# Ispire Technology Inc.: Form 10-Q for the period ended Dec 31, 2024

- Company: [Ispire Technology Inc.](/companies/ispr.md) (CIK 1948455)
- Form: 10-Q
- Filed: 2025-02-07
- Accepted by EDGAR: Feb 7, 2025, 16:30 ET
- Period: 2024-12-31
- Accession: 0001213900-25-011336
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1948455/000121390025011336/ea0229197-10q_ispire.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1948455/000121390025011336/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-10-01 to 2024-12-31 | $41.8m | us-gaap:Revenues |
| Revenue | 6 months, 2024-07-01 to 2024-12-31 | $81.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-10-01 to 2024-12-31 | $34.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-07-01 to 2024-12-31 | $65.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-10-01 to 2024-12-31 | $7.7m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-07-01 to 2024-12-31 | $15.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-10-01 to 2024-12-31 | −$7.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-07-01 to 2024-12-31 | −$12.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-10-01 to 2024-12-31 | $460.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-07-01 to 2024-12-31 | $916.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-10-01 to 2024-12-31 | −$8.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-07-01 to 2024-12-31 | −$13.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-10-01 to 2024-12-31 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-07-01 to 2024-12-31 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-10-01 to 2024-12-31 | −$0.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-07-01 to 2024-12-31 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-10-01 to 2024-12-31 | 56,658,012 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-07-01 to 2024-12-31 | 56,629,666 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-07-01 to 2024-12-31 | $428.1k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-07-01 to 2024-12-31 | $322.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-12-31 | $34.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-12-31 | $112.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-12-31 | $132.0m | us-gaap:Assets |
| Current liabilities | at 2024-12-31 | $106.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-12-31 | $107.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-12-31 | $24.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,659 characters.

*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 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 currently preparing to expand our international presence via the launch of nicotine products under the Ispire platform. These products will be launched under licensing arrangements with the owner(s) of selected partner brand(s).

We currently sell our cannabis vaping hardware in the United States, Canada, South Africa, and Germany. 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.

In many markets e-cigarettes and other nicotine products are subject to an excise tax. The amount of excise tax on our products is a key determining factor in our pricing and the value proposition to our adult consumer target market. The structure (i.e., ad valorem vs. specific) and tax burden can vary significantly from market to market. According to a 2023 study by Dauchy E, Fuss C. *Global Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems*, the tax burden on nicotine vape products in Norway is 81.2% while the tax burden on the same products in Paraguay is 2.9%. The tax burden and resulting retail sales price is a key factor in determining how competitive our products are compared to illicit vaping products. The greater the price gap between legal and illicit vaping products the greater the incentive for adult consumers to buy illicit products. These illicit vaping products are not subject to the same quality standards as our products and undermine the efforts of legal operators seeking to help adult consumers switch from combustible tobacco products to vaping alternatives.

#### United States E-Cigarette Market

In the United States, 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 or before August 8, 2016, a PMTA was required to be submitted to the FDA before September 9, 2020. For ENDS products that were not on the U.S. market prior to August 8, 2016, and for which a PMTA was not filed before September 9, 2020, a PMTA premarket authorization issued by FDA is required before the subject product may enter the U.S. market. We have 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 our application and may prevent our ENDS products from being sold in U.S., which will adversely affect our business.

As a result of ENDS regulation noted above, we can sell only one tobacco vaping product line, the Nautilus Prime, in the U.S. Our tobacco vaping sales related to this line in the U.S. were approximately $0.2 million and $0.6 million for the twelve months ended June 30, 2024, 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 U.S.

On September 6, 2024, we submitted a PMTA application for a disposable ENDS product with 4 flavors. This is an important milestone for us, as it signals our re-entry into the US ENDS market. It is our intention to amend or resubmit this application in the coming months, once we have finalized the age-gating technology solution with our IKE Tech LLC joint venture. We have further plans to submit additional PMTA applications for pod-based ENDS systems, which will include age-gating technology, in the future as well.

Amendments to the Prevent All Cigarette Trafficking (“PACT”) Act, which became law in 2021, extend the PACT Act to include e-cigarettes and all vaping products, and 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, we have stopped marketing tobacco vaping products in the United States, as the volume of sales from the one tobacco vaping product which we 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. Further, States may be more willing to permit recreational cannabis use in the future given the DEA’s intention to reschedule cannabis as a Schedule III controlled substance allowing for medicinal use. We 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.

European Market

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. We have complied with TPD requirements for all our tobacco products sold in Europe.

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

### 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 $11.3 million and $5.9 million at December 31, 2024 and June 30, 2024, respectively. Receivables are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. The increase is due to write offs after collection efforts, and then general rise in receivables balance and estimate losses.

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. 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 tobacco and cannabis vaping products.
- If we elect to market tobacco vaping products in the United States, our ability to obtain regulatory approval to market additional tobacco vaping products in the United States and the significant cost of seeking such approval.
- Our ability to develop and market tobacco 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.
- The effect of both the outbreak any other pandemic or other disease outbreak results in restrictions imposed by governments which may impact our ability to purchase or assemble products as well as the ability of end users to purchase our products.

### Results of Operations

### Three and Six Months Ended December 31, 2024 and 2023

The following table sets forth a summary of our consolidated statements of operations and comprehensive income for the three and six months ended December 31, 2024 and 2023 (dollars in thousands except per share amounts).

|  | Three Months Ended December 31, 2024 $% of Revenue |  | 2023 $% of Revenue |  | Six Months Ended December 31, 2024 $% of Revenue |  | 2023 $% of Revenue |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $41,828 | 100.0% | $41,686 | 100.0% | $81,166 | 100.0% | $84,550 | 100.0% |
| Cost of revenue | (34,105) | (81.5)% | (35,433) | (85.0)% | (65,769) | (81.0)% | (71.452) | (84.5)% |
| Gross profit | 7,723 | 18.5% | 6,253 | 15.0% | 15,397 | 19.0% | 13,098 | 15.5% |
| Operating expenses | (15,083) | (36.1)% | (10,173) | (24.4)% | (28,020) | (34.5)% | (17,896) | (21.2)% |
| loss from operations | (7,360) | (17.6)% | (3,920) | (9.4)% | (12,623) | (15.6)% | (4,798) | (5.7)% |
| Other income (expense), net | (179) | (0.4)% | 281 | 0.7% | (54) | (0.1)% | 314 | 0.4% |
| Income (loss) before income taxes | (7,539) | (18.0)% | (3,640) | (8.7)% | (12,677) | (15.6)% | (4,485) | (5.3)% |
| Income taxes | (460) | (1.1)% | (352) | (0.8)% | (917) | (1.1)% | (848) | (1.0)% |
| Net loss | (7,999) | (19.1)% | (3,992) | (9.6)% | (13,594) | (16.7)% | (5,333) | (6.3)% |
| Other comprehensive income | 74 | 0.2% | 114 | 0.3% | (81) | (0.1)% | 159 | 0.2% |
| Comprehensive income (loss) | (7,925) | (18.9)% | (3,878) | (9.3)% | (13,675) | (16.8)% | (5,174) | (6.1)% |
| Net loss per share Basic and diluted | (0.14) |  | (0.07) |  | (0.24) |  | (0.10) |  |
| Weighted shares of common stock outstanding Basic and diluted | 56,658,012 |  | 54,270,236 |  | 56,629,666 |  | 54,258,224 |  |

21

#### Revenue

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

|  | Three months ended December 31, 2024 | 2023 | Six months ended December 31, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Europe | $23,987,678 | $15,653,902 | $45,939,051 | $35,516,154 |
| North America (the U.S. and Canada) | 10,916,260 | 19,962,607 | 20,653,148 | 37,829,972 |
| Asia Pacific (excluding PRC) | 3,613,359 | 5,983,356 | 7,488,743 | 11,060,664 |
| Africa | 2,674,155 | 85,696 | 5,722,066 | 143,418 |
| South America | 636,408 | - | 1,363,165 | - |
| Total | $41,827,860 | $41,685,561 | $81,166,173 | $84,550,208 |

Our revenue increased by $142,299, or 0.3%, from $41,685,561 for the three months ended December 31, 2023, to $41,827,860 for the three months ended December 31, 2024. The increase in revenue is the combined effect of (i) increases in product sales in the Europe of $8.3 million from $15.7 million for the three months ended December 31, 2023, to $24.0 million for the three months ended December 31, 2024, increases in sales in Africa, mainly South Africa, of $2.6 million from $0.1 million for the three months ended December 31, 2023, to $2.7 million for the three months ended December 31, 2024 and increases in sales in South America of $0.6 million from $0 for the three months ended December 31, 2023, to $0.6 million for the three months ended December 31, 2024,offset by (ii) decreases in sales of vaping products in North America of $9.1 million from $20.0 million for the three months ended December 31, 2023 to approximately $10.9 million for the three months ended December 31, 2024, and (iii) decreases in sales to Asia Pacific regions of $2.4 million from $6.0 million for the three months ended December 31, 2023 to approximately $3.6 million for the three months ended December 31, 2024.

Our revenue decreased by $3,384,035, or 4.0%, from $84,550,208 for the six months ended December 31, 2023, to $81,166,173 for the six months ended December 31, 2024. The decrease in revenue is the combined effect of (i) decreases in sales of vaping products in North America of $17.1 million from $37.8 million for the six months ended December 31, 2023 to approximately $20.7 million for the six months ended December 31, 2024, and (ii) decreases in sales to Asia Pacific regions of $3.6 million from $11.1 million for the six months ended December 31, 2023 to approximately $7.5 million for the six months ended December 31, 2024, offset by (iii) increases in product sales in Europe of $10.4 million from $35.5 million for the six months ended December 31, 2023, to $45.9 million for the six months ended December 31, 2024, increases in sales in Africa, mainly South Africa, of $5.6 million from $0.1 million for the six months ended December 31, 2023, to $5.7 million for the six months ended December 31, 2024 and increases in sales in South America of $1.4 million from $0 for the six months ended December 31, 2023, to $1.4 million for the six months ended December 31, 2024.

#### Cost of Revenue

Cost of revenue mainly consists of cost of purchases of vaping products, of which the majority of the purchase are from Shenzhen Yi Jia. Cost of revenue decreased by $1,327,374, or 3.7%, from $35,432,663 for the three months ended December 31, 2023, to $34,105,289 for the three months ended December 31, 2024. The decrease in cost of revenue is due to changes in product mix with more higher margin products being sold. Cost of revenue decreased by $5,683,238, or 8.0%, from $71,452,462 for the six months ended December 31, 2023, to $65,769,224 for the six months ended December 31, 2024.

The decrease in cost of revenue is due to changes in product mix with more higher margin products being sold.

#### Gross Profit

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

*Three Months Ended December 31, 2024*

| Revenue | Cost of revenue | Gross profit | Gross profit % |
| ---: | ---: | ---: | ---: |
| $41,828 | $34,105 | $7,723 | 18.5% |

*Three Months Ended December 31, 2023*

| Revenue | Cost of revenue | Gross profit | Gross profit % |
| ---: | ---: | ---: | ---: |
| $41,686 | $35,433 | $6,253 | 15.0% |

*Six Months Ended December 31, 2024*

| Revenue | Cost of revenue | Gross profit | Gross profit % |
| ---: | ---: | ---: | ---: |
| $81,166 | $65,769 | $15,397 | 19.0% |

*Six Months Ended December 31, 2023*

| Revenue | Cost of revenue | Gross profit | Gross profit % |
| ---: | ---: | ---: | ---: |
| $84,550 | $71,452 | $13,098 | 15.5% |

Gross profit increased by $1,469,673, or 23.5%, from $6,252,898 for the three months ended December 31, 2023, to $7,722,571 for the three months ended December 31, 2024, while our gross margin increased from 15.0% to 18.5%. The increase in gross margin was primarily due to changes in product mix with more higher margin products being sold during the three months ended December 31, 2024.

Gross profit increased by $2,299,203, or 17.6%, from $13,097,746 for the six months ended December 31, 2023, to $15,396,949 for the six months ended December 31, 2024, while our gross margin increased from 15.5% to 19.0%. The increase in gross margin was primarily due to changes in product mix with more higher margin products being sold during the six months ended December 31, 2024.

#### Operating Expenses

Operating expenses increased $4,909,504 or 48.3%, from $10,173,122 for the three months ended December 31, 2023 to $15,082,626 for the three months ended December 31, 2024. Operating expenses increased $10,123,658 or 56.6%, from $17,896,215 for the six months ended December 31, 2023 to $28,019,873 for the six months ended December 31, 2024.

Our sales and marketing expenses mainly consist of employees’ salaries and benefits, marketing expense, travel expenses and others.

Sales and marketing expenses increased by $667,257, or 47.9%, from $1,394,407 for the three months ended December 31, 2023 to $2,061,664 for the three months ended December 31, 2024. The increase in sales and marketing expenses was primarily due to an increase in our marketing activities, marketing campaign and trade shows of $0.6 million.

Sales and marketing expenses increased by $2,634,285, or 108.9%, from $2,419,626 for the six months ended December 31, 2023 to $5,053,911 for the six months ended December 31, 2024. The increase in sales and marketing expenses was primarily due to an increase in (i) our marketing activities, marketing campaign and trade shows of $1.3 million, (ii) stock-based compensation expense related to selling personnels of $1.1 million for the three months ended December 31, 2024 and (iii) headcount and payroll expense for Aspire Science of $0.1 million.

Our general and administrative expenses mainly consist of employee’s salaries and benefits, rental expense, professional fees, share based payment expenses and other administrative expenses. General and administrative expenses increased by $4,242,247, or 48.3%, from $8,778,715 for the three months ended December 31, 2023 to $13,020,962 for the three months ended December 31, 2024. The increase was primarily due to (i) increase in bad debt expense as an allowance for credit losses of $2.3 million from accounts resulted from management’s assessment on Company’s account receivables balances, (ii) increase of $0.9 million for payroll expenses and (iii) an increase in professional fees of $0.7 million incurred for cannabis business.

General and administrative expenses increased by $7,489,373, or 48.4%, from $15,476,589 for the six months ended December 31, 2023 to $22,965,962 for the three months ended December 31, 2024. The increase was primarily due to (i) increase in stock-based compensation expense of $0.6 million for the three months ended December 31, 2024, as compensation and incentive for management, employees and service providers, (ii) increase in bad debt expense as an allowance for credit losses of $4.2 million from accounts resulted from management’s assessment on Company’s account receivables balances, (iii) increase of $1.2 million for payroll expenses and (iv) an increase in professional fees of $0.9 million incurred for cannabis business.

#### Other expense (income), net

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

Interest income decreased by $143,346, or 70.6%, from $203,101 for the three months ended December 31, 2023 to $59,755 for the three months ended December 31, 2024. Interest income decreased by $215,506, or 78.3%, from $275,347 for the six months ended December 31, 2023 to $59,841 for the six months ended December 31, 2024.

Other expense (income) mainly consists of interest expense, loss on equity method investment, credits from company credit card and other miscellaneous expenses. Other expense (income) decreased by $39,674, or 85.3%, from net income of $46,535 for the three months ended December 31, 2023 to net income of $6,861 for the three months ended December 31, 2024. Other expense (income) increased by $10,465, or 314.17%, from net income of $3,331 for the six months ended December 31, 2023 to net income of $13,796 for the six months ended December 31, 2024.

Exchange loss (gain) changes by $276,029, or 894.6%, from net exchange gain of $30,856 for the three months ended December 31, 2023 to net exchange loss of $245,173 for three months ended December 31, 2024. Exchange loss(gain) changes by $162,105, or 469.6%, from net exchange gain of $34,517 for the six months ended December 31, 2023 to net exchange loss of $127,588 for six months ended December 31, 2024.

As a result of these factors, other expense (income), net decreased by $459,049, from other income, net of $280,492 for the three months ended December 31, 2023 to other expense, net of $178,557 for three months ended December 31, 2024. Other expense (income), net decreased by $367,146, from other income, net of $313,195 for the six months ended December 31, 2023 to other expense, net of $53,951 for six months ended December 31, 2024.

#### Income Taxes

Income taxes increased by $107,851, or 30.6%, from $352,180 for the three months ended December 31, 2023 to $460,031 for the three months ended December 31, 2024. Income taxes increased by $68,559, or 8.1%, from $848,225 for the three months ended December 31, 2023 to $916,784 for the three months ended December 31, 2024. We had a consolidated net loss for both three and six month periods ended December 31, 2024 and 2023, which was the combined effect of a profit by Aspire Science and 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 $4,006,731, from net loss of $3,991,912, or $(0.07) per share (basic and diluted) for the three months ended December 31, 2023 to a net loss of $7,998,643, or $(0.14) per share, for the three months ended December 31, 2024. Net loss increased by $8,260,160, from net loss of $5,333,499, or $(0.10) per share (basic and diluted) for the six months ended December 31, 2023 to a net loss of $13,593,659, or $(0.24) per share, for the six months ended December 31, 2024.

### Liquidity and Capital Resources

The following table summarizes our changes in working capital from June 30, 2024 to December 31, 2024 (dollars in thousands).

|  | December 31, 2024 | June 30, 2024 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Current Assets | $112,320 | $102,572 | $9,748 | 9.5% |
| Current Liabilities | 106,236 | 85,991 | 20,245 | 23.5% |
| Working Capital | 6,084 | 16,581 | (10,497) | (63.3)% |

The following table sets forth information as to consolidated cash flow information for the six months ended December 31, 2024 and 2023 (dollars in thousands).

| Consolidated cash flow data: | Six Months Ended December 31, 2024 | 2023 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $428 | $(20,232) | $20,660 |
| Net cash used in investing activities | (1,104) | (1,862) | 758 |
| Net cash used in financing activities | - | (703) | 703 |
| Net decrease in cash and cash equivalents | (676) | (22,797) | 22,121 |

Net cash flow provided by operating activities for the six months ended December 31, 2024 of $0.4 million, reflected our net loss of $13.6 million, adjusted primarily as follows: an add-back of credit loss expenses of $7.3 million, an add-back of stock based compensation expense of $3.5 million, an added-back of right-of-use assets amortization of $0.6 million and increase in accounts payable – related party of $20.7 million, offset by an increase in accounts receivable of $15.3 million, an increase in inventories, net of $1.7 million, and an increase in prepaid expenses and other current assets of $0.9 million.

Net cash flow used in operating activities for the six months ended December 31, 2023 of $20.2 million, reflected our net loss of $5.3 million, adjusted primarily as follows: an add-back of stock-based compensation expenses of $2.9 million, an add-back of credit loss expenses of $2.1 million, a increase in accounts payable – related party of $1.8 million, an increase in contract liabilities of $0.6 million, offset by an increase in accounts receivable of $22.8 million.

Net cash flow used in investing activities for the six months ended December 31, 2024 of $1.1 million reflected primarily purchase of property, plant and equipment of $0.3 million and acquisition of intangible assets of 0.8 million.

Net cash flow used in investing activities for the six months ended December 31, 2023 of $1.8 million reflected primarily purchase of property, plant and equipment of $1.1 million and acquisition of intangible assets of $0.7 million.

Net cash flow used in financing activities for the six months ended December 31, 2023 of $0.7 million reflected primarily repayments to related parties of $0.7 million.

To date, we have financed our operations primarily through cash flow from operations and working capital accounts payable 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. We believe that our current cash and future cash flows provided by operating activities, and the net proceeds from our initial public offering of $18.3 million 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 at bank held 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 December 31, 2024, and June 30, 2023, we had contract liabilities of $1,882,743 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 December 31, 2024 | As of June 30, 2024 |
| --- | ---: | ---: |
| Operating lease right-of-use assets | $2,949,756 | $3,579,140 |
| Operating lease liabilities – current | $1,245,061 | $1,207,832 |
| Operating lease liabilities – non-current | 1,572,574 | 2,194,094 |
| Total | $2,817,635 | $3,401,926 |

26

As of December 31, 2024, the maturities of our lease liabilities (excluding short-term leases) are as follows:

|  | As of December 31, 2024 |
| --- | ---: |
| January 1, 2025 to June 30, 2025 | 716,165 |
| July 1, 2025 to June 30, 2026 | 1,395,767 |
| July 1, 2026 to June 30, 2027 | 857,144 |
| July 1, 2027 to June 30, 2028 | 80,676 |
| Total future lease payments | 3,049,752 |
| Less: imputed interest | (232,117) |
| Total lease liabilities | 2,817,635 |

As of December 31, 2024, we recorded an unpaid $8.8 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.

### Trend Information

Other than as disclosed elsewhere in this this Form 10-Q, 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 continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

### 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.

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.

## Market risk

As filed, 139 characters.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

## Controls and procedures

As filed, 3,121 characters.

### Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2024, due to (1) the lack of controls to enable us to record assets acquired from a controlling stockholder in accordance with GAAP, (2) the lack of controls to enable us to evaluate significant estimates, including (i) the sufficiency of inventory reserve for slow-moving inventories and (ii) the credit loss history and use it to evaluate the sufficiency of credit loss reserve for accounts receivable under the Topic 326, (3) the lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP and SEC reporting, including IT general controls, and a financial risk assessment to evaluate controls, and (4) the lack of a sufficient complement of personnel with appropriate technical expertise to evaluate complex accounting matters.

### Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2024, we have continued to develop and implement internal controls over financial reporting particularly in view of the material weakness described above.

### Inherent Limitations of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 295 characters.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. Our current risk factors are set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on September 27, 2024.

Filed Feb 7, 2025.
Source: SEC EDGAR, the filing index for accession 0001213900-25-011336. Last ingested by Listed: Nov 9, 2026, 17:22 ET. No prices; not investment advice.