Ispire Technology Inc. 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below. Overview We are engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. We sell our tobacco products worldwide except for the PRC and Russia. Our tobacco products are marketed under the Aspire brand name and are sold primarily through our distribution network. We currently sell our cannabis vaping hardware only in the United States, and we have recently commenced marketing activities in Canada and Europe, primarily in the European Union. All of our products are vaping hardware. Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device, and includes dabbing, which is the recreational inhalation of concentrated tetrahydrocannabinol, the main psychotropic cannabinoid derived from the Cannabis Sativa L. plant, commonly known as marijuana. Our cannabis products are marketed under the Ispire brand name, primarily on an ODM basis to other cannabis vapor companies. ODM generally involves the design and customization of the core products to meet each brand’s unique image and needs, and our products are sold by our customers under their own brand names although they may also include our brand name on the products. In April 2023, we completed our initial public offering, from which we raised net proceeds, after underwriting expenses and other offering expenses, of approximately $18.3 million. In June 2023, we raised net proceeds of approximately $7.4 million, after placement agent fees and offering expenses, from the private placement of our common stock to three investors. We plan to use the proceeds from both of our initial public offering and the private placement for working capital and general corporate purposes, which may include, but not be limited to, the development of manufacturing operations in Southeast Asia, completion of establishing manufacturing operations in California, research and development activities and continued marketing and promotion. Restatement of Unaudited Financial Statements We were required to restate our unaudited financial statements at December 31, 2022 and for the six months then ended and at March 31, 2023 and for the three and nine months then ended. The unaudited financial statements have been restated to correct the amount at which intangible assets consisting of intellectual property rights which were transferred to us by a controlling shareholder was recorded. Under GAAP, assets transferred by a controlling stockholder should be recorded at the transferor’s book value. Our unaudited financial statements recorded the intangible assets that were transferred by the controlling stockholder at $74,259,915, which represents a third party evaluation of the assets. We determined that the intangible assets were incorrectly recorded in our unaudited financial statements, which were restated to record the acquired intangible assets at the transferor’s book value, which was nil. Accordingly, the unaudited financial statements have been restated to reverse the intangible assets, related amortization and contributed capital. As a result of the restatement, our net loss for the six months ended December 31, 2022 decreased from $2,950,921, or $0.06 per share (basic and diluted), to $2,178,290, or $0.04 per share (basic and diluted), and our 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), and a decline in stockholders’ equity at December 31, 2022 from $83,218,167 to $ 9,730,883, and at March 31, 2023 from $79,953,608 to $7,238,957. Regulatory Risks The sale of tobacco and cannabis products is subject to regulations worldwide. Many countries prohibit the sale of any cannabis products, and many countries have regulations relating to tobacco products, with a particular emphasis on underage sales. As a result of regulations in the United States, we are able to sell only one tobacco vaping product line, the Nautilus Prime, in the United States. Our tobacco vaping sales in the United States were approximately $0.9 million and $0.9 million for the years ended June 30, 2022 and 2023, respectively. Because the volume of sales did not justify the marketing and regulatory costs, we have ceased marketing tobacco vaping products in the United States. If any similar regulations are adopted with respect to cannabis products, our business will be severely impacted since all of our cannabis revenue for the year ended June 30, 2022 and 2023 was generated from sales in the United States. See “Regulations.” Effects of COVID-19 Pandemic 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 the PRC by a related party, any changes in the outbreak in the PRC and any changes in the PRC government’s policy may affect our supplier’s operations which could affect its ability to manufacture and deliver product in a timely manner. 44 Supply Chain Risks One of the 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 advised us that it 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 the PRC’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 COVID or the PRC’s COVID policy will not affect Shenzhen Yi Jia’s ability or the ability of its suppliers to delivery products in a timely manner. Accounts Receivables Our business relies on the collection of accounts receivable from our customers in a timely manner to maintain liquidity and support our ongoing operations. We recorded an allowance for doubtful accounts of $0 for the year ended June 30, 2022 and approximately $1.5 million for the year ended June 30, 2023. Our failure or inability to collect accounts receivable when due results from a number of factors, including (i) our customer’s failure to pay as a result of adverse economic conditions affecting the customers; (ii) our failure to accurately assess the creditworthiness of our customers; (iii) our failure to implement effective collection efforts; and (iv) disputes over contract terms, product quality or delays in delivery. Although we may implement strategies to mitigate these risks, but there can be no assurance that such measures will be entirely effective, and we may continue to incur write-offs of accounts receivable, which may impair our ability to operate profitably. Key Factors that Affect Our Results of Operations We believe the following key factors may affect our financial condition and results of operations: ● The effect of legislation and regulations affecting the tobacco and cannabis vaping products. ● If we elect to market tobacco vaping products in the United States, our ability to obtain regulatory approval to market additional tobacco vaping products in the United States and the cost of seeking such approval. ● Our ability to develop and market tobacco and cannabis vaping products to meet the changing tastes of users. ● The effects of competition. ● The development of an international market for cannabis vaping products, which is presently primarily limited to certain states in the United States. ● The effect of both the outbreak any other pandemic or other disease outbreak results in restrictions imposed by governments which may impact our ability to purchase or assemble products as well as the ability of end users to purchase our products. 45 Results of Operations The following table sets forth a summary of our consolidated statements of operations and comprehensive income for the years ended June 30, 2022 and 2023 (dollars in thousands except per share amounts). Year Ended June 30, 2022 2023 % of Revenue % of Revenue Revenue $ 88,095 100.0 % $ 115,606 100.0 % Cost of revenue (74,789 ) (84.9 )% (94,530 ) (81.8 )% Gross profit 13,306 15.1 % 21,076 18.2 % Operating expenses (14,295 ) (16.2 )% (25,645 ) (22.2 )% Loss from operations (989 ) (1.1 )% (4,569 ) (4.0 )% Other income(loss), net 186 0.2 % (285 ) (0.2 )% Loss before income taxes (803 ) (0.9 )% (4,854 ) (4.2 )% Income taxes (1,071 ) (1.2 )% (1,245 ) (1.1 )% Net loss (1,874 ) (2.1 )% (6,099 ) (5.3 )% Other comprehensive (loss)income (117 ) (0.1 )% 21 (0.1 )% Comprehensive loss (1,991 ) (2.3 )% (6,078 ) (5.3 )% Net loss per ordinary share (basic and diluted) $ (0.04 ) $ (0.12 ) Weighted ordinary shares outstanding 50,000,000 50,725,814 Years Ended June 30, 2023 and 2022 Revenue The following table sets out the breakdown of our revenue percentage by region based on information provided to us by our distributors. Years ended June 30, 2022 2023 Europe 58.9 % 50.8 % Asia Pacific (excluding China) 15.0 % 12.9 % North America 25.9 % 36.0 % Others 0.2 % 0.3 % Total 100.0 % 100.0 % Our revenue increased by $27,510,118, or 31.2%, from $88,095,418 for the year ended June 30, 2022, to $115,605,536 for the year ended June 30, 2023. The increase in revenue is the combined effect of (i) increases in sales of cannabis vaping products in the United States of $20.0 million from $20.0 million for the year ended June 30, 2022 to $40.0 million for the year ended June 30, 2023 and (ii) increases in sales of tobacco vaping products in Europe of $6.9 million from $51.9 million for the year ended June 30, 2022 to approximately $58.8 million for the year ended June 30, 2023. 46 Cost of Revenue Cost of revenue mainly consists of cost of purchases of vaping products, that are mostly purchased from Shenzhen Yi Jia. Cost of revenue increased by $19,740,391, or 26.4%, from $74,789,378 for the year ended June 30, 2022 to $94,529,769 for the year ended June 30, 2023. The increase in cost of revenue reflects both the increase in period-to-period unit sales and the effects of 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 which impacted both years ended June 30, 2022 and 2023. Gross Profit The following tables show the revenue, cost of revenue and gross profit of our tobacco and cannabis vaping products (dollars in thousands). Year Ended June 30, 2022 Revenue Cost of revenue Gross profit Gross profit % Tobacco vaping products $ 68,117 $ 57,503 $ 10,614 15.6 % Cannabis vaping products 19,978 17,286 2,692 13.5 % Total $ 88,095 $ 74,789 $ 13,306 15.1 % Year Ended June 30, 2023 Revenue Cost of revenue Gross profit Gross profit % Tobacco vaping products $ 75,563 $ 63,669 $ 11,894 15.7 % Cannabis vaping products 40,043 30,861 9,182 22.9 % Total $ 115,606 $ 94,530 $ 21,076 18.2 % Gross profit increased by $7,769,727, or 58.4%, from $13,306,040 for the year ended June 30, 2022 to $21,075,767 for the year ended June 30, 2023, while our gross margin increased from 15.1% to 18.2%. The gross margin for tobacco vaping products remains constant. The increase in gross margin for cannabis vaping products was primarily due to (i) a lower margin on cannabis vaping products in the year ended June 30, 2022 as a result of greater discounts in price offered as we commenced the cannabis business in late 2021 and our primary focus was on capturing market of cannabis vaping products; (ii) a change in product mix with more higher margin products being sold during the year ended June 30, 2023, and (iii) an increase in sales volume that led to economies of scale. 47 Operating Expenses Operating expenses increased $11,350,190, or 79.4%, from $14,294,711 for the year ended June 30, 2022 to $25,644,901 for the year ended June 30, 2023. Our sales and marketing expenses mainly consist of employees’ salaries and benefits, marketing expense, travel expenses and others. Sales and marketing expenses decreased by $788,707, or 14.3%, from $5,503,630 for the year ended June 30, 2022 to $4,714,923 for the year ended June 30, 2023. The decrease in sales and marketing expenses was primarily due to a reduction in our marketing activities of our tobacco vaping products of $0.6 million and a reduction in marketing and advertising for cannabis vaping products of $0.2 million. Our general and administrative expenses mainly consist of employee’s salaries and benefits, rental expense, professional fees and other administrative expenses. General and administrative expenses increased by $12,138,897, or 138.1%, from $8,791,081 for the year ended June 30, 2022 to $20,929,978 for the year ended June 30, 2023. The increase was primarily due to (i) an increase of $3.7 million for payroll and contract worker expenses as more employees were hired and contract workers were engaged by us for expansion of our cannabis business and building our proposed manufacturing plant, (ii) bad debt expense as an allowance for doubtful accounts of $2.4 million was recorded by Aspire North America on accounts under dispute due to delayed shipment, and a direct write off of doubtful accounts of $0.9 million, (iii) an increase of patent expenses of $0.9 million incurred by the transferred patents from Tuanfang Liu, Aspire Global and Shenzhen Yi Jia at zero cost in September 2022, (iv) an increase in rental and warehouse expenses of $2.0 million incurred by us in connection with our plan to establish a manufacturing facility in Los Angeles, (v) an increase in professional fees of $1.5 million incurred for expansion of cannabis business, (vi) an increase in insurance expenses incurred by cannabis business of $0.4 million, and (vii) an increase in other miscellaneous expenses totaling approximately $0.3 million. The increase in our expenses in both years is not the result of inflation. Inflation in Hong Kong, was relatively stable. The increase in expenses for our United States business results from the growth of our business. The cannabis vapor business commenced in late calendar 2021, and the increase in expenses resulted from our growth relating to this increase in business. However, inflationary pressures may affect our operations in the future. As a result of our public offering, we anticipate that our general and administrative expenses will significantly increase as a result of our being a public corporation, including additional legal, audit and insurance expenses as well as expenses in implementing and maintaining our disclosure controls and internal control over financial reporting. Professional fees relating to our initial public offering were included in general and administrative expenses during both years ended June 30 2022 and 2023. The offering was completed in April 2023, and the financial statements for the year ending June 30, 2023 treats these professional fees of $0.9 million as a reduction of the proceeds of the offering and, accordingly, are charged to additional paid-in capital. 48 Other income(expense), net Other income, net includes interest income, interest expense, exchange gain (loss), net and other income (expense). Interest income increased $190,131, from $5,078 for the year ended June 30, 2022, to $195,209 for the year ended June 30, 2023. The increase in interest income is mainly due to increase in interest rate and more interest income from bank deposits. Other income (expense) mainly consists of interest expense, mold charge income and other miscellaneous expenses. decreased by $277,544, or 226.8%, from income of $122,394 for the year ended June 30, 2022 to expense of $155,150 for the year ended June 30, 2023. Exchange gain (loss), net decreased by $382,368, or 657.6%, from net exchange gain of $58,143 for the year ended June 30, 2022 to net exchange loss of $324,225 for the year ended June 30, 2023. As a result of these factors, total other income (expense) decreased by $469,781, from other income of $185,615 for the year ended June 30, 2022 to other expense of $284,166 for the year ended June 30, 2023 Income Taxes Income taxes increased by $174,206 or 16.3%, from $1,071,097 for the year ended June 30, 2022 to $1,245,303 for the year ended June 30, 2023. We had a consolidated net loss for both year ended June 30, 2022 and 2023, which was the combined effect of a profit by Aspire Science and a loss by Aspire North America. The profit from Aspire Science resulted in a current tax expense. The increase in valuation allowance reflects our view that the taxable income in the future will not be sufficient to utilize the carryforward loss. Net Loss As a result of the foregoing, net loss increased by $4,224,450, from net loss of $1,874,153, or $(0.04) per share (basic and diluted) for the year ended June 30, 2022 to a net loss of $6,098,603, or $(0.12) per share (basic and diluted), for the year ended June 30, 2023. Liquidity and Capital Resources The following table summarizes our changes in working capital from June 30, 2022 to June 30, 2023 (dollars in thousands). June 30, 2022 June 30, 2023 Change % Change Current Assets $ 99,449 $ 84,811 $ (14,638 ) (14.7 )% Current Liabilities 88,968 55,962 (33,006 ) (37.1 )% Working Capital 10,481 28,849 18,368 175.3 % The following table sets forth information as to consolidated cash flow information for the years ended June 30, 2022 and 2023 (dollars in thousands). Year Ended June 30, Increase Consolidated cash flow data: 2022 2023 (Decrease) Net cash used in operating activities $ (7,558 ) $ (7,582 ) $ (24 ) Net cash used in investing activities (122 ) (10,154 ) (10,032 ) Net cash used in financing activities (3,089 ) (16,444 ) (13,355 ) Net decrease in cash and cash equivalents and restricted cash (10,769 ) (34,180 ) (23,411 ) Net cash flow used in operating activities for the year ended June 30, 2022 of $7.6 million, reflected our net loss of $1.9 million, adjusted primarily as follows: an increase in accounts payable of $8.9 million offset by an increase in inventories of $11.5 million, and an increase in accounts receivable of $4.0 million. 49 Net cash flow used in operating activities for the year ended June 30, 2023 of $7.6 million, reflected our net loss of $6.1million, adjusted primarily as follows: add back of impairment of account receivable of $3.3 million, an increase in accounts payable of $10.6 million, a decrease in inventory of $7.1 million, offset by an increase in accounts receivable of $19.6 million, and an increase in prepaid expenses and other current assets of $3.1 million. Net cash flow used in investing activities for the year ended June 30, 2022 of $0.1 million reflected primarily the purchase of property, plant and equipment of $0.1 million. Net cash flow used in investing activities for the year ended June 30, 2023 of $10.1 million reflected primarily purchase of short term investments of $9.1 million, and purchase of property, plant and equipment of $1.0 million. Net cash flow used in financing activities for the year ended June 30, 2022 of $3.0 million reflected primarily payments of previously declared dividends of $0.5 million and $2.4 million of repayment of advances to related parties. Net cash flow used in financing activities for the year ended June 30, 2023 of $16.4 million reflected primarily proceeds from initial public offering of $21.7 million, and proceeds from private placement of $8.0 million, offset by repayment of advances to related parties of $37.9 million, payment of initial public offering costs of $3.5 million and dividend payment of $3.4 million. To date, we have financed our operations primarily through cash flow from operations and working capital loans from our major stockholders, who are our co-chief executive officer and his wife, when necessary. We plan to support our future operations primarily from cash generated from our operations and cash on hand. We believe that our current cash and cash flows provided by operating activities, and the net proceeds from our initial public offering of $18.3 million will be sufficient to meet our working capital needs in the next 12 months. If we experience an adverse operating environment or incur unanticipated capital expenditure requirements, or if we decide to accelerate our growth, then additional financing may be required. We cannot give any assurance that additional financing will not be required or, if required, would be available on favorable terms if at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in dilution to our stockholders which may be substantial. The cash at bank held by our Hong Kong operating subsidiary can be freely transferred within our corporate structure without restriction. If our Hong Kong operating subsidiary were to incur additional debt on its own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to transfer cash to our U.S. investors. Contractual Obligations We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. Trend Information Other than as disclosed elsewhere in this registration statement, particularly with respect to government regulations relating to nicotine and cannabis, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. Seasonality Seasonality does not materially affect our business or the results of our operations. 50 Off-Balance Sheet Arrangements We do not have off-balance sheet arrangements. Critical Accounting Policies and Estimates Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us 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. Basis of consolidation Our consolidated financial statements include the financial statements of us and our subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation. Because we acquired 100% of the equity of Aspire North America and Aspire Science from a related party for no consideration on July 29, 2022, the acquisitions are treated as the subsidiaries were acquired on July 1, 2020, the first day of the year ended June 30, 2021, and the outstanding common stock was issued on July 1, 2020. Revenue We sell our products to customers around the world and recognize revenue in accordance with the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of our 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 us 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 we serve 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. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Product returns are recorded as a reduction of revenue based on anticipated sales returns that occur in the normal course of business. We have elected to present revenue net of sales taxes and other similar taxes. Our warranties are of an assurance-type and come standard with all of our products to cover repair or replacement should a product not perform as expected. We offer a warranty for all major products, including all types of E-vapor kits, atomizers, replacement coils and mods, but no warranty for accessories such as spare parts or packaging consumables. We generally offer a 90-day warranty period from date of purchase for products sold to all regions, but from May 2019, we offer a six-month warranty period from date of purchase for products sold in the UK and France. We offer a refund or replacement of products for manufacturer defective items, dead on arrival items and items that do not appear the same as listed on our website, and exclude damaged goods caused by misuse or unauthorized repair. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. We estimate the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. As of 2022 and June 30, 2023, products returned for repair or replacement have been immaterial. Accordingly, a warranty liability has not been deemed necessary. 51 Disaggregated Revenue In accordance with ASC 606-10-50-5, we have taken into consideration the nature, amount, timing, and uncertainty of revenue and cash flows, and have determined to disaggregate our net sales by whether the products are tobacco or cannabis products, as it is important information for the Company to make resource allocation decisions. The net sales disaggregated by products for the years ended June 30, 2022 and 2023 were as follows, respectively: Years ended June 30, Net sales by products branded 2022 2023 Tobacco vaping products $ 68,116,810 $ 75,562,711 Cannabis vaping products 19,978,608 40,042,825 Total $ 88,095,418 $ 115,605,536 Income Tax We account for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provisions of ASC 740-10 prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. For the years ended June 30, 2023 and 2022, we did not incur any interest or penalties related to an uncertain tax position. We do not believe that there were any uncertain tax positions as of June 30, 2023 and June 30, 2022. Recent Accounting Pronouncements The discussion of the recent accounting pronouncements contained in our consolidated financial statements, “Summary of Significant Accounting Policies,” is incorporated herein by reference. As a company with less than $1.235 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of such exemptions. ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk As a “smaller reporting company” we are not required to provide information required by this Item. 52 ITEM 8. Financial Statements and Supplementary Data The financial statements begin on page F-1. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure [None]