professional and legal fees. Our general and administrative expenses represented 11.6% and 12.5% of our total revenue in the second quarter of fiscal 2024 and the second quarter of fiscal 2023, respectively.

Current wording

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent expense and depreciation expenses. General and administrative expenses increased by $1.2 million, or 43.4%, from $2.7 million in the third quarter of fiscal 2023 to $3.9 million in the third quarter of fiscal 2024. The increase was mainly due to increased salaries and benefits, travel expense and rent expense. Our general and administrative expenses represented 15.2% and 9.1% of our total revenue in the third quarter of fiscal 2024 and the third quarter of fiscal 2023, respectively.

Previous wording

Our salaries and benefits were $1.7 million and $1.0 million, representing 42.3% and 30.9% of our total general and administrative expenses in the second quarter of fiscal 2024 and in the second quarter of fiscal 2023, respectively. The increase in balance was mainly due to one-off salaries compensation paid to an employee as result of employment termination andstock-based compensation expense of $0.2 million recognized on RSUs and stock option grant.

Current wording

Our salaries and benefits were $1.4 million and $1.1 million, representing 35.2% and 41.6% of our total general and administrative expenses in the third quarter of fiscal 2024 and in the third quarter of fiscal 2023, respectively. The increase in balance was mainly due to stock-based compensation expense of $0.3 million recognized on RSUs and stock option grant.

Previous wording

Our rent expenses increased by $0.3 million or 94.4%, from $0.2 million in the second quarter of fiscal 2023 to $0.5 million in the second quarter of fiscal 2024, representing 12.9% and 8.2% of our total general and administrative expenses in the second quarter of fiscal 2024 and 2023, respectively. We had a rent increase of $0.05 million in the second quarter of fiscal 2024 because we had two new lease agreements in May 2024. Our property taxes included in the rent expenses also increased by $0.2 million in the second quarter of fiscal 2024 compared to the same period in the prior year.

Current wording

Our rent expenses increased by $0.3 million or 104.0%, from $0.3 million in the third quarter of fiscal 2023 to $0.6 million in the third quarter of fiscal 2024, representing 13.9% and 9.8% of our total general and administrative expenses in the third quarter of fiscal 2024 and 2023, respectively. This increase was due to two new lease agreements signed in May 2024 and a rent increment following the lease renewal.

Previous wording

Our interest expense decreased by $58,365 or 46.7%, from $125,012 in the second quarter of fiscal 2023 to $66,647 in the second quarter of fiscal 2024. The decrease in interest expense was mainly because we lowered the average loan balance in second quarter of fiscal 2024 compared with the same period of last year in light of high interest rates.

Current wording

Our interest expense decreased by $149,439 or 69.9%, from $213,901 in the third quarter of fiscal 2023 to $64,462 in the third quarter of fiscal 2024. The decrease in interest expense was mainly due to a reduction in the average loan balance in third quarter of fiscal 2024 compared with the same period of last year, in response to higher interest rates. We repaid all bank loans in early August 2024.

Previous wording

Our other income was $132,268 in the second quarter of fiscal 2024, as compared with $26,973 in the second quarter of fiscal 2023, an increase of $105,295, or 390.4%. The increase was primarily related to writing off a long outstanding negative balance of account receivable of approximately $90,000. The write-off increased the other income in in second quarter of fiscal 2024 compared with the same period of the previous year.

Current wording

Our other income was $210,701 in the third quarter of fiscal 2024, as compared with $41,133 in the third quarter of fiscal 2023, an increase of $169,568, or 412.2%. The increase was primarily due to the write-off a long outstanding negative balance of account receivable of approximately $100,000 and an increase in insurance claim of approximately $100,000 in third quarter of fiscal 2024 compared to the same period in last year.

Previous wording

We had an increase of $1.4 million in income before income taxes from $2.2 million in the second quarter of fiscal 2023 to approximately $3.6 million in the second quarter of fiscal 2024, respectively. The increase was primarily attributable to the increase in gross profit by $3.4 million, which was partly offset by an increase of general and administrative expenses of approximately $0.8 million in the second quarter of fiscal 2024, as well as other expenses as discussed above.

Current wording

We had a decrease of $8.2 million in income before income taxes, from $5.1 million income in the third quarter of fiscal 2023 to approximately $3.1 million loss in the third quarter of fiscal 2024. The decrease was primarily attributable to the decrease in gross profit by $3.1 million, an increase of general and administrative expenses of approximately $1.2 million and a loss of legal judgment of approximately $3.6 million in the third quarter of fiscal 2024, as well as other expenses as discussed above.

Previous wording

We had net income of $2.8 million and $2.1 million in the second quarter of fiscal 2024 and 2023, respectively. The increase was primarily attributable to the increased revenues and gross profit as discussed above.

Current wording

We had net loss of $2.5 million and net income of $4.0 million in the third quarter of fiscal 2024 and 2023, respectively. The decrease was primarily due to the lower revenues and gross profit as discussed above.

Previous wording

Revenues increased by $20.0 million, or 43.8%, from $45.6 million for the six months ended June 30, 2023, to $65.6 million for the six months ended June 30, 2024. The increase in revenue was primarily due to combined effects of rising demand in the U.S. ATV and UTV market and our modified sales strategy. In 2024, we continued to expand our distribution network with various retailers to increase our products’ market penetration. We strategically focused our efforts on large retail stores in the U.S. (the “big box stores”) that offer their own financing plans, while moving away from retailers that have liberal return policies.

Current wording

Revenues increased by $15.7 million, or 20.8%, from $75.5 million for the nine months ended September 30, 2023, to $91.2 million for the nine months ended September 30, 2024. The increase in revenue was primarily due to combined effects of rising demand in the U.S. ATV and UTV market and our modified sales strategy. In 2024, we continued to expand our distribution network with various retailers to increase our products’ market penetration. We strategically focused our efforts on large retail stores in the U.S. (the “big box stores”) that offer their own financing plans, while moving away from retailers that have liberal return policies.

Previous wording

Revenue from sales of UTVs, ATVs and e-bikes increased by $24.1 million, or 62.1%, from $38.8 million for the six months ended June 30, 2023 to $62.9 million for the six months ended June 30, 2024. The increase in revenue was primarily attributed to the expansion into more big box stores. During the six months ended June 30, 2023, our sales to those big box stores were $19.2 million. They increased to $48.6 million during the six months ended June 30, 2024, with $40.0 million of these sales from one new customer since fiscal 2023. This surge is consistent with the increasing ranch/farm-work utilization of UTVs across the 1.89 million farms in the U.S. with an average size of 464 acres and the new customer’s rural lifestyle focus. The increase in sales is also due to a shift in our sales strategy, focusing mostly on in-store sales to this new customer, which generally involve larger volumes and no returns. In addition, sales to this new customer consist of high-turnover inventory products that are of high quality and have a strong customer reputation. This enhances the efficiency of our capital utilization.

Current wording

Revenue from sales of UTVs, ATVs and e-bikes increased by $22.2 million, or 33.8%, from $65.8 million for the nine months ended September 30, 2023 to $88.0 million for the nine months ended September 30, 2024. The increase in revenue was primarily attributed to the expansion into more big box stores. This surge is consistent with the increasing ranch/farm-work utilization of UTVs across the 1.89 million farms in the U.S. with an average size of 464 acres and the new customer’s rural lifestyle focus. The increase in sales is also due to a shift in our sales strategy, focusing mostly on in-store sales to this retail chain store customer, which generally involve larger volumes and no returns. In addition, sales to this new customer consist of high-turnover inventory products that are of high quality and have a strong customer reputation. This enhances the efficiency of our capital utilization.

Previous wording

Revenue from sales of Pontoon Boats decreased by $4.1 million, or 61.1%, from $6.7 million for the six months ended June 30, 2023 to $2.6 million for the six months ended June 30, 2024. The decrease in revenue was primarily attributable to the fact that we shifted from retailing to dealer sales in fiscal 2023 and the dealers have experienced high rejection rates at the floorplan financing providers such as Northpoint since late fiscal 2023. This is consistent with the industry-wide trend. Additionally, the challenging economic environment, characterized by rising interest rates and inflation, has further constrained sales of luxury boats such as our yacht.

Current wording

Revenue from sales of Pontoon Boats decreased by $6.6 million, or 67.6%, from $9.7 million for the nine months ended September 30, 2023 to $3.1 million for the nine months ended September 30, 2024. The revenue decrease was primarily due to an industry-wide downturn driven by high interest rates and inflation, which are impacting the consumption of non-essential goods. In addition, the fact that the dealers have experienced high rejection rates at the floorplan financing providers such as Northpoint has directly affected the inventory level the dealers maintain and therefore our sales in this category. This is consistent with the industry-wide trend. The challenging economic environment and economic uncertainty in the U.S. has led to reduced spending on luxury boats directly impacting the sales of luxury boats such as our yacht.

Previous wording

Cost of revenue on UTVs, ATVs and e-bikes increased by $15.4 million, or 59.2%, from $26.0 million for the six months ended June 30, 2023, to $41.5 million for the six months ended June 30, 2024 and gross profit increased by $8.7 million, or 68.2%, from $12.8 million for the six months ended June 30, 2023, to $21.5 million for the six months ended June 30, 2024. Gross margin slightly increased by 1.2%, from 32.9% for the six months ended June 30, 2023 to 34.1% for the six months ended June 30, 2024. The increase in the cost of revenue was in line with the increase in sales. The slight increase in gross profit margin was mainly due to decreased global container freight. Our freight costs decreased for the six months ended June 30, 2024, compared with last year.

Current wording

Cost of revenue on UTVs, ATVs and e-bikes increased by $16.1 million, or 36.9%, from $43.5 million for the nine months ended September 30, 2023, to $59.6 million for the nine months ended September 30, 2024 and gross profit increased by $6.2 million, or 27.9%, from $22.2 million for the nine months ended September 30, 2023, to $28.4 million for the nine months ended September 30, 2024. Gross margin decreased by 1.5%, from 33.8% for the nine months ended September 30, 2023 to 32.3% for the nine months ended September 30, 2024. The increase in the cost of revenue was in line with the increase in sales. The decrease in gross profit margin was mainly due to reduced sales prices to clear out slow-moving inventory in recent quarter.

Previous wording

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fee and merchant service fee. They increased by $0.9 million, or 19.6%, from $4.4 million for the six months ended June 30, 2023, to $5.3 million for the six months ended June 30, 2024, representing 8.1% and 9.7% of our total revenue for the six months ended June 30, 2024 and 2023, respectively. Our selling expenses increased mainly due to an increase in shipping and handling fee which were approximately $3.1 million and $2.4 million for the six months ended June 30, 2024 and 2023, respectively. The increase is consistent with the increase in sales.

Current wording

Our selling expenses mainly include warranty expense, advertising and promotion expense, interest expense, shipping and handling fee and merchant service fee. These expenses increased by $1.4 million, or 21.3%, from $6.5 million for the nine months ended September 30, 2023, to $7.9 million for the nine months ended September 30, 2024, representing 8.7% and 8.7% of total revenue in both periods. The increase was mainly due to higher shipping and handling fees, which rose from approximately $3.1 million for the nine months ended September 30, 2023 to $4.6 million in the same period in 2024, consistent with the increase in sales. The increase was partly offset by a reduction in warranty expense of approximately $0.5 million, due to enhanced quality control and customer service. The addition of a traveling technician team has enabled us to respond to customer requests promptly, reducing repair costs.

Previous wording

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent expense and depreciation expenses. General and administrative expenses increased by $1.9 million, or 29.7%, from $6.3 million for the six months ended June 30, 2023, to $8.2 million for the six months ended June 30, 2024. The increase was mainly due to the increased rent expense, salaries and benefit, and insurance expense, which was partly offset by decreased professional and legal fee. Our general and administrative expenses represented 12.5% and 13.9% of our total revenue for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Our general and administrative expenses primarily include salaries and benefits, professional fees, office expenses, travel expenses, insurance expenses, rent expense and depreciation expenses. General and administrative expenses increased by $3.1 million, or 33.8%, from $9.0 million for the nine months ended September 30, 2023, to $12.1 million for the nine months ended September 30, 2024. The increase was mainly due to higher rent expense, salaries and benefit, and insurance expense. Our general and administrative expenses represented 13.3% and 12.0% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our salaries and benefits were $2.8 million and $2.1 million, representing 34.7% and 33.7% of our total general and administrative expenses for the six months ended June 30, 2024 and 2023, respectively. The increase in the balance was mainly due to a severance package of $0.5 million paid to an employee as result of employment termination and the stock-based compensation expense of $0.2 million recognized on RSUs and stock option grants.

Current wording

Our salaries and benefits were $4.2 million and $3.3 million, representing 34.8% and 36.1% of our total general and administrative expenses for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily due to $0.5 million severance package following an employment termination and a $0.6 million stock-based compensation expenses recognized for RSUs and stock option grants.

Previous wording

Our rent expenses increased by $0.6 million or 92.1%, from $0.6 million for the six months ended June 30, 2023, to $1.2 million for the six months ended June 30, 2024, representing 15.0% and 10.1% of our total general and administrative expenses for the six months ended June 30, 2024 and 2023, respectively. Our rent expense increased because we had two new lease agreements in May 2024 and one lease agreement in May 2023. Our property taxes included in the rent expenses also increased by $0.4 million for the six months ended June 30, 2024, when compared with the same period last year.

Current wording

Our rent expenses increased by $0.9 million or 95.6%, from $0.9 million for the nine months ended September 30, 2023, to $1.8 million for the nine months ended September 30, 2024, representing 14.6% and 10.0% of our total general and administrative expenses for the nine months ended September 30, 2024 and 2023, respectively. Our rent expense increased because we had two new lease agreements in May 2024 while one lease agreement in May 2023. We also had monthly rent increment upon renewing the lease agreement. Our property taxes included in the rent expenses also increased by $0.4 million for the nine months ended September 30, 2024, compared to the same period last year.

Previous wording

Impairment loss on supplier deposit due to lawsuit

Current wording

Impairment loss on supplier deposit

Previous wording

During the three months ended June 30, 2024, we recorded a one-time impairment loss of approximately $0.7 million on advanced deposit to one supplier. In June 2024, we reached a tentative agreement regarding general settlement terms with one suppler who would pay approximately $342,000 including interest to resolve the claim. Our prepayment of $1.1 million would be considered irrecoverable. Therefore, we wrote off the approximately $742,000 of prepayment to the supplier during the three months ended June 30, 2024. During the three months ended June 30, 2023, we had no impairment loss of prepayment.

Current wording

During the nine months ended September 30, 2024, we recorded a one-time impairment loss of approximate $772,780 on advanced deposit to one supplier. In June 2024, we reached a tentative agreement regarding general settlement terms with one suppler who would pay approximately $312,500 to resolve the claim. Our prepayment of $1.1 million would be considered irrecoverable. Therefore, we wrote off the approximate $772,780 of prepayment to the supplier during the nine months ended September 30, 2024. The settlement agreement was finalized in August 2024. During the nine months ended September 30, 2023, we had no impairment loss of prepayment.

Previous wording

Our interest expense decreased by $75,769 or 27.0%, from $280,110 for the six months ended June 30, 2023, to $204,341 for the six months ended June 30, 2024. The decrease in interest expense was mainly because we lowered the average loan balance during the six months ended June 30, 2024, when compared with the same period last year in light of increasing interest rates.

Current wording

Our interest expense decreased by $225,208 or 45.6%, from $494,011 for the nine months ended September 30, 2023, to $268,803 for the nine months ended September 30, 2024. The decrease was mainly due to a lower average loan balance during the nine months ended September 30, 2024, compared to the same period last year, in response to raising interest rates. All bank loans were repaid in early August 2024.

Previous wording

The income tax expense was approximately $1.7 million and $0.1 million for the six months ended June 30, 2024 and 2023, respectively. We terminated our status as an S Corporation as of June 1, 2023, in connection with the Reorganization and became a taxable C Corporation. As such, the income tax provision for the first half of fiscal 2024 combined both federal income tax of 21% and the state margin tax at Texas as a C Corporation, and the income tax provision for the six months ended June 30, 2023 only reflected state margin tax at Texas as a S Corporation and a federal income tax of 21% for only one month’s operation.

Current wording

The income tax expense was approximately $1.1 million and $1.2 million for the nine months ended September 30, 2024 and 2023, respectively. We terminated our S Corporation status as of June 1, 2023, in connection with the Reorganization and became a taxable C Corporation. Accordingly, the income tax provision for the first three quarters of fiscal 2024 combined both federal income tax of 21% and the state margin tax at Texas as a C Corporation, and the income tax provision for the nine months ended September 30, 2023 only reflected state margin tax at Texas as a S Corporation for five months and a federal income tax of 21% for the remaining four month’s operation.

Previous wording

Net cash used in operating activities was approximately $7.1 million during the six months ended June 30, 2024, compared to net cash provided by operating activities of approximately $2.7 million during the six months ended June 30, 2023, representing an increase in the net cash used in operating activities of $9.8 million during the six months ended June 30, 2024 compared with the same period in 2023. This is consistent with the Company using part of the IPO proceeds as working capital to grow sales. The increase is primarily due to the following:

Current wording

Net cash used in operating activities was approximately $2.4 million during the nine months ended September 30, 2024, compared to net cash provided by operating activities of approximately $5.8 million during the nine months ended September 30, 2023, representing an increase in the net cash used in operating activities of $8.2 million during the nine months ended September 30, 2024 compared with the same period in 2023. This is consistent with the Company using part of the IPO proceeds as working capital to grow sales. The increase is primarily due to the following:

Previous wording

Net cash used in investing activities was approximately $0.2 during the six months ended June 30, 2024, compared to net cash used in investing activities of $0.02 million during the six months ended June 30, 2023. The increase in net cash used investing activities was primarily attributable to purchase of property and equipment of $0.3 million offsetting by a proceed of $0.2 million from sale of property and equipment during the six months ended June 30, 2024.

Current wording

Net cash used in investing activities was approximately $262,163 during the nine months ended September 30, 2024, compared to net cash used in investing activities of $68,871 million during the nine months ended September 30, 2023. The increase in net cash used investing activities was primarily attributable to the purchase of property and equipment of $0.4 million, partially offset by a proceed of $0.2 million from sale of property and equipment during the nine months ended September 30, 2024.

Previous wording

Net cash provided by financing activities was approximately $7.8 million during the six months ended June 30, 2024, compared to net cash used in financing activities of approximately $2.7 million during the six months ended June 30, 2023. The increase in net cash provided by financing activities during the six months ended June 30, 2024 was primarily attributable to net proceed from bank loan of $2.7 million, net proceed from IPO of $4.5 million and the common shares subscription of $0.08 million, offset by the repayment of other loans of $0.3 million; combined with the net repayment of bank loan of $0.1 million and repayment of $2.6 million to shareholder during the six months ended June 30, 2023.

Current wording

Net cash provided by financing activities was approximately $3.6 million during the nine months ended September 30, 2024, compared to net cash used in financing activities of approximately $5.5 million during the nine months ended September 30, 2023. The increase in net cash provided by financing activities during the nine months ended September 30, 2024 was primarily attributable to net proceed from IPO of $4.5 million and from the common shares subscription of $0.9 million, offset by the repayment of bank loans of $0.3 million and repayment of loan from a related party of $1.5 million. This compares to 2023, when cash used in financing included, a net repayment of bank loan of $1.6 million, the repayment of $4.0 million to shareholder and payment of IPO related cost.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of approximately $1.3 million. Our current assets were approximately $45.2 million, including approximately $11.5 million accounts receivable, approximately $30.8 million inventory, approximately $0.9 million advance to suppliers and approximately $0.7 million prepayment and other receivables, and our current liabilities were approximately $18.1 million, including $2.7 million bank loan, $8.2 million accounts payable to suppliers, $1.2 million contract liabilities, $4.1 million income tax payable, and $1.0 million liabilities from obligations under operating and financing leases, which resulted in a positive working capital of $27.1 million.

Current wording

As of September 30, 2024, we had cash and cash equivalents of approximately $1.7 million. Our current assets were approximately $45.1 million, including approximately $11.6 million accounts receivable, approximately $30.9 million inventory, approximately $0.3 million advance to suppliers and approximately $0.6 million prepayment and other receivables, and our current liabilities were approximately $26.3 million, including $9.8 million accounts payable to suppliers, $3.6 million accrued payment on a legal judgment, $1.2 million contract liabilities, $2.1 million income tax payable, $6.4 million from a related party and $2.1 million liabilities from obligations under operating and financing leases, which resulted in a positive working capital of $18.8 million.

Previous wording

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

Current wording

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

Previous wording

Our capital expenditures consist primarily of expenditures for the purchase of fixed assets and equipment leases as a result of our business growth. Our capital expenditures amounted to approximately $341,852 and $24,661 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Our capital expenditures consist primarily of expenditures for the purchase of fixed assets and equipment leases as a result of our business growth. Our capital expenditures amounted to approximately $424,164 and $68,871 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

There were no off-balance sheet arrangements for the six months ended June 30, 2024 and 2023, that have, or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

Current wording

There were no off-balance sheet arrangements for the nine months ended September 30, 2024 and 2023, that have, or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

Previous wording

We provide a refund policy to accept returns from end customers, which varies and depends on the different products and customers. The estimated sales returns are determined based upon an analysis of historical sales returns. Return allowances are recorded as a reduction in sales with corresponding sales return liabilities which are included in “accrued return liabilities.” The estimated cost of returned inventory is recorded as a reduction to cost of sales and an increase of right of return assets which is included in “inventories.” As of June 30, 2024 and December 31, 2023, $202,273 and $283,276 of sales return liabilities associated with estimated product returns were recorded in the unaudited condensed consolidated balance sheet, respectively. During the three-month period ended June 30, 2024 and 2023, we recorded sales return credits of $398,058 and $425,906 respectively. During the six-month period ended June 30, 2024 and 2023, we recorded sales return credits of $823,763 and $1,105,428 respectively.

Current wording

We provide a refund policy to accept returns from end customers, which varies and depends on the different products and customers. The estimated sales returns are determined based upon an analysis of historical sales returns. Return allowances are recorded as a reduction in sales with corresponding sales return liabilities which are included in “accrued return liabilities.” The estimated cost of returned inventory is recorded as a reduction to cost of sales and an increase of right of return assets which is included in “inventories.” As of September 30, 2024 and December 31, 2023, $163,666 and $283,276 of sales return liabilities associated with estimated product returns were recorded in the unaudited condensed consolidated balance sheet, respectively. During the three-month period ended September 30, 2024 and 2023, the Company recorded sales returns of $317,188 and $223,428 respectively. During the nine-month period ended September 30, 2024 and 2023, the Company recorded sales returns of $824,978 and $1,975,270, respectively.

Previous wording

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 customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in cost of product sales in the period in which the related revenue is recognized. The determination of our warranty accrual is based on actual historical experience with the product, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. We estimate and adjust these accruals at each balance sheet date in accordance with changes in these factors. As of June 30, 2024 and December 31, 2023, $732,565 and $619,113 of product warranty were recorded in the unaudited condensed consolidated balance sheet, respectively. During the three-month period ended June 30, 2024 and 2023, we recorded warranty expenses of $459,366 and $583,047 respectively. During the six-month period ended June 30, 2024 and 2023, we recorded warranty expenses of $846,325 and $931,199 respectively.

Current wording

We generally provide a one-year limited warranty against defects in materials related to the sale of products. The Company considers the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in cost of product sales in the period in which the related revenue is recognized. The determination of the Company’s warranty accrual is based on actual historical experience with the product, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors. As of September 30, 2024 and December 31, 2023, $608,644 and $619,113 of product warranty were recorded in the unaudited condensed consolidated balance sheet, respectively. During the three-month period ended September 30, 2024 and 2023, the Company recorded warranty expenses of $234,314 and $576,602, respectively. During the nine-month period ended September 30, 2024 and 2023, the Company recorded warranty expenses of $1,102,494 and $1,521,902, respectively.

Previous wording

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 June 30, 2024 and December 31, 2023, we recorded allowance for credit loss of $0.8 million and $0.6 million in the consolidated balance sheet, respectively.

Current wording

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 September 30, 2024 and December 31, 2023, we recorded allowance for credit loss of $0.7 million and $0.6 million in the unaudited condensed consolidated balance sheet, respectively.

Previous wording

We assessed the net realizable value of each item of inventories and compared to the cost on the book, which include the cost of raw materials, freight and duty for raw materials, direct labor costs, and the overhead costs for finished goods at the end of each reporting period. In addition, we assessed all slow-moving or obsolete items for inventory valuation purposes. As of June 30, 2024 and December 31, 2023, we had inventory provision of $0.4 million and $0.4 million in the consolidated balance sheet respectively.

Current wording

We assessed the net realizable value of each item of inventories and compared to the cost on the book, which include the cost of raw materials, freight and duty for raw materials, direct labor costs, and the overhead costs for finished goods at the end of each reporting period. In addition, we assessed all slow-moving or obsolete items for inventory valuation purposes. As of September 30, 2024 and December 31, 2023, the Company had inventory provision of $329,900 and $439,900, included in inventories, net in the unaudited condensed consolidated balance sheet. Reversal of impairment provision of inventories were $110,000, $110,000, $nil and $nil for the three and nine months ended September 30, 2024 and 2023, respectively, included in cost of revenues in the unaudited condensed consolidated statement of operations and comprehensive income.

Previous wording

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 June 30, 2024 and December 31, 2023.

Current wording

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 September 30, 2024 and December 31, 2023, except one litigation discussed below.