Fly-E Group, Inc 10-K for FY2024
Fly-E Group, Inc. (FLYE)
About this 10-K
Fly-E Group, Inc filed this 10-K on June 28, 2024, covering the fiscal year ended March 31, 2024 (FY2024).
Headline figures
Fiscal year ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $32.21M
- up 47.9% from $21.77M a year earlier
- Net income
- $1.9M
- up 37.5% from net income of $1.38M a year earlier
UNITED STATES
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Washington, D.C. 20549
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any annual report filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None.
Table of Contents
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
| ● | our ability to obtain additional funding to market our vehicles and develop new products; |
| ● | our ability to produce our vehicles with sufficient volume and quality to satisfy customers; |
| ● | the inability of our principal vendors to deliver the necessary components for our vehicles at prices and volumes acceptable to us; |
| ● | our principal vendors failing to perform quality control on our products; |
| ● | the inability to obtain sufficient intellectual property protection for our brand and technologies; |
| ● | our vehicles failing to perform as expected; |
| ● | our facing product warranty claims or product recalls; |
| ● | our facing adverse determinations in significant product liability claims; |
| ● | customers not adopting electric vehicles; |
| ● | the development of alternative technology that adversely affects our business; |
| ● | the lingering impact of COVID-19 on our business; |
| ● | increased government regulation of our industry; and |
| ● | tariffs and currency exchange rates. |
The forward-looking statements contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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Part I
Item 1. Business
Overview
Fly-E Group, Inc. (“Fly-E Group,” and collectively with its subsidiaries, the “Company,” “we” or similar terminology), is an electric vehicle (“EV”) company that is principally engaged in designing, installing and selling smart electric motorcycles (“E-motorcycles”), electric bikes (“E-bikes”), electric scooters (“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.
Our first store was established in 2018 in New York. Our business has grown rapidly since then and we believe 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 United States 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.
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 build our smart E-bikes based on advanced and innovative technologies, including smart technologies, powertrain and battery technologies and automotive inspired functionalities. Adhering to our user-centric philosophy in product design, we collect user feedback and product performance data to develop new products or functionalities to satisfy unmet demand. All our products are designed to embody themes of style, freedom and technology. Some of our E-bikes are specifically designed for food delivery workers and are featured with longer battery life and stable backseat for holding a basket. In addition, we designed an easy battery swap system for these E-bikes, allowing food delivery workers to easily replace a fully charged battery at any of our stores within a minute.
Our net revenues were approximately $32.2 million for the year ended March 31, 2024, consisting of retail sales revenue of approximately $26.4 million and wholesale revenue of $5.8 million. Our net revenues were approximately $21.8 million for the year ended March 31, 2023, consisting of retail sales revenue of approximately $18.8 million and wholesale revenue of approximately $2.9 million.
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 shares of our common stock immediately following the split were increased to 22,000,000. 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 initial public offering (the “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 underwriter of our IPO for gross proceeds of $1.4 million upon full exercise of the overallotment 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 of our common stock.
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Our History and Corporate Structure
We initially started our business in 2018 as Ctate Inc. (“Ctate”), a New York corporation. Our business has experienced rapid growth since then and we opened multiple retail stores within a short period of time. In the interest of efficient management, each retail store was managed by a separate company wholly owned by Ctate.
Fly E-Bike, Inc. (“Fly E-Bike”), a Delaware corporation, was a wholly owned subsidiary of Ctate incorporated on August 22, 2022. On September 12, 2022, Ctate and Fly E-Bike entered into an Agreement and Plan of Merger, pursuant to which Ctate merged into and with Fly E-Bike, with Fly E-Bike being the surviving corporation.
Fly-E Group, a Delaware corporation, was incorporated on November 1, 2022. On December 21, 2022, Fly E-Bike, the stockholders of Fly E-Bike and Fly-E Group entered into a Share Exchange Agreement, pursuant to which Fly-E Group acquired all of the issued and outstanding shares of Fly E-Bike by issuing its shares to the stockholders of Fly E-Bike on a one-for-one basis (the “Share Exchange”). As a result of the Share Exchange, Fly E-Bike became a wholly owned subsidiary of Fly-E Group. Fly-E Group has no substantive operations other than holding all of the issued and outstanding shares of Fly E-Bike and Fly EV, Inc. Our business is primarily conducted through Fly E-Bike and its subsidiaries. Fly EV. Inc. is a Delaware corporation incorporated on November 1, 2022 and currently has no substantive operations.
Our Industry
E-motorcycles, E-bikes and E-scooters are the two-wheelers that run on electric energy that is converted into mechanical energy rather than running on fuel. They are chargeable and eco-friendly automotive solutions. E-motorcycles and E-bikes are built with solid metal and fiber frames that are combined with mechanical and electronic components. An E-scooter is a plug-in EV powered by electric power. These scooters offer additional advantages such as agility, flexibility, versatility and ease of maneuver in high traffic congestion areas.
The EV industry has been experiencing significant growth and innovation in recent years. With the advancement of technology and the increasing demand for environmentally friendly transportation options, E-bikes, E-motorcycles and E-scooters have become popular choices for commuting, leisure and sports. As the demand for sustainable transportation options continues to grow, the EV industry is poised for further growth and development.
Some of the major trends driving the growth of the EV industry include the increasing demand for sustainable transportation options, advancements in battery and motor technology, and the growing popularity of E-bike sharing services. Government incentives and regulations, such as tax credits and subsidies for the purchase of EVs, are also driving the growth of the industry.
The Asia-Pacific region is the largest market for the electric two-wheelers due to the growing awareness about the benefits of electric vehicles, rising personal disposable income, growing demand for affordable electric vehicles for short-distance commuting and increasing adoption of smart technologies. We believe that North America is expected to experience significant growth in the future due to growing government initiatives to raise awareness of such products among individuals.
City bikes and city E-bikes are popular in big cities in the United States, such as New York City, Miami and Dallas. There is also a growing popularity of E-scooters as an increasing number of EV merchants are launching their businesses in these cities.
The growth of the EV industry is further accelerated by the rise in small package deliveries in big cities. New York City is a major commercial hub and the largest metropolitan area in the United States. As a result, the volume of small package deliveries in New York City is remarkably high, and it has continued to grow over the years. With the rise of E-commerce and online shopping, more and more people in New York City are relying on package deliveries for their everyday needs, leading to a significant increase in small package delivery volume. The COVID-19 pandemic has further accelerated this trend as more people have turned to online shopping.
The high volume of package deliveries in New York City has led to concerns about traffic congestion and delivery vehicle emissions, which the city is working to address through initiatives such as congestion pricing and EV incentives. For short-distance deliveries within urban areas, E-bike delivery can be a more efficient and environmentally friendly option compared to truck delivery. E-bikes can navigate through congested city streets, often taking shorter routes that trucks cannot access, and deliver packages quickly without contributing to traffic congestion or air pollution. Additionally, E-bikes are often cheaper to operate and maintain than trucks. We expect that other large densely populated cities in the United States, such as Miami and Dallas, face similar challenges and will continue to adopt the use of E-bikes, E-motorcycles, and E-scooters to meet their delivery needs.
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Our Strengths
Early Entry into the Market: We entered the EV market early and were able to seize the market opportunities to experience rapid growth. We started our business in 2018 and were able to leverage the potential created by the thriving E-commerce industry. Additionally, the COVID-19 lockdown further amplified the demand for online food and essential item deliveries, creating a favorable environment for the expansion and utilization of EVs, particularly E-bikes, which further accelerated our business growth.
Brand Reputation: We have a strong brand reputation for consistent delivery of high-quality EV products and excellent customer service. Our brand and retail stores have become reliable business partners for most food delivery workers, especially in New York City. As a result, they have come to recognize our name and trust our services, establishing a loyal customer base for us.
Innovative Products and Services: We continue to offer innovative, differentiated products and services that help set us apart from our competitors. Since 2018, we have launched over 67 new products and introduced new versions to our existing products with upgrades to design, motor and battery technology. Additionally, we are developing the Fly E-Bike app, which will be used by customers to better manage and enjoy their riding experience. We are also developing the Fly E-Bike Care, an extended warranty program that will provide value-added options for our customers in the near future.
Our Strategies
Our plan to grow our business using the following key strategies:
Enhance our position as a leader in urban mobility: We believe we are one of the leading providers of urban mobility solutions for New York City, particularly for food and package delivery workers. We intend to leverage this first mover advantage to continue to solidify our market leadership, by enhancing our brand, continuing to innovate, growing our product and service portfolio and expanding our sales network.
Improve brand recognition: We will maintain our commitment to providing exceptional customer service as a means of further enhancing our brand. We will provide an enhanced shopping experience by effectively managing and upgrading our retail stores. In addition, we plan to open more flagship stores in high-traffic retail locations in New York City and other major cities in the United States to further elevate the quality of our brand messaging. Furthermore, we plan to increase our offerings of accessories, such as introducing more style options to our branded apparel, to further strengthen our customers’ connection to Fly E-Bike. We also intend to collaborate with other lifestyle brands across different industries to further promote our brand image.
Continue our innovation: We will persist in advancing our product line by incorporating cutting-edge design, optimizing user experience and delivering optimal performance. We are developing our Fly E-Bike app, which we plan to include functions to improve the communication between our customers and our products. Additionally, we plan to launch Fly E-Bike Care in the near future, a service designed to function as an insurance policy and provide customers with continuous maintenance services beyond the manufacturer and battery warranty period.
Expand our sales network: We plan to further expand our sales network in the United States and internationally. As of June 27, 2024, we operate one store in Canada and 39 retail stores in the United States, spanning across the states of New York, Texas, Florida, Washington D.C., California and New Jersey. 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 significantly increase our footprint in the United States by opening our stores in additional states. In addition, we intend to enter selected overseas markets that offer identified growth opportunities and favorable government policies, such as South America and Europe.
Diversify our service offerings: We are planning to broaden our business by leveraging our existing retail stores as logistics hubs for small package delivery. We are currently in the process of seeking business partners, assembling a delivery team and developing an app for the delivery business.
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Our Products
We offer a diverse product portfolio that satisfies various demands of our customers and addresses different urban travel scenarios. Following market trends and technological updates, we continuously develop and add new products into our portfolio to meet our customers’ needs. We also regularly introduce upgrades and refreshes to our existing models.
E-motorcycles
Our E-motorcycle category consists of 21 different products, which include a range of E-moped, E-motorcycle and E-tricycle.
E-moped
 |
 |
 | ||
| (Fly-7) | (Fly-10) | (Fly-Pro) |
Our E-moped product line is one of our most popular, featuring a range of eight different models. Our E-mopeds can run an average of 20-70 miles on a single charge, with a top speed of 20-38 miles per hour. Additionally, our E-mopeds are capable of holding a payload of 185-400 pounds. Each E-moped offer several standard features, including a remote key fob, alarm system, lockable under-seat storage, front and rear suspension, and a complete lighting package. Some models also offer a USB phone charging port for added convenience. These features make them an ideal choice for delivery workers.
All of our E-mopeds feature a low seat height and large tires, providing excellent stability at all speeds and on all surfaces. Moreover, their electric drivetrain requires no clutch or gears, making them easy to operate for almost anyone.
E-motorcycle
 |
 |
 | ||
| (RZ) | (FTC) | (DY-VNM SL) |
We also offer E-motorcycles that are designed for urban commuting and city riding, offering a range of 25-80 miles on a single charge and a top speed of 30-59 miles per hour. They have a payload capacity of 160-400 pounds and feature a powerful electric motor with multiple riding modes to choose from. Additionally, our E-motorcycles are equipped with advanced safety features, including anti-lock brakes and a high-performance suspension system, ensuring optimal handling and rider safety.
E-tricycle
(Fly-Tricycle)
The Fly-Tricycle is an electric three-wheel vehicle that offers three seats. The interior of this vehicle is crafted with high-quality automotive-grade materials, ensuring long-lasting durability. This vehicle can run a range of 43-62 miles on a single charge, with a top speed of 30 miles per hour. Additionally, the Fly-Tricycle is capable of holding a payload of 1,239 pounds.
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E-bikes
We currently offer 34 different E-bike products, which include a range of City E-bike, foldable E-bike and standard E-bike.
City E-bike
(City E-Bike)
Our City E-Bike has a range of 15-20 miles on a single charge and a maximum speed of 20 miles per hour. It has a payload capacity of 200 pounds and an under-seat storage area.
Foldable E-bike
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 | |
| (Dolphin E-Bike) | (Air-2) |
Our foldable E-bikes, including the Dolphin E-Bike and the Air-2, are versatile and convenient for folding. They are capable of running 20-25 miles on a single charge with a top speed of 23 miles per hour. In addition, our foldable E-bikes have a payload capacity of 250 pounds. They are compact, portable and easy to store, making them a good choice for people who are conscious of space limitations, such as those who live in small apartments in big cities.
Standard E-bike
 |
 | |
| (Sword Fish E-Bike) | (Rhino) |
Our standard E-bikes are designed to be lightweight and come in a variety of different outlook designs, with multiple speed options to choose from. They offer a range of 20-60 miles on a single charge, with a top speed range of 15-32 miles per hour, and have a payload capacity of 180-250 pounds.
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E-scooters
Our E-scooter segment currently offers 12 different products, which include the Insurgent E-Scooter, Flytron, H-Max and H-1 models.
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 |
 | |||
| (Insurgent E-Scooter) | (Flytron) | (H-Max) | (H-1) |
Our E-scooters offer a range of 15-45 miles on a single charge and a top speed range of 15-40 miles per hour. They are also capable of holding a weight range of 250-330 pounds. Additionally, our smart E-scooters are equipped with hydraulic disc brakes made from special alloys. The brake discs are slotted to extend the life of the system. The hardware of the brakes is complemented by the electronic braking system, which provides for intelligent braking and recycling kinetic energy. Certain of our models also employ the combined braking system, which splits braking force between the front and rear discs to shorten the braking distance at higher speeds.
Accessories and spare parts
We offer a comprehensive line of Fly E-Bike branded accessories and spare parts. We also sell traditional bikes.
For accessories, we offer riding gear, such as raincoats, gloves and knee pads, and accessories that can be installed on our products to enhance their functionality, such as storage baskets and tail boxes, smart phone holders, backrests and locks, among others. We also sell branded apparel.
In addition, we provide performance upgrades, including high-performance upgrade components for wheels, shock absorbers, brake calipers and carbon fiber body panels, among others.
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Fly E-Bike App
We are currently developing the 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. Once development is completed, the app is expected to include functions such as GPS, navigation, battery and tire pressure management, online shopping, and anti-theft features.
After Sales Services
Our EVs are primarily serviced through our retail stores, which provide repair, maintenance and bodywork services. Our regular maintenance services include exterior check, mechanical structure service, motor system check, electrification service, battery maintenance service, tire pressure check and cleaning services. We also provide other value-added services through our retail stores, including GPS add-on and installation, and theft reporting.
Warranty Policy
Manufacturer Warranty
We offer a three-month limited manufacturer’s warranty on all models of our E-bikes, E-motorcycles and E-scooters. The warranty period starts on the day the product is delivered to the customer. This warranty only covers limited factory defects and minor cosmetic damages. It does not cover misuse or broken parts caused by the user or by any other events.
Battery Warranty
We also offer a three-month warranty on battery for any manufacturer defect in material or workmanship. If a battery becomes faulty within the specified warranty period, we will replace it free of charge.
Fly E-Bike Care
We plan to launch our value-added Fly E-Bike Care program in the near future, which will function as an insurance policy to provide customers with continuous maintenance services beyond the warranty period mentioned above. This program will be designed to offer a wider range of coverage than the manufacturer and battery warranties, including accidental damages caused by customers. Additionally, we intend to add a “Fly E-Bike Care” feature to our app, which will send maintenance reminders to users based on their driving behavior and mileage.
Manufacturing and Assembly
We source a significant portion of our vehicle components from China and the United States. For the years ended March 31, 2024 and 2023, over 50% and 40% of the parts were sourced from China, respectively. For the year ended March 31, 2024 and 2023, we sourced over 40% and over 50% of our vehicle components from the United States, respectively. Although we rely on certain principal vendors in China and the United States for most of our components, we believe there are multiple sources for each of our critical components.
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To ensure a secure and reliable supply chain, we have implemented a centralized vendor management system that consolidates all vendor management activities under a centralized team. This approach enables us to streamline our purchasing process, enhance our negotiating power and maintain better relationships with our vendors.
We are currently working with three principal vendors, Depcl Corp.(previously known as Fly Wing E-Bike Inc.), Xiamen Innolabs Technology Co., Ltd. (“XFT”), and Anhui Ineo International Trading Co., Ltd., each of which respectively supplied approximately 36%, 21% and 13% of our accessories and components during the year ended March 31, 2024. During the year ended March 31, 2023, our top three principal vendors included Transpro US Inc., Anhui Ineo International Trading Co., Ltd. and Depcl Corp, each of which respectively supplied approximately 33%, 21% and 12% accessories and components. Our principal vendors are responsible for sourcing all the parts used in our vehicles from various suppliers, and they also oversee the quality control process. We maintain close relationships with our principal vendors to ensure that we have access to high-quality accessories and components for our EVs at competitive prices and receive reliable and timely deliveries. We work closely with them to improve our supply chain efficiency and reduce costs.
Our centralized vendor management system also helps us to manage risk more effectively by identifying potential risks and developing strategies to mitigate them. Rather than dealing with the original suppliers, we monitor the performance of our principal vendors, which enables us to quickly identify and address any problems and manage the supply resources more efficiently. Our system ensures each critical product component is supported by at least three vendors, thereby minimizing the risk of supply chain disruptions. This approach helps us to reduce the risk of supply chain disruptions, which can have a significant impact on our business operations.
After importing the accessories and components, we assemble them into our vehicles in a leased 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 in 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.
Quality Control
We believe that the quality of our products is crucial to our continued growth. We place great emphasis on quality control and have implemented stringent monitoring and quality control systems to manage our operations.
For the parts sourced from China, we rely on our one of our principal vendors in China, XFT, to monitor the factories responsible for manufacturing these parts used in our vehicles. Its duties include the following:
Factory check: XFT is responsible for confirming the size, production capacity and certification qualifications of a factory, confirming whether the equipment required for the production line is complete and whether the testing equipment is complete, checking the factory’s quality assurance process and other quality control procedures.
Proofing: After the samples that meet the requirements are confirmed by XFT and us, they will be sealed as golden samples, and mass production is required to follow the golden sample standard.
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Mass production: Before the start of mass production, the factory is required to develop and review standard operating procedures and quality assurance standards that are acceptable to XFT and us. XFT will closely follow the production process, ensuring that strict quality control measures are implemented at every stage of production. After the mass production starts, XFT will perform the first article inspection to confirm whether the mass production meets the required standards.
Inspection: After mass production, in addition to requiring the factory to submit a quality control report, XFT will send its own quality control personnel to conduct random inspections on the products according to the corresponding standards of acceptable quality level.
We also source certain parts used in our vehicles from the United States. For these parts, our U.S. principal vendors and our quality control team perform quality control procedures similar to those discussed above for our China-sourced parts. This includes ensuring that the parts meet our quality standards and specifications, as well as conducting regular factory audits and inspections to identify any potential issues, and ensure ongoing compliance with our requirements.
We have not experienced any significant product recall, refunds or other quality control outbreak since we commenced operations.
Sales and Marketing
We have established an omnichannel retail model network to sell our products and provide services to our customers. We currently operate 39 retail stores and work with 80 distributors in the United States to sell our products. In addition, we have our own online store where we promote and sell our products. Our Fly E-Bike app, which is under development, can also become a venue where we can advertise our products. We also leverage our omnichannel retail network to deliver maintenance and repair services at our retail stores and to collect data for business insights.
We focus on promoting awareness of our brand as a lifestyle brand with high-quality smart E-bikes, E-motorcycles and E-scooters. Our brand and products are marketed to retail customers through digital and experiential activities as well as through more traditional promotional and advertising activities. We aim to engage in cost-effective marketing activities by taking advantage of social media and to build an online and offline ecosystem of users that will promote awareness of our brand.
One key component of our strategy is to expand our presence on social media platforms. We currently have accounts on Facebook, Instagram, TikTok and WeChat, on which we frequently post guides, videos and tutorials that educate people on how to use and maintain E-bikes, E-scooters and E-motorcycles, as well as benefits of E-mobility.
In terms of offline marketing, we prioritize in-store promotions and targeted advertising. This includes offering discounts and special deals in our retail stores, as well as using targeted advertising to reach potential customers who are likely to be interested in our products. We also place ads in local newspapers and magazines and distribute flyers on the streets to promote the opening of new stores. Additionally, our products have gained significant visibility among food delivery workers in New York City, who make up the majority of our customer base. The increasing trend of people ordering food delivery, particularly during and after the COVID-19 lockdown, has contributed to the widespread visibility of our products in the cities.
Our Distribution Channels
Retail Distribution Network
Our sales are conducted through both retail stores and distributors.
Out of our 39 retail stores in the United States, 28 are situated in New York, while four are in New Jersey, two in Florida, two in Texas, one in California and one in Washington, D.C. We also operate one retail store in Canada. Our retail stores adopt a consistent design and layout and provide a consistent shopping experience. We closely monitor the sales performance, service level and activities within our retail stores. We will continue to collect store operation data such as consumer traffic flow and traffic flow sources, test drive frequencies and sales conversion rate. This information helps us adjust store-specific retailing and marketing strategies, thereby increasing per store sales.
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In terms of our distributors, most of them are located in the United States. Our distributors purchase products from us at a wholesale price, and are responsible for the logistics, warehousing and distribution to other retail stores. We do not charge any initial fees or continuing fees to our distributors. The majority of our distributors make full payments upfront for their orders, which helps us improve cash flow management.
We intend to expand our overseas market and are currently working with one distributor in the Dominican Republic.
Online Distribution Network
All of our products can be purchased on our website, flyebike.com. In addition, we plan to open a second online store focusing on selling gas bikes in the future.
We have adopted an online to offline model that enables us to seamlessly integrate the online and offline networks to provide a cohesive and consistent experience to our customers. The online platform acts as a conduit for influencing customers and directing sales to our retail stores. Our customers can conveniently place orders online and pick up their products at our retail stores.
Our Customers
We acquire customers through multiple channels, including (i) referrals from our existing customers, (ii) our distributors, and (iii) our marketing and promotional activities. Due to our strong brand image, loyal customer base and evolving product portfolio, we believe there are significant growth opportunities across these channels. No customers account for more than 10% of our revenues for the years ended March 31, 2024 and 2023. The majority of our customers are food delivery workers in New York City. This group constitutes approximately 70% and 70% of our customer base for the year ended March 31, 2023 and 2024, respectively.
Environmental Matters
We are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of certain materials, substances and wastes and the remediation of environmental contaminants (collectively, “Environmental Laws”). In the ordinary course of our assembling processes, we may use materials or generate waste that are subject to these Environmental Laws.
We endeavor to adhere to all applicable Environmental Laws and act as necessary to comply with these laws. We maintain an environmental and safety program at our facilities. The environmental and safety program includes obtaining environmental permits as required, capturing and appropriately disposing of any waste by-products, tracking hazardous waste generation and disposal, air emissions, safety situations, material safety data sheet management, storm water management and recycling, and auditing and reporting on its compliance.
Intellectual Property
We currently hold one trademark in the United States, which covers our logo. We also hold four trademarks in China, which cover the names “FLY E-BIKE”, “FLY EBIKE”, “FLYEBIKE” and our logo. Additionally, we have two trademarks in the Dominican Republic covering the name “FLY E-BIKE” and our logo, and one trademark in Panama covering the name “FLY E-BIKE”. All these trademarks are effective from 2022 to 2033. In addition, we have applied for trademark rights for the name “FLY E-BIKE” in Canada, and the application is currently pending.
Other than the trademarks mentioned above, we do not own any patents, copyrights or other intellectual property registrations in the United States. We plan to seek further intellectual property registrations in the United States in the future. We currently also seek to protect our trade secrets and other proprietary information through common law copyright and trademark principles.
Competition
There are numerous companies that sell E-bikes, E-motorcycles and E-scooters in the United States and even more globally. The markets for EVs are highly competitive based on a number of factors, including innovation, performance, price, technology, product features, styling, fit and finish, brand recognition, quality and distribution. We believe our ability to compete successfully in these markets depends on our ability to capitalize on our competitive strengths and build brand recognition.
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Many companies, which have greater financial and marketing resources than us, make electric two-wheelers, including Trek Bicycle Corporation, Specialized Bicycle Components, Inc., Specialized Bicycle Components, Inc. and Rad Power Bikes Inc. While we believe we are well positioned in this competitive market, there is no assurance that our vehicles will be successful in the respective markets in which they compete. See “Item 1A. Risk Factors — Risks Related to the Company’s Business, Operations, and Industry — The markets in which we operate are in their infancy and highly competitive, and we may not be successful in competing in this industry.”
Regulation
We are subject to a wide variety of laws and regulations in the United States. These laws and regulations govern various items directly or indirectly related to our business, such as labor and employment, anti-discrimination, product liability, vehicle defects, vehicle maintenance and repairs, personal injury, rider text messaging, service payments, consumer protection, taxation, privacy, data security, intellectual property, competition, terms of service, mobile application accessibility, insurance, money transmittal, and environmental, health and safety. They are often complex and subject to varying interpretations, in many cases due to their lack of specificity. As a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state, and local administrative agencies.
The micromobility industry is relatively nascent and rapidly evolving. New laws and regulations continue to be adopted, implemented, interpreted and iterated upon in response to our growing industry and associated technology. As we expand our business into new markets or introduce new offerings into existing markets, regulatory bodies or courts may claim that (i) we are subject to additional requirements or (ii) we are prohibited from conducting our business in certain jurisdictions.
Our products may also be subject to various environmental, health, and safety regulations, including, but not limited to, those regarding product safety and waste management. For example, we are subject to environmental laws and regulations regarding the handling and disposal of hazardous substances and solid wastes, including electronic wastes and batteries. These laws regulate the generation, storage, treatment, transportation and disposal of solid and hazardous waste, and may impose strict, joint and several liability for the investigation and remediation of areas where hazardous substances may have been released or disposed. For instance, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a hazardous substance into the environment. These persons include current and prior owners or operators of the site where the release of the hazardous substance occurred as well as companies that disposed or arranged for the disposal of hazardous substances found at the site. Under CERCLA, these persons may be subject to joint and several strict liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. CERCLA also authorizes the Environmental Protection Agency (“EPA”) and, in some instances, third parties to act in response to threats to the public health or the environment and seek to recover costs incurred from the responsible classes of persons. In the course of ordinary operations, we, through third parties and contractors, may handle hazardous substances within the meaning of CERCLA and similar state statutes and, as a result, may be jointly and severally liable for all or part of the costs required to clean up sites at which these hazardous substances have been released into the environment.
We may also be subject to the Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes for the generation, storage, or disposal of solid wastes, which may include hazardous wastes. RCRA regulates both solid and hazardous wastes, but, in particular, imposes strict requirements on the generation, storage, treatment, transportation and disposal of hazardous wastes. In addition, federal and state laws may require or otherwise regulate the reuse and recycling of batteries, including lead-acid and lithium-ion batteries, used in our products.
Certain of our products are also regulated by the U.S. Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws. CPSC can require the manufacturer of products containing a safety defect to recall or repurchase such products and may also impose fines or penalties on the manufacturer. Similar laws exist in some states, cities, and other countries in which we sell our products.
Certain of our products are also regulated by the National Highway Traffic Safety Administration (“NHTSA”) pursuant to various federal laws and regulations. NHTSA can require the manufacturer of motor vehicles or motor vehicle equipment containing a safety defect to recall or repurchase such products and may also impose fines or penalties on the manufacturer. Certain of our products are also regulated by EPA, and the California Air Resources Board (“CARB”) for products sold in California. EPA and CARB can require the manufacturer to recall or repurchase vehicles that are uncertified or that contain an emission-related defect and may also impose fines or penalties on the manufacturer.
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In addition, some of our products may be subject to local laws and regulations. For instance, in March 2023, the New York City Council amended its administrative code to require that all powered bicycles, powered mobility devices including electric scooters, and storage batteries for such mobility devices distributed, sold, leased, rented, or offered for sale, lease, or rental in New York City must be certified as compliant with the applicable Underwriter Laboratories (UL) standard, which is a widely recognized standard for safety in electrical products in the United States. The law became effective in September 2023.
Additionally, because we receive, use, transmit, disclose, and store personally identifiable information and other data relating to users on our platform, we are subject to numerous local, municipal, state, federal, and international laws and regulations that address privacy, data protection, and the collection, storing, sharing, use, transfer, disclosure, and protection of certain types of data. Such regulations include the Controlling the Assault of Non-Solicited Pornography and Marketing Act, the Telephone Consumer Protection Act of 1991, the U.S. Federal Health Insurance Portability and Accountability Act of 1996 and Section 5(a) of the Federal Trade Commission Act of 1914.
We plan to sell and distribute our vehicles internationally through international distributors. As such, we will be subject to the local laws of each jurisdiction in which we sell our vehicles. These regulations may result in increased costs and expenses, which may materially and adversely affect our business, results of operations or financial condition.
Employees
As of June 27, 2024, we had 84 employees, consisting of 57 full-time employees and 27 part-time employees.
Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We believe that we maintain a good working relationship with our employees and to date, we have not experienced any significant labor disputes.
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes before making a decision to invest in our common stock. Our business, operating results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties. If any of these risks actually occurs, the trading price of our common stock could decline and you might lose all or part of your investment. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
Risks Related to the Company’s Business, Operations, and Industry
We may be unable to meet our growing production plans and delivery plans, any of which could harm our business and prospects.
In order to meet the increasing demand of our products, we plan to open more stores in the future. Our plans call for achieving and sustaining increases in vehicles production and deliveries. Our ability to achieve these plans will depend upon a number of factors, including our suppliers’ ability to support our needs and our ability to utilize our current assembling capacity, achieve the planned production yield and further increase capacity as planned while maintaining our desired quality levels and optimize design and production changes. If we are unable to realize our plans, our brand, business, prospects, financial condition and operating results could be materially damaged.
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We are dependent on certain principal vendors in China for a significant portion of our vehicle components, and the inability of these vendors to deliver necessary components of our products according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components, could have a material adverse effect on our financial condition and operating results.
We source a significant portion of our vehicle components from China and then assemble these parts into our products in the United States. We rely on certain principal vendors who help us source and supply parts used in our vehicles from various suppliers in China. We currently do not maintain long-term contracts with our suppliers and vendors. While we believe our contract management processes are strong, we nevertheless could experience difficulties.
If our principal vendors decide to terminate their partnership with us, experience sourcing failures, or otherwise become unable to provide us with the necessary components in sufficient quantities, in a timely manner, and on acceptable terms, we may have to delay the production and sale of our products or find an alternative vendor. Any significant unanticipated demand would require us to procure additional components in a short amount of time. While we believe that we will be able to secure additional or alternate sources of supply for most of our components in a relatively short time frame, there is no assurance that we will be able to do so or develop our own replacements for certain highly customized components of our products.
In addition, as a result of COVID-19, normal economic life throughout China was sharply curtailed and there were disruptions to normal operation of businesses in various areas. For example, in 2022, when China rigorously enforced its “Zero-COVID” policy, some manufacturing facilities were closed and work at other facilities was curtailed in many places where we sourced our vehicle components. Some of our vendors had to temporarily close a facility for disinfecting after employees tested positive for COVID-19, and others faced staffing shortages from employees who were sick or apprehensive about coming to work. Further, the ability of our vendors to ship their goods to us became difficult as transportation networks and distribution facilities reduced capacity, all of which caused an increase in shipping costs and time and affected the availability of inventories to meet our sales demand.
Although the anti-pandemic policies have been lifted in China since the beginning of 2023, it is uncertain whether the Chinese government will mandate similar restrictive policies and measures again in the future. Furthermore, the lingering impacts of the global pandemic may continue adversely affecting our supply chain, which in turn may materially and adversely affect our business and results of operations. Although our business operations were not materially impacted because of measures we took during the lockdown period in 2022 in China, 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.” 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 rely on third parties for quality control on the parts sourced from China.
We rely on one of our principal vendors in China to monitor the factories manufacturing the parts sourced from China for use in our vehicles. We have limited control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If our principal vendor fails to perform its duties, including proper inspections on sample products before mass production, the third-party manufacturers may fail to manufacture our product components according to our schedule and requirements or at all. The quality of our products is crucial to our continued growth. If our principal vendor fails to perform its supervising and inspecting duties properly, our final products could have quality issues, which could result in product recall, return of products and potential lawsuits against us if our products cause any injuries or damages due to the quality issues. Any occurrence of the foregoing could hurt our relationship 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.
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Our success will depend on our ability to economically produce our vehicles at scale, and our ability to produce vehicles of sufficient quality and appeal to customers on schedule and at scale is unproven.
Our business success will depend in large part on our ability to economically produce, market and sell our vehicles at sufficient capacity to meet the demands of our customers. We will need to scale our production capacity in order to successfully implement our growth strategy.
We currently have one facility in which we assemble all of our products in Brooklyn, New York. We have no experience in large-scale production of our vehicles, and we do not know whether we will be able to develop efficient, automated, low-cost production capabilities and processes, such that we will be able to meet the quality, price and production standards, as well as the production volumes, required to successfully market our vehicles and meet our business objectives and customer needs. Any failure to develop and scale our production capability and processes could have a material adverse effect on our business, prospects, financial condition and operating results.
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.
As we plan to continue expanding our business, we expect to include more products and their components in our inventory, which will make it more challenging for us to manage our inventory effectively and will put more pressure on our warehousing system. Maintaining excessive inventory levels beyond customer demand can lead to higher inventory carrying costs. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. On the other hand, if we underestimate customer demand or encounter delays from our vendors in supplying vehicle components promptly, we may face inventory shortages. This could potentially compel us to procure vehicle components at higher costs, leading to a backorder situation or unfulfilled customer orders, which could lead to potential cancellations or loss of customers to competitors and negatively impact our brand image and reputation.
There is no assurance that our suppliers will ultimately be able to meet our cost, quality and volume needs, or do so on a timely basis. Furthermore, as the volume of our sales increases, we will need to accurately forecast, purchase and warehouse components at much higher volumes than we have experience with. If we are unable to accurately match the timing and quantities of component purchases to our actual needs, or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may incur unexpected production disruption, or storage, transportation and write-off costs. Any of the above could have a material adverse effect on our business, prospects, financial condition and operating results.
Increases in costs, disruption of supply, or shortage of materials used to manufacture the component parts used in our vehicles, including potential risks stemming from the conflict between Russia and Ukraine, could harm our business.
We may experience increases in the cost or a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of similar products by our competitors, and could adversely affect our business and operating results. These risks include:
| ● | an increase in the cost, or decrease in the available supply, of materials used in the battery packs; |
| ● | tariffs on the materials we source in China; and |
| ● | fluctuations in the value of the Chinese Renminbi against the U.S. dollar as our purchases for the components of our products are denominated in Chinese Renminbi. |
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Disruption in our supply chain and rising prices of raw materials as a result of the conflict between Russia and Ukraine may also negatively impact our businesses. In February 2022, Russian military forces launched a military action in Ukraine. The ongoing military action between Russia and Ukraine, sanctions and other measures imposed against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic by the U.S. and other countries and bodies around the world, as well as the existing and potential further responses from Russia or other countries to such sanctions, tensions and military actions, has in the past and in the future could continue to adversely affect the global economy and financial markets and could adversely affect our business, prospects, financial condition and operating results. Additional potential sanctions and penalties have also been proposed and/or threatened. Although our operations have not experienced a material adverse impact on supply chain or other aspects of our business from the ongoing conflict between Russia and Ukraine, during times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks that could materially disrupt our operations, supply chain, and ability to produce, sell and distribute our products. We cannot predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant, could result in increases in commodity, freight, logistics and input costs and could potentially have substantial impact on the global economy and our business for an unknown period of time.
Substantial increases in the prices for our materials or prices charged to us would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased prices. Any attempts to increase prices in response to increased material costs could result in cancellations of vehicle orders and therefore materially and adversely affect our brand, business, prospects, financial condition and operating results.
Our vehicles may not perform in line with customer expectations.
Our vehicles may not perform in line with customers’ expectations. For example, our vehicles may not have the durability or longevity of other vehicles in the market, and may not be as easy and convenient to repair as other vehicles on the market. Any product defects or any other failure of our vehicles to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, prospects, financial condition and operating results.
In addition, the range of our vehicles on a single charge declines principally as a function of usage, time and charging patterns as well as other factors. For example, a customer’s use of his or her electric vehicle as well as the frequency with which he or she charges the battery can result in additional deterioration of the battery’s ability to hold a charge. Furthermore, our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. If any of our vehicles fail to perform as expected, we may need to delay deliveries, initiate product recalls and provide servicing or updates under warranty at our expenses, which could materially and adversely affect our brand, business, prospects, financial condition and operating results.
Our future growth is dependent on the demand for, and upon consumers’ willingness to adopt electric vehicles.
Demand for our products depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new electric vehicles and technologies. As our business grows, economic conditions and trends will impact our business, prospects and operating results as well.
Demand for our electric vehicles may also be affected by factors directly impacting the price or the cost of purchasing and operating electric vehicles such as sales and financing incentives, prices of raw materials, parts and components and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results.
In addition, the demand for our vehicles and services will highly depend upon the adoption by consumers of new energy vehicles in general and electric vehicles in particular. The market for new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, price and other competition, evolving government regulation and industry standards and changing consumer demands and behaviors.
Other factors that may influence the adoption of new energy vehicles, and specifically electric vehicles, include:
| ● | perceptions about electric vehicle quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, whether or not such vehicles are produced by us or other companies; |
| ● | perceptions about vehicle safety in general; |
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| ● | the limited range over which electric vehicles may be driven on a single battery charge and the speed at which batteries can be recharged; |
| ● | the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; |
| ● | the availability of service for electric vehicles; |
| ● | the environmental consciousness of consumers; |
| ● | the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and |
| ● | macroeconomic factors. |
Any of the factors described above may cause current or potential customers not to purchase our electric vehicles and use our services. If the market for electric vehicles does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be affected.
The electric mobility industry is subject to rapidly changing and often complex regulatory environments.
The electric mobility industry is subject to rapidly changing and often complex regulatory environments at local, state, national, and international levels. Evolving regulations related to safety standards, emissions, licensing, and operational requirements can have a substantial impact on our business operations and profitability. Compliance with these changing regulations may necessitate costly modifications to our products, business processes, or market strategies, which could lead to increased expenses and delays in product development and market entry. Failure to navigate and adhere to evolving regulations adequately could result in legal and financial liabilities, damage to our reputation, and potential market restrictions. Furthermore, inconsistency in regulations between different jurisdictions may create challenges in maintaining uniform business practices and product offerings, increasing our exposure to regulatory risks. Furthermore, a significant portion of our customer base comprises food delivery workers, and if leading food delivery platforms like Uber Eats and DoorDash impose new requirements on the type of electric vehicles they allow, non-compliance on our part could result in the loss of these customers. While we believe we are presently in compliance with applicable laws and regulations in our operating regions, there can be no assurance that we can always promptly adapt to the rapidly changing regulatory environment. If we fail to effectively adjust to the changing regulatory landscape and comply with applicable laws and regulations in our operating regions, our business, prospects, financial condition and operating results would be materially and adversely affected.
We may be unable to adequately control the costs associated with our operations.
We expect to incur significant costs which will impact our profitability, including research and development expenses as we roll out new models and improve existing models, raw material procurement costs and selling and distribution expenses as we build our brand and market our vehicles. Our ability to remain profitable in the future will not only depend on our ability to successfully market our vehicles and other products and services but also to control our costs. If we are unable to cost efficiently design, manufacture, market, sell and distribute and service our vehicles and services, our business, prospects, financial condition and operating results would be materially and adversely affected.
We may not succeed in establishing, maintaining and strengthening our brand, which could materially and adversely affect customer acceptance of our products, which could in turn materially affect our business, results of operations or financial condition.
Our business and prospects heavily depend on our ability to develop, maintain and strengthen the Fly E-Bike brand. If we are unable to establish, maintain and strengthen our brand, we may lose the opportunity to build and maintain a critical mass of customers. Our ability to develop, maintain and strengthen our brand will depend heavily on the success of our marketing efforts. Failure to develop and maintain a strong brand could materially and adversely affect customer acceptance of our vehicles, could result in suppliers and other third parties being less likely to invest time and resources in developing business relationships with us, and could materially adversely affect our business, prospects, financial condition and operating results.
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We have a relatively short operating history, which makes it difficult to evaluate our future prospects, forecast financial results, and assess the risks and challenges we may face.
Our business is relatively new and rapidly evolving. We first launched our business in 2018 and have a limited operating history. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing industries. Risks and challenges we have faced or expect to face as a result of our relatively limited operating history and evolving business model include our ability to:
| ● | make operating decisions and evaluate our future prospects and the risks and challenges we may encounter; |
| ● | forecast our revenue and budget for and manage our expenses; |
| ● | attract new customers and retain existing customers in a cost-effective manner; |
| ● | comply with existing and new or modified laws and regulations applicable to our business; |
| ● | manage our business assets and expenses; |
| ● | plan for and manage capital expenditures for our current and future offerings and manage our supply chain and supplier relationships related to our current and future offerings; |
| ● | anticipate and respond to macroeconomic changes and changes in the markets in which we operate; |
| ● | maintain and enhance the value of our reputation and brand; |
| ● | effectively manage our growth and business operations; |
| ● | successfully expand our geographic reach; |
| ● | hire, integrate and retain talented people at all levels of our organization; and |
| ● | successfully develop new features, offerings and services to enhance the experience of customers. |
If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and our business, prospects, financial condition and operating results could be adversely affected.
We identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.
In connection with the preparation and audit of our consolidated financial statements for the year ended March 31, 2024, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified included our lack of (i) sufficient financial reporting and accounting personnel with appropriate knowledge of generally accepted accounting principles in the United States of America (the “U.S. GAAP”) and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements, (ii) formal internal control policies and internal independent supervision functions to establish formal risk assessment process and internal control framework, and (iii) sufficient controls designed and implemented in IT environment and IT general control activities, which are mainly associated with areas of logical access management, change management, computer operation, service organization management as well as cyber security management.
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In response to the material weaknesses identified for the year ended March 31, 2024, we are in the process of implementing a number of measures to address the material weaknesses identified, including but not limited to (i) hiring additional qualified accounting and financial personnel with appropriate knowledge and experience in U.S. GAAP accounting and SEC reporting; (ii) organizing regular training for our accounting staff, especially training related to U.S. GAAP and SEC reporting requirements; and (iii) regularly conducting checks on the IT software we utilize to ensure its proper functionality, and arranging training sessions for our IT staff. We also plan to adopt additional measures to improve our internal control over financial reporting, including, among others, creating a U.S. GAAP accounting policies and procedures manual, which will be maintained, reviewed and updated, on a regular basis, to the latest U.S. GAAP accounting standards, strengthening corporate governance as well as general control over our information technology. While we believe these efforts will remediate the material weaknesses, we may not be able to complete our evaluation, testing or any required remediation in a timely fashion, or at all. We cannot assure you that the measures we have taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in internal control over financial reporting, to prevent the identification of significant deficiencies in the future or that they will prevent or avoid potential future material weaknesses. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods required of public companies could be adversely affected which, in turn, may adversely affect our reputation and business and the market price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm our reputation and financial condition, or diversion of financial and management resources from the operation of our business.
The markets in which we operate are in their infancy and highly competitive, and we may not be successful in competing in this industry.
The market of electric two-wheel vehicles is in its infancy, and we expect it will become more competitive in the future. There is no assurance that our vehicles will be successful in the respective markets in which they compete. A significant and growing number of established and new companies, as well as other companies, have entered or are reported to have plans to enter the electric vehicle market. Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing, sales networks and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition could result in lower vehicles sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.
An adverse determination in any significant product liability claim against us could materially adversely affect our business, results of operations or financial condition.
The development, production, marketing, sale and usage of our vehicles will expose us to significant risks associated with product liability claims. As a provider of consumer products, we are, from time to time, subject to civil litigation regarding those products, including in publicly-available court filings. Our business is vulnerable to product liability claims, and we may face inherent risk of exposure to claims in the event our vehicles do not perform or are claimed to not have performed as expected. If our products are defective, malfunction or are used incorrectly by our customers, it may result in bodily injury, property damage or other injury, including death, which could give rise to product liability claims against us. For example, our certain EVs use lithium-ion batteries, which, if not appropriately managed and controlled, can rapidly release energy by venting smoke and flames that can ignite nearby materials. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to product liability claims against us and potentially a safety recall. Any losses that we may suffer from any liability claims and the effect that any product liability litigation may have upon the brand image, reputation and marketability of our products could have a material adverse impact on our business, results of operations or financial condition. No assurance can be given that material product liability claims will not be made in the future against us, or that claims will not arise in the future in excess or outside of our insurance coverage and contractual indemnities with suppliers and manufacturers. We may not be able to obtain adequate product liability insurance for our existing or new products or the cost of doing so may be prohibitive. Adverse determinations of material product liability claims made against us could also harm our reputation and cause us to lose customers and could have a material adverse effect on our business, prospects, financial condition and operating results.
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We are dependent upon our executives for their services and any interruption in their ability to provide their services could cause us to cease operations.
The loss of the services of our CEO could have a material adverse effect on us. We do not maintain any key man life insurance on our executives, including our CEO. The loss of the services of any of our executive management could impair our ability to execute our business plan and growth strategy, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Our future success will also depend on our ability to attract, retain and motivate other highly skilled employees. Competition for personnel in our industry is intense. We may not be able to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business, prospects, financial condition and operating results will be adversely affected.
Our management team does not have any experience in operating a publicly traded company.
While our management team has a wide breadth of business experience, none of our executive officers have held an executive position at a publicly traded company. Given the onerous compliance requirements to which public companies are subject, there is a chance our executive officers will fail to perform at a level expected of public company officers. In such an event, the Company’s share price could be adversely effected. The management team’s limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the company. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States. In addition, the development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods.
We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:
| ● | cease selling, incorporating certain components into, or using vehicles or offering goods or services that incorporate or use the challenged intellectual property; |
| ● | pay substantial damages; |
| ● | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; |
| ● | redesign our vehicles or other goods or services; or |
| ● | establish and maintain alternative branding for our products and services. |
In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
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If we are unable to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights, our reputation may be harmed, we may be subject to litigation, and our business may be adversely affected.
Our future success and competitive position depend on our ability to establish, maintain, protect and enforce our intellectual property and proprietary rights. We currently hold one trademark in the United States. Other than that, we do not own any issued patents, copyright nor other intellectual property registrations in the United States. We also seek to protect our trade secrets and other proprietary information through common law copyright and trademark principles, but these actions may be inadequate. The steps we have taken and will take may not prevent unauthorized use, reverse engineering or misappropriation of our technologies and we may be unable to detect any of the foregoing. Our lack of intellectual property protection in the United States may restrict our ability to protect our technologies and processes from competition. Defending and enforcing our intellectual property rights may result in litigation, which can be costly and divert management attention and resources. We plan to apply for patents, additional trademarks and other intellectual property registrations in the United States in the future to protect our brand and technologies. However, the intellectual property application process is complex and can be time-consuming. Even after investing significant resources in preparing and filing an application, there is no guarantee that it will be granted. If our efforts to protect our technologies and intellectual property are inadequate, the value of our brand and other intangible assets may be diminished and competitors may be able to mimic our cloud services. Any of these events could have a material adverse effect on our business, prospects, financial condition and operating results.
Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in future intrusions into or compromise of our networks and technology systems.
Our systems, website, data (wherever stored), software or networks and those of third-party suppliers and service providers, are vulnerable to security breaches, including unauthorized access, computer viruses or other malicious code and other cyber threats that could have a security impact. We, our third-party suppliers and service providers may not be able to anticipate evolving techniques used to effect security breaches (which change frequently and may not be known until launched), or prevent attacks by hackers, including phishing or other cyber-attacks, or prevent breaches due to employee error or malfeasance, in a timely manner or at all. Cyber-attacks have become far more prevalent in the past few years, potentially leading to the theft or manipulation of confidential and proprietary information or loss of access to, or destruction of, data on our or third-party systems, as well as interruptions or malfunctions in our or third parties’ operations. If a breach occurs within the supply chain, disjointed or delayed response efforts can exacerbate the impact, prolong recovery time, and increase potential damage to our operations and reputation. In addition, at present, there are no existing contractual agreements delineating cybersecurity responsibilities between our company and our suppliers or service providers. This absence of clear terms poses a risk wherein disputes regarding liability and accountability in the event of a security breach may emerge. Such disputes could potentially result in legal complexities, financial losses, and impeded incident resolution within our supply chain.
We have taken and are taking steps to monitor and enhance the security of our information technology systems. Furthermore, our board of directors schedules periodic discussions with management regarding significant risk exposures, including risks related to data privacy and cybersecurity, and assists in taking steps to mitigate the risk of cyberattacks on us. However, the techniques used by cyber criminals change frequently and often cannot be recognized until launched against a target; accordingly, we may not be able to anticipate these frequently changing techniques, implement adequate preventive measures for all of them or remediate any unauthorized access on a timely basis. All preventive measures, as well as additional measures that may be required to comply with rapidly evolving security standards and protocols imposed by law, regulation, industry standards or contractual obligations, may cause us to incur substantial expenses. Any unauthorized access into our customers’ sensitive information, data belonging to us or our vendors or employee data, even if we are compliant with industry security standards, could put us at a competitive disadvantage, result in deterioration of our customers’, vendors’ and employees’ confidence in us and subject us to investigations, required notifications, potential litigation, liability, fines and penalties and consent decrees, resulting in a possible material adverse impact on our brand, business, prospects, financial condition and operating results.
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Potential tariffs and other restrictions on trade could increase our costs and could further increase the cost of our products, which could adversely impact the competitiveness of our products and our financial results.
We source a significant portion of our vehicle components from China. The application of sanctions, trade restrictions or tariffs by the U.S. or other countries or the impact of public health concerns, may adversely impact the industry supply chain. For example, in 2019, the U.S. government increased tariffs on U.S. imports with China as their country of origin. We cannot predict what additional actions, if any, may be taken with respect to tariffs or trade relations between the United States and China, what products may be subject to such actions, or what actions may be taken by the China in retaliation. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies have the potential to adversely impact our supply chain and access to equipment, our costs and our product margins. The additional tariffs imposed on components or equipment that we source from China will increase our costs and could have an adverse impact on our operating results and financial conditions in future periods.
We may be unable to improve our existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance.
We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers unless we can successfully enhance existing products, develop new innovative products and distinguish our products from our competitors’ products through innovation and design. Product development requires significant financial, technological and other resources. There can be no assurance that we will be able to incur a level of investment in research and development that will be sufficient to successfully make us competitive in product innovation and design. In addition, even if we are able to successfully enhance existing products and develop new products, there is no guarantee that the markets for our existing products and new products will progress as anticipated. If any of the markets in which our existing products compete do not develop as expected, our business, prospects, financial condition and operating results could be materially adversely affected.
We have limited experience servicing our vehicles, and if we are unable to address the service requirements of our customers, our business could be materially and adversely affected.
We have limited experience servicing or repairing our vehicles. Servicing electric vehicles is different than servicing traditional vehicles and requires specialized skills, including training and servicing techniques for electric vehicles. If we are unable to successfully address the servicing requirements of our customers or establish a market perception that we maintain high-quality support, our reputation could be harmed, we may be subject to claims from our customers, and our business, prospects, financial condition and operating results may be materially and adversely affected.
Significant product repair and/or replacement due to product warranty claims or product recalls could have a material adverse impact on our business, results of operations or financial condition.
We provide a three-month warranty against defects for our EVs and three-month warranty on the battery. Our warranty will generally require us to repair or replace defective products during such warranty periods at no cost to the consumer. We will record provisions based on an estimate of product warranty claims, but there is the possibility that actual claims may exceed these provisions and therefore negatively impact our results of operations or financial condition.
In addition, we may in the future be required to make product recalls or could be held liable in the event that some of our products do not meet safety standards or statutory requirements on product safety, even if the defects related to any such recall or liability are not covered by our limited warranty. The repair and replacement costs that we could incur in connection with a recall could have a material adverse effect on our business, results of operations or financial condition. Product recalls could also harm our reputation and cause us to lose customers, particularly if recalls cause consumers to question the safety or reliability of our products, which could have a material adverse effect on our business, prospects, financial condition and operating results.
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If our vehicle owners customize our vehicles or change the charging infrastructure with aftermarket products, the vehicle may not operate properly, which may create negative publicity and could harm our business.
Electric vehicle enthusiasts may seek to “hack” our vehicles to modify their performance, which could compromise vehicle safety systems. Also, customers may customize their vehicles with after-market parts that can compromise driver safety. We do not test, nor do we endorse, such changes or products. In addition, the use of improper external cabling or unsafe charging outlets can expose our customers to injury from high voltage electricity. Such unauthorized modifications could reduce the safety of our vehicles and any injuries resulting from such modifications could result in adverse publicity which would negatively affect our brand and harm our business, prospects, financial condition and operating results.
Risks Related to Our Common Stock
An active, liquid and orderly trading market for our common stock may not develop or be maintained, and our stock price may be volatile.
We cannot predict the nature of the market for our common stock, and we cannot assure you that an active, liquid or orderly trading market for our common stock will be maintained. To the extent that an active market does not develop, you may have difficulty in selling any shares of our common stock. If there is no active, liquid or orderly market for our common stock, the reported bid and asked price at the time you seek to purchase or sell shares may not reflect the price at which you could either buy or sell shares of our common stock.
Our directors and executive officers will continue to exercise significant control over us, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
The existing holdings of our directors and executive officers is in the aggregate, approximately 68.5% of our outstanding common stock as of the date of this annual report. As a result, these stockholders will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. The concentration of voting power among one or more of these stockholders may have an adverse effect on the price of our common stock.
In addition, this concentration of ownership might adversely affect the market price of our common stock by: (1) delaying, deferring or preventing a change of control of our company; (2) impeding a merger, consolidation, takeover or other business combination involving our company; or (3) discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
Our management will have broad discretion in application of the net proceeds of the IPO and may not use these proceeds effectively.
Our management will have considerable discretion in the application of the net proceeds of the IPO. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the net proceeds of the IPO. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from the IPO in a manner that does not produce income or that loses value.
A portion of the compensation to our senior executive officers may not be deductible, which may increase our taxes.
Section 162(m) of the Internal Revenue Code limits the deduction that public companies may take for annual compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated officers, who are referred to as “covered employees.” All compensation in excess of $1.0 million paid to a covered employee, including post termination compensation and death benefits, may be nondeductible for federal income tax purposes. In the event that the compensation we pay to any covered employee exceeds $1.0 million, such excess may not be deductible which, if our operations are profitable, could increase our income taxes and reduce our net income, which could negatively affect the price of our stock.
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As an emerging growth company, we are exempt from the requirements under the Sarbanes-Oxley Act that a public accounting firm attest as to internal controls, and we lack the financial controls and safeguards required of public companies.
We do not have the internal infrastructure necessary, and are not required, to complete an attestation about our financial controls that would be required under Section 404 of the Sarbanes Oxley Act of 2002. There can be no assurance that there are no significant deficiencies or material weaknesses in the quality of our financial controls. We expect to incur additional expenses and diversion of management’s time if and when it becomes necessary to perform the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements.
We may not meet continued listing standards on the Nasdaq Capital Market.
The Nasdaq Capital Market requires companies to fulfill specific requirements in order for their shares to continue to be listed. In order to qualify for continued listing on the Nasdaq Capital Market, we must meet certain criteria, including the following:
| ● | Our stockholders’ equity must be at least $2,500,000; or the market value of our listed securities must be at least $35,000,000; or our net income from continuing operations in our last fiscal year (or two of the last three fiscal years) must have been at least $500,000; |
| ● | The market value of our publicly held shares must be at least $1,000,000; |
| ● | The minimum bid price for our shares must be at least $1.00 per share; |
| ● | We must have at least 300 stockholders; |
| ● | We must have at least 500,000 publicly held shares; |
| ● | We must have at least 2 market makers; and |
| ● | We must have adopted Nasdaq-mandated corporate governance measures, including a board of directors comprised of a majority of independent directors, an Audit Committee comprised solely of independent directors and the adoption of a code of ethics among other items. |
If our shares are delisted from the Nasdaq Capital Market at some later date, our stockholders could find it difficult to sell our shares. In addition, if our common stock is delisted from the Nasdaq Capital Market at some later date, we may apply to have our common stock quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the Nasdaq Capital Market. In addition, if our common stock is not so listed or are delisted at some later date, our common stock may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common stock might decline. If our common stock is not so listed or is delisted from the Nasdaq Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our stockholders would find it difficult to sell their shares.
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The price of our common stock may be volatile and fluctuate substantially and rapidly, which could result in the loss of a significant part of your investment.
The market price of our common stock may fluctuate substantially and rapidly and may be higher or lower than the public offering price. The stock market, in general, and the market for smaller companies such as ours, in particular, have experienced extreme price and volume fluctuations. Such volatility, including any stock-run up, may be unrelated or disproportionate to the actual or expected operating performance and financial condition or prospects of those companies, making it difficult for the investors to assess the rapidly changing value of our common stock. These fluctuations may be even more pronounced in the trading market for our common stock shortly following the listing of our common stock on Nasdaq as a result of the limited public float available following the IPO. The market price for our common stock may be influenced by many factors, including:
| ● | limited trading volume; |
| ● | our success in commercializing our products; |
| ● | developments with respect to competitive products or technologies; |
| ● | developments or disputes concerning patent applications, issued patents or other intellectual property or proprietary rights; |
| ● | the recruitment or departure of key personnel; |
| ● | actual or anticipated changes in estimates as to financial results, commercialization timelines or recommendations by securities analysts; |
| ● | variations in our financial results or the financial results of companies that are perceived to be similar to us; |
| ● | sales of common stock by us, our executive officers, directors or principal stockholders or others; |
| ● | general economic, industry and market conditions, such as the impact of the COVID-19 pandemic on our industry; |
| ● | the publication of unfavorable research reports and updates thereto by financial analysts; and |
| ● | the other factors described in this “Risk Factors” section. |
In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We will incur increased costs as a result of being a publicly traded company.
As a company with publicly traded securities, we will incur additional legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules promulgated by the SEC and the national securities exchange on which we list, requires us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs.
If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our common stock, then our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price could be adversely affected. As a small-cap company, we are more likely than our larger competitors to lack coverage from securities analysts. In addition, even if we receive analyst coverage, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, our stock price could decline.
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We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the federal securities laws, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company”, (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. We will take advantage of these exemptions. In addition, an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards, meaning that the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We may remain an “emerging growth company” until the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if we become a large accelerated filer, (2) if our gross revenue exceeds $1.235 billion in any fiscal year, or (3) if we issue more than $1.0 billion in non-convertible notes in any three year period. We cannot assure you that we will be able to take advantage of all of the benefits of the available to emerging growth companies.
We are a “smaller reporting company” and, even if we no longer qualify as an emerging growth company, we may still be subject to reduced reporting requirements.
We are a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended. Smaller reporting companies may choose to present only the two most recent fiscal years of audited financial statements in their annual reports on Form 10-K and have reduced disclosure obligations regarding executive compensation and, if a smaller reporting company has less than $100 million in annual revenue, it would not be required to obtain an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. We will remain a smaller reporting company until the last day of any fiscal year for so long as either: (i) the market value of our shares of common stock held by non-affiliates does not equal or exceed $250 million measured on the last business day of our second fiscal quarter; or (ii) our annual revenues is less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may make the comparison of our financial statements with other public companies difficult or impossible.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our certificate of incorporation authorizes us to issue one or more series of preferred stock. Our board of directors will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.
We have never declared or paid any cash dividends or distributions on our capital stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. As a result, investors will be reliant upon capital appreciation for any returns on their investment in the shares of our common stock.
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Future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
As of June 27, 2024, there are 17,160,000 shares of restricted common stock, which constitute approximately 69.8% of our outstanding common stock, may be eligible for sale pursuant to Rule 144 at various times, subject to limitations provided by Rule 144 and lock-up agreements which our stockholders, including our directors and officers, who hold 16,830,000 shares have signed lock-ups for period of 180 days from the closing of the IPO, which expires on December 2, 2024, release from the lock-up restriction at the discretion of the underwriters. If the managing underwriter of our initial public offering, waives or releases parties to the lock-up, the market price for our common stock could be adversely impacted.
We intend to file a registration statement with the SEC on Form S-8 providing for the registration of shares of our common stock issued or reserved for issuance under our equity incentive plan or pursuant to stock options. Subject to the satisfaction of vesting conditions and the expiration of lock-up agreements, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction other than those restrictions imposed on sales by affiliates pursuant to Rule 144.
We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with any acquisition we may make), or the perception that such sales, including sales by our existing stockholders pursuant to Rule 144, could occur, may adversely affect prevailing market prices of our common stock.
Because our directors and executive officers own or have the right to vote approximately 68.5% of our outstanding common stock, they may be able to elect all directors, approve all matters requiring stockholder approval and block any action which may be beneficial to stockholders.
As of June 27, 2024, our directors and executive officers beneficially own approximately 68.5% of our outstanding common stock. Our bylaws provide that a majority of the aggregate voting power of the stock issued and outstanding and entitled to vote constitutes a quorum for a meeting of stockholders. As a result, they may have the ability to elect all of our directors and to approve actions requiring stockholder approval as well as to prevent any action from being taken which they oppose even if such action would benefit stockholders.
Delaware law and provisions in our amended and restated certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Our amended and restated certificate of incorporation (as amended) and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of us or changes in its management that the stockholders may deem advantageous. These provisions include the following:
| ● | establish a classified board of directors so that not all members of our board of directors are elected at one time; |
| ● | permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; |
| ● | provide that directors may only be removed for cause; |
| ● | require super-majority voting to amend some provisions in our bylaws; |
| ● | prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of the stockholders; |
| ● | provide that the board of directors is expressly authorized to amend or repeal our bylaws; |
| ● | restrict the forum for certain litigation against the Company to Delaware; and |
| ● | establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
Any provision of our amended and restated certificate of incorporation (as amended) or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
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Our management is required to devote a substantial amount of time to comply with public company regulations.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of our management do not have significant experience in addressing these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Among other things, our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our compliance with these requirements will require that it incur substantial accounting and related expenses and expend significant management efforts. We will need to hire additional accounting and financial staff to comply with public company regulations. The costs of hiring such staff may be material and there can be no assurance that such staff will be immediately available to us.
Moreover, because we have identified deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Our company diligently monitors cybersecurity risks, conducting annual reviews at senior management levels and, when necessary, with the Audit Committee to update the Board of Directors. Currently, we believe there are no significant cybersecurity threats that pose a material risk to our business strategy, operations, or financial condition.
To safeguard data confidentiality, integrity, and accessibility, we have established processes for assessing, identifying, and managing cybersecurity risks. We plan to create a technology officer role with specialized security expertise to oversee information security ("IT") and implement comprehensive risk management procedures. These measures are expected to include response plans, regular system tests, third-party reviews, incident simulations, and ongoing refinement of policies and procedures to mitigate risks.
Our primary strategy for mitigating cyber risks involves storing sensitive data with trusted third-party providers who meet stringent audit and security standards. We collaborate with third-party vendors who comply with various industry standards such as SOC.
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We intend to engage a third-party service provider to monitor our network and provide prevention, detection, correlation, investigation, and response to any security incidents, promptly notifying management of any potential issues. We maintain backup data to facilitate recovery in the event of data loss or a disaster.
Item 2. Properties
Our corporate and executive offices are located in a leased facility in 136-40 39th Avenue, Flushing, NY 11354, where we lease approximately 2,500 square feet of under a lease that is due to expire on October 31, 2024 at a current annual rent of approximately $0.3 million. In addition, we lease a warehouse in Maspeth, New York, where we assemble all of our vehicles. The warehouse, which is approximately 52,264 square feet, is under one lease that is due to expire on April 30, 2029, at a current annual rent of approximately $1.2 million.
We believe our facilities are sufficient to meet our needs in the near term, as we expand our operations, we may require additional space in which to assemble our vehicles and we do not have any commitments for such space. All of our retail stores are leased. For the year ended March 31, 2024 and 2023, we paid an aggregate of $2.4 million and $1.7 million, respectively, for the spaces used for retail stores.
AOFL LLC, a wholly owned subsidiary of the Company, entered into a purchase agreement to purchase a property to be used as an office, located at 136-40 39th Avenue, Flushing, New York, for a total purchase price of approximately $3.6 million. The closing is expected to occur in the third quarter of 2024.
Item 3. Legal Proceedings
We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. As a provider of consumer products, we are, from time to time, subject to civil litigation regarding those products, including in publicly-available court filings. We are not currently a party to, nor are we aware of, any legal proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock commenced trading on the Nasdaq Capital Market on June 6, 2024 under the symbol FLYE.
Stockholders
As of June 27, 2024, we had 12 stockholders of record.
Transfer Agent
VStock Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11598, is the transfer agent for our common stock.
Dividends
We have never declared or paid any cash or other dividends or distributions on our capital stock. We currently intend to retain earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments, provisions of applicable law and other factors the board deems relevant.
Use of Proceeds from Our Initial Public Offering
On June 7, 2024, we closed our IPO of 2,250,000 shares of our common stock at the price of $4.00 per share, resulting in net proceeds to us of $7.9 million after deducting underwriting discounts and commissions and offering expenses. 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. All of the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-276830), which was declared effective by the Securities and Exchange Commission on May 14, 2024. The Benchmark Company, LLC acted as representative of the underwriters. We paid the underwriters in aggregate approximately $0.7 million in underwriting commissions and incurred offering expenses of approximately $0.3 million. No payments for such expenses were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities, or to our affiliates. There has been no material change in the planned use of proceeds from our IPO from those disclosed in the Final Prospectus. No proceeds were used for the year ended March 31, 2024. As of June 27, 2024, we used approximately $4.2 million, $0.2 million, and $1.1 million for purchase of inventory and production costs, software development, and working capital, respectively. The balance is being held in short-term interest-bearing deposits and securities.
Item 6. [Reserved]
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 | ) | |||
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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.
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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.
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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.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of March 31, 2024, we were a privately-owned company, not subject to disclosure controls and internal controls over financial reporting required by the Exchange Act for public companies.
This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Item 9B.
We have adopted an insider trading policy. Our insider trading policy is filed as an exhibit to this annual report and is incorporated herein by reference.
During the fourth quarter of the year ended March 31, 2024, we were a privately owned company and disclosure required by Item 9B was not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.
Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
Set forth below is certain information with respect to our directors and executive officers:
| Name | Age | Position | ||
| Zhou (Andy) Ou | 35 | Chairman of the Board and Chief Executive Officer | ||
| Ruifeng (Steven) Guo | 36 | Director and Chief Financial Officer | ||
| Rui (Ricky) Feng | 39 | Chief Operating Officer | ||
| Ke (Simon) Zhang | 37 | Chief Human Resource Officer | ||
| Bin Wang | 66 | Director | ||
| Lun Feng | 64 | Director | ||
| Alan Jacobs | 82 | Director |
Set forth below is biographical information about each of the individuals named in the tables above:
Zhou (Andy) Ou, Chairman of the Board and Chief Executive Officer. Mr. Ou founded Fly E-Bike in 2018 and has since served as our Chairman of the Board and Chief Executive Officer (“CEO”). Before founding Fly E-Bike, Mr. Ou operated a motorcycle repair business for over eight years, and previously held a managerial position at a food delivery company. We believe that Mr. Ou’s prior experience in the motorcycle industry and his understanding of the delivery industry, combined with his tenure at our company, qualifies him to serve as our Chairman of the Board.
Ruifeng (Steven) Guo, Director and Chief Financial Officer. Mr. Guo joined our company as a tax and financial advisor in March 2020 and has been serving as our Chief Financial Officer (“CFO”) since December 2022 and our director since September 1, 2023. He is currently a partner at DGLG Accounting and Tax LLC, a U.S. financial consulting firm, where he has been working since May 2020, and he is currently a partner at DFT since December 2023. Additionally, he is the managing partner at SJ International Development, a New York based real estate management company, since October 2020. Mr. Guo is also the managing partner at PJMG LLC, a New York based consulting company, since June 2019. Prior to that, Mr. Guo worked as a senior business manager at Xinyuan Real Estate Co., Ltd. from April 2018 to April 2020. Between 2013 and 2017, Mr. Guo worked as an associate and senior auditor at three auditing firms, including Friedman LLP, Marcum LLP and Janover LLC. Mr. Guo obtained his Bachelor of Economy from Beijing International Studies University in 2010 and his MBA in Accounting from Hofstra University in 2012. Mr. Guo was selected to serve as a member of our board of directors because of his senior-level experience in the financial services industry and his extensive knowledge of our business and industry.
Rui (Ricky) Feng, Chief Operating Officer. Mr. Feng joined us as a retail store manager in 2018 and was responsible for overseeing our supply chain, implementing effective customer strategies, and ensuring legal compliance. He has served as our Chief Operating Officer since December 2022. Prior to joining us, Mr. Feng owned and operated a restaurant for four years, which provided him with valuable experience in managing a business.
Ke (Simon) Zhang, Chief Human Resource Officer. Mr. Zhang has also been serving as our Chief Human Resource Officer since December 2022. Mr. Zhang previously served as our director and resigned from this position on September 1, 2023. He joined us as a retail store manager in 2018, where he was responsible for overseeing various HR functions, including recruiting, employee training and development and managing our benefits system.
Bin Wang, Director. Mr. Wang has served as a director on our board of directors since the closing of the IPO. Mr. Wang has over 30 years of management experience in the financial industry. He currently serves as the Managing Director of Eon Capital International Ltd, a Hong Kong corporate advisory service company. He has also been a member of the board of directors of Maison Solutions Inc., a Nasdaq-listed company, since 2023. Previously, from 2018 to 2020, Mr. Wang was the Chairman and CEO of Alberton Acquisition Corp., a Nasdaq-listed company. From 2010 to 2012, he served as Independent Board Director in Sky Digital Stores Corp. (SKYC), participating in the company’s public listing process. From 2007 to 2018, Bin has provided his corporate advisory services to dozens of corporation clients in the US and Asia. Bin began his financial career at Chemical Bank in 1994 when he served as a commercial banking manager for the bank’s domestic Asian market. From 1996 to 2000, he served as Vice President and Team Leader of Chase International Financial Services, to promote the bank’s business in Asia-Pacific region. After Chase merged with JPMorgan in 2000, Bin continued to work at JPMorgan Chase until late 2006, playing a wide range of management roles in the development and growth of international business.
Mr. Wang graduated from Northwestern Polytechnic University in 1980, obtained his Master of Science degree in Mechanical Engineering from Xi’an Jiaotong University in 1983, and earned his Master of Arts degree in economics from Illinois State University in 1992. Mr. Wang was selected to serve as a member of our board of directors because of his extensive senior-level experience in the financial services industry and his profound knowledge of our business and the industry as a whole.
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Lun Feng, Director. Mr. Feng has served as a director on our board of directors since the closing of the IPO. Since August 2015, Mr. Feng has held the position of executive director at Si Fang Yu Feng Investment Co., Ltd., a Chinese investment management company. From June 2009 to June 2021, he served as the chairman of the board of directors at Beijing Wan Tong Li Ti Zhi Cheng Investment Co., Ltd., a Chinese investment management company. Additionally, Mr. Feng currently holds the position of an independent director at three public companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange. These companies include Bank of Xi’an Co., Ltd., Shanghai Xinnanyang Only Education and Technology Co., Ltd., and Bona Film Group Co., Ltd. Mr. Feng received his bachelor’s degree in political economy from Northwest University (China) in 1982. Mr. Feng was selected to serve as a member of our board of directors because of his extensive senior-level management experience of public companies, his board experience and his extensive knowledge of our business and industry.
Alan Jacobs, Director. Mr. Jacobs has served as a director on our board of directors since the closing of the IPO. Mr. Jacobs has over 40 years of experience as a corporate and securities attorney, investment banker, business and financial advisor and senior executive of both private and public companies. Since August 2018, Mr. Jacobs has been serving as President at Worthy Lending, LLC. In addition, he has been serving as Executive Vice President, Treasurer and Chief Strategy Officer of Worthy Financial, Inc. since January 2016. Mr. Jacobs currently serves as President of the Worthy Lending V subsidiary. He currently also serves as Executive Vice President, Chief Operating Officer, and a member of the board of directors of Worthy Financial, Inc.’s wholly owned subsidiaries, including Worthy Peer Capital, Inc., Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Community Bonds II, Inc. and Worthy Property Bonds, Inc., and as President of their respective wholly owned loan and investment subsidiaries, all since their respective dates of organization. From 2016 to 2018 Mr. Jacobs was the Founder and President of CorpFin Management Group where he was focused on business development, strategic planning, and corporate development. From September 2014 to December 2015, Mr. Jacobs was associated with ViewTrade Securities, a FINRA registered broker-dealer where he was focused on advisory and corporate services. Prior to that time and for more than 30 years, Mr. Jacobs was associated with several FINRA registered broker-dealers including Ladenburg Thalman & Co. Inc., Josephthal & Company, and Capital Growth Securities. Mr. Jacobs received his bachelor’s degree from Franklin and Marshall College in 1963 and his law degree from Columbia University in 1966. Mr. Jacobs was selected to serve as a member of our board of directors because of his extensive experience in the investment and financial services industry.
Information about the Board of Directors
Our board of directors oversees our business and affairs and monitors the performance of management. In accordance with corporate governance principles, the board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with our chief executive officer and other key executives, by reading the reports and other materials that we send them, and by participating in board and committee meetings. Directors hold office until their successors have been elected and qualified or until he or she resigns or have been removed or disqualified.
Committees of the Board of Directors
We established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below. The rules of the Nasdaq Stock Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will only qualify as an independent director if, in the opinion of the board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that the board of directors if a listed company must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation the company pays to the director and any affiliations with the company.
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Audit Committee. Our Audit Committee consists of three independent directors. The members of the Audit Committee are Bin Wang, Lun Feng and Alan Jacobs, with Mr. Wang serving as the committee chair. The Audit Committee consists exclusively of directors who are financially literate. Mr. Wang is considered an “audit committee financial expert” as defined by the SEC’s rules and regulations.
The Audit Committee responsibilities include:
| ● | overseeing the compensation and work of and performance by our independent auditor and any other registered public accounting firm performing audit, review or attestation services for us; |
| ● | engaging, retaining and terminating our independent auditor and determining the terms thereof; |
| ● | assessing the qualifications, performance and independence of the independent auditor; |
| ● | evaluating whether the provision of permitted non-audit services is compatible with maintaining the auditor’s independence; |
| ● | reviewing and discussing the audit results, including any comments and recommendations of the independent auditor and the responses of management to such recommendations; |
| ● | reviewing and discussing the annual and quarterly financial statements with management and the independent auditor; |
| ● | producing a committee report for inclusion in applicable SEC filings; |
| ● | reviewing the adequacy and effectiveness of internal controls and procedures; |
| ● | establishing procedures regarding the receipt, retention and treatment of complaints received regarding the accounting, internal accounting controls, or auditing matters and conducting or authorizing investigations into any matters within the scope of the responsibility of the Audit Committee; and |
| ● | reviewing transactions with related persons for potential conflict of interest situations. |
Compensation Committee. Our Compensation Committee consists of three independent directors. The members of the Compensation Committee are Lun Feng, Bin Wang and Alan Jacobs, with Mr. Feng serving as the committee chair. The committee has primary responsibility for:
| ● | reviewing and recommending all elements and amounts of compensation for each executive officer, including any performance goals applicable to those executive officers; |
| ● | reviewing and recommending for approval the adoption, any amendment and termination of all cash and equity-based incentive compensation plans; |
| ● | once required by applicable law, causing to be prepared a committee report for inclusion in applicable SEC filings; |
| ● | approving any employment agreements, severance agreements or change of control agreements that are entered into with the CEO and certain executive officers; and |
| ● | reviewing and recommending the level and form of non-employee director compensation and benefits. |
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Nominating and Governance Committee. The Nominating and Governance Committee consists of three independent directors. The members of the Nominating and Governance Committee are Alan Jacobs, Bin Wang and Lun Feng, with Mr. Jacobs serving as the committee chair. The Nominating and Governance Committee’s responsibilities include:
| ● | recommending persons for election as directors by the stockholders; |
| ● | recommending persons for appointment as directors to the extent necessary to fill any vacancies or newly created directorships; |
| ● | reviewing annually the skills and characteristics required of directors and each incumbent director’s continued service on the board; |
| ● | reviewing any stockholder proposals and nominations for directors; |
| ● | advising the board of directors on the appropriate structure and operations of the board and its committees; |
| ● | reviewing and recommending standing board committee assignments; |
| ● | developing and recommending to the board Corporate Governance Guidelines, a Code of Business Conduct and Ethics and other corporate governance policies and programs and reviewing such guidelines, code and any other policies and programs at least annually; |
| ● | making recommendations to the board as to determinations of director independence; and |
| ● | making recommendations to the board regarding corporate governance based upon developments, trends, and best practices. |
The Nominating and Governance Committee will consider stockholder recommendations for candidates for the board of directors.
Involvement in Certain Legal Proceedings
None of our directors and executive officers have been involved in any of the following events during the past ten years:
| ● | any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; | |
| ● | being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is made available in the Corporate Governance section of our website, which is located at flyebike.com. Our stockholders are also able to review these documents by accessing our public filings at the SEC’s website at www.sec.gov. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K filed with the SEC.
Trading Policies
On May 3, 2024, we adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable Nasdaq listing standards (the “Insider Trading Policy”).
Clawback Policy
Our board of directors has adopted a clawback policy that covers our executive officers, who are defined as our chief executive officer, president, chief financial officer, principal accounting officer (or the controller, if no such accounting officer exists), any vice-president in charge of a significant principal business unit, division, or function (such as sales, administration, or finance), and any other officer or person who performs a policy-making function.
This clawback policy pertains to incentive-based compensation, which includes any compensation that is granted, earned, or vested wholly or in part based on the achievement of a financial reporting measure. It mandates the recovery of such compensation from an executive officer in cases where we must prepare an accounting restatement due to material noncompliance with U.S. financial reporting requirements under the securities laws. This includes any necessary restatement to correct an error in previously issued financial statements that is material to those statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected.
The Compensation Committee will make determinations regarding “materiality” for the purposes of this policy.
The incentive-based compensation eligible for recovery under this policy includes compensation received during the three completed fiscal years immediately preceding the date we are required to prepare an accounting restatement, as outlined above. This applies provided that the individual served as an executive officer at any time during the performance period relevant to the incentive-based compensation.
Section 16 Compliance
Section 16(a) of the Exchange Act requires the Company’s officers, directors and persons who beneficially own more than ten percent of its common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on our review of such forms furnished to us, we believe that all reports applicable to our executive officers, directors and greater than ten percent beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act.
Item 11. Executive Compensation
The following table shows the compensation awarded to or earned during the years ended March 31, 2024 and 2023 by our chief executive officer. Other than as listed below, we did not have any officers that received more than $100,000 in compensation during the years ended March 31, 2024 and 2023.
Summary Compensation Table
| Name and principal position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total ($) | ||||||||||||||||||||
| Zhou Ou | 2024 | $ | 100,000 | — | — | — | — | $ | 100,000 | ||||||||||||||||||
| Chief Executive Officer | 2023 | $ | 100,000 | — | — | — | — | $ | 100,000 | ||||||||||||||||||
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Outstanding Equity Awards at Fiscal Year End
None.
Employment Agreements
Zhou Ou, Chief Executive Officer
Mr. Ou has entered into an employment agreement with one of our subsidiaries, FLYEBIKE Inc, dated April 1, 2023. The employment agreement provides that Mr. Zhou Ou will serve as the Chief Executive Officer of the Company and will receive a monthly base salary of $8,333. He will also be entitled to reimbursement for authorized and reasonable expenses. The agreement allows for at-will termination by either party. If Mr. Ou’s employment is terminated due to death or disability, he or his estate will receive salary and benefits through the termination date. The Company may terminate the agreement for cause, releasing it from all further obligations except for accrued salary and benefits through the termination date. “Cause” includes failure or neglect by Mr. Ou to perform duties, disobedience to orders, misconduct such as misappropriation of funds, personal profit from Company transactions, misrepresentation, legal violations, acts involving moral turpitude or unethical conduct, disloyalty including aiding a competitor, failure to devote full-time efforts to the Company, not working exclusively for the Company, non-cooperation in investigations, breaches of the employment agreement or the Company rules, and any other act of misconduct or omission. The agreement includes covenants for non-disclosure, non-solicitation, and non-competition. For two years post-termination, Mr. Ou agrees not to solicit the Company’s customers or engage in competing business activities within New York State.
Ruifeng (Steven) Guo, Chief Financial Officer
Mr. Guo has entered into an employment agreement with one of our subsidiaries, FLYEBIKE Inc, dated April 1, 2023. The employment agreement provides that Mr. Ruifeng Guo will serve as the Chief Financial Officer of the Company and will receive a monthly base salary of $5,000. He will also be entitled to reimbursement for authorized and reasonable expenses. The agreement allows for at-will termination by either party. If Mr. Guo’s employment is terminated due to death or disability, he or his estate will receive salary and benefits through the termination date. The Company may terminate the agreement for cause, releasing it from all further obligations except for accrued salary and benefits through the termination date. “Cause” includes failure or neglect by Mr. Guo to perform duties, disobedience to orders, misconduct such as misappropriation of funds, personal profit from Company transactions, misrepresentation, legal violations, acts involving moral turpitude or unethical conduct, disloyalty including aiding a competitor, failure to devote full-time efforts to the Company, not working exclusively for the Company, non-cooperation in investigations, breaches of the employment agreement or the Company rules, and any other act of misconduct or omission. The agreement includes covenants for non-disclosure, non-solicitation, and non-competition. For two years post-termination, Mr. Guo agrees not to solicit the Company’s customers or engage in competing business activities within New York State.
Employee Benefit Plans
2024 Omnibus Incentive Plan
We have adopted the 2024 Plan at the closing of the IPO (the “Effective Date”). The number of shares of our common stock available for issuance under the 2024 Plan is 2,500,000 (the “Share Limit”). We have not issued any grants or awards under the 2024 Plan. The following is a summary of the material terms of the 2024 Plan.
Plan Administration
The 2024 Plan is administered by our Compensation Committee. Our board of directors retains the authority under the 2024 Plan to exercise any or all of the powers and authorities related to the administration and implementation of the 2024 Plan.
Award Eligibility
Awards under the 2024 Plan may be made to our or any of our affiliates’ employees, officers and directors, as well as to consultants and advisors currently providing services to us or any of our affiliates at the time of such award.
Reversion of Shares
If any shares covered by an award are not purchased or are forfeited or expire, or if any award otherwise terminates without delivery of any shares subject to the award or is settled in cash in lieu of shares, then the number of shares counted against the Share Limit with respect to such award will, to the extent of any such forfeiture, termination, expiration or settlement, again be available for issuance under the 2024 Plan.
Awards
The 2024 Plan provides for the grant of awards of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, and other equity-based awards.
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Stock Options
Stock options granted under the 2024 Plan may be nonqualified stock options or incentive stock options within the meaning of Section 422 of the Code. Each option will become vested and exercisable at such times and under such conditions as our Compensation Committee may approve consistent with the terms of the 2024 Plan. No option may be exercisable more than ten years after the option grant date. Our Compensation Committee may include in the option agreement provisions specifying the period during which an option may be exercised following termination of the grantee’s service.
The exercise price per share of our common stock for each option granted under the 2024 Plan may not be less than 100%, or 110% in the case of an incentive stock option granted to a stockholder who owns more than ten percent of our voting stock, of the fair market value of a share of our common stock on the option grant date, except in the case of an option granted upon assumption of, or in substitution for, outstanding awards previously granted under a compensatory plan by a business entity acquired or to be acquired by us or an affiliate of ours or with which we or an affiliate has combined or will combine. Payment of the exercise price for shares purchased pursuant to the exercise of an option may be made in such forms as are approved by our Compensation Committee. These forms may include, in our Compensation Committee’s discretion, cash, cash equivalents, shares of our common stock and net issuance.
Restricted Stock, Restricted Stock Units, and Deferred Stock Units
Restricted stock is an award of our common stock on which vesting restrictions are imposed that subject such shares of our common stock to a substantial risk of forfeiture, as defined in Section 83 of the Code. A restricted stock unit is an award that represents a conditional right to receive shares of our common stock in the future and that may be made subject to the same types of restrictions and risk of forfeiture as restricted stock. A deferred stock unit is a restricted stock unit that may be settled at some point in the future at a time or times consistent with the requirements of Section 409A of the Code.
Stock Appreciation Rights
A SAR is a right to receive upon exercise, in the form of common stock, cash or a combination of common stock and cash, the excess of the fair market value of one share of common stock on the exercise date over the grant price of the SAR. SARs may be granted in conjunction with all or a part of any option or other award granted under the 2024 Plan, or without regard to any option or other award. Upon exercise of a SAR, the holder will be entitled to receive, in the specified form of consideration, the excess of the fair market value of one share of our common stock on the exercise date over the exercise price of the SAR, as determined by our Compensation Committee. The exercise price of a SAR may not be less than the fair market value of a share of our common stock on the grant date.
Dividend Equivalent Rights
Dividend equivalent rights entitle the grantee to receive cash, shares of our common stock, or a combination of both equal to the amount of that the grantee would have received had the grantee held a specified number of shares of our common stock during the period. Dividend equivalent rights may be granted independently or in connection with the grant of any equity-based award, except that no dividend equivalent right may be granted in connection with, or related to an option or SAR.
Other Equity-Based Awards
Our Compensation Committee may grant other types of equity-based or equity-related awards in such amounts and subject to such terms and conditions as our Compensation Committee may determine, including unrestricted stock and dividend equivalent rights which are described in more detail in the 2024 Plan.
Changes to Capital Structure
In the event of a merger, reorganization, recapitalization, reclassification, stock split, reverse stock split, spin-off combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without the receipt of consideration by us, then the number and kind of shares for which grants of options and other awards may be made under the 2024 Plan may be adjusted proportionately and accordingly by our Compensation Committee.
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Change of Control
Except as otherwise provided in the applicable award agreement, upon the occurrence of a change of control of our Company in which outstanding awards are not being assumed or continued, all outstanding shares of restricted stock, restricted stock units, deferred stock units, dividend equivalent rights and performance-based awards will be deemed to have vested and any underlying shares of our common stock will be deemed delivered immediately before the change of control; and either or both of the following actions shall be taken: (i) at our Compensation Committee’s discretion, all options and SARs will become exercisable fifteen days before the change of control (with any exercise of an option or SAR during such fifteen day period to be contingent upon the consummation of the change of control) and terminate upon the change of control to the extent not exercised; and/or (ii) at our Compensation Committee’s discretion, all options, SARs, shares of restricted stock, restricted stock units, deferred stock units, dividend equivalent rights and/or performance-based awards will be canceled and cashed out in connection with the change of control. Other equity-based awards will be governed by the terms of the applicable award agreement.
If we experience a change of control in which outstanding awards that are not exercised prior to the change of control will be assumed or continued by the surviving entity, then, except as otherwise provided in the applicable award agreement, in another agreement with the grantee, or as otherwise set forth in writing, upon the occurrence of the change of control, the 2024 Plan and the awards granted under the 2024 Plan will continue in the manner and under the terms so provided in the event of the change of control to the extent that provision is made in writing in connection with such change of control for the assumption or continuation of such awards, or for the substitution for such awards with new awards, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and exercise prices of options and SARs.
Plan Amendment and Termination
The Compensation Committee may adopt, amend and rescind rules relating to the administration of the 2024 Plan, and our board of directors may amend, suspend, or terminate the 2024 Plan at any time; provided, that, no such amendment or termination will be made that materially and adversely impairs the rights of any participant with respect to any award granted under the 2024 Plan without the participant’s consent, other than amendments that are necessary to permit the granting of awards in compliance with applicable laws. The 2024 Plan will automatically terminate the day before the tenth (10th) anniversary of the Effective Date, unless earlier terminated by our board of directors or in accordance with the terms of the 2024 Plan.
Director Compensation
The following table sets forth information as to the compensation paid to our directors in the year ended March 31, 2024:
| Name | Cash Compensation | Stock Awards | Total | |||||||||
| Bin Wang(1) | - | - | - | |||||||||
| Lun Feng(1) | - | - | - | |||||||||
| Alan Jacobs(1) | - | - | - | |||||||||
| Zhou Ou(2) | - | - | - | |||||||||
| Ruifeng (Steven) Guo(3) | $ | 60,000 | $ | 60,000 | ||||||||
| (1) | The appointment of our independent directors took effect upon the effectiveness of the registration statement as of May 14, 2024 and therefore they did not receive any compensation for the year ended March 31, 2024. |
| (2) | Mr. Ou does not receive any additional compensation as a director in addition to his compensation disclosed in the Summary Compensation Table. |
| (3) | Mr. Guo receives $5,000 per month for serving as Chief Financial Officer of the Company. Mr. Guo does not receive any additional compensation as a director in addition to his compensation disclosed in the Summary Compensation Table. |
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Director Agreements
Each of the Company’s independent directors, Bin Wang, Lun Feng and Alan Jacobs, has entered into an Independent Director Agreement (each, an “Independent Director Agreement”). Under the Independent Director Agreement between us and each of our independent directors, each independent director is entitled to an annual cash fee of $50,000.
We will also reimburse each independent director for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the director’s duties for us. As also required under each Independent Director Agreement, we have separately entered into a standard indemnification agreement with each of our directors, the term of which began on the date of the director’s appointment.
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The following table sets forth information with respect to the beneficial ownership of our common stock as of June 27, 2024 by:
| ● | each person known to us to beneficially own 5% or more of our common stock; | |
| ● | each director; | |
| ● | each of our executive officers; and | |
| ● | all officers and directors as a group. |
All information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, directors or executive officers, as the case may be. Each person is deemed to own beneficially shares of common stock that are issuable upon exercise of options, warrants or upon conversion of convertible securities if they are exercisable or convertible within 60 days of June 27, 2024. Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his or her name. Unless otherwise noted, the mailing address of each listed beneficial owner is c/o Fly-E Group, Inc., 136-40 39th Avenue, Flushing, NY 11354.
| Name and address of beneficial owner | Shares beneficially owned | Percentage owned | ||||||
| Executive Officers and Directors | ||||||||
| Zhou Ou | 7,700,000 | 31.32 | % | |||||
| Ruifeng Guo | — | — | % | |||||
| Rui Feng | 1,760,000 | 7.16 | % | |||||
| Ke Zhang | 7,370,000 | 29.97 | % | |||||
| Bin Wang | — | — | % | |||||
| Lun Feng | — | — | % | |||||
| Alan Jacobs | — | — | % | |||||
| Directors and Officers as a group (seven persons) | 16,830,000 | 68.45 | % | |||||
Securities Authorized for Issuance Under Equity Compensation Plans
We have adopted the 2024 Plan in order to grant equity-based and other incentive awards to our officers, employees, directors, consultants and advisers. There are 2,500,000 shares of common stock reserved for future issuance under the 2024 Plan. We have not issued any grants or awards under the 2024 Plan.
49
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as set forth below, during our last two fiscal years, we have not entered into any material transactions or series of transactions that would be considered material in which any director or executive officer or beneficial owner of 5% or more of any class of our capital stock, or any immediate family member of any of the preceding persons, had a direct or indirect material interest:
From April 1, 2022 to March 31, 2024, our Chairman and CEO, Mr. Ou, provided financial support to the Company by advancing funds and making various payments on behalf of the Company totaling $3,187,807. These amounts payable to Mr. Ou are unsecured, bear no interest and do not have a maturity date. From April 1, 2022 to March 31, 2024, the Company repaid a total of $3,171,996 to Mr. Ou, including repayment of amounts owed to Mr. Ou. As of March 31, 2024, the Company transferred $2,263,630 of the payable balance along with a cash contribution of $136,370 from Mr. Ou as capital contribution. As of March 31, 2024 and 2023, the remaining balance of these payables was $92,229 and $332,481, respectively. The Company paid a total of $290,252 to Mr. Zhou Ou during the year ended March 31, 2024.
From April 1, 2022 to March 31, 2024, Mr. Rui Feng, our Chief Operating Officer, advanced a total of $711 to the subsidiaries of the Company to support their business operations. These amounts payable to Mr. Feng are unsecured, bear no interest and do not have a maturity date. From April 1, 2022 to March 31, 2024, the Company repaid $64,937 to Mr. Feng. As of March 31, 2024, the Company has paid off all amounts owed to Mr. Feng.
From April 1, 2022 to March 31, 2024, Mr. Ke Zhang, our Chief Human Resource Officer, advanced an aggregate of $58,252 to the subsidiaries of the Company to support their business operations. These amounts payable to Mr. Zhang are unsecured, bear no interest and do not have a maturity date. From April 1, 2022 to March 31, 2024, the Company repaid $243,122 to Mr. Zhang. As of March 31, 2024, the Company has paid off all amount owed to Mr. Zhang.
On March 6, 2021, the Company and DGLG Accounting and Tax LLC (“DGLG”) entered into an engagement letter, wherein the Company engaged DGLG as a consultant to assist the Company in its IPO planning, financing and tax services. Mr. Guo is a partner at DGLG. In December 2022, the Company hired Mr. Guo as its CFO. Under the terms of the engagement agreement with DGLG, the Company has agreed to compensate DGLG for consulting services based on an hourly fee arrangement. For the years ended March 31, 2024 and 2023, DGLG’s consulting fees were $100,000 and $25,000, respectively. For the years ended March 31, 2024 and 2023, the Company paid DGLG a total of $123,000 and $13,050, respectively, for tax services.
On February 1, 2023, PJMG LLC (“PJMG”), a company in which Mr. Guo, our CFO, holds over 50% of the equity interests, provided a loan of $150,000 to the Company (the “PJMG Loan”). The PJMG Loan was unsecured, bore no interest and was set to mature on May 31, 2024. Furthermore, the Company has agreed to retain the services of PJMG as a consultant following the completion of its IPO. To secure these services, the Company prepaid a total of $210,000 to PJMG during the year ended March 31, 2024, of which $150,000 was applied to offset the PJMG Loan.
Fly E Bike SRL, a company formed under the laws of the Dominican Republic and in which Mr. Ou holds over 50% of the equity interests, is a distributor for the Company. During the years ended March 31, 2024 and 2023, Fly E Bike SRL purchased certain EV products from the Company in the amount of $326,914 and $136,565, respectively. As of March 31, 2024 and 2023, the Company had accounts receivable from Fly E Bike SRL in the amounts of $326,914 and $136,565, respectively. In addition, during the year ended March 31, 2024, the Company advanced a total of $291,756 to Fly E Bike SRL. Such advance is unsecured, bears no interest and does not have a maturity date. As of March 31, 2024, Fly E Bike SRL has repaid $111,500 to the Company.
In December 2023, the Company engaged DF Technology US Inc (“DFT”) for certain technology services. Mr. Guo, our CFO, owns over 50% of the equity interest in DFT. For the year ended March 31, 2024, the Company paid a total of $1,554,000 to DFT, of which $275,000 was recognized as construction in progress and the remaining of $1,279,000 was prepayment for software development as of March 31, 2024.
Director Independence
We believe that each of our directors, Messrs. Wang, Feng, and Jacobs, is an independent director using the Nasdaq definition of independence.
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Related Party Transaction Policy
Our Company has adopted a written Related Party Transaction Policy, or the Policy, for the purpose of describing the procedures used to identify, review, approve and disclose, if necessary, any transaction in which (i) the Company is a participant and (ii) a related person has or will have a direct or indirect material interest.
Once a related party transaction in which the aggregate amount involved will or may be expected to exceed the lesser of $120,000 or 1% of the Company’s total assets at year-end for the last two completed fiscal years if the Company qualifies as a smaller reporting company in any calendar year has been identified, the Audit Committee or the full board must review the transaction for approval or ratification. In determining whether to approve or ratify a related party transaction, the Audit Committee or the full board shall consider all relevant facts and circumstances, including the following factors: (i) the materiality and character of the related person’s direct or indirect interest; (ii) the commercial reasonableness of the terms; (iii) any Company contractual obligations; (iv) the benefit or perceived benefit, or lack thereof, to the Company; (v) the opportunity cost of alternate transactions; and (vi) the actual or apparent conflict of interest of the related person.
Any director who has a direct or indirect material interest in the proposed related person transaction may be present during initial presentation of the related person transaction to the Audit Committee or the board, but should not participate in the Audit Committee or the board action regarding whether to approve or ratify the transaction. If, however, a proposed transaction arises in which all directors are deemed to have a direct or indirect material interest in the transaction, the interested directors may participate in the consideration and approval of the proposed transaction, and the Company may enter into any such related person transaction that is approved in accordance with the provisions of the Delaware General Corporation Law.
Item 14. Principal Accounting Fees and Services
The following table sets forth the fees billed by Marcum Asia CPAs LLP (“Marcum Asia”) and Friedman LLP (“Friedman”), our registered independent public accounting firms, for 2024 and 2023 for the categories of services indicated.
| Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Audit fees | $ | 552,065 | $ | 410,502 | ||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
| Total All Fees | $ | 552,065 | $ | 410,502 | ||||
Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements, review of our quarterly financial statements and review of our registration statement on Form S-1 relating to our initial public offering.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. The pre-approval is made by the audit committee of the board of directors. Our board approved all services that our independent accountants provided to us in the past two fiscal years.
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Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements:
(2) Financial Statement Schedules:
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page F-1.
(3) Exhibits
We hereby file as part of this report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected on the SEC website at www.sec.gov.
Item 16. Form 10-K Summary
Not Applicable.
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EXHIBIT INDEX
| (1) | Filed as an exhibit to the Company’s registration statement on Form S-1 (File No. 333-276830) filed on May 3, 2024 and incorporated herein by reference. |
| (2) | Filed as an exhibit to the Company’s current report on Form 8-K filed on June 7, 2024 and incorporated herein by reference. |
| * | Filed herewith. |
| ** | Furnished herewith |
| † | Compensatory plan or arrangement. |
# |
The exhibits and schedules to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request. |
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: June 27, 2024 | FLY-E GROUP, INC. | |
| By: | /s/ Zhou Ou | |
| Name: | Zhou Ou | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Zhou Ou | Chief Executive Officer (Principal Executive Officer) and Director | June 27, 2024 | ||
| Zhou Ou | ||||
| /s/ Ruifeng Guo | Chief Financial Officer (Principal Accounting and Financial Officer) and Director | June 27, 2024 | ||
| Ruifeng Guo | ||||
| /s/ Bin Wang | Director | June 27, 2024 | ||
| Bin Wang | ||||
| /s/ Lun Feng | Director | June 27, 2024 | ||
| Lun Feng | ||||
| /s/ Alan Jacobs | Director | June 27, 2024 | ||
| Alan Jacobs |
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FLY-E GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Fly-E Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fly-E Group, Inc. (the “Company”) as of March 31, 2024 and 2023, the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the years in the two-year period ended March 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2022 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum Asia CPAs LLP effective September 1, 2022).
June 27, 2024
NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001
Phone 646.442.4845 • Fax 646.349.5200 • www.marcumasia.com
F-2
FLY-E GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars, except for the number of shares)
| March 31, 2024 | March 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Accounts receivable – related parties | ||||||||
| Inventories, net | ||||||||
| Prepayments and other receivables | ||||||||
| Prepayments and other receivables – related parties | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Security deposits | ||||||||
| Deferred IPO costs | ||||||||
| Deferred tax assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Long-term prepayment for property | ||||||||
| Long-term prepayment for software development– related parties | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Current portion of long-term loan payables | ||||||||
| Accrued expenses and other payables | ||||||||
| Other payables – related parties | ||||||||
| Operating lease liabilities – current | ||||||||
| Taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term loan payables | ||||||||
| Long-term loan payables – related parties | ||||||||
| Operating lease liabilities – non-current | ||||||||
| Total Liabilities | ||||||||
| Commitment and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional Paid-in Capital | ||||||||
| Shares Subscription Receivable | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total FLY-E Group, Inc. Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
FLY-E GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Expressed in U.S. dollars, except for the number of shares)
| For the Years Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Selling Expenses | ||||||||
| General and Administrative Expenses | ||||||||
| Total Operating Expenses | ||||||||
| Income from Operations | ||||||||
| Other Expenses, net | ( | ) | ( | ) | ||||
| Interest Expenses, net | ( | ) | ( | ) | ||||
| Income Before Income Taxes | ||||||||
| Income Tax Expense | ( | ) | ( | ) | ||||
| Net Income | $ | $ | ||||||
| Other Comprehensive Income (Loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Total Comprehensive Income | $ | $ | ||||||
| Earnings per Share* | $ | $ | ||||||
| Weighted Average Number of Common Stock | ||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
FLY-E GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Expressed in U.S. dollars, except for the number of shares)
| Preferred Stock | Common Stock | Additional Paid-in | Shares Subscription | Accumulated Other | Retained | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares* | Amount | Shares* | Amount | Capital | Receivables | Comprehensive | Earnings | Equity | ||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||||||
| Capital contributions | — | — | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
FLY-E GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars, except for the number of shares)
| For the Years Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Loss on disposal of property, and equipment | ||||||||
| Depreciation expense | ||||||||
| Amortization expense | ||||||||
| Deferred income taxes expenses | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Loss from termination of operating lease | ||||||||
| Inventories reserve | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable – related parties | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepayments and other receivables | ( | ) | ||||||
| Prepayments for operation services to related parties | ( | ) | ||||||
| Security deposits | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Taxes payable | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Purchases of equipment | ( | ) | ( | ) | ||||
| Purchases of property rights | ( | ) | ||||||
| Prepayments for property | ( | ) | ||||||
| Prepayment for purchasing software from a related party | ( | ) | ||||||
| Payment received from a related party | ||||||||
| Advance to a related party | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Borrowing from loan payables | ||||||||
| Repayments of loan payables | ( | ) | ( | ) | ||||
| Repayments on other payables - related parties | ( | ) | ( | ) | ||||
| Payments of related party loan | ( | ) | ||||||
| Deferred IPO Cost | ( | ) | ( | ) | ||||
| Capital contributions from Stockholders | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net changes in cash | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Cash at beginning of the year | ||||||||
| Cash at the end of the year | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Settlement of accounts payable by related parties | $ | $ | ||||||
| Settlement of accounts payable by capital contribution | $ | $ | ||||||
| Purchase of vehicle funded by loan | $ | $ | ||||||
| Unpaid deferred IPO cost | $ | $ | ||||||
| Termination of operating lease right-of-use assets and operating lease liabilities | $ | ( | ) | |||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
FLY-E GROUP, INC.
Notes to Consolidated Financial Statements
1 — DESCRIPTION OF BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
Organization and principal activities
Fly-E Group, Inc. (the “Company” or “Fly-E Group”) was incorporated under the laws of the State of Delaware on November 1, 2022. The Company has no substantive operations other than holding all of the issued and outstanding shares of Fly E-Bike Inc. (“Fly E-Bike”) and Fly EV, Inc. (“Fly EV”). Fly E-Bike and Fly EV were incorporated under the laws of the State of Delaware on August 22, 2022 and November 1, 2022, respectively. Fly EV has no substantive operations. The Company, through its wholly owned subsidiaries, is principally engaged in designing, installing and selling smart electric bikes (“E-bikes”), electric motorcycles (“E-motorcycles”), electric scooters (“E-scooters”), and related accessories under the brand name of “Fly E-Bike.” The Company’s principal operations and geographic markets are mainly in the United States of America (the “U.S.”). As of June 27, 2024, the Company has opened a total of 40 stores, including 39 stores in the U.S and one store in Canada. The Company also operates one online store, focusing on selling E-motorcycles, E-bikes, and E-scooters. The Company plans to open another online store focusing on selling gas bikes in the future.
The Company’s business was initially operated under CTATE INC. (“Ctate”), a corporation formed under the laws of the State of New York in 2018. Before merging with Fly E-Bike, Ctate owned 27 companies, each of which operated a Fly E-Bike store. On September 12, 2022, Ctate and Fly E-Bike, which was a wholly-owned subsidiary of Ctate, entered into an Agreement and Plan of Merger, pursuant to which Ctate merged into and with Fly E-Bike, with Fly E-Bike being the surviving corporation (the “Merger”). As a result of the Merger, the original shareholders of Ctate became the stockholders of Fly E-Bike and subsequently effectively controlled the combined entity.
On December 21, 2022, Fly-E Group and Fly E-Bike entered into a Share Exchange Agreement, pursuant to which Fly-E Group acquired all of the issued and outstanding shares of Fly E-Bike by issuing its shares to the stockholders of Fly E-Bike on a one-for-one basis (the “Share Exchange”). As a result of the Share Exchange, Fly E-Bike became a wholly owned subsidiary of Fly-E Group.
As a result of the Merger and the Share Exchange, Fly E-Bike and its subsidiaries are under common control of Fly-E Group, resulting in the consolidation of Fly E-Bike and its subsidiaries, which was accounted as a reorganization of entities under common control at carrying value. The consolidated financial statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the consolidated financial statements of Fly-E Group.
Name | Background | Ownership | ||
| FLY-E GROUP, INC. | ● A Delaware corporation ● Incorporated on November 1, 2022 ● A holding company | |||
| FLY EV, INC. | ● A Delaware corporation ● Incorporated on November 1, 2022 ● A holding Company | |||
| FLY E-BIKE, INC. | ● A Delaware Company ● Incorporated on August 22, 2022 ● A holding Company | |||
| UNIVERSE KING CORP | ● A New York corporation ● Incorporated on November 19, 2018 ● A retail store | |||
| UFOTS CORP. | ● A New York corporation ● Incorporated on May 2, 2019 ● A retail store |
F-7
| ARFY CORP. | ● A New York corporation ● Incorporated on April 29, 2020 ● A retail store | |||
| TKPGO CORP. | ● A New York corporation ● Incorporated on July 3, 2018 ● A retail store | |||
| FLYFLS INC | ● A New York corporation ● Incorporated on October 13, 2020 ● A retail store and corporate office | |||
| FLY37 INC | ● A New York corporation ● Incorporated on October 14, 2020 ● A retail store | |||
| FIYET INC | ● A New York corporation ● Incorporated on November 12, 2020 ● A retail store | |||
| FLY GC INC. | ● A New York corporation ● Incorporated on November 13, 2020 ● A retail store | |||
| FLY MHT INC. | ● A New York corporation ● Incorporated on December 15, 2020 ● A retail store | |||
| FLYAM INC | ● A New York corporation ● Incorporated on February 19, 2021 ● A retail store | |||
| OFLYO INC | ● A New York corporation ● Incorporated on March 29, 2021 ● A retail store | |||
| FLYEBIKE INC | ● A New York corporation ● Incorporated on March 30, 2021 ● A retail store | |||
| FLYCLB INC | ● A New York corporation ● Incorporated on April 15, 2021 ● A retail store |
F-8
| FLYEBIKE NJ INC | ● A New Jersey corporation ● Incorporated on June 8, 2021 ● A retail store | |||
| ESEBIKE INC | ● A New York corporation ● Incorporated on October 13, 2021 ● A retail store | |||
| FLYEBIKEMIAMI INC | ● A Florida corporation ● Incorporated on June 30, 2021 ● A retail store | |||
| GOFLY INC | ● A Texas corporation ● Incorporated on July 23, 2021 ● A retail store | |||
| FLY14 CORP. | ● A New York corporation ● Incorporated on September 15, 2021 ● A retail store | |||
| EDISONEBIKE INC. | ● A New York corporation ● Incorporated on October 13, 2021 ● A retail store | |||
| FLYTRON INC. | ● A New York corporation ● Incorporated on November 9, 2021 ● A retail store | |||
| FLYCYCLE INC. | ● A New York corporation ● Incorporated on January 10, 2022 ● A retail store | |||
| FLYNJ2 INC. | ● A New Jersey corporation ● Incorporated on February 10, 2022 ● A retail store |
F-9
| FLYBWY INC. | ● A New York corporation ● Incorporated on March 2, 2022 ● A retail store | |||
| FLYCORONA INC. | ● A New York corporation ● Incorporated on March 9, 2022 ● A retail store | |||
| MEEBIKE | ● A New York corporation ● Incorporated on March 25, 2022 ● A retail store | |||
| FLY6AVE, INC. | ● A New York corporation ● Incorporated on April 16, 2022 ● A retail store | |||
| FLY E BIKE NJ3, INC | ● A New Jersey corporation ● Incorporated on July 18, 2022 ● A retail store | |||
| FLYEBIKE BROOKLYN, INC. | ● A New York corporation ● Incorporated on November 2, 2022 ● A retail store | |||
| FLY E-BIKE SAN ANTONIO INC | ● A Texas corporation ● Incorporated on January 1, 2023 ● A retail store | |||
| FLYEBIKE WORLD INC. | ● A New York corporation ● Incorporated on February 27, 2023 ● A retail store | |||
| FLY DELIVERY INC. | ● A New York corporation ● Incorporated on March 2, 2023 ● A delivery store | |||
| FLYEBIKE MIAMI2 INC. | ● A Florida corporation ● Incorporated on April 13, 2023 ● A retail store | |||
| FLYDC INC. | ● A Washington, DC corporation ● Incorporated on May 31, 2023 ● A retail store |
F-10
| FLYMHT659 INC. | ● A New York corporation ● Incorporated on June 2, 2023 ● A retail store | |||
| FLYBX745 INC. | ● A New York corporation ● Incorporated on June 15, 2023 ● A retail store | |||
| FLYJH8509 INC. | ● A New York corporation ● Incorporated on August 30, 2023 ● A retail store | |||
| FLYBX2381 INC. | ● A New York corporation ● Incorporated on August 30, 2023 ● A retail store | |||
| FLYNJ4 INC. | ● A New York corporation ● Incorporated on October 4, 2023 ● A retail store | |||
| FLYTORONTO Corp. | ● A Toronto corporation ● Incorporated on October 18, 2023 ● A retail store | |||
| FLYLA INC. | ● A California corporation ● Incorporated on December 1, 2023 ● A retail store |
Liquidity
As of March 31, 2024, the Company had working capital of approximately
$
F-11
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (the “U.S. GAAP”) and regulations of the Securities Exchange Commission (the “SEC”).
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
(c) Segment Information
The Company’s chief operating decision-makers (i.e., chief executive officer and his direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by different revenues streams for purposes of allocating resources and evaluating financial performance. The Company and its subsidiaries offer E-bikes, E-motorcycles, E-scooters and other items and services in its stores. The Company’s retail operating divisions are geographically based, have similar economic characteristics and similar expected long-term financial performance. Because substantially all of the Company’s long-lived assets and revenues are located in and derived from the U.S., geographical segments are not presented. The Company’s operating segments are reported in one reportable segment. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Based on qualitative and quantitative criteria established by Accounting Standards Codification (“ASC”) 280, “Segment Reporting”, the Company considers itself to be operating within one reportable segment.
(d) Use of Estimates
In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Significant accounting estimates include, but not limited to, useful lives of depreciable property and equipment, impairment of long-lived assets, the realization of deferred income tax assets, allowance for inventories, and discount rate for operating leases. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
(e) Commitments and Contingencies
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, which cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters.
An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
F-12
(f) Cash
Cash consists of cash on hand and cash deposited with banks. The Company’s
cash is maintained at financial institutions in the U.S. Deposits in these financial institutions may, from time to time, exceed
the Federal Deposit Insurance Corporation’s (the “FDIC”) federally insured limit, which is $
(g) Accounts Receivable
Accounts receivable includes trade account due from customers. Accounts receivable is recorded at the invoiced amount less an allowance for any uncollectible accounts and does not bear interest, which is due after 30 to 90 days, depending on the credit term with the customers. Management considers the following factors when determining the collectability of specific accounts: historical experience, credit worthiness of the clients, aging of the receivables and other specific circumstances related to the accounts. An allowance for doubtful accounts is made and recorded into general and administrative expenses based on the aging of accounts receivable and on any specifically identified accounts receivable that may become uncollectible. Accounts receivable which is deemed to be uncollectible is charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. No allowance for doubtful accounts as of March 31, 2024 and 2023 was recorded.
On April 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement on Credit Losses on Financial Instruments”, including certain subsequent amendments, transitional guidance and other interpretive guidance within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (collectively, including ASU 2016-13, “ASC 326”). ASC 326 introduces an approach based on expected losses to estimate the allowance for doubtful accounts, replacing the previous incurred loss impairment model, which makes allowances when there is substantial doubt as to the collectability and a loss is determined to be probable.
The Company adopt the current expected credit loss model (“CECL model”) to estimate the expected credit losses, which is determined by multiplying the probability of default. In determining the probability of default, the Company mainly considers factors such as aging schedule of receivables, migration rate of receivables, assessment of receivables due from specific identifiable counterparties that are considered at risk or uncollectible, current market conditions, as well as reasonable and supportable forecasts of future economic conditions. The Company concludes that there is no impact over the initial adoption of CECL model, which should be treated as cumulative-effect adjustment on retained earnings as of March 31, 2023.
There was and provision of allowance for credit losses as of March 31, 2024 and 2023, respectively.
(h) Inventories, Net
Inventories, consisting of products available for sale, are stated
at the lower of cost or net realizable value using the first-in-first-out method. Adjustments to the carrying value are recorded for estimated
obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon
assumptions about future demand and market conditions. Inventory cost consists of the direct cost of merchandise including freight. For
the years ended March 31, 2024 and 2023, the impairment loss was $
F-13
(i) Prepayments and Other Receivables
Prepayments and other receivables are mainly prepayments to vendors, prepaid expenses paid to service providers, prepaid taxes, advances to employees, and other deposits. Management regularly reviews the aging of such balances and changes in payment and realization trends and records allowances when management believes that the collection of amounts due is at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of March 31, 2024 and 2023, no allowance against prepayments and other receivables was recorded.
(j) Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation and any recorded impairment.
| Machinery and equipment | ||
| Furniture and fixtures | ||
| Leasehold improvements | ||
| Motor vehicles |
Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals, and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Construction in progress
Direct costs that are related to the construction of property, equipment
and software and incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction
in progress is transferred to specific property, equipment and software items and the depreciation of these assets commences when the
assets are ready for their intended use. In December 2023, the Company engaged DF Technology US Inc (“DFT”), a related
party, for certain technology services, such as enterprise resource planning system (“ERP system”). As of March 31, 2024,
construction in progress was $
(k) Definite-Lived Intangible Assets
The Company owns property rights of certain technologies and designs that relate to the Underwriter Laboratories certificates issued for its products. The Company capitalizes the costs associated with design, development, acquisition and maintenance of its acquired property rights and amortizes these assets over their remaining useful lives on a straight-line basis. Any further payments made to maintain or develop the property rights would be capitalized and amortized over the balance of the useful life for the property rights. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in the estimate being accounted for on a prospective basis.
F-14
| Property rights |
(l) Impairment of Long-lived Assets
At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment, intangible assets subject to amortization, and right-of-use assets, to determine whether there is any indication that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company will reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2024 and 2023, impairment of long-lived assets was recognized.
(m) Deferred IPO Costs
The Company complies with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs — SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Deferred IPO costs consist of underwriting, legal, accounting and other professional expenses incurred through the balance sheet date that are directly related to the initial public offering of the Company and that will be charged to additional paid in capital upon the completion of the offering.
(n) Fair Value Measurements
Fair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability. The following summarizes the three levels of inputs required to measure fair value, of which the first two are considered observable and the third is considered unobservable:
| Level-1 | — | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level-2 | — | Include other inputs that are directly or indirectly observable in the marketplace. |
| Level-3 | — | Unobservable inputs which are supported by little or no market activity. |
The fair value for certain assets and liabilities such as cash, accounts receivable, other receivables, prepayments and other current assets, short-term loans, accounts payable, contract liabilities, accrued expenses and other payables, and tax payables have been determined to approximate carrying amounts due to the short maturities of these instruments. The Company believes that its long-term loan to a third party approximates the fair value based on current yields for debt instruments with similar terms. The Company and its subsidiaries did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of March 31, 2024 and 2023.
(o) Revenue Recognition
The Company follows the revenue accounting requirements of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The core principle underlying the revenue recognition of this ASC allows the Company to recognize revenue that represents the transfer of products and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of products and services transfers to a customer.
To achieve that core principle, the Company applies a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
F-15
Product revenue — Performance obligation satisfied at point in time
The Company generates substantially all its revenues from sales of products such as smart E-bikes, E-motorcycles, E-scooters and accessories to the retail and wholesale customers through its wholly owned subsidiaries stores. In accordance with ASC 606, the Company’s performance obligations are satisfied upon the control of products being passed to the customer, which is the point in time that the customers are able to direct the use of and obtain substantially all of the economic benefit of the products or services. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the products, and physical possession of, legal title to, and the risks and rewards of ownership of the products have been transferred, and the customer has accepted the products. Revenue is recognized net of estimates of variable consideration, including product returns, customer discounts and allowance. which occurs at the point of sale, or the services have been rendered. Historically, the Company has not experienced any significant returns nor provided significant customer discounts.
The Company offers an assurance-type warranty to its customers. An assurance-type warranty guarantees that the product will perform as promised and is not a performance obligation. This type of warranty promises to repair or replace a delivered good or service if it does not perform as expected. Since an assurance-type warranty guarantees the functionality of a product, the warranty is not accounted for as a separate performance obligation, and thus no transaction price is allocated to it. Rather, to account for an assurance-type warranty the vendor should estimate and accrue a warranty liability when the promised good or service is delivered to the customer (see ASC 460-10).
Since the contract price and term are fixed and enforceable, and an
assurance-type warranty guarantees the functionality of a product, and the warranty is not accounted for as a separate performance obligation,
no transaction price is allocated to it. The Company recognizes sales in full at the point in time when the products are delivered or
accepted by the customers, in accordance with the acceptance term specified in the contract. The Company records estimated future warranty
costs under ASC 460. Such estimated costs for warranties are estimated at the time of delivery and these warranties are not service
warranties separately sold by the Company. Generally, the estimated claim rates of warranty are based on actual warranty experience or
the Company’s best estimate. The Company accrued $
| For the Years Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues-retail | $ | $ | ||||||
| Revenues-wholesale | ||||||||
| Net revenues | $ | $ | ||||||
(p) Selling Expenses
Selling expenses mainly consist of advertising costs, marketing referring
expenses and payroll and related expenses for personnel engaged in selling and marketing activities. Advertising expenses, which consist
primarily of online and offline advertisements, are expenses when the services are received. The advertising expenses were $
F-16
(q) Software Development Costs
ASC Topic 985-20, Software — Costs of Software
to Be Sold, Leased, or Marketed, requires companies to expense software development costs as they incur them until technological feasibility
has been established, at which time those costs are capitalized until the product is available for general release to customers. The development
of the Fly E-Bike app is still in its preliminary stage and the development of core functions has not yet been completed. As a result,
the Company expensed the development costs of the Fly E-Bike app as they incurred. For the years ended March 31, 2024 and 2023, development
costs amounted to $
(r) Income Taxes
Current income taxes are provided based on net income/(loss) for financial reporting purposes and adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets (the “DTAs”) are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. DTAs are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the DTAs will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is
“more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed
to occur. The amount recognized is the largest amount of tax benefit that is greater than
(s) Leases
The Company accounts for leases in accordance with ASC 842. The Company leases premises for offices, warehouses, and retail stores under non-cancellable operating leases.
The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms. Leases with an initial term of 12 months or less are short-term leases and not recognized as operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets. The Company recognizes lease expense for short-term leases on a straight-line basis over the lease term.
Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the consolidated balance sheets.
F-17
Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.
Lease liabilities are initially measured at the present value of the
lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate.
The lease payments are discounted using the interest rate implicit in a lease if that rate can be readily determined. If that rate cannot
be readily determined, the Company uses the lessee’s incremental borrowing rate. Subsequently, lease liabilities are measured at
amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a
lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company
remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use
assets is reduced to
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the periods in which they are incurred.
(t) Concentration Risk
Concentration of customers and suppliers
No customers individually represented greater than 10% of total net revenues of the Company for the years ended March 31, 2024 and 2023.
For the year ended March 31, 2024, the Company’s top three
suppliers represented
Concentration of credit risk
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its account receivable is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Historically, the Company did not have any bad debt on its account receivable.
Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, term deposits, restricted cash, short-term investments, and accounts receivable, net. The Company’s investment policy requires cash and cash equivalents, term deposits, restricted cash, and short-term investments to be placed with high-quality financial institutions and to limit the amount of credit risk from any one issuer. The Company regularly evaluates the credit standing of the counterparties or financial institutions.
F-18
(u) Related Parties
A related party is generally defined as (i) any person and or their immediate family hold 10% or more of the Company’s securities (ii) the Company’s management and/or their immediate family, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related parties may be individuals or corporate entities. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s length transactions unless such representations can be substantiated.
(v) Earnings Per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common stock outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common stock (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
For the years ended March 31, 2024 and 2023, there were no dilutive shares.
(w) Foreign Currencies Translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations. The reporting currency of the Company is United States Dollar ($). The Company’s subsidiary in Canada maintains its books and records in its local currency, Canadian dollar (CAD), which is the functional currency for this subsidiary as it is the primary currency of the economic environment in which this entity operates.
In general, for consolidation purposes, assets and liabilities of subsidiaries whose functional currency is not United States Dollar are translated into United States Dollar in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
(x) Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires a public entity to disclose for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided to the chief operating decision-maker (“CODM”) and included in each reported measure of a segment’s profit or loss. Additionally, it requires a public entity to disclose the title and position of the individual or the name of the group or committee identified as the CODM. This guidance is effective for fiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the guidance should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company plans to adopt the provisions of this guidance in conjunction with its Form 10-K for the fiscal year ending March 31, 2025.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires a public entity to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and this guidance should be applied prospectively but there is the option to apply it retrospectively. The Company plans to adopt the provisions of this guidance in conjunction with its Form 10-K for the fiscal year ending March 31, 2026.
F-19
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
(y) Reclassification
The Company has reclassified certain prior year amounts to conform
to current year presentation. The Company reclassified $
3 — INVENTORIES, NET
| March 31, 2024 | March 31, 2023 | |||||||
| Batteries | $ | $ | ||||||
| Electric Vehicles | ||||||||
| Tires | ||||||||
| Accessories | ||||||||
| Inventories | ||||||||
| Inventory reserves | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Write off | ( | ) | ||||||
| Ending Balance | $ | $ | ||||||
As of March 31, 2024 and 2023, the inventory
allowance balance was $
4 — PREPAYMENTS AND OTHER RECEIVABLES
| March 31, 2024 | March 31, 2023 | |||||||
| Prepaid rent | $ | $ | ||||||
| Prepayments to vendors | ||||||||
| Prepaid iCloud Server | ||||||||
| Prepayments to DMV | ||||||||
| Prepaid insurance | ||||||||
| Prepayments to other service providers | ||||||||
| Total Prepayment and Other Receivables | $ | $ | ||||||
F-20
5 — PROPERTY AND EQUIPMENT, NET
| March 31, 2024 | March 31, 2023 | |||||||
| Furniture & Fixtures | $ | $ | ||||||
| Machinery & Equipment | ||||||||
| Automobile | ||||||||
| Leasehold improvements | ||||||||
Construction in progress-Software | ||||||||
| Property and Equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and Equipment, net | $ | $ | ||||||
For the years ended March 31, 2024 and 2023, the depreciation
expenses were $
In December 2023, the Company engaged DFT,
a related party, for certain technology services, for example ERP system. The total contract price for the technology services provided
will be up to $
6 — INTANGIBLE ASSETS, NET
| March 31, 2024 | March 31, 2023 | |||||||
| Property rights | $ | $ | ||||||
| Total Intangible assets | ||||||||
| Less: Accumulated Amortization | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||
For the years ended March 31, 2024 and 2023, the amortization
expenses were $
F-21
7 — ACCRUED EXPENSES AND OTHER PAYABLES
| March 31, 2024 | March 31, 2023 | |||||||
| Accrued payroll | $ | $ | ||||||
| Advances from customers | ||||||||
| Advances from IGH Holding Inc | ||||||||
| Accrued warranty | ||||||||
| Payroll tax and sales tax payable | ||||||||
| Accrued store expenses | ||||||||
| Accrued IPO offering cost | ||||||||
| Accrued freight in cost | ||||||||
| Accrued professional fee | — | |||||||
| Accrued Expenses and Other Current Liabilities | $ | $ | ||||||
8 — LOAN PAYABLE
| Lender | Due Date | March 31, 2024 | March 31, 2023 | |||||||
| Flushing Bank(i) | $ | $ | ||||||||
| Chase Bank(ii) | ||||||||||
| Chase Bank(iii) | ||||||||||
| Chase Bank(x) | ||||||||||
| Xuper Funding(iv)(v) | ||||||||||
| Leaf Capital Funding, LLC(vi) | ||||||||||
| Sinoelite Corp(vii) | ||||||||||
| Automobile Loan – Honda(viii) | ||||||||||
| Bank of Hope(ix) | ||||||||||
| Bank of Hope(ix) | ||||||||||
| Bank of Hope(ix) | ||||||||||
| Total loan payables | ||||||||||
| Current portion of loan payables | ( | ) | ( | ) | ||||||
| Long-term loan payables | $ | $ | ||||||||
| (i) |
| (ii) |
F-22
| (iii) |
| (iv) |
| (v) |
| (vi) |
| (vii) |
| (viii) |
| (ix) |
| (x) |
For the years ended March 31, 2024 and 2023, the total interest
expenses on the Company’s outstanding loans amounted to $
F-23
9 — STOCKHOLDER’S EQUITY
Prior to the effectiveness of the stock split discussed below, the
Company was authorized to issue
On March 27, 2024, the Company’s board of directors approved
a
As of March 31, 2024 and 2023, the subscription receivable represents
the unpaid capital contribution of $
During the year ended March 31, 2024, Mr. Ou paid certain
vendors of the Company to settle certain accounts payable balance on behalf the Company. On June 30, 2023, the Company transferred
$
10 — INCOME TAX
(a) Income Tax Expense
The company conduct business both domestically and internationally and, as a result, the parent company and most of its subsidiaries file a consolidated income tax return in U.S. federal, U.S. states and U.S. Cities, and one of the subsidiaries files a foreign income tax return in certain foreign jurisdictions.
The Company will file a consolidated annual U.S. federal tax return
for tax year ending March 31, 2024, as well as combined tax returns for New Jersey, New York State, Florida, Texas, California, District
of Columbia, and New York City. Most subsidiaries of the Company were incorporated in the State of New York and are subject to the U.S.
federal corporate income taxes with a tax rate of
The Company’s wholly owned foreign subsidiary in Canada will file a
Canadian federal tax return for tax year ending March 31, 2024, as well as Ontario state tax return. It is subject to the Canadian federal
corporate income taxes with a tax rate of
Income tax on unappropriated earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following year.
F-24
Income tax expense for the years ended March 31, 2024 and 2023 amounted
to $
| For the Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| City | ||||||||
| Deferred | ||||||||
| Federal | ||||||||
| State | ||||||||
| City | ||||||||
| Foreign | ( | ) | ||||||
| Total | $ | $ | ||||||
| For the Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| U.S. | $ | $ | ||||||
| Canada | ( | ) | ||||||
| Total | $ | $ | ||||||
For the year ended March 31, 2024, the total pre-tax income was $
| For the Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Pre-tax book income | $ | $ | ||||||
| Federal Statutory rate | % | % | ||||||
| State income tax rate, net of federal income tax benefit | % | % | ||||||
| City income tax rate, net of federal income tax benefit | % | % | ||||||
| Foreign statutory rate | ||||||||
| Permanent differences | % | % | ||||||
| Return to project adjustment | ( | )% | ( | )% | ||||
| Total | % | % | ||||||
F-25
Penalties and interest incurred related to underpayment of income tax
are classified as income tax expenses in the period incurred. For the years ended March 31, 2024, the Company accrued $
United States
Income tax expense for the year ended March 31, 2024 and 2023 amounted
to $
| For the Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| City | ||||||||
| Deferred | ||||||||
| Federal | ||||||||
| State | ||||||||
| City | ||||||||
| Total | $ | $ | ||||||
Canada
Fly Toronto Corp, a subsidiary of the Company, was formed under the laws of Canada and conducts its business primarily in Canada.
Income tax benefit for the year ended March 31, 2024 and
2023 amounted to $
| For the Year Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| City | ||||||||
| Deferred | ||||||||
| Federal | ( | ) | ||||||
| State | ( | ) | ||||||
| City | ||||||||
| Total | $ | ( | ) | $ | ||||
F-26
(b) Deferred Tax Assets (Liabilities)
Net DTAs as of March 31, 2024 amounted to $
| As of March 31, 2024 | As of March 31, 2023 | |||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Inventory reserve | ||||||||
| Lease liability | ||||||||
| Less: Valuation allowance | ||||||||
| Total deferred tax assets (DTAs) | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| ROU asset | ( | ) | ( | ) | ||||
| Total deferred tax liabilities (DTLs) | ( | ) | ( | ) | ||||
| Total deferred tax assets, net | $ | $ | ||||||
| Deferred tax assets (liabilities) – U.S., net | $ | ( | ) | $ | ||||
| Deferred tax assets – Canada, net | $ | |||||||
As of March 31, 2024 and 2023, the Company had approximately $
As of March 31, 2024 and 2023, the Company had approximately $
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss and tax credit carryforwards. As of March 31, 2024 and 2023, the Company recorded
approximately $
For the year ended March 31, 2024 and 2023, the Company’s
pre-tax book income in the U.S. was approximately $
Uncertain Tax Positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of March 31, 2024 and 2023, the Company did not have any significant unrecognized uncertain tax positions.
F-27
11 — LEASES
Effective on April 1, 2019, the Company adopted Topic 842. At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. The leases of the Company mainly consisted of offices, retail stores and warehouses.
| March 31, 2024 | March 31, 2023 | |||||||
| Operating ROU: | ||||||||
| ROU assets | $ | $ | ||||||
| Total operating ROU assets | $ | $ | ||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Operating lease obligations: | ||||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
The Company had
The weighted average lease term, discount rates, and remaining lease terms for the operating leases as of March 31, 2024 were as follows:
| Weighted average discount rate | % | |||
| Weighted average remaining lease term (years) |
The weighted average lease term, discount rates, and remaining lease terms for the operating lease as of March 31, 2023 were as follows:
| Weighted average discount rate | % | |||
| Weighted average remaining lease term (years) |
The Company leases its offices, warehouse, and retail stores under
non-cancellable operating lease agreements. Lease expenses were $
F-28
| As of March 31, 2024 | Operating Lease Liabilities | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
12 — COMMITMENTS AND CONTINGENCIES
Commitments
The Company has not entered any off-balance sheet financial guarantees
or other off-balance sheet commitments to guarantee the payment obligations of any third parties. The Company has not entered any derivative
contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its consolidated financial
statements. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated
entity that provides financing, liquidity, market risk or credit support to itself or engages in leasing, hedging or product development
services with itself. As of March 31, 2024, the remaining commitment amount for purchase of software development is $
Contingencies
Legal
From time to time, the Company is a party to certain legal proceedings, as well as certain asserted and unasserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.
The Company’s products and other production facilities as well as the packaging, storage, distribution, advertising and labeling of its products, are subject to extensive legal and regulatory requirements. For example, pursuant to the DMV registration requirement, the Company must satisfy the DMV Registration requirements and conduct required testing for all of its products sold in U.S. Loss of or failure to renew or obtain necessary permits, licenses, registrations, or certificates could prevent the Company from legally selling its products in the U.S. If the Company were found to be in violation of applicable laws and regulations, it could be subject to administrative punishment, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on its business, financial condition, results of operations and prospects. As of the date hereof, the Company believes it is in compliance with the relevant regulations in the U.S.
Inflation
Inflationary factors, such as increases in personnel and overhead costs, could impair the Company’s operating results. Although the Company does not believe that inflation has had a material impact on the Company’s financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on the Company’s ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the revenues do not increase with such increased costs.
F-29
13 — RELATED PARTY TRANSACTIONS
(A) Related party balances
| Name of Related Party | Relationship | Nature | March 31, 2024 | March 31, 2023 | ||||||||
| Fly E Bike SRL | $ | $ | ||||||||||
| Accounts receivable — related parties | $ | $ | ||||||||||
In June 2024, the Company received $
| Name of Related Party | Relationship | Nature | March 31, 2024 | March 31, 2023 | ||||||||
| Fly E Bike SRL | $ | |||||||||||
| PJMG LLC | $ | |||||||||||
| Prepayments and other receivables – related parties | $ | $ | ||||||||||
During the year ended March 31, 2024, the Company advanced $
| Name of Related Party | Relationship | Nature | March 31, 2024 | March 31, 2023 | ||||||||
| DF Technology US Inc | $ | $ | ||||||||||
| Long-term prepayment for software development — related parties, net | $ | $ | ||||||||||
F-30
In December 2023, the Company engaged DFT for certain technology
services. Mr. Guo, the Company’s CFO, owns over
| Name of Related Party | Relationship | Nature | March 31, 2024(i) | March 31, 2023(i) | ||||||||
| Zhou Ou | $ | $ | ||||||||||
| Other Payables-related parties | $ | $ | ||||||||||
| (i) | Represents the remaining balance of the advance provided by the related party to the Company’s subsidiaries for the purpose of supporting their business operations. |
All of the above payables are unsecured, non-interest bearing, and
due on demand. the Company paid a total of $
| Name of Related Party | Relationship | Nature | March 31, 2024 | March 31, 2023 | ||||||||
| PJMG LLC | $ | $ | ||||||||||
| Loan Payables-related parties | $ | $ | ||||||||||
On February 1, 2023, PJMG LLC (“PJMG”), a company
in which Mr. Guo, the Company’s CFO, holds over
F-31
(B) Related party transactions
| For the Years ended March 31, | ||||||||||||
| Name of Related Party | Relationship | Nature | 2024 | 2023 | ||||||||
| Fly E Bike SRL | $ | $ | ||||||||||
| Revenues-related parties | $ | $ | ||||||||||
During the years ended March 31, 2024 and 2023, Fly E Bike SRL
purchased certain EV products from the Company in the amount of $
(C) Other Related Party Transactions
(i) During the year ended March 31, 2024, Mr. Ou paid
certain vendors of the Company to settle certain accounts payable balance on behalf the Company. On June 30, 2023, the Company transferred
$
(ii) On March 6, 2021, the Company and DGLG entered into
an engagement letter, pursuant to which the Company engaged DGLG as a consultant to assist the Company in its IPO planning, financing
and tax services. Mr. Guo, the Company’s CFO, is a partner at DGLG. Under the terms of the engagement agreement
with DGLG, the Company has agreed to compensate DGLG for consulting services based on an hourly fee arrangement. DGLG’s consulting
fees were $
14 — SUBSEQUENT EVENTS
The Company has evaluated subsequent events after March 31, 2024, up through June 27, 2024, the date at which the consolidated financial statements were issued, except for the event mentioned below the Company did not identify any subsequent events with material financial impact on the Company’s consolidated financial statements.
On April 25, 2024, the Company paid off the loan from Sinoelite Corp
of $
On June 7, 2024, the Company completed its initial public offering
and issued
On June 1, 2024, the Company engaged
Taptalk LLC to promote the Company’s designated products or corporate image on the TikTok shop platform. The contract is valid from
June 1, 2024 to June 2025. On June 14, 2024, the Company paid $
F-32
Exhibit 4.1
DESCRIPTION OF SECURITIES
Authorized Capital Stock
As of June 26, 2024, our amended and restated certificate of incorporation authorizes us to issue up to 100,000,000 shares of common stock, $0.01 par value per share, of which 24,587,500 shares of common stock are issued and outstanding, and 10,000,000 shares of preferred stock, par value $0.01 per share, of which no shares of preferred stock are issued and outstanding. We are a Delaware corporation, and our affairs are governed by our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws. The following are summaries of material provisions of our amended and restated certificate of incorporation and amended and restated by-laws insofar as they relate to the material terms of our common stock. Complete copies of our amended and restated certificate of incorporation and amended and restated by-laws are filed as exhibits to our public filings.
Common Stock
Shares of our common stock have the following rights, preferences and privileges:
Voting
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Any action at a meeting at which a quorum is present will be decided by a majority of the voting power present in person or represented by proxy, except in the case of any election of directors, which will be decided by a plurality of votes cast. There is no cumulative voting.
Dividends
Holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for payment, subject to the rights of holders, if any, of any class of stock having preference over the common stock. Any decision to pay dividends on our common stock will be at the discretion of our board of directors. Our board of directors may or may not determine to declare dividends in the future. See “Dividend Policy.” The board’s determination to issue dividends will depend upon our profitability and financial condition any contractual restrictions, restrictions imposed by applicable law and the SEC, and other factors that our board of directors deems relevant.
Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of our common stock will be entitled to share ratably on the basis of the number of shares held in any of the assets available for distribution after we have paid in full, or provided for payment of, all of our debts and after the holders of all outstanding series of any class of stock have preference over the common stock, if any, have received their liquidation preferences in full.
Other
Our issued and outstanding shares of common stock are fully paid and nonassessable. Holders of shares of our common stock are not entitled to preemptive rights. Shares of our common stock are not convertible into shares of any other class of capital stock, nor are they subject to any redemption or sinking fund provisions.
Preferred Stock
We are authorized to issue up to 10,000,000 shares of preferred stock. Our amended and restated certificate of incorporation authorizes the board of directors to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock.
Certificate of Incorporation and Bylaw Provisions
Our amended and restated certificate of incorporation and bylaws include a number of anti-takeover provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include:
Advance Notice Requirements. Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of stockholders. These procedures provide that notice of stockholder proposals must be timely and given in writing to our corporate Secretary. Generally, to be timely, notice must be received at our principal executive offices not later than 90 days and not earlier than 120 calendar days prior to the first anniversary date of the immediately preceding year’s annual meeting, subject to certain exceptions. The notice must contain the information required by the bylaws, including information regarding the proposal and the proponent.
Special Meetings of Stockholders. Our bylaws provide that special meetings of stockholders may be called at any time by only the board of directors or the Chief Executive Officer.
No Written Consent of Stockholders. Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders.
Amendment of Bylaws. Our bylaws may be altered, amended or repealed and new bylaws may be adopted by the stockholders or by the board of directors at any regular meeting of the stockholders or of the board of directors, at any special meeting of the stockholders or of the board of directors or by written action by the board of directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such meeting or any notice required for such written action.
Preferred Stock. Our certificate of incorporation authorizes our board of directors to create and issue rights entitling our stockholders to purchase shares of our stock or other securities. The ability of our board to establish the rights and issue substantial amounts of preferred stock without the need for stockholder approval may delay or deter a change in control of us. See “Preferred Stock” above.
2
Delaware Takeover Statute
We are not subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”). In general, Section 203 prohibits a Delaware corporation from engaging in a “business combination” with an “interested shareholder” for a three-year period following the time that the person becomes an interested shareholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested shareholder. An “interested shareholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested shareholder status, 15% or more of the corporation’s voting stock.
Under Section 203 of the DGCL, a business combination between a corporation and an interested shareholder is prohibited unless it satisfies one of the following conditions: (1) before the shareholder became an interested shareholder, the board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder; (2) upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or (3) at or after the time the shareholder became an interested shareholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of the shareholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested shareholder.
A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a shareholders’ amendment approved by at least a majority of the outstanding voting shares.
Limitations on Liability and Indemnification of Officers and Directors
Our certificate of incorporation and bylaws limit the liability of our officers and directors and provide that we will indemnify our officers and directors, in each case, to the fullest extent permitted by the DGCL.
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Exhibit 10.1
EMPLOYMENT AGREEMENT
FLYEBIKE INC
This document is created for and used by the Parties herein contained only. Any unauthorized use, amendment or distribution shall be strictly prohibited.
FLYEBIKE INC
Employment Agreement
Employment Agreement
This Employment Agreement (this “Agreement”) made and entered into this 1st day of April, 2023, by and between the following parties:
FLYEBIKE INC, whose principal place of business is located at 13640 39th Ave, Ste 202, Flushing NY 11354 _(hereinafter referred to as "Employer" or the “Company”), and Zhou Ou(“Employee”).
WITNESSETH:
WHEREAS, Employer is a Corporation duly incorporated under the laws of the State of New York, currently existing and in good standing;
WHEREAS, Employer desires to employ Employee, and Employee desires to render services as an employee of Employer, under the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
| 1. | DESCRIPTION OF DUTIES |
| A. | Name of Position |
The Employee shall be employed in the capacity of:
Chief Executive Officer
| B. | Essential Job Functions and Duties |
The essential job functions or duties of this position are as follows:
| - | Decision Making: Analyze market trends, assess risks, and evaluate opportunities to guide decision-making processes effectively. |
| - | Strategy Making: Develop and communicate the company's vision, mission, and overall direction. |
| - | External Presentation: Serve as the public face of the company, representing it at industry events, conferences, and media interviews. |
| - | Corporate Governance: Uphold corporate governance principles and ensure compliance with laws, regulations, and ethical standards. |
Employee shall also perform such other duties as are customarily performed by other persons in or incidental to similar such positions, as well as such other duties as may be reasonably assigned from time to time by the Employer. Employee further agrees to abide by all bylaws, policies, practices, procedures or rules and regulations of the Employer.
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FLYEBIKE INC
Employment Agreement
| C. | Duty of Loyalty and Best Efforts |
Employee shall devote all of his/her working time, attention, knowledge, and skills to Employer's business interests and shall do so in good faith, with best efforts, and to the reasonable satisfaction of the Employer. Employee understands that they shall only be entitled to the compensation, benefits, and profits as set forth in this Agreement. Employee agrees to refrain from any interest, of any kind whatsoever, in any business competitive to Employer’s business. The Employee further acknowledges they will not engage in any form of activity that produces a “conflict of interest” with those of the Employer unless agreed to in advance and in writing. Employee also agrees that he or she shall not take personal advantage of any business opportunities that arise during employment that may benefit the Company. All material facts regarding such opportunities must be promptly reported to the President for consideration by the Company.
| D. | Place and Hours of Employment |
Employee agrees that their duties shall be primarily rendered at Employer’s business premises or at such other places as the Employer shall in good faith require. Full time service for the Employee is expected which requires a minimum of 40 hours per week, exclusive of vacation, or any other form of leave as described within this Agreement.
| 2. | TERM OF EMPLOYMENT |
| A. | Probation Period |
This agreement is a replenishment for employees who have already become the official employees. This part A is not applicable to official employees. The parties hereto agree that the initial three (3) months of the Employment is "probationary" in the following respects:
| a. | the Employer shall have an opportunity to assess the performance, attitude, skills, knowledge and other employment-related attributes and characteristics of the Employee; |
| b. | The wage during the Probation Period shall be at 3/4 of the regular salary after probation, which shall not be lower than the prevalent minimum wage of the State of New York at any given time. |
| c. | Employer may terminate the employment relationship at any time on or prior to the expiration of the Probation Period without advance notice or justifiable reason, in which case there will be no continuing obligations of the parties to each other, financial or otherwise and this Agreement shall be deemed null and void. |
| B. | Term of Employment |
The parties hereto agree that this is an at-will employment.
| 3. | COMPENSATION TERMS |
| A. | Base Compensation |
Employee shall receive a salary of $8,333.34 payable in equal installments on the first business day of each month. Employer shall deduct or withhold from compensation any and all sums required for federal income and social security taxes, as well as all state or local taxes now applicable or that may become applicable to Employee or Employer in the future. Employer shall make such compensation payable in equal installments at such payment intervals as are the usual custom of the Company, but not less often than monthly.
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FLYEBIKE INC
Employment Agreement
| B. | Expense Reimbursement |
Employee shall be entitled to reimbursement of any or all expenses authorized and reasonably incurred expenses incurred in the performance of the functions and duties under this Agreement. In order to receive reimbursement, Employee must timely provide Employer with an itemized account of all expenditures, along with suitable receipts therefore. Any expenditure over the dollar amount of $50 requires prior written authorization.
| C. | Salary Adjustments |
Employee understands and agrees that the initial Compensation Terms contained in Section 4 herein are based on the value expected to be contributed by Employee to Employer, overall company performance, and/or the cost of living changes to salaries of similarity started employees in the company or industry. Employer reserves the right to reasonably adjust the terms and amounts should the above-mentioned and/or other substantially relevant considerations change.
| D. | Benefits |
Employer’s vacation policy is as follows:
Employee is entitled to up to five (5) days of Paid Leave during each calendar year. Vacation may not be used until the probation period as defined in Section 2 hereof has elapsed. Vacation allowance does not begin to accrue until the probation period ends. Vacation benefits should be used annually. There is a “cap” on accrual, which prevents it from accumulating beyond a total of one (1) week. Employee must provide at least two (2) weeks advance notice of their intent to take vacation except for emergency or exigent situations.
| 4. | TERMINATION |
| A. | Death |
The Employment Term shall terminate on the date of Employee's death, in which event Employee's salary and benefits and reimbursable expenses owing to Employee through the date of Employee's death shall be paid to his or her estate. Employee's estate will not be entitled to any other compensation under this Agreement.
| B. | Disability |
If, during the Employment Term, in the opinion of the Employer, Employee, because of physical or mental illness or incapacity, shall become unable to perform or is expected to be unable to perform substantially all of the duties and services required of him or her under this Agreement for a period of sixty (60) days in the aggregate during any 12month period, the Company may, upon at least ten (10) days’ prior written notice given at any time after the expiration of such sixty (60) day period, notify Employee of its intention to terminate this Agreement as of the date set forth in the notice. In case of such termination, Employee shall be entitled to receive salary, benefits, and reimbursable expenses owing to Employee through the date of termination. The Company shall have no further obligation or liability to Employee.
| C. | For Cause |
| (a) | The Company may terminate this Agreement for cause. Upon such termination, the Company shall be released from any and all further obligations under this Agreement, except for accrued salary and benefits owing to Employee through the Termination Date. Employee’s obligations under Section 7 shall continue pursuant to the terms and conditions of this Agreement. |
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FLYEBIKE INC
Employment Agreement
| (b) | For the purposes of this Agreement, “cause” shall include, without limitation, the following: |
| (1) | failure or neglect by Employee to perform the duties of the Employee’s position; |
| (2) | failure of Employee to obey orders given by the Company or supervisors; |
| (3) | misconduct in connection with the performance of any of Employee’s duties, including, without limitation, misappropriation of funds or property of the Company, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company, misrepresentation to the Company, or any violation of law or regulations on Company premises or to which the Company is subject; |
| (4) | commission by Employee of an act involving moral turpitude, dishonesty, theft or unethical business conduct, or conduct that impairs or injures the reputation of, or harms, the Company; |
| (5) | disloyalty by Employee, including, without limitation, aiding a competitor; |
| (6) | failure by Employee to devote his or her full-time and best efforts to the Company’s business and affairs; |
| (7) | failure by Employee to work exclusively for the Company; |
| (8) | failure to fully cooperate in any investigation by the Company; |
| (9) | any breach of this Agreement or Company rules; or |
| (10) | any other act of misconduct or omission by Employee. |
| D. | Prior Notice Requirement |
Employee agrees to give at least two (2) weeks’ advance written notice of its intention to resign. Employee understands and agrees that the failure to provide the full requested advance notice may be subject to forfeiture of accrued benefits including vacation, paid time off, or other benefits at Company's discretion and according to state law.
At Company's sole discretion and based on the Company’s business needs under the circumstances, or occurrence of any of the “cause” under Section 6 C, Company may choose to require your immediate departure and provide you with the pay for any work done up to the departure date. Should Company so require, you agree to complete an exit interview or memo prior to departure.
| 5. | COVENANTS |
| A. | Non-Disclosure of Trade Secrets, Customer Lists and Other Proprietary Information |
Employee agrees not to use, disclose or communicate, in any manner, proprietary information about Employer, its operations, clientele, or any other proprietary information, that relate to the business of Employer, through the employment term or any time thereafter. This includes, but is not limited to, the names and contacts of Employer’s customers, its marketing strategies, operations, rules, products, specifications, supply material, techniques, training methods, design and décor, sales projections, financial information or any other information of any kind which would be deemed confidential or proprietary information of Employer. Employee acknowledges that the above information is material and confidential and that it affects the profitability of Employer. Employee understands and that any breach of this provision, or of any other Confidentiality and Non-Disclosure Agreement, is a material breach of this Agreement. To the extent Employee feels that they need to disclose confidential information; they may do so only after being authorized to so do in writing by Employer.
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FLYEBIKE INC
Employment Agreement
| B. | Non-Solicitation Covenant |
Employee agrees that for a period of two (2) years following termination of employment, for any reason whatsoever, Employee will not solicit customers or clients of Employer. By agreeing to this covenant, Employee acknowledges that their contributions to Employer are unique to Employer’s success and that they have significant access to Employer’s trade secrets and other confidential or proprietary information regarding Employer’s customers or clients.
Employee also covenants and agrees that during the term of employment with Employer and for two (2) years after the termination thereof, regardless of the reason for the employment termination, Employee will not, directly or indirectly, on Employee’s own behalf or on behalf of or in conjunction with any person or legal entity, recruit, solicit, or induce, or attempt to recruit, solicit, or induce, any employee of the Employer with whom Employee had personal contact or supervised while performing job duties and obligations, to terminate their employment relationship with the Company.
| C. | Non-Recruit Covenant |
Employee agrees not to recruit any of Employer’s employees for the purpose of any outside business either during or for a period of two (2) years after Employee’s tenure of employment with Employer. Employee agrees that such effort at recruitment also constitutes a violation of the non-solicitation covenant set forth above.
| D. | Non-Compete Covenant |
As a condition of employment with the Company, and as a material inducement to the Company to employ the Employee, the Employee covenants and agrees that, during the term of employment with Employer and for two (2) years after the termination thereof, regardless of the reason for the employment termination, Employee will not, directly or indirectly, anywhere in the State of New York, on his behalf of on behalf of any other party, whether or not for compensation, engage in or hold any financial interest in any business that is similar to the business of the Company including, without limitation, in the business of sale and rent of electric bikes, scooters, and/or motorcycles.
| E. | Adherence to Employer's Policies, Procedures, Rules and Regulations |
Employee agrees to adhere by all of the policies, procedures, rules and regulations set forth by the Employer. To the extent that Employer’s policies, procedures, rules and regulations conflict with the terms of this Agreement, the specific terms of this Agreement will control.
| F. | Covenant to Notify Management of Unlawful Acts or Practices |
Employee agrees to abide by the legal and ethics policies of Employer as well as Employer’s other rules, regulations, policies and procedures. Employer intends to comply in full with all governmental laws and regulations as well as any ethics code applicable to their profession. In the event that Employee is aware of Employer, or any of its officers, agents or employees, violating any such laws ethics codes, rules, regulations, policies or procedures, Employee agrees to bring forth all such actual and suspected violations to the attention of Employer immediately so that the matter may be properly investigated and appropriate action taken.
| 6. | PROPERTY RIGHTS |
| A. | Existing Customers or Clientele of Employee |
Employer agrees that existing customers or clients of Employee will become the property of Employer as the condition of employment.
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FLYEBIKE INC
Employment Agreement
| B. | New Customers or Clientele Generated While at Work |
Employee agrees that any customers or clientele generated by Employee pursuant to employment with Employer are the customers and clientele of the Employer and subject to the non-disclosure and non-solicitation covenants set forth above.
| C. | Records and Accounts |
Employee agrees that all those records and accounts maintained during the course of employment are the property of Employer, shall remain current and be maintained at Employer’s place of business.
| D. | Return upon Termination |
Employee agrees that upon termination they will return to Employer all of Employer’s property, including, but not limited to, intellectual property, trade secret information, customer lists, operation manuals, employee handbook, records and accounts, materials subject to copyright, trademark, or patent protection, customer and Employer information, credit cards, business documents, reports, automobiles, keys, passes, and security devices.
| E. | Copyrights, Inventions and Patents |
Employee understands that any copyrights, inventions or patents created or obtained, in part or whole, by Employee during the course of this Agreement are to be considered “work for hire” and the property of Employer. Employee assigns to Employer all rights and interest in any copyright, invention, patents or other property related to the business of the Employer.
| 7. | INDEMNIFICATION FOR THIRD PARTY CLAIMS |
Employee hereby agrees to indemnify, defend, save, and hold harmless Employer, its shareholders, officers, directors, and other agents (other than Employee) from and against all claims, liabilities, causes of action, damages, judgments, attorneys’ fees, court costs, and expenses which arise out of or are related to the Employee’s performance of this Agreement, failure to perform job functions or duties as required, or result form conduct while engaging in any activity inside or outside the scope of this Agreement, before, during or after the termination of this Agreement. Employee understands that this obligation of indemnification survives the expiration or termination of this Agreement.
| 8. | MEDIATION AND BINDING ARBITRATION |
Employer and Employee agree to first mediate and may then submit to binding arbitration any claims that they may have against each other, of any nature whatsoever, other than those prohibited by law or for workers compensation, unemployment or disability benefits, pursuit to the rules of the American Arbitration Association.
| 9. | LIMITATION OF DAMAGES |
Employee agrees and stipulates that any remedies they may have for the breach of any employment related obligation, whether under law or by way of contract, shall be limited to the equivalence of six (6) months salary of Employee where allowed by law. This limitation is inclusive of any claims for special damages, general damage, and compensatory damage, loss of income, emotional damage, or punitive damages.
| 10. | ATTORNEYS’ FEES AND COSTS |
Employee and Employer agree that should any action be instituted by either party against the other regarding the enforcement of the terms of this agreement, the prevailing party will be entitled to all of its expenses related to such litigation including, but not limited to, reasonable attorneys' fees and costs, both before and after judgment.
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FLYEBIKE INC
Employment Agreement
| 11. | MISCELLANEOUS PROVISIONS |
| A. | Accuracy of Representations |
Employee understands that any projections regarding the financial status or potential for growth of this Employer are matters of opinion only and do not constitute a legally binding representation. Employee agrees that they have had the opportunity to conduct due diligence of Employer and are satisfied with the representations that have been made.
| B. | Notices |
Employee agrees that any notices that are required to be given under this Agreement shall be given in writing, sent by certified mail, email or hand delivery, acknowledgement of receipt shall be required.
| C. | Entire Agreement |
This Agreement represents the complete and exclusive statement of the employment agreement between the Employer and Employee. No other agreements, covenants, representations or warranties, express or implied, oral or written, have been made by the parties concerning their employment agreement.
| D. | The Effect of Prior Agreements or Understandings |
This Agreement supersedes any and all prior Agreements or understandings between the parties, including letters of intent or understanding, except for those documents specifically referred to within this Agreement.
| E. | Modifications |
Employee and Employer agree that this writing constitutes the entirety of the Employment Agreement between the parties. Any modifications to this Agreement may only be done in writing and must be signed by Employer.
| F. | Severability of Agreement |
To the extent that any provision hereof is deemed unenforceable, all remaining provisions of this Agreement shall not be affected thereby and shall remain in full force and effect.
| G. | Waiver of Breach |
The waiver by Employer of a breach of any provision of this Agreement by Employee shall not operate as a waiver of any subsequent breach by the Employee. No waiver shall be valid unless placed in writing and signed by Employer.
| H. | Ambiguities Related to Drafting |
Employer and Employee agree that any ambiguity created by this document will not be construed against the drafter of same.
| I. | Choice of Law, Jurisdiction and Venue |
Employee agrees that this Agreement shall be interpreted and construed in accordance with the laws of the State of New York and that should any claims be brought against Employer related to terms or conditions of employment it shall be brought within a court of competent jurisdiction of New York. Employee also consents to jurisdiction of any claims by Employer related to the terms or conditions of employment by a court of competent jurisdiction within the State of New York.
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FLYEBIKE INC
Employment Agreement
| J. | Submission to Drug Testing |
Employee agrees and understands that it is the policy of Employer to maintain a drug-free work place. Employee consents to a pre-hire drug test. Employee understands that Employer has the right, upon reasonable suspicion, to demand that Employee immediately undergo testing for the presence of illegal or inappropriate drug usage.
| K. | Statute of Limitations |
Employee has a one-year statute of limitation for the filing of any requests for mediation, or arbitration, or for any lawsuit related to this Agreement or the terms and conditions of their employment. If said claim is filed more than one year subsequent to Employee’s last day of employment it is precluded by this provision, regardless of whether the claim had accrued at that time or not.
| L. | Attorney Review |
Employee warrants and represents that Employee in executing his Agreement has had the opportunity to rely on legal advice from a attorney of Employee’s choice, so that the terms of this Agreement and their consequences could have been fully read and explained to Employee by an attorney and that Employee fully understands the terms of this Agreement.
Employee’s Signature
| /s/ Zhou Ou | 6/1/2023 | |
| Date | ||
| Zhou Ou | ||
| Employee’s Name Printed | ||
 |
04/01/2023 | |
| Company Representative | Date |
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Exhibit 10.2
EMPLOYMENT AGREEMENT
FLYEBIKE INC
This document is created for and used by the Parties herein contained only. Any unauthorized use, amendment or distribution shall be strictly prohibited.
FLYEBIKE INC
Employment Agreement
Employment Agreement
This Employment Agreement (this “Agreement”) made and entered into this 1stday of April, 2023, by and between the following parties:
FLYEBIKE INC, whose principal place of business is located at 13640 39th Ave, Ste 202, Flushing NY 11354 (hereinafter referred to as “Employer” or the “Company”), and Ruifeng Guo (“Employee”).
WITNESSETH:
WHEREAS, Employer is a Corporation duly incorporated under the laws of the State of New York, currently existing and in good standing;
WHEREAS, Employer desires to employ Employee, and Employee desires to render services as an employee of Employer, under the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
| 1. | DESCRIPTION OF DUTIES |
| A. | Name of Position |
The Employee shall be employed in the capacity of:
Chief Financial Officer
| B. | Essential Job Functions and Duties |
The essential job functions or duties of this position are as follows:
| - | Financial Planning and Analysis: lead financial planning processes, including budgeting, forecasting, and long-term strategic planning; Analyze financial data to provide insights into the organization’s performance and support decision-making. |
| - | Investor Relations: Manage relationships with investors and financial institutions; Communicate the organization’s financial performance, strategy, and outlook to stakeholders through earnings calls, investor presentations, and regulatory filings. |
| - | Financial Operations: Oversee financial operations, including accounts payable, accounts receivable, billing, and payroll. |
Employee shall also perform such other duties as are customarily performed by other persons in or incidental to similar such positions, as well as such other duties as may be reasonably assigned from time to time by the Employer. Employee further agrees to abide by all bylaws, policies, practices, procedures or rules and regulations of the Employer.
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FLYEBIKE INC
Employment Agreement
| C. | Duty of Loyalty and Best Efforts |
Employee shall devote all of his/her working time, attention, knowledge, and skills to Employer’s business interests and shall do so in good faith, with best efforts, and to the reasonable satisfaction of the Employer. Employee understands that they shall only be entitled to the compensation, benefits, and profits as set forth in this Agreement. Employee agrees to refrain from any interest, of any kind whatsoever, in any business competitive to Employer’s business. The Employee further acknowledges they will not engage in any form of activity that produces a “conflict of interest” with those of the Employer unless agreed to in advance and in writing. Employee also agrees that he or she shall not take personal advantage of any business opportunities that arise during employment that may benefit the Company. All material facts regarding such opportunities must be promptly reported to the President for consideration by the Company.
| D. | Place and Hours of Employment |
Employee agrees that their duties shall be primarily rendered at Employer’s business premises or at such other places as the Employer shall in good faith require. Full time service for the Employee is expected which requires a minimum of 40 hours per week, exclusive of vacation, or any other form of leave as described within this Agreement.
| 2. | TERM OF EMPLOYMENT |
| A. | Probation Period |
This agreement is a replenishment for employees who have already become the official employees. This part A is not applicable to official employees. The parties hereto agree that the initial three (3) months of this Agreement is “probationary” in the following respects:
| a. | the Employer shall have an opportunity to assess the performance, attitude, skills, knowledge and other employment-related attributes and characteristics of the Employee; |
| b. | The wage during the Probation Period shall be at 3/4 of the regular salary after probation, which shall not be lower than the prevalent minimum wage of the State of New York at any given time. |
| c. | Employer may terminate the employment relationship at any time on or prior to the expiration of the Probation Period without advance notice or justifiable reason, in which case there will be no continuing obligations of the parties to each other, financial or otherwise and this Agreement shall be deemed null and void. |
| B. | Term of Employment |
The parties hereto agree that this is an at-will employment.
| 3. | COMPENSATION TERMS |
| A. | Base Compensation |
Employee shall receive a salary of $5,000 payable in equal installments on the first business day of each month. Employer shall deduct or withhold from compensation any and all sums required for federal income and social security taxes, as well as all state or local taxes now applicable or that may become applicable to Employee or Employer in the future. Employer shall make such compensation payable in equal installments at such payment intervals as are the usual custom of the Company, but not less often than monthly.
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FLYEBIKE INC
Employment Agreement
| B. | Expense Reimbursement |
Employee shall be entitled to reimbursement of any or all expenses authorized and reasonably incurred expenses incurred in the performance of the functions and duties under this Agreement. In order to receive reimbursement, Employee must timely provide Employer with an itemized account of all expenditures, along with suitable receipts therefore. Any expenditure over the dollar amount of $50 requires prior written authorization.
| C. | Salary Adjustments |
Employee understands and agrees that the initial Compensation Terms contained in Section 4 herein are based on the value expected to be contributed by Employee to Employer, overall company performance, and/or the cost of living changes to salaries of similarity started employees in the company or industry. Employer reserves the right to reasonably adjust the terms and amounts should the above-mentioned and/or other substantially relevant considerations change.
| D. | Benefits |
Employer’s vacation policy is as follows:
Employee is entitled to up to five (5) days of Paid Leave during each calendar year. Vacation may not be used until the probation period as defined in Section 2 hereof has elapsed. Vacation allowance does not begin to accrue until the probation period ends. Vacation benefits should be used annually. There is a “cap” on accrual, which prevents it from accumulating beyond a total of one (1) week. Employee must provide at least two (2) weeks advance notice of their intent to take vacation except for emergency or exigent situations.
| 4. | TERMINATION |
| A. | Death |
The Employment Term shall terminate on the date of Employee’s death, in which event Employee’s salary and benefits and reimbursable expenses owing to Employee through the date of Employee’s death shall be paid to his or her estate. Employee’s estate will not be entitled to any other compensation under this Agreement.
| B. | Disability |
If, during the Employment Term, in the opinion of the Employer, Employee, because of physical or mental illness or incapacity, shall become unable to perform or is expected to be unable to perform substantially all of the duties and services required of him or her under this Agreement for a period of sixty (60) days in the aggregate during any 12month period, the Company may, upon at least ten (10) days’ prior written notice given at any time after the expiration of such sixty (60) day period, notify Employee of its intention to terminate this Agreement as of the date set forth in the notice. In case of such termination, Employee shall be entitled to receive salary, benefits, and reimbursable expenses owing to Employee through the date of termination. The Company shall have no further obligation or liability to Employee.
| C. | For Cause |
| (a) | The Company may terminate this Agreement for cause. Upon such termination, the Company shall be released from any and all further obligations under this Agreement, except for accrued salary and benefits owing to Employee through the Termination Date. Employee’s obligations under Section 7 shall continue pursuant to the terms and conditions of this Agreement. |
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FLYEBIKE INC
Employment Agreement
| (b) | For the purposes of this Agreement, “cause” shall include, without limitation, the following: |
| (1) | failure or neglect by Employee to perform the duties of the Employee’s position; |
| (2) | failure of Employee to obey orders given by the Company or supervisors; |
| (3) | misconduct in connection with the performance of any of Employee’s duties, including, without limitation, misappropriation of funds or property of the Company, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company, misrepresentation to the Company, or any violation of law or regulations on Company premises or to which the Company is subject; |
| (4) | commission by Employee of an act involving moral turpitude, dishonesty, theft or unethical business conduct, or conduct that impairs or injures the reputation of, or harms, the Company; |
| (5) | disloyalty by Employee, including, without limitation, aiding a competitor; |
| (6) | failure by Employee to devote his or her full-time and best efforts to the Company’s business and affairs; |
| (7) | failure by Employee to work exclusively for the Company; |
| (8) | failure to fully cooperate in any investigation by the Company; |
| (9) | any breach of this Agreement or Company rules; or |
| (10) | any other act of misconduct or omission by Employee. |
| D. | Prior Notice Requirement |
Employee agrees to give at least two (2) weeks’ advance written notice of its intention to resign. Employee understands and agrees that the failure to provide the full requested advance notice may be subject to forfeiture of accrued benefits including vacation, paid time off, or other benefits at Company’s discretion and according to state law.
At Company’s sole discretion and based on the Company’s business needs under the circumstances, or occurrence of any of the “cause” under Section 6 C, Company may choose to require your immediate departure and provide you with the pay for any work done up to the departure date. Should Company so require, you agree to complete an exit interview or memo prior to departure.
| 5. | COVENANTS |
| A. | Non-Disclosure of Trade Secrets, Customer Lists and Other Proprietary Information |
Employee agrees not to use, disclose or communicate, in any manner, proprietary information about Employer, its operations, clientele, or any other proprietary information, that relate to the business of Employer, through the employment term or any time thereafter. This includes, but is not limited to, the names and contacts of Employer’s customers, its marketing strategies, operations, rules, products, specifications, supply material, techniques, training methods, design and décor, sales projections, financial information or any other information of any kind which would be deemed confidential or proprietary information of Employer. Employee acknowledges that the above information is material and confidential and that it affects the profitability of Employer. Employee understands and that any breach of this provision, or of any other Confidentiality and Non-Disclosure Agreement, is a material breach of this Agreement. To the extent Employee feels that they need to disclose confidential information; they may do so only after being authorized to so do in writing by Employer.
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FLYEBIKE INC
Employment Agreement
| B. | Non-Solicitation Covenant |
Employee agrees that for a period of two (2) years following termination of employment, for any reason whatsoever, Employee will not solicit customers or clients of Employer. By agreeing to this covenant, Employee acknowledges that their contributions to Employer are unique to Employer’s success and that they have significant access to Employer’s trade secrets and other confidential or proprietary information regarding Employer’s customers or clients.
Employee also covenants and agrees that during the term of employment with Employer and for two (2) years after the termination thereof, regardless of the reason for the employment termination, Employee will not, directly or indirectly, on Employee’s own behalf or on behalf of or in conjunction with any person or legal entity, recruit, solicit, or induce, or attempt to recruit, solicit, or induce, any employee of the Employer with whom Employee had personal contact or supervised while performing job duties and obligations, to terminate their employment relationship with the Company.
| C. | Non-Recruit Covenant |
Employee agrees not to recruit any of Employer’s employees for the purpose of any outside business either during or for a period of two (2) years after Employee’s tenure of employment with Employer. Employee agrees that such effort at recruitment also constitutes a violation of the non-solicitation covenant set forth above.
| D. | Non-Compete Covenant |
As a condition of employment with the Company, and as a material inducement to the Company to employ the Employee, the Employee covenants and agrees that, during the term of employment with Employer and for two (2) years after the termination thereof, regardless of the reason for the employment termination, Employee will not, directly or indirectly, anywhere in the State of New York, on his behalf of on behalf of any other party, whether or not for compensation, engage in or hold any financial interest in any business that is similar to the business of the Company including, without limitation, in the business of sale and rent of electric bikes, scooters, and/or motorcycles.
| E. | Adherence to Employer’s Policies, Procedures, Rules and Regulations |
Employee agrees to adhere by all of the policies, procedures, rules and regulations set forth by the Employer. To the extent that Employer’s policies, procedures, rules and regulations conflict with the terms of this Agreement, the specific terms of this Agreement will control.
| F. | Covenant to Notify Management of Unlawful Acts or Practices |
Employee agrees to abide by the legal and ethics policies of Employer as well as Employer’s other rules, regulations, policies and procedures. Employer intends to comply in full with all governmental laws and regulations as well as any ethics code applicable to their profession. In the event that Employee is aware of Employer, or any of its officers, agents or employees, violating any such laws ethics codes, rules, regulations, policies or procedures, Employee agrees to bring forth all such actual and suspected violations to the attention of Employer immediately so that the matter may be properly investigated and appropriate action taken.
| 6. | PROPERTY RIGHTS |
| A. | Existing Customers or Clientele of Employee |
Employer agrees that existing customers or clients of Employee will become the property of Employer as the condition of employment.
- 5 -
FLYEBIKE INC
Employment Agreement
| B. | New Customers or Clientele Generated While at Work |
Employee agrees that any customers or clientele generated by Employee pursuant to employment with Employer are the customers and clientele of the Employer and subject to the non-disclosure and non-solicitation covenants set forth above.
| C. | Records and Accounts |
Employee agrees that all those records and accounts maintained during the course of employment are the property of Employer, shall remain current and be maintained at Employer’s place of business.
| D. | Return upon Termination |
Employee agrees that upon termination they will return to Employer all of Employer’s property, including, but not limited to, intellectual property, trade secret information, customer lists, operation manuals, employee handbook, records and accounts, materials subject to copyright, trademark, or patent protection, customer and Employer information, credit cards, business documents, reports, automobiles, keys, passes, and security devices.
| E. | Copyrights, Inventions and Patents |
Employee understands that any copyrights, inventions or patents created or obtained, in part or whole, by Employee during the course of this Agreement are to be considered “work for hire” and the property of Employer. Employee assigns to Employer all rights and interest in any copyright, invention, patents or other property related to the business of the Employer.
| 7. | INDEMNIFICATION FOR THIRD PARTY CLAIMS |
Employee hereby agrees to indemnify, defend, save, and hold harmless Employer, its shareholders, officers, directors, and other agents (other than Employee) from and against all claims, liabilities, causes of action, damages, judgments, attorneys’ fees, court costs, and expenses which arise out of or are related to the Employee’s performance of this Agreement, failure to perform job functions or duties as required, or result form conduct while engaging in any activity inside or outside the scope of this Agreement, before, during or after the termination of this Agreement. Employee understands that this obligation of indemnification survives the expiration or termination of this Agreement.
| 8. | MEDIATION AND BINDING ARBITRATION |
Employer and Employee agree to first mediate and may then submit to binding arbitration any claims that they may have against each other, of any nature whatsoever, other than those prohibited by law or for workers compensation, unemployment or disability benefits, pursuit to the rules of the American Arbitration Association.
| 9. | LIMITATION OF DAMAGES |
Employee agrees and stipulates that any remedies they may have for the breach of any employment related obligation, whether under law or by way of contract, shall be limited to the equivalence of six (6) months salary of Employee where allowed by law. This limitation is inclusive of any claims for special damages, general damage, and compensatory damage, loss of income, emotional damage, or punitive damages.
| 10. | ATTORNEYS’ FEES AND COSTS |
Employee and Employer agree that should any action be instituted by either party against the other regarding the enforcement of the terms of this agreement, the prevailing party will be entitled to all of its expenses related to such litigation including, but not limited to, reasonable attorneys’ fees and costs, both before and after judgment.
- 6 -
FLYEBIKE INC
Employment Agreement
| 11. | MISCELLANEOUS PROVISIONS |
| A. | Accuracy of Representations |
Employee understands that any projections regarding the financial status or potential for growth of this Employer are matters of opinion only and do not constitute a legally binding representation. Employee agrees that they have had the opportunity to conduct due diligence of Employer and are satisfied with the representations that have been made.
| B. | Notices |
Employee agrees that any notices that are required to be given under this Agreement shall be given in writing, sent by certified mail, email or hand delivery, acknowledgement of receipt shall be required.
| C. | Entire Agreement |
This Agreement represents the complete and exclusive statement of the employment agreement between the Employer and Employee. No other agreements, covenants, representations or warranties, express or implied, oral or written, have been made by the parties concerning their employment agreement.
| D. | The Effect of Prior Agreements or Understandings |
This Agreement supersedes any and all prior Agreements or understandings between the parties, including letters of intent or understanding, except for those documents specifically referred to within this Agreement.
| E. | Modifications |
Employee and Employer agree that this writing constitutes the entirety of the Employment Agreement between the parties. Any modifications to this Agreement may only be done in writing and must be signed by Employer.
| F. | Severability of Agreement |
To the extent that any provision hereof is deemed unenforceable, all remaining provisions of this Agreement shall not be affected thereby and shall remain in full force and effect.
| G. | Waiver of Breach |
The waiver by Employer of a breach of any provision of this Agreement by Employee shall not operate as a waiver of any subsequent breach by the Employee. No waiver shall be valid unless placed in writing and signed by Employer.
| H. | Ambiguities Related to Drafting |
Employer and Employee agree that any ambiguity created by this document will not be construed against the drafter of same.
| I. | Choice of Law, Jurisdiction and Venue |
Employee agrees that this Agreement shall be interpreted and construed in accordance with the laws of the State of New York and that should any claims be brought against Employer related to terms or conditions of employment it shall be brought within a court of competent jurisdiction of New York. Employee also consents to jurisdiction of any claims by Employer related to the terms or conditions of employment by a court of competent jurisdiction within the State of New York.
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FLYEBIKE INC
Employment Agreement
| J. | Submission to Drug Testing |
Employee agrees and understands that it is the policy of Employer to maintain a drug-free work place. Employee consents to a pre-hire drug test. Employee understands that Employer has the right, upon reasonable suspicion, to demand that Employee immediately undergo testing for the presence of illegal or inappropriate drug usage.
| K. | Statute of Limitations |
Employee has a one-year statute of limitation for the filing of any requests for mediation, or arbitration, or for any lawsuit related to this Agreement or the terms and conditions of their employment. If said claim is filed more than one year subsequent to Employee’s last day of employment it is precluded by this provision, regardless of whether the claim had accrued at that time or not.
| L. | Attorney Review |
Employee warrants and represents that Employee in executing his Agreement has had the opportunity to rely on legal advice from an attorney of Employee’s choice, so that the terms of this Agreement and their consequences could have been fully read and explained to Employee by an attorney and that Employee fully understands the terms of this Agreement.
| /s/ Ruifeng Guo | 04/01/2023 | |
| Employee’s Signature | Date | |
| Ruifeng Guo | ||
| Employee’s Name Printed | ||
 |
04/01/2023 | |
| Company Representative | Date |
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Exhibit 10.6
March 6, 2021
FLY E-BIKE
Dear MR. OU:
Thank you for selecting us to assist your business. The purpose of this letter is to confirm the terms of our engagement and the services we will provide. You received this letter because we understand you are the person responsible for the business matters of the corporation.
OBJECTIVE OF ENGAGEMENT
We will provide consulting services to assist client in addressing its accounting and financial reporting requirements and obligations, and to assess and evaluate its corporate objectives.
SERVICES
Our services within the scope of this engagement will be performed in accordance with Statement on Standards for Consulting services No. I issued by the American Institute of Certified Public Accountants (“AICPA”). We anticipate our services to include, but not be limited to, the following:
| a. | Advisory Services-DGLG will work with the Company and its counsel to evaluate financial, marketing and regulatory issues. |
Our advisory services include:
| - | Advise with respect to business planning issues in preparation for a public offering; |
| - | Advise with respect to the choice of charter and form of organization; |
| - | Review and advise with respect to the Plan (e.g. sizes of benefit plan purchases; maximum purchase limits for investors); |
| - | Discuss the appraisal process and analyze the appraisal with the Board of Directors and management; |
| - | Participate in drafting the offering disclosure documents and any proxy materials, and assist in obtaining all requisite regulatory approvals; |
| - | Develop a marketing plan for the subscription and community offerings, considering various sales method options, including direct mail, advertising, community meetings and telephone solicitation; |
| - | DGLG will work with the Company to provide specifications and assistance (including recommendations) in selecting certain other professionals that will perform functions in connection with the IPO process. Fees and expenses of financial printers, transfer agent and other service providers will be borne by the Company, subject to agreements between the Company and the service providers; |
| - | Develop a depositor proxy solicitation plan; |
| - | Advise/Assist through the planning process and organization of the Stock Information Center (the “Center”); |
| - | Develop a layout for the Center, where stock order processing and depositor vote solicitation occur; |
| - | Provide a list of equipment, staff and supplies needed for the Center; |
| - | Draft marketing materials including press releases, letters, stock order form, advertisements, and informational brochures. If a community meeting or “road show” is anticipated, we will help draft the presentation; and |
| - | After consulting with management, determine whether and when to conduct a syndicated community offering through assembling a group of selected broker/dealers to sell stock remaining after the community offering, on a best-effort basis. Alternatively, consulting with management, as it relates to a “stand-by” firm commitment public underwriting, involving DGLG and other broker/dealers. |
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SERVICES TO DATE
Any services performed by DGLG LLC in connection with this engagement prior to this engagement letter, including any invoices sent or payments made by the client, shall be subject to the terms of this agreement in the same manner as if they were performed after the date this agreement is executed.
ADDITIONAL SERVICES
Any additional services that you may request, that we agree to provide, may be the subject of separate written agreements, either in the form of a separate engagement letter or as an amendment to this engagement letter. In the absence of any other written communication from us documenting such additional services, our services will continue to be governed by the terms of this engagement letter.
Administrative Services and Stock Information Center Management - DGLG will manage substantially all aspects of the Offering and depositor vote processes. The Center centralizes all data and work effort relating to the Offering.
Our administrative services include the following:
| - | Provide experienced on-site DGLG FINRA registered representatives to manage and supervise the Center; |
| - | Administer the Center. All substantive investor related matters will be handled by employees of DGLG; |
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| - | Train and supervise Center staff assisting with order processing; |
| - | Prepare procedures for processing stock orders and cash, and for handling requests for information; |
| - | Educate the Company’s directors, officers and employees about the Offering, their roles and relevant securities laws; |
| - | Educate branch managers and customer-contact employees on the proper response to stock purchase inquiries; |
| - | Prepare daily sales reports for management and ensure funds received balance to such reports; |
| - | Coordinate functions with the data processing agent, printer, transfer agent, stock certificate printer and other professionals; |
| - | Coordinate with the Company’s stock exchange and the Depository Trust Company to ensure a smooth closing and orderly stock trading; |
| - | Design and implement procedures for facilitating orders within IRA accounts; and |
| - | Provide post-offering subscriber assistance and management of the proration process, in the event orders exceed shares available in the Offering. |
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LIMITATION OF SERVICES
We will not perform management functions or make management decisions for client. However, we may provide advice, research materials, and recommendations to assist client’s management in performing its functions and making decisions. Our role is not to perform on-going monitoring activities or control activities that affect the execution of transactions or ensure that transactions are properly executed. Our role in this engagement is to review the activities performed by management and report deficiencies and provide recommendations for improvement. Client’s management will have the ultimate responsibilities for determining which recommendations will be implemented and to evaluate the adequacy and results of the service performed and accept responsibility for the results of the services.
Mr. OU will be the individual designated by management to oversee our services in this regard.
CLIENT ASSISTANCE IN SUPPORT OF SERVICES
Certain documentation and information will be requested by us during the course of this engagement in order for us to complete the engagement objectives as you may outline to us. The client agrees that all records, documentation, and information requested by us in connection with this engagement will be made available to us (including those pertaining to related parties), that all material information will be disclosed to us, and that we will have the full cooperation of your personnel.
If we believe that failure to make reasonably requested information available prohibits us from making conclusions in accordance with engagement objectives, we will so notify you. In such event, you will not hold us responsible and all fees and expenses will be paid to us in accordance with the terms of the engagement.
ASSUMPTIONS AND REPRESENTATIONS
In performing our services, we will rely on the accuracy and reliability of data obtained from the client. As part of this engagement, we will not audit, review or compile financial statements, and we will not express an opinion of any form of assurance on them. Any written reports that we prepare are to be used only in connection with engagement hereunder and may not be distributed to outside parties, published or used in any other manner without the written consent of DGLG LLC. Our engagement cannot be relied 111 upon to disclose fraud or other illegal acts that may exits.
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ACCESS TO WORKING PAPERS
All working papers and other documents prepared or received by us pursuant to this engagement will be maintained by us as confidential material in accordance with the terms hereof. Any working papers that we compile in connection with this engagement are the property of DGLG LLC. We currently retain working papers for seven years from the completion of the engagement. After such time, working papers are properly disposed of. We are not responsible for the retention of Client's original records
CONFIDENTIALITY
As a client ofthe firm, you can feel confident that we are committed to safeguarding your personal information, using internal policies, procedures, and safeguards reasonably appropriate for the information we receive. We may from time to time, and depending on the circumstances, share confidential information with third-party service providers; any such third-party service provider will be required to maintain the confidentiality of your information.
ELECTRONIC COMMUNICATION AND DISSEMINATION
In connection with this engagement, we may communicate with you or others via e-mail transmission. As e-mails can be intercepted and read, disclosed, or otherwise used or communicated by an unintended third party, or may not be delivered to each of the parties to whom they were intending, we cannot guarantee or warrant the e-mails from us will be properly delivered and received by addressee. In that regard, you agree that we shall have no liability for any loss or damage resulting from the use of e-mail transmissions.
With regard to the electronic dissemination of any financial statements or tax returns, including documents published electronically or on your Internet website, you understand that electronic sites are a means of distributing information and, therefore, we are not required to read the information contained in those sites or to consider the consistency of other information in the electronic site with the original document.
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INDEMNIFICATION
Client agrees to indemnify, hold harmless, and defend DGLG LLC, its members, Each disputing party shall pay an equal percentage of the mediator's fees and expenses. If the matter is not resolved within 60 days after the mediator's first meeting with the involved parties, then and only then shall the parties be at liberty to initiate legal proceedings with respect to the matter(s) in dispute.
FEES
Our fee for this engagement will be $350,000 per each party's agreement. If we encounter a situation where we feel that the fee may exceed this amount, we will discuss with you before proceeding.
A retainer of $100,000 is required upon signing of this engagement letter. Our invoices for these fees will be payable as follows:
| USD Total | ||||
| Sign of Engagement | $ | 100,000 | ||
| During Audit field work | 25,000 | |||
| After IPO | 225,000 | |||
| Total: | $ | 350,000 | ||
All payments made to DGLG LLC should be mailed to 39-15 Main Street Suite 207, Flushing, NY 11354. In the event a previously presented invoice remains unpaid, in addition to all other rights and remedies, we reserve the right to suspend our services until full payment is remitted to us, or alternatively, to terminate our services. We will not be responsible for the consequences of any such work stoppage.
Either party may terminate this agreement upon 30 days' notice to the other party. In the event that we choose to terminate our services for cause, Client shall be obligated to pay us for all services and charges accrued through the date of termination irrespective of whether we have concluded our engagement or rendered a report.
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Should you terminate this engagement prior to having paid DGLG LLC an amount equal to the value of the services we have performed up to the date of termination, you agree to promptly remit any balances due. Our fee for the services described will be standard billing price plus out-of-pocket expenses. All invoices are due and payable upon presentation. To the extent permitted by state law, an interest charge will be added to all accounts not paid within thirty (30) days.
COMPLETE AGREEMENT
This engagement letter represents the entire agreement between DGLG LLC and the Client regarding the terms of the engagement, and supersedes all prior agreements, proposals, understandings, negotiations, promises, and notifications. The Client agrees that this engagement letter shall not be amended or modified in any respect, nor shall any provisions of the engagement letter be waived, except by an instrument in writing signed by the party against whom enforcement is sought.
SEVERABILITY
Any term or provision of this Agreement that is invalid or unenforceable in any situation, in any jurisdiction, shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
NON ASSIGNMENT & INTENDED RECIPIENT
Our engagement hereunder is to be performed solely for the benefit of Client and no other person or entity is intended to have any rights under, or to be able to enforce the terms of, this agreement. Accordingly, unless otherwise agreed to in a writing signed by us, the services provided, and any work product resulting from employees, agents, shareholders, affiliates, officers, and assigns against any and all losses, claims, damages, liabilities and costs (including, without limitation, legal and other expenses in investigating or defending claims or in giving testimony or in furnishing documents) relating to or arising out of DGLG LLC's services or any transaction resulting there from. This indemnification clause shall not apply to the extent any such loss, claim, damages, liabilities, expenses or costs are found in the final judgment by a court to have resulted from DGLG LLC's own negligence or willful misconduct. The provisions of this paragraph shall survive the termination of this agreement.
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In the event that we are compelled by any subpoena, Court Order, or other legal authority to produce documents related to this engagement, whether originally received from the Client or generated by us in performing services related to this engagement, Client agrees to reimburse us for reasonable administrative and legal costs incurred in connection with the collection, review, and production of any such documents, as well as time spent responding to any subpoena or providing testimony.
LIMITATION OF LIABILITY
Client agrees that any liability of DGLG LLC arising out of the services provided under this agreement is limited to the lesser of actual damages incurred or two times the amount of the fee paid for the specific service from which the claimed damages arose. However, this limitation shall not apply in the event DGLG LLC is adjudged to have acted willfully or to have been grossly negligent. In no event shall DGLG LLC or its personnel be liable to you for any punitive, consequential, lost profits, or benefit-of-the-bargain damages in connection with the services provided under this agreement.
DISPUTES
As a condition precedent to any lawsuit, all disputes arising under this agreement (including, but not limited to the scope, nature and quality of services to be performed by us, our fees and other terms of the engagement) shall first be submitted in good faith to mediation to National Arbitration and Mediation, LLC. The mediation shall be conducted in the County of New York, in the State of New York. those services, are not intended to benefit, be used by, or relied upon by anyone other than the listed clients.
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GOVERNING LAW
This agreement, and any disputes that may arise out of the services provided under this agreement, shall be governed by the laws of the State of New York, without regard to choice of law principles. Any action arising out of the services provided under this agreement shall be commenced in the Supreme Court of the State of New York in the County of Nassau or the County of New York, or in the United States District Court for the Southern or Eastern District of New York.
ACKNOWLEDGEMENT
We believe the foregoing correctly sets forth our understanding, but if you have any questions, please let us know. Several technical terms and phrases have been used herein: we presume you to understand their meaning or that you will notify us otherwise so that we can furnish appropriate explanations.
To affirm that this letter agrees with your understanding of the terms of our engagement, please sign the enclosed copy in the space indicated and return it.
We appreciate your confidence in us.
Sincerely,
| /s/ Steven Guo | |
| Steven Guo, Partner | |
DGLG LLC 39-15 Main Street, Suite 207, Flushing, NY 11354 www.dglgtax.com |
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| Accepted by: | /s/ Zhou Ou | |
| Title: | President | |
| Date: | 3/16/2021 | |
| Business name: | Fly E-Bike | |
| Business Address: | 33-06 28th Ave |
11
Exhibit 10.7
Contract Agreement for the Development of POS and ERP System
This Agreement is entered into as of December 13, 2023 by and between DF Technology US Inc, herein referred to as “Developer,” with a principal place of business at 471 N Broadway #365, Jericho, NY 11753, and Fly-E Group, Inc. herein referred to as “Client,” with a principal place of business at 136-40 39th Ave, Flushing, NY11354.
| 1. | Scope of Services |
1.1 Development Services: Developer agrees to design, develop, and deliver a Point of Sale (POS) and Enterprise Resource Planning (ERP) system (collectively, the “System”) in accordance with the detailed specifications set forth in Exhibit A attached to this Agreement.
1.2 Project Milestones: The System development will be completed in phases, each defined with specific deliverables and deadlines as detailed in Exhibit A.
| 2. | Compensation and Payment Terms |
2.1 Fee Structure: The total fee for the services provided under this Agreement shall be up to $2.5 million, which will be payable in installments as per the milestones outlined in Exhibit A.
2.2 Invoicing and Payment: Developer will issue invoices corresponding to the milestones reached. Each invoice must be paid by Client within 30 days of receipt. Late payments will incur a charge of 10% per month on the overdue amount.
| 3. | Project Timeline |
3.1 Commencement: The development services shall commence on December 13, 2023 and continue until the completion of the services as stipulated in Exhibit A.
3.2 Delivery: The final delivery of the System is scheduled for May 10, 2025, subject to adjustments mutually agreed upon by the parties in response to any changes in project scope or unforeseen delays.
| 4. | Confidentiality and Non-Disclosure |
4.1 Confidentiality Obligation: Both parties agree to maintain the confidentiality of information shared during the course of this project and not to disclose it to any third party without the prior written consent of the other party.
4.2 Duration of Confidentiality: This obligation shall remain in effect for one year following the termination or expiration of this Agreement.
| 5. | Intellectual Property Rights |
5.1 Ownership of Intellectual Property: Upon full payment of the agreed fees, all intellectual property rights in the developed System, excluding any pre-existing intellectual property of either party, shall become the sole and exclusive property of the Client.
5.2 Licensing: If any pre-existing intellectual property is incorporated into the System, Developer grants Client a non-exclusive, worldwide, perpetual license to use such intellectual property as part of the System.
| 6. | Warranties and Limitations |
6.1 System Warranty: Developer warrants that the System will conform to the specifications and will be free from defects in workmanship and material for a period of 36 months from the date of final acceptance.
6.2 Remedies for Breach of Warranty: Developer will, at its own expense, correct any defects in the System or workmanship notified within the warranty period.
| 7. | Termination |
7.1 Termination Rights: Either party may terminate this Agreement upon written notice if the other party materially breaches any of its terms and fails to correct the breach within 30 days after receiving written notice.
| Company: | DF Technology US Inc | Company: | Fly-E Group, Inc | |
| Signature: | /s/ Ruifeng Guo | Signature: | /s/ Zhou Ou | |
| Name and Title: | Ruifeng Guo, CEO | Name and Title: | Zhou Ou, CEO | |
| Date: | 12/13/2023 | Date: | 12/13/2023 |
Exhibit A
Attached
Exhibit 10.8
Exhibit 14.1
Fly-E Group, Inc.
Code of Business Conduct and Ethics
Effective May 14, 2024
I. Purpose
The Board of Directors (the “Board”) of Fly-E Group, Inc. (together with its subsidiaries, the “Company”) is committed to conducting business with the highest ethical and legal standards, and has adopted this Code of Business Conduct and Ethics (the “Code”) in order to:
| ● | deter wrongdoing; |
| ● | promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| ● | promote full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company; |
| ● | promote compliance with applicable laws, rules, and regulations; |
| ● | promote the protection of Company assets, including corporate opportunities and confidential information; |
| ● | promote the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the code; and |
| ● | promote accountability for adherence to the Code. |
II. Application
The Code covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide officers, directors, and employees of the Company. All of the Company’s officers, directors, and employees must use good common sense and judgment to conduct themselves accordingly and seek to avoid even the appearance of improper behavior.
The Code applies to all officers, directors, and employees of the Company (each, a “Covered Party”, and collectively, the “Covered Parties”).
After carefully reviewing this Code, each Covered Party shall sign the acknowledgment attached as Exhibit A hereto, indicating that they have received, read, understand, and agree to comply with this Code. The acknowledgment must be returned either electronically in a manner provided for by the Company or otherwise in writing to the Compliance Officer (as defined below) or such Compliance Officer’s designee within ten (10) business days of such Covered Party’s receipt of this Code, and on an annual basis as may be required by the Company.
III. Enforcement
The Board shall be responsible for monitoring compliance with the Code and shall assess the adequacy of the Code periodically and approve any changes to the Code as may be recommended by the Audit Committee. The Board has designated the Chief Financial Officer to be the compliance officer (the “Compliance Officer”) for the implementation, interpretation, and administration of the Code. In the event that Covered Parties encounter an ethical issue where this Code or other Company policies do not expressly provide an answer, or in the event that Covered Parties encounter a situation where they believe a law, rule, or regulation is unclear or conflicts with a provision of the Code, they are encouraged to contact a manager, supervisor, the Compliance Officer, or any executive officer of the Company, or use one of the other resources described in the Code.
The Code will be strictly enforced. All managers and supervisors are required to enforce the Code and are not permitted to sanction or condone violations. There will be serious adverse consequences to any Covered Party for non-adherence to the Code, which may include disciplinary action, up to and including termination, restitution, reimbursement, or referral of the matter to the appropriate authorities. Discipline may also be imposed for conduct that is considered unethical or improper even if the conduct is not specifically covered by the Code.
IV. Compliance with Laws, Rules and Regulations
A variety of laws apply to the Company and its operations. The Company requires that all Covered Parties comply with all laws, rules, and regulations applicable to the Company, both in letter and in spirit. Although not all Covered Parties are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors or the Compliance Officer. Covered Parties are expected to use good judgment and common sense in seeking to comply with all applicable laws, rules, and regulations and to seek advice when there is any uncertainty. Any violations of laws, rules, and regulations can result in civil and criminal penalties as well as disciplinary action from the Company.
V. Conflicts of Interest
Covered Parties should always act in the best interest of the Company and not permit outside interests (for example, financial or personal) to interfere with their job duties. The Company prohibits all Covered Parties from using their position with the Company or the Company’s relationship with its customers or any other external party with which the Company has a business relationship (each an “External Party,” and, collectively “External Parties”) for private gain or to obtain benefits for themselves or members of their family.
For purposes of the Code, a potential conflict of interest occurs when a Covered Party’s outside interests interfere with (or even appear to interfere with) the Company’s interests or the Covered Party’s work-related duties. A conflict of interest can occur when a Covered Party is in a position to influence a decision that may result in a personal gain for the Covered Party or a Related Person as a result of the Company’s business dealings.
Any direct or indirect conflict of interest between the Company and any Covered Party is prohibited unless otherwise consented to by the Company. The Covered Party has a responsibility to the Company to disclose any situation that is, or reasonably could be expected to give rise to, a conflict of interest or a situation giving the appearance of a conflict of interest. If a Covered Party, other than a director or an executive officer, feels that they may have a conflict of interest or a potential conflict of interest, such Covered Party should discuss the matter with, and seek a determination and prior authorization or approval from, such Covered Party’s supervisor or the Compliance Officer. A supervisor may not authorize or approve conflict of interest matters or make determinations as to whether a problematic conflict of interest exists without first providing the Compliance Officer with a description of the activity and seeking the Compliance Officer’s written approval. If the supervisor is involved in the potential or actual conflict, the matter should instead be discussed directly with the Compliance Officer. Conflicts of interest involving directors or executive officers must be referred to the Audit Committee for consideration. After receiving the Audit Committee’s recommendations, the Board may approve, by a majority vote of disinterested directors, the resolution of a conflict of interest involving directors and executive officers.
It is not possible to describe every situation or occurrence that could lead to a conflict of interest between a Covered Party and the Company. The following events are intended to describe, by way of example, situations that could occur that constitute or could lead to a conflict of interest with the Company:
A. Related Parties
Covered Parties should avoid conducting business transactions with any Related Person without obtaining prior written approval in accordance with the Code.
“Related Person” is defined to include directors, executive officers, beneficial owners of 5% or more of any class of the Company’s voting securities, immediate family members of any of the foregoing persons, and any entities in which any of the foregoing is an executive officer or is an owner of 5% or more ownership interest. Immediate family members include any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and any person (other than a tenant or employee) sharing the household of such person.
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B. Business Relationships
Employees shall not engage in (whether directly or indirectly):
| ● | simultaneous employment by, |
| ● | consulting for, or |
| ● | owning a significant financial interest in, |
any entity that does business, seeks to do business, or competes with the Company without prior written consent in accordance with the Code.
C. Service on Boards and Committees
A Covered Party must not serve on the board of directors, advisory board, or committee of any entity with which the Company has a business relationship or whose interests would be expected to conflict with those of the Company without prior written approval of the Compliance Officer in accordance with the Code.
D. External Parties
A Covered Party shall not use such Covered Party’s position with the Company to influence a transaction with any External Parties in which such Covered Party has any personal interest.
E. Personal Use of Company Property and Company Information
Covered Parties shall not use or divert any Company property, materials, equipment, systems, or procedures, including services of other Covered Parties and Company information, for their own advantage or benefit or for use in outside business activities or non-business activities unrelated to the Company, or otherwise use the Company’s name or influence for their personal benefit.
Conflicts of interest may not always be clear-cut. If you have a question, you should consult with your supervisor or the Compliance Officer.
VI. Corporate Opportunities
Employees are prohibited from usurping, and may not improperly gain, from a corporate opportunity discovered through the use of the Company’s resources, property, or information, or otherwise compete with the Company. Each employee owes a duty to the Company to advance any opportunity learned through the course of employment to the Company. Any employee who learns of a corporate opportunity must obtain prior written consent of the Board before taking advantage of any such opportunity.
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VII. Confidentiality AND INSIDER TRADING
Covered Parties have access to a variety of confidential information regarding the Company and its business processes. Confidential information includes, but is not limited to, all non-public information, including information that might be of use to competitors, or harmful to the Company or External Parties, if disclosed, and information that may be considered material by the securities markets or investors. Covered Parties are required to safeguard the confidentiality of information entrusted to them by the Company or External Parties, except when disclosure is authorized by the Compliance Officer or legally mandated. Covered Parties are required to maintain the confidentiality of information after their relationship with the Company ends. To avoid inadvertent disclosure, information that is confidential should never be discussed with any unauthorized person, including unauthorized employees of the Company and family members or friends, and confidential information should not be discussed in public areas such as elevators, restaurants, and airplanes, and confidential information and Company property (like laptops, tablets, and smartphones) should not be left unattended or otherwise accessible to others. Unauthorized disclosure of confidential information would not only result in a violation of the Code but could result in legal liability against a Covered Party. In addition, using confidential information for personal financial benefit, or “tipping” others (including friends and family members) who might make an investment decision on the basis of this information, is not only unethical but may also be illegal.
If you have any questions concerning confidential information or the treatment of what is believed to be confidential Company information, please contact the Company’s Compliance Officer.
Notwithstanding the foregoing, this policy does not prevent Covered Parties from complying with legal requirements requiring the disclosure of confidential information or reporting a possible violation of law to a government entity or law enforcement, including making a disclosure that is protected under the whistleblower protections of applicable law.
VIII. HONEST AND ETHICAL CONDUCT AND FAIR DEALING
The Company is committed to achieving the highest standards of professionalism and ethical conduct in its operations and activities and expects its Covered Parties to conduct business according to the highest ethical standards of conduct, in addition to complying with all applicable laws, rules, and regulations.
The Company has an interest in maintaining a fair and competitive marketplace and friendly work environment. In order to achieve that standard, the Company expects its Covered Parties to maintain honest and ethical standards dealing with each other and the Company’s competitors, as well as when transacting business with External Parties.
A. Covered Parties must not take unfair advantage of anyone, including fellow Covered Parties, through the manipulation, concealment, or abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice.
B. Statements regarding the Company’s products and services must not be untrue, misleading, deceptive, or fraudulent.
C. In addition to the maintenance of honest and ethical standards in disseminating information, Covered Parties must gather information about other companies and organizations, including competitors, using appropriate methods. Stealing proprietary information, knowingly possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present Covered Parties of other companies is prohibited. The Company will not tolerate taking unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair dealing practice.
D. Each Covered Party should endeavor to respect the rights of and deal fairly with the Company’s External Parties, competitors, and Covered Parties.
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IX. PUBLIC COMMUNICATIONS
The Company must monitor public communications about the Company in order to maintain credibility and a positive reputation in the community. News media can have a direct impact on the Company’s profitability and its ability to achieve its mission. The Company’s policy is to provide timely, accurate, and complete information in response to media inquiries consistent with its obligations to maintain the confidentiality of proprietary information and to prevent selective disclosure of market-sensitive financial and other material information in accordance with the Company’s Disclosure Policy. In accordance with such policy, Covered Parties must direct any news media or public requests for information to the Company’s Disclosure Compliance Officer, who will assist in evaluating the inquiry and creating an appropriate response to the request.
Only authorized employees may make any public statements on behalf of the Company, whether to the media, investors, or in other external forums, including on the Internet. This includes disclosing new or confidential information through social media and websites.
X. GIFTS
Great care should be exercised to assure that business entertainment and gifts for public officials and others who engage or propose to engage in business transactions with the Company are not excessive and cannot reasonably be construed as bribes, kickbacks, improper inducements, or any other illegal or improper payments. Covered Parties should not:
| ● | offer or provide to those who engage or propose to engage in business transactions with the Company, directly or indirectly, any gift, entertainment, or reimbursement of expenses of more than nominal value or that exceeds customary courtesies for that time and place, except in the case of meals and tickets to events that are reasonable and customary for that time and place; or |
| ● | offer or provide, directly or indirectly, any services to any individual in a position to make or influence any business or governmental decision affecting the Company. |
The Company prohibits employees from seeking or accepting gifts, favors, entertainment, payments, or loans for themselves or Related Persons from External Parties, except:
| ● | gifts of less than $100 in value (if reasonable and customary for that time and place); |
| ● | tickets to an event if reasonable and customary for that time and place or if prior approval is obtained from the Compliance Officer; |
| ● | meals that are reasonable and customary for that time and place; or |
| ● | loans from lending institutions at market rates. |
Under no circumstances should a Covered Party accept a cash gift. All questions and concerns relating to this policy should be addressed to the Compliance Officer. If a Covered Party violates this policy, the Company will take prompt corrective action, including discipline and/or termination, if appropriate.
No outside consultant, agent, or third party of any kind shall be used or employed in any manner or for any purpose that would be contrary to the guidelines set forth above.
XI. POLITICAL CONTRIBUTIONS
The Company understands that Covered Parties may participate in the political process as individuals and encourages them to do so. However, without prior authorization, no Covered Party shall, in such Covered Party’s capacity as an officer, director, or employee of the Company, make any loan, donation, contribution, or payment to a political party, candidate, or political action committee, for or on behalf of the Company or any project or development in which the Company is engaged, nor shall a Covered Party of the Company reimburse any individual who does. This does not prohibit a Covered Party from taking any of the above actions in such Covered Party’s name, provided that the action is exclusively on the Covered Party’s own accord and is not an indirect means of accomplishing one of the prohibited actions.
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XII. EMPLOYMENT PRACTICES
The Company endeavors to provide all Covered Parties an environment that is conducive to conducting business. In order to achieve this goal, the Company has instituted several policies, which are in part summarized below.
A. Discrimination and Harassment
The Company aims to provide challenging, meaningful, and rewarding opportunities for personal and professional growth of all Covered Parties without regard to gender, race, ethnicity, sexual orientation, physical or mental disability, age, pregnancy, religion, veteran status, national origin, or any legally protected status. The Company encourages teamwork in order to leverage the diverse talents and expertise of our Covered Parties through effective collaboration and cooperation. In order to promote the desired work environment, the Company prohibits all forms of harassment, discrimination, and retaliation of Covered Parties by fellow Covered Parties and employees of External Parties. All Covered Parties are required to comply with all applicable labor and employment laws, including anti-discrimination laws and laws related to privacy.
B. Workplace Safety
The Company promotes and strives to maintain a safe and healthy work environment and conducts its business in ways that protect its employees’ safety and are sensitive to the environment. The Company will continue its goal of providing a workplace that is free from safety or health hazards or will control such hazards to acceptable levels. Consistent with the Company’s goal and given the nature of the Company’s activities, employees are required to understand and comply with the laws, rules, regulations, and policies relevant to maintaining a safe and healthy workplace.
C. Alcohol and Drugs
The Company is committed to maintaining a drug-free work place. The Company prohibits the manufacture, distribution, sale, purchase, transfer, possession, or use of illegal substances in the workplace, while representing the Company outside the workplace or if such activity affects work performance or the work environment of the Company. The Company further prohibits use of alcohol while on duty, unless at Company-sanctioned events. Employees are prohibited from reporting to work, or driving a Company vehicle or any vehicle on Company business, while under the influence of alcohol, any illegal drug, controlled substance, or any other intoxicant.
D. Communication
The Company encourages open, timely communications that help the Company achieve organizational goals, share information, increase understanding, participate in the decision-making process, and provide recognition for our work-related success.
XIII. PROTECTION AND PROPER USE OF COMPANY ASSETS
Safeguarding Company assets is the responsibility of all Covered Parties. The Company’s ability to achieve its mission requires the efficient and appropriate use of Company assets and resources, including information systems. Theft, carelessness, and waste have a direct impact on the Company’s profitability. Covered Parties are expected to:
A. Use Company assets according to all Company policies and procedures, comply with policies and security programs that help prevent their unauthorized use or theft, and abide by all regulations or contractual agreements governing their use.
B. Protect from disclosure or misuse all nonpublic information pertaining to the Company.
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C. Protect from disclosure any proprietary information including intellectual property, business, marketing and service plans, databases, records, salary information, and any unpublished financial data and reports.
D. Not use Company property or nonpublic information of the Company to gain a personal profit; nor may any Covered Party make such property or information available to any family member, friend, business associate, or other person for the benefit of such other person.
E. Take actions necessary to safeguard all passwords and identification codes to prevent unauthorized access to the Company’s information systems or resources.
F. Read and comply with all information technology and cybersecurity policies and their applicable procedures.
XIV. PROHIBITION OF LOANS
The Company has a policy against making any loans to any officer or director of the Company, or any member of their immediate families, whether directly or indirectly, or guaranteeing any loan or obligation on behalf of any officer or director or member of their immediate family.
XV. REPORTING WITH INTEGRITY
The Company has an obligation to make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflect the Company’s transactions and to maintain tax records and prepare tax returns that comply with applicable laws, rules, and regulations. The Company must also maintain a system of internal accounting controls that meet applicable laws, rules, and regulations, and prepare financial statements in accordance with generally accepted accounting principles and applicable laws, rules, and regulations. All employees who are responsible for any aspect of the Company’s internal accounting controls and financial and tax reporting systems (including, but not limited to, the Chief Executive Officer, the Chief Financial Officer, any principal accounting officers, and persons performing similar functions) must conduct themselves using high ethical standards of integrity and honesty, in a manner that allows the Company to meet accounting and legal requirements, and to prepare financial reports and financial statements that are not false or misleading, and that present full, fair, accurate, timely, and understandable disclosure in the Company’s periodic reports and other public communications.
A. No Covered Party may override, or direct others to override, the Company’s established system of internal controls over financial reporting and disclosure.
B. No fund, asset, or liability of the Company which is not fully and properly disclosed and recorded on the Company’s books and records – i.e., no unrecorded or “off-the-books” activity – shall be created or permitted to exist.
C. Transactions of the Company are to be executed only in accordance with management’s general or specific authorizations.
D. No false, artificial, or misleading entries may be made in the books and records of the Company for any reason and no Covered Party may engage in any arrangement that results in such prohibited act.
E. No transaction shall be effected and no payment on behalf of the Company may be approved or made with the intention or understanding that any part of the transaction or payment is to be used for any purpose other than that described by the documents supporting the transaction or payment.
F. Any uncertainty by an employee about judgments concerning accounting or tax matters should be discussed with a superior; when in doubt, ask for guidance.
G. No one shall take any action to fraudulently influence, coerce, manipulate, or mislead any internal or external auditor engaged in the performance of an audit of the Company’s financial statements.
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XVI. INTERPRETATION / WAIVERS
Requests for a waiver of a provision of the Code must be submitted in writing to the Compliance Officer for appropriate review, and the Audit Committee will decide the outcome. Pursuant to its charter, the Audit Committee shall review any conduct of executive officers or directors of the Company that is or may be in violation of the Code. Any waiver approved by the Audit Committee for executive officers and directors and the reason for the waiver will be promptly disclosed to the Company’s stockholders, if required by and in accordance with applicable laws, rules, and regulations.
XVII. REPORTING SUSPECTED NON-COMPLIANCE / WHISTLEBLOWER HOTLINE
A. Reporting
The Company supports an open and honest atmosphere in which questions should be asked, and potential problems or concerns must be raised. Any Covered Party who becomes aware of an existing or potential violation of this Code, or any applicable laws, rules, regulations, Company policies, or the Code, suspected fraudulent activity, or any concerns or complaints regarding accounting, internal accounting controls, or auditing matters should be promptly reported either openly or on an anonymous basis. Covered Parties may report any such violations orally or in writing to the Compliance Officer or chairperson of the Audit Committee or through the Company’s Whistleblower Hotline pursuant to the Company’s Whistleblower Policy.
B. Investigations
The Company is committed to taking prompt and consistent action, as appropriate, in response to suspected or reported violations of the Code, any law, rule, or regulation, or Company policy. All Covered Parties are required to cooperate fully with internal investigations by providing complete and truthful information in a timely manner. The Company will not tolerate retaliation against individuals for raising good faith possible violations of the Code, any applicable law, rule, or regulation, or Company policy.
Adopted: May 14, 2024
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Exhibit A
CERTIFICATION
I hereby acknowledge that I have read the Code of Business Conduct and Ethics of Fly-E Group, Inc. (the “Code”), have become familiar with its contents, and will comply with its terms. Any violations of the Code of which I am aware are noted below.
| Name (please print) | |
| Signature | |
| Date |
Please describe any violations of the Code of which you are aware below:
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Exhibit 19.1
Fly-E Group, Inc.
Insider Trading Policy
Effective May 14, 2024
Purpose
This Insider Trading Policy (the “Policy”) provides guidelines with respect to transactions in the securities of Fly-E Group, Inc. (the “Company”) and the handling of confidential information about the Company and the companies with which the Company engages in transactions or does business. The Company’s Board of Directors has adopted this Policy to promote compliance with U.S. federal, state, and foreign securities laws that prohibit certain persons who are aware of material nonpublic information about a company from:
| ● | trading in securities of that company; or |
| ● | providing material nonpublic information to other persons who may trade on the basis of that information (also known as “tipping”). |
Insider trading is a crime. Violations are pursued vigorously by the Securities and Exchange Commission (“SEC”), U.S. Attorneys, state enforcement authorities, and foreign jurisdictions. Violations can result in severe penalties, including significant fines and imprisonment. See the Section below captioned “Consequences of Violations.”
Persons Subject to the Policy
This Policy applies to (i) all members of the Company’s Board of Directors, (ii) all officers of the Company and its subsidiaries, and (iii) all employees of the Company and its subsidiaries. The Company may also determine that other persons should be subject to this Policy, such as contractors or consultants who have access to material nonpublic information. This Policy also applies to family members, other members of a person's household, and entities controlled by a person covered by this Policy, as described below.
Transactions Subject to the Policy
This Policy applies to all transactions in (i) the Company’s securities (collectively referred to in this Policy as “Company Securities”), including the Company’s common stock, any securities that are exercisable for, or convertible or exchangeable into, shares of common stock, and any other type of securities that the Company may issue from time to time, including (but not limited to) warrants, convertible debt, notes, and preferred stock, as well as derivative securities that are not issued by the Company, such as exchange-traded put or call options or swaps relating to the Company’s Securities, and (ii) the securities of certain other companies, where the person trading used information obtained while working for the Company.
Statement of Policy
It is the policy of the Company that no director, officer, or employee of the Company or its subsidiaries (or any other person designated by this Policy or by the Compliance Officer, as such term is defined below under the heading “Administration of the Policy”, as subject to this Policy) who is aware of material nonpublic information relating to the Company or its subsidiaries may, directly, or indirectly through family members or other persons or entities:
| ● | engage in transactions in Company Securities, except as otherwise specified in this Policy under the headings “Transactions Not Subject to Trading Restrictions” and “Rule 10b5-1 Plans”; |
| ● | recommend that others engage in transactions in any Company Securities; |
| ● | disclose material nonpublic information to persons within the Company whose jobs do not require them to have that information, or outside of the Company to other persons, including, but not limited to, family, friends, business associates, investors, and expert consulting firms, unless any such disclosure is made in accordance with the Company’s policies regarding the protection or authorized external disclosure of information regarding the Company; or |
| ● | assist anyone engaged in the above activities. |
In addition, it is the policy of the Company that no director, officer, or employee of the Company or its subsidiaries (or any other person designated as subject to this Policy) who, in the course of working for the Company, learns of material nonpublic information about a company (1) with which the Company does business, including a customer or supplier of the Company, or (2) that is involved in a potential transaction or business relationship with the Company may trade in that company’s securities until the information becomes public or is no longer material.
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not exempted from this Policy. The securities laws do not recognize any mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to the highest standards of conduct.
Individual Responsibility
Persons subject to this Policy have ethical and legal obligations to maintain the confidentiality of information about the Company and to not engage in transactions in Company Securities while in possession of material nonpublic information. Persons subject to this Policy must not engage in illegal trading and must avoid the appearance of improper trading. Each individual is responsible for making sure that they comply with this Policy, and that any family member, household member, or entity whose transactions are subject to this Policy, as discussed below, also comply with this Policy. In all cases, the responsibility for determining whether an individual is in possession of material nonpublic information rests with that individual, and any action on the part of the Company, the Compliance Officer, or any other employee or director pursuant to this Policy (or otherwise) does not in any way constitute legal advice or insulate an individual from liability under applicable securities laws. You could be subject to severe legal penalties and disciplinary action by the Company for any conduct prohibited by this Policy or applicable securities laws, as described below in more detail under the heading “Consequences of Violations.”
Administration of the Policy
The Chief Financial Officer shall serve as the Compliance Officer for the purposes of this Policy, and in the absence of the Chief Financial Officer, another employee designated by the Compliance Officer shall be responsible for administration of this Policy. All determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
When in doubt about a matter covered by this Policy, or if you have questions, please contact the Compliance Officer before engaging in any transaction involving Company Securities. See “Company Assistance” below.
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Definition of Material Nonpublic Information
Material Information. Information is considered “material” if a reasonable investor would consider that information important in making a decision to buy, hold, or sell securities. Any information that could be expected to affect the Company’s stock price, whether it is positive or negative, should be considered material. There is no bright-line standard for assessing materiality; rather, materiality is based on an assessment of all of the facts and circumstances, and is often evaluated by enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information, some examples of information that ordinarily would be regarded as material are:
| ● | consolidated financial condition and results of operation of the Company, including quarterly and annual results, or financial results of any significant subsidiary, business, or unit, or of any of the Company’s technologies, products, and services; |
| ● | entry into or termination of a material contract or other major transaction (such as joint venture, strategic alliance, or collaboration); |
| ● | pending or proposed mergers, investments, acquisitions, dispositions, or tender offers; |
| ● | a restructuring of the Company; |
| ● | significant related party transactions; |
| ● | an offering of any Company Securities; |
| ● | the establishment of, or any significant developments or changes regarding, a repurchase program for Company Securities (such as planned repurchases, increases or decreases in the program’s authorization, suspensions, and similar changes); |
| ● | redemption, retirement, or modification of outstanding debt securities or other indebtedness; |
| ● | bank borrowings or other financing transactions outside the ordinary course of business; |
| ● | major marketing changes; |
| ● | the gain or loss of a significant customer or supplier or an expected increase in revenue from an existing customer; |
| ● | a change in auditors or notification that the auditor’s reports may no longer be relied upon; |
| ● | write-ups or write-downs of assets or changes in accounting methods; |
| ● | development of a significant new product, process, technical innovation, or service; |
| ● | significant actual or potential cybersecurity incidents (e.g., a data breach or any other significant disruption in the Company’s operations, or loss, potential loss, breach, or unauthorized access of its property or assets, whether at its facilities or through its information technology infrastructure); |
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| ● | the imposition of a restriction on trading in Company securities, or in the securities of another company with which the Company conducts business or may engage in acquisitions, joint ventures, or other transactions, or the extension or termination of such restriction; |
| ● | an actual or proposed change to the Company’s capital structure, including a stock split; |
| ● | a proposed dividend or a change in dividend policy; |
| ● | impending bankruptcy or the existence of severe liquidity issues; |
| ● | forward-looking information regarding the Company’s financial performance, such as earnings guidance, projections, or “outlook” for future financial results; |
| ● | confirmation of or changes to previously announced earnings guidance or the decision to suspend earnings guidance; |
| ● | unpublished financial figures, including revenue, expenses, net income, and earnings per share, as well as their expected growth or decline rates; |
| ● | any major change in management or the board of directors; |
| ● | significant pending or threatened litigation or government inquiries or investigations, and related developments, including the resolution of such litigation, inquiry, or investigation; or |
| ● | significant change in the Company’s pricing or cost structure. |
References in this list to the Company or otherwise in the context of assessing whether information is material shall mean the Company and/or its subsidiaries and business units, as the context requires.
When Information is Considered Public. Information that has not been disclosed to the public is generally considered to be nonpublic information. In order to establish that the information has been disclosed to the public, it may be necessary to demonstrate that the information has been widely disseminated. Information generally would be considered widely disseminated if it has been disclosed through a press release, a broadcast on widely available radio or television programs, publication in a widely available newspaper, magazine, or news website, newswire services, or public disclosure documents filed with the SEC that are available on the SEC’s website (such as Form 8-K, Form 10-Q, and Form 10-K). By contrast, information would likely not be considered widely disseminated if it is available only to the Company’s employees, or if it is only available to a select group of persons, such as analysts, brokers, and institutional investors. In addition, please be aware that disclosure on the Company’s website and the Company’s social media channels, by itself, may not be considered wide dissemination.
Once information is widely disseminated, it is still necessary to afford the investing public with sufficient time to absorb the information. As a general rule, information should not be considered fully absorbed by the marketplace until after two full trading days have elapsed after the information is released. If, for example, the Company were to make an announcement on a Monday afternoon, you should not trade in Company Securities until Thursday. Depending on the particular circumstances, the Company may determine that a longer or shorter period should apply to the release of specific material nonpublic information. If you are unsure whether material information has been made “public,” please contact the Compliance Officer.
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Precautions to Prevent Misuse or Unauthorized Disclosure
When a person covered under this policy has exposure to material nonpublic information, that individual should consider taking extraordinary precautions to prevent misuse or unauthorized disclosure, including:
| ● | maintaining files securely and avoiding storing information on computer systems that can be accessed by other individuals; |
| ● | avoiding discussing confidential matters in areas where conversation could be overheard; |
| ● | restricting information on a “need to know” basis; and |
| ● | refraining from making any statement on the Internet or via social media (e.g., WeChat, Weibo, X, LinkedIn, Facebook) regarding the Company, as it may be seen as a recommendation to buy or sell Company Securities. |
Transactions by Family Members and Others
This Policy applies to your family members who reside with you (including a spouse, a child, a child away at college, stepchildren, grandchildren, parents, stepparents, grandparents, siblings, and in-laws), anyone else who lives in your household, and any family members who do not live in your household but whose transactions in Company Securities are directed by you or are subject to your influence or control, such as parents or children who consult with you before they trade in Company Securities (collectively referred to as “Family Members”). You are responsible for the transactions of these other persons and therefore should make them aware of the need to confer with you before they trade in Company Securities, and you should treat all such transactions for the purposes of this Policy and applicable securities laws as if the transactions were for your own account. This Policy does not, however, apply to personal securities transactions of Family Members where the purchase or sale decision is made by a third party not controlled by, influenced by, or related to you or your Family Members.
Transactions by Entities that You Influence or Control
This Policy applies to any entities that you influence or control, including any corporations, partnerships, or trusts (collectively referred to as “Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and applicable securities laws as if they were for your own account.
Transactions Not Subject to Trading Restrictions of this Policy
Transactions Under Company Plans. This Policy does not apply in the case of the following transactions, except as specifically noted:
| ● | Stock Option Exercises. This Policy does not apply to the exercise of an employee stock option acquired pursuant to the Company’s plans, or to the exercise of a tax withholding right pursuant to which a person has elected to have the Company withhold shares subject to an option to satisfy tax withholding requirements. Similarly, this Policy does not apply to the exercise of options on a “net exercise” basis pursuant to which a person either (i) delivers outstanding shares of common stock to the Company or (ii) authorizes the Company to withhold from issuance shares of common stock issuable upon exercise of the option, in either case, having a fair market value on the date of exercise equal to the aggregate exercise price. This Policy does apply, however, to any sale of stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option. |
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| ● | Restricted Stock and RSU Awards. This Policy does not apply to the vesting of restricted stock or restricted stock units, or the exercise of a tax withholding right pursuant to which a person has elected to have the Company withhold shares or units to satisfy tax withholding requirements upon the vesting of any restricted stock or units. The Policy does apply, however, to any market sale of restricted stock. |
| ● | Other Similar Transactions. Any other purchase of Company Securities from the Company or sales of Company Securities to the Company are not subject to this Policy. |
Transactions Not Involving a Purchase or Sale. Bona fide gifts of securities are not transactions subject to this Policy, unless the person making the gift has reason to believe that the recipient intends to sell the Company Securities while the person making the gift is aware of material nonpublic information, provided that Covered Persons must still pre-clear any such transaction as described below under the heading “Additional Procedures—Pre-clearance Procedures.”
Certain Mutual Fund Transactions. Transactions in mutual funds that are invested in Company Securities are not transactions subject to this Policy.
Special and Prohibited Transactions
The Company has determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct if the persons subject to this Policy engage in certain types of transactions. Therefore, it is the Company’s policy that any persons covered by this Policy may not engage in any of the following transactions, or should otherwise consider the Company’s preferences as described below:
| ● | Short-Term Trading. Short-term trading of Company Securities may be distracting to the person and may unduly focus the person on the Company’s short-term stock market performance instead of the Company’s long-term business objectives. For these reasons, any director, officer, or employee of the Company who purchases Company Securities in the open market may not sell any Company Securities of the same class during the six months following the purchase (or vice versa). |
| ● | Short Sales. Short sales of Company Securities (i.e., the sale of a security that the seller does not own) may evidence an expectation on the part of the seller that the securities will decline in value, and therefore have the potential to signal to the market that the seller lacks confidence in the Company’s prospects. In addition, short sales may reduce a seller’s incentive to seek to improve the Company’s performance. For these reasons, short sales of Company Securities are prohibited. In addition, Section 16(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), prohibits officers and directors from engaging in short sales. |
| ● | Publicly Traded Options. Given the relatively short term of publicly traded options, transactions in options may create the appearance that a director, officer, or employee is trading based on material nonpublic information and focus a director’s, officer’s, or other employee's attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in put options, call options, or other derivative securities, on an exchange or in any other organized market, are prohibited by this Policy. |
| ● | Hedging Transactions. Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forward contracts, equity swaps, collars, and exchange funds or other transactions which hedge or offset, or are designed to hedge or offset, any decrease in the market value of Company Securities. Such hedging transactions may permit a director, officer, or employee to continue to own Company Securities directly or indirectly, including those obtained through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that occurs, the director, officer, or employee may no longer have the same objectives as the Company’s other shareholders. Therefore, directors, officers, and employees are prohibited from engaging in any such transactions. |
6
| ● | Margin Accounts and Pledged Securities. Securities held in a margin account as collateral for a margin loan may be sold by the broker without the customer's consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company Securities, directors, officers, and other employees are prohibited from holding Company Securities in a margin account or otherwise pledging Company Securities as collateral for a loan. |
| ● | Standing and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 Plans, as described below) create heightened risks for insider trading violations similar to the use of margin accounts. There is no control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the broker could execute a transaction when a director, officer, or other employee is in possession of material nonpublic information. The Company therefore discourages placing standing or limit orders on Company Securities. If a person subject to this Policy determines that they must use a standing order or limit order, the order should be limited to short duration and should otherwise comply with the restrictions and procedures outlined below under the heading “Additional Procedures.” |
Additional Procedures
The Company has established additional procedures in order to assist the Company in the administration of this Policy, to facilitate compliance with laws prohibiting insider trading while in possession of material nonpublic information, and to avoid the appearance of any impropriety.
| ● | Pre-Clearance Procedures. No Covered Person may engage in any transaction in Company Securities without first obtaining pre-clearance from the Compliance Officer. A request for pre-clearance should be submitted to the Compliance Officer at least two business days before the proposed transaction in order to give adequate time for the Company to administer the request, and shall comply with any other procedures established by the Compliance Officer. The Compliance Officer is under no obligation to approve a transaction submitted for pre-clearance and will have sole discretion to determine whether to permit the transaction. In evaluating each proposed transaction, the Compliance Officer may consult as necessary with senior management and outside counsel. |
If a Covered Person seeks pre-clearance and the request is denied, then such Covered Person should refrain from engaging in any transaction in Company Securities, and should not inform any other person of the restriction. Moreover, pre-clearance does not, in any circumstance, relieve anyone of their legal obligation to refrain from trading while in possession of material nonpublic information. In other words, even if pre-clearance is received, if the requesting person becomes aware of material nonpublic information or becomes subject to a blackout period or event-specific trading restriction (as discussed below), the transaction may not be completed. Pre-clearance of a transaction is valid only for the 5-business day period immediately following receipt by the Covered Person of such pre-clearance.
7
Requests for pre-clearance should be made by submitting the information set forth in the Request for Clearance to Trade attached as Exhibit B hereto. When a request for pre-clearance is made, the requesting person should carefully consider whether they may be aware of any material nonpublic information about the Company and should provide a detailed description of those circumstances to the Compliance Officer. The requesting person should also indicate whether they have effected any non-exempt “opposite-way” transactions within the past six months, and should be prepared to report the proposed transaction on an appropriate Form 4 or Form 5. The requesting person should also be prepared to comply with SEC Rule 144 and file a Form 144, if necessary, at the time of sale.
A knowledgeable, alert broker can act as a gatekeeper, helping ensure compliance with pre-clearance procedures and helping prevent inadvertent violations. Accordingly, the Company encourages each Covered Person using any broker to sign and have their broker sign a “Broker Instruction/Representation” form that imposes two requirements on the broker handling transactions in Company Securities: (1) not to enter any order (except for orders under a pre-approved Rule 10b5-1 Plan discussed below) without first verifying with the Company that the transaction was pre-cleared and complying with the brokerage firm’s compliance procedures (e.g., Rule 144), and (2) to report immediately to the Company the details of every transaction involving Company Securities, including gifts, transfers, pledges, and all transactions under a Rule 10b5-1 Plan discussed below. Each Covered Person using a broker who signs and has the broker sign a Broker Instruction/Representation form should return it to the Company immediately so that the Company can work with the broker to develop a coordinated procedure.
| ● | Post-Transaction Notice. Covered Persons who have a reporting obligation under Section 16 of the Exchange Act shall also notify the Compliance Officer of the occurrence of any purchase, sale, or other acquisition or disposition of Company Securities as soon as possible following the transaction, but in any event within one business day after the transaction. Such notification may be oral or in writing (including by e-mail) and should include the identity of the Covered Persons, the type of transaction, the date of the transaction, the number of shares involved, and the purchase or sale price. |
For both the “Pre-Clearance Procedures” section above and this “Post-Transaction Notice” section, a purchase, sale, or other acquisition or disposition shall be deemed to occur at the time the person or entity becomes irrevocably committed to it (for example, in the case of an open market purchase or sale, this occurs when the trade is executed, not when it settles).
| ● | Quarterly Blackout Period Restrictions. Covered Persons may not engage in any transactions involving the Company Securities (other than as specified by this Policy), during a “Blackout Period” beginning fourteen days prior to the public release of the Company’s earnings results for that quarter and ending on the second business day following the date of the public release of the Company’s earnings results for that quarter. For illustration and ease of reference, these Blackout Periods are set forth in the following table: |
| Quarter | Blackout Period Begins | Blackout Period Ends |
| 1 | Two
weeks before Q1 earnings are publicly released (typically late April) |
Two
business days after Q1 earnings are publicly released (typically mid-May) |
| 2 | Two
weeks before Q2 earnings are publicly released (typically late July) |
Two
business days after Q2 earnings are publicly released (typically mid-August) |
| 3 | Two
weeks before Q3 earnings are publicly released (typically late October) |
Two
business days after Q3 earnings are publicly released (typically mid-November) |
| 4 | Two
weeks before annual earnings are publicly released |
Two
business days after annual earnings are publicly released |
Blackout Periods are compliance requirements of the Company and do not create or constitute a legal right to trade when they are not in effect. Accordingly and for the avoidance of doubt, even when a Blackout Period is not in effect, if you are in possession of material nonpublic information, you may not trade in the Company’s securities.
8
| ● | Event-Specific Trading Restrictions. From time to time, an event may occur that is material to the Company and is known by only a few directors, officers, and/or employees. So long as the event remains material and nonpublic, the persons designated by the Compliance Officer may not engage in transactions in Company Securities. In addition, the Company’s financial results may be sufficiently material in a particular fiscal quarter that, in the judgment of the Compliance Officer, designated persons should refrain from engaging in transactions in Company Securities even sooner than the typical Blackout Period described above. In that situation, the Compliance Officer may notify these persons that they should not trade in the Company’s Securities, without disclosing the reason for the restriction. The existence of an event-specific trading restriction period or extension of a Blackout Period will not be announced to the Company as a whole, and should not be communicated to any other person. Even if the Compliance Officer has not designated you as a person who should not engage in transactions in Company Securities due to an Event-Specific Restricted Period, you should not trade while aware of material nonpublic information. Exceptions to this Policy will not be granted while an event-specific trading restriction is in effect. |
| ● | Exceptions. Blackout Period and event-specific trading restrictions do not apply to any transactions to which this Policy does not apply, as described above under the heading “Transactions Not Subject to Trading Restrictions of this Policy.” In addition, the pre-clearance requirements, Blackout Period and event-specific trading restrictions do not apply to transactions under approved Rule 10b5-1 Plans. |
Rule 10b5-1 Plans
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability. In order to be eligible to rely on this defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities that meets certain conditions specified in the Rule (a “Rule 10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1, Company Securities may be purchased or sold without regard to certain insider trading restrictions. To comply with the Policy, a Rule 10b5-1 Plan must be approved by the Compliance Officer and meet the requirements of Rule 10b5-1.
In general, a Rule 10b5-1 Plan must be entered into at a time when the person entering into the plan is not aware of material nonpublic information. Once the plan is adopted, the person must not exercise any influence over the amount of securities to be traded, the price at which they are to be traded, or the date of the trade. The plan must either specify the amount, pricing, and timing of transactions in advance or delegate discretion on these matters to an independent third party. The plan must include a cooling-off period before trading can commence that, for directors or officers, ends on the later of 90 days after the adoption of the Rule 10b5-1 plan or two business days following the disclosure of the Company’s financial results in an SEC periodic report for the fiscal quarter in which the plan was adopted (but in any event, the required cooling-off period is subject to a maximum of 120 days after adoption of the plan), and for persons other than directors or officers, 30 days following the adoption or modification of a Rule 10b5-1 plan. A person may not enter into overlapping Rule 10b5-1 plans (subject to certain exceptions) and may only enter into one single-trade Rule 10b5-1 plan during any 12-month period (subject to certain exceptions). Directors and officers must include a representation in their Rule 10b5-1 plan certifying that they are (i) not aware of any material nonpublic information; and (ii) adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5. All persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.
9
Any adoption of a new Rule 10b5-1 Plan, or amendment to or early termination of any existing Rule 10b5-1 Plan, must be submitted to the Compliance Officer for approval at least five business days prior to the entry into the Rule 10b5-1 Plan or amendment. No further pre-approval of transactions conducted pursuant to the Rule 10b5-1 Plan is required.
Applicability of Policy to Former Insiders
This Policy continues to apply to transactions in Company Securities even after termination of service to the Company. If an individual is in possession of material nonpublic information when their service terminates, that individual may not engage in transactions in Company Securities until that information has become public or is no longer material. The pre-clearance procedures applicable to such individual specified under the heading “Additional Procedures” above, however, will cease to apply to transactions in Company Securities upon the expiration of any Blackout Period or other Company-imposed trading restrictions in force at the time of such individual’s termination of service.
Consequences of Violations
Insider trading is a crime. Violations are pursued vigorously by the SEC, U.S. Attorneys, and state enforcement authorities and foreign jurisdictions. Punishment for insider trading violations is severe, and could include significant fines and imprisonment. While the regulatory authorities concentrate their efforts on the individuals who trade, or who tip inside information to others who trade, the federal securities laws also impose potential liability on companies and other “controlling persons” within the organization if they fail to take reasonable steps to prevent insider trading by company personnel.
Under federal securities laws, individuals found liable for insider trading could, among other things, face (i) up to 20 years in jail, (ii) a criminal fine of up to $5 million, and (iii) civil penalties of up to three times the profit gained or loss avoided.
In addition, for failing to take steps to prevent insider trading, the Company (and/or its executive officers and directors) could itself face (i) a criminal penalty of up to $25 million, and (ii) civil penalties of the greater of $1 million or three times the profit gained or loss avoided as a result of an employee’s violation. Please note that individual states may impose their own penalties.
Furthermore, an individual's failure to comply with this Policy may subject the individual to Company imposed sanctions, up to and including dismissal for cause, whether or not the employee’s failure to comply results in a violation of law. Any sanctions imposed upon or liabilities incurred by an employee for insider trading will be the sole responsibility of the employee. The Company will not cover or indemnify the employee for these costs. Neither the Company nor any of its directors, officers, or employees will be liable for the legal or financial consequences of any approval or pre-clearance, refusal to approve or pre-clear, or delay in reviewing any requests for approval or pre-clearance of any transaction, Rule 10b5-1 Plan, or other request under this Policy. Needless to say, a violation of law, or even an SEC investigation that does not result in prosecution, can tarnish a person’s reputation and irreparably damage a career.
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Company Assistance
If you have any questions about this Policy or its application to any proposed transaction, please contact the Company’s Compliance Officer, who can be reached by telephone at (929) 410-2770 or by e-mail at Steven Guo steven.guo@flyebike.com, for additional guidance.
Certification
You must sign, date, and return the Certification attached as Exhibit A (or any other certification the Compliance Officer deems appropriate) stating that you have received, read, understand, and agree to comply with this Policy. The Company may require you to sign this Certification on an annual basis, including in electronic format. Please note that you are bound by the Policy whether or not you sign the Certification.
* * *
This Policy supersedes any previous policy of the Company or its predecessors concerning securities trading. In the event of any conflict or inconsistency between this Policy and other materials previously distributed by the Company or its predecessors, this Policy shall govern.
Adopted: May 14, 2024
11
EXHIBIT A
CERTIFICATION
I hereby certify that:
| 1. | I have read and understand the Company’s Insider Trading Policy. |
| 2. | I understand that the Company’s Compliance Officer is available to answer any questions I have regarding the Insider Trading Policy. |
| 3. | Since [●], 2024, or such shorter period of time that I have been an employee or director of the Company, I have complied with the Insider Trading Policy. |
| 4. | I will continue to comply with the Insider Trading Policy for as long as I am subject to the Policy. |
| 5. | I understand and agree that any violation of the Insider Trading Policy by me, my family members, or other persons who are subject to the Policy because of their relationship with me may result in fines, penalties, and/or disciplinary action, up to and including termination of my employment or service. |
| Print name: | ||
| Signature: | ||
| Date: |
A-1
EXHIBIT B
REQUEST FOR CLEARANCE TO TRADE
| To: | Fly-E Group, Inc. |
136-40 39th Avenue
Flushing, NY 11354
Attn: Steven Guo
Telephone: (929) 410-2770
Email: steven.guo@flyebike.com
| Name: | Title: |
I hereby request clearance for myself (or a member of my immediate family or household) to execute the following transaction relating to the securities of Fly-E Group, Inc.
Type of Transaction:
| ☐ | I wish to purchase. Number and type of securities to be purchased: ________________ |
| ☐ | I wish to sell. Number and type of securities to be sold: ________________ |
| ☐ | I wish to exercise an option and sell all or a portion of the shares of common stock purchased at the then market price in a “cashless exercise” or “same day sale” and hold any remaining shares of common stock in my brokerage account. |
Number of options to be exercised: _____________________
Number of shares of common stock to be sold: ___________________
Number of shares of common stock held in account:_________________
| ☐ | Other transaction:__________________________________________________ |
If the request is for a member of my immediate family or household:
Name of Person: | Relationship: |
I hereby represent and certify that I am not aware of any material, non-public information concerning Fly-E Group, Inc. at the time of submitting this request, and I agree that should I become aware of any material, non-public information concerning Fly-E Group, Inc. before completing the approved transaction, I will not complete the transaction. I understand that once approved, this authorization is valid on the date of approval and for five business days thereafter. I further understand that the approval will lapse if I become in possession of, or, in the judgment of the Compliance Officer, I am likely to be in possession of material, non-public information, or otherwise on the earliest of expiration of (i) the five-business day period of this approval, or (ii) the trading window in which approval is granted, whichever is the first to occur.
| Date | Signature | |
| Approved by: | ||
| Compliance Officer | Date |
B-1
Exhibit 21.1
SUBSIDIARIES OF FLY-E GROUP, INC.
The following is a list of subsidiaries of Fly-E Group, Inc. as of June 27, 2024.
| Legal Name | Jurisdiction | |
| FLY EV, INC. | Delaware | |
| FLY E-BIKE, INC. | Delaware | |
| UNIVERSE KING CORP | New York | |
| UFOTS CORP. | New York | |
| ARFY CORP. | New York | |
| TKPGO CORP. | New York | |
| FLYFLS INC | New York | |
| FLY37 INC | New York | |
| FIYET INC | New York | |
| FLY GC INC. | New York | |
| FLY MHT INC. | New York | |
| FLYAM INC | New York | |
| OFLYO INC | New York | |
| FLYEBIKE INC | New York | |
| FLYCLB INC | New York | |
| FLYEBIKE NJ INC | New Jersey | |
| ESEBIKE INC | New York | |
| FLYEBIKEMIAMI INC | Florida | |
| GOFLY INC | Texas | |
| FLY14 CORP. | New York | |
| EDISONEBIKE INC. | New York | |
| FLYTRON INC. | New York | |
| FLYCYCLE INC. | New York | |
| FLYNJ2 INC. | New Jersey | |
| FLYBWY INC. | New York | |
| FLYCORONA INC. | New York | |
| MEEBIKE | New York | |
| FLY6AVE, INC. | New York | |
| FLY E BIKE NJ3, INC | New Jersey | |
| FLYEBIKE BROOKLYN, INC. | New York | |
| FLY E-BIKE SAN ANTONIO INC | Texas | |
| FLYEBIKE WORLD INC. | New York | |
| FLY DELIVERY INC. | New York | |
| FLYEBIKE MIAMI2 INC. | Florida | |
| FLYDC INC. | Washington, D.C. | |
| FLYMHT659 INC. | New York | |
| FLYBX745 INC. | New York | |
| FLYJH8509 INC. | New York | |
| FLYBX2381 INC. | New York | |
| FLYNJ4 INC. | New York | |
| FLYTORONTO Corp. | Toronto, Canada | |
| FLYLA INC. | California | |
| FWMOTOR INC | New York | |
| DCMOTOR INC | Maryland | |
| AOFL LLC | New York |
Exhibit 31.1
CERTIFICATION OF THE
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zhou Ou, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 31, 2024 of Fly-E Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313) |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 27, 2024 | By: | /s/ Zhou Ou |
| Zhou Ou | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THESECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ruifeng Guo, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K for the fiscal year ended March 31, 2024 of Fly-E Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313) |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 27, 2024 | By: | /s/ Ruifeng Guo |
| Ruifeng Guo | ||
| Chief Financial Officer | ||
| (Principal Accounting and Financial Officer) |
Exhibit 32.1
CERTIFICATION OF THE
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fly-E Group, Inc.(the “Company”) on Form 10-K for the fiscal year ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zhou Ou, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: June 27, 2024 | By: | /s/ Zhou Ou |
| Zhou Ou | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF THE
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fly-E Group, Inc.(the “Company”) on Form 10-K for the fiscal year ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ruifeng Guo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: June 27, 2024 | By: | /s/ Ruifeng Guo |
| Ruifeng Guo | ||
| Chief Financial Officer | ||
|
(Principal Accounting and Financial Officer) |
Exhibit 97.1
Fly-E Group, Inc.
Incentive Compensation Recovery Policy
Effective May 14, 2024
Adopted by the Board of Directors (the “Board”) of Fly-E Group, Inc. (the “Company”) on May 14, 2024
The Company, including its subsidiaries, is committed to upholding the highest ethical and legal standards in the conduct of its business. The Board believes that a culture that emphasizes integrity and accountability is in the best interests of the Company and its stockholders and is essential to the Company’s success. The Compensation Committee of the Company is therefore adopting this Incentive Compensation Recovery Policy (this “Policy”) to provide for the recovery of certain incentive compensation in the event of an Accounting Restatement (as defined below). This Policy is intended to foster a culture of compliance and accountability, to reward integrity, and to reinforce the Company’s pay-for-performance compensation philosophy.
Statement of Policy
In the event that the Company is required to prepare an Accounting Restatement, except as otherwise set forth in this Policy, the Company shall recover, reasonably promptly, the Excess Incentive Compensation received by any Covered Executive during the Recoupment Period.
This Policy applies to all Incentive Compensation received during the Recoupment Period by a person (a) after beginning service as a Covered Executive, (b) who served as a Covered Executive at any time during the performance period for that Incentive Compensation and (c) while the Company has a class of securities listed on The Nasdaq Stock Market LLC (“Nasdaq”) or another national securities exchange or association. This Policy may therefore apply to a Covered Executive even after that person is no longer a Company employee or a Covered Executive at the time of recovery.
Incentive Compensation is deemed “received” for purposes of this Policy in the fiscal period during which the financial reporting measure specified in the Incentive Compensation award is attained, even if the payment or issuance of such Incentive Compensation occurs after the end of that period. For example, if the performance target for an award is based on total stockholder return for the year ended March 31, 2024, the award will be deemed to have been received in 2024 even if paid in 2025.
Exceptions
The Company is not required to recover Excess Incentive Compensation pursuant to this Policy to the extent the Compensation Committee of the Board (the “Committee”) makes a determination that recovery would be impracticable for one of the following reasons (and the applicable procedural requirements are met):
| (a) | after making a reasonable and documented attempt to recover the Excess Incentive Compensation, which documentation will be provided to Nasdaq to the extent required, the Committee determines that the direct expenses that would be paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered; |
| (b) | based on a legal opinion of counsel acceptable to Nasdaq, the Committee determines that recovery would violate a home country law adopted prior to November 28, 2022; or |
| (c) | the Committee determines that recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder. |
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Definitions
“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. For the avoidance of doubt, a restatement resulting solely from any one or more of the following is not an Accounting Restatement.
| ● | retrospective application of a change in generally accepted accounting principles; |
| ● | retrospective revision to reportable segment information due to a change in the structure of an issuer’s internal organization; |
| ● | retrospective reclassification due to a discontinued operation; |
| ● | retrospective application of a change in reporting entity, such as from a reorganization of entities under common control; and |
| ● | retrospective revision for stock splits, reverse stock splits, stock dividends, or other changes in capital structure. |
“Covered Executive” means the Company’s Chief Executive Officer, President, Chief Financial Officer, Secretary, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function, any other officer who performs a policy-making function for the Company (any of whom may be an employee of a subsidiary of the Company), any other person who performs similar policy-making functions for the Company , and any other employee who may from time to time be deemed subject to this Policy by the Committee. For purposes of the foregoing, designation by the Board as an “Officer” for purposes of Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shall constitute designation as a Covered Executive.
“Excess Incentive Compensation” means the amount of Incentive Compensation received during the Recoupment Period by any Covered Executive that exceeds the amount of Incentive Compensation that otherwise would have been received by such Covered Executive if the determination of the Incentive Compensation to be received had been determined based on restated amounts in the Accounting Restatement and without regard to any taxes paid.
“Incentive Compensation” means any compensation (including cash and equity compensation) that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure. For purposes of this definition, a “financial reporting measure” is (i) any measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements and any measure derived wholly or in part from such measures, or (ii) the Company’s stock price and/or total shareholder return. A financial reporting measure need not be presented within the financial statements or included in a filing with the U.S. Securities and Exchange Commission. Incentive Compensation subject to this Policy may be provided by the Company or subsidiaries or affiliates of the Company.
“Recoupment Period” means the three completed fiscal years preceding the Trigger Date, and any transition period (that results from a change in the Company’s fiscal year) of less than nine months within or immediately following those three completed fiscal years, provided that any transition period of nine months or more shall count as a full fiscal year.
“Trigger Date” means the earlier to occur of: (a) the date the Board, the Audit Committee of the Board (or such other committee of the Board as may be authorized to make such a conclusion), or the officer or officers of the Company authorized to take such action if action by the Board is not required concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; and (b) the date a court, regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement; in the case of both (a) and (b) regardless of if or when restated financial statements are filed.
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Administration
This Policy is intended to comply with Nasdaq Listing Rule 5608, Section 10D of the Exchange Act, and Rule 10D-1(b)(1) as promulgated under the Exchange Act, and shall be interpreted in a manner consistent with those requirements. The Committee has full authority to interpret and administer this Policy. The Committee’s determinations under this Policy shall be final and binding on all persons, need not be uniform with respect to each individual covered by the Policy, and shall be given the maximum deference permitted by law.
The Committee has the authority to determine the appropriate means of recovering Excess Incentive Compensation based on the particular facts and circumstances, which could include, but is not limited to, seeking direct reimbursement, forfeiture of awards, offsets against other payments, and forfeiture of deferred compensation (subject to compliance with Section 409A of the Internal Revenue Code).
Subject to any limitations under applicable law, the Committee may authorize any officer or employee of the Company to take actions necessary or appropriate to carry out the purpose and intent of this Policy, provided that no such authorization shall relate to any recovery under this Policy that involves such officer or employee.
If the Committee cannot determine the amount of excess Incentive Compensation received by a Covered Executive directly from the information in the Accounting Restatement, such as in the case of Incentive Compensation tied to stock price or total stockholder return, then it shall make its determination based on its reasonable estimate of the effect of the Accounting Restatement and shall maintain documentation of such determination, including for purposes of providing such documentation to Nasdaq.
Except where an action is required by Nasdaq Listing Rule 5608, Section 10D of the Exchange Act or Rule 10D-1(b)(1) promulgated under the Exchange Act to be determined in a different matter, the Board may act to have the independent directors of the Board administer this Policy in place of the Committee.
Acknowledgement and Agreement
Each Covered Executive shall sign an Incentive Compensation Recovery Policy Form of Acknowledgment and Agreement in the form attached to this Policy as Exhibit A or such other form as approved by the Committee in its sole discretion, provided, however, that the failure to sign any such form will have no effect on the applicability or effectiveness of this policy.
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No Indemnification or Advancement of Legal Fees
Notwithstanding the terms of any indemnification agreement, insurance policy, contractual arrangement, the governing documents of the Company or other document or arrangement, the Company shall not indemnify any Covered Executive against, or pay the premiums for any insurance policy to cover, any amounts recovered under this Policy or any expenses that a Covered Executive incurs in opposing Company efforts to recoup amounts pursuant to the Policy.
Non-Exclusive Remedy; Successors
Recovery of Incentive Compensation pursuant to this Policy shall not in any way limit or affect the rights of the Company to pursue disciplinary, legal, or other action or pursue any other remedies available to it. This Policy shall be in addition to, and is not intended to limit, any rights of the Company to recover Incentive Compensation from Covered Executives under any legal remedy available to the Company and applicable laws and regulations, including but not limited to the Sarbanes-Oxley Act of 2002, as amended, or pursuant to the terms of any other Company policy, employment agreement, equity award agreement, or similar agreement with a Covered Executive.
This Policy shall be binding and enforceable against all Covered Executives and their successors, beneficiaries, heirs, executors, administrators, or other legal representatives.
Amendment
This Policy may be amended from time to time by the Committee or the Board.
Effective Date
This Policy shall apply to any Incentive Compensation received while we have a class of securities listed on Nasdaq and on or after October 2, 2023.
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EXHIBIT A – BROAD FORM OF ACKNOLWEDGMENT AND AGREEMENT
FLY-E GROUP, INC.
INCENTIVE COMPENSATION RECOVERY POLICY
ACKNOWLEDGMENT AND AGREEMENT
This Acknowledgment and Agreement (this “Agreement”) is entered into as of the______ day of_______________________________, 2024, between Fly-E Group, Inc., a Delaware corporation (the “Company”), and________________ (the “Executive”), under the following circumstances:
WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of the Company has adopted the Fly-E Group, Inc. Incentive Compensation Recovery Policy (the “Policy”);
WHEREAS, the Executive has been designated as a “Covered Executive” of the Company as defined in the Policy;
WHEREAS, in consideration of, and as a condition to the receipt of, future cash and equity-based awards, performance-based compensation, and other forms of cash or equity compensation made under the Company’s 2024Omnibus Incentive Plan or any other incentive compensation plan or program of the Company, the Executive and the Company are entering into this Agreement; and
WHEREAS, defined terms used but not defined in this Agreement shall have the meanings set forth in the Policy.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
| 1. | The Executive hereby acknowledges receipt of the Policy, to which this Agreement is attached, and the terms of which are hereby incorporated into this Agreement by reference. The Executive has read and understands the Policy and has had the opportunity to ask questions to the Company regarding the Policy. |
| 2. | The Executive hereby acknowledges and agrees that the Policy shall apply to any Incentive Compensation as set forth in the Policy by the Committee and that all such Incentive Compensation shall be subject to recovery under the Policy. |
| 3. | Any applicable award agreement or other document setting forth the terms and conditions of any Incentive Compensation granted to the Executive by the Company’s Board of Directors or the Committee shall be deemed to include the restrictions imposed by the Policy and shall incorporate it by reference. In the event of any inconsistency between the provisions of the Policy and the applicable award agreement or other document setting forth the terms and conditions of any Incentive Compensation award granted to the Executive, the terms of the Policy shall govern unless the terms of such other agreement or other document would result in a greater recovery by the Company. |
| 4. | The Executive hereby acknowledges that, notwithstanding any indemnification agreement or other arrangement between the Company and the Executive, the Company shall not indemnify the Executive against, or pay the premiums for any insurance policy to cover, losses incurred under the Policy. |
| 5. | In the event it is determined by the Company that any amounts granted, awarded, earned or paid to the Executive must be forfeited or reimbursed to the Company, the Executive will promptly take any action necessary to effectuate such forfeiture and/or reimbursement. |
| 6. | This Agreement and the Policy shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Executive’s employment with the Company and its affiliates. |
| 7. | This Agreement may be executed in two or more counterparts, and by facsimile or electronic transmission (such as PDF), each of which will be deemed to be an original but all of which, taken together, shall constitute one and the same Agreement. |
| 8. | This Agreement shall be governed by the laws of the State of Delaware, without reference to principles of conflict of laws. |
| 9. | No modifications or amendments of the terms of this Agreement shall be effective unless in writing and signed by the parties hereto or their respective duly authorized agents. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Executive, and the successors and assigns of the Company. |
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
| Fly-E Group, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
| [Executive] | ||
| Name: | ||
| Title: | ||
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