Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion of our financial condition
and results of operations should be read in conjunction with the financial statements and the notes thereto included in this annual report.
The following discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the
forward-looking statements. See “ Item 1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements ”.
Overview
We are an EV company that is principally engaged
in designing, installing and selling E-motorcycles, E-bikes, E-scooters and related accessories under the brand “Fly E-Bike.”
At Fly E-Bike, our commitment is to encourage people to incorporate eco-friendly transportation into their active lifestyles, ultimately
contributing towards building a more environmentally friendly future.
Fly E-Bike was established in 2018 with its first store opened in New York.
Our business has grown rapidly since then and we are now one of the leading providers of E-bikes for food delivery workers in New York
City. As of June 27, 2024, we have 40 stores, including 39 stores in the U.S and one store in Canada. We also operate one online store
at flyebike.com, focusing on selling E-motorcycles, E-bikes and E-scooters, serving customers in the United States. In addition, we plan
to open a second online store focusing on selling gas bikes in the future. We plan to expand our presence in the United States and
extend our business into South America and Europe in the future.
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We have a diversified product portfolio that is designed to satisfy
the various demands of our customers and address different urban travel scenarios. Additionally, we aim to refresh our product offerings
continuously to align with evolving market trends. As of June 27, 2024, we offered 21 E-motorcycle products, 21 E-bike products and 34
E-scooter products.
We are currently in the process of developing
a Fly E-Bike app, which is a management service mobile software for our EVs. We aim to design an app that will bring users a comprehensive
intelligent experience to create a safer and more satisfying riding life. The development of the app is still in its preliminary stage.
We have launched a testing version of the app, which is currently unavailable to our customers. In December 2023, the Company engaged
DF Technology US Inc (“DFT”) for certain technology services, for example enterprise resource planning system (“ERP
system”). As of March 31, 2024, the Company paid $1,279,000 to DFT as prepayment for software development.
We source a significant portion of our vehicle
components from China and the United States, and then assemble them into our vehicles in a facility located in Brooklyn, New York.
For the year ended March 31, 2023, we produced 2,039 E-motorcycles, 5,953 E-bikes and 2,279 E-scooters at this facility. For the
year ended March 31, 2024, we produced 8,390 E-motorcycles, 7,638 E-bikes and 3,171 E-scooters at the same facility. In response to the
increasing demand for our products, we are currently looking to lease a larger assembling facility to replace our current facility in
the near future.
Recent Developments
Stock Split
In April 2024, we effected a stock split of our
authorized and all issued and outstanding shares of our common stock and preferred stock at a split ratio of 1-for-110,000,
where the par value of the Company’s common stock remained unchanged at $0.01 per share, and the number of authorized shares of
the Company’s capital stock was increased from 440 to 48,400,000, with the number of authorized shares of common stock and preferred
stock being increased from 400 to 44,000,000 and from 40 to 4,400,000, respectively. The issued and outstanding common stock and
preferred stock increased at a split ratio of 1-for-110,000.
The share number and related data in this annual report has been updated to reflect the stock split referenced above.
Initial Public Offering
On June 7, 2024, we sold 2,250,000 shares of common stock, at a price
of $4.00 per share in our IPO. The gross proceeds of the offering were $9.0 million, prior to deducting the underwriting discounts, commissions
and offering expenses payable by the Company. In addition, we granted the underwriters a 30-day option to purchase an additional 337,500
shares of common stock at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments. On
June 25, 2024, we sold an additional 337,500 shares of common stock to the underwriters of our IPO for gross proceeds of $1.4 million
upon full exercise of the underwriters’ over-allotment option. Net proceeds received by us from our initial public offering, including
the exercise of the over-allotment option, were approximately $9.2 million. We also issued to The Benchmark Company, LLC, the representative
of the underwriters, and its designees warrants to purchase 129,375 shares.
Impact of COVID-19
The United States Center for Disease Control announced
that the COVID-19 public health emergency ended in May 2023, with the result that the COVID restrictions in the United States are no longer
in effect and restrictions have been terminated worldwide. Although the anti-pandemic policies have been eased in China since the beginning
of 2023, it is uncertain whether the Chinese government will tighten its restrictive policies and measures again in the future. Furthermore,
the lingering impacts of COVID-19 may continue adversely affecting our supply chain, which in turn may materially and adversely affect
our business and results of operations. We rely on a global supply chain network,
with a significant portion of our supplies coming from China. Disruptions in this network, caused by factors such as COVID-19 lockdowns,
port congestion, and geopolitical tensions, had resulted in supply shortages and increased freight costs. These issues had resulted in,
and may continue to lead to, production delays and inventory shortages, affecting our ability to fulfill customer orders timely.
Although our business operations were not materially impacted because of measures we took during the lockdown period in China in 2022,
which included increasing order quantities for vehicle components and maintaining higher inventory levels, as well as avoiding heavy reliance
on a single vendor, there can be no assurance as to whether and to what extent these mitigation measures will be effective in the event
of future supply chain disruptions. Maintenance of high inventories can increase our costs and involve other risks. See “ Item
1A. Risk Factors – Risks Related to the Company’s Business, Operations, and Industry - Changes in our supply chain may result
in increased cost. If we are unsuccessful in our efforts to control and reduce supplier costs and manage inventory at optimal levels,
our operating results will suffer .”
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The global economic environment has experienced
significant inflationary pressures, affecting various cost components, including labor, raw materials, and transportation. As a result,
we face higher operating costs, which could impact our pricing strategies and profit margins. These challenges may lead to increased costs
for raw materials, longer lead times, and potential delays in product availability, which could adversely affect our profitability and
ability to meet customer demand.
In addition, if we encounter unexpected difficulties
with our principal vendors, and if we are unable to fill these needs from other vendors in a timely manner, we could experience production
delays and potential loss of access to important technology and parts for producing, servicing and supporting our vehicles. The loss of
any vendors or the disruption in the supply of components from these vendors could lead to design changes and delays in product deliveries
to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material
and adverse effect on our business, prospects, financial condition and operating results.
We are actively monitoring these developments
and implementing mitigation strategies, such as diversifying our supplier base, increasing inventory levels where feasible, and exploring
alternative logistics solutions. However, there can be no assurance that these measures will fully offset the adverse effects of inflation
and supply chain disruptions on our business.
Key Factors that Affect Operating Results
Our results of operations and financial condition
are affected by the general factors driving the U.S.’s electric two-wheeled vehicles industry, including, among others, the U.S.’s
overall economic growth, the increase in per capita disposable income, the expansion of urbanization, the growth in consumer spending
and consumption upgrades, the competitive environment, governmental policies and initiatives towards electric two-wheeled vehicles, as
well as the general factors affecting the electric two-wheeled vehicles industry in overseas markets. Unfavorable changes in any of these
general industry conditions could negatively affect demand for our products and materially and adversely affect our results of operations.
While our business is influenced by these general
factors, our results of operations are more directly affected by company specific factors, including the following major factors:
New Customers
Our growth will depend on our ability to achieve sales targets, including
our ability to attract new customers, which in turn depends in part on our ability to execute on our retail strategy and produce effective
marketing initiatives to expand our brand perception with prospective customers. As of June 27, 2024, we have 40 stores, including 39
stores in the U.S and one store in Canada. We also operate one online store, focusing on selling E-motorcycles, E-bikes, and E-scooters
and sell our product. It is critical for us to successfully manage production ramp-up and quality control to deliver to customers in adequate
volume and quality.
With respect to branding and marketing, we plan
to raise brand awareness through both traditional and social media channels and connect with customers through physical touchpoints such
as our retail stores and distributors. We believe that effective marketing can boost our brand awareness and contribute to increased sales.
In addition, we intend to provide superior customer experience through our trained technicians who will provide after-sale maintenance
and repair services at our retail stores. An inability to attract new customers would substantially impact our ability to grow revenue
or improve our financial results.
Product Sales Price and Volume
For the year ended March 31, 2024, our net revenues
increased by 47.9% to $32.2 million, compared to $21.8 million for the same period in 2023, which was primarily driven by increased product
sales volume and higher average sales price. In particular, the number of EVs sold increased by 7,389, or 65.6%, from 11,263 in the year
ended March 31, 2023 to 18,652 in the year ended March 31, 2024. The average sales price per EV increased by $19, or 2.0%, from $941 in
the year ended March 31, 2023 to $960 in the year ended March 31, 2024.
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In the future, our ability to increase our product
sales price and volume will depend on our ability to innovate in design and technology and offer products that meet the customers’
demand. We currently have a streamlined product portfolio consisting of three categories, with multiple models and specifications for
each category. Moreover, our ability to increase the sales price and volume will depend on our ability to continually enhance our brand
to attract customers, as well as our ability to successfully operate our retail stores and expand our sales network both domestically
and globally. However, our product sales price is influenced by various factors such as market demand and competitors’ pricing,
and although we continue working on product improvements and retail expansion, there can be no guarantee of sustained sales price increase
or improved sales volume. If our prices remain stable, increasing sales volume would become important for continued revenue growth, and
failure to do so would significantly impact our ability to grow revenue or improve our financial results.
Employees
Our payroll expenses were $2.9 million for
the fiscal year 2024, compared to $1.9 million for the fiscal year 2023. As our business expands, we expect increased payroll expenses
due to hiring more employees for our retail stores and corporate office. Each of our retail stores has a minimum of two employees, and
additional office employees will be hired to support retail stores in customer service and marketing. In addition, to maintain excellent
customer service in our retail stores, each store will have at least one trained repair professional, further contributing to the increase
in payroll expenses. An inability to effectively manage payroll expenses while expanding the business would significantly impact our ability
to grow revenue or improve our financial results.
Vendor and Supply Management
During the year ended March 31, 2024, we
worked with three principal vendors, Depcl Corp.(previously known as Fly Wing E-Bike Inc.), Xiamen Innolabs Technology Co., Ltd. and Anhui
Ineo International Trading Co., Ltd., each of which respectively supplied approximately 36.4%, 21.5% and 13.0% of the accessories and
components used in all our products for the year ended March 31, 2024.
We have implemented a centralized vendor management
system that streamlines purchasing, enhances our negotiating power and maintains strong vendor relationships. We believe this approach
delivers cost savings, improved risk management and increased negotiating power, ultimately benefiting our operating results. Changes
in costs related to our major vendors can significantly affect our financial condition and operating results.
Market Trends and Competition
We operate in a rapidly growing EV market with
a special focus on E-motorcycles, E-bikes and E-scooters. However, increased competition may pressure prices and margins, reducing sales
volume, revenues, and sales margin for us. Additionally, marketing and advertising costs may rise as we differentiate ourselves and maintain
our market position. Moreover, competitors may impact customer acquisition and retention, satisfaction and loyalty. While we believe we
maintain competitive advantages in several areas, including brand, product design and quality, smart features, omnichannel retail model,
customer satisfaction and loyalty, we must continuously innovate, invest in research and development and marketing to maintain our competitive
edge and unique selling points.
Regulatory Landscape
We operate in an industry that is subject to extensive
environmental, safety and other laws and regulations, which include products safety and testing, as well as battery safety and disposal.
These requirements create additional costs and possible production delay in connection with the testing and manufacturing of our products.
We also benefit from environmental regulations in our target markets which include economic incentives to purchasers of EVs and tax credits
for EV manufacturers. As such, while we expect environmental regulations to provide a tailwind to our growth, it is possible for other
regulations to result in margin pressures.
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How to Assess Our Performance
In assessing performance, management considers
a variety of performance and financial measures, including principal growth in net sales, gross profit, gross margin, selling, general
and administrative expenses and EBITDA. The key measures that we use to evaluate the performance of our business are set forth below.
Net Sales
We generate revenue from sales of our EVs, their
accessories and spare parts, and provision of repair services at our retail stores. Our net sales comprise gross sales net of discounts
and return allowances. We do not record sales taxes as a component of retail revenues as we consider it a pass-through conduit for collecting
and remitting sales taxes. Return allowances, which reduce net revenues, are estimated based on historical experience.
E-bikes, E-motorcycles and
E-scooters sales. We generate a substantial majority of our revenues from sales of E-bikes, E-motorcycles and
E-scooters directly to customers through our online store and retail stores, and to our distributors.
Accessories and spare parts
sales. We also sell accessories and spare parts for our EVs, such as rear storage boxes and front baskets.
In addition, we offer Fly E-Bike branded accessories and general merchandise, such as decorative car plates, key chains and apparel.
Service revenues. We
also provide repair services at our retail stores for a fee.
Cost of Sales
Cost of sales includes product costs, warehouse
rent expenses, payroll costs, depreciation costs, inventory reserves, warranty costs, and logistic costs. The logistic costs incurred
to receive products from our vendors are included in our inventory and recognized as cost of sales upon sale of products to our customers.
Gross Profit and Gross Margin
We calculate gross profit as net sales less cost
of revenue. Gross margin represents gross profit as a percentage of net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily
consist of retail operational expenses, salaries and benefits costs, marketing, advertising, and corporate overhead.
Marketing costs primarily consist of advertising
and payroll and related expenses for personnel engaged in marketing and selling activities.
We expect that our selling and marketing expenses
will continue to increase in the foreseeable future, as we plan to further expand our sales network and retail channels, and engage in
more selling and marketing activities to enhance our brand and attract more purchases from new and existing customers.
General and administrative expenses primarily
consist of costs for corporate functions, including payroll and related expenses, facilities and equipment expenses, such as depreciation
and amortization expense and rent, and professional fees. We expect that our general and administrative will increase in the foreseeable
future, as we hire additional personnel and incur additional expenses related to the anticipated growth of our business and our operation
as a public company after the completion of our initial public offering.
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Non-GAAP Financial Measures
To supplement our financial information presented
in accordance with the generally accepted accounting principles in the United States (the “U.S. GAAP”), management
periodically uses certain “non-GAAP financial measures,” as such term is defined under the rules of the SEC, to clarify and
enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure
of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or
excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example, non-GAAP
measures may exclude the impact of certain items such as acquisitions, divestitures, gains, losses and impairments, or items outside of
management’s control. Management believes that the following non-GAAP financial measure provides investors and analysts useful insight
into our financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative
to, the most directly comparable measure determined in accordance with U.S. GAAP. Further, the calculation of these non-GAAP
financial measures may differ from the calculation of similarly titled financial measures presented by other companies and therefore may
not be comparable among companies.
We use EBITDA (earnings before interest, taxes,
depreciation, and amortization) to evaluate our operating performance. We believe EBITDA provides additional insight into our underlying,
ongoing operating performance and facilitates year-to-year comparisons by excluding the earnings impact of interest, tax, depreciation
and amortization and that presenting EBITDA is more representative of our operational performance and may be more useful for investors.
We reconcile our non-GAAP financial measure to
our net income, which is our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. EBITDA
includes adjustments for provision for income taxes, as applicable, interest income and expense, depreciation, and amortization. EBITDA
does not represent and should not be considered an alternative to net income as determined by U.S. GAAP, and our calculations thereof
may not be comparable to those reported by other companies. We believe EBITDA is an important measure of operating performance and provides
useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on
U.S. GAAP measures and because it eliminates items that have less bearing on our operating performance. EBITDA, as presented herein,
is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. We use non-GAAP
financial measures as supplements to our U.S. GAAP results in order to provide a more complete understanding of the factors and trends
affecting our business. EBITDA is a measure of operating performance that is not defined by U.S. GAAP and should not be considered
a substitute for net (loss) income as determined in accordance with U.S. GAAP.
EBITDA along with a reconciliation to net income
is shown within the Results of Operations below.
Results of Operations for the Years Ended
March 31, 2024 and 2023
The following table sets forth
the components of our results of operations for the years ended March 31, 2024 and 2023:
For the Year Ended March 31,
2024
2023
Change
Percentage
Change
Revenues, Net
$ 32,205,666
$ 21,774,937
$ 10,430,729
47.9 %
Cost of Revenues
19,099,120
13,485,405
5,613,715
41.6 %
Gross Profit
13,106,546
8,289,532
4,817,014
58.1 %
Operating Expenses
Selling Expenses
5,914,786
3,667,227
2,247,559
61.3 %
General and Administrative Expenses
3,931,203
2,309,927
1,621,276
70.2 %
Total Operating Expenses
9,845,989
5,977,154
3,868,835
64.7 %
Income from Operations
3,260,557
2,312,378
948,179
41.0 %
Other Expenses, Net
(30,352 )
(11,524 )
(18,828 )
163.4 %
Interest Expenses, Net
(152,050 )
(100,387 )
(51,663 )
51.5 %
Provision for Income Taxes
(1,182,933 )
(821,896 )
(361,037 )
43.9 %
Net Income
$ 1,895,222
$ 1,378,571
$ 516,651
37.5 %
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Revenues
For the Year Ended March 31,
2024
2023
Change
Percentage
Change
Sales-Retail
$ 26,389,720
$ 18,844,921
$ 7,544,799
40.0 %
Sales-Wholesale
$ 5,815,946
$ 2,930,016
$ 2,885,930
98.5 %
Total Net Revenues
$ 32,205,666
$ 21,774,937
$ 10,430,729
47.9 %
Our net revenues were $32.2 million for the year ended March 31,
2024, an increase of $10.4 million, or 47.9%, from $21.8 million for the year ended March 31, 2023. The increase in our
net revenues was driven primarily by the increase of the average sale price of our EVs by $19 or 2.0%, from $941 in the year ended March
31, 2023 to $960 in the year ended March 31, 2024, and our sales volume of EVs increased by 7,389 units, from 11,263 units in
the year ended March 31, 2023 to 18,652 units in the year ended March 31, 2024.
Our retail sales revenue increased by $7.5 million,
or 40.0%, from $18.8 million for the year ended March 31, 2023 to $26.4 million for the year ended March 31, 2024.
Our wholesale revenue increased by $2.9 million, or 98.5%, from $2.9 million for the year ended March 31, 2023 to $5.8 million
for the year ended March 31, 2024.
Cost of Revenues
Cost of revenues increased by $5.6 million,
or 41.6%, from $13.5 million for the year ended March 31, 2023, to $19.1 million for the year ended March 31, 2024.
The increase in cost of revenues was primarily attributable to the increase in sales volume mentioned above and increase in logistics
costs as the Company sourced and imported more EV parts and accessories outside the United States during the year ended March 31,
2024.
Gross Margin
The following table shows our gross profit and gross margin for the
years ended March 31, 2024 and 2023:
For the Year Ended March 31,
2024
2023
Change
Percentage
Change
Gross Profit
$ 13,106,546
8,289,532
4,817,014
58.1 %
Gross Margin
40.7 %
38.1 %
Gross profit was $13.1 million and $8.3 million for the year
ended March 31, 2024 and 2023, respectively. Gross margin was 40.7% and 38.1% for the years ended March 31, 2024 and 2023,
respectively. The increase in gross profit and gross margin was a result of higher average per unit selling price, increasing from $941
for the year ended March 31, 2023 to $960 for the year ended March 31, 2024. These improvements were driven by product upgrades, enhanced
sales channels, and an improved brand image in the market.
Total Operating Expenses
The following table sets forth the components
of our total operating expenses for the years ended March 31, 2024 and 2023:
For the Year Ended March 31,
2024
2023
Change
Percentage
Change
Selling Expenses
$ 5,914,786
3,667,227
2,247,559
61.3 %
General and Administrative Expenses
3,931,203
2,309,927
1,621,276
70.2 %
Total Operating Expenses
$ 9,845,989
5,977,154
3,868,835
64.7 %
Percentage of Revenue
30.6 %
27.4 %
Total operating expenses were $9.8 million
for the year ended March 31, 2024, an increase of $3.8 million, or 64.7%, compared to $6.0 million for the year ended March 31,
2023. The increase in operating expenses was attributable to the increase in our payroll expenses, rent expenses, meals and entertainment
expenses, professional fees, and development expenses as we expanded our business.
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Selling Expenses
Selling expenses primarily consist of payroll
expenses, rent and utilities expenses of retail stores and other sales and marketing expenses. Total payroll expenses were $1.6 million
for the year ended March 31, 2024, compared to $1.4 million for the year ended March 31, 2023. Rent expenses were $2.4 million
for the year ended March 31, 2024, compared to $1.7 million for the year ended March 31, 2023. Because delivery drivers
are our main retail customers, customer referral is the most effective way to market promotion. August through November is the low-season
comparing to other months, as such, the Company focuses on client referrals during this period to boost sales. As a result, our marketing
referral expense increased to $1.1 million for the year ended March 31, 2024, compared to $15,756 for the year ended March 31,
2023. Utilities expenses were $0.16 million for the year ended March 31, 2024, compared to $0.13 million for the year
ended March 31, 2023. The increase in these expenses was primarily due to the increase in the number of new stores and new employees
hired for these new stores in the year ended March 31, 2024.
General and Administrative Expenses
Various general and administrative expenses increased
during the year ended March 31, 2024 compared to the previous year. Meals and entertainment expenses increased to $0.4 million
for the year ended March 31, 2024, compared to $0.3 million for the year ended March 31, 2023, primarily due to increased
meal expenses for employees who worked overtime. Professional fees increased to $1.0 million for the year ended March 31, 2024,
compared to $0.7 million for the year ended March 31, 2023, primarily attributable to the increase in audit fee, consulting
fee, and legal expenses associated with our initial public offering. Payroll expenses increased to $1.1 million for the year
ended March 31, 2024 from $0.5 million for the year ended March 31, 2023 primarily due to additional employees hired in operation
and accounting departments. Rent expenses increased to $0.2 million for the year ended March 31, 2024, compared to $0.1 million
for the prior year as a result of office space expansion in the year ended March 31, 2024.
Other Expenses, Net
Other expenses were $30,352 for the year ended March 31, 2024
and $11,524 for the year ended March 31, 2023. The increase in other expenses was primarily due to a settlement payment of $43,701
related to an incident at one of our retail stores, partially offset by the Company’s receipt of the
New York State Seed Funding for small business of $15,202 and a one-time promotion bonus of $4,655 from an online sales platform we use
during the year ended March 31, 2024.
Income Tax Provisions
Provisions for income taxes were $1.2 million
for the year ended March 31, 2024, an increase of $0.4 million from $0.8 million for the year ended March 31, 2023.
This increase was due to our increased taxable income for the year ended March 31, 2024.
Net Income
Net income was $1.9 million for the year ended March 31,
2024, an increase of $0.5 million, or 37.5%, from $1.4 million for the year ended March 31, 2023, which was mainly attributable
to the reasons discussed above.
EBITDA
The following table sets forth the components of
our EBITDA for the years ended March 31, 2024 and 2023:
For the Year Ended March 31,
2024
2023
Change
Percentage
Change
Net Income from Operations
$ 1,895,222
$ 1,378,571
$ 516,651
37.5 %
Income Tax Provision
1,182,933
821,896
361,037
43.9 %
Depreciation
272,708
145,783
126,925
87.1 %
Interest Expenses
152,050
100,387
51,663
51.5 %
Amortization
1,648
—
1,648
100 %
EBITDA
$ 3,504,561
$ 2,446,637
$ 1,057,924
43.2 %
Percentage of Revenue
10.9 %
11.2 %
(0.3 )%
Before interest expenses, income tax, depreciation, and amortization,
for the year ended March 31, 2024, our net income was $3.5 million, an increase of $1.1 million, compared to $2.4 million
for the year ended March 31, 2023, which was mainly attributable to the increase in sales described above. The ratio of EBITDA to
revenue was 10.9% and 11.2% for the year ended March 31, 2024 and 2023, respectively.
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Liquidity and Capital Resources
As of March 31, 2024, we had cash of $1.4 million. We had working
capital of $0.34 million and $0.59 million as of March 31, 2024 and 2023, respectively. We had net income of $1.9 million
and $1.4 million for the year ended March 31, 2024 and 2023, respectively.
We had funded our working capital and other capital
requirements in the past primarily by equity contributions from our stockholders, cash flow from operations, and bank loans. Our ability
to repay our current obligation will depend on the future realization of our current assets. Management has considered the historical
experience, the economy, trends in the retail industry, the expected collectability of the accounts receivable and the realization of
the inventories as of March 31, 2024. Our ability to continue to fund working capital and other capital requirements may be affected
by general economic, competitive and other factors, many of which are outside of our control.
On June 7, 2024, we sold 2,250,000 shares of common stock, at a price
of $4.00 per share in our IPO. The gross proceeds of the offering were $9.0 million, prior to deducting the underwriting discounts, commissions
and offering expenses payable by us. Net proceeds received by us from IPO were approximately $7.9 million. On June 25, 2024, we sold an
additional 337,500 shares of common stock to the underwriters of our IPO for gross proceeds of $1.4 million upon full exercise of the
underwriters’ over-allotment option and received net proceeds of $1.2 million. We believe our cash on hand will be sufficient to
meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We may, however, need additional
cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources
in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine
that our cash requirements exceed the amount of cash we have on hand, we may seek to issue equity or equity linked securities or obtain
debt financing. The issuance and sale of additional equity would result in further dilution to our stockholders. The incurrence of indebtedness
would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure
you that financing will be available in amounts or on terms acceptable to us, if at all.
Our accounts receivable represent primarily accounts receivable from
the distributors that purchased our EVs and other products. As of March 31, 2024 and 2023, our accounts receivable, net of allowance
for credit losses, was $0.5 million and $0.5 million, respectively. Our accounts receivable turnover period increased slightly
from 68 days in the year ended March 31, 2023 to 69 days in the year ended March 31, 2024.
Our accounts payable represent primarily accounts payable to suppliers
from whom we purchased accessories and components for our products. As of March 31, 2024 and 2023, our accounts payable were $1.2 million
and $1.0 million, respectively. Our accounts payable turnover period decreased to 25 days for the year ended March 31, 2024
from 49 days for the year ended March 31, 2023, which was primarily the result of the Company’s switch to a new vendor and the settlement
of one vendor’s balance during this year.
Our inventories primarily include our EVs, their
accessories and spare parts. As of March 31, 2024 and 2023, our inventories, net of allowance, were $5.4 million and $3.8 million,
respectively. The increase in inventories was primarily due to our anticipation of future sales growth. Our inventory turnover days
decreased to 89 days in the year ended March 31, 2024, from 114 days in the year ended March 31, 2023, which was primarily due to our
enhanced supply chain management, allowing us to convert our inventory into sales more efficiently.
For the year ended March 31, 2024 and 2023, the interest expenses
on our outstanding loans amounted to $152,050 and $100,387, respectively. See Note 8 to the Consolidated Financial Statements
included within this annual report for further information on details of our outstanding loans.
The following table summarizes our cash flow data for the years ended
March 31, 2024 and 2023:
For the Year Ended
March 31,
2024
2023
Net Cash Provided by Operating Activities
$ 4,308,920
$ 1,757,139
Net Cash Used in Investing Activities
(3,200,843 )
(442,915 )
Net Cash Used in Financing Activities
(49,628 )
(1,350,364 )
Net Change in Cash
$ 1,058,449
$ (36,140 )
37
Operating Activities
Net cash provided by operating activities for
the year ended March 31, 2024 was $4.3 million, which was mainly comprised of net income of $1.9 million, amortization
of right-of-use assets of $2.3 million and inventories reserve of $0.5 million, an increase in account payable of $2.5 million,
an increase in tax payable of $0.6 million, and an increase of accrued expenses and other payables of $0.3 million, offset by an
increase in inventories of $2.0 million, and a decrease in operating lease liabilities of $1.9 million.
Net cash provided by operating activities for the year ended March 31,
2023 was $1.8 million, which was mainly comprised of net income of $1.4 million, deferred income tax expenses of $0.4 million,
amortization of right-of-use assets of $1.9 million, inventories reserve of $0.2 million, and a decrease in inventories of
$0.6 million, offset by an increase in account receivable of $0.5 million, an increase in prepayments of $0.6 million and a
decrease in operating lease liabilities of $1.7 million.
Investing Activities
Net cash used in investing activities was $3.2 million for the
year ended March 31, 2024, which was due to purchase of software from a related party of $1.3 million, the purchase of equipment
of $1.3 million, advance to related parties of $0.3 million, a prepayment for purchase of property of $0.5 million and
the purchase of property rights of $0.03 million, offset by repayment from related parties of $0.1 million.
Net cash used in investing activities was $0.4
million for the year ended March 31, 2023, which was due to the purchase of equipment of $0.4 million.
Financing Activities
Net cash used in financing activities was $0.05 million
for the year ended March 31, 2024, which consisted of deferred IPO cost of $0.2 million, repayments of loan payables of $0.6
million, repayments to related parties on other payables of $0.3 million and payments of related party loan of $0.2 million, offset by
borrowings from loan payable of $1.1 million and capital contributions from stockholders of $0.1 million.
Net cash used in financing activities was $1.4 million for the
year ended March 31, 2023, which consisted of repayments to related parties and loan payable of $2.8 million, deferred IPO cost
of $0.1 million, offset by borrowings from loan payable of $1.5 million.
Commitments and Contractual Obligations
The following table presents our material
contractual obligations as of March 31, 2024:
Contractual Obligations
Total
Less than
1 year
1 – 2 years
3 – 5 years
Thereafter
Operating Lease Obligations and others
$ 16,839,623
2,852,744
6,056,347
5,296,144
2,634,388
Loan Payable
1,626,059
1,213,242
270,127
142,690
—
Purchase Commitment of ERP System
946,000
946,000
—
—
—
Purchase Commitment of Office
Property
3,144,000
1,589,700
1,554,300
—
—
Total Contractual Obligations
$ 22,555,682
6,601,686
7,880,774
5,438,834
2,634,388
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements
or other contractual arrangements that would result in off-balance sheet liabilities.
Quantitative and Qualitative Disclosures about
Market Risk
Foreign Exchange Risk
A substantial majority of all of our revenues
and expenses are denominated in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk
and have not used any derivative financial instruments to hedge exposure to such risk. In addition, as our business and operation expand
in European and other overseas markets in the future, we may be exposed to increased foreign exchange risks for other currencies.
38
Interest Rate Risk
Our exposure to interest rate risk primarily relates
to the interest expenses on our short-term and long-term bank borrowings. Our short-term and long-term bank borrowing bears interests
at fixed rates. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates.
However, our future interest expenses may exceed expectations due to changes in market interest rates. If we were to renew these short-term
and long-term bank borrowings, we might be subject to interest rate risk.
Critical Accounting Estimates
An accounting estimate is considered critical if it requires to be
made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates
that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur periodically, could materially
impact the consolidated financial statements.
We prepare our consolidated financial statements in conformity with
U.S. GAAP, which requires us to make estimates and assumptions. We continually evaluate these estimates and assumptions based on the most
recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the
circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from
our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others
in their application and require us to make significant accounting estimates.
When reading our consolidated financial statements,
you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of
such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and
practices include the following: (i) revenue recognition; and (ii) income taxes. See “ Note 2 — Summary of
Significant Accounting Policies ” to our consolidated financial statements for the disclosure of these accounting policies.
We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.
Estimated Allowance for Inventories
Our estimated allowance for the inventory obsolescence
reserves is based on our assessment of realization of inventory. Adjustments are recorded to write down the cost of inventories to the
estimated net realizable value due to slow-moving merchandise and obsolescence, which is dependent upon factors such as inventory aging,
historical and forecasted consumer demand, and market conditions that impact pricing. As of March 31, 2024 and 2023, we recorded
inventory allowance balance of $514,021 and $431,363, respectively.
Product Warranties
We provide a three-month warranty on our vehicles
and the battery pack. We accrue warranty reserves at the time a vehicle is delivered to the customer. Warranty reserves include our best
estimate of the projected cost to repair or to replace any items under warranty, based on actual warranty experience as it becomes available
and other known factors that may impact our evaluation of historical data. We review our reserves regularly to ensure that our accruals
are adequate in meeting expected future warranty obligations, and we will adjust our estimates as needed. Factors that could have an impact
on the warranty reserve include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods,
product recalls and changes in sales volume. Warranty expense is recorded as a component of cost of revenues in the statement of operations.
The portion of the warranty provision which is expected to be incurred within three months from the balance sheet date will be classified
as current and classified as short-term liabilities. The Company accrued $27,714 and $22,056 of warranty reserves under accrued expenses
and other payables as of March 31, 2024 and 2023, respectively.
Income Taxes
We provide current income tax expenses in accordance
with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, we are required to estimate
our income taxes in each of the tax jurisdictions in which we operate, including New York State, New York City, New Jersey,
Texas, Florida, California, Washington, D.C. and Canada.
We account for income taxes using the asset and
liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years based on differences
between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to
reverse.
A valuation allowance is recorded to reduce deferred
tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized in the foreseeable
future. As of March 31, 2024 and 2023, we did not record any valuation allowance deferred tax assets.
39
We record uncertain tax positions in accordance
with ASC 740 on the basis of a two-step process in which (1) we determines if the weight of available evidence indicates that
it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation
processes, and (2) measures the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement.
An uncertain income tax provision will not be recognized if it has less than a 50 percent likelihood of being sustained.
We consider many factors when evaluating our tax positions and estimating
its tax benefits, which may require periodic adjustments, and which may not accurately forecast actual outcomes. We will include interest
and fines arising from the underpayment of income taxes as a component of the provision for income taxes (if anticipated). Penalties and
interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. For the year ended
March 31, 2024, the Company accrued $60,487 income tax related penalty included in taxes payable in the consolidated balance sheets. For
the year ended March 31, 2023, no penalties and interest incurred related to underpayment of income tax are classified as income tax expense
in the period incurred. As of March 2024, and 2023, we did not have any significant unrecognized uncertain tax positions.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary
Data
The financial statements start on Page F-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures
Not applicable.