Annual Report for Fiscal Year Ending June 30, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

As stated in our corporate mission, we are committed to delivering superior products that challenge industry norms, with the goal of delivering an unmatched customer and adult consumer experience. In achieving this, risk reduction is central to our mission, and we aim to improve the lives of our consumers through cutting-edge research and development. Our technology platforms look to reduce youth access to vaping products, which in turn, will facilitate our ability to provide adult consumers with the products they desire.

We are engaged in the research and development, design, commercialization, sales, marketing and distribution of branded and non-branded vaping hardware products in both the nicotine and cannabis spaces. Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device. These products are sold into the global nicotine and cannabis markets in the form of e-cigarettes or cartridges filled with oils by our customers, respectively.

We sell our e-cigarette (or nicotine) products globally, in markets where we are legally permitted to do so. To date, our nicotine products are marketed under the "Aspire" brand name and are sold primarily through our expansive distribution network. However, we are expanding our international presence via the launch of nicotine products under the Ispire platform. These products have started to be launched under licensing arrangements with the owners of selected partner brands.

We currently sell our cannabis vaping hardware in the United States, Canada, and South Africa. However, we are continuing to develop our sales network across Europe, South America, and other regions in preparation for legalization in these markets. Our cannabis products are sold under the Ispire brand name, primarily on an ODM basis to other cannabis vapor companies including multi and single-state operators, brand owners and co-packers. ODM generally involves the design and customization of the core products to meet each brand's unique image and needs. Our hardware products are sold by our customers under their own brand names. We do not "touch the cannabis plant" in the production and sale of our hardware products and thus are not subject to the specific cannabis-related regulatory and taxation provisions of the industry (e.g., IRS Code Section 280E).

Since our initial public offering in April 2023, we have completed three fundraising rounds. The first was executed as part of our initial public offering, from which we raised approximately $18.3 million after underwriting and other offering expenses.

In June 2023, we raised net proceeds of approximately $7.4 million, after placement agent and offering expenses, from the private placement of our Common Stock to three investors.

In March 2024, we raised net proceeds of approximately $10.6 million, after placement agent fees and offering expenses, through a public offering of our Common Stock priced at $6.00 per share. We used the net proceeds from this offering in connection with the establishment and operation of our manufacturing facility in Malaysia, the funding of our joint venture with Touch Point Worldwide Inc. d/b/a/ Berify and Chemular Inc. and for working capital and general corporate purposes, including research and development.

Regulatory Risks

The sale of nicotine and cannabis products is subject to regulations worldwide. Many countries prohibit the sale of any cannabis products, and many countries have regulations relating to nicotine products, with a particular emphasis on underage sales. We work closely with our various global distribution partners to help ensure our nicotine products comply with local regulations (e.g., packaging, ingredient disclosure, health warnings, etc.). Changes in the regulatory environment can be enacted swiftly and may lead to our products becoming non-compliant in one or more international markets. This regulatory scenario may severely disrupt our business in these markets while we resolve the deficiencies (if possible) with the current product offering.

E-cigarette regulation

Regulation regarding e-cigarettes varies across countries, from limited regulation to a total ban. The legal status of e-cigarettes is currently pending in many countries. 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 or regulations in countries and regions that our major customers are in may adversely affect our business. Please see the sections titled "Item 1. Business - Regulation" and "Item 1A. Risk Factors" above for our robust discussion of this topic.

Accounts Receivable

Our business relies on the collection of accounts receivable from our customers in a timely manner to maintain liquidity and support our ongoing operations. The balance of the allowance for credit losses was $18.0 million and $5.9 million at June 30, 2025 and 2024, respectively.

Our failure or inability to collect accounts receivable when due results from a number of factors, including (i) our customer's failure to pay as a result of adverse economic conditions affecting the customer's cash flow; (ii) our failure to implement effective collection efforts; and (iii) disputes over contract terms, product quality or delays in delivery. Due to federal status of cannabis and the uncertainty of adverse economic conditions in cannabis industry, the company has focused more on nicotine business in the past year. Although we may implement strategies to mitigate these risks, there can be no assurance that such measures will be entirely effective, and we may continue to incur write-offs of accounts receivable, which may impair our ability to operate profitably.

Key Factors that Affect Our Results of Operations

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

●

The effect of legislation and regulations affecting non-combustable nicotine products and cannabis vaping products.

●

If we elect to market nicotine vaping products in the United States, our ability to obtain regulatory approval to market additional nicotine vaping products in the United States and the significant cost of seeking such approval.

●

Our ability to develop and market nicotine and cannabis vaping products to meet the changing tastes of adult consumers.

●

The effects of competition.

●

The development of an international market for cannabis vaping products, which is presently primarily limited to certain states in the United States.

Results of Operations

The following table sets forth a summary of our consolidated statements of operations and comprehensive income for the years ended June 30, 2025 and 2024 (dollars in thousands except per share amounts).

		Years Ended June 30,
		2025								2024
						% of Revenue								% of Revenue
Revenue		$	127,494				100.0	%		$	151,909				100.0	%
Cost of revenue			(104,845	)			(82.2	)%			(122,126	)			(80.4	)%
Gross profit			22,649				17.8	%			29,783				19.6	%
Operating expenses			(60,499	)			(47.5	)%			(43,677	)			(28.8	)%
Loss from operations			(37,850	)			(29.7	)%			(13,894	)			(9.1	)%
Other (loss) income, net			(187	)			(0.1	)%			409				0.3	%
Loss before income taxes			(38,037	)			(29.8	)%			(13,486	)			(8.9	)%
Income taxes			(1,204	)			(0.9	)%			(1,282	)			(0.8	)%
Net loss			(39,241	)			(30.8	)%			(14,768	)			(9.7	)%
Other comprehensive (loss) income			(167	)			(0.1	)%			221				0.1	%
Comprehensive loss			(39,408	)			(30.9	)%			(14,546	)			(9.6	)%
Net loss per ordinary share (basic and diluted)		$	(0.69	)						$	(0.27	)
Weighted ordinary shares outstanding			56,853,552								54,812,900

Revenue

The following table sets out the breakdown of our revenue percentage by region based on information provided to us by our distributors.

		For the year ended June 30,
		2025				2024
Europe			58.1	%			43.0	%
North America (the U.S. and Canada)			25.5	%			41.5	%
Asia Pacific (excluding PRC)			9.6	%			11.6	%
Others			6.8	%			3.9	%
Total			100.0	%			100.0	%

Our revenue decreased by $24,414,387, or 16.1%, from $151,908,691 for the year ended June 30, 2024, to $127,494,304 for the year ended June 30, 2025. The decrease in revenue is the combined effect of (i) decreases in product sales in the United States of $30.5 million from $63.1 million for the year ended June 30, 2024, to $32.6 million for the year ended June 30, 2025, (ii) decreases in product sales in the Asia Pacific (excluding PRC) of $5.3 million from $17.6 million for the year ended June 30, 2024, to $12.3 million for the year ended June 30, 2025, (iii) increases in sales of vaping products in Europe of $8.8 million from $65.3 million for the year ended June 30, 2024 to approximately $74.1 million for the year ended June 30, 2025, and (iv) increases in sales of vaping products in Africa and South America of $2.5 million from $6.0 million for the year ended June 30, 2024 to approximately $8.5 million for the year ended June 30, 2025.

Cost of Revenue

Cost of revenue mainly consists of cost of purchases of vaping products, that are mostly purchased from Shenzhen Yi Jia. Cost of revenue decreased by $17,281,612, or 14.2%, from $122,126,245 for the year ended June 30, 2024, to $104,844,633 for the year ended June 30, 2025. The decrease in cost of revenue is in line with decrease in sales.

Gross Profit

The following tables show the revenue, cost of revenue and gross profit of our products (dollars in thousands).

Year Ended June 30, 2025
Revenue				Cost of revenue				Gross profit				Gross profit %
$	127,494			$	104,845			$	22,649				17.8	%

Year Ended June 30, 2024
Revenue				Cost of revenue				Gross profit				Gross profit %
$	151,909			$	122,126			$	29,782				19.6	%

Gross profit decreased by $7,132,775, or 23.9%, from $29,782,446 for the year ended June 30, 2024, to $22,649,671 for the year ended June 30, 2025, while our gross margin decreased from 19.6% to 17.8%.

The decrease in gross margin was primarily due to changes in product mix with less higher margin products being sold during the year ended June 30, 2025.

Operating Expenses

Operating expenses increased by $16,822,945 or 38.5%, from $43,676,585 for the year ended June 30, 2024, to $60,499,530 for the year ended June 30, 2025.

Our sales and marketing expenses mainly consist of employee salaries and benefits, marketing expenses, travel expenses, and other miscellaneous expenses.

Sales and marketing expenses increased by $1,830,660, or 27.7%, from $6,608,724 for the year ended June 30, 2024, to $8,439,384 for the year ended June 30, 2025. The increase in sales and marketing expenses was primarily due to an increase in payroll from marketing personnel of $0.9 million, increase in brand advertising activities of $0.4 million and increase in marketing related professional service fee of $0.3 million.

Credit loss expenses increased by $16,019,060, or 266.3%, from $6,015,752 for the year ended June 30, 2024, to $22,034,812 for the year ended June 30, 2025. The increase is due to longer time in collection of customer payments than expected and more allowance for credit losses were provided.

Our general and administrative expenses (excluding the credit loss expenses) mainly consist of employee's salaries and benefits, rental expense, professional fees, stock-based compensation expenses and other administrative expenses. General and administrative expenses decreased by $1,026,775, or 3.3%, from $31,052,109 for the year ended June 30, 2024, to $30,025,334 for the year ended June 30, 2025. The decrease was primarily due to (i) a decrease of $0.5 million of stock-based compensation expense due to cutting headcount in streamline operations by North America, and (ii) decrease in research and development expenses of $0.4 million by North America.

Other (expense) income, net

Other (expense) income, net includes interest income, interest expense, exchange loss, net and other income (expense).

Interest income decreased by $278,255, from $365,251 for the year ended June 30, 2024, to $86,996 for the year ended June 30, 2025. The decrease in interest income is mainly due to decrease in interest rate and less interest income from bank deposits.

Other (expense) income mainly consists of interest expense, loss on equity method investment, credits from company credit card, rental income and other miscellaneous expenses. Other (expense) income decreased by $300,494, or 265.0%, from net income of $113,405 for the year ended June 30, 2024 to net expense of $187,089 for the year ended June 30, 2025. The decrease was mainly due to increase in interest expense of $0.2 million.

Exchange loss, net increased by $16,277, or 23.2%, from net exchange loss of $70,293 for the year ended June 30, 2024 to net exchange loss of $86,570 for the year ended June 30, 2025.

As a result of these factors, total other (expense) income, net decreased by $595,026, from other income, net of $408,363 for the year ended June 30, 2024 to other expense, net of $186,663 for the year ended June 30, 2025.

Income Taxes

We account for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The provisions of ASC 740-10 prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. For the years ended June 30, 2025 and 2024, we did not incur any interest or penalties related to an uncertain tax position. We do not believe that there were any uncertain tax positions as of June 30, 2025 and 2024.

Income taxes decreased by $78,342 or 6.1%, from $1,282,046 for the year ended June 30, 2024 to $1,203,704 for the year ended June 30, 2025. We had a consolidated net loss for both year ended June 30, 2025 and 2024, which was the combined effect of a profit by Aspire Science, a loss by Aspire North America and Ispire Malaysia. The profit from Aspire Science resulted in a current tax expense. The increase in valuation allowance reflects our view that the taxable income in the future will not be sufficient to utilize the carryforward loss.

Net Loss

As a result of the foregoing, net loss increased by $24,472,404, from net loss of $14,767,822, or loss of $0.27 per share (basic and diluted), for the year ended June 30, 2024 to a net loss of $39,240,226, or loss of $0.69 per share (basic and diluted), for the year ended June 30, 2025.

Liquidity and Capital Resources

The following table summarizes our changes in working capital from June 30, 2024 to June 30, 2025 (dollars in thousands).

		June 30, 2025				June 30, 2024				Change				% Change
Current Assets		$	72,908			$	102,572			$	(29,664	)			(28.9	)%
Current Liabilities			72,540				85,991				(13,451	)			(15.6	)%
Working Capital			368				16,581				(16,213	)			(97.8	)%

The following table sets forth information as to consolidated cash flow information for the years ended June 30, 2025 and 2024 (dollars in thousands).

		Year Ended June 30,								Increase
Consolidated cash flow data:		2025				2024				(Decrease)
Net cash used in operating activities		$	(7,374	)		$	(18,302	)		$	10,928
Net cash (used in) provided by investing activities			(5,199	)			2,990				(8,189	)
Net cash provided by financing activities			1,853				10,083				(8,230	)
Net decrease in cash		$	(10,720	)		$	(5,229	)		$	(5,491	)

Net cash flow used in operating activities for the year ended June 30, 2025, of $7.4 million, reflected our net loss of $39.2 million, adjusted primarily as follows: add back of impairment of account receivable of $22.0 million, add back of share-based compensation expense of $5.6 million, add back of right-of-use assets amortization of $1.5 million, an increase in accounts payable of $10.8 million, an increase in contract liabilities of $2.6 million, offset by increase in accounts receivable of $9.3 million, and increase in payment made for operating lease liabilities of $1.4 million.

Net cash flow used in operating activities for the year ended June 30, 2024 of $18.3 million, reflected our net loss of $14.8 million, adjusted primarily as follows: add back of impairment of account receivable of $6.0 million, add back of shared based payment expenses of $6.4 million, add back of depreciation and amortization of $0.5 million, an increase in accounts payable of $17.9 million, an increase in accrued liabilities and other payables of $2.5 million, a decrease in inventory of $0.9 million, a decrease in prepaid expenses and other current assets of $2.4 million, an increase in contract liabilities of $1.2 million offset by an increase in accounts receivable of $41.3 million.

Net cash flow used in investing activities for the year ended June 30, 2025, of $5.2 million reflected primarily the repayment of acquisition payable of $3.2 million, purchase of property, plant and equipment of $1.1 million and acquisition of intangible assets of $0.9 million.

Net cash flow generated from investing activities for the year ended June 30, 2024, of $3.0 million reflected primarily maturity of short term investment of $9.1 million offset by purchase of cost other investment of $2.0 million, purchase of property, plant and equipment of $2.0 million, acquisition of intangible assets of $1.2 million and purchase of equity method investment of $1.0 million.

Net cash flow generated from financing activities for the year ended June 30, 2025, of $1.9 million reflected primarily proceeds from borrowing of $2.1 million, offset by repayment of borrowing of $0.2 million.

Net cash flow generated by financing activities for the year ended June 30, 2024, of $10.1 million reflected primarily proceeds from our equity offering of $12.3 million, offset by payment of equity offering costs of $1.5 million.

To date, we have financed our operations primarily through cash flow from operations and working capital loans from our major stockholders, who are our co-chief executive officer and his wife, when necessary. We plan to support our future operations primarily from cash generated from our operations and cash on hand. As of the date of this Annual Report, we believe that our current cash and cash flows provided by operating activities, and the net proceeds from our equity offerings and borrowing will be sufficient to meet our working capital needs in the next 12 months. If we experience an adverse operating environment or incur unanticipated capital expenditure requirements, or if we decide to accelerate our growth, then additional financing may be required. We cannot give any assurance that additional financing will not be required or, if required, would be available on favorable terms if at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in dilution to our stockholders which may be substantial.

The cash held at a bank by our Hong Kong operating subsidiary can be freely transferred within our corporate structure without restriction. If our Hong Kong operating subsidiary were to incur additional debt on its own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to transfer cash to our U.S. investors.

Contractual Obligations

As of June 30, 2025 and 2024, we had contract liabilities of $4,861,250 and $2,218,166, respectively. These liabilities are advance deposits received from customers after an order has been placed. We expect all of the contract liabilities to be settled in less than one year.

We have operating lease arrangements for office and factory premises for Hong Kong, California and Malaysia, which are treated as right-of-use assets. These leases typically have terms of two to five years. Leases with an initial term of 12 months or less are not presented as right-of-use assets 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 and lease liabilities where we are the lessee are presented as follow:

		As of				As of
		June 30, 2025				June 30, 2024
Operating lease right-of-use assets		$	5,181,521			$	3,579,140
Impairment			(151,516	)			-
Total		$	5,030,005			$	3,579,140
Operating lease liabilities - current		$	1,838,815			$	1,207,832
Operating lease liabilities - non-current			3,267,522				2,194,094
Total		$	5,106,337			$	3,401,926

As of June 30, 2025, the maturities of our lease liabilities (excluding short-term leases) are as follows:

		As of June 30, 2025
July 1, 2025 to June 30, 2026		$	2,110,799
July 1, 2026 to June 30, 2027			1,583,109
July 1, 2027 to June 30, 2028			777,402
July 1, 2028 to June 30, 2029			696,727
July 1, 2029 to June 30, 2030			464,484
Total future lease payments			5,632,521
Less: imputed interest			(526,184	)
Total lease liabilities		$	5,106,337

As of June 30, 2025, we have a borrowing balance of $1,952,127 outstanding. The maturities of our borrowing are as follows:

		As of June 30, 2025
July 1, 2025 to June 30, 2026			1,146,766
July 1, 2026 to June 30, 2027			805,361
Total borrowing			1,952,127

As of June 30, 2025, we recorded an unpaid $5.8 million consideration in accrued liabilities and other payables on the consolidated balance sheet for a committed investment of $9 million into a joint venture investment named IKE Tech LLC.

Trend Information

Other than as disclosed elsewhere in this Form 10-K, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

Seasonality

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

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements.

Critical Accounting Estimates

Revenue recognition

We sell our vaping products to customers and recognize revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers. In certain sales contracts, a right of return is offered. With a right of return, a customer is given the right to return the products if they are not satisfied with the product, and a credit would be given. The return rate historically is low, and we recognize a sales return reserve based on historical return rate and apply the rate on sales for the latest three months, as it is unlikely to have sales return after the three-month period. Should there be a change in our estimate of the return rate, or a change in the periods in which we expect return, the return reserves would be affected, and our revenue would be affected as well.

Allowance for credit losses

We adopted Accounting Standards Update 2016-13 "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments" on July 1, 2023, under the modified retrospective method of adoption. In establishing the required allowance for credit losses, we consider historical collection experience, aging of the receivables, economic environment, and the credit history and financial conditions of the customers. We review its receivables on a regular basis to determine if the allowance is adequate and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for credit losses after management has determined that the likelihood of collection is not probable.

Recent Accounting Pronouncements

The discussion of the recent accounting pronouncements contained in our consolidated financial statements, "Summary of Significant Accounting Policies," is incorporated herein by reference.

Emerging Growth Company

As a company with less than $1.235 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of such exemptions. We could lose Emerging Growth Company status if we become a "Large Accelerated Filer." This would occur if we had a public float of $700 million or more, as of the last business day of our most recently completed second fiscal quarter.