Annual Report for Fiscal Year Ending June 30, 2026 (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, as well as the assembly of nicotine pouch products and other next-generation nicotine products. 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.

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 $26.1 million and $18.0 million at June 30, 2026 and 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 consolidated statements of operations and comprehensive income for the years ended June 30, 2026 and 2025 (dollars in thousands except per share amounts).

		Years Ended June 30,
		2026								2025
						% of Revenue								% of Revenue
Revenue		$	96,015				100.0	%		$	127,494				100.0	%
Cost of revenue			(83,717	)			(87.2	)%			(104,845	)			(82.2	)%
Gross profit			12,298				12.8	%			22,649				17.8	%
Operating expenses			(44,891	)			(46.8	)%			(60,499	)			(47.5	)%
Loss from operations			(32,593	)			(33.9	)%			(37,850	)			(29.7	)%
Other income (loss), net			536				0.6	%			(187	)			(0.1	)%
Loss before income taxes			(32,057	)			(33.4	)%			(38,037	)			(29.8	)%
Income taxes			(1,147	)			(1.2	)%			(1,204	)			(0.9	)%
Net loss			(33,204	)			(34.6	)%			(39,241	)			(30.8	)%
Other comprehensive loss			(90	)			(0.1	)%			(167	)			(0.1	)%
Comprehensive loss			(33,294	)			(34.7	)%			(39,408	)			(30.9	)%
Net loss per ordinary share (basic and diluted)		$	(0.58	)						$	(0.69	)
Weighted ordinary shares outstanding			57,306,470								56,853,552

Revenue

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

		Year Ended June 30,
		2026								2025
		Revenue				%				Revenue				%
Europe		$	61,430				63.9	%		$	74,107				58.1	%
North America (the U.S. and Canada)			15,128				15.8	%			32,568				25.5	%
Asia Pacific (excluding PRC)			10,919				11.4	%			12,274				9.6	%
Others			8,538				8.9	%			8,545				6.7	%
Total			96,015				100	%			127,494				100	%

Our revenue decreased by $31,479,694, or 24.7%, from $127,494,304 for the year ended June 30, 2025, to $96,014,610 for the year ended June 30, 2026. The decrease in revenue is the combined effect of (i) decreases in product sales in the United States of $17.4 million from $32.6 million for the year ended June 30, 2025, to $15.1 million for the year ended June 30, 2026, due to a tightening of our sales strategy which required higher upfront deposits and stricter payment terms, subsequently leading to a reduced participation from lower-tier accounts (ii) decreases in sales of vaping products in Europe of $12.7 million from $74.1 million for the year ended June 30, 2025 to approximately $61.4 million for the year ended June 30, 2026, which reflects European regulatory uncertainties regarding disposable bans and flavor restrictions, which led distributors to adopt a cautious purchasing strategy and (iii) decreases in product sales in the Asia Pacific (excluding PRC) of $1.4 million from $12.3 million for the year ended June 30, 2025, to $10.9 million for the year ended June 30, 2026.

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 $21,128,070, or 20.2%, from $104,844,633 for the year ended June 30, 2025, to $83,716,563 for the year ended June 30, 2026. The decrease in cost of revenue was primarily driven by lower sales volumes mostly from North American and European markets, partially offset by a $2.0 million increase in inventory write-downs, from $0.8 million for the year ended June 30, 2025 to $2.8 million for the year ended June 30, 2026.

Gross Profit

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

Year Ended June 30, 2026
Revenue				Cost of revenue				Gross profit				Gross profit %
$	96,015			$	83,717			$	12,298				12.8	%

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

Gross profit decreased by $10,351,624, or 45.7%, from $22,649,671 for the year ended June 30, 2025, to $12,298,047 for the year ended June 30, 2026, while our gross margin decreased from 17.8% to 12.8%.

The decrease in gross margin was primarily due to (i) competitive pricing pressures that lowered selling prices on certain products; (ii) an unfavorable shift in revenue mix, as our higher-margin cannabis vaping products sales decreased from 29.0% to 16.6% of total revenue for the year ended June 30, 2025 and 2026, respectively; and (iii) a significant increase in inventory write-downs, which expanded from $0.8 million in 2025 to $2.8 million in 2026, driven by a decline in expected sellable life of certain slow-moving products.

Operating Expenses

Operating expenses decreased by $15,608,959 or 25.8%, from $60,499,530 for the year ended June 30, 2025, to $44,890,571 for the year ended June 30, 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 $3,416,500, or 40.5%, from $8,439,384 for the year ended June 30, 2025, to $5,022,884 for the year ended June 30, 2026. The decrease in sales and marketing expenses was primarily due to a decrease of approximately $2.8 million from North America as a result of expenditure reduction and cut back on marketing campaign activities, and a decrease in marketing expenses of approximately $0.6 million from Aspire Science as a reduction of marketing activities.

Credit loss expenses decreased by $1,318,986, or 6.0%, from $22,034,812 for the year ended June 30, 2025, to $20,715,826 for the year ended June 30, 2026. The slight decrease was the combined effect of the North American sales strategy tightening, including stricter payment terms and higher deposit requirements for new accounts, offset by the lack of improvement in long-aged customer balances.

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 $10,873,473, or 36.2%, from $30,025,334 for the year ended June 30, 2025, to $19,151,861 for the year ended June 30, 2026. The decrease was primarily due to (i) a decrease of approximately $5.0 million of payroll expense due to cutting headcount and cost optimization plan in North America, (ii) a decrease of approximately $2.5 million of legal and professional fee from cost optimization plan by North America, (iii) a decrease of approximately $2.2 million of stock-based compensation expense due to cutting headcount in streamline operations by North America and (iv) a decrease of research and development expenses of approximately $0.2 million by North America.

Other income (expense), net

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

Interest income increased by $256,501, from $86,996 for the year ended June 30, 2025, to $343,497 for the year ended June 30, 2026. The increase in interest income is mainly due to increase in interest charged on late fees by North America.

Interest expense increased by $185,404, from $188,764 for the year ended June 30, 2025, to $374,168 for the year ended June 30, 2026. The increase in interest expense is mainly due to borrowing engaged in February 2025.

Exchange gain/(loss), net increased by $403,011, or 465.5%, from net exchange loss of $86,570 for the year ended June 30, 2025 to net exchange gain of $316,441 for the year ended June 30, 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 increased by $248,417, or 14,830.9%, from net income of $1,675 for the year ended June 30, 2025 to net income of $250,092 for the year ended June 30, 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 increased by $722,525, from other expense, net of $186,663 for the year ended June 30, 2025 to other income, net of $535,862 for the year ended June 30, 2026.

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, 2026 and 2025, 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, 2026 and 2025.

Income taxes decreased slightly by $56,322 or 4.7%, from $1,203,704 for the year ended June 30, 2025 to $1,147,382 for the year ended June 30, 2026. We had a consolidated net loss for both year ended June 30, 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 $6,036,182, from net loss of $39,240,226, or loss of $0.69 per share (basic and diluted), for the year ended June 30, 2025 to a net loss of $33,204,044, or loss of $0.58 per share (basic and diluted), for the year ended June 30, 2026.

Liquidity and Capital Resources

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

		June 30, 2026				June 30, 2025				Change				% Change
Current Assets		$	45,435			$	72,908			$	(27,473	)			(37.7	)%
Current Liabilities			44,632				72,540				(27,908	)			(38.5	)%
Working Capital			803				368				435				118.2	%

The following table sets forth information as to consolidated cash flow information for the years ended June 30, 2026 and 2025 (dollars in thousands).

		Year Ended June 30,								Increase
Consolidated cash flow data:		2026				2025				(Decrease)
Net cash used in operating activities		$	(569	)		$	(7,374	)		$	6,805
Net cash used in investing activities			(3,083	)			(5,199	)			2,116
Net cash (used in) provided by financing activities			(1,321	)			1,853				(3,174	)
Net decrease in cash		$	(4,973	)		$	(10,720	)		$	5,747

Net cash flow used in operating activities for the year ended June 30, 2026, of $0.6 million, reflected our net loss of $33.2 million, primarily adjusted approximately as follows: add back of impairment of account receivable of $20.7 million, add back of share-based compensation expense of $3.5 million, add back of right-of-use assets amortization of $1.8 million, add back of inventory impairment of $2.8 million, add back of loss from equity method investment of $0.9 million, a decrease in accounts receivable of $6.5 million, offset by a decrease in contract liabilities of $3.0 million, and advances to a related party of approximately $0.5 million.

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, primarily adjusted approximately 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 investing activities for the year ended June 30, 2026, of approximately $3.1 million reflected primarily the repayment of joint venture investment payable of approximately $2.3 million, purchase of property, plant and equipment of approximately $0.3 million, and acquisition of intangible assets of $0.4 million.

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

Net cash flow used in financing activities for the year ended June 30, 2026, of approximately $1.3 million reflected primarily repayment of borrowing of approximately $1.3 million.

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

To date, we have financed our operations primarily through cash on hand and working capital loans from our major stockholders, who are our 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, 2026 and 2025, we had contract liabilities of $1,886,012 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 follow:

		As of				As of
		June 30, 2026				June 30, 2025
Operating lease right-of-use assets		$	3,329,452			$	5,181,521
Impairment			(301,067	)			(151,516	)
Total		$	3,028,385			$	5,030,005
Operating lease liabilities - current		$	1,443,763			$	1,838,815
Operating lease liabilities - non-current			1,893,249				3,267,522
Total		$	3,337,012			$	5,106,337

As of June 30, 2026, the maturities of our lease liabilities (excluding short-term leases) are as follows:

		As of June 30, 2026
July 1, 2026 to June 30, 2027		$	1,607,967
July 1, 2027 to June 30, 2028			803,628
July 1, 2028 to June 30, 2029			722,952
July 1, 2029 to June 30, 2030			481,968
Total future lease payments			3,616,515
Less: imputed interest			(279,503	)
Total lease liabilities		$	3,337,012

As of June 30, 2026, we have a borrowing balance of $805,361 outstanding, and the borrowing will mature within one year.

As of June 30, 2026, we recorded an unpaid $3.5 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. We record a sales return asset and a corresponding refund liability based on historical return rates applied to sales generated within the trailing three-month period, as returns are highly unlikely to occur beyond this timeframe. The estimation of return rates requires significant management judgment and historical analysis. These estimates are sensitive to consumer acceptance, product quality, and shifting market demand. Should actual customer return behaviors deviate from our historical patterns, or if there are unexpected changes in the return windows, our estimated refund liabilities would be adjusted, which could materially impact our reported net revenues and gross profit during the period.

Allowance for credit losses

We estimate allowance for credit losses under Accounting Standards Update 2016-13 "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments", by evaluating historical collection experience, aging of the receivables, economic environment, and the credit history and financial conditions of the customers. This process requires management to make forward-looking assumptions regarding the collectability of accounts receivable portfolios. Our forward-looking estimates are highly dependent on the stability of our customer base and macro-level market conditions. For instance, the tightening of our commercial sales strategy in North America during the fiscal year reduced current-period credit risk for newly boarded accounts; however, this benefit was dynamically balanced against persistent risks identified within certain long-aged customer balances. If the creditworthiness of our customers deteriorates beyond our forecasted expectations, additional credit loss expenses would be required, adversely affecting our operating results.

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.