IZM ICZOOM Group Inc

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of June 2024

 

ICZOOM GROUP INC.

(Exact name of registrant as specified in its charter)

 

Room 3801, Building A, Sunhope e·METRO, No. 7018 Cai Tian Road
Futian District, Shenzhen
Guangdong, China, 518000
Tel: 86 755 88603072

(Address of Principal Executive Office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  ☒      Form 40-F  ☐

 

 

 

EXPLANATORY NOTE

 

ICZOOM Group Inc., a Cayman Islands exempted company (the “Company”) is furnishing this Form 6-K to provide six-month interim financial statements.

 

Financial Statements and Exhibits.

 

Exhibits:

 

Exhibit No.		Description
99.1		Unaudited Interim Consolidated Financial Statements as of December 31, 2023 and for the Six Months Ended December 31, 2023 and 2022.
99.2		Operating and Financial Review and Prospects in Connection with the Unaudited Interim Consolidated Financial Statements for the Six Months Ended December 31, 2023 and 2022.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	ICZOOM Group Inc.
Date: June 18, 2024	By:	/s/ Lei Xia
		Lei Xia
		Chief Executive Officer

 

 

2

 

Exhibit 99.1

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ICZOOM GROUP INC. AND SUBSIDIARIES
For the Six Months Ended December 31, 2023

 

		Page
Consolidated balance sheets as of December 31, 2023 and June 30, 2023		F-2
Consolidated statements of (loss)/income and comprehensive income/(loss) for the six months ended December 31, 2023 and 2022		F-3
Consolidated statements of changes in shareholders’ equity for the six months ended December 31, 2023 and 2022		F-4
Consolidated statements of cash flows for the six months ended December 31, 2023 and 2022		F-5
Notes to consolidated financial statements		F-7 – F-40

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

		Note			December 31, 2023 (Unaudited)				June 30, 2023
ASSETS
CURRENT ASSETS:
Cash					$	1,125,776			$	1,109,834
Restricted cash						5,552,065				5,303,533
Accounts receivable		3				53,122,829				76,690,246
Inventories, net		4				454,999				833,858
Advances to suppliers		5				1,888,475				1,608,941
Prepaid expenses and other current assets		7				1,459,105				1,341,201
TOTAL CURRENT ASSETS						63,603,249				86,887,613
Property and equipment, net		8				159,933				126,032
Right-of-use assets, net		10				680,116				862,852
Intangible assets, net		9				271,318				288,436
Other non-current assets						6,964				10,600
Deferred tax assets		13				348,657				305
TOTAL NON-CURRENT ASSETS						1,466,988				1,288,225
TOTAL ASSETS					$	65,070,237			$	88,175,838
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term bank loans, net		11			$	14,335,338			$	14,022,523
Notes payable		11				1,553,200				—
Accounts payable		12				23,815,375				51,127,328
Contract liabilities						1,964,671				1,671,353
Due to related parties		14				3,280,522				1,508,766
Taxes payable		13				3,281,090				2,932,137
Lease liabilities		10				619,150				524,698
Accrued expenses and other current liabilities						461,039				469,781
TOTAL CURRENT LIABILITIES						49,310,385				72,256,586
Lease liabilities		10				93,813				375,056
TOTAL NON-CURRENT LIABILITY						93,813				375,056
TOTAL LIABILITIES						49,404,198				72,631,642
COMMITMENTS AND CONTINGENCIES		18
SHAREHOLDERS’ EQUITY
Ordinary shares, $0.16 par value, 35,000,000 shares authorized, 10,370,158 and 10,326,374 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively:
Class A shares, 30,000,000 shares authorized, 6,540,658 shares issued and outstanding and 6,496,874 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively;		16				1,046,504				1,039,499
Class B shares, 5,000,000 shares authorized, 3,829,500 shares issued and outstanding as of December 31, 2023 and June 30, 2023		16				612,720				612,720
Additional paid-in capital						18,795,548				18,795,548
Statutory reserve		16				624,097				624,097
Accumulated deficit						(6,056,045	)			(5,334,300	)
Accumulated other comprehensive income/(loss)						643,215				(193,368	)
TOTAL SHAREHOLDERS’ EQUITY						15,666,039				15,544,196
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	65,070,237			$	88,175,838

 

*	Retrospectively restated for effect of 1-for-4 reverse split on October 26, 2020 and 1-for-2 reverse split on August 8, 2022 of the ordinary shares, see Note 16.

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS)/INCOME AND COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

 

					For the six months ended December 31,
		Note			2023				2022
Revenue, net
Sales of electronic components, net of sales taxes and value added taxes					$	86,329,512			$	118,348,676
Service commission fees, net of sales taxes and value added taxes						1,391,041				1,858,830
Total revenue, net						87,720,553				120,207,506
Cost of revenue						85,533,907				117,108,678
Gross profit						2,186,646				3,098,828
OPERATING EXPENSES
Selling expenses						776,007				973,902
General and administrative expenses						1,523,002				1,307,770
Total operating expenses						2,299,009				2,281,672
(LOSS)/INCOME FROM OPERATIONS						(112,363	)			817,156
OTHER INCOME (EXPENSES)
Foreign exchange transaction (loss)/gain						(559,655	)			418,866
Interest expense						(351,806	)			(234,738	)
Short-term investment income						59,174				6,913
Subsidy income						11,409				31,826
Other expenses, net						(93,481	)			(112,254	)
Total other (expenses)/ income, net						(934,359	)			110,613
(LOSS)/INCOME BEFORE INCOME TAX PROVISION						(1,046,722	)			927,769
INCOME TAX (BENEFIT)/EXPENSES		13				(324,977	)			1,052
NET (LOSS)/INCOME						(721,745	)			926,717
Foreign currency translation adjustments						836,583				(131,174	)
TOTAL COMPREHENSIVE INCOME					$	114,838			$	795,543
(LOSS)/EARNINGS PER ORDINARY SHARE:
– BASIC					$	(0.07	)		$	0.10
– DILUTED					$	(0.07	)		$	0.10
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES*:
– BASIC						10,362,861				8,826,374
– DILUTED						11,094,229				9,547,346

 

*	Retrospectively restated for effect of 1-for-4 reverse split on October 26, 2020 and 1-for-2 reverse split on August 8, 2022 of the ordinary shares, see Note 16.

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022

(UNAUDITED)

 

		Ordinary Shares, $0.16 par*																Additional												Accumulated Other				Total
		Class A Shares				Amount				Class B Shares				Amount				Paid-in Capital				Statutory Reserve				Accumulated Deficit				Comprehensive Income/ (Loss)				Shareholders’ Equity
Balance, June 30, 2022			4,996,874			$	799,499				3,829,500			$	612,720			$	14,499,213			$	624,097			$	(7,085,470	)		$	1,044,856			$	10,494,915
Employee common share options			—				—				—				—				58,598				—				—				—				58,598
Net income for the period			—				—				—				—				—				—				926,717				—				926,717
Foreign currency translation adjustment			—				—				—				—				—				—				—				(131,174	)			(131,174	)
Balance, December 31, 2022			4,996,874			$	799,499				3,829,500			$	612,720			$	14,557,811			$	624,097			$	(6,158,753	)		$	913,682			$	11,349,056
Balance, June 30, 2023			6,496,874			$	1,039,499				3,829,500			$	612,720			$	18,795,548			$	624,097			$	(5,334,300	)		$	(193,368	)		$	15,544,196
Share issuance			43,784				7,005				—				—				—				—				—				—				7,005
Net loss for the period			—				—				—				—				—				—				(721,745	)			—				(721,745	)
Foreign currency translation adjustment			—				—				—				—				—				—				—				836,583				836,583
Balance, December 31, 2023			6,540,658			$	1,046,504				3,829,500			$	612,720			$	18,795,548			$	624,097			$	(6,056,045	)		$	643,215			$	15,666,039

 

*	Retrospectively restated for effect of 1-for-4 reverse split on October 26, 2020 and 1-for-2 reverse split on August 8, 2022 of the ordinary shares, see Note 16.

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITTED)

 

		For the six months ended December 31,
		2023				2022
Cash flows from operating activities:
Net (loss)/income		$	(721,745	)		$	926,717
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			121,588				89,128
Property and equipment written off			1220				-
Loss from disposal of property and equipment			-				1,146
Amortization of right-of-use assets			297,672				118,026
Provision /(reversal of provision) for inventory impairment			(1,851	)			1,851
Amortization of share-based compensation			-				58,598
Amortization of debt issuance costs			92,491				110,219
Deferred income tax provision			(345,389	)			(109,627	)
Unrealized exchange loss /(gain)			560,321				(477,112	)
Changes in operating assets and liabilities:
Notes receivable			-				18,000
Accounts receivable			28,931,833				(8,401,208	)
Inventories			393,526				336,052
Advances to suppliers			(279,267	)			5,255,103
Prepaid expenses and other current assets			220,639				689,583
Accounts payable			(27,737,233	)			130,523
Contract liabilities			264,015				(738,116	)
Taxes payable			297,112				421,917
Lease liabilities			(186,791	)			(117,736	)
Accrued expenses and other current liabilities			(2,934,362	)			(218,230	)
Net cash used in operating activities			(1,026,221	)			(1,905,166	)
Cash flows from investing activities:
Purchase of property and equipment			(70,490	)			(74,420	)
Proceeds from disposal of property and equipment			-				3,096
Purchase of intangible assets			(57,398	)			(23,186	)
Purchase of short-term investments			(1,129,600	)			(2,701,116	)
Proceeds upon maturity of short-term investments			1,129,600				2,701,116
Net cash used in investing activities			(127,888	)			(94,510	)
Cash flows from financing activities:
Proceeds from short-term bank loans			14,666,970				14,145,794
Repayments of short-term bank loans			(14,638,095	)			(12,841,626	)
Proceeds from loans payable to third-parties			746,000				360,000
Repayments from loans payable to third-parties			(746,000	)			(160,000	)
Proceeds from banker’s acceptance notes payable			2,965,200				—
Repayment of banker’s acceptance notes payable			(1,425,200	)			—
Proceeds from borrowings from related parties			6,299,295				608,589
Payment for deferred IPO costs			(312,527	)			(88,810	)
Repayment of related party borrowings			(4,568,244	)			—
Net cash provided by financing activities			2,987,399				2,023,947

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

 

		For the six months ended December 31,
		2023				2022
Effect of exchange rate fluctuation on cash and restricted cash			(1,568,816	)			1,839,803
Net increase in cash and restricted cash			264,474				1,864,074
Cash and restricted cash at beginning of period			6,413,367				2,952,023
Cash and restricted cash at end of period		$	6,677,841			$	4,816,097
Supplemental cash flow information
Cash paid for income taxes		$	(98,451	)		$	(61,473	)
Cash paid for interest		$	(351,806	)		$	(234,738	)
Supplemental disclosure of non-cash operating activities
Right-of-use assets obtained in exchange for operating lease obligations		$	105,613			$	-

 

The following tables provide a reconciliation of cash and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the consolidated statement of cash flows:

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION

 

Business

 

ICZOOM Group Inc. (“ICZOOM” or the “Company”), through its wholly-owned subsidiaries, is engaged in sales of electronic components to customers in the People’s Republic of China (“PRC”). Major electronic components purchased from suppliers and then sold to customers through the Company’s online platform include: integrated circuit, discrete, passive components, optoelectronics, electromechanical, Maintenance, Repair and Operations (“MRO”), design tools, etc. These electronic components are primarily used by customers in the consumer electronic industry, automotive electronics, industry control segment with primary target customers being China-based small and medium-sized enterprises. In addition, the Company also provides customs clearance, temporary warehousing, logistic and shipping services to customers to earn service commission fees.

 

Organization

 

ICZOOM, formerly known as Horizon Business Intelligence Co., Limited, was incorporated as an exempted company with limited liability under the laws of the Cayman Islands on June 18, 2015 and changed to its current name on May 3, 2018.

 

ICZOOM owns 100% of the equity interests of the following four subsidiaries incorporated in accordance with the laws and regulations in Hong Kong: (1) Iczoom Electronics Limited (“ICZOOM HK”) was incorporated on May 22, 2012; (2) Ehub Electronics Limited (“Ehub”) was incorporated on September 13, 2012; (3) Hjet Industrial Corporation Limited (“Hjet HK”) was incorporated on August 6, 2013 and (4) Components Zone International Limited (‘Components Zone HK”) was incorporated on May 19, 2020. ICZOOM HK, Ehub and Hjet HK are primarily engaged in purchases and distribution of electronic components from overseas suppliers, and Components Zone HK is a holding company with no activities.

 

On September 17, 2020, Components Zone (Shenzhen) Development Limited (“ICZOOM WFOE”) was incorporated pursuant to PRC laws as a wholly foreign owned enterprise of Components Zone HK.

 

ICZOOM, Components Zone HK and ICZOOM WFOE are currently not engaging in any active business operations and merely acting as holding companies.

 

Prior to the reorganization described below, the chairman of the Board of Directors, Mr. Lei Xia, who is also the Chief Executive Officer (“CEO”) of the Company, and the Chief Operating Officer (“COO”) of the Company, Ms. Duanrong Liu, were the controlling shareholders of the following entities: (1) Hjet Shuntong (Shenzhen) Co., Ltd. (“Hjet Shuntong”), formed in Shenzhen City, China on November 8, 2013; (2) Shenzhen Hjet Supply Chain Co., Ltd. (“Hjet Supply Chain”), formed in Shenzhen City, China on July 3, 2006; (3) Shanghai Heng Nuo Chen International Freight Forwarding Co., Ltd. (“Heng Nuo Chen”), formed in Shanghai City, China on March 25, 2015; (4) Shenzhen Iczoom Electronics Co., Ltd. (“ICZOOM Shenzhen”), formed in Shenzhen City, China on July 20, 2015; (5) Shenzhen Hjet Yun Tong Logistics Co., Ltd. (“Hjet Logistics”), formed in Shenzhen City, China on May 31, 2013 and (6) Shenzhen Pai Ming Electronics Co., Ltd. (“Pai Ming Shenzhen”), formed in Shenzhen City, China on May 9, 2012. Hjet Shuntong is currently not engaging in any active business operations and merely acting as a holding company. ICZOOM Shenzhen operates the Company’s e-commerce platform to facilitate the sales of electronic components. Hjet Supply Chain handles order fulfilment for e-commerce customers. Heng Nuo Chen and Hjet Logistics are engaged in logistic, shipping and delivery of products to customers. In order to comply with the PRC laws and regulations, Pai Ming Shenzhen holds Internet Content Provider (“ICP”) license to operate the e-commerce platform.

 

Hjet Shuntong, ICZOOM Shenzhen, Hjet Supply Chain, Heng Nuo Chen and Hjet Logistics are collectively called “ICZOOM Operating Entities”.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)

 

Reorganization

 

A reorganization of the Company’s legal structure (“Reorganization”) was completed on December 14, 2020. The reorganization involved the incorporation of ICZOOM WFOE, the transfer of the 100% equity interest of ICZOOM operating entities to ICZOOM WFOE, and entering into certain contractual arrangements between ICZOOM WFOE and the shareholders of Pai Ming Shenzhen. Consequently, ICZOOM became the ultimate holding company of all the entities mentioned above.

 

On December 14, 2020, ICZOOM WFOE entered into a series of contractual arrangements with the shareholder of Pai Ming Shenzhen. These agreements include Exclusive Purchase Agreement, Exclusive Business Cooperation Agreement, Share Pledge Agreement, Power of Attorney and Spousal Consent Letter (collectively the “VIE Agreements”). Pursuant to the VIE Agreements, ICZOOM WFOE has the exclusive right to provide Pai Ming Shenzhen with consulting services related to business operations including technical and management consulting services. As a result of our direct ownership in ICZOOM WFOE and the VIE Agreements, Pai Ming Shenzhen was treated as a Variable Interest Entity (“VIE”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation, which allowed ICZOOM to consolidate Pai Ming Shenzhen’ operations and financial results in ICZOOM’s consolidated financial statements in accordance with U.S. GAAP. ICZOOM was treated as the primary beneficiary for accounting purposes under U.S. GAAP.

 

The Company, together with its wholly owned subsidiaries and its VIE, was effectively controlled by the same shareholders before and after the Reorganization and therefore the Reorganization was considered as a recapitalization of entities under common control. The consolidation of the Company, its subsidiaries, and the VIE has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

 

The consolidated financial statements of the Company include the following entities:

 

Name of Entity		Date of Formation		Place of Incorporation		% of Ownership		Principal Activities
ICZOOM		June 18, 2015		Cayman Islands		Parent, 100%		Investment holding
ICZOOM HK		May 22, 2012		Hong Kong		100%		Purchase of electronic components from overseas suppliers
Ehub		September 13, 2012		Hong Kong		100%		Purchase of electronic components from overseas suppliers
Hjet HK		August 6, 2013		Hong Kong		100%		Purchase of electronic components from overseas suppliers
Components Zone HK		May 19, 2020		Hong Kong		100%		Investment holding
ICZOOM WFOE		September 17, 2020		PRC		100%		WFOE, Consultancy
Hjet Shuntong		November 8, 2013		PRC		100%		Investment holding
Hjet Supply Chain		July 3, 2006		PRC		100%		Order fulfilment
ICZOOM Shenzhen		July 20, 2015		PRC		100%		Sales of electronic components through B2B e-commerce platform
Hjet Logistics		May 31, 2013		PRC		100%		Logistics and product shipping
Heng Nuo Chen		May 25, 2015		PRC		100%		Logistics and product shipping. Deregistered in August 2021
Pai Ming Shenzhen		May 9, 2012		PRC		0%, Former VIE		Holds an EDI license and an ICP License. The VIE agreements has been terminated in December 2021

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)

 

In order to streamline the Company’s business structure, on August 23, 2021, one of the Company’s subsidiaries, Heng Nuo Chen, completed the deregistration with China’s State Administration of Industry and Commerce. The deregistration of Heng Nuo Chen has no material impact on the Company’s business because Heng Nuo Chen had limited business activities and operation since its inception. Total assets and total liabilities of Heng Nuo Chen as of June 30, 2021 amounted to approximately $5,879 and $325,497, accounted for 0.01% and 0.41% of the Company’s consolidated total assets and liabilities, respectively. Heng Nuo Chen did not generated any revenue since its inception and the accumulated deficit of Heng Nuo Chen as of June 30, 2021 was $305,780, accounted for 3.27% of the Company’s consolidated accumulated deficit. Due to such immateriality, no discontinued operation was reported.

 

The VIE Agreements

 

A VIE is an entity which has a total equity investment that is insufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must consolidate, the VIE.

 

Prior to December 10, 2021, in order to comply with the PRC laws and regulations, the Company held its ICP license to operate the e-commerce platform, through Pai Ming Shenzhen. Pursuant to the VIE Agreements, neither the Company nor its subsidiaries owned any equity interest in Pai Ming Shenzhen. Instead, the Company controlled and received the economic benefits of the operation results of Pai Ming Shenzhen through the VIE Agreements. Under U.S. GAAP, for accounting purposes, the Company was deemed to have a controlling financial interest in, and be the primary beneficiary of Pai Ming Shenzhen, because pursuant to the VIE Agreements, the operations of Pai Ming Shenzhen were solely for the benefit of ICZOOM WFOE and ultimately, the Company. The Company consolidated the operation and financial results of Pai Ming Shenzhen as primary beneficiary through VIE Agreements in lieu of direct equity ownership by the Company. The Company terminated the VIE Agreements with Pai Ming Shenzhen on December 10, 2021 (see “Termination of the VIE Agreements” below for details).

 

Termination of the VIE Agreements

 

Due to PRC legal restrictions on direct foreign investment in internet-based businesses, such as provision of internet information services platform and other value-added telecommunication services, the Company originally carried out its business through a series of VIE Agreements with Pai Ming Shenzhen. On December 10, 2021 (the “VIE termination date”), the Company terminated the VIE Agreements under the VIE structure. There were no penalties or non-compete agreements derived from the termination of the VIE Agreements. After the termination of the VIE Agreement, the Company will no longer consolidate the operation and financial results of Pai Ming Shenzhen going forward. The Company’s Hong Kong subsidiary, ICZOOM HK, now operates a new B2B online platform, which does not require an ICP license under the PRC law. After the termination of the VIE Agreements under the VIE structure, in consideration that it may take some time for customers to take actions to complete the transfer and adapt to new platform, ICZOOM WFOE entered into a business cooperation agreement with Pai Ming Shenzhen on January 18, 2022 to assist such transition over a one-year period, pursuant to which Pai Ming Shenzhen has agreed to provide ICZOOM WFOE with network services including but not limited to business consultation, website information push, matching services of supply and demand information, online advertising, software customization, data analysis, website operation and other in-depth vertical services through online and offline data push, etc., and ICZOOM WFOE has agreed to pay Pai Ming Shenzhen with a base monthly fixed fee of RMB100,000 and additional service fee based on the service performance of Pai Ming Shenzhen. After termination of the VIE Agreement, Pai Ming Shenzhen was treated as a related party to the Company because the COO’s brother was one of the shareholders of Pai Ming Shenzhen. On April 19, 2022, the COO’s brother transferred all of his ownership interest in Pai Ming Shenzhen to an unrelated individual, and Pai Ming Shenzhen was no longer treated as a related party to the Company after April 19, 2022. Therefore, the consulting service fees paid to Pai Ming Shenzhen during the period from January 18, 2022 to April 19, 2022 were accounted for as related party transactions (see Note 14).

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)

 

The termination of the VIE Agreements did not discontinue the Company’s existing business, which is to sell electronic component products and provide related services to customers. Historically, the Company’s business was substantially conducted through its wholly owned subsidiaries established in China and Hong Kong. Prior to the termination of the VIE Agreements, operating revenue generated through Pai Ming Shenzhen amounted to $72,425 from July 1, 2021 to December 10, 2021, accounted for only 0.03% of the Company’s consolidated total revenue for the years ended June 30, 2022. Total assets and total liabilities of Pai Ming Shenzhen amounted to approximately $219,897 and $427,395 as of December 10, 2021, accounted for only 0.60% and 0.89% of the Company’s consolidated total assets and liabilities as of June 30, 2022, respectively. The Company recorded a loss of $205,249 from the termination of the VIE Agreements for the year ended June 30, 2022. Therefore, the Company’s management believes that the termination of the VIE Agreements does not represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. The termination is not accounted as discontinued operations in accordance with ASC 205-20.

 

The following presents the unaudited balance sheet information of Pai Ming Shenzhen as of December 10, 2021 and June 30, 2021, and the unaudited result of operations and cash flows of Pai Ming Shenzhen for the period from July 1, 2021 to December 10, 2021 as compared to the year ended June 30, 2021, after elimination of intercompany transactions and balances.

 

		December 10, 2021 (the VIE termination date)				June 30, 2021
ASSETS
CURRENT ASSETS
Cash		$	41,912			$	2,891
Accounts receivable			173,550				—
Prepaid expenses and other current assets			2,024				7,061
TOTAL CURRENT ASSETS			217,486				9,952
Other noncurrent assets			2,411				1,452
TOTAL ASSETS		$	219,897			$	11,404
LIABILITIES
CURRENT LIABILITIES
Accrued expenses and other current liabilities		$	427,395			$	566,158
TOTAL CURRENT LIABILITIES			427,395				566,158
TOTAL LIABILITIES		$	427,395			$	566,158

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)

 

		From July 1, 2021 to December 10, 2021 (the VIE termination date)				For the years ended June 30, 2021
		(Unaudited)
REVENUE, net		$	72,425			$	36,273
COST OF REVENUE			1,122				32,229
GROSS PROFIT			71,303				4,044
OPERATING EXPENSES
Selling expenses			14,265				37,809
General and administrative expenses			75,751				182,628
Total operating expenses			90,016				220,437
LOSS FROM OPERATIONS			(18,713	)			(216,393	)
OTHER INCOME
Other income, net			92				243
Total other income, net			92				243
LOSS BEFORE INCOME TAX PROVISION			(18,621	)			(216,150	)
PROVISION FOR INCOME TAXES			—				—
NET LOSS		$	(18,621	)		$	(216,150	)

 

		From July 1, 2021 to December 10, 2021 (the VIE termination date)				For the years ended June 30, 2021
Cash flows from operating activities:
Net loss		$	(18,621	)		$	(216,150	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			4,095				(2,847	)
Other noncurrent assets			—				(1,421	)
Accrued expenses and other current liabilities			53,198				216,478
Net cash provided by (used in) operating activities			38,672				(3,940	)
Effect of exchange rate fluctuation on cash			349				515
Net increase (decrease) in cash			39,021				(3,425	)
Cash at beginning of the period			2,891				6,316
Cash at end of the period		$	41,912			$	2,891

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principles of consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, and entity which it consolidated the operation and financial results through VIE Agreements from the July 1, 2021 to the termination date of VIE Agreements. All inter-company balances and transactions are eliminated upon consolidation.

 

Uses of estimates

 

In preparing the consolidated financial statements in conformity U.S. GAAP, the management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and advance to suppliers, inventory valuations, useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, realization of deferred tax assets, and provision necessary for contingent liabilities. Actual results could differ from those estimates.

 

Risks and uncertainties

 

The main operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the economy in the PRC. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.

 

The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations. The Company’s operations may be further affected by the ongoing outbreak of COVID-19 pandemic. A COVID-19 resurgence could negatively affect the execution of the Company’s sales contract and fulfilment of customer orders and the collection of the payments from customers on a timely manner. The Company will continue to monitor and modify the operating strategies in response to the COVID-19. The extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the date the Company’s financial statements are released.

 

Concentration of credit risks

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and accounts receivable. As of December 31, 2023, the aggregate amounts of cash of $6,677,841 was deposited at major financial institutions located in the PRC and Hong Kong. In the event of bankruptcy of one of these financial institutions, the Company may not be able to claim its cash and demand deposits back in full. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions.

 

Accounts receivable are typically unsecured and derived from revenue earned from customers in the PRC, which are exposed to credit risk. The risk is mitigated by credit evaluations. The Company maintains an allowance for doubtful accounts, and actual losses have generally been within management’s expectations. Refer to “Note 15. Concentrations” for detail.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Interest rate risk

 

The Company’s exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. The Company’s exposure to interest rate risk also arises from borrowings that have a floating rate of interest. The costs of floating rate borrowings may be affected by the fluctuations in the interest rates. The Company have not been, and do not expect to be, exposed to material interest rate risks, and therefore have not used any derivative financial instruments to manage such interest risk exposure. The Company has not been exposed to material risks due to changes in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the six months ended December 31, 2023.

 

Cash

 

Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains all of its bank accounts in the PRC. The Company’s cash balances in these bank accounts in the PRC are not insured by the Federal Deposit Insurance Corporation or other programs.

 

Restricted cash

 

Restricted cash consists of cash deposited with the PRC banks and used as collateral to secure the Company’s short-term bank loans. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to present the aggregate changes in cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the statement of cash flows will be required to present restricted cash and restricted cash equivalents as a part of the beginning and ending balances of cash and cash equivalents. The Company adopted the updated guidance retrospectively and presented restricted cash within the ending cash and restricted cash balance on the Company’s consolidated statement of cash flows for the years presented.

 

Accounts receivable

 

Accounts receivable are presented net of allowance for doubtful accounts. The Company reduces accounts receivable by recording an allowance for doubtful accounts to account for the estimated impact of collection issues resulting from a client’s inability or unwillingness to pay valid obligations to the Company. The Company determines the adequacy of allowance for doubtful accounts based on individual account analysis, historical collection trend, and best estimate of specific losses on individual exposures. The Company establishes a provision for doubtful receivable when there is objective evidence that the Company may not be able to collect amounts due. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after the management has determined that the likelihood of collection is not probable. There was no allowance for uncollectable recorded as of December 31, 2023 and June 30, 2023.

 

Inventories, net

 

Inventories are comprised of purchased electronic components products to be sold to customers. Inventories are stated at the lower of cost or net realizable value, determined using primarily an average weighted cost method. The Company reviews its inventories periodically to determine if any reserves are necessary for potential shrinkage and obsolete or unusable inventory. Inventory allowance amounted to nil and $1,851 as of December 31, 2023 and June 30, 2023, respectively. For the six months ended December 31, 2023, $1,851 of inventory allowance was reversed.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Advances to suppliers, net

 

Advances to suppliers consists of balances paid to suppliers for purchase of electronic components that have not been provided or received. Advances to suppliers are short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the advance becomes doubtful. The Company uses the aging method to estimate the allowance for uncollectible balances. In addition, at each reporting date, the Company generally determines the adequacy of allowance for doubtful accounts by evaluating all available information, and then records specific allowances for those advances based on the specific facts and circumstances. As of December 31, 2023 and June 30, 2023, there was no allowance recorded as the Company considers all of the advances to be fully realizable.

 

Short-term investments

 

The Company’s short-term investments consist of wealth management financial products purchased from PRC banks with maturities ranging from one month to twelve months. The banks invest the Company’s fund in certain financial instruments including money market funds, bonds or mutual funds, with rates of return on these investments ranging from 1.5% to 2.5% per annum. The carrying values of the Company’s short-term investments approximate fair value because of their short-term maturities. The interest earned is recognized in the consolidated statements of (loss)/income and comprehensive income/(loss) over the contractual term of these investments (see Note 6).

 

Leases

 

On July 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”) using the modified retrospective basis and did not restate comparative periods as permitted under ASU 2018-11. ASC 842 requires that lessees recognize ROU assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

 

For operating leases, the Company calculated ROU assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption. The remaining balance of lease liabilities are presented within current portion of lease liabilities and the non-current portion of lease liabilities on the consolidated balance sheets (see Note 10).

 

Property and equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over their expected useful lives, as follows:

 

		Useful life
Office equipment and furniture		3 years
Automobiles		5 years
Leasehold improvement		Lesser of useful life and lease term

 

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in consolidated statements of (loss)/income and comprehensive income/(loss).

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Intangible assets, net

 

The Company’s intangible assets primarily consist of internal-use software development costs associated with the Company’s e-commerce platform. Intangible assets are carried at cost less accumulated amortization and any recorded impairment. The Company amortizes its intangible assets over useful lives of 10 year using a straight-line method, which reflects the estimated pattern in which the economic benefits of the internally developed software are to be consumed.

 

Impairment of long-lived Assets

 

Long-lived assets with finite lives, primarily property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future net undiscounted cash flows that the asset is expected to generate. If such asset is considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset, if any, exceeds its fair value determined using a discounted cash flow model. There were no impairments of these assets as of December 31, 2023 and June 30, 2023.

 

Borrowings

 

Borrowings comprise short-term borrowings. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds net of transaction costs and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

 

Accounts payable

 

The Company’s accounts payable (“AP”) primarily include balance due to suppliers for purchase of electronic components products.

 

Deferred public offering costs

 

The Company complies with the requirement of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering”. Deferred offering costs consist of underwriting, legal, consulting and other expenses incurred through the balance sheet date that are directly related to the intended public offering. Deferred offering costs will be charged to shareholders’ equity upon the completion of the public offering. Should the public offering prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operations. Deferred IPO costs as included in “prepaid expenses and other current assets” amounted to 312,527 and nil as of December 31 2023 and June 30, 2023, respectively (see Note 7).

 

Fair value of financial instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

●

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

●

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.

 

●

Level 3 — inputs to the valuation methodology are unobservable.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, restricted cash, short-term investments, notes receivable, accounts receivable, advances to suppliers, inventories, prepaid expenses and other current assets, short-term bank loans, short-term borrowings — third-party loans, notes payable, accounts payable, deferred revenue, taxes payable, due to related parties, accrued expenses lease liabilities-current, and other current liabilities approximate the fair value of the respective assets and liabilities as of December 31, 2023 and June 30, 2023 based upon the short-term nature of the assets and liabilities.

 

Foreign currency translation

 

The functional currency for ICZOOM, ICZOOM HK, Ehub, Hjet HK and Components Zone HK is the U.S Dollar (“US$”). The Company primarily operates its business through its PRC subsidiaries as of December 31, 2023. The functional currency of the Company’s PRC subsidiaries and the VIE is the Chinese Yuan (“RMB”). The Unaudited Company’s consolidated financial statements have been translated into US$. Assets and liabilities accounts are translated using the exchange rate at each reporting period end date. Equity accounts are translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.

 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

 

The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:

 

		December 31, 2023			June 30, 2023			December 31, 2022
Period-end spot rate		US$1=RMB 7.0822			US$1=RMB 7.2254			US$1=RMB 6.9638
Average rate		US$1=RMB 7.1429			US$1=RMB 6.9881			US$1=RMB 7.0077

 

Revenue recognition

 

ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. This new guidance provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

 

The Company currently generates its revenue from the following main sources:

 

Revenue from sales of electronic components to customers

 

The Company operates a B2B online platform www.iczoomex.com, where the Company’s customers can register as members first, and then use the platform to post the quotes for electronic component products (such as integrated circuit, discretes, passive components, optoelectronics, electromechanical, MRO and design tools, etc.).

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Once purchase orders received from customers, the Company purchases desired products from suppliers, takes control of purchased products in its warehouses, and then organizes the shipping and delivery of products to customers. New customers are typically required to make certain prepayment to the Company before the Company purchases products from suppliers.

 

The Company accounts for revenue from sales of electronic components on a gross basis as the Company is responsible for fulfilling the promise to provide the desired electronic component products to customers, and is subject to inventory risk before the product ownership and risk are transferred and has the discretion in establishing prices. All of the Company’s contracts are fixed price contracts and have one single performance obligation as the promise is to transfer the individual goods to customers, and there is no separately identifiable other promises in the contracts. The Company’s revenue from sales of electronic components is recognized at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. Advance payment from customers is recorded as deferred revenue first and then recognized as revenue when products are delivered to the customers and the Company’s performance obligations are satisfied. The Company does not routinely allow customers to return products and historically return allowance was immaterial. There is no separate rebate, discount, or volume incentive involved. Revenue is reported net of all value added taxes (“VAT”).

 

Service commission fees

 

The Company’s service commission fees primarily consist of (1) fees charged to customers for assisting them for customs clearance when they directly purchase electronic component products from overseas suppliers; (2) fees charged to customers for providing temporary warehousing and organizing the product shipping and delivery to customer designated destinations after customs clearance. There is no separately identifiable other promises in the contracts.

 

The Company merely acts as an agent in this type of transaction and earns a commission fee ranging from 0.15% to 2% based on the value of the merchandise that customers purchase from suppliers and such commission fee is not refundable. The Company does not have control of the goods in this type of transaction, has no discretion in establishing prices and does not have the ability to direct the use of the goods to obtain substantially all the benefits. Such revenue is recognized at the point when the Company’s customs clearance, warehousing, logistic and delivery services are performed and the customer receive the products. Revenues are recorded net of sales taxes and value added taxes.

 

Contract Assets and Liabilities

 

The Company did not have contract assets as of December 31, 2023 and June 30, 2023.

 

Contract liabilities are recognized for contracts where payment has been received in advance of delivery. The Company’s contract liabilities, which are reflected in its consolidated balance sheets as contract liabilities of $1,964,671 and $1,671,353 as of December 31, 2023 and June 30, 2023, respectively.

 

Disaggregation of revenue

 

The Company disaggregates its revenue from contracts by product and service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

The summary of the Company’s total revenues by product and service type for the six months ended December 31, 2023 and 2022 was as follows:

 

		For the six months ended December 31,
		2023 (Unaudited)				2022 (Unaudited)
Sales of electronic components products:
Semiconductor:
Integrated Circuits		$	30,881,697			$	9,097,914
Power/Circuit Protection			7,381,913				5,845,672
Discrete			7,274,989				8,586,905
Passive Components			22,672,366				71,790,069
Optoelectronics/Electromechanical			3,240,380				5,336,787
Other semiconductor products			4,837,497				6,381,039
Equipment, tools and others:
Equipment			4,531,976				5,501,886
Tools and others			5,508,694				5,808,404
Total sales of electronic components products			86,329,512				118,348,676
Service commission fees			1,391,041				1,858,830
Total revenue		$	87,720,553			$	120,207,506

 

Segment reporting

 

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.

 

The Company purchases electronic component products from third-party suppliers and then sells to customers. The Company’s products have similar economic characteristics with respect to vendors, marketing and promotions, customers and methods of distribution. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company, and concludes that the Company has only one reporting segment.

 

Shipping and handling costs

 

Shipping and handling costs are expensed as incurred. Inbound shipping and handling cost associated with bringing the purchased electronic component products from suppliers to the Company’s warehouse are included in cost of revenue. Outbound shipping and handling costs associated with shipping and delivery the products to customers are included in selling expenses. For the six months ended December 31, 2023 and 2022, shipping and handling costs included in cost of revenue amounted to $249,883 and $250,996 and shipping and handling costs included in selling expenses amounted to $201,503 and $218,586, respectively.

 

Research and development

 

The Company’s research and development activities primarily relate to development and implementation of its e-commerce platform and software. Research and development costs are expensed as incurred unless such costs qualify for capitalization as software development costs. In order to qualify for capitalization, (i) the preliminary project should be completed, (ii) management has committed to funding the project and it is probable that the project will be completed and the software will be used to perform the function intended, and (iii) it will result in significant additional functionality in the Company’s e-commerce platform. Capitalized software development costs amounted to $61,217 and $25,985 for the six months ended December 31, 2023 and 2022, respectively. Research and development expenses included in general and administrative expenses amounted to $196,919 and $250,454 for the six months ended December 31, 2023 and 2022 respectively, primarily comprising employee costs, and amortization and depreciation to intangible assets and property and equipment used in the research and development activities.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Income taxes

 

The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. 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.

 

An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred for the six months ended December 31, 2023 and 2022. The Company does not believe that there was any uncertain tax provision at December 31, 2023 and June 30, 2023. The Company’s subsidiaries in Hong Kong are subject to the profit taxes in Hong Kong. The Company’s subsidiaries in China are subject to the income tax laws of the PRC. For the six months ended December 31, 2023 and 2022, the Company generated income before taxes of $245,489 and $660,138 through its Hong Kong subsidiaries.

 

As of December 31, 2023, all of the tax returns of the Company’s subsidiaries remain available for statutory examination by Hong Kong and PRC tax authorities.

 

Value added tax (“VAT”)

 

The Company is a general taxpayer and is subject to applicable VAT tax rate of 6% or 16%, and starting from April 1, 2019, the Company is subject to applicable VAT tax rate of 6% or 13%. VAT is reported as a deduction to revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT tax paid to suppliers against their output VAT liabilities.

 

Debt issuance costs

 

Debt issuance costs related to a recognized debt liability are presented in the consolidated balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. Amortization of debt origination costs is calculated using the effective interest method and is included as a component of interest expense.

 

Earnings per Share

 

The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential common shares (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 common shares 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.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

The following table sets forth the computation of basic and diluted earnings per share for the six months ended December 31, 2023 and 2022:

 

		For the six months ended December 31,
		2023 (Unaudited)				2022 (Unaudited)
Numerator:
Net (loss)/income attributable to ordinary shareholders		$	(721,745	)		$	926,717
Denominator:
Weighted-average number of ordinary shares outstanding – basic			10,362,861				8,826,374
Outstanding options			742,762				751,012
Potentially dilutive shares from outstanding options			731,368				720,972
Weighted-average number of ordinary shares outstanding – diluted			11,094,229				9,547,346
(Loss)/Earnings per share – basic		$	(0.07	)		$	0.10
(Loss)/Earnings per share – diluted		$	(0.07	)		$	0.10

 

Employee benefit plan

 

The Company’s subsidiaries in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund are provided to eligible full-time employees. The relevant labor regulations require the Company’s subsidiaries in the PRC to pay the local labor and social welfare authorities monthly contributions based on the applicable benchmarks and rates stipulated by the local government. The contributions to the plan are expensed as incurred. Employee social security and welfare benefits included as expenses in the accompanying consolidated statements of (loss)/income and comprehensive income/(loss) amounted to $83,905 and $86,950 for the six months ended December 31, 2023 and 2022, respectively.

 

Comprehensive income

 

Comprehensive income consists of two components, net income and other comprehensive income. The foreign currency translation gain or loss resulting from translation of the consolidated financial statements expressed in RMB to US$ is reported in other comprehensive income in the consolidated statements of (loss)/comprehensive income/(loss).

 

Statement of cash flows

 

In accordance with ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are formulated based upon the local currencies using the average exchange rate in the period. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

 

Government subsidies

 

Government subsidies are provided by the relevant PRC municipal government authorities to subsidize the cost of certain research and development projects. The Company recognizes government subsidies as other operating income when they are received because they are not subject to any past or future conditions, there are no performance conditions or conditions of use, and they are not subject to future refunds. Government subsidies received and recognized as other operating income totaled $11,409 and $31,826 for the six months ended December 31, 2023 and 2022, respectively.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Share-based compensation

 

The Company grants stock options to eligible employees for services and accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation. Share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses using the straight-line method over the vesting period.

 

The fair value of share options was determined using the binomial option valuation model, which requires the input of highly subjective assumptions, including the expected volatility, the exercise multiple, the risk-free rate and the dividend yield. For expected volatility, the Company has made reference to historical volatility of several comparable companies in the same industry. The exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested share options. The risk-free rate for periods within the contractual life of the share options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. The dividend yield is based on the expected dividend policy over the contractual life of the share options.

 

Related parties and transactions

 

The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, “Related Party Disclosures” and other relevant ASC standards.

 

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

Transactions between related parties commonly occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting or measurement guidance for such transactions, it nonetheless requires their disclosure.

 

Recent accounting pronouncements

 

The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Recently issued accounting pronouncements not yet adopted

 

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.

 

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the troubled debt restructurings (TDRs) accounting model for creditors that have already adopted Topic 326, which is commonly referred to as the current expected credit loss (CECL) model. For entities that have adopted Topic 326, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The FASB’s decision to eliminate the TDR accounting model is in response to feedback that the allowance under CECL already incorporates credit losses from loans modified as TDRs and, consequently, the related accounting and disclosures — which preparers often find onerous to apply — no longer provide the same level of benefit to users. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.

 

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820) — Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which stipulates that a contractual restriction on the sale of an equity security should not be considered part of the equity security’s unit of account and, therefore, should not be considered in measuring its fair value. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.

 

NOTE 3 — ACCOUNTS RECEIVABLE

 

Accounts receivable consists of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Accounts receivable		$	53,122,829			$	76,690,246
Less: allowance for doubtful accounts			—				—
Accounts receivable		$	53,122,829			$	76,690,246

 

The Company’s accounts receivable (“AR”) primarily includes balance due from customers when the Company’s products are sold and delivered to customers.

 

All of the June 30, 2023 accounts receivable balance has been collected. Approximately 91.9% of the December 31, 2023 accounts receivable balance has been collected as of the date the Company’s unaudited interim consolidated financial statements for the six months ended December 31, 2023 were issued. The following table summarizes the Company’s outstanding accounts receivable and subsequent collection by aging bucket:

 

		Balance as of December 31, 2023 (Unaudited)				Subsequent collection				% of collection
AR aged less than 6 months		$	53,122,829				48,836,805				91.9	%
Accounts Receivable		$	53,122,829				48,836,805				91.9	%

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 — ACCOUNTS RECEIVABLE (cont.)

 

		Balance as of June 30, 2023				Subsequent collection				% of collection
AR aged less than 6 months		$	76,401,424			$	76,401,424				100.0	%
AR aged from 7 to 12 months			288,822				288,822				100.0	%
Accounts Receivable		$	76,690,246			$	76,690,246				100.0	%

 

Allowance for doubtful accounts movement is as follows:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Beginning balance		$	—			$	99,003
Reversal			—				(99,003	)
Foreign currency translation adjustments			—				—
Ending balance		$	—			$	—

 

NOTE 4 — INVENTORIES, NET

 

Inventories, net, consist of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Semiconductors		$	434,224			$	764,592
Equipment, tools and others			20,775				71,117
Inventory valuation allowance			-				(1,851	)
Total inventory, net		$	454,999			$	833,858

 

NOTE 5 — ADVANCES TO SUPPLIERS

 

Advances to suppliers, net, consist of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Advances to suppliers		$	1,888,475			$	1,608,941

 

Advances to suppliers represents balance paid to various suppliers for purchase of electronic components that have not been delivered. These advances are interest free, unsecured and short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. As of December 31, 2023 and June 30, 2023, there was no allowance recorded as the Company considers all of the advances to suppliers balance fully realizable. The June 30, 2023 advance to supplier balance was fully realized by December 31, 2023. Approximately 87.0% or $1.6 million of the December 31, 2023 advance to suppliers balance has been realized as of the date the Company’s unaudited consolidated financial statements for six months ended December 31, 2023 were issued.

 

NOTE 6 — SHORT-TERM INVSTMENT

 

The Company’s short-term investments consist of wealth management financial products purchased from PRC banks with maturities ranging from one month to twelve months. The banks invest the Company’s fund in certain financial instruments including money market funds, bonds or mutual funds, with rates of return on these investments ranging from 1.5% to 2.5% per annum.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 — SHORT-TERM INVSTMENT (cont.)

 

Short-term investment consisted of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Beginning balance		$	—			$	1,490
Add: purchase additional wealth management financial products			1,129,600				4,125,704
Less: proceeds received upon maturity of short-term investment			(1,129,600	)			(4,127,088	)
Foreign currency translation adjustments			—				(106	)
Ending balance of short-term investment		$	—			$	—

 

Interest income generated from short-term investment amounted to $59,174 and $6,913 for the six months ended December 31, 2023 and 2022, respectively.

 

NOTE 7 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Other receivables, net(1)		$	1,078,147			$	1,286,920
Deferred public offering costs(2)			312,527				—
Prepaid expenses(3)			68,431				54,281
Prepaid expenses and other current assets		$	1,459,105			$	1,341,201

 

(1)

Other receivable primarily includes prepaid VAT input tax in connection with the Company’s purchase of electronic component products from third-party suppliers when VAT invoices have not been received as of the balance sheet date. Other receivable also includes, advances to employees for business development and security deposits for operating leases. As of December 31, 2023, the balance of other receivable mainly consists of $714,606 of prepaid VAT input tax, $337,057 of security deposits and others. All the June 30, 2023 other receivable balance and approximately 81.9% of the December 31, 2023 other receivable balance has been collected or settled.

(2)	Deferred public offering costs of 312,527and nil was included in “prepaid expenses and other current assets” as of December 31, 2023 and June 30, 2023, respectively.

(3)	Prepaid expenses include mainly prepayment for rental expense and equipment maintenance, etc.

 

NOTE 8 — PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net, consists of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Office equipment and furniture		$	160,081			$	151,007
Automobiles			71,152				69,782
Leasehold improvement			179,348				403,778
Subtotal			410,581				624,567
Less: accumulated depreciation			(250,648	)			(498,535	)
Property and equipment, net		$	159,933			$	126,032

 

Depreciation expense was $37,614 and $29,596 for the six months ended December 31, 2023 and 2022, respectively.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 — INTANGIBLE ASSETS, NET

 

Intangible assets, net, mainly consist of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Capitalized internal-use software development costs		$	985,490			$	905,431
Less: accumulated amortization			(714,172	)			(616,995	)
Intangible assets, net		$	271,318			$	288,436

 

Amortization expense was $83,974 and $59,532 for the six months ended December 31, 2023 and 2022, respectively. Estimated future amortization expense for intangible assets is as follows:

 

Twelve months ending December 31		Amortization expense
2024		$	128,006
2025			87,930
2026			32,017
2027			15,997
2028			6,242
Thereafter			1,126
		$	271,318

 

NOTE 10 — LEASES

 

The Company’s PRC subsidiaries and VIE entered into operating lease agreements with landlords to lease warehouse and office space. As of June 30, 2023, the remaining lease term was 1.9 years. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates its incremental discount rate based on the interest rate for three-year government bond as published by China’s central bank in order to discount lease payments to present value. The discount rate of the Company’s operating leases was 3.35%. For the six months ended December 31, 2023 and 2022, there was no variable lease cost. For the six months ended December 31, 2023 and 2022, total operating lease expense amounted to $2,994 and $218,399, respectively, and amortization of the operating lease right-of-use assets amounted to $297,672 and 118,026, respectively. For the six months ended December 31, 2023, the interest on lease liabilities amounted to $14,466.

 

Supplemental balance sheet information related to operating leases was as follows:

 

The table below presents the operating lease related assets and liabilities recorded on the balance sheets.

 

		December 31, 2023 (Unaudited)				June 30, 2023
Operating lease right-of-use assets		$	1,394,748				1,274,479
Operating lease right-of-use assets – accumulated amortization			(714,632	)			(411,627	)
Operating lease right-of-use assets – net		$	680,116				862,852
Lease liabilities, current			619,150				524,698
Lease liabilities, non-current			93,813				375,056
Total Lease liabilities,		$	712,963				899,754

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 — LEASES (cont.)

 

As of December 31, 2023, maturities of lease liabilities were as follows:

 

Twelve months ending December 31,		December 31, 2023
2024			636,767
2025			91,265
Total future minimum lease payments			728,032
Less: Imputed interest			(15,069	)
Total		$	712,963

 

NOTE 11 — DEBT

 

The Company borrowed from PRC banks, other financial institutions and third parties as working capital funds. As of December 31, 2023 and June 30, 2023, the Company’s debt consisted of the following:

 

(a) Short-term loans:

 

					December 31 2023 (Unaudited)				June 30, 2023
Shanghai Pudong Development Bank		(1)			$	4,236,000			$	4,152,000
Agricultural Bank of China		(2)				2,894,600				2,750,000
Industrial and Commercial Bank of China		(3)				2,400,400				2,400,000
Bank Of China		(4)				4,517,719				4,732,116
Construction Bank of China		(5)				307,213				-
Less: Debt issuance cost		(6)				(20,594	)			(11,593	)
Total short-term loans, net					$	14,335,338			$	14,022,523

 

(1)

On March 30, 2023, the Company borrowed RMB16.1 million (approximately USD$2.3million) short-term loan from Shanghai Pudong Development Bank (“SPD”) as working capital for six months, with loan maturity date on September 26, 2023 and effective interest rate of 4.64% per annum. The loan borrowed was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 — DEBT (cont.)

 

On April 25, 2023, the Company borrowed RMB13.9 million (approximately USD$2.0 million) short-term loan from SPD bank as working capital for six months, with loan maturity date on October 20, 2023 and effective interest rate of 2.85% per annum. The loan borrowed was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On October 24, 2023, the Company borrowed RMB16.0 million (approximately USD$2.3million) short-term loan from SPD bank as working capital for six months, with loan maturity date on April 19, 2024 and effective interest rate of 2.74% per annum. The loan borrowed was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On October 27, 2023, the Company borrowed RMB14.0 million (approximately USD$2.0million) short-term loan from SPD bank as working capital for six months, with loan maturity date on April 24, 2024 and effective interest rate of 2.61% per annum. The loan borrowed was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

For the above-mentioned loans from SPD bank, certain shareholders of the Company provided joint guarantees to these loans by pledging their personal properties as collaterals.

 

(2) On February 22, 2023, the Company borrowed $2.75 million on short-term loan from Agricultural Bank of China (“ABC bank”) as working capital for six months, with loan maturity date on August 18, 2023 and effective interest rate of 5.69% per annum. The loan was fully repaid upon maturity.

 

On August 25, 2023, the Company borrowed RMB20.5 million (approximately USD$2.9 million) on short-term loan from ABC bank as working capital for six months, with loan maturity date on February 18, 2024 and effective interest rate of 3.80% per annum. The loan was fully repaid upon maturity.

 

For the above-mentioned loans from ABC bank, certain shareholders of the Company provided joint guarantees to these loans by pledging their personal properties as collaterals.

 

(3)  On May 11, 2023, the Company borrowed $1.3 million short-term loan from Industrial and Commercial Bank of China (“ICBC”) as working capital for three months, with loan maturity date on August 8, 2023 and effective interest rate of 5.56% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On June 9, 2023, the Company borrowed $1.1 million short-term loan from ICBC as working capital for three months, with loan maturity date on September 5, 2023 and effective interest rate of 5.52% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On August 10, 2023, the Company borrowed $1.3 million short-term loan from ICBC as working capital for three months, with loan maturity date on November 7, 2023 and effective interest rate of 5.90% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On September 7, 2023, the Company borrowed $1.1 million short-term loan from ICBC as working capital for three months, with loan maturity date on December 5, 2023 and effective interest rate of 5.99% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

On November 9, 2023, the Company borrowed RMB9.0 million (approximately USD$1.3 million) short-term loan from ICBC as working capital for three months, with loan maturity date on February 7, 2024 and effective interest rate of 4.5% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid on January 25, 2024.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 — DEBT (cont.)

 

On December 11, the Company borrowed RMB8.0 million (approximately USD$1.1 million) short-term loan from ICBC as working capital for three months, with loan maturity date on March 8, 2024 and effective interest rate of 4.50% per annum. The loan borrowed from ICBC Bank was guaranteed by the Company’s certain shareholders. The loan was fully repaid upon maturity.

 

For the above-mentioned loans from ICBC bank, certain shareholders of the Company provided joint guarantees to these loans by pledging their personal properties as collaterals.

 

(4) On September 27, 2022, the Company borrowed GBP£0.92 million (approximately $1.2 million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on September 27, 2023 and effective interest rate of 4.51% per annum. The loan was pledged by a term deposit of JPY ¥144.7 million (approximately $1.06 million). The loan was fully repaid upon maturity.

 

On November 21, 2022, the Company borrowed EUR€0.97 million (approximately $1.0 million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on November 21, 2023 and effective interest rate of 2.58% per annum. The loan was pledged by a term deposit of GBP£0.84 million (approximately $1.03 million). The loan was fully repaid upon maturity.

 

On March 28, 2023, the Company borrowed HKD 11.8 million (approximately $1.5 million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on March 27, 2024 and effective interest rate of 3.02% per annum. The loan was pledged by a term deposit of JPY 196.8 million (approximately $1.48 million). The loan was fully repaid upon maturity.

 

On June 28, 2023, the Company borrowed GBP£0.8 million (approximately $1.0 million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on June 27, 2024 and effective interest rate of 6.02% per annum. The loan was pledged by a term deposit of JPY 144.0 million (approximately $1.0 million).

 

On August 29, 2023, the Company borrowed HKD 7.9 million (approximately $1.0million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on August 28, 2024 and effective interest rate of 3.73% per annum. The loan was pledged by a term deposit of JPY 146.6 million (approximately $1.0 million).

 

On November 21, 2023, the Company borrowed HKD 7.8 million (approximately $1.0million) short-term loan from Bank of China as working capital for twelve months, with loan maturity date on November 20, 2024 and effective interest rate of 5.24% per annum. The loan was pledged by a term deposit of JPY 148.4 million (approximately $1.0 million).

 

(5) On July 20, 2023, the Company borrowed RMB2.2 million (approximately $0.3 million) short-term loan from Construction Bank of China as working capital for nine months, with loan maturity date on March 13, 2024 and effective interest rate of 3.85% per annum. The loan was fully repaid upon maturity.

 

(6) In order to obtain the above-mentioned loans from PRC banks, as of December 31. 2023 and June 30 2023, the Company incurred total of $385,490 and $292,998 loan origination fees to be paid to above mentioned related parties for providing loan guarantees and pledging their personal assets as collaterals to safeguard the loans. The loan origination fees were recorded as deferred financing cost against the loan balances. For the six months ended December 31, 2023 and 2022, $92,491 and $110,219 deferred financing cost was amortized, respectively.

 

For the above-mentioned short-term loans from PRC banks and financial institutions, interest expense amounted to $321,697 and $215,589 for the six months ended December 31, 2023 and 2022, respectively.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 — DEBT (cont.)

 

(b) Short-term borrowings- third-party loans

 

From June to December 2023, the Company borrowed loans from an unrelated company as working capital, with loan maturity date ranging from August 2023 to December 2023, and effective interest rate of 3.6% per annum. As of December 31, 2023, the outstanding balance was $0.

 

Total interest expense on these third-party loans amounted to $1,611 and $6,092 for the six months ended December 31, 2023 and 2022, respectively.

 

(C) Notes Payable

 

The Company has various credit facilities with PRC banks that provide for working capital in the form of notes payable. On November 21, 2023, the Company obtained another line of credit from Huaxia Bank of RMB 11 million (equivalent to $1,553,200) as working capital in the form of banker’s acceptance note. This note was interest free and with a maturity date on June 12, 2024. The Company pledged restricted cash of $0.16 million as collateral to secure this note. The notes payable was fully repaid on May 20 2024.

 

NOTE 12 — ACCOUNTS PAYABLE

 

The Company’s accounts payable (“AP”) primarily include balance due to suppliers for purchase of electronic components products. The June 30, 2023 accounts payable balance has been fully settled. Approximately 97.6.0% of the accounts payable balance as of December 31, 2023 has been settled as of the date the Company’s unaudited interim financial statements for the six months ended December 31, 2023 were issued.

 

The following table summarizes the Company’s outstanding accounts payable and subsequent settlement by aging bucket:

 

		Balance as of December 31, 2023 (Unaudited)				Subsequent settlement				% of collection
Accounts payable aged less than 6 months		$	23,815,014			$	23,241,671				97.6	%
Accounts payable aged from 7 to 12 months			361				361				100.0	%
Total accounts payable		$	23,815,375			$	23,242,032				97.6	%

 

		Balance as of June 30, 2023				Subsequent settlement				% of collection
Accounts payable aged less than 6 months		$	50,049,021			$	50,049,021				100.0	%
Accounts payable aged from 7 to 12 months			1,078,127				1,078,127				100.0	%
Total accounts payable		$	51,127,328			$	51,127,328				100.0	%

 

NOTE 13 — TAXES

 

(a) Corporate Income Taxes (“CIT”)

 

Cayman Islands

 

Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.

 

Hong Kong

 

ICZOOM HK, Ehub, Hjet HK and Components Zone HK are incorporated in Hong Kong and are subject to profit taxes at a rate of 16.5% for taxable income earned in Hong Kong before April 1, 2018. Starting from the financial year commencing on or after April 1, 2018, the two-tiered profits tax rates regime took effect, under which the profits tax rate is 8.25% on assessable profits of the first HK$2 million and 16.5% on any assessable profits in excess of HK$2 million. There is an anti-fragmentation measure where each group will have to nominate only one company in the group to benefit from the progressive rates. As a result, Ehub is nominated by the Company and is subject to tax rate of 8.25% on the first HK$2 million of assessable profits and a tax rate of 16.5% on the remaining profits and ICZOOM HK, Hjet HK and Components Zone HK are subject to Hong Kong profit taxes at a rate of 16.5% for the years ended December 31, 2023 and 2022, respectively.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 13 — TAXES (cont.)

 

PRC

 

ICZOOM WFOE, Hjet Shuntong, ICZOOM Shenzhen and Hjet Supply Chain,are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) and are taxed at the statutory income tax rate of 25%.

 

EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. ICZOOM Shenzhen, one of the Company’s ICZOOM Operating Entities in the PRC, was approved as HNTEs and is entitled to a reduced income tax rate of 15% beginning December 2023, which is valid for three years.

 

(i) The components of the income tax provision from Cayman Islands, Hong Kong, and China are as follows:

 

		For the Six Months Ended December 31,
		2023 (Unaudited)				2022 (Unaudited)
Current tax provision
Cayman Islands		$	—			$	—
Hong Kong			20,075				110,678
China			337				—
			20,412				110,678
Deferred tax provision (benefit)
Cayman Islands			—				—
Hong Kong			305				—
China			(345,694	)			(109,626	)
			(345,389	)			(109,626	)
Income tax benefit/(expense)		$	(324,977	)		$	1,052

 

Reconciliation of the differences between the income tax provision computed based on PRC statutory income tax rate and the Company’s actual income tax provision for the six months ended December 31, 2023 and 2022, respectively are as follows:

 

		For the Six Months Ended December 31,
		2023 (Unaudited)				2022 (Unaudited)
Income tax expense computed based on PRC statutory rate		$	(261,681	)		$	231,942
Effect of rate differential for Hong Kong entities			(43,935	)			(109,770	)
Non-deductible expenses:
Stock-based compensation*			-				14,649
Meals and entertainment			-				1,022
Change in valuation allowance			(19,361	)			(136,791	)
Actual income tax benefit/(expense)		$	(324,977	)		$	1,052

 

*

The Company’s stock-based compensation expenses were recorded under the Cayman parent company level. Pursuant to the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. As a result, stock-based compensation expenses are non-deductible expenses for income tax purposes.

 

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 13 — TAXES (cont.)

 

Deferred tax assets

 

The Company’s deferred tax assets are comprised of the following:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Deferred tax assets derived from net operating loss (“NOL”) carry forwards		$	741,077			$	406,760
Allowance for doubtful accounts			—				—
Allowance of Inventory			—				305
Less: valuation allowance			(392,420	)			(406,760	)
Deferred tax assets		$	348,657			$	305

 

Movement of valuation allowance:

 

		December 31, 2023 (Unaudited)				June 30, 2023
Balance at beginning of the period		$	576,432			$	726,607
Current period addition/(reversal)			(184,012	)			8,446
Effect due to the termination of VIE			—				(158,621	)
Balance at end of the period		$	392,420			$	576,432

 

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company has four subsidiaries in HK, including ICZOOM HK, Components Zone HK, Hjet HK and Ehub, among which Components Zone HK were reported recurring operating losses since 2015 to June 2023. In addition, the Company also has five subsidiaries in the PRC, among which, ICZOOM Shenzhen were also reported recurring operating losses since 2015 to June 2023.

 

Management concluded that the chances for the above-mentioned HK and PRC subsidiaries to be profitable in the foreseeable near future and to utilize their net operating loss carry forwards were uncertainty. Accordingly, the Company provided valuation allowance of $392,420and $576,432 for the deferred tax assets of these subsidiaries for the six months ended December 31, 2023 and 2022 respectively.

 

(b) Taxes payable

 

Taxes payable consist of the following:

 

		December 31 2023 (Unaudited)				June 30, 2023
Income tax payable		$	2,326,711			$	2,363,980
Value added tax payable			954,379				568,157
Total taxes payable		$	3,281,090			$	2,932,137

 

ICZOOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 20 — FINANCIAL INFORMATION OF THE PARENT COMPANY (cont.)

 

ICZOOM GROUP INC.
UNAUDITED PARENT COMPANY STATEMENTS OF CASH FLOWS

 

		For Six Months Ended December 31,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)		$	(721,745	)		$	926,717
Adjustments to reconcile net cash flows from operating activities:
Equity in earnings/(deficit) of subsidiaries			721,745				(926,717	)
Net cash used in operating activities			—				—
CHANGES IN CASH AND RESTRICTED CASH			—				—
CASH AND RESTRICTED CASH, beginning of period			—				—
CASH AND RESTRICTED CASH, end of period		$	—			$	—

 

 

F-40

 

Exhibit 99.2

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The information in this report contains forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Disclosure Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth elsewhere in this report.

 

Overview

 

We, ICZOOM Group Inc. (the “Company”), are an offshore holding company incorporated in Cayman Islands, conducting all of our operation in through our wholly owned subsidiaries established in China and Hong Kong.

 

We are a technology-driven company running an ecommerce trading platform and are primarily engaged in sales of electronic component products to customers in the PRC. Major electronic component products we sold to customers through our online e-commerce platform fall into two broad product categories: semiconductor products (such as integrated circuit, power/circuit protection, discretes, passive components, optoelectronics/ electromechanical, etc.) and equipment, tools and other electronic component products (such as Maintenance, Repair and Operations (“MRO”), and various design tools, etc.). These products are primarily used by customers in the consumer electronic industry, Internet of Things (“IoT”), automotive electronics, industry control segment with primary target customers being China small and medium-sized enterprises (“SMEs”). In addition to sales of electronic component products, we also provide services to customers to earn service commission fees, such services include, but not limit to, order fulfilment, temporary warehousing, logistic and shipping, and customs clearance, etc.

 

Built upon our proprietary industry knowledge and coupled with our SaaS suite, we are committed to working with our clients to understand their needs and challenges and offering suitable products and services to help them meet their respective needs. Our mission is to transform the traditional electronic component distribution business by offering SME customers integrated solutions and help them introduce innovative products, reduce their time to market, and enhance their overall competitiveness.

 

We primarily generate revenue from sales of electronic components products to customers. In addition, we have certain amount of revenue from service commission fee for services provided to our customers including, but not limit to, customs clearance, warehousing and product shipping and delivery services.

 

 

Our Organization

 

Our revenues decreased by $32,486,953, or 27.0%, from $120,207,506 for the six months ended December 31, 2022 to $87,720,553 for the six months ended December 31, 2023. Revenues from sales of electronic component products accounted for 98.4% and 98.4% of our total revenues for the six months ended December 31, 2023 and 2022, respectively. Revenues from service commission fees accounted for 1.6% and 1.6% of our total revenues for the six months ended December 31, 2023 and 2022, respectively.

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				% of total revenue				Amount				% of total revenue				Amount				%
Revenues
Sales of electronic components		$	86,329,512				98.4	%		$	118,348,676				98.4	%		$	(32,019,164	)			(27.1	)%
Service commission fee			1,391,041				1.6	%			1,858,830				1.6	%			(467,789	)			(25.2	)%
Total revenue		$	87,720,553				100.0	%		$	120,207,506				100.0	%		$	(32,486,953	)			(27.0	)%

 

Key Factors That Affect Our Results of Operations

 

We believe the following key factors may affect our financial condition and results of operations:

 

Effectiveness of Risk Management

 

The success of our business relies heavily on our ability to effectively evaluate customers’ credit profiles and the likelihood of default. We have devised and implemented a systematic credit assessment model and disciplined risk management approach to minimize customers’ default risk and mitigate the impact of default. Specifically, our assessment model and risk management capabilities enable us to select high-quality SME customers whose financial conditions and background meet our selection criteria. There can be no assurance that our risk management measures will allow us to identify or appropriately assess whether customer payments due will be collected when due. If our risk management approach is ineffective, or if we otherwise fail or are perceived to fail to manage the impact of default, our reputation and market share could be materially and adversely affected, which would severely impact our business and results of operations.

 

Our Ability to Attract Additional Customers and Increase the Spending Per Customer

 

Our major customers are China’s SMEs running their businesses in the consumer electronic industry, Internet of Things, automotive electronics, and industry control segment, etc. We currently sell our electronic component products to these customers in 19 provinces in China, with significant customers located in Guangdong Province, Jiangsu Province, Liaoning Province, Beijing City and Shanghai City in China. We plan to expand our business to extended geographic areas to cover 80% of the provinces in China within the next 1-2 years. For the six months ended December 31, 2023 and 2022, we had total 634 and 653 customers, respectively. No single customer accounted for more than 10% of our total revenue in either period. For the six months ended December 31, 2023 and 2022, our top 10 customers in aggregate accounted for 26.4% and 28.0% of the total revenue, respectively. Our dependence on a small number of larger customers could expose us to the risk of substantial losses if a single large customer stop purchasing our products, purchases fewer of our products or goes out of business and we cannot find substitute customers on equivalent terms. If any of our significant customers reduces the quantity of the products it purchases from us or stops purchasing from us, our net revenues could be materially and adversely affected. Therefore, the success of our business in the future depends on our effective marketing efforts to expand our distribution network in the PRC in an effort to increase our geographic penetration. The success of expansion will depend upon many factors, including our ability to form relationships with, and manage an increasing number of, customers and optimize our distribution network. If our marketing efforts fail to convince customers to accept our products, we may find it difficult to maintain the existing level of sales or to increase such sales. Should this happen, our net revenues would decline and our growth prospectus would be severely impaired.

 

Our Ability to Increase Awareness of Our Brand and Develop Customer Loyalty

 

Our brand is integral to our sales and marketing efforts. We will promote our company brand to enhance customer recognition of our company brand; at the same time, we will increase our customers’ stickiness through our SaaS services. We believe that maintaining and enhancing our brand name recognition in a cost-effective manner is critical to achieving widespread acceptance of our electronic component products and is an important element in our effort to increase our customer base. Successful promotion of our brand name will depend largely on our marketing efforts and ability to provide reliable and quality products at competitive prices. Brand promotion activities may not necessarily yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in marketing activities. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers, in which case our business, operating results and financial condition, would be materially adversely affected.

 

 

Our ability to establish and retain long-term strategic relationship with suppliers

 

We source our products from various suppliers, mainly including some of the top brand-name suppliers in electronic component product categories. Maintaining good relationships with these suppliers and procuring products from suppliers on favorable terms are important to the growth of our business. With the growth of our e-commerce platform, we expect we will be able to continuously provide more demand information to our suppliers. However, there can be no assurance that our current suppliers will continue to sell electronic component products to us on terms acceptable to us, or that we will be able to establish new or extend current supplier relationships to ensure a steady supply of electronic component products in a timely and cost-efficient manner. If we are unable to develop and maintain good relationships with suppliers, we may not be able to offer products demanded by our customers, or to offer them in sufficient quantities and at prices acceptable to them. In addition, if our suppliers cease to provide us with favorable pricing or payment terms or exchange privileges, our working capital requirements may increase and our operations may be materially and adversely affected. Any deterioration in our relationship with major suppliers, or a failure to timely resolve disputes with or complaints from our major suppliers, could materially and adversely affect our business, prospects and results of operations.

 

Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency

 

Because orders from SMEs are often very complicated and the order amount is small, the cost of serving them for the existing traditional business model is relatively high. We reduce our operating cost through our advanced e-commerce business model and effectively serve SMEs at an effective low cost. Our business growth is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, secure new contracts with customers and our ability to control costs and expenses to improve our operating efficiency. Our inventory costs (including third-party electronic component product purchase costs, tariffs, inbound freight and shipping costs, warehouse lease and overhead costs and business taxes) have a direct impact on our profitability. The inventory purchase costs are subject to price volatility and other inflationary pressures, which may, in turn, result in an increase in the amount we pay for sourced products. Price increases may adversely impact our financial results. In addition, our staffing costs (including salary and employee benefit expense) and administrative expenses also have a direct impact on our profitability. Our ability to drive the productivity of our staff and enhance our operating efficiency affects our profitability. To the extent that the costs we are required to pay to our suppliers and our staffs exceed our estimates, our profit may be impaired. If we fail to implement initiatives to control costs and improve our operating efficiency over time, our profitability will be negatively impacted.

  

Our Ability to Compete Successfully

 

The electronic component procurement market in China is intensely competitive. We face competition from large information based B2B e-commerce companies, offline distributors, vendors, and traders of electronic components, many of which possess significant brand recognition, sales volume and customer bases, and some of which currently sell, or in the future may sell, products or services through their online service platforms. Some of our current and potential competitors have significantly greater financial, technical or marketing resources than we do. In addition, some of our competitors or new entrants may be acquired by, receive investment from or enter into strategic relationships with, well-established and well-financed companies or investors which would help enhance their competitive positions. Our failure to properly respond to increased competition and the above challenges may reduce our operating margins, market share and brand recognition, or force us to incur losses, which will have a material adverse effect on our business, prospects, financial condition and results of operations.

 

 

A Severe or Prolonged Slowdown in The Global or Chinese Economy Could Materially and Adversely Affect Our Business and Our Financial Condition

 

The rapid growth of the Chinese economy has slowed down since 2012 and this slowdown may continue in the future. There is considerable uncertainty over trade conflicts between the United States and China and the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. The withdrawal of these expansionary monetary and fiscal policies could lead to a contraction. There continue to be concerns over unrest and terrorist threats in the Middle East, Europe, and Africa, which have resulted in volatility in oil and other markets. There are also concerns about the relationships between China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. The eruption of armed conflict could adversely affect global or Chinese discretionary spending, either of which could have a material and adverse effect on our business, results of operation in financial condition. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy would likely materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.

 

Key Financial Performance Indicators

 

In assessing our financial performance, we consider a variety of financial performance measures, including growth in net revenue and gross profit, our ability to control costs and operating expenses to improve our operating efficiency and net income. Our review of these indicators facilitates timely evaluation of the performance of our business and effective communication of results and key decisions, allowing our business to respond promptly to competitive market conditions and different demands and preferences from our customers. The key measures that we use to evaluate the performance of our business are set forth below and are discussed in greater details under “Results of Operations”.

 

Net Revenue

 

Our net revenue is driven by changes in the number of customers, sales volume, selling price, and mix of products sold.

 

		For the six months ended December 31,
		2023 (Unaudited)				2022 (Unaudited)				Variances				%
Sales of electronic components:
Sales of semiconductor products			87.0	%			89.0	%
Sales of equipment, tools and others			11.4	%			9.4	%
Total sales of electronic component products			98.4	%			98.4	%
Service commission fee			1.6	%			1.6	%
Total revenue			100.00	%			100.00	%
Number of customers for electronic component products			487				521				(34	)			(6.5	)%
Number of customers for services			147				132				15				11.4	%
Total number of customers			634				653				(19	)			(2.9	)%
Stock-keeping unit (SKU) available for sale-Semiconductor			6,955				12,457				(5,502	)			(44.2	)%
Stock-keeping unit (SKU) available for sale-Equipment and tools			1,418				1,599				(181	)			(11.3	)%
Total SKUs			8,373				14,056				(5,683	)			(40.4	)%
Sales volume for semiconductor (Unit)			552,511,982				546,449,380				6,062,602				1.1	%
Sales volume for equipment, tools and others (Unit)			4,626,382				11,119,870				(6,493,488	)			(58.4	)%
Total sales volume of electronic component products			557,138,364				557,569,250				(430,886	)			(0.1	)%
Average selling price of semiconductor		$	0.14			$	0.20			$	(0.06	)			(30.0	)%
Average selling price of equipment, tools and others		$	2.17			$	1.02			$	1.15				113.4	%

 

 

Revenues from sales of electronic component products accounted and 98.4% and 98. 4% of our total revenues for the six months ended December 31, 2023 and 2022, respectively. Electronic component products sold to customers by us fall into two categories: (i) semiconductor products and (ii) electronic equipment, tools and other products. Our semiconductor products primarily include various integrated circuit, power/circuit protection, discretes, passive components, optoelectronics/electromechanical and our equipment, tools and other electronic component products primarily include various MRO, and design tools.

 

Total SKUs sold to customers decreased by 40.4% from 14,056 different products for the six months ended December 31, 2022 (including 12,457 different variety of semiconductor products and 1,599 different variety of equipment and tools products) to 8,373 different products for the six months ended December 31, 2023 (including 6,955 different variety of semiconductor products and 1,418 different variety of equipment and tools products). The decrease in variety of product offerings reflected the decreased demand from the end of customers as some of them had stocked up heavily in prior fiscal years and still carried over comparatively high inventories. Thus, the number of customers for our electronic component products decreased by 2.9% from 653 customers for the six months ended December 31, 2022 to 634 customers for the six months ended December 31, 2023. We also count the number of the repeat customers, measured by the number of the customers who made orders in the current period with transaction records with us in the last five fiscal years. And the number of the repeat customers for the six months ended December 31, 2023 was 523, and the repeat customers accounted for 82.5% of the total customers for the six months ended December 31, 2023 while the repeat customers accounted for only 76.1% for the six months ended December 31, 2022. Our customers are mainly SMEs who rely on our e-commerce platform for one-stop procurement, as well as the add-on services to lower the total cost of procurement conducted by themselves. Even though the electronics industry is subject to short product life cycles, fast changing product trends, constantly evolving technologies and customers with frequent purchase needs, our relatively short inventory turnover period and the large number of the SKUs enable us to satisfy our customers’ frequent, changing, and various demands and further to maintain a long-term business relationship with our customers. Therefore, the increasing percentage of the repeat customers reflected the increasing high satisfactions and loyalty of our existing customers who made orders on our platform, as one of the indicators of the performance of our services and business. Our management references to the number of repeat customers to monitor our customers’ satisfaction levels and takes it into consideration for the future development of the business. These factors led to a 27.1% decrease in our total revenue from sales of electronic component products for the six months ended December 31, 2022 to the six months ended December 31, 2023.

 

Service commission fee revenue from providing customs clearance, temporary warehousing, and logistic and shipping services to customers accounted for 1.6% and 1. 6% of our total revenues for the six months ended December 31, 2023 and 2022, respectively. We earn a commission fee ranging from 0.15% to 2.0% based on the value of the merchandise that customers purchase from suppliers and such commission fee is not refundable. Number of customers for our services increased by 11.4% from 132 customers for the six months ended December 31, 2022 to 147 for the six months ended December 31, 2023. 

 

 

Gross Profit

 

Gross profit is equal to net revenue minus cost of goods sold. Cost of goods sold primarily includes inventory costs (third-party products purchase price, tariffs, inbound freight costs, warehouse lease and overhead costs and business taxes) and sales taxes. Cost of goods sold generally changes as affected by factors including the availability of the third-party products in the market, the purchase price of third-party products, sales volume and product mix changes. Our cost of revenues accounted for 97.5% and 97.4% of our total revenue for the six months ended December 31, 2023 and 2022, respectively.

 

Our gross margin was 2.5% for the six months ended December 31, 2023, a decrease by 0.1% from gross margin of 2.6% for the six months ended December 31, 2022 Our gross profit and gross margin is affected by sales of different product mix during each reporting period. Our gross margin increases when more revenue comes from products with lower costs and higher margin, while our gross margin decreases when more revenue comes from products with higher costs and lower margin. For the six months ended December 31, 2023, we earned more revenue from products with higher costs and lower margin. These factors led to the decrease in our gross profit and in gross margin. See detailed discussion under “Results of Operation”.

 

Operating Expenses

 

Our operating expenses consist of selling expenses, and general and administrative expenses.

 

Our selling expenses primarily include salary and welfare benefit expenses paid to our sales personnel, warehouse rental expense, shipping and delivery expenses, tariff expenses, expenses incurred for our business travel, meals and other sales promotion and marketing activities related expenses.

 

Our selling expenses accounted for 0.9% and 0.8% of our total revenue for the six months ended December 31, 2023 and 2022, respectively. Our selling expenses in terms of our total revenue increased from 0.8% for the six months ended December 31, 2022 to 0.9% for the six months ended December 31, 2023, however, due to decreased total revenue, in terms of dollar amount, our total selling expenses decreased by $197,895 or 20.3%for the six months ended December 31, 2023 compared to for the six months ended December 31, 2022, and the decrease was largely due to the decrease of salary expense due to downsize of the sales team by 4 employees per month on average.

 

Our general and administrative expenses primarily consist of employee salaries, welfare and insurance expenses, depreciation and amortization, bad debt reserve expenses, office supply and utility expenses, business travel and meals expenses, and professional service expenses. General and administrative expenses were 1.7% and 1.1% of our revenue for the six months ended December 31, 2023 and 2022, respectively. Our general and administrative expenses in terms of our total revenue increased from 1.1% in first half of fiscal year 2023 to 1.7% in first half of fiscal year 2024, although the total revenue decreased by 27.0%, our total general and administrative expenses increased by $215,232 or 16.5% in terms of dollar amount, for the six months ended December 31, 2023 compared to for the six months ended December 31, 2022, and the increase was largely due to the increase in salaries for senior management and the increase of transportation, travel and meals expenses to maintaining investor relations incurred in promoting our brand and the increase in professional fees as a result of legal services and services related to the maintenance of investor relations.

 

 

Results of Operations

 

The following table summarizes our operating results as reflected in our statements of income and comprehensive income during the six months ended December 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				% of  total revenue				Amount				% of total revenue				Amount				%
Revenues
Sales of electronic components		$	86,329,512				98.4	%		$	118,348,676				98.4	%		$	(32,019,164	)			(27.1	)%
Service commission fee			1,391,041				1.6	%			1,858,830				1.6	%			(467,789	)			(25.2	)%
Total revenue			87,720,553				100.0	%			120,207,506				100.0	%			(32,486,953	)			(27.0	)%
Cost of revenues			85,533,907				97.5	%			117,108,678				97.4	%			(31,574,771	)			(27.0	)%
Gross profit			2,186,646				2.5	%			3,098,828				2.6	%			(912,182	)			(29.4	)%
Operating expenses
Selling expenses			776,007				0.9	%			973,902				0.8	%			(197,895	)			(20.3	)%
General and administrative expenses			1,523,002				1.7	%			1,307,770				1.1	%			215,232				16.5	%
Total operating expenses			2,299,009				2.6	%			2,281,672				1.9	%			17,337				0.8	%
(Loss)/Income from operations			(112,363	)			(0.1	)%			817,156				0.7	%			(929,519	)			(113.8	)%
Other income (expenses)
Interest expenses			(351,806	)			(0.4	)%			(234,738	)			(0.2	)%			(117,068	)			49.9	%
Income from short-term investment			59,174				0.1	%			6,913				0.0	%			52,261				756.0	%
Foreign exchange transaction (loss)/gain			(559,655	)			(0.6	)%			418,866				0.4	%			(978,521	)			(233.6	)%
Subsidy income			11,409				0.0	%			31,826				0.0	%			(20,417	)			(64.2	)%
Other expenses			(93,481	)			(0.1	)%			(112,254	)			(0.1	)%			18,773				(16.7	)%
Total other (expenses)/income, net			(934,359	)			(1.1	)%			110,613				0.1	%			(1,044,972	)			(944.7	)%
(Loss)/income before income tax provisions/benefits			(1,046,722	)			(1.2	)%			927,769				0.8	%			(1,974,491	)			(212.8	)%
INCOME TAX (BENEFIT)/EXPENSES			(324,977	)			(0.4	)%			1,052				0.0	%			(326,029	)			(30,991.3	)%
Net (loss)/income		$	(721,745	)			(0.8	)%		$	926,717				0.8	%		$	(1,648,462	)			(177.9	)%

 

 

Revenue. 

 

We generated revenue from the sales of electronic components and the service commission fees. Our total revenue decreased by $32.5 million or 27.0%, to $87.7 million for the six months ended December 31 2023 from $120.2 million for the six months ended December 31, 2022. The decrease was largely attributable to the reduced demand from the customers as some of the customers stocked up heavily in prior fiscal years and still carried over comparatively high inventories. The number of customers for our electronic component products and services decreased by 19 or 2.9%, from 653 for the six months ended December 31, 2022 to 634 for the six months ended December 31 2023.

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				% of total revenue				Amount				% of total revenue				Amount				%
Revenues
Sales of electronic components
Revenue from sales of semiconductor		$	76,288,843				87.0	%		$	107,038,386				89.0	%		$	(30,749,543	)			(28.7	)%
Revenue from sales of equipment, tools and others			10,040,669				11.4	%			11,310,290				9.4	%			(1,269,621	)			(11.2	)%
Subtotal of sales of electronic component products			86,329,512				98.4	%			118,348,676				98.4	%			(32,019,164	)			(27.1	)%
Service commission fee			1,391,041				1.6	%			1,858,830				1.6	%			(467,789	)			(25.2	)%
Total revenue		$	87,720,553				100.0	%		$	120,207,506				100.0	%		$	(32,486,953	)			(27.0	)%

 

(1) Revenue from sales of electronic component products

 

Revenue from sales of electronic components decreased by $32.0 million or 27.1%, to $86.3 million for the six months ended December 31, 2023 from $118.3 million for the six months ended December 31, 2022.

  

Our electronic component products sold to customers fall into two categories: semiconductor products and electronic equipment, tools and other products.

 

		For the six months ended December 31,
		2023				2022
		(Unaudited)				(Unaudited)
Sales of electronic components products:
Semiconductor:
Integrated Circuits		$	30,881,697			$	9,097,914
Power/Circuit Protection			7,381,913				5,845,672
Discretes			7,274,989				8,586,905
Passive Components			22,672,366				71,790,069
Optoelectronics/Electromechanical			3,240,380				5,336,787
Other semiconductor products			4,837,497				6,381,039
Equipment, tools and others:
Equipment			4,531,976				5,501,886
Tools and others			5,508,694				5,808,404
Total sales of electronic components products		$	86,329,512			$	118,348,676
Service commission fees			1,391,041				1,858,830
Total revenue		$	87,720,553			$	120,207,506

 

 

Our semiconductor products primarily include various integrated circuit, power/circuit protection, discretes, passive components, optoelectronics/electromechanical, etc. Revenue from sales of electronic components decreased primarily due to the decreased sales of passive components as the passive components were stocked up heavily by some customers last fiscal year and the demand for them decreased during this period. Our total SKU of semiconductor sold decreased by 5,502, or 44.2% from 12,457 for the six months ended December 31, 2022 to 6,955 for the six months ended December 31, 2023, reflected the reduced demands from the end of customers.

 

(2) Service commission fees

 

Service commission fees decreased by $0.47 million or 25.2%, to $1.39 million for the six months ended December 31, 2023 from $1.86 million for the six months ended December 31, 2022. We provide customs clearance when customers purchase electronic component products directly from overseas suppliers, as well as temporary warehousing, and logistic and shipping services after the customs clearance. Number of customers for our services increased by 11.4% from 132 customers for the six months ended December 31, 2022 to 147 for the six months ended December 31, 2023, however, due to the decreased in total merchandise value involved in the transactions, the service mission fees decreased for the six months ended December 31, 2023 compared to the six months ended December 31, 2022.

 

Cost of Revenues  

 

Our cost of revenues primarily consists of third-party products purchase price, tariffs associated with import products from overseas suppliers, inbound freight costs, warehousing and overhead costs and business taxes.

 

The following table sets forth the breakdown of our cost of revenues for the six months ended December 31, 2023 and 2022:

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)
		Amount				% of total cost				Amount				% of total cost				Variances				%
Third-party products purchase costs		$	84,428,127				98.7	%		$	116,101,909				99.1	%		$	(31,673,782	)			(27.3	)%
Tariffs			577,332				0.7	%			486,115				0.4	%			91,217				18.8	%
Inbound shipping and delivery costs			249,883				0.3	%			250,996				0.2	%			(1,113	)			(0.4	)%
Warehouse lease and overhead costs			229,777				0.3	%			220,901				0.2	%			8,876				4.0	%
Business taxes			48,788				0.0	%			48,757				0.1	%			31				0.1	%
Total cost of revenues		$	85,533,907				100.0	%		$	117,108,678				100.0	%		$	(31,574,771	)			(27.0	)%

 

Total cost of revenue decreased by $31.6 million, or 27.0%, from $117.1 million for the six months ended December 31, 2022 to $85.5 million for the six months ended December 31, 2023. The decrease in our cost of revenue was largely attributable to decreased third-party product purchase costs which were in line with the decrease of the sales of electronic component products. The third-party product purchase costs decreased by 31.7 or 27.3% from 116.10 million for the six months ended December 31, 2022 to 84.4 million for the six months ended December 31, 2023. On the other hand, tariffs increased by 91,217 or 18.8% from 0.47 million for the six months ended December 31, 2022 to 0.58 million for the six months ended December 31, 2023. The increase was due to increased purchases of high-tariff electronic components from the overseas suppliers as the product mix changed. the combined factors led to the decrease of the total cost of revenues.

 

 

Gross profit

 

Our gross profit decreased by $0.91 million or 29.4%, from $3.1 million for the six months ended December 31, 2022 to $2.2 million for the six months ended December 31, 2023. Our gross margin decreased by 0.1%, from 2.6% for the six months ended December 31, 2022 to 2.5% for the six months ended December 31, 2023. Our gross profit and gross margin are affected by sales of different product mix during each reporting period. For the six months ended December 31, 2023, we earned more revenue from products with higher costs and lower margin, which led to the decrease in both our gross profit and our gross margin.

 

Total operating expenses

 

The following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2023 and 2022:

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				% of total revenue				Amount				% of total revenue				Amount				%
Total revenues:		$	87,720,553				100.0	%		$	120,207,506				100.0	%		$	(32,486,953	)			(27.0	)%
Operating expenses:
Selling expenses			776,007				0.9	%			973,902				0.8	%			(197,895	)			(20.3	)%
General and administrative expenses			1,523,002				1.7	%			1,307,770				1.1	%			215,232				16.5	%
Total operating expenses		$	2,299,009				2.6	%		$	2,281,672				1.9	%		$	17,337				0.8	%

 

Selling expenses

 

Our selling expenses primarily include salary and welfare benefit expenses paid to our sales personnel, office rental expense, shipping and delivery expenses, customs clearance, expenses incurred for our business travel, meals and other sales promotion and marketing activities related expenses.

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				%				Amount				%				Amount				%
Salary and employee benefit expenses		$	381,872				49.2	%		$	520,319				53.4	%		$	(138,448	)			(26.6	)%
Lease expense			3,992				0.5	%			34,575				3.5	%			(30,582	)			(88.5	)%
Shipping and delivery expenses			201,503				26.0	%			218,586				22.4	%			(17,083	)			(7.8	)%
Sales promotion			43,103				5.6	%			26,023				2.7	%			17,081				65.6	%
Business travel and meals expenses			21,336				2.7	%			23,182				2.4	%			(1,846	)			(8.0	)%
Tariffs			10,705				1.4	%			13,966				1.4	%			(3,261	)			(23.3	)%
Utility and office expenses			31,228				4.0	%			42,337				4.4	%			(11,109	)			(26.2	)%
Depreciation and amortization			77,578				10.0	%			70,949				7.3	%			6,629				9.3	%
Other sales promotion related expenses			4,690				0.6	%			23,966				2.5	%			(19,276	)			(80.4	)%
Total selling expenses		$	776,007				100.0	%		$	973,902				100.0	%		$	(197,895	)			(20.3	)%

 

 

Our selling expenses decreased by $197,895 or 20.3%, from $973,902 for the six months ended December 31, 2022 to $776,007 for the six months ended December 31, 2023, primarily attributable to that (i) salary and employee benefit expenses decreased by $138,448 or 26.6% from $520,319 for the six months ended December 31, 2022 to $381,872 for the six months ended December 31, 2023 because of the reduced bonus to the sales team as our total revenue decreased; (ii) lease expenses decreased by $30,582, due to we no longer rented the Huaqiangbei office during the period; (iii) shipping and delivery expenses decreased by $17,083, due to decreased sales volume of electronic components; (iv) utility and office expenses decreased by $11,109, due to the stricter expense control during the period; The decrease was offset by the increase of $17,081 in the sales promotion which was due to more sales discount offered to customers to collect the receivables and to stimulate the sales. These above-mentioned factors combined led to the decrease in our selling expenses for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022.

 

General and Administrative Expenses

 

Our general and administrative expenses primarily consist of employee salaries, welfare and insurance expenses, depreciation and amortization, bad debt reserve expenses, office supply and utility expenses, business travel and meals expenses, and professional service expenses.

 

		For the six months ended December 31,
		2023 (Unaudited)								2022 (Unaudited)								Variances
		Amount				%				Amount				%				Amount				%
Salary and employee benefit expenses		$	567,637				37.3	%		$	448,925				34.3	%		$	118,712				26.4	%
Stock-based compensation expenses			-				0.0	%			33,618				2.6	%			(33,618	)			(100.0	)%
Rent expense			-				0.0	%			579				0.0	%			(579	)			(100.0	)%
Depreciation and amortization			126,056				8.3	%			100,485				7.7	%			25,571				25.4	%
Bad debt reserve expenses			-				0.0	%			1,851				0.1	%			(1,851	)			(100.0	)%
Transportation, travel and meals expenses			128,959				8.5	%			67,360				5.2	%			61,599				91.4	%
Office supply and utility expenses			23,088				1.5	%			29,200				2.2	%			(6,111	)			(20.9	)%
Professional service fee			381,343				25.0	%			326,085				24.9	%			55,258				16.9	%
Bank charges			59,725				3.9	%			45,100				3.5	%			14,625				32.4	%
Insurance			4,272				0.3	%			4,113				0.3	%			159				3.9	%
Research and development expenses			196,919				12.9	%			250,454				19.2	%			(53,535	)			(21.4	)%
Others			35,003				2.3	%			-				0.0	%			35,003				100.0	%
Total general and administrative expenses		$	1,523,002				100.0	%		$	1,307,770				100.0	%		$	215,232				16.5	%

 

Our general and administrative expenses increased by $215,232 or 16.5% from $1,307,770 for the six months ended December 31, 2022 to $1,523,002 for the six months ended December 31, 2023, primarily attributable to (i) increased Salary and employee benefit expenses due to the increased salaries to the senior management; and (ii) increased professional service fee due to the legal service and service in relation to maintained investor relationship after the IPO.

 

 

Other income (expenses)

 

Other income (expenses) primarily included interest income, interest expenses, foreign exchange gain or loss, government subsidiary income, gain or loss from disposal of fixed assets, other non-operating income or expenses. Other expense decreased by 1.04 million from other income of $110,613 for the six months ended December 31, 2022 to other expense of 934,359, which is mainly due to foreign exchange loss increased by $978,521 from foreign exchange gain of $ 418,866 for the six months ended December 31, 2022 to foreign exchange loss of $559,655 for the six months ended December 31, 2023, due to more exchange loss derived from the unfavourable USD and other currency exchange rates against RMB on our foreign currency denominated account receivables.

 

Income tax (benefit)/expenses

 

Our income tax benefits was $324,977 for the six months ended December 31, 2023, an increase of $0.3 million due to the company recorded a loss for the six months ended December 31, 2023.

 

Net (loss)/Income

 

As a result of the foregoing, we reported a net loss of $0.72 million for the six months ended December 31, 2023, representing a $1.6 million increased from the net income of $0.93 million for the six months ended December 31, 2022.

 

Liquidity and Capital Resources

 

As of December 31, 2023, we had $6.7 million in cash and restricted cash on hand as compared to $6.4 million as of June 30, 2023. We also had $53.1 million in accounts receivable. Our accounts receivable primarily include balance due from customers for our electronic component products sold and delivered to customers. We believe that our customers are unlikely to default because of our long-term business relationships with them and our belief that the collectability risk is low based on our historical experience and collection history with them and the remaining balance is expected to be collected by June 30, 2024.

 

Current foreign exchange and other regulations in the PRC may restrict the PRC operating entities in their ability to transfer their net assets to the Company and its subsidiaries in Hong Kong. However, these restrictions have no impact on the ability of these PRC operating entities to transfer funds to us as we have no present plans to declare dividend which we plan to retain our retained earnings to continue to grow our business. In addition, these restrictions have no impact on the ability for us to meet our cash obligations as all of our current cash obligations are due within the PRC.

 

As of December 31, 2023, we had advances to suppliers of $1.9 million representing our prepayment to various suppliers to lock the purchase of electronic component products at favorable prices. 87.0% or $1.6 million of the advance to suppliers balance as of December 31, 2023 has been realized by April 30, 2024.

 

As of December 31, 2023, we had outstanding accounts payable (“AP”) of $23.8 million, representing balance due to suppliers for purchase of electronic components products. 97.6% or $23.2 million of the AP balance as of December 31, 2023 has been realized by April 30, 2024.

 

 

As of December 31, 2023, we had contract liabilities of $2.0 million, recognized for contracts where payment has been received in advance of delivery. 84.5% or $1.7 million of the contract liabilities balance as of December 31, 2023 has been realized by April 30, 2024.

 

As of December 31, 2023, we had outstanding bank loans of approximately $14.3 million. We expect that we will be able to renew all of our existing bank loans upon their maturity based on past experience and our good credit history.

 

As of December 31, 2023, our working capital amounted to approximately $14.3 million. We intend to finance our future working capital requirements from cash generated from operating activities, the proceed form public offering, bank borrowings and financial support from related parties. However, we may seek additional financings, to the extent required, and there can be no assurances that such financing will be available on favorable terms or at all.

 

Based on the current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for us to meet our future liquidity and capital requirement for at least 12 months from the date of this filling.

 

The following table sets forth summary of our cash flows for the periods indicated:

 

		For the six months ended December 31,
		2023				2022
		(Unaudited)				(Unaudited)
Net cash used in operating activities		$	(1,026,221	)		$	(1,905,166	)
Net cash used in investing activities			(127,888	)			(94,510	)
Net cash provided by financing activities			2,987,399				2,023,947
Effect of exchange rate fluctuation on cash and restricted cash			(1,568,816	)			1,839,803
Net increase in cash and restricted cash			264,474				1,864,074
Cash and restricted cash at beginning of period			6,413,367				2,952,023
Cash and restricted cash at end of period		$	6,677,841			$	4,816,097

  

Operating Activities

 

Net cash used in operating activities was $1,026,221 for the six months ended December 31, 2023, which primarily consisted of the following:

 

●

Net loss of $721,745 for the six months ended December 31, 2023.

 

●

A decrease in accounts receivable of $28,931,833. The decrease was because the reduced revenue and increased collection from the customers.

 

●

An increase in advance to suppliers of $279,267 as some electronic components purchased from suppliers required more upfront repayments.

 

	●	An increase in deferred revenue of $264,015. Our customers are typically required to make certain prepayment to us before we purchase products from suppliers. We record such prepayment as deferred revenue because our performance obligation associated with delivery of products to customers had not been satisfied as of the balance sheet date.
	●	A decrease in accounts payable of $27.7 million as some electronic components purchased from suppliers required more upfront repayments. The decrease was due to the reduced purchased goods from the third parties.

 

 

Net cash used in operating activities was $1,905,166 for the six months ended December 31, 2022, which primarily consisted of the following:

 

●

Net income of $926,717 for the six months ended December 31, 2022.

 

●

An increase in accounts receivable of $8,401,208. The increase was because that the customers affected by the outbreak of Omicron were granted   extended credit terms.

 

●

A decrease in advance to suppliers of $5,255,103 as some electronic components purchased from suppliers required less or no repayments.

 

●

A decrease in contract liabilities of $738,116. The decrease was due to the fact that enterprises completed the delivery of goods with performance obligations under contracts during the reporting period.

 

Investing Activities

 

Net cash used in investing activities amounted to $127,888 for the six months ended December 31, 2023, primarily consisting of purchase of property and equipment of $70,490, purchase of intangible assets of $57,398, an increase in short-term investment $1,129,600 to purchase interest-bearing wealth management financial products from PRC banks to earn interest income, offset by a collection of $1,129,600 short-term investments proceeds upon maturity.

 

Net cash used in investing activities amounted to $94,510 for the six months ended December 31, 2022, primarily consisting of purchase of property and equipment of $74,420, purchase of intangible assets of $23,186, an increase in short-term investment $2,701,116 to purchase interest-bearing wealth management financial products from PRC banks to earn interest income, offset by a collection of $2,701,116 short-term investments proceeds upon maturity.

 

Financing Activities

 

Net cash provided by financing activities amounted to $2,987,399 for the six months ended December 31, 2023, primarily consisting of proceeds from short-term bank loans of $14,666,970, proceeds from notes payable of 2,965,200, proceeds from borrowings from related parties as working capital of $6,299,295 and proceeds from borrowing from third-parties working capital of $ 746,000, offset by a repayment of short-term bank loans of $14,638,095, a repayment of notes payable of 1,425,200, a repayment of borrowings from related parties as working capital of $4,568,244, and a repayment of third parties borrowings of $746,000.

 

Net cash provided by financing activities amounted to $2,023,947 for the six months ended December 31, 2022, primarily consisting of proceeds from short-term bank loans of $14,145,794, proceeds from borrowings from related parties as working capital of $608,589 and proceeds from borrowing from third-parties working capital of $360,000, offset by a repayment of short-term bank loans of $12,841,626 and a repayment of third parties borrowings of $160,000.

 

Trend Information

 

We are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenue, 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.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as of December 31, 2023 and June 30, 2023.

 

Inflation

 

Inflation does not materially affect our business or the results of our operations.

 

Seasonality

 

Seasonality does not materially affect our business or the results of our operations.

 

14

 

---