Ispire Technology Inc.: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated 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 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.

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 we believe will facilitate our ability to provide adult consumers with the products they desire.

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., Internal Revenue 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.

Recent Developments

Malaysian Licensure

On March 17, 2026, Ispire Malaysia received full and final licensure from the Ministry of Investment, Trade and Industry of Malaysia (“MITI”) to manufacture nicotine vapor products in the country of Malaysia. This full and final licensure replaces Ispire Malaysia’s interim license issued in May 2025. Ispire Malaysia is the only business in the country of Malaysia with such nicotine vapor manufacturing license, and we are now in the process of securing orders and scheduling production for both nicotine vapor products (expected to commence production at the end of June 2026) and nicotine pouch products.

We made the decision not to manufacture any nicotine vapor hardware in Malaysia until the full and final license was issued. Now that such license is secured, the Ispire Malaysia and our business development teams are fielding a backlog of customer demand for nicotine vapor production in Malaysia. We believe our production costs will be comparable to production in China, and will continue to improve as the Ispire Malaysia business scales in volume and capacity. We will also work to establish local supply chain partnerships, which we believe will further bring down the costs of nicotine vapor product manufacturing, aiding in improving competitiveness and our ability to obtain increased profit margins.

The Ispire Malaysia business has also been positively impacted by policy shifts from the Chinese government. On April 1, 2026, China cancelled the 13% export VAT rebate for nicotine-containing, non-combustion inhalation products. This rebate cancellation caused an immediate effective price increase for exporting nicotine vapor products from China, which we believe has directly improved the global price competitiveness for Ispire Malaysia’s nicotine vapor manufacturing business.

Further, Chinese tobacco authorities have begun requiring nicotine vapor manufacturers in the country to supply information on U.S. FDA PMTA Submission Tracking Numbers (“STNs”) for historical nicotine vapor exports to the U.S. made in calendar year 2025. This development signals enhanced regulatory compliance requirements for Chinese vapor manufacturers which previously did not exist, adding in enhanced compliance costs for shipments to the U.S. These two developments suggest to us that there will be further tax and regulatory headwinds facing China’s domestic nicotine vapor manufacturing industry in the coming months and years, potentially making our Malaysian nicotine vapor manufacturing business more appealing to global brands and Chinese businesses looking to diversify their supply chain.

Management expects further improvement in operating cash flow during 2026, driven by (i) continued quarterly operating expense reductions in U.S. operations, (ii) revenue generation in Malaysia, (iii) continued cash generation from Hong Kong operations. Based on these initiatives, the Company expects to achieve positive cash flow in the first half of fiscal year 2027. However, the timing and extent of such improvement remain subject to execution and market conditions.

Ike Tech LLC Business Developments

On March 11, 2026, the U.S. Food and Drug Administration (the “FDA”) issued draft guidance outlining evidentiary expectations for Premarket Tobacco Product Applications (“PMTAs”) for flavored electronic nicotine delivery systems (“ENDS”), which could provide a lawful pathway for flavored vaping products, the market for which is largely comprised of illicit products. The guidance marks the first time the FDA has formally outlined a framework for evaluating flavored ENDS products, recognizing that device-level access technologies, or device access restrictions (“DAR”), may factor into whether a product meets the “appropriate for the protection of public health” standard for PMTA authorization. The draft guidance highlights DAR technologies such as biometric authentication, geofencing, and continuous age verification as potential safeguards designed to prevent underage use of ENDS devices. The FDA also emphasized that traditional safeguards such as local age restrictions and point-of-sale verification that do not directly prevent youth use may not, when employed alone, sufficiently reduce youth use.

We remain an advocate for technology-driven youth prevention solutions. As previously disclosed in our Current Report on Form 8-K filed with the SEC on April 11, 2024, on April 5, 2024, the Company, Chemular Inc., a Michigan corporation, and Touch Point Worldwide, Inc. d/b/a/ Berify, a Delaware corporation, agreed to form Ike Tech LLC (“IKE”) as a joint venture between the entities that would be in the business of licensing, owning and developing an industry-standard biometric, blockchain-based, point of use age-verification solution for vapor (e-cigarette) devices in the U.S. market. We believe that the FDA guidance is a positive development for IKE and that IKE is well positioned to capitalize on the creation of a pathway to a lawful market for flavored vaping products.

Since its founding, IKE has developed two core technology offerings: (i) NFC/RFID smart tags with unique block chain TokenIDs for embedding in packaging, providing its customers’ packaging with a unique digital identity, and (ii) Bluetooth Low Energy (“BLE”) chips embedded in devices such as ENDS that enable live communication with mobile applications and provide services such as continuous age verification, device activation and control, and secure user authentication ((i) and (ii) together, the “Technology”). IKE’s Technology is supported by a secure open ecosystem built on blockchain validation and open standards designed to enable reliable authentication across devices and markets.

IKE exclusively licenses in the nicotine vapor field or owns 11 issued patents related to its Technology to date, and in 2025, IKE submitted the first-ever component PMTA to the FDA for a standalone, interoperable age-verification technology designed for integration across ENDS devices. The platform combines BLE chips, biometric authentication, and block-chain secured identity verification to ensure that only verified adult users can activate a device. In addition to age verification, IKE’s Technology can also support product authentication and anti-counterfeiting capabilities, helping manufacturers and regulators identify illicit or counterfeit devices that bypass regulatory safeguards, evade taxes, and undermine consumer safety. IKE’s Technology is currently engaged in a pilot and evaluation program operating within a test environment with a large strategic collaborator, as well as pilot programs with several additional third-party vapor product manufacturers and brands.

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 $21.5 million and $18.0 million at March 31, 2026 and June 30, 2025, 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-combustible 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 unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended March 31, 2026 and 2025 (dollars in thousands except per share amounts).

Revenue

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

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Our revenue decreased by $7,505,224, or 28.7%, from $26,190,725 for the three months ended March 31, 2025, to $18,685,501 for the three months ended March 31, 2026. The decrease in revenue is the combined effect of (i) decreases in product sales in the United States of $5.5 million from $8.8 million for the three months ended March 31, 2025, to $3.3 million for the three months ended March 31, 2026 largely due to shorter credit terms in the United States with a focus on higher quality customers, and (ii) decreases in sales of vaping products in Europe of $1.4 million from $13.2 million for the three months ended March 31, 2025 to approximately $11.8 million for the three months ended March 31, 2026 largely due to market conditions being competitive, and the timing of distribution continuing to evolve, and (iii) decreases in sales to other regions of $0.4 million from $1.2 million for the three months ended March 31, 2025 to approximately $0.8 million for the three months ended March 31, 2026 and (iv) decreases in sales of vaping products in Asia Pacific of $0.2 million from $3.0 million for the three months ended March 31, 2025 to approximately $2.8 million for the three months ended March 31, 2026.

Our revenue decreased by $38,033,957, or 35.4%, from $107,356,898 for the nine months ended March 31, 2025, to $69,322,941 for the nine months ended March 31, 2026. The decrease in revenue is the combined effect of (i) decreases in sales of vaping products in North America of $19.1 million from $29.4 million for the nine months ended March 31, 2025 to approximately $10.4 million for the nine months ended March 31, 2026 largely due to shorter credit terms in the United States with a focus on higher quality customers, and (ii) decreases in product sales in Europe of $11.9 million from $59.2 million for the nine months ended March 31, 2025, to $47.3 million for the nine months ended March 31, 2026 largely due to market conditions being competitive, and the timing of distribution continuing to evolve, and (iii) decreases in sales in other regions, mainly Africa, of $4.3 million from $8.3 million for the nine months ended March 31, 2025, to $4.0 million for the nine months ended March 31, 2026, (iv) decreases in sales to Asia Pacific regions of $2.8 million from $10.5 million for the nine months ended March 31, 2025 to approximately $7.7 million for the nine months ended March 31, 2026.

Cost of Revenue

Cost of revenue mainly consists of cost of purchases of vaping products, that the majority of the purchase are from Shenzhen Yi Jia. Cost of revenue decreased by $4,720,244, or 22.0%, from $21,414,820 for the three months ended March 31, 2025, to $16,694,576 for the three months ended March 31, 2026. The decrease in cost of revenue is primarily attributable to the decrease in sales, partially offset by additional inventory provisions accrued.

Cost of revenue decreased by $28,473,401, or 32.7%, from $87,184,044 for the nine months ended March 31, 2025, to $58,710,643 for the nine months ended March 31, 2026. 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).

Three Months Ended March 31, 2026

Three Months Ended March 31, 2025

Nine Months Ended March 31, 2026

Nine Months Ended March 31, 2025

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Gross profit decreased by $2,784,980, or 58.3%, from $4,775,905 for the three months ended March 31, 2025, to $1,990,925 for the three months ended March 31, 2026, while our gross margin decreased from 18.2% to 10.7%. The decrease in gross margin was primarily due to changes in product mix with less higher margin products being sold, and additional inventory provision accrued during the three months ended March 31, 2026.

Gross profit decreased by $9,560,556, or 47.4%, from $20,172,854 for the nine months ended March 31, 2025, to $10,612,298 for the nine months ended March 31, 2026, while our gross margin decreased from 18.8% to 15.3%. The decrease in gross margin was primarily due to changes in product mix with less higher margin products being sold during the nine months ended March 31, 2026.

Operating Expenses

Operating expenses decreased by $3,886,686 or 25.3%, from $15,361,346 for the three months ended March 31, 2025 to $11,474,660 for the three months ended March 31, 2026. Operating expenses decreased by $13,715,010 or 31.6%, from $43,381,219 for the nine months ended March 31, 2025 to $29,666,209 for the nine months ended March 31, 2026.

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

Sales and marketing expenses decreased by $564,620, or 34.1%, from $1,656,527 for the three months ended March 31, 2025 to $1,091,907 for the three months ended March 31, 2026. The decrease in sales and marketing expenses was primarily due to decrease in brand marketing activities of $0.5 million from Aspire Science comparing the three months ended March 31, 2026 and 2025.

Sales and marketing expenses decreased by $2,577,359, or 38.4%, from $6,710,438 for the nine months ended March 31, 2025 to $4,133,079 for the nine months ended March 31, 2026. The decrease in sales and marketing expenses was primarily due to a decrease in (i) stock-based compensation expense of $0.9 million comparing the nine months ended March 31, 2026 and 2025, (ii) decrease in travelling expense of $0.5 million as a result of less travelling activities during the nine months ended March 31, 2026, (iii) decrease in brand marketing activities of $0.8 million comparing the nine months ended March 31, 2026 and 2025, and (iv) decrease in trade show costs of $0.3 million comparing the nine months ended March 31, 2026 and 2025.

Credit loss expenses decreased by $539,191, or 8.8%, from $6,103,688 for the three months ended March 31, 2025, to $5,564,497 for the three months ended March 31, 2026. The decrease is due to more collection of customer payments from repayment plan negotiated and thus less allowance for credit losses were provided as of March 31, 2026.

Credit loss expenses decreased by $1,851,817, or 13.8%, from $13,389,767 for the nine months ended March 31, 2025, to $11,537,950 for the nine months ended March 31, 2026. The decrease is due to more collection of customer payments from repayment plan negotiated and thus less allowance for credit losses were provided as of March 31, 2026.

Our general and administrative expenses consist of employees’ salaries and benefits, rental expense, professional fees, stock-based compensation expenses and other administrative expenses. General and administrative expenses decreased by $2,782,875, or 36.6%, from $7,601,131 for the three months ended March 31, 2025, to $4,818,256 for the three months ended March 31, 2026. The decrease was primarily due to (i) decrease in payroll of $1.3 million comparing the three months ended March 31, 2026 and 2025 as a result of decrease in headcount of North America, (ii) decrease in stock-based compensation expense of $0.5 million for the three months ended March 31, 2026 as a result of drop in headcount in North America and (iii) decrease in legal and professional fees of $0.6 million for the three months ended March 31, 2026 as a result of cost reduction in North America.

General and administrative expenses decreased by $9,285,834, or 39.9%, from $23,281,014 for the nine months ended March 31, 2025, to $13,995,180 for the nine months ended March 31, 2026. The decrease was primarily due to (i) decrease in payroll of $4.1 million comparing the nine months ended March 31, 2026 and 2025 as a result of decrease in headcount of North America, (ii) decrease in legal and professional fees of $1.6 million for the nine months ended March 31, 2026 as a result of cost reduction in North America, (iii) decrease in stock-based compensation expense of $1.3 million for the nine months ended March 31, 2026 as a result of drop in headcount in North America, (iv) decrease of $3 million of miscellaneous administrative expenses from North America as a result of drop in headcount and cost reduction for the nine months ended March 31, 2026, offset by (v) $0.7 million increase of general administrative expenses from Ispire Malaysia from growth of operations during the nine months ended March 31, 2026.

Other income (expense), net

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

Interest income increased by $49,491, from $3,480 for the three months ended March 31, 2025, to $52,971 for the three months ended March 31, 2026. Interest income increased by $190,044, from $63,321 for the nine months ended March 31, 2025, to $253,365 for the nine months ended March 31, 2026. The increase in interest income is mainly due to charging late fees from customers.

Interest expense increased by $51,569, from $35,646 for the three months ended March 31, 2025, to $87,215 for the three months ended March 31, 2026. Interest expense increased by $239,399, from $60,183 for the nine months ended March 31, 2025, to $299,582 for the nine months ended March 31, 2026. The increase in interest expense is mainly due to borrowing engaged in February 2025.

Exchange gain, net changes by $54,635, or 224.5%, from net exchange gain $24,341 for three months ended March 31, 2025, to net exchange loss of $30,294 for three months ended March 31, 2026. Exchange gain, net changes by $372,992, or 361.3%, from net exchange loss $103,247 for nine months ended March 31, 2025, to net exchange gain of $269,745 for nine months ended March 31, 2026.

Other income, net mainly consists of loss on equity method investment, credits from company credit card, administrative fee income and other miscellaneous expenses. Other income, net changed by $288,936, or 335.0%, from net expense of $86,239 for the three months ended March 31, 2025 to net income of $202,697 for the three months ended March 31, 2026. Other income, net changed by $263,594, or 550.2%, from net income of $47,906 for the nine months ended March 31, 2025 to net income of $215,688 for the nine months ended March 31, 2026. The increase is mainly due to increasing other income from IKE for charging administrative fees.

As a result of these factors, total other income (expense), net changed by $232,223, from other expense, net of $94,064 for three months ended March 31, 2025, to other income, net of $138,159 for three months ended March 31, 2026. Total other income (expense), net changed by $587,231, from other expense, net of $148,015 for nine months ended March 31, 2025, to other income, net of $ 439,216 for nine months ended March 31, 2026.

Income Taxes

Income taxes increased slightly by $417 or 0.2%, from $176,990 for three months ended March 31, 2025, to $ 177,407 for three months ended March 31, 2026. Income taxes decreased by $323,712 or 29.6%, from $1,093,774 for nine months ended March 31, 2025, to $770,062 for nine months ended March 31, 2026. We had a consolidated net loss for both three and nine months ended March 31, 2026 and 2025, 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 decreased by $1,333,512, from net loss of $10,856,495, or $(0.19) per share, for the three months ended March 31, 2025, to a net loss of $9,522,983, or $(0.17) per share, for the three months ended March 31, 2026. Net loss decreased by $5,065,397, from net loss of $24,450,154, or $(0.43) per share, for the nine months ended March 31, 2025, to a net loss of $19,384,757, or $(0.34) per share, for the nine months ended March 31, 2026.

Liquidity and Capital Resources

The following table summarizes our changes in working capital from June 30, 2025 to March 31, 2026 (dollars in thousands).

The following table sets forth information as to consolidated cash flow information for the nine months ended March 31, 2026 and 2025 (dollars in thousands).

Net cash flow used in operating activities for the nine months ended March 31, 2026, of $3.2 million, reflected our net loss of $19.4 million, adjusted primarily as follows: add back of impairment of account receivable of $11.5 million, add back of share-based compensation expense of $2.8 million, add back of inventory impairment expense of $2.4 million, a decrease in accounts receivable of $6.8 million, offset by a decrease in accounts payable and accounts payable – related party of $3.4 million, a decrease in contract liabilities of $1.8 million, an increase in prepaid expenses and other current assets of $1.3 million, an increase in inventories of $1.2 million.

Net cash flow used in operating activities for the nine months ended March 31, 2025 of $12.1 million, reflected our net loss of $24.4 million, adjusted primarily as follows: an add-back of credit loss expenses of $13.4 million, an add-back of stock based compensation expense of $4.9 million, increase in accounts payable-related party of $11.0 million, offset by an increase in accounts receivable of $14.1 million, an increase in accrued liabilities and other payables of $1.0 million, and an increase in inventories of $1.5 million.

Net cash flow used in investing activities for the nine months ended March 31, 2026, of $2.1 million reflected primarily investment in joint venture of $1.3 million, capitalized costs of patents of $0.5 million and purchase of property, plant and equipment of $0.3 million.

Net cash flow used in investing activities for the nine months ended March 31, 2025 of $1.7 million reflected primarily purchase of property, plant and equipment of $0.1 million, acquisition of intangible assets of $0.8 million and payment made for long term investment of $0.8 million.

Net cash flow used in financing activities for the nine months ended March 31, 2026, of $1.0 million reflected primarily repayment of borrowing of $1.0 million, and common stock repurchase of $45 thousand.

Net cash flow provided by financing activities for the nine months ended March 31, 2025 of $2.3 million reflected primarily proceeds from long term debt of $2.3 million, offset by common stock repurchase of $60 thousand.

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. As of the date of this Quarterly 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 March 31, 2026 and June 30, 2025, we had contract liabilities of $3,043,470 and $4,861,250, 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 follows:

The Company had no impairment of operating lease right-of-use assets during the three and nine months ended March 31, 2026 and 2025.

As of March 31, 2026, the maturities of our lease liabilities (excluding short-term leases) are as follows:

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As of March 31, 2026, we have a borrowing balance of $1,092,052 outstanding, and the borrowing will mature within one year.

As of March 31, 2026, we recorded an unpaid $4.5 million consideration in accrued liabilities and other payables on the unaudited condensed 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 Quarterly Report, 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.

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.

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.

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 March 31, 2026, due to (1) the lack of controls needed 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 of it to evaluate the sufficiency of credit loss reserve for accounts receivable under the Topic 326; (2) the lack of sufficient personnel with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP, which resulted in restatements of certain unaudited/audited financial statements prior to the fiscal year ended June 30, 2025; and (3) the lack of IT general controls regarding cyber security governance, logical access security and service organization management.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2026, 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.

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, 2025, filed with the SEC on September 15, 2025.

Except as set forth below, there have been no material changes to the risk factors previously disclosed in the 2025 Form 10-K.

We have historically reported negative cash flows and we may not achieve positive cash flows in the future.

Our company has historically experienced negative cash flows. While we currently believe that we will be able to achieve positive cash flows in the first half of our fiscal year 2027, the timing and extent of our achieving positive cash flows remain subject to a number of factors, including, but not limited to, factors outside of our control such as the impact of new policies and regulations in China regarding Chinese nicotine vapor manufacturers and the export of their products, global trade policy, our ability to successfully establish local supply chain partnerships in Malaysia, general market conditions, and many others. If we are unable to achieve positive cash flows on our current timeline, the trading price of our common stock could decrease, negatively impacting our ability to raise capital when needed, which could have a material adverse effect on our business and financial condition.

We currently have invested in joint ventures with independent third parties in which we have less than a controlling interest. Our interest in the joint ventures could be further diluted through future financings.

We currently hold a 40% ownership interest in IKE and a 49% ownership interest in Jin Wu, with independent third parties holding the remaining 60% and 51%, respectively. As of March 31, 2026, we had an aggregate of $8,839,130 invested in advances to IKE.

Our joint ventures are currently pre-revenue and, to the extent that our joint ventures’ cash from operations remains insufficient to fund capital expenditures or continue to develop their respective products, IKE or Jin Wu may be required to incur borrowings or raise capital through public or private debt or equity offerings. Each of our joint ventures’ ability to obtain bank financing or to access the capital markets may be limited by its financial condition at the time of any such financing or offering, as well as by general economic and capital market conditions and contingencies and uncertainties that are beyond our or our joint ventures’ control. Even if our joint ventures are successful in obtaining the necessary funds, the terms of such financings could limit their ability to pay distributions to their respective equity holders, including us. In addition, incurring debt may cause our joint ventures to incur interest expense and increase their respective financial leverage, and the issuance by either IKE or Jin Wu of additional equity interests may result in significant dilution to existing equity holders of IKE or Jin Wu, including us, which could materially diminish our ownership and economic interests in the applicable joint venture.

Property Ownership Through IKE or Jin Wu Could Limit Our Control of Those Investments and Reduce Our Expected Return.

Joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our co-venturer might become bankrupt, that our co-venturer might at any time have different interests or goals than us and that our co-venturer may take action contrary to our instructions, requests, policies or objectives. In addition, our co-venturer could have different investment criteria that would impact the assets held by the joint venture or its interest in the joint venture, which may also reduce the carrying value of its equity investments if a loss in the carrying value of the investment is realized. These situations could have an impact on our revenues from IKE and/or Jin Wu. Other risks of our investments in IKE and Jin Wu include impasse on decisions, such as the decision to sell or finance a property or leasing decisions with anchor tenants, because neither our co-venturers nor us would have full control over the joint venture. These factors could limit the return that we receive from such investment, cause our cash flows to be lower than our estimates or lead to business conflicts or litigation. There is no limitation under our Certificate of Incorporation, or our Amended and Restated Bylaws, as to the amount of funds that we may invest in IKE or Jin Wu. In addition, our co-venturers may not have access to sufficient capital to satisfy their funding obligations to the joint venture, if any. Furthermore, if credit conditions in the capital markets deteriorate, we could be required to reduce the carrying value of our equity method investments if a loss in the carrying value of the investment is realized or considered an other than temporary decline. As of March 31, 2026, we had $8,839,130 of investment in and advances to IKE.

Our ability to receive cash from our joint ventures depends entirely on their respective governing body’s discretion, and there is no assurance our joint ventures will ever distribute cash to their equity holders.

Payments to us by our joint ventures, if any, will be contingent upon their respective earnings and financial condition. The board of managers of IKE or the board of directors of Jin Wu may never determine the financial condition of IKE or Jin Wu, as applicable, allows for the issuance of, or would have it be otherwise advisable to issue, a dividend or make any other distribution. In addition, should any dividend be issued or other distribution be made, the equity interests of other equity holders in our joint ventures in any dividend or other distribution made by a joint venture would need to be satisfied on a proportionate basis with us. Our joint ventures may also be subject to restrictions, in their financing or other agreements, on their ability to distribute cash to us, and, as a result, we may not be able to access its cash flow, which could materially impact the value of our investment.

If our joint ventures’ business plans are unsuccessful, we may lose our entire investment.

Should our joint ventures be unable to achieve profitable operations or secure sufficient capital to sustain its business, it may ultimately be required to cease operations and dissolve the company. In the event of dissolution, the amount of remaining assets available for distribution to shareholders may be minimal or nonexistent. Accordingly, there is a substantial risk that we may not recover any portion of their original investment.

If the IKE’s PMTA or other FDA regulatory submissions are not successful, the value of our investment in IKE could be materially adversely affected.

We believe that, when equipped with the IKE age-gating technology, there is a path to gaining approval for ENDS products with characterizing flavors other than tobacco and menthol, as they will have strong technological barriers to prevent youth usage. The FDA has repeatedly indicated that the only way it will approve characterizing flavors in ENDS devices is if they are equipped with technology to prevent youth usage. We believe the technology we have access to will be desirable to the FDA. IKE met with the FDA on November 13, 2024, and submitted a “component” PMTA on this technology in April of 2025; however, there can be no guarantee that the FDA will approve our PMTA or any other PMTA submitted that contains the IKE age-gating technology.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), including as a result of our ownership of the Operating Company, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, or (2) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the “40% Test”). We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act. We intend to conduct our operations so that we will not be deemed an investment company. However, our ownership interest in our joint ventures could be considered an “investment security” for purposes of the 1940 Act, and if the value of our interest in our joint ventures were to violate the 40% Test, we may inadvertently be deemed an investment company and be forced to divest some of our ownership in our joint ventures. If it were established that we were an unregistered investment company, we could be subject to monetary penalties and injunctive relief in an action brought by the SEC, we could be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company. If we were required to register as an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.