ISPR 10-K & 10-Q changes, risk factors and insider trading

The U.S. Department of Health and Human Services (“HHS”) recently made a recommendation to the US Drug Enforcement Agency (“DEA”) to reschedule cannabis as a Schedule 3 drug. The DEA is currently going through a public comment period on the potential rescheduling. If the DEA accepts HHS’s recommendation and reschedules cannabis, there may be new regulatory compliance obligations placed upon cannabis operators in the U.S. Under the FD&C Act, Schedule 3 drugs must be dispensed with a prescription and the safety and efficacy of such products would be governed by FDA regulation under the FD&C Act. It is unclear how this would impact state-legal cannabis programs (both medical and adult use), cannabis programs, if at all. If there are significant new regulatory barriers for the U.S. adult use cannabis industry, such increased regulation may negatively impact the sale of our cannabis vaporizer products in the U.S. marketplace.

Because Tuanfang Liu, our co-chiefchief executive officer, who is also director, and his wife, Jiangyan Zhu, who is also a director, beneficially own 62.5%62.1% of our Common Stock as of June 30, 20252026 and Mr. Liu owns 58.1%95% of the equity of our majority supplier, Mr. Liu has a conflict of interest.

Because our co-chiefchief executive officer, Tuanfang Liu, and his wife own 62.5%,62.1%, of our Common Stock as of June 30, 2025,2026, they have the power to elect all of our directors and to approve any matter which is subject to stockholder approval. Mr. Liu also own 95% of the equity in Shenzhen Yi Jia, which is currently our major supplier. Mr. Liu is chairman of Shenzhen Yi Jia and his wife, Jiangyan Zhu, is its vice president of finance. The price and other terms at which Shenzhen Yi Jia sells product to us have been largely determined by Mr. Liu. In addition, as our co-chiefchief executive officer, Mr. Liu has significant authority in the implementation of our business plan, including the expected commencement of our manufacturing operations in California and the opening of additional manufacturing operations in Malaysia. He has also historically been responsible for our product development and our present products have been the result of his research and development efforts. Mr. Liu’s interests may be different from our interests. Because of Mr. Liu’s conflict of interest, there is a risk that any actions he may take may have an adverse effect upon the success and development of our business and the price of our Common Stock.

Although our supply agreements with Shenzhen Yi Jia require Shenzhen Yi Jia to sell products to us at the most favorable market price that it sells similar products to third parties, because our products are designed for us and based on technology that was either developed by Mr. Liu prior to the date of the agreement or is developed by us, we cannot determine whether another supplier would be able to provide the products at the same or a better price. However, all pricing will be designed to enable us to sell the products at a price which enables us to generate a gross margin that we consider acceptable, and Mr. Liu will have significant input as to what is an acceptable gross margin. Our supply agreements also require Shenzhen Yi Jia to provide us with quality products and services in a timely manner, to provide to our customers the same warranty that we provide to our customer and to give first priority to the manufacture of our products over any other manufacturing obligations. However, as our co-chiefchief executive officer, Mr. Liu has the ability to determine whether to pursuant any legal action to enforce our supply agreements. Thus, we will be relying on Mr. Liu taking actions that are in our best interests, and we run the risk that he may not do so.

We believe that, when equipped with ourIKE’s IKE Tech LLC Joint Venture age-gating technology, there is a path to getting an approval for ENDS products with characterizing flavors other than tobacco and menthol, as they will have strong technological barriers to prevent youth usage. TheThis FDAbelief haswas repeatedlyborne indicatedout thatby the onlyMay way5, it2026 willauthorization approve characterizingof flavorsthe inGlas ENDS devicesproduct is if they are equipped with technology to prevent youth usage. We believe the technology we have access to will be desirable to the FDA.PMTAs. IKE met with the FDA on November 13, 2024, and submitted a “component” PMTA on this technology in April of 2025; however, there can be no guarantee that the FDA will approve our PMTA or any other PMTA we submit that contains the IKE age-gating technology. IKE has met with FDA 2 additional times in 2026, including a June 15, 2026 meeting with the acting FDA commissioner.

The majority of our products are presently manufactured by Shenzhen Yi Jia, a related party. Due to the reliance on our business relationship with Shenzhen Yi Jia, any interruption of its operations, any failure of Shenzhen Yi Jia to accommodate our growing business demands, any termination or suspension of our cooperation terms, or any deterioration of cooperative relationships with Shenzhen Yi Jia may materially and adversely affect our operation. Failure by Shenzhen Yi Jia to provide us satisfactory products and/or services in a timely manner is likely to have a have material adverse effect on our business, financial condition and results of operations. There is a risk in relying on any third-party supplier in that we are dependent on the supplier’s ability to produce a product which meets our quality standards and delivery requirements as well as being dependent upon the supplier’s priorities. These risks are present when the supplier is controlled by Tuanfang Liu, our co-chiefchief executive officer. We do not presently have any plans to engage another supplier since Shenzhen Yi Jia is familiar with our products, and we are devoting our efforts to establishing our own production facilities with no assurance that we can successfully operate our new and to-be developed manufacturing facilities.

At present, a majority of our products are manufactured by Shenzhen Yi Jia, a Chinese company of which Tuanfang Liu, our co-chiefchief executive officer is a 95% owner. In the event of any claim of product liability resulting from a product manufactured by Shenzhen Yi Jia, any legal action would most likely be brought against us since the plaintiff may not be willing or able to commence an action against Shenzhen Yi Jia in China. Our co-chiefchief executive officer has a conflict of interest in determining the extent to which Shenzhen Yi Jia would accept responsibility for any product liability claim relating to a product manufactured by Shenzhen Yi Jia or for making changes in the manufacturing process to address the substance of any claim, whether or not such claim is valid. To the extent that that we have product liability insurance, the insurer may seek to recover any amount paid from Shenzhen Yi Jia for products manufactured by Shenzhen Yi Jia.

Since our products involve inhaling nicotine or cannabis, we may be subject to claims based on the known effects of nicotine or cannabis. Because e-vaping is a relatively recent method of ingesting nicotine and cannabis and is thought by some that, for adults, it may be less toxic than cigars and cigarettes or marijuana cigarettes, it is possible that long-term effects of inhaling nicotine or cannabis may not become generally known for many years and may prove to be not significantly less toxic than cigars, cigarettes and marijuana cigarettes, and we cannot assure you that manufacturers and distributors of vaping products may not face liability resulting from the nature of the product – - a device for inhaling nicotine or cannabis, which could materially impair our ability to operate profitably if at all.

One customerTwo accountscustomers account for a significant portion of our sales.

Although we have more than 150100 distributors, our largest distributor, who is a non-exclusive distributor for the United Kingdom and France, accounted for approximately 26% and 30%27% of our revenue for the years ended June 30, 2025 and 2024,2026, respectively. On January 1, 2021, we signed a distributorship agreement with this distributor in our standard form, which does not provide any special terms or prices. Our second largest distributor, whose territory is the United Kingdom, accounted for approximately 17% of revenue for the years ended June 30, 2026. No other customer accounted for 10% or more of our revenue during either year. The loss of this distributor or a significant reduction in our sales to this distributor could have a material adverse effect upon our business. See “Business –- Sales and Distribution.”

In June 2018, California adopted the California Consumer Privacy Act (“CCPA”),CCPA, which became effective in 2020. Under the law, any California consumer has a right to demand to see all the information a company has saved on the consumer, as well as a full list of all the third parties that data is shared with. The consumer also has the right to request that we delete the information it has on the consumer. The CCPA broadly defines “protected data.” The CCPA also has specific requirements for companies subject to the law. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations, with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater. The CCPA also permits class action lawsuits. To the extent that we sell products to consumers through our website or otherwise through the Internet, we may become subject to the CCPA and any other similar consumer protection laws.

The European Union Parliament approved a new data protection regulation, known as the GeneralGDPR, Data Protection Regulation (“GDPR”), which came into effect in May 2018. The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR imposes significant penalties for non-compliance. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our website and input protected information, including information provided in ordering products through our website, we may become subject to provisions of the GDPR.

Our performance depends on the continued service and performance of our directors and senior management as they play an important role in guiding the implementation of our business strategies and future plans. Our co-chiefchief executive officer, Tuanfang Liu, is responsible primarily for our product development, since all of the patents we own or license are based on his inventions, and we anticipate that he will continue to be responsible for product development. Because of his knowledge of the market and the underlying technology for our products, the loss of Mr. Liu could have a material adverse effect on our business, financial condition and prospects. If any of our other members of senior management were to terminate his or her employment, there can be no assurance that we would be able to find suitable replacements in a timely manner, at acceptable cost or at all. The loss of services of key personnel or the inability to identify, hire, train and retain other qualified managerial personnel in the future may materially and adversely affect our business, financial condition, results of operations and prospects. Additionally, in addition to our co-chiefchief executive officer, we rely on our research and development personnel for product development and technology innovation. If any of our key research and development personnel were to leave us, we cannot assure you that we can secure equally competent research and development personnel in a timely manner, or at all.

The occurrence of natural disasters, including hurricanes, floods, earthquakes, tornadoes, fires and other disasters disease may adversely affect our business, financial condition or results of operations. The potential impact of a natural disaster on our results of operations and financial position is speculative and would depend on numerous factors. The extent and severity of these natural disasters determines determine their effect on a given economy. We cannot assure you that natural disasters will not occur in the future or that our business, financial condition and results of operations will not be adversely affected. In particular, our factory in Malaysia may be at risk to certain natural disasters that could interrupt production or even cause a catastrophic loss of equipment and inventory. Further, our logistics and supply chain could be interrupted by hurricane or typhoon activity in Southeast Asia.

Under Nasdaq’s rules, a controlled company is a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company. We are a controlled company because Mr. Tuanfang Liu, our co-chiefchief executive officer, holds more than 50% of our voting power. For so long as we remain a controlled company, we are not required to comply with the following permitted to elect to rely, and may rely, on certain exemptions from the obligation to comply with certain corporate governance requirements, including:

We have not taken advantage of these exemptions except that our co-chiefchief executive officer and principal stockholder, Tuanfang Liu, is chairman of the nominating and corporate governance committee. As a result, to the extent that we take advantage of these exemptions, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements. Although we do not currently intend to take advantage of the controlled company exemptions, except as set forth above, we cannot assure you that, in the future, we will not seek to take advantage of these exemptions. If we cease to be a “controlled company” in the future, we will be required to comply with the Nasdaq listing standards, which may require replacing a number of our directors and will require development of certain other governance-related policies and practices. These and any other actions necessary to achieve compliance with such rules may increase our legal and administrative costs, will make some activities more difficult, time-consuming and costly and may also place additional strain on our personnel, systems and resources.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against two of our directors, Tuanfang Liu, our co-chiefchief executive officer and chairman, and his wife Jiangyan Zhu, who are both based in China.

Although we are a Delaware corporation, two of our directors, --— who are Tuanfang Liu, our co-chiefchief executive officer, chairman and controlling stockholder, and his wife, Jiangyan Zhu, who is also a director –- live in mainland China. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. As a result, it may not be possible for investors to serve process upon our co-chiefchief executive officer, or to enforce any judgments obtained from non-PRC jurisdictions against any of them in China. As a result, it may be difficult for you to effect service of process upon those persons inside mainland China. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who do not reside in the United States or have substantial assets located in the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

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.spaces, as well as the assembly of nicotine pouch products and other next-generation nicotine products. Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device. These products are sold into the global nicotine and cannabis markets in the form of e-cigarettes or cartridges filled with oils by our customers, respectively.

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

Cost of revenue mainly consists of cost of purchases of vaping products, that are mostly purchased from Shenzhen Yi Jia. Cost of revenue decreased by $17,281,612,$21,128,070, or 14.2%, 20.2%, from $122,126,245 for the year ended June 30, 2024, to $104,844,633 for the year ended June 30, 2025.2025, to $83,716,563 for the year ended June 30, 2026. The decrease in cost of revenue iswas primarily driven by lower sales volumes mostly from North American and European markets, partially offset by a $2.0 million increase in lineinventory withwrite-downs, decreasefrom in$0.8 sales.million for the year ended June 30, 2025 to $2.8 million for the year ended June 30, 2026.

Operating expenses increaseddecreased by $16,822,945$15,608,959 or 38.5%,25.8%, from $43,676,585 for the year ended June 30, 2024, to $60,499,530 for the year ended June 30, 2025.2025, to $44,890,571 for the year ended June 30, 2026.

Sales and marketing expenses increaseddecreased by $1,830,660,$3,416,500, or 27.7%,40.5%, from $6,608,724 for the year ended June 30, 2024, to $8,439,384 for the year ended June 30, 2025.2025, to $5,022,884 for the year ended June 30, 2026. The increasedecrease in sales and marketing expenses was primarily due to ana increasedecrease inof payrollapproximately $2.8 million from marketingNorth personnelAmerica as a result of $0.9expenditure million, increase in brand advertising activities of $0.4 millionreduction and increasecut back on marketing campaign activities, and a decrease in marketing related professional service feeexpenses of $0.3approximately million.$0.6 million from Aspire Science as a reduction of marketing activities.

Our general and administrative expenses (excluding the credit loss expenses) mainly consist of employee’s salaries and benefits, rental expense, professional fees, stock-based compensation expenses and other administrative expenses. General and administrative expenses decreased by $1,026,775,$10,873,473, or 3.3%,36.2%, from $31,052,109 for the year ended June 30, 2024, to $30,025,334 for the year ended June 30, 2025.2025, to $19,151,861 for the year ended June 30, 2026. The decrease was primarily due to (i) a decrease of $0.5approximately $5.0 million of payroll expense due to cutting headcount and cost optimization plan in North America, (ii) a decrease of approximately $2.5 million of legal and professional fee from cost optimization plan by North America, (iii) a decrease of approximately $2.2 million of stock-based compensation expense due to cutting headcount in streamline operations by North America,America and (iiiv) a decrease inof research and development expenses of $0.4approximately $0.2 million by North America.

Other income (expense) income,, net

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

Interest income decreasedincreased by $278,255,$256,501, from $365,251 for the year ended June 30, 2024, to $86,996 for the year ended June 30, 2025.2025, to $343,497 for the year ended June 30, 2026. The decreaseincrease in interest income is mainly due to decreaseincrease in interest rate andcharged lesson interestlate incomefees fromby bankNorth deposits.America.

Exchange loss, gain/(loss), net increased by $16,277,$403,011, or 23.2%,465.5%, from net exchange loss of $70,293 for the year ended June 30, 2024 to net exchange loss of $86,570 for the year ended June 30, 2025.2025 to net exchange gain of $316,441 for the year ended June 30, 2026.

As a result of these factors, total other income (expense) income,, net decreasedincreased by $595,026,$722,525, from other income, net of $408,363 for the year ended June 30, 2024 to other expense, net of $186,663 for the year ended June 30, 2025.2025 to other income, net of $535,862 for the year ended June 30, 2026.

Income taxes decreased slightly by $78,342$56,322 or 6.1%,4.7%, from $1,282,046 for the year ended June 30, 2024 to $1,203,704 for the year ended June 30, 2025. 2025 to $1,147,382 for the year ended June 30, 2026. We had a consolidated net loss for both year ended June 30, 20252026 and 2024,2025, which was the combined effect of a profit by Aspire Science, a loss by Aspire North America and Ispire Malaysia. The profit from Aspire Science resulted in a current tax expense. The increase in valuation allowance reflects our view that the taxable income in the future will not be sufficient to utilize the carryforward loss.

As a result of the foregoing, net loss increaseddecreased by $24,472,404,$6,036,182, from net loss of $14,767,822, or loss of $0.27 per share (basic and diluted), for the year ended June 30, 2024 to a net loss of $39,240,226, or loss of $0.69 per share (basic and diluted), for the year ended June 30, 2025.2025 to a net loss of $33,204,044, or loss of $0.58 per share (basic and diluted), for the year ended June 30, 2026.

Net cash flow used in operating activities for the year ended June 30, 2025,2026, of $7.4$0.6 million, reflected our net loss of $39.2$33.2 million, primarily adjusted primarilyapproximately as follows: add back of impairment of account receivable of $22.0$20.7 million, add back of share-based compensation expense of $5.6$3.5 million, add back of right-of-use assets amortization of $1.5$1.8 million, anadd increase in accounts payableback of $10.8inventory impairment of $2.8 million, anadd increaseback in contract liabilities of $2.6loss from equity method investment of $0.9 million, offseta by increasedecrease in accounts receivable of $9.3$6.5 million, offset by a decrease in contract liabilities of $3.0 million, and increaseadvances into paymenta maderelated forparty operating lease liabilities of $1.4approximately $0.5 million.

Net cash flow used in operating activities for the year ended June 30, 20242025, of $18.3$7.4 million, reflected our net loss of $14.8$39.2 million, primarily adjusted primarily approximately as follows: add back of impairment of account receivable of $6.0$22.0 million, add back of sharedshare-based basedcompensation payment expensesexpense of $6.4 $5.6 million, add back of depreciationright-of-use andassets amortization of $0.5$1.5 million, an increase in accounts payable of $17.9 million, an increase in accrued liabilities and other payables of $2.5 million, a decrease in inventory of $0.9 million, a decrease in prepaid expenses and other current assets of $2.4$10.8 million, an increase in contract liabilities of $1.2$2.6 millionmillion, offset by an increase in accounts receivable of $41.3 $9.3 million, and increase in payment made for operating lease liabilities of $1.4 million.

Net cash flow used in investing activities for the year ended June 30, 2025,2026, of $5.2approximately $3.1 million reflected primarily the repayment of acquisitionjoint venture investment payable of $3.2approximately $2.3 million, purchase of property, plant and equipment of $1.1approximately million$0.3 million, and acquisition of intangible assets of $0.9$0.4 million.

Net cash flow generatedused fromin investing activities for the year ended June 30, 2024,2025, of $3.0approximately $5.2 million reflected primarily maturitythe repayment of short termjoint venture investment of $9.1 million offset by purchasepayable of costapproximately other investment of $2.0$3.2 million, purchase of property, plant and equipment of $2.0approximately million,$1.1 million and acquisition of intangible assets of $1.2approximately million and purchase of equity method investment of $1.0$0.9 million.

Net cash flow generatedused fromin financing activities for the year ended June 30, 2025,2026, of $1.9approximately $1.3 million reflected primarily proceeds from borrowing of $2.1 million, offset by repayment of borrowing of $0.2approximately $1.3 million.

Net cash flow generated byfrom financing activities for the year ended June 30, 2024,2025, of $10.1approximately $1.9 million reflected primarily proceeds from our equity offeringborrowing of $12.3approximately $2.1 million, offset by paymentrepayment of equity offering costsborrowing of $1.5approximately $0.2 million.

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

As of June 30, 2025,2026, we have a borrowing balance of $1,952,127$805,361 outstanding. Theoutstanding, maturitiesand of ourthe borrowing arewill asmature follows:within one year.

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 $20.9$21.5 million and $18.0 million at DecemberMarch 31, 20252026 and June 30, 2025, respectively.

The following table sets forth a summary of our unaudited condensed consolidated statements of operations and comprehensive incomeloss for the three and nine months ended December March 31, 20252026 and 20242025 (dollars in thousands except per share amounts).

Our revenue decreased by $21,541,304, $7,505,224, or 51.5%,28.7%, from $41,827,860$26,190,725 for the three months ended March 31, 2025, to $18,685,501 for the three months ended DecemberMarch 31, 2024, to $20,286,556 for the three months ended December 31, 2025.2026. The decrease in revenue is the combined effect of (i) decreases in product sales in the United States of $9.3 $5.5 million from $10.9$8.8 million for the three months ended DecemberMarch 31, 2024, 2025, to $1.6$3.3 million for the three months ended DecemberMarch 31, 2025 2026 largely due to shorter credit terms in the United States with a focus on higher quality customers, and (ii) decreases in sales of vaping products in Europe of $9.2$1.4 million from $24.0$13.2 million for the three months ended March 31, 2025 to approximately $11.8 million for the three months ended DecemberMarch 31, 2024 to approximately $14.8 million for the three months ended December 31, 20252026 largely due to market conditions being competitive, and the timing of distribution continuing to evolve, and (iii) decreases in sales to other regions of $1.9$0.4 million from $3.3$1.2 million for the three months ended DecemberMarch 31, 20242025 to approximately $1.4$0.8 million for the three months ended DecemberMarch 31, 20252026 and (iv) decreases in sales sales of vaping products in Asia Pacific of $1.1$0.2 million from $3.6$3.0 million for the three months ended DecemberMarch 31, 20242025 to approximately $2.5$2.8 million for the three months ended DecemberMarch 31, 2025.2026.

Our revenue decreased by $30,528,733, $38,033,957, or 37.6%,35.4%, from $81,166,173$107,356,898 for the nine months ended March 31, 2025, to $69,322,941 for the sixnine months ended DecemberMarch 31, 2024, to $50,637,440 for the six months ended December 31, 2025.2026. The decrease in revenue is the combined effect of (i) decreases in sales of vaping products in North America of $13.6 $19.1 million from $20.7$29.4 million for the sixnine months ended December March 31, 20242025 to approximately $7.1$10.4 million for the sixnine months ended December March 31, 20252026 largely due to shorter credit terms in the United States with a focus on higher quality customers, and (ii) decreases in product sales in Europe of $10.4$11.9 million from $45.9$59.2 million for the six nine months ended DecemberMarch 31, 2024,2025, to $35.5 $47.3 million for the sixnine months ended DecemberMarch 31, 20252026 largely due to market conditions being competitive, and the timing of distribution continuing to evolve, and (iii) decreases in sales in other regions, mainly Africa, of $3.9$4.3 million from $7.1 million for the six months ended December 31, 2024, to $3.2$8.3 million for the sixnine months ended DecemberMarch 31, 2025, to $4.0 million for the nine months ended March 31, 2026, (iv) decreases in sales to to Asia Pacific regions of $2.6$2.8 million from $7.5$10.5 million for the sixnine months ended DecemberMarch 31, 20242025 to approximately $4.9$7.7 million for the sixnine months ended DecemberMarch 31, 2025.2026.

Cost of revenue mainly consists of cost of purchases of vaping products, that the majority of the purchase are from Shenzhen Yi Jia. Cost of revenue decreased by $17,293,334, $4,720,244, or 50.7%,22.0%, from $34,105,289$21,414,820 for the three months ended DecemberMarch 31, 2024,2025, to $16,811,955$16,694,576 for the three months ended DecemberMarch 31, 2025. 2026. The decrease in cost of revenue is inprimarily lineattributable withto the decrease in sales.sales, Costpartially ofoffset revenueby mainlyadditional inventory consistsprovisions of the cost of purchases of vaping products, the majority of which are from Shenzhen Yi Jia.accrued.

Cost of revenue decreased by $23,753,157,$28,473,401, or 36.1%,32.7%, from $65,769,224$87,184,044 for the sixnine months ended DecemberMarch 31, 2024,2025, to $42,016,067$58,710,643 for the sixnine months ended DecemberMarch 31, 31, 2025.2026. The decrease in cost of revenue is in line with decrease in sales.

Gross profit decreased by $4,247,970,$2,784,980, or 55.0%,58.3%, from $7,722,571$4,775,905 for the three months ended March 31, 2025, to $1,990,925 for the three months ended DecemberMarch 31, 2024, to $3,474,601 for the three months ended December 31, 2025,2026, while our gross margin decreased from 18.5% 18.2% to 17.1%.10.7%. The decrease in gross margin was primarily due to changes in product mix with less higher margin products being soldsold, and additional inventory provision accrued during the three months ended DecemberMarch 31, 2025.2026.

Gross profit decreased by by $6,775,576,$9,560,556, or 44.0%,47.4%, from $15,396,949$20,172,854 for the sixnine months ended DecemberMarch 31, 2024,2025, to $8,621,373$10,612,298 for the sixnine months ended December March 31, 2025, 2026, while our gross margin decreased from 19.0%18.8% to 17.0%.15.3%. The decrease in gross margin was primarily due to changes in product mix with less higher margin products being sold during the sixnine months ended DecemberMarch 31, 2025.2026.

Operating expenses decreased by $4,733,158$3,886,686 or 31.4%,25.3%, from $15,082,626$15,361,346 for the three months ended DecemberMarch 31, 20242025 to $10,349,468$11,474,660 for the three months ended DecemberMarch 31, 31, 2025.2026. Operating expenses decreased by $9,828,324$13,715,010 or 35.1%,31.6%, from $28,019,873$43,381,219 for the sixnine months ended DecemberMarch 31, 20242025 to $18,191,549$29,666,209 for for the sixnine months ended DecemberMarch 31, 2025.2026.

Sales and marketing expenses decreased by $585,336,$564,620, or 28.4%,34.1%, from $2,061,664$1,656,527 for the three months ended DecemberMarch 31, 20242025 to $1,476,328$1,091,907 for the three months ended March December 31, 2025.2026. The decrease in sales and marketing expenses was primarily due to a (i) decrease in brand marketing activities of $0.2$0.5 million from millionAspire Science comparing the three months ended DecemberMarch 31, 20252026 and 2024, (ii) decrease in trade show costs of $0.2 million comparing the three months ended December 31, 2025 and 2024 and (iii) decrease in travelling expense of $0.1 million as a result of less travelling activities during the three months ended December 31, 2025.

Sales and marketing expenses decreased by $2,012,739,$2,577,359, or 39.8%,38.4%, from $5,053,911 $6,710,438 for the sixnine months ended DecemberMarch 31, 20242025 to $3,041,172$4,133,079 for the sixnine months ended December March 31, 2025.2026. The decrease in sales and marketing expenses was primarily due to a decrease in (i) stock-based compensation expense of $0.9 million comparing the sixnine months ended DecemberMarch 31, 20252026 and 2024,2025, (ii) decrease in travelling expense of $0.5 million as a result of less travelling activities during the sixnine months ended DecemberMarch 31, 2025,2026, (iii) decrease in brand marketing activities of $0.3$0.8 million comparing the sixnine months ended December March 31, 20252026 and 2024,2025, and (iv) decrease in trade show costs of $0.3 million comparing the sixnine months ended December March 31, 20252026 and 2024.2025.

Credit loss expenses decreased by $1,312,626,$539,191, or 18.0%,8.8%, from $7,286,079$6,103,688 for the sixthree months ended DecemberMarch 31, 2024,2025, to $5,973,453$5,564,497 for the sixthree months ended DecemberMarch 31, 2026. 2025. The decrease is due to more collection of customer payments from repayment plan negotiated and thus less allowance for credit losses were were provided as of DecemberMarch 31, 2025.2026.

Our general and administrative expenses consist of employees’ salaries and benefits, rental expense, professional fees, stock-based compensation expenses and other administrative expenses. General and administrative expenses decreased by $4,173,025,$2,782,875, or 47.2%,36.6%, from $8,836,964$7,601,131 for the three months ended DecemberMarch 31, 2024,2025, to $4,663,939$4,818,256 for the three months ended DecemberMarch 31, 2025.2026. The decrease was primarily due to (i) decrease in payroll payroll of $1.6$1.3 million comparing the three months ended DecemberMarch 31, 20252026 and 20242025 as a result of decrease in headcount of North America, (ii) decrease in stock-based compensation expense of $0.7$0.5 million for the three months ended DecemberMarch 31, 20252026 as a result of drop in headcount in North America America,and (iii) decrease in legal and professional fees of $0.5$0.6 million for the three months ended DecemberMarch 31, 2025 2026 as a result of cost reduction in North America, (iv) decrease of $1.7 million of miscellaneous administrative expenses from North America as a result of drop in headcount and cost reduction for the three months ended December 31, 2025, offset by $0.3 million increase of general administrative expenses from Ispire Malaysia from growth of operations during the three months ended December 31, 2025.America.

General and administrative expenses decreased by $6,502,959,$9,285,834, or 41.5%,39.9%, from $15,679,883$23,281,014 for the sixnine months ended DecemberMarch 31, 2024,2025, to $9,176,924$13,995,180 for the sixnine months ended DecemberMarch 31, 2025.2026. The decrease was primarily due to (i) decrease in payroll of $2.8$4.1 million comparing the sixnine months ended DecemberMarch 31, 20252026 and 20242025 as a result of decrease decrease in headcount of North America, (ii) decrease in legal and professional fees of $1.0$1.6 million for the sixnine months ended December March 31, 20252026 as a result of cost reduction in North America, (iii) decrease in stock-based compensation expense of $0.8$1.3 million for the six nine months ended December March 31, 20252026 as a result of drop in headcount in North America, and (iiiv) decrease of $1.9$3 million of miscellaneous administrative expenses expenses from North America as a result of drop in headcount and cost reduction for the sixnine months ended DecemberMarch 31, 2025.2026, offset by (v) $0.7 million increase of general administrative expenses from Ispire Malaysia from growth of operations during the nine months ended March 31, 2026.

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

Interest income increased by $45,167,$49,491, from $59,755$3,480 for the three months ended DecemberMarch 31, 2024,2025, to $104,922$52,971 for the three months ended DecemberMarch 31, 2025.2026. Interest income income increased by $140,553,$190,044, from $59,841$63,321 for the sixnine months ended DecemberMarch 31, 2024,2025, to $200,394$253,365 for the sixnine months ended DecemberMarch 31, 2025. 2026. The increase in interest income is mainly due to charging late fees from customers.

Interest expense increased by $87,118,$51,569, from $13,073$35,646 for the three months ended DecemberMarch 31, 2024,2025, to $100,191$87,215 for the three months ended DecemberMarch 31, 2025.2026. Interest expense expense increased by $187,830,$239,399, from $24,537$60,183 for the sixnine months ended DecemberMarch 31, 2024,2025, to $212,367$299,582 for the sixnine months ended December March 31, 2025.2026. The increase in interest expense is mainly due to borrowing engaged in February 2025.

Exchange gain, net changes by $535,410,$54,635, or 218.4%,224.5%, from net exchange gain $24,341 for three months ended March 31, 2025, to net exchange loss of $30,294 for three months ended March 31, 2026. Exchange gain, net changes by $372,992, or 361.3%, from net exchange loss $245,173$103,247 for threenine months ended December March 31, 2024,2025, to net exchange gain of $290,237$269,745 for three nine months ended DecemberMarch 31, 2025. Exchange gain, net changes by $427,627, or 335.2%, from net exchange loss $127,588 for six months ended December 31, 2024, to net exchange gain of $300,039 for six months ended December 31, 2025.2026.

As a result of these factors, total other income (expense), net increasedchanged by $557,099,$232,223, from other expense, net of $178,557$94,064 for three months ended DecemberMarch 31, 2024, 2025, to other income, net of $378,542$138,159 for three months ended DecemberMarch 31, 2025.2026. Total other income (expense), net increasedchanged by $355,008,$587,231, from other expense, net of $53,951$148,015 for sixnine months ended DecemberMarch 31, 2024,2025, to other income, net of $301,057$ 439,216 for sixnine months ended DecemberMarch 31, 2025. 2026.

Income taxes decreasedincreased slightly by $353,445 $417 or 76.8%,0.2%, from $460,031$176,990 for three months ended DecemberMarch 31, 2024,2025, to $106,586$ 177,407 for three months ended DecemberMarch 31, 2025.2026. Income taxes taxes decreased by $324,129$323,712 or 35.4%,29.6%, from $916,784$1,093,774 for sixnine months ended DecemberMarch 31, 2024,2025, to $592,655$770,062 for sixnine months ended December March 31, 2025. 2026. We had a consolidated net loss for both three and sixnine months ended DecemberMarch 31, 20252026 and 2024,2025, which was the combined effect of a profit by Aspire Science, a loss by Aspire North America and Ispire Malaysia. The profit from Aspire Science resulted in a current tax expense. The increase in valuation allowance reflects our view that the taxable income in the future will not be sufficient to utilize the carryforward loss.

As a result of the foregoing, net loss decreased by $1,395,732,$1,333,512, from net loss of $7,998,643,$10,856,495, or $(0.140.19) per share, for the three months ended DecemberMarch 31, 2024,2025, to a a net loss of $6,602,911,$9,522,983, or $(0.120.17) per share, for the three months ended DecemberMarch 31, 2025.2026. Net loss decreased by $3,731,885,$5,065,397, from net loss loss of $13,593,659,$24,450,154, or $(0.240.43) per share, for the sixnine months ended DecemberMarch 31, 2024,2025, to a net loss of $9,861,774,$19,384,757, or $(0.170.34) per share, for for the sixnine months ended DecemberMarch 31, 2025.2026.

The following table summarizes our changes in working capital from June 30, 2025 to DecemberMarch 31, 20252026 (dollars in thousands).

The following table sets forth information as to consolidated cash flow information for the sixnine months ended DecemberMarch 31, 20252026 and 20242025 (dollars in thousands).

Net cash flow used in operating activities for the sixnine months ended DecemberMarch 31, 2025,2026, of $5.2$3.2 million, reflected our net loss of $9.9$19.4 million, adjusted primarily as follows: add back of impairment of account receivable of $6.0$11.5 million, add back of share-based compensation expense of $1.8$2.8 million, add back back of inventory impairment expense of $1.5$2.4 million, a decrease in accounts receivable of $3.2$6.8 million, offset by a decrease in accounts payable payable and accounts payable – related party of $7.0$3.4 millionmillion, anda decrease in contract liabilities of $1.8 million, an increase in prepaid expenses and other current assets of $1.0 $1.3 million, an increase in inventories of $1.2 million.

Net cash flow providedused by in operating activities for the sixnine months ended December March 31, 20242025 of $0.4$12.1 million, reflected our net loss of $13.6$24.4 million, adjusted primarily as follows: an add-back of credit loss expenses of $7.3$13.4 million, an add-back of stock based compensation expense of $3.5$4.9 million, an added-back of right-of-use assets amortization of $0.6 million and increase in accounts payable – relatedpayable-related party of $20.7 $11.0 million, offset by an increase in accounts receivable of $15.3$14.1 million, an increase in inventories,accrued netliabilities and other payables of $1.7 $1.0 million, and an increase in prepaid expenses and other current assetsinventories of $0.9$1.5 million.

Net cash flow used in investing activities for the sixnine months ended DecemberMarch 31, 2025,2026, of $0.9$2.1 million reflected primarily investment in joint venture of $0.5$1.3 millionmillion, and capitalized costs of patents of $0.5 million and purchase of property, plant and equipment of $0.3 million.

Net cash flow used in investing activities for the sixnine months ended DecemberMarch 31, 2024,2025 of $1.1$1.7 million reflected primarily purchase of property, plant and equipment of $0.1 $0.3million, acquisition of intangible assets of $0.8 million and capitalizedpayment costsmade offor patentslong term investment of $0.8 million.

Net cash flow generatedused from in financing activities for the sixnine months ended December March 31, 2025,2026, of $0.7$1.0 million reflected primarily repayment of borrowing of $0.6$1.0 million.million, and common stock repurchase of $45 thousand.

As of DecemberMarch 31, 20252026 and June June 30, 2025, we had contract liabilities of $4,971,135$3,043,470 and $4,861,250, respectively. These liabilities are advance deposits received from from customers after an order has been placed. We expect all of the contract liabilities to be settled in less than one year.

The Company had no impairment of operating lease right-of-use assets during the three and sixnine months ended DecemberMarch 31, 20252026 and 2024.2025.

As of DecemberMarch 31, 2025,2026, the maturities of our lease liabilities (excluding short-term leases) are as follows:

As of DecemberMarch 31, 2025,2026, we have a borrowing balance of $1,378,744 outstanding.$1,092,052 Theoutstanding, maturitiesand of ourthe borrowing arewill asmature follows:within one year.

As of DecemberMarch 31, 2025,2026, we recorded recorded an unpaid $5.3$4.5 million consideration in accrued liabilities and other payables on the unaudited condensed consolidated balance sheet for a committed investment of $9 million into a joint venture investment named IKE Tech LLC.