RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
NOTE
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Restatement
of Consolidated Financial Statements for the year ended June 30, 2023
During
the quarters ended December 31, 2023, and March 31, 2024, the Company identified certain errors with the classification and presentation
of information in the consolidated statement of cash flows and classification errors in the consolidated statement of operations and
comprehensive loss. Additionally, the Company identified errors in its initial recognition and measurement of right-of-use assets and
lease liabilities related to its operating leases, as well as the subsequent recognition and measurement of such operating leases. The
Company and the Audit Committee determined that the Company’s previously issued financial statements included in the Company’s
Annual Report on Form 10-K for the year ended June 30, 2023, and the Quarterly Report on Form 10-Q for the periods ended September 30,
2023, December 31, 2023 and March 31, 2024, should no longer be relied upon. The identified errors impacting the previously referred
to financial statements include:
| ● | The incorrect presentation of cash payments on operating leases under financing activities instead of operating activities. As a result of correcting this error, the Company’s principal portion of lease payments totaling $874,039 in the consolidated statements of cash flows for the year ended June 30, 2023, and totaling $242,182 in the consolidated statements of cash flows for the three months ended September 30, 2023, needs to be corrected from financing activities to operating activities; |
| ● | The omission of disclosing non-cash investing and financing activities related to the acquisition of “right of use” (ROU) assets in exchange for operating lease liabilities. As a result of the correction of this error, the Company needs to add disclosure of $4,988,032 of leased assets obtained in exchange for operating lease liabilities as a non-cash financing item in the consolidated statement of cash flows for the year ended June 30, 2023, and $537,307 for the three months ended September 30, 2023, six months ended December 31, 2023, and nine months ended March 31, 2024; |
| ● | The incorrect recognition of shipping and handling costs as sales and marketing expenses (operating expenses) instead of being recognized as cost of revenue. As a result of the restatement, the Company’s shipping and handling costs of $298,703 needs to be adjusted from selling expenses to cost of revenue for the year ended June 30, 2023, $43,444 for the three months ended September 30, 2023, and $123,308 and $166,752 for the three and six months ended December 31, 2023, respectively; and |
| ● | The incorrect initial measurement and recognition of right of use assets and lease liabilities associated with the Company’s operating leases, and the incorrect subsequent measurement and recognition of expense associated with such operating leases. As a result of the restatement, (1) the Company’s right of use assets increased by $192,115 as of June 30, 2023, which includes the correction of $489,720 originally recorded as prepaid rent to be recorded as a component of the right-of-use asset, (2) the Company’s lease liabilities decreased by $392,582 as of June 30, 2023, as a result of the correction of measurement of present value of future lease payments, and (3) rent expense recognized for the year ended June 30, 2023 decreased by $94,977, based on changes in the calculation of monthly rental expense. |
On
an interim basis, the Company notes the following as a result of the restatement:
| ● | As of September 30, 2023, right of use assets increased by $218,378, including the correction to record $489,720 of prepaid rent as a component of the right of use asset; lease liabilities decreased by $399,347; and retained earnings increased by $128,005. For the three months ended September 30, 2023, rent expense decreased by $33,028. For the three months ended September 30, 2023, net cash used in operating activities increased by $242,182, net cash used in financing activities decreased by $242,182. |
| ● | As of December 31, 2023, right of use assets increased by $239,403, including the correction to record $428,505 of prepaid rent as a component of the right of use asset; lease liabilities decreased by $347,520; and retained earnings increased by $158,418. For the three and six months ended December 31, 2023, rent expense decreased by $30,412 and $63,440, respectively. For the six months ended December 31, 2023, net cash used in operating activities was unchanged. |
| ● | As of March 31, 2024, right of use assets increased by $255,264, including the correction to record $428,505 of prepaid rent as a component of the right of use asset; lease liabilities decreased by $356,286; and accumulated deficit decreased by $183,045. For the three and nine months ended March 31, 2024, rent expense decreased by $24,628 and $88,068, respectively. For the nine months ended March 31, 2024, net cash used in operating activities was unchanged. | Additionally,
the Company has provided Note 20 – Quarterly Financial Data (unaudited and restated) to present the impact of the above restatements
on the unaudited quarterly financial information for the quarterly periods ended September 30, 2023, December 31, 2023, and March 31,
2024.
The
Company’s restatements for the classification and disclosure errors described above do not have any effect on the Company’s
previously reported balance sheets, net loss or net changes in cash.
The
following tables summarize the effect of the restatement on each financial statement line item as of the dates indicated:
Consolidated Balance Sheet as of June 30, 2023 | |
As Reported | | |
Adjustment | | |
As Restated | |
Other non-current assets | |
$ | 732,334 | | |
$ | (489,720 | ) | |
$ | 242,614 | |
Right-of-use assets – operating leases | |
| 4,061,617 | | |
| 192,115 | | |
| 4,253,732 | |
Total other assets | |
| 5,882,082 | | |
| (297,605 | ) | |
| 5,584,477 | |
Total assets | |
| 90,693,349 | | |
| (297,605 | ) | |
| 90,395,744 | |
Operating lease liability - current | |
| 944,525 | | |
| (107,425 | ) | |
| 837,100 | |
Total current liabilities | |
| 55,962,184 | | |
| (107,425 | ) | |
| 55,854,759 | |
Operating lease liability – net of current portion | |
| 3,356,232 | | |
| (285,157 | ) | |
| 3,071,075 | |
Total liabilities | |
| 59,318,416 | | |
| (392,582 | ) | |
| 58,925,834 | |
Retained earnings | |
| 5,847,804 | | |
| 94,977 | | |
| 5,942,781 | |
Total stockholders’ equity | |
| 31,374,933 | | |
| 94,977 | | |
| 31,469,910 | |
Total liabilities and stockholders’ equity | |
| 90,693,349 | | |
| (297,605 | ) | |
| 90,395,744 | |
Consolidated Statement of Operations and Comprehensive Loss for the
year ended June 30, 2023 | |
As Reported | | |
Adjustment | | |
As Restated | |
Cost of revenue | |
$ | 94,529,769 | | |
$ | 298,703 | | |
$ | 94,828,472 | |
Gross profit | |
| 21,075,767 | | |
| (298,703 | ) | |
| 20,777,064 | |
Sales and marketing expenses | |
| 4,714,923 | | |
| (298,703 | ) | |
| 4,416,220 | |
General and administrative expenses | |
| 20,929,978 | | |
| (94,977 | ) | |
| 20,835,001 | |
Total operating expenses | |
| 25,644,901 | | |
| (393,680 | ) | |
| 25,251,221 | |
Loss from operations | |
| (4,569,134 | ) | |
| 94,977 | | |
| (4,474,157 | ) |
Loss before income taxes | |
| (4,853,300 | ) | |
| 94,977 | | |
| (4,758,323 | ) |
Income taxes | |
| (1,245,303 | ) | |
| - | | |
| (1,245,303 | ) |
Net loss | |
| (6,098,603 | ) | |
| 94,977 | | |
| (6,003,626 | ) |
Comprehensive loss | |
| (6,077,707 | ) | |
| 94,977 | | |
| (5,982,730 | ) |
Consolidated Statement of Cash Flows for the year ended June 30, 2023 | |
As Reported | | |
Adjustment | | |
As Restated | |
Net loss | |
$ | (6,098,603 | ) | |
$ | 94,977 | | |
$ | (6,003,626 | ) |
Right-of-use assets amortization | |
| 1,061,442 | | |
| (31,338 | ) | |
| 1,030,104 | |
Prepaid expenses and other current assets | |
| (3,088,466 | ) | |
| 489,720 | | |
| (2,598,746 | ) |
Operating lease liabilities | |
| — | | |
| (1,427,398 | ) | |
| (1,427,398 | ) |
Net cash used in operating activities | |
| (7,581,759 | ) | |
| (874,039 | ) | |
| (8,455,798 | ) |
Principal portion of lease payment | |
| (874,039 | ) | |
| 874,039 | | |
| — | |
Net cash used in financing activities | |
| (16,443,844 | ) | |
| 874,039 | | |
| (15,569,805 | ) |
Supplemental non-cash investing and financing activities: | |
| | | |
| | | |
| | |
Leased assets obtained in exchange for operating lease liabilities | |
| — | | |
| 4,988,032 | | |
| 4,988,032 | |
|