Ispire Technology Inc. 10-Q/A

ITEM 1 – Financial Statements ISPIRE TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS June 30, March 31, 2022 2023 (Restated) Assets Current assets: Cash and cash equivalents $ 74,480,651 $ 24,035,608 Accounts receivable, net 8,260,574 15,412,769 Held-to-maturity investment - 9,604,418 Inventories, net 14,580,557 14,237,162 Prepaid expenses and other current assets 192,499 290,616 Due from related parties 1,934,855 - Total current assets 99,449,136 63,580,573 Other assets: Property, plant and equipment, net 114,025 588,213 Rental deposit 876,100 721,497 Right-of-use assets 295,804 4,359,274 Total other assets 1,285,929 5,668,984 Total assets $ 100,735,065 $ 69,249,557 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 290,541 $ 178,140 Accounts payable – related party 41,982,373 56,044,267 Contract liabilities 1,672,051 742,247 Dividends payable 3,362,639 - Accrued liabilities and other payables 159,296 520,057 Due to related parties 40,672,768 - Income tax payable 481,113 - Lease liabilities 347,541 917,310 Total current liabilities 88,968,322 58,402,021 Other liabilities: Lease liabilities - 3,608,580 Total liabilities $ 88,968,322 $ 62,010,601 Stockholders’ equity: Common stock, par value $ 0.0001 per share; 140,000,000 shares authorized; 50,000,000 shares issued and outstanding as of June 30 2022 and March 31, 2023 5,000 5,000 Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, no shares issued at June 30, 2022 and March 31, 2023 - - Accumulated other comprehensive loss ( 184,664 ) ( 199,938 ) Retained earnings 11,946,407 7,433,894 Total stockholders’ equity 11,766,743 7,238,956 Total liabilities and stockholders’ equity $ 100,735,065 $ 69,249,557 See notes to unaudited condensed consolidated financial statements. 1 ISPIRE TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Three Months Ended March 31, Nine Months Ended March 31, 2022 2023 2022 2023 (Restated) (Restated) Revenue $ 19,014,149 $ 24,136,297 $ 66,247,507 $ 82,976,746 Cost of revenue 16,038,425 19,616,098 55,959,959 68,525,866 Gross profit 2,975,724 4,520,199 10,287,548 14,450,880 Operating expenses: Sales and marketing expenses 1,325,024 948,302 3,781,183 3,355,830 General and administrative expenses 2,546,379 6,261,326 5,618,260 14,689,504 Total Operating Expenses 3,871,403 7,209,628 9,399,443 18,045,334 (Loss)income from operations ( 895,679 ) ( 2,689,429 ) 888,105 ( 3,594,454 ) Other income(expense): Interest income, net 1,016 391 2,083 77,202 Exchange gain, net 68,420 660,760 136,902 183,178 Other (expense)income, net ( 5,559 ) ( 67,953 ) 49,382 ( 108,440 ) Total Other income, net 63,877 593,198 188,367 151,940 (Loss) income before income taxes ( 831,802 ) ( 2,096,231 ) 1,076,472 ( 3,442,514 ) Income taxes - current ( 158,755 ) ( 237,992 ) ( 788,348 ) ( 1,069,999 ) Net (loss)income $ ( 990,557 ) $ ( 2,334,223 ) $ 288,124 $ ( 4,512,513 ) Other comprehensive loss Foreign currency translation adjustments ( 71,687 ) ( 157,704 ) ( 80,765 ) ( 15,274 ) Comprehensive (loss)income $ ( 1,062,244 ) $ ( 2,491,927 ) $ 207,359 $ ( 4,527,787 ) Net (loss)income per share Basic and diluted $ ( 0.02 ) $ ( 0.05 ) $ 0.01 $ ( 0.09 ) Weighted average shares outstanding: Basic and diluted 50,000,000 50,000,000 50,000,000 50,000,000 See notes to unaudited condensed consolidated financial statements. 2 ISPIRE TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Preferred Stock Accumulated Other Number of Number of Retained Comprehensive Stockholders’ Shares Amount Shares Amount Earnings Loss Equity Balance, June 30, 2021 50,000,000 5,000 - - 13,820,560 ( 67,579 ) 13,757,981 Net income - - - - 288,124 - 288,124 Foreign currency translation adjustment - - - - - ( 80,765 ) ( 80,765 ) Balance, March 31, 2022 50,000,000 $ 5,000 - $ - 14,108,684 $ ( 148,344 ) $ 13,965,340 (Restated) Balance, June 30, 2022 50,000,000 5,000 - - 11,946,407 ( 184,664 ) 11,766,743 Net loss - - - - ( 4,512,513 ) - ( 4,512,513 ) Foreign currency translation adjustment - - - - - ( 15,274 ) ( 15,274 ) Balance, March 31, 2023 50,000,000 $ 5,000 - $ - 7,433,894 $ ( 199,938 ) $ 7,238,956 See notes to unaudited condensed consolidated financial statements. 3 ISPIRE TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months ended March 31, 2022 2023 (Restated) Net income (loss): $ 288,124 $ ( 4,512,513 ) Adjustments to reconcile net income from operations to net cash provided by operating activities: Depreciation and amortization 3,907 20,878 Depreciation of right-of-use assets 215,690 763,641 Accounts receivable impairment - 2,226,090 Changes in operating assets and liabilities: Accounts receivable ( 5,398,432 ) ( 9,323,279 ) Inventories ( 6,869,171 ) 343,395 Prepaid expenses and other current assets 77,987 56,486 Accounts payable ( 13,320,148 ) 13,737,398 Contract liabilities 471,745 ( 940,014 ) Accrued liabilities and other payables 323,866 360,761 Income tax payable 202,759 ( 481,113 ) Net cash (used in) provided by operating activities $ ( 24,003,673 ) $ 2,251,730 Cash flows from investing activities: Purchase of property, plant and equipment ( 120,948 ) ( 495,065 ) Purchase of short-term investment - ( 9,604,418 ) Net cash used in investing activities $ ( 120,948 ) $ ( 10,099,483 ) Cash flows from financing activities: Payment made for dividends ( 449,026 ) ( 3,384,678 ) Advances from related parties 1,681,723 1,934,855 Repayment of advances from related parties ( 1,804,786 ) ( 40,512,691 ) Principal portion of lease payment ( 203,612 ) ( 634,776 ) Net cash used in financing activities $ ( 775,701 ) $ ( 42,597,290 ) Net decrease in cash and cash equivalents ( 24,900,322 ) ( 50,445,043 ) Cash and cash equivalents - beginning of period 85,248,997 74,480,651 Cash and cash equivalents - end of period $ 60,348,675 $ 24,035,608 See notes to unaudited condensed consolidated financial statements. 4 ISPIRE TECHNOLOGY INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Ispire Technology Inc. (the “Company”) was incorporated under the laws of the State of Delaware on June 13, 2022. Through its subsidiaries, the Company is engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. Ispire owns a 100 % equity interest in Ispire International Limited, a business company incorporated under the laws of the British Virgin Islands (“BVI”) (“Ispire International”) on July 6, 2022. Prior to July 29, 2022, all of the equity of Aspire North America LLC, a California limited liability company (“Aspire North America”), was owned by Aspire Global Inc. (“Aspire Global”), and all of the equity of Aspire Science and Technology Limited, a Hong Kong corporation (“Aspire Science”), was owned by Aspire Global Holdings Limited (“Aspire Holdings”), a wholly-owned subsidiary of Aspire Global. Aspire Global and the Company are related parties since the same individual is the chief executive officer of both companies, the chief executive officer and his wife are directors of both companies, and own 66.5 % and 5.0 %, respectively, of the equity of both Aspire Global and the Company. At the time of transfer of the equity in Aspire North America and Aspire Science, the Company had the same stockholders as Aspire Global and the Company’s stockholders held the same percentage interest in the Company as they had in Aspire Global. Because the transfer of the equity in Aspire North America and Aspire Science is a transfer between related parties, the historical financial information of the subsidiaries is carried forward as the historical financial information of the Company and the 50,000,000 shares that were issued at or about the time of the Company’s organization are treated as being outstanding on July 1, 2020. On July 29, 2022: ● Aspire Global transferred 100 % of the equity interest in Aspire North America to the Company ● Aspire Holdings transferred 100 % of the equity of Aspire Science to Ispire International. The following table sets forth information concerning the Company and its subsidiaries as of December 31, 2022 and March 31, 2023: Name of Entity Date of Organization Place of Organization % of Ownership Principal Activities Ispire Technology Inc. June 13, 2022 Delaware Parent Company Holding Company Ispire International July 6, 2022 BVI 100 % Holding Company Aspire North America February 22, 2020 California 100 % Sales and Marketing Aspire Science December 9, 2016 Hong Kong 100 % Sales and Marketing Ispire is a holding company and does not engage in any active operations. Its business is conducted by its two operating subsidiaries, Aspire North America, which is engaged in the development, marketing and sales of cannabis vapor products, which were introduced in mid 2020, and Aspire Science, which is engaged in the development, marketing and sales of tobacco vaping products. In October 2022, the directors and stockholders of the Company approved the 2022 Equity Incentive Plan (the “Plan”) pursuant to which up to 15,000,000 shares of common stock may be issued pursuant to options or restricted stock grants. The Plan will be administered by the Compensation Committee. Awards under the Plan may be granted to officers, directors, employees and those consultants who qualify as a consultant or advisor under the instructions to Form S-8. The Compensation Committee has broad discretion in making awards; provided that any options shall be exercisable at the fair market value on the date of grant. No awards have been granted since the Plan was approved. 5 Restatement The Company identified certain errors related to the recording of intellectual property rights transferred to the Company by a controlling party. The Company determined that the intangible assets were incorrectly recorded in the unaudited financial statements, and that the unaudited financial statements had to be restated to record the acquired intangible assets at the transferor’s book value, which was nil , rather than $ 74,259,915 , which represents an independent third party evaluation of the assets. As a result of the restatement, the Company’s net loss for the nine months ended March 31, 2023 decreased from $ 6,057,776 , or $ 0.12 per share (basic and diluted), to $ 4,512,513 , or $ 0.09 per share (basic and diluted), its net loss for the three months ended March 31, 2023 decreased from $ 3,106,855 , or $ 0.06 per share, to $ 2,334,223 , or $ 0.05 per share (basic and diluted), and its stockholders’ equity at March 31, 2023 declined from $ 79,953,608 to $ 7,238,956 . Information in these notes to financial statements for the three and nine months ended March 31, 2023 is derived from the restated financial statements. Impact of COVID-19 In December 2019, coronavirus disease 2019 (COVID-19) was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which are no longer in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023. The extent to which COVID-19 impacts our operations on an ongoing basis is highly uncertain. Since our products are presently manufactured in China by a related party, any changes in the outbreak in China and any changes in the Chinese government’s policy may affect our supplier’s operations which could affect its ability to manufacture and deliver product in a timely manner. Supply Chain Risks One of effects of the COVID-19 has been delays resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped to the country of destination, and delivered from the port of entry to the customer’s location. As the port delays have significantly decreased, we do not believe that the supply chain issues that affected our operations are currently affecting us. We cannot assure you that delays will not affect our business in the future. In 2021, Shenzhen Yi Jia suffered a chip shortage resulting in a slowdown in delivery of its products to the Company from April to August 2021. To secure the supply of chips, Shenzhen Yi Jia changed the payment terms to chip suppliers from 30 days after delivery in the past to prepayment, and it engaged two new chip suppliers. Since September 2021, Shenzhen Yi Jia has obtained a supply of chips to meet its production needs and the chip shortage no longer affects its production. In 2022, a slowdown in the delivery of components to Shenzhen Yi Jia resulting from supply chain slowdowns as a result of the effects of mainland China’s COVID policy resulted in an increase in cost of revenue during the period. We cannot assure you that we will not suffer from a chip shortage or that the effects of China’s COVID policy will not affect Shenzhen Yi Jia’s ability or the ability of its suppliers to delivery products in a timely manner. Market and Economic Conditions In recent years, the United States and other markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including, as a result of the COVID-19 pandemic, supply chain disruptions, the Russian invasion of Ukraine, instability in the U.S. and global banking systems, rising fuel prices, increasing interest rates or foreign exchange rates and increased inflation and the possibility of a recession. A significant downturn in economic conditions may affect the market for our products and our supplier’s ability to provide products to us on acceptable terms. 6 We cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, operating results could be adversely affected. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets. If Congress does not raise the debt ceiling and if the U.S. government defaults on its payment obligations or experiences delays in making payments when due, such payment default or delay by the U.S. government, as well as continued uncertainty surrounding the U.S. debt ceiling or the U.S. Government’s ability to pay debts, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the United States. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect economic conditions, as well as our business, financial condition and operating results. E-cigarette regulation Regulation regarding e-cigarette varies across countries, from no regulation to a total ban. The legal status of e-cigarette is currently pending in many countries. But as e-cigarettes have become more and more popular recently, many countries are considering imposing more stringent law and regulations to regulate this market. Changes in existing law and regulations and the imposition of new laws, regulation in countries and regions that our major customers located in may adversely affect the Company’s business. The Federal Food, Drug, and Cosmetic Act requires all Electronic Nicotine Delivery Systems (“ENDS”) product manufacturers that market products in the United States to submit Premarket Tobacco Product Applications (“PMTAs”) to the FDA. For ENDS products that were on the U.S. market on August 8, 2016, a PMTA was required to be submitted to the FDA by September 9, 2020; for ENDS products that were not on the U.S. market on August 8, 2016, a premarket authorization issued in response to a PMTA is required for the product to enter the U.S. market. The Company has submitted a PMTA filing for one ENDS product, and, under apparent FDA policies, the agency will not enforce the premarket review requirements for that product pending review of its PMTA. However, even with submission of the PMTA application, the FDA may reject the Company’s application and may prevent the Company’s ENDS products from being sold in the U.S., which will adversely affect the Company’s business. Amendments to the Prevent All Cigarette Trafficking (“PACT”) Act, which became law in 2021, extend the PACT Act to include e-cigarette and all vaping products, and the amendments place significant burdens on sellers of vaping products in the United States which may make it difficult to operate profitably in the United States. Because of tighter government regulations, the Company will stop marketing tobacco vaping products in the United States, as the volume of sales from the one tobacco vaping product which the Company may sell in the United States does not justify the marketing and regulatory costs involved. In the United States, cannabis vaping products are governed by state laws, which vary from state to state. Most states do not permit the adult recreational use of cannabis, and no states permit the sale of recreational cannabis products to minors. As a result of the reduced revenue to states resulting from the effects of the COVID 19 pandemic, states may seek to raise revenue by permitting and taxing the use of cannabis products. The Company cannot predict what action states will take or the nature and amount of taxes they may impose. However, the extent the PACT Act applies to cannabis products that aerosolize liquids, it may be more difficult to sell our products in states that permit the sale of cannabis. However, cannabis and its derivatives containing more than 0.3 % delta-9 tetrahydrocannabinol on a dry weight basis remain Schedule I controlled substances under U.S. federal law, meaning that federal law generally prohibits their manufacture and distribution. United States federal law also deems it unlawful to sell, offer for sale, transport in interstate commerce, import, or export “drug paraphernalia,” which includes “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance” the possession of which federal law prohibits, including Schedule I “marijuana.” Limited exemptions exist, most notably when state or local law authorizes these items’ manufacture, possession, or distribution. The European Commission issued the Tobacco Products Directive (the “TPD”), which became effective on May 19, 2014 and became applicable in the European Union member states on May 20, 2016. The TPD regulates e-cigarettes on the packaging, labelling and ingredients of the products on the European Union market, the creation of smoke-free environments, tax measures and activities against illegal trade and anti-smoke campaigns. Member states of the European Union are required to ensure that advertisements for any tobacco related product are prohibited, and no promotion shall be made as to those devices with an intention to promote e-cigarettes. For the e-cigarettes released after May 20, 2016, TPD requires e-cigarette manufacturers to submit product sales applications to the regulatory market six months in advance, and ensure their products can meet the TPD requirements before they can be released. The Company has complied with TPD requirement that for all its tobacco vaping products sold in Europe. The sale of cannabis vaping products is illegal in the European Union and the United Kingdom. 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2023 and the results of operations for the three and nine month periods ended March 31, 2023 and March 31, 2022. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly do not include all of the disclosures normally made in the Company’s annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2022, included in the Company’s registration statement on Form S-1. The results of operations for the three and nine month periods ended March 31, 2023 are not necessarily Indicative of the results of operations that may be expected for any other interim periods or for the year ending June 30, 2023 . Use of estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include allowance for doubtful accounts, the useful lives of property and equipment and intangible asset, impairment of long-lived assets, and deferred cost. Actual results could differ from those estimates. Inventories Inventories mainly consist of finished goods purchased from suppliers. Inventories are stated at the lower of cost or net realizable value. The cost of an inventory item is determined using the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed net realizable value, the Company will record a reserve for the difference between the cost and the net realizable value. The net realizable value is determined based on the estimated selling price, in the ordinary course of business, less estimated costs necessary to make the sale. Held-to-maturity investment The held-to-maturity investment represents a certificate of deposit that the Company has the intent and ability to hold to maturity and is reported net of any related amortization. The Company intends to hold this investment until maturity and it is not remeasured to fair value on a recurring basis. The gains and losses on this investment are recorded in the Statements of Operations and Comprehensive Income under “Investment Gain” The entire balance of the held-to-maturity investment presented on the balance sheet as of March 31, 2023 of $ 9,604,418 matures on February 8, 2024 . 8 Revenue recognition The Company sells its products to customers and recognizes revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered to the pickup location specified by the customer or a forwarder appointed by the customer, as that is generally when legal title, physical possession and risks and rewards of goods transfer to the customer. Revenue is recognized at the transaction price based on the purchase order as adjusted for the anticipated rebates, discounts and other sales incentives. When determining the transaction price, management estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for the Company are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction of revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes is primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Because the Company serves numerous markets, the sales incentive programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives. Disaggregated Revenue In accordance with ASC 606-10-50-5, the Company has taken into consideration the nature, amount, timing, and uncertainty of revenue and cash flows, and has determined to disaggregate its net sales of tobacco vaping products and cannabis vaping products. The net sales disaggregated by products for the three months period ended March 31, 2022 and 2023 and nine months period ended March 31, 2022 and 2023 were as follows: Three months ended March 31, Nine months ended March 31, Net sales by product 2022 2023 2022 2023 Tobacco vaping products $ 11,368,324 $ 16,546,587 $ 50,306,347 59,555,046 Cannabis vaping products 7,645,825 7,589,710 15,941,160 23,421,700 Total $ 19,014,149 $ 24,136,297 $ 66,247,507 82,976,746 Cost of revenue Cost of revenue for the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023 consisted primarily of the cost of purchasing vaping products, which were purchased from a related party. See Note 11. Recent accounting pronouncements As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company intends to take advantage of the benefits of this extended transition period. Accounting pronouncements not yet effective In June 2016, the Financial Accounting Standards Boards (“FASB”) amended guidance related to the impairment of financial instruments as part of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. For public business entities that meet the definition of a U.S. Securities and Exchange Commission (“SEC”) filer (“SEC filer”), excluding entities eligible to be smaller reporting companies (SRCs) as defined by the SEC, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, including SRCs, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements. 9 In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which provides narrow-scope amendments to clarify and improve guidance within the standards on credit losses, hedging, and recognition and measurement of financial instruments. Apart from the amendments to ASU 2016-13 mentioned above, the ASU also included subsequent amendments to ASU 2016-01. The effective date for Topic 815 and 825 was fiscal years beginning after December 15, 2020 and 2019, respectively, and the adoption had no material impact on our financial position, results of operations and cash flows. The effective date for Topic 326 was delayed by ASU 2019-10 to fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows. In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest. For entities other than private companies, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The ASU is effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. We do not expect that the adoption of this guidance will have a material impact on our financial position, results of operations and cash flows. 3. CASH AND CASH EQUIVALENTS Below is a breakdown of the Company’s cash balances in banks as of June 30, 2022 and March 31, 2023, both by geography and by currencies (translated into U.S. dollars): As of June 30, As of March 31 By Geography: 2022 2023 Cash in HK $ 71,221,649 $ 18,712,816 Cash in U.S. 3,259,002 5,322,792 Total $ 74,480,651 $ 24,035,608 By Currency: USD $ 64,187,756 $ 23,505,105 HKD 415,930 426,138 EUR 4,097 59,728 GBP 24,680 25,219 RMB 9,848,188 19,418 Total $ 74,480,651 $ 24,035,608 “HKD” refers to Hong Kong dollars, “GBP” refers to British pounds, and “EUR” refers to Euros. 10 4. FAIR VALUE MEASUREMENT As of June 30, 2022 and March 31, 2023, information about inputs into the fair value measurement of the Company’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows: Cash and cash equivalents, accounts receivable, prepaid expenses, other receivables and due from related parties are financial assets with carrying values that approximate fair value due to their short-term nature. Accounts payable, accounts payable – related party, contract liabilities, accrued liabilities and other payables and due to related parties are financial liabilities with carrying values that approximate fair value due to their short-term nature. 5. ACCOUNTS RECEIVABLE, NET As of June 30, 2022 and March 31, 2023, accounts receivable consisted of the following: As of June 30, As of March 31, 2022 2023 Accounts receivable – gross $ 8,260,574 $ 16,713,949 Allowance for doubtful accounts - ( 1,301,180 ) Accounts receivables, net $ 8,260,574 $ 15,412,769 The Company recorded $ 0 , $ 1,827,265 , $ 0 and $ 2,226,090 bad debt expense for the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, respectively. 6. PROPERTY, PLANT AND EQUIPMENT, NET As of June 30, 2022 and March 31, 2023, property, equipment and leasehold improvement consisted of the following: As of June 30, As of March 31, 2022 2023 Leasehold improvement $ 433 $ 301,943 Office and other equipment 146,798 146,791 Furniture and fixture - 193,563 147,231 642,297 Less: accumulated depreciation ( 33,206 ) ( 54,084 ) Total $ 114,025 $ 588,213 For the three months ended March 31, 2022 and 2023, depreciation expense amounted to $ 3,018 and $ 7,394 , respectively. For the nine months ended March 31, 2022 and 2023, depreciation expense amounted to $ 4,800 and $ 20,887 , respectively. 11 7. INTANGIBLE ASSETS On September 30, 2022, an intellectual property transfer agreement and an exclusive license agreement was signed such that all patents, trademarks, Know-how and Know-how Documentation related to cannabis vaping products and tobacco vaping products were transferred from Tuanfang Liu, Aspire Global and Shenzhen Yi Jia to Aspire North America and Aspire Science. As the intangible assets were transferred from Tuanfang Liu, the controlling stockholder, the Company recorded the assets at his cost, which is $ 0 , in accordance with ASC 805-50-30-5 and SEC Staff Accounting Bulletin Topic 5. The Company engaged a third party firm to perform a valuation on the fair value of the intangible assets on the date of transfer and estimated fair values were $ 74,259,915 , in accordance with ASC 350. 8. CONTRACT LIABILITIES As of June 30, 2022 and March 31, 2023, the Company had total contract liabilities of $ 1,672,051 and $ 742,247 , respectively. These liabilities are advance deposits received from customers after an order has been placed. As of March 31 2023, the Company expects all of the contract liabilities to be settled in less than one year. The decrease in the balance at March 31, 2023 was due to less orders on hand on that date. 9. LEASES The Company has operating lease arrangements for office premises in Hong Kong and California. These leases typically have terms of two to five years and are expensed on a straight-line basis. Leases with an initial term of 12 months or less are not presented as right-of-use assets on the consolidated balance sheet and are expensed over the lease term. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. The balances for the right-of-use assets where the Company is the lessee are presented as follow: As of June 30, As of March 31, 2022 2023 Right-of-use assets $ 295,804 $ 4,359,274 Lease liabilities – current $ 347,541 $ 917,310 Lease liabilities – non-current - 3,608,580 Total $ 347,541 $ 4,525,890 12 As of March 31, 2023, the maturities of our lease liabilities (excluding short-term leases) are as follows: As of March 31, 2023 2024 1,243,979 2025 1,328,088 2026 1,372,447 2027 1,071,992 2028 322,704 Total future lease payments 5,339,210 Less: imputed interest ( 813,320 ) Total lease liabilities 4,525,890 The Company incurred lease costs, which includes the amortization of the right-of-use assets and the payment of short-term leases, of $ 74,052 , $ 256,676 , $ 215,713 and $ 770,049 on the Company’s consolidated statements of operations and comprehensive (loss)income for the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, respectively. The Company made payments of $ 77,734 , $ 300,593 , $ 226,420 and $ 840,549 under the lease agreements during the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, respectively. The weighted-average remaining lease term related to the Company’s lease liabilities as of June 30, 2022 and March 31, 2023 was 2 years and 4 years, respectively. The discount rate related to the Company’s lease liabilities as of both June 30, 2022 and March 31, 2023 was 6 % and 8 %. The discount rates are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined. 10. ACCRUED LIABILITIES AND OTHER PAYABLES As of June 30, 2022 and March 31, 2023, accrued liabilities and other payables consisted of the following: As of June 30, As of March 31, 2022 2023 Accrued salaries and related benefits $ 43,487 $ - Other payables 81,226 138,575 Accrued expenses 34,583 302,328 Freight payable - 79,154 Total $ 159,296 $ 520,057 13 11. DIVIDENDS Dividends payable represent a dividend declared by the Company’s HK subsidiary, Aspire Science, in the year ended June 30, 2020, which was payable to Aspire Science’s then sole stockholder, who is the Company’s chief executive officer. The dividend was declared prior to the transfer of the equity interest in Aspire Science to Aspire Holdings, which subsequently transferred the equity interest to Ispire International. Set forth below is the information relating to the dividend payable at June 30, 2022 and March 31, 2023. Dividend Payable As of June 30, 2022 $ 3,362,639 Dividends declared - Dividends paid ( 3,362,639 ) As of March 31, 2023 $ - 12. RELATED PARTY TRANSACTIONS a) The table below sets forth the major related parties and their relationships with the Company: Name of related parties and Relationship with the Company -Tuanfang Liu is the Chairman of the Company. -Jiangyan Zhu is the wife of Tuanfang Liu and a director of the Company. -Eigate (Hong Kong) Technology Co., Limited (“Eigate”) is a wholly-owned subsidiary of Aspire Global. -Aspire Global is a company controlled by the Chairman of the Company. -Shenzhen Yi Jia, a Chinese company that is 95% owned by the Company’s chairman and 5% by the chairman’s cousin. b) Tuanfang Liu is also Aspire Global’s chief executive officer and a director of both the Company and Aspire Global, and his wife, Jiangyan Zhu, is also a director of both companies. As of March 31, 2023, Mr. Liu and Ms. Zhu beneficially own 66.5 % and 5.0 %, respectively, of the outstanding shares of both Aspire Global and the Company. c) The Company had the following balances due from related parties: As of June 30, As of March 31, 2022 2023 Shenzhen Yi Jia $ 1,872,035 $ - Tuanfang Liu 62,820 - Total $ 1,934,855 $ - The balances represent payment on behalf of these related parties, such as freight and tariff charges and others. These balances as of June 30, 2022 were all non-interest bearing, unsecured, had no due date and were repayable on demand and the balances were fully settled in November 2022. d) The balances in due to related parties at June 30, 2022 and March 31, 2023 represent amounts due to Eigate of $ 40,672,768 and $ 0 , respectively. The balances are all non-interest bearing, unsecured, have no due date and are repayable on demand. e) For both three months ended March 31, 2022 and 2023, substantially all of the Company’s tobacco and cannabis vaping products were purchased from Shenzhen Yi Jia. As of June 30, 2022 and March 31, 2023, the accounts payable–- related party was $ 41,982,373 and $ 56,044,267 , respectively, which was payable to Shenzhen Yi Jia. For the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, the purchases from Shenzhen Yi Jia were $ 16,485,000 , $ 16,961,308 , $ 61,318,089 and $ 67,762,917 , respectively. 14 13. INCOME TAXES For the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, income(loss) before income taxes consists of: Three months ended March 31, Nine months ended March 31, 2022 2023 2022 2023 HK $ 1,034,709 $ 2,103,638 $ 5,389,710 6,405,657 U.S. ( 1,866,511 ) ( 4,972,501 ) ( 4,313,238 ) ( 11,393,434 ) Total $ ( 831,802 ) $ ( 2,868,863 ) $ 1,076,472 $ ( 4,987,777 ) The Company’s effective tax rate for the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023 was different from the Hong Kong statutory income tax rate due primarily to the U.S. subsidiary being in a loss position. No tax benefit has been recognized for this current loss and the related carryforward losses of this subsidiary, as a full valuation allowance has been established against the deferred tax asset arising from the losses. 14. EARNINGS PER SHARE The following table presents a reconciliation of basic net income per share: Three months ended March 31, Nine months ended March 31, 2022 2023 2022 2023 Net (loss)income $ ( 990,557 ) $ ( 2,334,223 ) $ 288,124 ( 4,512,513 ) Weighted average basic and diluted share of common stock outstanding 50,000,000 50,000,000 50,000,000 50,000,000 Net (loss) income per basic and diluted share of common stock $ ( 0.02 ) $ ( 0.05 ) $ 0.01 $ ( 0.09 ) 15. SUBSEQUENT EVENT In April 2023, the Company completed the public offering of 3,105,000 shares of common stock at a public offering price of $ 7.00 per share, which includes 405,000 shares issued upon the exercise by the underwriters of their over-allotment option. 15