Massimo Group

Previous wording

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 .”

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Report and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“fiscal 2024”), as filed with the Securities and Exchange Commission (the “SEC”), on March 26, 2025 and as amended 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.”

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

We currently generate most of our revenues from the sales of UTVs and ATVs, which represented 93.1% and 96.7% of total revenue for the three months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, revenue from sales of UTVs and ATVs represented 97.7% and 96.0% of total revenue, respectively.

Previous wording

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.

Current wording

We also generate revenue from the sales of Pontoon Boats, which represented 6.9% and 3.3% of our revenue for the three months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, revenue from the sales of Pontoon Boats represented 2.3% and 4.0% of our revenue, respectively.

Previous wording

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.

Current 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, 2025 and 2024 in U.S. dollars, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

Previous wording

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.

Current wording

The cost of revenue on UTVs, ATVs and e-bikes decreased by $12.0 million, or 52.7%, from $23.0 million in the second quarter of fiscal 2024 to $11.0 million in the second quarter of fiscal 2025, and the gross profit decreased by $4.5 million, or 40.1%, from $11.2 million in the second quarter of fiscal 2024 to $6.7 million in the second quarter of fiscal 2025. The gross margin increase by 5.4%, from 32.8% in the second quarter of fiscal 2024 to 38.2% in the second 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.

Previous wording

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.

Current wording

Our selling expenses mainly include warranty expense, advertising and promotion expense, shipping and handling fee and merchant service fee. These expenses decreased by $0.9 million, or 30.4%, from $3.1 million in the second quarter of fiscal 2024 to $2.2 million in the second quarter of fiscal 2025, representing 11.4% and 8.7% of our total revenue in the second quarter of fiscal 2025 and fiscal 2024, respectively. The decrease was primarily driven by a $0.5 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.

Previous wording

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.

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 $0.3 million, or 8.1%, from $4.1 million in the second quarter of fiscal 2024 to $4.4 million in the second quarter of fiscal 2025. The increase was mainly due to increased salaries and benefits and rent expense, which were partly offset by a decrease in professional and legal fees and impairment loss. Our general and administrative expenses represented 23.4% and 11.6% of our total revenue in the second quarter of fiscal 2025 and the second quarter of fiscal 2024, respectively.

Previous wording

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.

Current wording

Our rent expenses increased by $0.1 million or 17.1%, from $0.5 million in the second quarter of fiscal 2024 to $0.6 million in the second quarter of fiscal 2025, representing 14.0% and 12.9% of our total general and administrative expenses in the second quarter of fiscal 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.

Previous wording

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.

Current wording

Our professional fees decreased by $0.2 million or 33.0%, from $0.6 million in the second quarter of fiscal 2024 to $0.4 million in the second quarter of fiscal 2025, representing 8.4% and 13.6% of our total general and administrative expenses in the second quarter of fiscal 2025 and 2024, respectively. The decrease was primarily attributable to fewer ongoing lawsuits cases that require legal consulting service in the second quarter of fiscal 2025 when compared with same period in last year.

Previous wording

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.

Current wording

Our interest expense decreased by $2,943 or 4.4%, from $66,647 in the second quarter of fiscal 2024 to $63,704 in the second quarter of fiscal 2025. The decrease in interest expense was mainly because we did not have any bank loans during the period but we recorded a bank charge $50,409 to establish a letter of credit.

Previous wording

(Recovery of) Provision for income taxes

Current wording

Provision for income taxes

Previous wording

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.

Current wording

We had net income of $0.08 million and $2.8 million in the second quarter of fiscal 2025 and 2024, respectively. The decrease was primarily due to decreased revenues and gross profit, offset by a decrease in operating expenses as discussed above.

Previous wording

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.

Current wording

Revenues decrease by $31.7 million, or 48.4%, from $65.6 million for the six months ended June 30, 2024, to $33.8 million for the six months ended June 30, 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.

Previous wording

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.

Current wording

Revenue from sales of UTVs, ATVs and e-bikes decreased by $29.9 million, or 47.5%, from $62.9 million for the six months ended June 30, 2024 to $33.0 million for the six months ended June 30, 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.

Previous wording

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.

Current wording

Revenue from sales of Pontoon Boats decrease by $0.8 million, or 30.7%, from $2.6 million for the six months ended June 30, 2024 to $1.8 million for the six months ended June 30, 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.

Previous wording

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.

Current wording

Our salaries and benefits were $3.3 million and $2.8 million, representing 38.6% and 34.5% of our total general and administrative expenses for the six months ended June 30, 2025 and 2024, 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.

Previous wording

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.

Current wording

Our other income of $105,300 for the six months ended June 30, 2025, compared with $379,837 for the six months ended June 30, 2024, decreased by $274,537, or 72.3%. We wrote off a vendor’s account payable balance by $177,147 as a result of a settlement between the vendor and the Company for the six months ended June 30, 2024, which was one-off income. However, we did not have such income in the current same period.

Previous wording

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.

Current wording

We did not have current income tax for the six months ended June 30, 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. For the six months ended June 30, 2024, we had current income tax of $1.7 million arising from net assessable income.

Previous wording

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:

Current wording

Net cash used in operating activities was approximately $4.7 million during the six months ended June 30, 2025, compared to net cash provided by operating activities of approximately $7.1 million during the six months ended June 30, 2024, representing an increase in the net cash used in operating activities of $2.4 million during the six months ended June 30, 2025 compared with the same period in 2024. The decrease is primarily due to the following:

Previous wording

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.

Current wording

Net cash used in investing activities was nil for the six months ended June 30, 2025 compared to net cash used in investing activities of $179,851 for the same period last year. We made a fixed deposit of $3.0 million with a bank in the first quarter of fiscal 2025 and had a proceed from the bank in the second quarter of fiscal 2025. During the same period in fiscal 2024, we had purchased 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.

Previous wording

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.

Current wording

As of June 30, 2025, we had cash and cash equivalents of approximately $2.4 million. Our current assets were approximately $35.3 million, including approximately $8.2 million accounts receivable, approximately $23.4 million inventory, approximately $0.3 million advance to suppliers and approximately $1.0 million prepayment deposit and other receivables, and our current liabilities were approximately $19.4 million, including $6.2 million accounts payable to suppliers, $6.2 million other payable, accrued expenses and other current liabilities, $0.9 million contract liabilities, $1.1 million income tax payable, $2.5 million loan from a related party and $2.1 million liabilities from obligations under operating and financing leases, which resulted in a positive working capital of $15.9 million.

Previous wording

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.

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 meet operational needs solely by utilizing cash flow generated from our operating activities.

Previous wording

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.

Current wording

Our capital expenditures consists primarily of expenditures for the purchase of fixed assets and equipment leases as a result of our business growth. Our capital expenditures amounted to nil and $341,852 for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

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.

Current wording

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

Previous wording

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.

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 June 30, 2025 and December 31, 2024, $31,645 and $261,588 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 $15,139 and $398,058 respectively. During the six-month period ended June 30, 2025 and 2024, we recorded sales return credits of $1,198,208 and $823,763 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 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.

Current 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, 2025 and December 31, 2024, $301,645 and $503,553 of product warranty were recorded in the unaudited condensed consolidated balance sheet, respectively. During the three-month period ended June 30, 2025 and 2024, we recorded warranty expenses of $5,687 and $459,366 respectively. During the six-month period ended June 30, 2025 and 2024, we recorded warranty expenses of $125,419 and $846,325 respectively .

Previous wording

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.

Current wording

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 retainage receivable, we use the individual specific valuation method to estimate the credit loss.

Previous wording

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.

Current wording

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 June 30, 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, nil, nil and nil for the three and six months ended June, 2025 and 2024, respectively, included in cost of revenues in the 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 March 31, 2025, except one litigation discussed below.

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 of June 30, 2025.