UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, September 30, 2023

OR

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number: 001-41680

Ispire Technology Inc.

(Exact name of registrant as specified in its charter)

19700 Magellan Drive

Los Angeles, CA 90502

(Address of principal executive offices)

(310) 742-9975

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 7,September 30, 2023, there were 53,105, 00054,268,992 shares of common stock outstanding.

ISPIRE TECHNOLOGY INC.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements,but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prospectus dated April 3, 2023 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, “Company”, “we,” “us,” “our” and similar terms refer to Ispire Technology Inc. and its subsidiaries, unless the context indicates otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1 – Financial Statements

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMELOSS

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

ISPIRE TECHNOLOGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Ispire Technology Inc. (the “Company”) was incorporated under the laws of the State of Delaware on June 13, 2022. Through its subsidiaries, the Company is engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products.

Ispire owns a 100% equity interest in Ispire International Limited, a business company incorporated under the laws of the British Virgin Islands (“BVI”) (“Ispire International”) on July 6, 2022.

Prior to July 29, 2022, all of the equity of Aspire North America LLC, a California limited liability company (“Aspire North America”), was owned by Aspire Global Inc. (“Aspire Global”), and all of the equity of Aspire Science and Technology Limited, a Hong Kong corporation (“Aspire Science”), was owned by Aspire Global Holdings Limited (“Aspire Holdings”), a wholly-owned subsidiary of Aspire Global.

Aspire Global and the Company are related parties since the same individual is the chief executive officer of both companies, the chief executive officer and his wife are directors of both companies, and own 66.5% and 5.0%, respectively, of the equity of both Aspire Global and the Company. At the time of transfer of the equity in Aspire North America and Aspire Science, the Company had the same stockholders as Aspire Global and the Company’s stockholders held the same percentage interest in the Company as they had in Aspire Global. Because the transfer of the equity in Aspire North America and Aspire Science is a transfer between related parties, the historical financial information of the subsidiaries is carried forward as the historical financial information of the Company and the 50,000,000 shares that were issued at or about the time of the Company’s organization are treated as being outstanding on July 1, 2020.

On July 29, 2022:

In September 2023, the Company established a wholly-owned subsidiary, Ispire Malaysia Sdn Bhd (“Ispire Malaysia”) under the laws of the Federation of Malaysia, in order to establish manufacturing operations in Southeast Asia. Ispire Malaysia was formed by Tuanfang Liu, the Company’s Chairman and Co-Chief Executive Officer on September 1, 2023 and assigned to the Company on September 22, 2023 at a consideration of 100 Malaysian ringgits.

The following table sets forth information concerning the Company and its subsidiaries as of December 31, 2022 and March 31,September 30, 2023:

Ispire is a holding company and does not engage in any active operations. Its business is conducted by its two operating subsidiaries, Aspire North America, which is engaged in the development, marketing and sales of cannabis vapor products, which were introduced in mid 2020,mid-2020, and Aspire Science, which is engaged in the development, marketing and sales of tobacco vaping products.

In October 2022, the directors and stockholders of the Company approved the 2022 Equity Incentive Plan (the “Plan”) pursuant to which up to 15,000,000 shares of common stock may be issued pursuant to options or restricted stock grants. The Plan will be administered by the Compensation Committee.Committee of the Board of Directors. Awards under the Plan may be granted to officers, directors, employees and those consultants who qualify as a consultant or advisor under the instructions to Form S-8. The Compensation Committee has broad discretion in making awards; provided that any options shall be exercisable at the fair market value on the date of grant. No awardsAwards have been granted sinceduring the Plan was approved.three months ended September 2023. See Note 13.

Impact of COVID-19

In December 2019, coronavirus disease 2019 (COVID-19) was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which are no longer in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023.

The extent to which COVID-19 impacts ourthe Company’s operations on an ongoing basis is highly uncertain. Since ourthe Company’s products are presently manufactured in China by a related party, any changes in the outbreak in China and any changes in the Chinese government’s policy may affect ourthe Company’s supplier’s operations which could affect its ability to manufacture and deliver product in a timely manner.

Supply Chain Risks

One of effects of the COVID-19 has been delays resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped to the country of destination, and delivered from the port of entry to the customer’s location. As the port delays have significantly decreased, we dothe Company does not believe that the supply chain issues that affected ourits operations are currently affecting us. Wethe Company. The Company cannot assure you that delays will not affect ourits business in the future.

In 2021, Shenzhen Yi Jia, the Company’s principal supplier of products, suffered a chip shortage resulting in a slowdown in delivery of its products to the Company from April to August 2021. To secure the supply of chips, Shenzhen Yi Jia changed the payment terms to chip suppliers from 30 days after delivery in the past to prepayment, and it engaged two new chip suppliers. Since September 2021, Shenzhen Yi Jia has obtained a supply of chips to meet its production needs and the chip shortage no longer affects its production. In 2022, a slowdown in the delivery of components to Shenzhen Yi Jia resulting from supply chain slowdowns as a result of the effects of mainland China’s COVID policy resulted in an increase in cost of revenue during the period. Wethree months period ended September 30, 2022. The Company cannot assure you that weit will not suffer from a chip shortage or that the effects of China’s COVID policy will not affect Shenzhen Yi Jia’s ability or the ability of its suppliers to delivery products in a timely manner.

Market and Economic Conditions 

In recent years, the United States and other markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including, as a result of the COVID-19 pandemic, supply chain disruptions, the Russian invasion of Ukraine, instability in the U.S. and global banking systems, rising fuel prices, increasing interest rates or foreign exchange rates and increased inflation and the possibility of a recession. A significant downturn in economic conditions may affect the market for ourthe Company’s products and ourits supplier’s ability to provide products to us on acceptable terms.

WeThe Company cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operatethe Company operates worsen from present levels, ourits business, financial condition, operating results could be adversely affected. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets. If Congress does not raise the debt ceiling and if the U.S. government defaults on its payment obligations or experiences delays in making payments when due, such payment default or delay by the U.S. government, as well as continued uncertainty surrounding the U.S. debt ceiling or the U.S. Government’s ability to pay debts, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the United States. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect economic conditions, as well as our business, financial condition and operating results.

E-cigarette regulation

Regulation regarding e-cigarette varies across countries, from no regulation to a total ban. The legal status of e-cigarettee-cigarettes is currently pending in many countries. But as e-cigarettes have become more and more popular recently, many countries are considering imposing more stringent law and regulations to regulate this market. Changes in existing law and regulations and the imposition of new laws, regulation in countries and regions that our major customers are located in may adversely affect the Company’s business.

The Federal Food, Drug, and Cosmetic Act requires all Electronic Nicotine Delivery Systems (“ENDS”) product manufacturers that market products in the United States to submit Premarket Tobacco Product Applications (“PMTAs”) to the FDA. For ENDS products that were on the U.S. market on August 8, 2016, a PMTA was required to be submitted to the FDA by September 9, 2020; for ENDS products that were not on the U.S. market onprior to August 8, 2016, and for which a PMTA was not filed by September 9, 2020, a PMTA a premarket authorization issued in response to a PMTA is required forbefore the subject product tomay enter the U.S. market. The Company has submitted a PMTA filing for one ENDS product, and, under apparent FDA policies, the agency will not enforce the premarket review requirements for that product pending review of its PMTA. However, even with submission of the PMTA application, the FDA may reject the Company’s application and may prevent the Company’s ENDS products from being sold in the U.S., which will adversely affect the Company’s business.

Amendments to the Prevent All Cigarette Trafficking (“PACT”) Act, which became law in 2021, extend the PACT Act to include e-cigarette and all vaping products, and the amendments place significant burdens on sellers of vaping products in the United States which may make it difficult to operate profitably in the United States. Because of tighter government regulations, the Company will stophas stopped marketing tobacco vaping products in the United States, as the volume of sales from the one tobacco vaping product which the Company may sell in the United States does not justify the marketing and regulatory costs involved.

In the United States, cannabis vaping products are governed by state laws, which vary from state to state. Most states do not permit the adult recreational use of cannabis, and no states permit the sale of recreational cannabis products to minors. As a result of the reduced revenue to states resulting from the effects of the COVID 19 pandemic, states may seek to raise revenue by permitting and taxing the use of cannabis products. The Company cannot predict what action states will take or the nature and amount of taxes they may impose. However, to the extent the PACT Act applies to cannabis products that aerosolize liquids, it may be more difficult to sell our products in states that permit the sale of cannabis.

However, cannabis and its derivatives containing more than 0.3% delta-9 tetrahydrocannabinol on a dry weight basis remain Schedule I controlled substances under U.S. federal law, meaning that federal law generally prohibits their manufacture and distribution. United States federal law also deems it unlawful to sell, offer for sale, transport in interstate commerce, import, or export “drug paraphernalia,” which includes “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance” the possession of which federal law prohibits, including Schedule I “marijuana.” Limited exemptions exist, most notably when state or local law authorizes these items’ manufacture, possession, or distribution.

The European Commission issued the Tobacco Products Directive (the “TPD”), which became effective on May 19, 2014 and became applicable in the European Union member states on May 20, 2016. The TPD regulates e-cigarettes on the packaging, labelling and ingredients of the products on the European Union market, the creation of smoke-free environments, tax measures and activities against illegal trade and anti-smoke campaigns. Member states of the European Union are required to ensure that advertisements for any tobacco related product are prohibited, and no promotion shall be made as to those devices with an intention to promote e-cigarettes. For the e-cigarettes released after May 20, 2016, TPD requires e-cigarette manufacturers to submit product sales applications to the regulatory market six months in advance, and ensure their products can meet the TPD requirements before they can be released. The Company has complied with TPD requirement that for all its tobacco vaping products sold in Europe.

The sale of cannabis vaping products is illegal in the European Union and the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of March 31,September 30, 2023 and the results of operations for the three months ended September 30, 2022 and nine month periods ended March 31, 2023 and March 31, 2022.2023. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly do not include all of the disclosures normally made in the Company’s annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2022,2023, included in the Company’s registration statement on Form S-1.

The results of operations for the three and nine month periods ended March 31,September 30, 2023 are not necessarily Indicativeindicative of the results of operations that may be expected for any other interim periods or for the year ending June 30, 2023.2024. 

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include allowance for doubtful accounts, the useful lives of property and equipment, and intangible asset, impairment of long-lived assets, and deferred cost. Actual results could differ from those estimates.

InventoriesAllowance for credit losses

Inventories mainly consistThe Company adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of finished goods purchased from suppliers. Inventories are stated atCredit Losses on Financial Instruments” during the lowerthree months ended September 30, 2023. The Company estimates its allowance for current expected credit losses based on an expected loss model, compared to prior periods which were estimated using an incurred loss model which did not require the consideration of cost or net realizable value.forward-looking economic variables and conditions in the reserve calculation across the portfolio. The costimpact related to adopting the new standard was not material.

The Company estimates its allowances for expected credit losses for accounts receivable by considering past events, including any historical default, current economic conditions and certain forward-looking information, including reasonable and supportable forecasts. As of an inventory item is determined usingJuly 1, 2023, the weighted average method. An allowance is established when management determinesmethodologies that certain inventories may not be saleable. If inventory costs exceed net realizable value, the Company will record a reserveuses to estimate the allowance for expected credit losses for accounts receivable are as follows:

The Company reviews all accounts receivable considered at risk semi-annually and performs an analysis based upon current information available about the customers, such as financial statements, news reports, published credit ratings as well as collateral net of repossession cost, prior collection history and current and future expected economic conditions. Using this information, the Company determines the expected cash flow for the difference betweenaccounts and other receivables and calculates an estimate of the costpotential loss and the net realizable value. probability of loss. For those accounts for which the loss is probable, the Company records a specific allowance.

The net realizable value is determinedCompany considers forward-looking macroeconomic variables such as gross domestic product when quantifying the impact of economic forecasts on its allowance for credit losses. Macroeconomic variables may vary based on historical experiences, portfolio composition and current environment. The Company also considers the estimated selling price,impact of current conditions and economic forecasts relating to client-credit ratings, in addition to performing a qualitative review of credit risk factors across the ordinary courseportfolio. Forward-looking estimates require the use of business, less estimated costs necessary to makejudgment, particularly in times of economic uncertainty. The Company writes off receivables when all efforts at collection have been exhausted and the sale.receivable is considered uncollectible.

Intangible assetsInvestment

The Company reviews intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets, The Company measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets is not recoverable, the impairment recognized is measured as the amount by which the carrying value exceeds its fair value. There is no indication of impairment for the period presented.

Intangible assets with definite lives, such as patents, are amortized over their estimated useful lives on a straight-line basis generally over ten years.

Held-to-maturity investment

The held-to-maturity investment represents a certificate of deposit that the Company has the intent and ability to hold to maturity and is reported net of any related amortization. The Company intends to hold this investment until maturity and it is not remeasured to fair value on a recurring basis. The gains and losses on this investment are recordedholds in the Statements of Operations and Comprehensive Income under “Investment Gain”

HSBC bank. The entire balance of the held-to-maturity investment presented on the balance sheet as of March 31,September 30, 2023 of $9,604,418is $9,192,746 and it matures on February 8, 2024.

Intangible assets

Intangible assets refer to capitalized external costs, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent license rights. All patents are internally generated. The Company expenses costs associated with maintaining patents subsequent to their issuance in the period incurred. Capitalized patent costs are amortized on a straight-line basis over estimated useful lives of 15 - 20 years, which are based on the length of the license agreements as the Company expects to receive economic benefits over that time. The Company assesses the potential impairment to capitalized patent costs when events or changes in circumstances indicate that the carrying amount of our patent portfolio may not be recoverable. $255,650 of patent fees were capitalized during the three months ended September 30, 2023.

Revenue recognition

The Company sells its products to customers and recognizes revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered to the pickup location specified by the customer or a forwarder appointed by the customer, as that is generally when legal title, physical possession and risks and rewards of goods transfer to the customer.

Revenue is recognized at the transaction price based on the purchase order as adjusted for the anticipated rebates, discounts and other sales incentives. When determining the transaction price, management estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for the Company are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction of revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes is primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Because the Company serves numerous markets, the sales incentive programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.

Disaggregated Revenue

In accordance with ASC 606-10-50-5, the Company has taken into consideration the nature, amount, timing, and uncertainty of revenue and cash flows, and has determined to disaggregate its net sales of tobacco vaping products and cannabis vaping products. The net sales disaggregated by products for the three months period ended March 31, 2022 and 2023 and nine months period ended March 31,September 30, 2022 and 2023 were as follows:

Cost of revenue

Cost of revenue for the three months ended March 31, 2022 and 2023 and nine months ended March 31,September 30, 2022 and 2023 consisted primarily of the cost of purchasing vaping products, which were purchased from a related party. See Note 11.

Stock-based compensation

The Company measures and recognizes compensation expenses for stock-based payment awards, including stock options, and restricted stock units (“RSUs”) granted to directors, and advisors, based on the grant date fair value of the awards. The Company engages a third party valuer to determine fair value of stock options using the binomial option pricing model. The fair value of RSUs is measured on the grant date based on the closing fair market value of the Company’s common stock. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period, which is generally four years for stock options and three years for RSUs. Stock-based compensation is recognized on a straight-line basis, net of estimated forfeitures, over the period during which services are provided in exchange for the award. Stock-based compensation expense is recorded in the general and administrative expense in the consolidated statements of operations.

Recent accounting pronouncements

As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company intends to take advantage of the benefits of this extended transition period.

AccountingThe Company had reviewed recent accounting pronouncements and determined that none of the pronouncements not yet effective

In June 2016, the Financial Accounting Standards Boards (“FASB”) amended guidance related are expected to the impairment of financial instruments as part of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. For public business entities that meet the definition of a U.S. Securities and Exchange Commission (“SEC”) filer (“SEC filer”), excluding entities eligible to be smaller reporting companies (SRCs) as defined by the SEC, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, including SRCs, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which provides narrow-scope amendments to clarify and improve guidance within the standards on credit losses, hedging, and recognition and measurement of financial instruments. Apart from the amendments to ASU 2016-13 mentioned above, the ASU also included subsequent amendments to ASU 2016-01. The effective date for Topic 815 and 825 was fiscal years beginning after December 15, 2020 and 2019, respectively, and the adoption had no material impact on our financial position, results of operations and cash flows. The effective date for Topic 326 was delayed by ASU 2019-10 to fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material impact on the Company’s financial position, results of operations and cash flows.statements.

Accounting pronouncements adopted during the three months ended September 30, 2023

In October 2018,June 2016, the FASB issued ASU 2018-17, Consolidation2016-13: Financial Instruments – Credit Losses (Topic 810): Targeted Improvements326). This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to Related Party Guidancecalculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for Variable Interest Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basiscredit losses will be required rather than asa reduction to the equivalentcarrying value of a direct interest in its entiretythe asset. In July 2019, the FASB delayed the effective date for determining whether a decision-making fee is a variable interest. For entities other thanthis ASU for private companies (including emerging growth companies) and will be effective for annual reporting periods beginning after December 15, 2022, with early adoption permitted. As the adoption of this standard on July 1, 2023 was immaterial, the Company did not record a cumulative-effect adjustment to retained earnings on that date. 

On September 29, 2022, FASB issued ASU 2022-04: Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires that a buyer in a supplier finance program disclose additional information about the program to allow financial statement users to better understand the effect of the programs on an entity’s working capital, liquidity, and cash flows. This update will be effective for the Company for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The ASU is effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2022.2023. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. We do not expect that theThe adoption of this guidance will have aupdate had no material impact on ourthe Company’s consolidated financial position, resultsstatements.

Customer Concentration

For the three months ended September 30, 2022 and 2023, the Company’s major customers, who accounted for more than 10% of operations and cash flows.the Company’s consolidated revenue, were as follows:

3. CASH AND CASH EQUIVALENTS

Below is a breakdown of the Company’s cash balances in banks as of June 30, 20222023 and March 31,September 30, 2023, both by geography and by currencies (translated into U.S. dollars):

“HKD” refers to Hong Kong dollars, “GBP” refers to British pounds, and “EUR” refers to Euros.Euros and “RM” refers to Malaysia ringgit.

4. FAIR VALUE MEASUREMENT

As of June 30, 20222023 and March 31,September 30, 2023, information about inputs into the fair value measurement of the Company’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

Cash and cash equivalents, accounts receivable, prepaid expenses and other receivables and due from related parties are financial assets with carrying values that approximate fair value due to their short-term nature. Accounts payable, accounts payable – related party, contract liabilities, accrued liabilities and other payables and due to related parties are financial liabilities with carrying values that approximate fair value due to their short-term nature.

5. ACCOUNTS RECEIVABLE, NET

As of June 30, 20222023 and March 31,September 30, 2023, accounts receivable consisted of the following:

The Company recorded $0 $1,827,265, $0 and $2,226,090$225,487 bad debt expense for the three months ended March 31,September 30, 2022 and 2023, and ninerespectively. For the three months ended March 31,September 30, 2022 and 2023, the Company wrote off accounts receivable against allowance for credit losses of $0 and $628,359, respectively.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of June 30, 2023 and September 30, 2023, prepaid expenses and other current assets consisted of the following:

Prepayments primarily consist of prepayment for raw materials and consulting services provided by suppliers.

7. PROPERTY, PLANT AND EQUIPMENT, NET

As of June 30, 20222023 and March 31,September 30, 2023, property, equipmentplant and leasehold improvementequipment consisted of the following:

For the three months ended March 31,September 30, 2022 and 2023, depreciation expense amounted to $3,018$6,556 and $7,394, respectively. For the nine months ended March 31, 2022 and 2023, depreciation expense amounted to $4,800 and $20,887,$29,118, respectively.

7. INTANGIBLE ASSETS

On September 30, 2022, an intellectual property transfer agreement and an exclusive license agreement was signed such that all patents, trademarks, Know-how and Know-how Documentation related to cannabis vaping products and tobacco vaping products were transferred from Tuanfang Liu, Aspire Global and Shenzhen Yi Jia to Aspire North America and Aspire Science. As the intangible assets were transferred from Tuanfang Liu, the chief executive officer and controlling stockholder, and the companies controlled by Tuanfang Liu, the transfer was considered as a capital contribution by the stockholder, which is shown as a transaction on the statements of changes in stockholders’ equity. The Company engaged a third party firm to perform a valuation to estimate the fair values of the intangible assets transferred, in accordance with ASC 350.

Information regarding transferred intangible assets is as follows:

Patents have a weighted-average useful life of 9.5 years as of March 31, 2023.

Amortization expense relating to the acquired intangible assets was $0, $0.8 million, $0 and $1.5 million for the three months ended March 31, 2022 and 2023 and nine months ended March 31 2022 and 2023, respectively.

8. CONTRACT LIABILITIES

As of June 30, 20222023 and March 31,September 30, 2023, the Company had total contract liabilities of $1,672,051$988,556 and $742,247,$1,290,061, respectively. These liabilities are advance deposits received from customers after an order has been placed. As of March 31September 30, 2023, the Company expects all of the contract liabilities to be settled in less than one year. The decreaseincrease in the balance at March 31,September 30, 2023 was due to lessmore orders on hand on that date.

9. LEASES

The Company has operating lease arrangements for office premises in Hong Kong, California and California.Malaysia. These leases typically have terms of two to five years and are expensed on a straight-line basis.

Leases with an initial term of 12 months or less are not presented as right-of-use assets on the consolidated balance sheet and are expensed over the lease term. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date.

The balances for the right-of-use assets where the Company is the lessee are presented as follow:

As of March 31,September 30, 2023, the maturities of our lease liabilities (excluding short-term leases) are as follows:

The Company incurred lease costs, which includesinclude the amortization of the right-of-use assets and the payment of short-term leases, of $74,052, $256,676, $215,713$274,951 and $770,049$278,441 on the Company’s consolidated statements of operations and comprehensive (loss)incomeloss for the three months ended March 31, 2022 and 2023 and nine months ended March 31,September 30, 2022 and 2023, respectively.

The Company made payments of $77,734, $300,593, $226,420$239,429 and $840,549$309,252 under the lease agreements during the three months ended March 31, 2022 and 2023 and nine months ended March 31,September 30, 2022 and 2023, respectively.

The weighted-average remaining lease term related to the Company’s lease liabilities as of June 30, 20222023 and March 31,September 30, 2023 was 24 years and 43 years, respectively.

The discount rate related to the Company’s lease liabilities as of both June 30, 20222023 and March 31,September 30, 2023 was 6%8% and 8%. The discount rates are generally based on estimates of the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.

10. ACCRUED LIABILITIES AND OTHER PAYABLES

As of June 30, 20222023 and March 31,September 30, 2023, accrued liabilities and other payables consisted of the following:

11. DIVIDENDS

Dividends payable represent a dividend declared by the Company’s HK subsidiary, Aspire Science, in the year ended June 30, 2020, which was payable to Aspire Science’s then sole stockholder, who is the Company’s chief executive officer. The dividend was declared prior to the transfer of the equity interest in Aspire Science to Aspire Holdings, which subsequently transferred the equity interest to Ispire International. Set forth below is the information relating to the dividend payable at June 30, 2022 and March 31, 2023.

12. RELATED PARTY TRANSACTIONS

a) The table below sets forth the major related parties and their relationships with the Company:

b) Tuanfang Liu is also Aspire Global’s chief executive officer and a director of both the Company and Aspire Global, and his wife, Jiangyan Zhu, is also a director of both companies. As of March 31, 2023, Mr. Liu and Ms. Zhu beneficially own 66.5% and 5.0%, respectively, of the outstanding shares of both Aspire Global and the Company.

c) The Company had the following balances due from related parties:

The balances represent payment on behalf of these related parties, such as freight and tariff charges and others. These balances as of June 30, 2022 were all non-interest bearing, unsecured, had no due date and were repayable on demand and the balances were fully settled in November 2022.

d) The balances in due to related parties at June 30, 2022 and March 31, 2023 represent amounts due to Eigate of $40,672,768 and $0, respectively. The balances are all non-interest bearing, unsecured, have no due date and are repayable on demand.

e) For both three months ended March 31, 2022 and 2023, substantially all of the Company’s tobacco and cannabis vaping products were purchased from Shenzhen Yi Jia. As of June 30, 2022 and March 31, 2023, the accounts payable–- related party was $41,982,373 and $56,044,267, respectively, which was payable to Shenzhen Yi Jia. For the three months ended March 31, 2022 and 2023 and nine months ended March 31, 2022 and 2023, the purchases from Shenzhen Yi Jia were $16,485,000, $16,961,308, $61,318,089 and $67,762,917, respectively.

13.12. INCOME TAXES

For the three months ended March 31, 2022 and 2023 and nine months ended March 31,September 30, 2022 and 2023 income(loss) before income taxes consists of:

The Company’s effective tax rate for the three months ended March 31, 2022 and 2023 and nine months ended March 31,September 30, 2022 and 2023 was different from the Hong Kong statutory income tax rate due primarily to the U.S. subsidiary being in a loss position. No tax benefit has been recognized for this current loss and the related carryforward losses of this subsidiary, as a full valuation allowance has been established against the deferred tax asset arising from the losses.

14. EARNINGS PER SHAREAs at September 30, 2023, income tax payable of $496,045 was from income generated during the three months ended September 30, 2023, and $63,946 was from income generated prior to that date. As at June 30, 2023, income tax payable of $63,853 was from income generated during the year ended June 30, 2023. All income tax payables arose solely from Hong Kong operation.

As at September 30, 2023, there were unrecognized deferred tax assets of $4,593,466, out of which $3,822,280 were net operating loss carryforwards that may result in future income tax benefits, resulting from net operating losses of $18,201,331 arose from Aspire North America LLC. The following table presents a reconciliationamount of basic net income per share:

15. SUBSEQUENT EVENT

In Aprilthe valuation allowance as of September 30, 2023 was $4,593,466, resulting from an addition of $93,022 to the Company completed the public offeringvaluation allowance of 3,105,000 shares$4,500,444 as of common stock at a public offering price of $7.00 per share, which includes 405,000 shares issued upon the exercise by the underwriters of their over-allotment option.June 30, 2023.

13. STOCK-BASED COMPENSATION

Stock Options

On September 4, 2023, the Board, as administrator of the Plan, granted pursuant to the Plan non-qualified stock options to its executive officers, and other employees to purchase an aggregate of 2,455,000 shares of common stock, at exercise price of $9.76 per share, being the fair market value on the date of grant. Except for 50,000 options that vested upon grant, the remaining options shall vest over four years with the initial 25% of the awarded options vesting on the one-year anniversary of September 4, 2023, with the remaining 75% of the award vesting monthly on a 1/36^th pro-rata basis for the following 36 months thereafter for each employee.

The following is a summary of stock option activity transactions as of and for the period ended June 30, 2023 and September 30, 2023:

The aggregate intrinsic value of options exercised for each of the three months ended September 30, 2022 and 2023 was $0. Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.

The total fair value of shares vested for the three months ended September 30 2022 and 2023 was $0 and $505,979, respectively, using the binomial option pricing model based on the following assumptions:

Details of the options outstanding and exercisable as of September 30, 2023 are as follows:

A total of 50,000 stock options are exercisable as of September 30, 2023.

RSUs

RSUs granted to directors and employees vest cumulatively as to one-third of the restricted stock units on each of the first three anniversaries of the date of grant. RSUs granted to consultants vest over the respective service periods. RSUs are accounted for as equity using the fair value method, which requires measurement and recognition of compensation expense for all awards granted to employees, directors and consultants based upon the grant-date fair value.

The aggregate grant date fair value for the RSUs during the three months period ended September 30, 2023 was $461,580.

A total of $967,559 stock-based compensation expenses were recognized in general and administrative expenses in the consolidated statements of operations for three months ended September 30, 2023. As of September 30, 2023, the Company had approximately $18,787,853 in unrecognized compensation expenses related to all non-vested options and RSUs that will be recognized over the weighted-average period of 2.3 years.

14. EARNINGS PER SHARE

The following table presents a reconciliation of basic net loss per share:

15. SUBSEQUENT EVENTS

On October 9, 2023, the Board, as administrator of the 2022 Equity Incentive plan, granted pursuant to the Plan non-qualified stock options to its employees from Ispire Malaysia to purchase an aggregate of 330,000 shares of common stock, at an exercise price of $9.19 per share, being the closing price as of October 6, 2023. These options shall vest over four years with the initial vesting of 25% of the awarded options vesting on the one-year anniversary date hereof, with the remaining 75% of the award vesting pro-rata on a monthly basis for the following 36 months thereafter.

On November 3, 2023, the Board, as administrator of the 2022 Equity Incentive plan, granted pursuant to the Plan non-qualified stock options to one of its employee to purchase an aggregate of 150,000 shares of common stock, par value $0.0001, and such options shall be exercised for a purchase price equal to the closing price of the Company’s common stock on grant date. A number of 37,500 options shall be granted on November 3, 2023, December 13, 2023, March 13 2024, and June 13, 2024 respectively, totaling 150,000 options. These options shall vest immediately upon grant and shall be exercisable for four years from the date of grant.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed financial statements and the related notes appearing elsewhere in this report. See “Cautionary Forward-Looking Statements.” Actual results could differ materially from those discussed below.

Overview

We are engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. We sell our tobacco vaping products worldwide except for the PRC and Russia. Our tobacco vaping products are marketed under the Aspire brand name and are sold primarily through our distribution network. We currently sell our cannabis vaping hardware only in the United States, and we have recently commenced marketing activities in Canada and Europe, primarily in the European Union. AllMost of our products are vaping hardware. Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device, and includes dabbing, which is the recreational inhalation of extremely concentrated tetrahydrocannabinol, the main psychotropic cannabinoid derived from the marijuana plant. Our cannabis vaping products are marketed under the Ispire brand name, primarily on an ODM basis to other cannabis vapor companies. ODM generally involves the design and customization of the core products to meet each brand’s unique image and needs, and our products are sold by our customers under their own brand names although they may also include our brand name on the products.

Initial Public Offering

In April 2023, we completed the public offering of 3,105,000 shares of common stock at a public offering price of $7.00 per share, which includes 405,000 shares issued upon the exercise by the underwriters of their over-allotment option. Gross proceeds were approximately $21.7 million, less underwriting discounts and non-accountable expense allowance of approximately $1.7 million, and other expenses of approximately $1.5 million, resulting in net proceeds of $18.5 million. US Tiger Securities, Inc. acted as sole book-running manager for the offering, and TFI Securities and Futures Limited and Prime Number Capital, LLC acted as underwriters.

Regulatory Risks

The sale of tobacco and cannabis products is subject to regulations worldwide. Many countries prohibit the sale of any cannabis products, and many countries have regulations relating to tobacco products, with a particular emphasis on underage sales. As a result of regulations in the United States, we are able to sell only one tobacco vaping product line, the Nautilus Prime, in the United States. Our tobacco vaping sales in the United States were approximately $0.9$0.4 million and $0.1 million for the yearthree months ended JuneSeptember 30, 2022.2022 and 2023, respectively. Because the volume of sales did not justify the marketing and regulatory costs, we have ceased marketing tobacco vaping products in the United States and did not have any sales of tobacco vaping products in the United States in the nine months ended March 31, 2023.States. If any similar regulations are adopted with respect to cannabis products, our business will be severely impacted since all of our cannabis revenue for the three months and nine months ended March 31,September 30, 2022 and 2023 was generated from sales in the United States.States

Effects of COVID-19 Pandemic 

In December 2019, coronavirus disease 2019 (COVID-19) was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which are no longer in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023.

The extent to which COVID-19 impacts our operations on an ongoing basis is highly uncertain. Since our products are presently manufactured in China by a related party, any changes in the outbreak in China and any changes in the Chinese government’s policy may affect our supplier’s operations which could affect its ability to manufacture and deliver product in a timely manner.

Supply Chain Risks

One of the effects of the COVID-19 has been delays resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped to the country of destination, and delivered from the port of entry to the customer’s location. As a result of the COVID-19 pandemic, during 2021 and early 2022 there were fewer longshoremen unloading ships and fewer truckers to deliver the products to market, which has resulted in significant delays in the delivery of products to markets. Since the port delays have significantly decreased, we do not believe that the supply chain issues that previously affected our operations are currently affecting us. We cannot assure you that delays will not affect our business in the future.

In 2021, Shenzhen Yi Jia suffered a chip shortage resulting in a slowdown in delivery of its products to usthe Company from April to August 2021. To secure the supply of chips, Shenzhen Yi Jia changed the payment terms to chip suppliersuppliers from 30 days after delivery in the past to prepayment, and it engaged two new chip suppliers. Since September 2021, Shenzhen Yi Jia has advised us that it obtained a supply of chips to meet its production needneeds and athe chip shortage no longer affects its production. However, weIn 2022, a slowdown in the delivery of components to Shenzhen Yi Jia resulting from supply chain slowdowns as a result of the effects of the PRC’s COVID policy resulted in an increase in cost of revenue during the period. We cannot assure you that we will not suffer from a chip shortage affectingor that the effects of COVID or the PRC’s COVID policy will not affect Shenzhen Yi JiaJia’s ability or any other supplier.the ability of its suppliers to delivery products in a timely manner.

The delay in shipment and chip shortage had a negative impact on our results of operation in the three months and nine months ended March 31, 2022 and 2023. Although mainland China’s COVID policy changed in early January 2023 from its zero COVID policy, many people were infected following the termination of the zero-COVID policy which affected the supply chain in the three months ended March 31, 2023. We believe delays in supply chain may continue to affect us. In order to mitigate the possible supply chain disruptions and to have more control of our manufacturing operations, we are using a portion of the net proceeds from our initial public offering to take the initial steps toward the development of manufacturing operations in Vietnam and in California. If we can establish our own production facilities, we will have better control of the manufacturing process and shipment of our products to customers, as well as diversifying risks of any production shutdown. However, we do not have any experience in manufacturing operations, and in order to establish manufacturing operations, we will have to hire personnel with experience in setting up and operating manufacturing operations. With respect to operations in Vietnam, we will need to engage personnel who have experience in managing operations in Vietnam. Further, to the extent that our Vietnam or California operations rely on Chinese suppliers for any components, we will be subject to any shortages and delays as a result of any lockdowns pursuant to China’s COVID policies. We cannot assure you that if our suppliers are impacted by China’s COVID policy, we will be able to obtain products or components from suppliers outside of China.Accounts Receivable

We are planningOur business relies on the collection of accounts receivable from our customers in a timely manner to establish manufacturing facilities in Californiamaintain liquidity and Vietnam as part ofsupport our efforts to reduce the effects of inflation becauseongoing operations. The balance of the lower cost structure in Vietnam,allowance for doubtful accounts was $0 and $1.1 million at September 30, 2022 and 2023, respectively. Our failure or inability to reduce the potential impactcollect accounts receivable when due results from a number of China’s COVID policy. We are not experienced in operating manufacturing facilities and we will needfactors, including (i) our customer’s failure to hire key employees in Vietnam who understand the applicable laws and regulations, as well as local customs, in order to operate our proposed facilities. We cannot assure you that we will be able to operate efficiently in compliance with all applicable construction, environmental and other laws and regulations affecting the manufacture of our products in Vietnam. While our proposed facilities in California may provide protection from the effect of China COVID policy, it may not reduce the impact of inflation. In addition, our California facilities may be subject to unplanned expenses and delayspay as a result of compliance with local rulesadverse economic conditions affecting the customers; (ii) our failure to accurately assess the creditworthiness of our customers; (iii) our failure to implement effective collection efforts; and regulations relating to construction. Thus, we cannot assure you that we will be able to commence manufacturing options(iv) disputes over contract terms, product quality or delays in either location in the near future or that we will be able to reduce our costs as a result of operating our own facilities. Until we have established our own facilities, we anticipate that we will continue to rely on Shenzhen Yi Jia for our products.

Through March 31, 2023, inflation in PRC has not materially impacted our cost of revenue. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for three months ended March 31, 2022 and 2023 were increases of 1.1% and 1.3%, respectively, and for the nine months ended March 31, 2022 and 2023 were increases of 1.2% and 1.9%, respectively.delivery. Although we have not in the past been materially affected by inflation, wemay implement strategies to mitigate these risks, there can providebe no assurance that such measures will be entirely effective, and we will not be affected in the future by higher ratesmay continue to incur write-offs of inflation in PRC.

Market and Economic Conditions 

In recent years, the United States and other markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including, as a result of the COVID-19 pandemic, supply chain disruptions, the Russian invasion of Ukraine, instability in the U.S. and global banking systems, rising fuel prices, increasing interest rates or foreign exchange rates and increased inflation and the possibility of a recession. A significant downturn in economic conditionsaccounts receivable, which may affect the market forimpair our products and our supplier’s ability to provide products to us on acceptable terms.

We cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, operating results could be adversely affected. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets. If Congress does not raise the debt ceiling and if the U.S. government defaults on its payment obligations or experiences delays in making payments when due, such payment default or delay by the U.S. government, as well as continued uncertainty surrounding the U.S. debt ceiling or the U.S. Government’s ability to pay debts, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the United States. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect economic conditions, as well as our business, financial condition and operating results.profitably.

Key Factors that Affect Our Results of Operations

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

Results of Operations 

Three Months and Nine Months Ended March 31,September 30, 2022 and 2023

The following table sets forth a summary of our consolidated statements of operations and comprehensive income for the three months ended March 31, 2022 and 2023, and nine months ended March 31,September 30, 2022 and 2023 (dollars in thousands except per share amounts).