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:
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
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
14 — RELATED PARTY TRANSACTIONS
a. Due
to related parties
Due
to related parties consists of the following:
Name | |
Related party relationship | |
December 31, 2023 (Unaudited) | | |
June 30, 2023 | |
Mrs. Duanrong Liu | |
Shareholder, Director and Chief Operating Officer | |
$ | 3,180,635 | | |
$ | 1,451,842 | |
Mr. Lei Xia | |
Shareholder, Chairman and Chief Executive Officer | |
| 47,786 | | |
| 21,943 | |
Other shareholders | |
Shareholders of the Company | |
| 52,101 | | |
| 34,981 | |
Total due to related parties | |
| |
$ | 3,280,522 | | |
$ | 1,508,766 | |
As
of December 31, 2023 and June 30, 2023, the balance due to related parties was loan advance from the Company’s shareholders
and was used as working capital during the Company’s normal course of business. Such advance was non-interest bearing and due on
demand.
b. Loan
guarantee provided by related parties
In
connection with the Company’s short-term borrowings from the PRC banks, the Company’s controlling shareholder and Chief Executive
Officer and several other shareholders jointly signed guarantee agreements by pledging their personal properties with the banks to secure
the bank loans. The Company also incurred loan origination fees of $385,490 and $292,998 as of December 31 and June 30, 2023, respectively,
to be paid to these related parties for providing such loan guarantees (see Note 11).
NOTE
15 — CONCENTRATIONS
A
majority of the Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company and
its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In
the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange
rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China
must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in
order to affect the remittance. For the six months ended December 31, 2023 and 2022, the Company’s substantial assets were
located in the PRC and the Company’s substantial revenues excluding the intercompany transaction were derived from its subsidiaries
located in the PRC.
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 — CONCENTRATIONS (cont.)
As
of December 31, 2023 and June 30, 2023, $6,349,248 and $5,713,265 of the Company’s cash and restricted cash was on deposit
at financial institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain
insurance to cover bank deposits in the event of bank failure. As of December 31, 2023 and June 30, 2023, the Company’s substantial
assets were located in the PRC and the Company’s substantial revenues excluding the intercompany transaction were derived from
its subsidiaries and the VIE located in the PRC.
For
the six months ended December 31, 2023 and 2022, no single customer accounted for more than 10% of the Company’s total revenue.
The Company’s top 10 customers aggregately accounted for 26.4% and 28.0% of the total revenue for the six months ended December
31, 2023 and 2022, respectively.
As
of December 31, 2023 and June 30, 2023, no customer accounted for more than 10% of the total accounts receivable balance.
As
of December 31, 2023 and June 30, 2023, no supplier accounted for more than 10% of the total advance to suppliers balance.
As
of December 31, 2023 and June 30, 2023, no single supplier accounted for more than 10% of the total accounts payable balance.
For
the six months ended December 31, 2023 and 2022, no single supplier accounted for more than 10% of the Company’s total purchases.
NOTE
16 — SHAREHOLDERS’ EQUITY
Ordinary
shares
The
Company was incorporated under the laws of the Cayman Islands on June 23, 2015. The original authorized number of ordinary shares
was 100 million shares with par value of US$0.02 per share (including 60,000,000 shares of Class A shares and 40,000,000 shares
of Class B shares). Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting
and conversion rights. In respect of matters requiring a shareholder vote, each Class A ordinary share will be entitled to one vote
and each Class B ordinary share will be entitled to ten votes. The Class A ordinary shares are not convertible into shares
of any other class. The Class B ordinary shares are convertible into Class A ordinary shares at any time after issuance at
the option of the holder on a one to one basis.
On
October 26, 2020, the Company amended its Memorandum of Association to reverse split the authorized number of shares at a ratio of 1-for-4
share to 25 million shares with par value of US$0.08 per share, and reverse split the issued shares from 70,610,963 shares at par
value of US$0.02 per share to 17,652,743 ordinary shares with par value of $0.08 per share. The reverse split is considered part of the
Reorganization of the Company, which was retroactively applied as if the transaction occurred at the beginning of the period presented.
As
a result of this revere split, the authorized number of Class A ordinary shares have been changed from 60,000,000 shares to 15,000,000
shares, and authorized number of Class B ordinary shares have been changed from 40,000,000 shares to 10,000,000 shares.
On
August 25, 2021, the Company amended its Memorandum of Association to increase the authorized shares of Class A ordinary shares
from 15,000,000 shares to 60,000,000 shares with par value of $0.08 per share. As a result of this amendment, the total authorized ordinary
shares has been changed from 25,000,000 shares (including 15,000,000 Class A ordinary shares and 10,000,000 Class B ordinary
shares) to 70,000,000 shares (including 60,000,000 Class A ordinary shares and 10,000,000 Class B ordinary shares).
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 — SHAREHOLDERS’ EQUITY (cont.)
On
August 8, 2022, the Company amended its Memorandum of Association to reverse split the authorized number of shares at a ratio of
1-for-2 share to 35 million shares with par value of US$0.16 per share, and reverse split the issued shares from 17,652,743 shares
at par value of US$0.08 per share to 8,826,374 ordinary shares with par value of $0.16 per share. The reverse split is considered part
of the Reorganization of the Company, which was retroactively applied as if the transaction occurred at the beginning of the period presented
(see Note1).
As
a result of this revere split, the authorized number of Class A ordinary shares have been changed from 60,000,000 shares to 30,000,000
shares, and authorized number of Class B ordinary shares have been changed from 10,000,000 shares to 5,000,000 shares. As of June 30,
2022, the Company had 8,826,374 ordinary shares issued and outstanding (including 4,996,874 shares of Class A ordinary shares
and 3,829,500 shares of Class B ordinary shares).
On
March 17, 2023, the Company completed the initial public offering and issued 1,500,000 Class A ordinary shares. As of June 30,
2023, the Company had 10,326,374 ordinary shares issued and outstanding (including 6,496,874 shares of Class A ordinary shares and
3,829,500 shares of Class B ordinary shares).
Statutory
reserve and restricted net assets
Relevant
PRC laws and regulations restrict the Company’s PRC subsidiaries and the VIE from transferring a portion of their net assets, equivalent
to their statutory reserves and their share capital, to the Company in the form of loans, advances or cash dividends. Only PRC entities’
accumulated profits may be distributed as dividends to the Company without the consent of a third party.
The
Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus
reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC
GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined
in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary
surplus reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses,
if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as
cash dividends.
The
payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently
permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in
China. The results of operations reflected in the consolidated financial statements prepared in accordance with U.S GAAP differ from
those in the statutory financial statements of the WFOE and its subsidiaries and VIE. Remittance of dividends by a wholly foreign-owned
company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.
In
light of the foregoing restrictions, the Company’s PRC subsidiaries and the VIE and are restricted in their ability to transfer
their net assets to the Company. Foreign exchange and other regulations in the PRC may further restrict the WFOE, the VIE and the Company’s
PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and advances.
As
of December 31, 2023 and June 30, 2023, the restricted amounts as determined pursuant to PRC statutory laws totaled $624,097 and
$624,097, respectively. As of December 31, 2023 and June 30, 2023, the Company’s total restricted net assets amounted to $21,078,869
and $21,071,864, respectively.
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
17 — SHARE-BASED COMPENSATION
On
October 5, 2015, the Company’s Board of Directors approved the 2015 Equity Incentive Plan (the “Plan”) for the
purpose of providing incentive and rewards to employees and executives. According to the Plan, 50,000,000 of the Company’s Class A
ordinary shares was reserved for issuance to qualified employees, directors and officers. Given the reverse split on November 13,
2020 and August 8, 2022 (see Note 16), number of ordinary shares reserved for issuance changed to 6,250,000 shares.
Under
the Plan, the following stock-based compensations have been granted to the Company’s employees, directors and officers (number
of option shares and exercise price reflected the effect of the1-for-4 share reverse split on November 13, 2020 and the effect of
the1-for-2 share reverse split on August 8, 2022):
|
(1) | On October 5,
2015, options to purchase 795,644 shares of the Company’s Class A ordinary shares have been granted at an exercise price of
$0.16 per share. These share options will vest equally over a service period of four years and expire on October 5, 2023. |
| (2) | On
December 26, 2016, options to purchase 64,250 shares of the Company’s Class A ordinary shares has been granted at an
exercise price of $0.16 per share. These share options will vest equally over a service period of four years and expire on December 26,
2024. |
| (3) | On December 22,
2017, options to purchase 213,125 of the Company’s Class A ordinary shares have been granted at an exercise price of $0.16.
These option shares will vest equally over a service period of four years, and expire on December 22, 2025. |
| (4) | On December 21,
2018, options to purchase 44,250 of the Company’s Class A ordinary shares have been granted at an exercise price of $0.16
per share. These option shares will vest equally over a service period of four years, and expire on December 21, 2026. |
| (5) | On January 15,
2020, options to purchase 33,788 shares of the Company’s Class A ordinary shares have been granted at an exercise price of
$2.40 per share. These option shares vest equally over a service period of four years, and expire on January 15, 2028. |
The
following table summarizes the Company’s stock option activities:
| |
Number of options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual term | | |
Fair Value | |
Outstanding, June 30, 2022 | |
| 751,012 | | |
| 0.16 | | |
| 1.05 | | |
$ | 878,845 | |
Exercisable, June 30, 2022 | |
| 749,440 | | |
| 0.17 | | |
| 1.04 | | |
$ | 869,478 | |
Granted | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Outstanding, December 31, 2022(Unaudited) | |
| 751,012 | | |
| 0.16 | | |
| 0.55 | | |
$ | 878,845 | |
Exercisable, December 31, 2022(Unaudited) | |
| 750,226 | | |
| 0.18 | | |
| 0.54 | | |
$ | 874,162 | |
| |
Number of options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual term | | |
Fair Value | |
Outstanding, June 30, 2023 | |
| 742,762 | | |
| 0.18 | | |
| 0.05 | | |
$ | 829,686 | |
Exercisable, June 30, 2023 | |
| 742,762 | | |
| 0.18 | | |
| 0.05 | | |
$ | 829,686 | |
Granted | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Outstanding, December 31, 2023(Unaudited) | |
| 742,762 | | |
| 0.18 | | |
| 0.05 | | |
$ | 829,686 | |
Exercisable, December 31, 2023(Unaudited) | |
| 742,762 | | |
| 0.18 | | |
| 0.05 | | |
$ | 829,686 | |
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
17 — SHARE-BASED COMPENSATION (cont.)
The fair value of share options was
determined using the binomial option valuation model. The binomial model requires the input of highly subjective assumptions,
including the expected share price volatility and the suboptimal early exercise factor. The risk-free rate for periods within the
contractual life of the options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. For
expected volatilities, the Company has made
reference to historical volatilities of several comparable companies. The suboptimal early exercise factor was estimated based on
the Company’s expectation of exercise behavior of the grantees. The Company’s management is ultimately responsible for
the determination of the estimated fair value of its ordinary shares.
There
were no options granted under the Plan for the six months ended December 31, 2023.
On
March 19, 2021, pursuant to the Plan, the Company’s Board of Directors approved to grant 68 employees the options to purchase
579,100 shares of the Company’s ordinary shares at an exercise price of $2.40 per share. These option shares will vest equally
over a service period of four years, and expire on March 19, 2029. However, on June 10, 2021, the Company Board of Directors
approved to delay the issuance of the abovementioned share options to these employees.
The
total fair value of share options vested during the six months ended December 31, 2023 and 2022 was nil and $4,683, respectively. The
Company recorded share-based compensation expense of nil and $58,598 for the six months ended December 31, 2023 and 2022, respectively.
As
of December 31, 2023 and June 30, 2023, there were nil and nil of unrecognized share-based compensation expenses related to share
options granted by the Company, which were expected to be recognized over a weighted-average vesting period of 0 and 0 years, respectively.
NOTE
18 — COMMITMENTS AND CONTINGENCIES
Operating
lease commitment
The
operating lease commitments presented above mainly consist of the short-term lease commitments and leases that have not yet commenced
but that create significant rights and obligations for the Company, which are not included in operating lease right-of — use
assets and lease liabilities. For the six months ended December 31, 2023 and 2022, total operating lease expense amounted to $2,994 and
$218,399, respectively. As of December 31, 2023, future minimum lease payments under non-cancelable operating lease agreement are
as follows:
Twelve Months ended December 31, | |
Lease expense | |
2024 | |
$ | 143,039 | |
2025 | |
| 23,869 | |
Total | |
| 166,908 | |
Contingencies
From
time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated
with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss
contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims
and litigation individually or in the aggregate to have a material adverse impact on the Company’s consolidated financial position,
results of operations and cash flows.
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
19 — SUBSEQUENT EVENTS
From
January 2024 to May 2024, the Company repaid an aggregate of $11.3million outstanding short-term bank loans to various financial
institutions upon maturity (see Note 11).
From
January 2024 to May 2024 the Company borrowed additional $12.4 million loans from various PRC banks, including the following:
| (1) | On January 29,
2024, the Company borrowed RMB9.0 million (approximately $1.3 million ) short-term loan from ICBC as working capital for three months,
with loan maturity date on April 26, 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. |
| | |
| (2) | On February 21,
2024, the Company borrowed RMB20.5 million (approximately $2.9 million) short-term loan from ABC as working capital for six months,
with loan maturity date on August 18, 2024 and effective interest rate of 3.8% per annum. |
| | |
| (3) | On February 18,
2024, the Company borrowed RMB2.0 million (approximately $0.3 million) short-term loans from Webank as working capital for two years,
with loan maturity date on February 17, 2026 and effective interest rate of 6.84% per annum. The loan was fully repaid on 18 May 2024. |
| | |
| (4) | On January 23,
2024, the Company borrowed HKD7.8 million (approximately $1.0million) short-term loan from Bank of China as working capital for
twelve months, with loan maturity date on January 22, 2025 and effective interest rate of 4.7% per annum. The loan was pledged by
a term deposit of GBP 0.8 million (approximately $1.0 million). |
| | |
| (5) | On March 22, 2024,
the Company borrowed RMB8.0 million (approximately $1.1 million) short-term loan from ICBC as working capital for three months,
with loan maturity date on June 7, 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 on 30 May 2024. |
| | |
| (6) | On April 8, 2024,
the Company borrowed RMB1.0 million (approximately $0.1 million) short-term loans from Webank as working capital for two years,
with loan maturity date on April 17, 2026 and effective interest rate of 7.2% per annum. |
| | |
| (7) | On April 23,
2024, the Company borrowed RMB16.0 million (approximately USD$2.2 million) short-term loan from SPD bank as working capital
for six months, with loan maturity date on October 18, 2024 and effective interest rate of 2.06% per annum. The loan borrowed
was guaranteed by the Company’s certain shareholders. |
| | |
| (8) | On April 26,
2024, the Company borrowed RMB14.0 million (approximately USD$2.0 million) short-term loan from SPD bank as working capital
for six months, with loan maturity date on October 23, 2024 and effective interest rate of 2.05% per annum. The loan borrowed
was guaranteed by the Company’s certain shareholders. |
| | |
| (9) | On May 13, 2024,
the Company borrowed RMB9.0 million (approximately $1.3 million) short-term loan from ICBC as working capital for three months,
with loan maturity date on August 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 on 30 May 2024. |
As
a result of the above repayment and new borrowings, the Company had outstanding short-term bank loan balances of $11.3 million as
of the date the Unaudited Company’s consolidated financial statements are released.
The
Company evaluated the subsequent event through the date of the consolidated financial statements are available to release and through
the date of this prospectus, and concluded that there are no additional reportable subsequent events except those disclosed.
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 — FINANCIAL INFORMATION OF THE PARENT COMPANY
Rule 12-04(a), 5-04(c) and 4-08(e)(3) of
Regulation S-X require the financial information of the parent company to be filed when the restricted net assets of consolidated
subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company
performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirement and concluded that it
was applicable to the Company as the restricted net assets of the Company’s PRC subsidiaries and the VIE exceeded 25% of the consolidated
net assets of the Company, therefore, the condensed financial statements for the parent company are included herein.
For
purposes of the above test, restricted net assets of consolidated subsidiaries and the VIE shall mean that amount of the Company’s
proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent
fiscal year may not be transferred to the parent company by subsidiaries and the VIE in the form of loans, advances or cash dividends
without the consent of a third party.
The
interim financial information of the parent company has been prepared using the same accounting policies as set out in the Unaudited
Company’s consolidated financial statements except that the parent company used the equity method to account for investment in
its subsidiaries and the VIE. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries
and the VIE” and the respective profit or loss as “Equity in earnings of subsidiaries and the VIE” on the condensed
statements of comprehensive income.
The
footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should
be read in conjunction with the notes to the unaudited consolidated interim financial statements of the Company. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed or omitted.
The
Company did not pay any dividend for the periods presented. As of December 31, 2023 and June 30, 2023, there were no material contingencies,
significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed
in the consolidated financial statements, if any.
ICZOOM
GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 — FINANCIAL INFORMATION OF THE PARENT COMPANY
(cont.)
ICZOOM
GROUP INC.
PARENT COMPANY BALANCE SHEETS
| |
December 31, 2023 (Unaudited) | | |
June 30, 2023 | |
ASSETS | |
| | |
| |
Non-current asset | |
| | |
| |
Investment in subsidiaries and the VIE | |
$ | 15,666,039 | | |
$ | 15,544,196 | |
Total assets | |
$ | 15,666,039 | | |
$ | 15,544,196 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
LIABILITIES | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Ordinary shares, US$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 and 6,496,874 shares issued and outstanding | |
| 1,046,504 | | |
| 1,039,499 | |
Class B shares, 5,000,000 shares authorized, 3,829,500 shares issued and outstanding | |
| 612,720 | | |
| 612,720 | |
Additional paid-in capital | |
| 18,795,548 | | |
| 18,795,548 | |
Statutory reserve | |
| 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 | |
$ | 15,666,039 | | |
$ | 15,544,196 | |
* | 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. |
ICZOOM
GROUP INC.
UNAUDITED PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME
| |
For Six Months Ended December 31, | |
| |
2023 | | |
2022 | |
EQUITY IN EARNINGS OF SUBSIDIARIES AND VIE | |
$ | (721,745 | ) | |
$ | 926,717 | |
NET INCOME/(LOSS) | |
| (721,745 | ) | |
| 926,717 | |
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS | |
| 836,583 | | |
| (131,174 | ) |
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY | |
$ | 114,838 | | |
$ | 795,543 | |
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
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