UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ________ to _________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| The |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of May 9, 2025, there were
ISPIRE TECHNOLOGY INC.
TABLE OF CONTENTS
i
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended June 30, 2024, as well as the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the U.S. Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, “Company,” “we,” “us,” “our” and similar terms refer to Ispire Technology Inc. and its subsidiaries, unless the context indicates otherwise.
ii
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
ISPIRE TECHNOLOGY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In $USD, except share and per share data)
| March 31, 2025 | June 30, 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets – operating leases | ||||||||
| Other investment | ||||||||
| Equity method investment | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related party | ||||||||
| Contract liabilities | ||||||||
| Accrued liabilities and other payables | ||||||||
| Bank loan – current portion | ||||||||
| Operating lease liabilities – current portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Bank loan – net of current portion | ||||||||
| Operating lease liabilities – net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value $ | ||||||||
| Preferred stock, par value $ | ||||||||
| Treasury stock, at cost | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
1
ISPIRE TECHNOLOGY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In $USD, except share and per share data)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest (expense) income, net | ( | ) | ||||||||||||||
| Exchange gain (loss), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Total Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
2
ISPIRE TECHNOLOGY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In $USD, except share and per share data)
| Common Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||
| Number of Shares | Amount | Treasury Stock | Paid-in Capital | Retained Earnings | Comprehensive (Loss)/Income | Stockholders’ Equity | ||||||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Issuance of common stock for equity incentives | ||||||||||||||||||||||||||||
| Stock based compensation expenses | - | |||||||||||||||||||||||||||
| Common stock repurchase | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Issuance of common stock for a secondary offering | ||||||||||||||||||||||||||||
| Stock based compensation expenses | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Common Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||
| Number of Shares | Amount | Treasury Stock | Paid-in Capital | Retained Earnings | Comprehensive (Loss)/Income | Stockholders’ Equity | ||||||||||||||||||||||
| Balance, July 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Issuance of common stock for equity incentives | ||||||||||||||||||||||||||||
| Stock based compensation expenses | - | |||||||||||||||||||||||||||
| Common stock repurchase | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance, July 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of common stock for a secondary offering | ||||||||||||||||||||||||||||
| Issuance of common stock for equity incentives | ||||||||||||||||||||||||||||
| Stock based compensation expenses | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
3
ISPIRE TECHNOLOGY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $USD, except share and per share data)
| Nine Months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Credit loss expenses | ||||||||
| Right-of-use assets amortization | ||||||||
| Stock-based compensation expenses | ||||||||
| Inventory write-down | ||||||||
| Loss from equity investment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accounts payable – related party | ||||||||
| Contract liabilities | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Acquisition of intangible assets | ( | ) | ( | ) | ||||
| Maturity of short term investment | ||||||||
| Payment made for long term investment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments of advances from a related party | ( | ) | ||||||
| Proceeds from a secondary offering | ||||||||
| Costs of a secondary offering | ( | ) | ||||||
| Common stock repurchase | ( | ) | ||||||
| Proceeds from long term debt | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, restricted cash and equivalents - beginning of period | ||||||||
| Cash, restricted cash and equivalents - end of period | $ | $ | ||||||
| Reconciliation of cash, restricted cash and equivalents | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, restricted cash and equivalents | $ | $ | ||||||
| Supplemental non-cash investing and financing activities | ||||||||
| Leased assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Unpaid long term investment in accrued liabilities and other payables | $ | $ | ||||||
| Supplemental cash flow disclosure | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
4
ISPIRE TECHNOLOGY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Ispire Technology Inc. (the “Company” or “Ispire”) was incorporated under the laws of the State of Delaware on June 13, 2022. Through its subsidiaries, the Company is engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products.
Ispire Technology Inc. is a holding company and does not engage in any active operations. Its business is mainly conducted by its two operating subsidiaries, Aspire North America, which is engaged in the development, marketing and sales of cannabis vapor products, which were introduced in mid-2020, and Aspire Science, which is engaged in the marketing and sales of nicotine vaping products, and the products are mainly sold in Europe and Asia Pacific (excluding the People’s Republic of China (“PRC”).
In July 2024, the Company established a wholly-owned subsidiary, Aspire AME Electronic Cigarettes Trading LLC (“Ispire UAE”) under the laws of the United Arab Emirates (“UAE”), in order to establish sales and marketing in the UAE.
In October 2024, the Company established a wholly-owned subsidiary, Magellan Trading LLC (Magellan Trading) incorporated under the laws of the State of California to assist in operations and logistics for the Company.
In January 2025, the Company established a wholly-owned subsidiary, Ispire Products UK LTD (Ispire UK) incorporated under the laws of England and Wales to assist in sales and marketing for the Company.
The following table sets forth information concerning the Company and its subsidiaries as of March 31, 2025:
| Name of Entity | Date of Organization | Place of Organization | % of Ownership | Principal Activities | ||||
| Ispire Technology Inc. | ||||||||
| Ispire International | ||||||||
| Aspire North America | ||||||||
| Aspire Science | ||||||||
| Ispire Malaysia | ||||||||
| Ispire Global Products LLC | ||||||||
| Aspire AME Electronic Cigarettes Trading LLC | ||||||||
| Magellan Trading LLC | ||||||||
| Ispire Products UK LTD |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2025 and the results of operations for the three and nine months ended March 31, 2025 and 2024. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”) and accordingly do not include all of the disclosures normally made in the Company’s annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2024.
The unaudited condensed consolidated balance sheet as of June 30, 2024 has been derived from the audited consolidated financial statements at such date. The results of operations for the three and nine months ended March 31, 2025 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the year ending June 30, 2025.
5
Use of significant estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include allowance for credit losses, revenue recognition, fair value of equity instruments, inventory reserve, incremental borrowing rate, and determination of the valuation allowances for deferred taxes. Actual results could differ from those estimates.
Fair value measurement
The Company applies ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands financial statement disclosure requirements for fair value measurements.
ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.
ASC Topic 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The carrying value of certain of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other receivables, accounts payable, accounts payable related party, contract liabilities, accrued liabilities and other payables and due to related parties, approximates their fair value because of their short-term maturity.
Allowance for credit losses
The Company adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” on July 1, 2023, under the modified retrospective method of adoption. The Company estimates its allowance for current expected credit losses based on an expected loss model, compared to prior periods which were estimated using an incurred loss model which did not require the consideration of forward-looking economic variables and conditions in the reserve calculation across the portfolio. The impact related to adopting the new standard was not material.
Based on the current expected credit loss model, the Company considers many factors, including age of balance, past events, any historical default, current information available about the customers, current economic conditions and certain forward-looking information, including reasonable and supportable forecasts.
6
Inventories
Inventories mainly consist of finished goods purchased from suppliers. Inventories are stated at the lower of cost or net realizable value. The cost of an inventory item is determined using the weighted average method.
When management determines that certain inventories
may not be saleable, or there is an indicator that certain inventory costs may exceed expected market value, the Company will record the
difference between the cost and the net realizable value as a write down of inventories. The net realizable value is determined based
on the estimated selling price, in the ordinary course of business, less estimated costs necessary to make the sale. The Company records
an allowance for slow moving and potentially obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and
an estimate of expected sellable life of the inventory. The Company periodically reviews inventory to identify slow moving inventories
and compares the forecast sales with the quantities and expected sellable life of inventory. Any inventories identified during this process
are reserved for at rates based upon management’s judgment and historical rates. The quantity thresholds and reserve rates are based
on management’s judgment and knowledge of current and projected demand. The write-down estimates may, therefore, be revised if there
are changes in the overall market for the Company’s products or market changes that in management’s judgment, impact its ability
to sell potentially obsolete inventory. As of March 31, 2025 and June 30, 2024, the Company recorded inventory write-down of $
Intangible assets
Intangible assets refer to capitalized external
costs, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent license rights. The Company expenses
costs associated with maintaining patents subsequent to their issuance in the period incurred. Capitalized patent costs are amortized
on a straight-line basis over estimated useful lives of
Revenue recognition
The Company sells its vaping products to customers and recognizes revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers. Many customers are distributors that resell the Company’s products in various geographic regions. The performance obligations are for the Company to transfer the title and control of the goods to a customer for a determined price. Each order is considered a separate contract with a single performance obligation. Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered to the pickup location specified by the customer or a forwarder appointed by the customer, as that is generally when legal title, physical possession and risks and rewards of goods transfer to the customer.
Revenue is recognized at the transaction price based on the purchase order as adjusted for the anticipated rebates, discounts and other sales incentives. When determining the transaction price, management estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for the Company are trade promotion funds and cash discounts. These sales incentives are recorded as a reduction of revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes.
7
The Company offers different payment terms to
different customers. For nicotine vaping products, the general payment term is a deposit of
Disaggregated Revenue
The Company has taken into consideration the nature,
amount, timing, and uncertainty of revenue and cash flows, and has determined to disaggregate its net sales by region.
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Europe | $ | $ | $ | $ | ||||||||||||
| North America (the U.S. and Canada) | ||||||||||||||||
| Asia Pacific (excluding PRC) | ||||||||||||||||
| Africa | ||||||||||||||||
| South America | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Cost of revenue
Cost of revenue for the three and nine months ended March 31, 2025 and 2024 consisted primarily of the cost of purchasing vaping products, freight-in cost and inventory impairment, which were mostly purchased from a related party. See Note 10.
Stock-based compensation
The Company measures and recognizes compensation expenses for stock-based payment awards, including stock options, restricted stock granted to directors and advisors, and restricted stock units (“RSUs”) granted to employees, based on the grant date fair value of the awards. The Company engages a third-party valuer to assist in determining the fair value of stock options using the binomial option pricing model, with significant assumption of exercise multiple, expected volatility, risk-free interest rate and expected dividend yield. The fair value of RSUs is measured on the grant date based on the closing market price of the Company’s common stock. The stock-based payment awards typically include time-based vesting conditions, however, certain of the Company’s stock-based payment awards may include performance-based vesting conditions.
For stock-based payment awards with time-based vesting conditions, the resulting cost is recognized over the period during which an employee or service provider is required to provide service in exchange for the awards, usually the vesting period. For stock-based payment awards with performance-based vesting conditions, the Company will estimate the probability that the performance condition will be met at each reporting date. Stock-based compensation expense is only recognized for stock-based payment awards that are probable of vesting.
Stock-based compensation expense is recorded in the general and administrative expense in the consolidated statements of operations. The Company recognizes forfeitures of stock-based payment awards upon occurrence.
8
Recent accounting pronouncements
As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company intends to take advantage of the benefits of this extended transition period for all accounting standards described below, if applicable.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. The Company will adopt this ASU for our 2025 annual period and is currently evaluating the impact of this ASU on our segment disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The guidance is effective for public business entities for annual periods beginning after December 15, 2024, and for private entities for annual periods beginning after December 15, 2025, on a prospective basis. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement: Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), to improve the disclosures about an entity’s expenses. Upon adoption, the Company will be required to disclose in the notes to the financial statements a disaggregation of certain expense categories included within the expense captions on the face of the income statement. The standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The standard can be applied either prospectively or retrospectively. The Company is currently assessing adoption timing and the effect that the updated standard will have on our financial statement disclosures.
Customer and Supplier Concentration
For the three and nine months ended March 31, 2025 and 2024, the Company’s major customers, who accounted for more than 10% of the Company’s consolidated revenue, were as follows:
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Major Customers | ||||||||||||||||
| Customer A | % | % | % | % | ||||||||||||
| Customer B | % | |||||||||||||||
| * |
For the three and nine months ended March 31, 2025 and 2024, the Company’s suppliers, who accounted for more than 10% of the Company’s total purchases, were as follows:
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Major Suppliers | ||||||||||||||||
| Supplier C | % | % | % | % | ||||||||||||
| (1) | Major Supplier C is Shenzhen Yi Jia, a Chinese company that is |
Credit Risk
Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and accounts receivable. The Company maintains its cash in financial institutions.
Accounts at United States financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
9
As of March 31, 2025 and June 30, 2024, the Company’s customers, whose accounts receivable balances accounted for more than 10% of the Company’s total accounts receivable, were as follows:
| As of March 31, | As of June 30, | |||||||
| Customers | 2025 | 2024 | ||||||
| D | % | % | ||||||
| E | % | |||||||
3. CASH AND CASH EQUIVALENTS, RESTRICTED CASH
Below is a breakdown of the Company’s cash balances in banks as of March 31, 2025 and June 30, 2024, both by geography and by currencies (translated into U.S. dollars):
| As of March 31, | As of June 30, | |||||||
| By Geography: | 2025 | 2024 | ||||||
| Cash in HK | $ | $ | ||||||
| Cash in U.S. | ||||||||
| Cash in Malaysia | ||||||||
| Total | $ | $ | ||||||
| By Currency: | ||||||||
| USD | $ | $ | ||||||
| RM | ||||||||
| HKD | ||||||||
| EUR | ||||||||
| GBP | ||||||||
| RMB | ||||||||
| Total | $ | $ | ||||||
“HKD” refers to Hong Kong dollars, “GBP” refers to British pounds, “EUR” refers to Euros, “RM” refers to Malaysia ringgit and “RMB” refers to Chinese Renminbi.
As of March 31, 2025 and June 30, 2024, restricted
cash totaled $
4. ACCOUNTS RECEIVABLE, NET
As of March 31, 2025 and June 30, 2024, accounts receivable consisted of the following:
| As of March 31, | As of June 30, | |||||||
| 2025 | 2024 | |||||||
| Accounts receivable – gross | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
10
The Company recorded $
Activity in the allowance for credit losses is below:
| For the nine months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Balance at July 1 | $ | $ | ||||||
| Current period provision for expected losses | ||||||||
| Write-offs charged against the allowance | ( | ) | ( | ) | ||||
| Balance at March 31 | ||||||||
5. PROPERTY, PLANT AND EQUIPMENT, NET
As of March 31, 2025 and June 30, 2024, property, plant and equipment consisted of the following:
| As of March 31, | As of June 30, | |||||||
| 2025 | 2024 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Office and other equipment | ||||||||
| Furniture and fixtures | ||||||||
| Construction-in-progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
Property, plant and equipment, net | $ | $ | ||||||
For the three months ended March 31, 2025 and
2024, depreciation expense amounted to $
6. EQUITY METHOD INVESTMENT
On April 5, 2024, Aspire North America entered into a capital contribution,
subscription, and joint venture agreement with several other parties. Pursuant to joint venture agreement, the parties created a legal
entity, IKE Tech LLC (“IKE”), whose business is licensing, owning, operating and developing an industry-standard age-verification
solution for vapor (e-cigarette) devices in the U.S. market as the related planned submission of PMTA applications that seek FDA marketing
orders for cutting-edge technologies across the U.S. e-cigarette market. Ispire contributed $
11
As of March 31, 2025, the investment in joint
venture accounted for under the equity method amounted to $
For the three months ended March 31, 2025, the
Company’s share of the joint venture’s net loss was $
For the three months ended March 31, 2025 and
2024, the Company recorded $
The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company:
| Three months ended March 31, | Nine months ended March 31, | |||||||
| 2025 | 2025 | |||||||
| Net revenue | $ | $ | ||||||
| Gross profit | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
7. CONTRACT LIABILITIES
These liabilities are advance deposits received
from customers after an order has been placed. As of March 31, 2025, the Company expects all of the contract liabilities to be settled
in less than one year. The decrease in the balance at March 31, 2025 was due to less orders on hand on that date. The amount of revenue
recognized in the nine months ended March 31, 2025, that was included in the opening contract liability balance was $
Changes in the contract liabilities is below:
| For the nine months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Balance at July 1 | $ | $ | ||||||
| Contract liabilities recognized related to advanced deposits | ||||||||
| Revenue recognized in current period | ( | ) | ( | ) | ||||
| Balance at March 31 | ||||||||
8. LEASES
The Company has operating lease arrangements for
office premises in Hong Kong, California and Malaysia. These leases typically have terms of
Leases with an initial term of
12
The balances for the right-of-use assets and lease liabilities where the Company is the lessee are presented as follow:
| As of March 31, 2025 | As of June 30, 2024 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total | $ | $ | ||||||
As of March 31, 2025, the maturities of our lease liabilities (excluding short-term leases) are as follows:
| As of March 31, 2025 | ||||
| April 1, 2025 to June 30, 2025 | ||||
| July 1, 2025 to June 30, 2026 | ||||
| July 1, 2026 to June 30, 2027 | ||||
| July 1, 2027 to June 30, 2028 | ||||
| July 1, 2027 to June 30, 2029 | ||||
| July 1, 2027 to June 30, 2030 | ||||
| Total future lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
The Company incurred lease costs, which
include the payment of short-term leases, of $
The Company made payments of $
The weighted-average remaining lease term related
to the Company’s lease liabilities as of March 31, 2025 and June 30, 2024 was
The discount rate related to the Company’s
lease liabilities as of March 31, 2025 and June 30, 2024 was
9. ACCRUED LIABILITIES AND OTHER PAYABLES
As of March 31, 2025 and June 30, 2024, accrued liabilities and other payables consisted of the following:
| As of March 31, | As of June 30, | |||||||
| 2025 | 2024 | |||||||
| Joint venture investment payable | $ | $ | ||||||
| Other payables | ||||||||
| Accrued salaries and related benefits | ||||||||
| Accrued expenses | ||||||||
| Reserve for product returns | ||||||||
| Other tax payable | ||||||||
| Total | $ | $ | ||||||
13
10. RELATED PARTY TRANSACTIONS
| a) |
| Name of related parties and Relationship with the Company |
| b) | Tuanfang Liu is also Aspire Global’s chief executive officer and a director of both the Company and Aspire Global, and his wife, Jiangyan Zhu, is also a director of both companies. As of March 31, 2025, Mr. Liu and Ms. Zhu beneficially own |
| c) | For the three and nine months ended March 31, 2025 and 2024, the majority of the Company’s nicotine and cannabis vaping products were purchased from Shenzhen Yi Jia. As of March 31, 2025 and June 30, 2024, the accounts payable–related party was $ |
| d) | As of March 31, 2025 and June 30, 2024, the Company had total accounts receivable of $ |
11. INCOME TAXES
For the three and nine months ended March 31, 2025 and 2024 loss before income taxes consists of:
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| HK | $ | $ | $ | $ | ||||||||||||
| U.S. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Malaysia | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Income taxes recorded for the three and nine months ended March 31, 2025 and 2024, were estimated using the discrete method. Income taxes are based on the Company’s financial results through the end of the period, as well as the related change in the valuation allowance on deferred tax assets. The Company is unable to estimate the annual effective tax rate with sufficient precision for purposes of the effective tax rate method, which requires the Company to consider a projection of full-year income and the expected change in the valuation allowance. The estimated annual effective tax rate method was not reliable due to its sensitivity to small changes to forecasted annual pre-tax earnings and the effect of the valuation allowance, which create results with significant variations in the customary relationship between income tax expense and pre-tax income for the interim periods. As a result, the Company determined that using the discrete method is more appropriate than using the annual effective tax rate method.
The Company’s effective tax rate from operations
was (
As of March 31, 2025, income tax expense of $
14
12. STOCK-BASED COMPENSATION
In October 2022, the board of directors and stockholders
of the Company approved the 2022 Equity Incentive Plan (as amended, the “Plan”) pursuant to which up to
Restricted stock
During the three and nine months ended March 31, 2025,
The Company entered into consulting agreements with two consultants
in June 2024, which provide for the issuance of up to
In July 2024, the Company entered into consulting
agreements with two consultants, which provide for the issuance of up to
In July 2024, the Company entered into consulting
agreements with two consultants, which provide for the issuance of up to
The shares of common stock that vest upon the attainment of the sales-based targets include performance-based vesting conditions, which the Company has determined were not probable of being achieved at March 31, 2025. As such, the Company has not recognized any compensation expense as of March 31, 2025, related to the restricted common stock with performance-based vesting conditions. The shares of common stock that vest on October 1, 2027, include time-based vesting criteria. For these shares, the Company recognizes stock-based compensation expense based on the grant date fair value on a straight-line basis over the required service period. For the quarter ended March 31, 2025, the stock-based compensation expense related to the restricted common stock with time-based vesting conditions was not material.
15
Stock Options
The following is a summary of stock option activity transactions as of and for the nine months ended March 31, 2025:
| Number Of options | Weighted average exercise price | Weighted average fair value per option | Weighted average remaining contractual life in years | |||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | $ | $ | ||||||||||||||
| Expired | $ | $ | ||||||||||||||
| Forfeiture | ( | ) | $ | $ | ||||||||||||
| Outstanding at March 31, 2025 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2025 | $ | $ | ||||||||||||||
The aggregate intrinsic value of options outstanding
with an exercise price less than the closing price of the Company’s common stock as of March 31, 2025 was $
Total expense of options vested for the three
months ended March 31, 2025 and 2024, was $
| Nine months ended March 31, 2025 | Nine months ended March 31, 2024 | |||||||
| Exercise multiple | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
RSUs
RSUs granted to employees typically vest cumulatively
as to one-third of the restricted stock units on each of the first three anniversaries of the date of grant based on continues service.
Each vested RSU entitles holder to receive one share of common stock upon exercise.
| Shares | Weighted average grant date fair value | |||||||
| Unvested, June 30, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Canceled and forfeited | ( | ) | ||||||
| Unvested, March 31, 2025 | $ | |||||||
Total expense for the RSUs during the three months
ended March 31, 2025 and 2024 was $
16
The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of operations and comprehensive loss:
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As of March 31, 2025, the Company had approximately
$
13. LOSS PER SHARE
The following table presents a reconciliation of basic net loss per share:
| Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average basic and diluted share of common stock outstanding | ||||||||||||||||
| Net loss per basic and diluted share of common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The Company computes earnings per share (“EPS”)
in accordance with ASC 260, Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and diluted
EPS. Basic EPS is measured as net loss divided by the weighted average common stocks outstanding for the period. Diluted EPS is similar
to basic EPS but presents the dilutive effect on a per share basis of potential common stocks (for example, convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potentially dilutive
shares could dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been
antidilutive for the nine months ended March 31, 2025 and 2024.
| For the nine months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Share options | ||||||||
| Unvested restricted stock units | ||||||||
| Warrants | ||||||||
| Total | ||||||||
14. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to legal or regulatory proceedings, investigations and claims incidental to the conduct of its business. The Company is not a party to, nor is the Company aware of, any legal or regulatory proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
Concurrently with the joint venture agreement
(see Note 6), Ispire entered into an exclusive supply agreement with Berify, whereby Ispire is obligated to purchase all Bluetooth enabled
integrated circuits to be used on vape type devices to control the activation of the device that are to be sold to IKE at cost plus a
15. SUBSEQUENT EVENT
On April 24, 2025, Ispire Malaysia SDN BDH (“Ispire
Malaysia”) entered into a Preference Shares Subscription Agreement (the “Agreement”) with Greenpeak Resources SDN BDH
(“Greenpeak”). Greenpeak is Ispire Malaysia’s government affairs and lobbying firm in Malaysia. Under the Agreement
Ispire Malaysia issued
17
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 markets in the form of e-cigarettes and global cannabis markets in the form of cartridges filled with oils by our customers.
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). One such license arrangement has already launched, and more are anticipated to occur in the future.
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.
18
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. Additionally, 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 these 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.
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.
19
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.
Tariffs
On April 2, 2025 U.S. President Donald Trump instituted a tariff of 24% on all goods from Malaysia and a 54% tariff on all goods from China through an executive order. On April 9, 2025, President Trump paused the implementation of the April 2 executive order for 90 days, with respect to all countries but China, instead instituting a blanket 10% tariff for all non-China imports to the U.S.
As of May 5, 2025 tariffs on most Chinese made products entering the U.S. are 145% and may continue to increase, or decrease, over the near term.
We purchase the majority of our nicotine and cannabis vaping products from Shenzhen Yi Jia, located in Shenzhen, China, which constitutes a significant part of our cost of revenue. The increase of tariff rates could affect our operating results and gross profit margins. However, we are currently able to manufacture a wide range of cannabis hardware in Malaysia and import into the U.S. at a substantial discount compared with production in, and importation from, China. We believe that the tariff differential between China and Malaysia serves as a short- and long-term competitive advantage for our U.S. cannabis hardware business. While we cannot be certain that this tariff differential will last, many customers have approached us, seeking to diversify their production supply chains out of China and into Malaysia. To the extent we continue to procure vapor devices from China for sale in the U.S., tariff costs will continue to be passed to our customers.
20
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 $14.6 million and $5.9 million at March 31, 2025 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. |
| ● | Changes or uncertainty in tariffs, economic sanctions, and other trade barriers. |
Results of Operations
Three and Nine Months Ended March 31, 2025 and 2024
The following table sets forth a summary of our consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2025 and 2024 (dollars in thousands except per share amounts).
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||
| $ | % of Revenue | $ | % of Revenue | $ | % of Revenue | $ | % of Revenue | |||||||||||||||||||||||||
| Revenue | $ | 26,191 | 100.0 | % | $ | 30,015 | 100.0 | % | $ | 107,357 | 100.0 | % | $ | 114,565 | 100.0 | % | ||||||||||||||||
| Cost of revenue | (21,415 | ) | (81.8 | )% | (23,893 | ) | (79.6 | )% | (87,184 | ) | (81.2 | )% | (95,346 | ) | (83.2 | )% | ||||||||||||||||
| Gross profit | 4,776 | 18.2 | % | 6,122 | 20.4 | % | 20,173 | 18.8 | % | 19,219 | 16.8 | % | ||||||||||||||||||||
| Operating expenses | (15,361 | ) | (58.7 | )% | (11,777 | ) | (39.2 | )% | (43,381 | ) | (40.4 | )% | (29,673 | ) | (25.9 | )% | ||||||||||||||||
| loss from operations | (10,585 | ) | (0.4 | )% | (5,655 | ) | (18.8 | )% | (23,208 | ) | (21.6 | )% | (10,454 | ) | (9.1 | )% | ||||||||||||||||
| Other income (expense), net | (94 | ) | (0.4 | )% | (15 | ) | (0.0 | )% | (148 | ) | (0.1 | )% | 299 | 0.3 | % | |||||||||||||||||
| Loss before income taxes | (10,679 | ) | (40.8 | )% | (5,670 | ) | (18.9 | )% | (23,356 | ) | (21.8 | )% | (10,155 | ) | (8.9 | )% | ||||||||||||||||
| Income taxes | (177 | ) | (0.7 | )% | (255 | ) | (0.8 | )% | (1,094 | ) | (1.0 | )% | (1,104 | ) | (1.0 | )% | ||||||||||||||||
| Net loss | (10,856 | ) | (41.5 | )% | (5,925 | ) | (19.7 | )% | (24,450 | ) | (22.8 | )% | (11,259 | ) | (9.8 | )% | ||||||||||||||||
| Other comprehensive income | (3 | ) | 0.1 | % | 11 | 0.1 | % | (84 | ) | (0.1 | )% | 170 | 0.1 | % | ||||||||||||||||||
| Comprehensive loss | (10,859 | ) | (41.5 | )% | (5,914 | ) | (19.7 | )% | (24,534 | ) | (22.9 | )% | (11,089 | ) | (9.7 | )% | ||||||||||||||||
| Net loss per share Basic and diluted | (0.19 | ) | (0.11 | ) | (0.43 | ) | (0.21 | ) | ||||||||||||||||||||||||
| Weighted shares of common stock outstanding Basic and diluted | 57,003,488 | 54,347,729 | 56,752,454 | 54,287,624 | ||||||||||||||||||||||||||||
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 March 31, | Nine months ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Europe | $ | 13,235,728 | $ | 13,628,653 | $ | 59,174,779 | $ | 49,144,807 | ||||||||
| North America (the U.S. and Canada) | 8,788,476 | 12,361,240 | 29,441,624 | 50,191,212 | ||||||||||||
| Asia Pacific (excluding PRC) | 2,965,023 | 3,771,105 | 10,453,766 | 14,831,769 | ||||||||||||
| Africa | 117,975 | 117,695 | 5,840,041 | 261,113 | ||||||||||||
| South America | 1,083,523 | 136,343 | 2,446,688 | 136,343 | ||||||||||||
| Total | $ | 26,190,725 | $ | 30,015,036 | $ | 107,356,898 | $ | 114,565,244 | ||||||||
Our revenue decreased by $3,824,311, or 12.7%, from $30,015,036 for the three months ended March 31, 2024, to $26,190,725 for the three months ended March 31, 2025. The decrease in revenue is the combined effect of (i) , increases in sales in South America, of $0.9 million from $0.1 million for the three months ended March 31, 2024, to $1.0 million for the three months ended March 31, 2025 offset by (ii) decreases in sales of vaping products in North America of $3.6 million from $12.4 million for the three months ended March 31, 2024 to approximately $8.8 million for the three months ended March 31, 2025, and (iii) decreases in sales to Asia Pacific regions of $0.8 million from $3.8 million for the three months ended March 31, 2024 to approximately $3.0 million for the three months ended March 31, 2025.
Our revenue decreased by $7,208,346, or 6.3%, from $114,565,244 for the nine months ended March 31, 2024, to $107,356,898 for the nine months ended March 31, 2025. The decrease in revenue is the combined effect of (i) decreases in sales of vaping products in North America of $20.7 million from $50.2 million for the nine months ended March 31, 2024 to approximately $29.5 million for the nine months ended March 31, 2025, and (ii) decreases in sales to Asia Pacific regions of $4.4 million from $14.8 million for the nine months ended March 31, 2024 to approximately $10.4 million for the nine months ended March 31, 2025, offset by (iii) increases in product sales in Europe of $10.0 million from $49.1 million for the nine months ended March 31, 2024, to $59.1 million for the nine months ended March 31, 2025, increases in sales in Africa, mainly South Africa, of $5.5 million from $0.3 million for the nine months ended March 31, 2024, to $5.8 million for the nine months ended March 31, 2025 and increases in sales in South America of $2.3 million from $0.1 for the nine months ended March 31, 2024, to $2.4 million for the nine months ended March 31, 2025.
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 $2,478,263, or 10.4%, from $23,893,083 for the three months ended March 31, 2024, to $21,414,820 for the three months ended March 31, 2025. The decrease in cost of revenue is in line with decease in revenue. Cost of revenue decreased by $8,161,501, or 8.6%, from $95,345,545 for the nine months ended March 31, 2024, to $87,184,044 for the nine months ended March 31, 2025.
The decrease in cost of revenue is in line with decrease in revenue and more higher-margin products being sold.
22
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, 2025 | ||||||||||||||
| Revenue | Cost of revenue | Gross profit | Gross profit % | |||||||||||
| $ | 26,190 | $ | 21,415 | $ | 4,775 | 18.2 | % | |||||||
| Three Months Ended March 31, 2024 | ||||||||||||||
| Revenue | Cost of revenue | Gross profit | Gross profit % | |||||||||||
| $ | 30,015 | $ | 23,893 | $ | 6,122 | 20.4 | % | |||||||
| Nine Months Ended March 31, 2025 | ||||||||||||||
| Revenue | Cost of revenue | Gross profit | Gross profit % | |||||||||||
| $ | 107,357 | $ | 87,184 | $ | 20,173 | 18.8 | % | |||||||
| Nine Months Ended March 31, 2024 | ||||||||||||||
| Revenue | Cost of revenue | Gross profit | Gross profit % | |||||||||||
| $ | 114,565 | $ | 95,345 | $ | 19,220 | 16.8 | % | |||||||
Gross profit decreased by $1,346,048, or 22.0%, from $6,121,953 for the three months ended March 31, 2024, to $4,775,905 for the three months ended March 31, 2025, while our gross margin decreased from 20.4% to 18.2%. The decrease in gross margin was primarily due to changes in product mix with less higher-margin products being sold during the three months ended March 31, 2025.
Gross profit increased by $953,155, or 5.0%, from $19,219,699 for the nine months ended March 31, 2024, to $20,172,854 for the nine months ended March 31, 2025, while our gross margin increased from 16.8% to 18.8%. The increase in gross margin was primarily due to changes in product mix with more higher-margin products being sold during the nine months ended March 31, 2025.
Operating Expenses
Operating expenses increased $3,584,098 or 23.3%, from $11,777,248 for the three months ended March 31, 2024 to $15,361,346 for the three months ended March 31, 2025. Operating expenses increased $13,707,756 or 46.2%, from $29,673,463 for the nine months ended March 31, 2024 to $43,381,219 for the nine months ended March 31, 2025.
Our sales and marketing expenses mainly consist of employees’ salaries and benefits, marketing expense, travel expenses and others. Sales and marketing expenses decreased by $98,233, or 5.6%, from $1,754,760 for the three months ended March 31, 2024 to $1,656,527 for the three months ended March 31, 2025. The slight decrease in sales and marketing expenses was primarily due to the net effect of (i) a decrease in our marketing activities, marketing campaign and trade shows of $0.4 million, offset by (ii) increased in headcount and payroll expense for Aspire Science of $0.1 million, and (iii) increase of $0.2 million in other miscellaneous selling expenses.
Sales and marketing expenses increased by $2,536,052, or 60.8%, from $4,174,386 for the nine months ended March 31, 2024 to $6,710,438 for the nine months ended March 31, 2025. The increase in sales and marketing expenses was primarily due to an increase in (i) our marketing activities, marketing campaign and trade shows of $0.9 million, (ii) stock-based compensation expense related to selling personnel of $1.2 million for the nine months ended March 31, 2025 and (iii) headcount and payroll expense for Aspire Science of $0.2 million.
23
Our general and administrative expenses mainly consist of employees’ salaries and benefits, rental expense, professional fees, stock-based payment expenses, credit loss expense and other administrative expenses. General and administrative expenses increased by $3,682,331, or 26.9%, from $10,022,488 for the three months ended March 31, 2024 to $13,704,819 for the three months ended March 31, 2025. The increase was primarily due to (i) increase in credit loss expense as an allowance for credit losses of $4.9 million from accounts resulted from management’s assessment on Company’s account receivables balances, offset by (ii) an decrease in professional fees of $0.6 million and (iii) decrease of $0.4 million for payroll expenses.
General and administrative expenses increased by $11,171,704, or 43.8%, from $25,499,077 for the nine months ended March 31, 2024 to $36,670,781 for the nine months ended March 31, 2025. The increase was primarily due to (i) increase in credit loss expense as an allowance for credit losses of $10.1 million from accounts resulted from management’s assessment on Company’s account receivables balances, (ii) increase of $0.8 million for payroll expenses and (iii) an increase in professional fees of $0.3 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 expense (income) changed by $59,462, or 217.8%, from interest income of $27,296 for the three months ended March 31, 2024 to interest expense of $32,166 for the three months ended March 31, 2025. Interest income decreased by $295,023, or 98.9%, from $298,161 for the nine months ended March 31, 2024 to $3,138 for the nine months ended March 31, 2025. The decrease is largely due to prior year certificate of deposit concluding.
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 $98,504, or 803.1%, from net income of $12,265 for the three months ended March 31, 2024 to net expense of $86,239 for the three months ended March 31, 2025. Other expense (income) decreased by $67,984, or 338.6%, from net income of $20,078 for the nine months ended March 31, 2024 to net expense of $47,906 for the nine months ended March 31, 2025. The decrease is largely due to the loss on equity method investment.
Exchange loss (gain) changes by $78,245, or 145.2%, from net exchange loss of $53,904 for the three months ended March 31, 2024 to net exchange gain of $24,341 for three months ended March 31, 2025. Exchange loss (gain) changes by $83,860 or 432.6%, from net exchange loss of $19,387 for the nine months ended March 31, 2024 to net exchange loss of $103,247 for nine months ended March 31, 2025.
As a result of these factors, other expense, net decreased by $79,721, from other expense, net of $14,343 for the three months ended March 31, 2024 to other expense, net of $94,064 for three months ended March 31, 2025. Other expense (income), net decreased by $446,867, from other income, net of $298,852 for the nine months ended March 31, 2024 to other expense, net of $148,015 for nine months ended March 31, 2025. The decrease is largely due to the loss on equity method investment.
Income Taxes
Income taxes decreased by $78,495, or 44.3%, from $255,485 for the three months ended March 31, 2024 to $176,990 for the three months ended March 31, 2025. Income taxes decreased by $9,936, or 0.9%, from $1,103,710 for the nine months ended March 31, 2024 to $1,093,774 for the nine months ended March 31, 2025. We had a consolidated net loss for both three and nine month periods ended March 31, 2025 and 2024, 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 $4,931,372, from net loss of $5,925,123, or $(0.11) per share (basic and diluted) for the three months ended March 31, 2024 to a net loss of $10,856,495, or $(0.19) per share, for the three months ended March 31, 2025. Net loss increased by $13,191,532, from net loss of $11,258,622, or $(0.21) per share (basic and diluted) for the nine months ended March 31, 2024 to a net loss of $24,450,154, or $(0.43) per share, for the nine months ended March 31, 2025.
24
Liquidity and Capital Resources
The following table summarizes our changes in working capital from June 30, 2024 to March 31, 2025 (dollars in thousands).
| March 31, 2025 | June 30, 2024 | Change | % Change | |||||||||||||
| Current Assets | $ | 94,027 | $ | 102,572 | $ | (8,545 | ) | (8.3 | )% | |||||||
| Current Liabilities | 96,176 | 85,991 | 10,185 | 11.8 | % | |||||||||||
| Working Capital | (2,149 | ) | 16,581 | (18,730 | ) | (113.0 | )% | |||||||||
The following table sets forth information as to consolidated cash flow information for the nine months ended March 31, 2025 and 2024 (dollars in thousands).
| Nine Months Ended March 31, | Increase | |||||||||||
| Consolidated cash flow data: | 2025 | 2024 | (Decrease) | |||||||||
| Net cash used in operating activities | $ | (12,069 | ) | $ | (16,878 | ) | $ | 4,809 | ||||
| Net cash (used in) provided by investing activities | (1,690 | ) | 5,949 | (7,639 | ) | |||||||
| Net cash provided by financing activities | 2,279 | 10,083 | (7,804 | ) | ||||||||
| Net decrease in cash and cash equivalents | (11,480 | ) | (846 | ) | (10,634 | ) | ||||||
Net cash flow used in operating activities for the nine months ended March 31, 2025 of $12.1 million, reflected our net loss of $24.5 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 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, net of $1.5 million.
Net cash flow used in operating activities for the nine months ended March 31, 2024 of $16.9 million, reflected our net loss of $11.3 million, adjusted primarily as follows: an add-back of stock-based compensation expenses of $4.7 million, an add-back of credit loss expenses of $3.3 million, an increase in accounts payable of $11.9 million, a decrease in prepaid expenses and other current assets of $1.7 million, an decrease in accrued liabilities and other payables of $1.2 million, offset by an increase in accounts receivable of $26.6 million, and an increase in inventories, net of $2.5 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 investing activities for the nine months ended March 31, 2024 of $5.9 million reflected primarily maturity of short term investment of $9.1 million, offset by acquisition of equity investment of $1.0 million, purchase of property, plant and equipment of $1.2 million and acquisition of intangible assets of $1.0 million.
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.
Net cash flow provided by financing activities for the nine months ended March 31, 2024 of $10.1 million reflected primarily proceeds from a secondary offering of $12.3 million, offset by cost of the secondary offering of $1.5 million and repayment to related parties of $0.7 million.
25
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, the net proceeds from our initial public offering of $18.3 million and bank loan 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 March 31, 2025, and June 30, 2024, we had contract liabilities of $1,561,842 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 March 31, 2025 | As of June 30, 2024 | |||||||
| Operating lease right-of-use assets | $ | 5,356,384 | $ | 3,579,140 | ||||
| Operating lease liabilities – current | $ | 1,667,641 | $ | 1,207,832 | ||||
| Operating lease liabilities – non-current | 3,551,386 | 2,194,094 | ||||||
| Total | $ | 5,219,027 | $ | 3,401,926 | ||||
26
As of March 31, 2025, the maturities of our lease liabilities (excluding short-term leases) are as follows:
| As of March 31, 2025 | ||||
| April 1, 2025 to June 30, 2025 | 477,512 | |||
| July 1, 2025 to June 30, 2026 | 1,995,914 | |||
| July 1, 2026 to June 30, 2027 | 1,473,496 | |||
| July 1, 2027 to June 30, 2028 | 745,509 | |||
| July 1, 2027 to June 30, 2029 | 664,833 | |||
| July 1, 2027 to June 30, 2030 | 443,222 | |||
| Total future lease payments | 5,800,486 | |||
| Less: imputed interest | (581,459 | ) | ||
| Total lease liabilities | 5,219,027 | |||
As of March 31, 2025, we have a bank loan balance of $2,339,362 outstanding. The maturities of our bank loan are as follows:
| As of March 31, 2025 | ||||
| April 1, 2025 to June 30, 2025 | 167,215 | |||
| July 1, 2025 to June 30, 2026 | 1,276,015 | |||
| July 1, 2026 to June 30, 2027 | 896,132 | |||
| Total bank loan | 2,339,362 | |||
As of March 31, 2025, we recorded an unpaid $8.2 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 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.
27
ITEM 3: Quantitative and Qualitative Disclosure About Market Risk
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.
ITEM 4: Controls and Procedures
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, 2025, 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 March 31, 2025, 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.
28
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be subject to legal proceedings, investigations and claims incidental to the conduct of our business.
We are not a party to, nor are we aware of, any legal proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
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. For our current risk factors relating to our operations, other than as set forth below, see the section entitled “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on September 27, 2024.
Our business may be negatively affected by global political events and foreign policy responses, including tariffs.
Geopolitical uncertainties and events could cause damage or disruption to international commerce and the global economy and thus could have a material adverse effect on us, our suppliers, logistics providers, manufacturing vendors and customers, including our distributors and other channel partners. For example, escalating tensions between the U.S., China and other countries may result in changes in laws or regulations that will affect our ability to manufacture and sell our products. On April 2, 2025, the U.S. instituted a tariff of 24% on all goods from Malaysia and a 54% tariff on all goods from China through an executive order. On April 9, 2025, implementation of the executive order issued on April 2, 2025, was paused for a period of 90 days with respect to all countries other than China, instead implementing a blanket 10% tariff for all non-China imports to the U.S. As of May 5, 2025, tariffs on most Chinese-made products entering the U.S. are 145% and may continue to increase, or decrease, over the near term. We purchase the majority of our nicotine and cannabis vaping products from Shenzhen Yi Jia, a company located in Shenzhen, China, which constitutes a significant portion of our cost of revenue and could increase our cost of revenue should tariffs continue to rise. We are currently able to manufacture a wide range of cannabis hardware in Malaysia and import into the U.S. at a comparatively low tariff rate compared to goods imported from China. However, there is no guarantee that the current tariff on goods imported from Malaysia will not increase to the previous rate of 24% or higher. Any continuation or increase of tariffs on products imported from Malaysia or China could materially and adversely affect our business, financial condition, and results of operations.
The progress and continuation of trade negotiations between the U.S. and China continues to be uncertain and a further escalation of the trade war remains a possibility. These tariffs have, and will continue to have, an adverse effect on our results of operations and profit margins. We can provide no assurance regarding the magnitude, scope or duration of the imposed tariffs or the magnitude, scope or duration from any relief in increases to such tariffs, as well as the potential for additional tariffs or trade barriers by the U.S., China or other countries, nor that any strategies we may implement to mitigate the impact of such tariffs or other trade actions will be successful.
29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2025, the Company did not conduct any unregistered sales of equity securities.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to the share repurchase program approved by the Company’s board of directors on January 20, 2025, for a period of 24 months, the Company may repurchase up to $10 million of the currently outstanding shares of the Company’s common stock. Under the approved repurchase program, the Company may purchase shares of the Company’s common stock (i) in the open market, (ii) in privately negotiated transactions, (iii) block purchases, or (iv) otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. During the quarterly period ended March 31, 2025, the Company repurchased a total of 14,600 shares of its common stock.
| ISSUER PURCHASES OF EQUITY SECURITIES(1) | ||||||||||||||||
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
| January (Jan. 1, 2025 – Jan. 31, 2025) | - | - | $ | 10,000,000 | ||||||||||||
| February (Feb. 1, 2025 – Feb. 28, 2025) | - | - | - | $ | 10,000,000 | |||||||||||
| March (March 1, 2025 – March 31, 2025) | 14,600 | $ | 4.14 | 14,600 | $ | 9,939,556 | ||||||||||
| Total | 14,600 | $ | 4.14 | 14,600 | $ | 9,939,556 | ||||||||||
| (1) | On January 20, 2025, the Company’s board of directors authorized the Company’s entry into a program to repurchase up to $10 million of shares of the Company’s Common Stock, as previously announced in the Company’s Current Report on Form 8-K filed with the SEC on January 22, 2025. The board of directors’ authorization to conduct such a repurchase program expires on January 20, 2027. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine and Safety Disclosure
Not applicable
Item 5. Other Information
No director or Section 16
officer
30
Item 6. Exhibits
The following is a complete list of exhibits filed or furnished, as applicable, as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
| * | Filed herewith. |
| ** | Furnished herewith. |
| ˄ | Certain annexes, schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. |
| † | Certain Portions of this exhibit (indicated by “[*]”) have been omitted pursuant to Item 601(a)(6) of Regulation S-K. |
31
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 9, 2025 | ISPIRE TECHNOLOGY INC. | |
| By: | /s/ Michael Wang | |
| Michael Wang | ||
| Co-Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ James Patrick McCormick | |
| James Patrick McCormick | ||
| Chief Financial Officer | ||
| (Principal Financing and Accounting Officer) | ||
32