As filed with the
Securities and Exchange Commission on October 10, 2023.
Registration No. 333-273904
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Ispire Technology Inc.
(Exact name of Registrant as specified in its
charter)
Delaware | | 2111 | | 84-5106049 |
(State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer
Identification Number) |
19700 Magellan Drive
Los Angeles, CA 90502
(310) 742-9975
(Address, including zip code, and telephone
number, including area code, of Registrant’s principal executive offices)
Michael Wang, Co-Chief Executive Officer
Ispire Technology Inc.
19700 Magellan Drive
Los Angeles, CA 90502
(310) 742-9975
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Richard I. Anslow, Esq.
Jonathan Deblinger, Esq.
Asher S. Levitsky P.C.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas; Suite 1100
New York, New York 10105
Telephone: (212) 370-1300 |
Approximate date of commencement of proposed
sale to the public: as soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
☒
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. ☐
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 | ☐ | 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 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy
these securities in any state or other jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS (Subject to Completion) |
Dated
August 10, 2023 |
Ispire Technology Inc.
1,179,520 Shares of Common Stock Offered
by Selling Stockholders
This prospectus relates to the resale (i)
by three selling stockholders of an aggregate of up to 1,117,420 shares of common stock, par value $0.0001 per share, of Ispire Technology
Inc. (“we,” “us,” “our,” or the “Company”), originally issued by us on June 26, 2023
in a private placement of shares and (ii) by US Tiger Securities, Inc. (“Tiger Securities”) of 62,100 shares of common stock
are issuable upon exercise of warrants issued to Tiger Securities pursuant to the underwriting agreement relating to our initial public
offering.
The Selling Stockholders may offer, sell or
distribute all or a portion of the common stock registered hereby publicly or through private transactions at prevailing market prices
or at negotiated prices. We will not receive any of the proceeds from such sales of the common stock. We will bear all costs, expenses
and fees in connection with the registration of these securities. The Selling Stockholders will bear all commissions and discounts, if
any, attributable to their sale of common stock. See “Plan of Distribution.”
Our common stock is listed on the Nasdaq Capital
Market, or Nasdaq, under the symbol “ISPR.” On October 10, 2023 the last reported sale price of our common stock was $8.99
per share.
We are an “emerging growth company,”
as that term is used in the Jumpstart Our Business Startups Act of 2012, as amended, and are subject to certain reduced public company
reporting requirements for this prospectus and future filings. See “Prospectus Summary — Emerging Growth Company Status.”
We are deemed to be a “controlled company” under the Nasdaq listing rules because Tuanfang Liu, our co-chief executive officer
and a director, and his wife, Jiangyan Zhu, who is a director, own 65.9% of our outstanding common stock. As a controlled company, we
are not required to comply with certain of Nasdaq’s corporate governance requirements. We do not currently take advantage of any
of these exceptions except that Mr. Tuanfang Liu is chairman of the nominating and corporate governance committee. See “Prospectus
Summary — Controlled Company.”
Investing in our common stock is highly speculative
and involves a significant degree of risk. See “Risk Factors,” which begins on Page 11.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
TABLE
OF CONTENTS
The information contained
in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our common stock. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus
shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus. This prospectus
will be updated and made available for delivery to the extent required by the federal securities laws.
Any representations, warranties
and covenants made by us in any document that is filed as an exhibit to the registration statement of which this prospectus is a part
were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among
the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Accordingly, such representations,
warranties and covenants should not be relied on as accurately representing the current state of our affairs.
The
information presented in this prospectus that relates to the industry has been derived from industry reports prepared by Euromonitor International
Limited. Euromonitor is an independent research firm. The tobacco report was commissioned by Aspire Global, and we commissioned the cannabis
report. Investors are cautioned not to place any undue reliance on the information, including statistics and estimates, set forth in this
section or similar information included elsewhere in this prospectus.
This prospectus contains references
to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred
to in this prospectus may appear without the® or ™ symbols, but such references are not intended to indicate,
in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor
to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service
marks to imply a relationship with, or endorsement or sponsorship of us by any other companies.
PROSPECTUS
SUMMARY
Introduction
We were formed on June 13, 2022. We have two operating
subsidiaries, Aspire North America LLC, a California limited liability company (“Aspire North America”), and Aspire Science
and Technology Limited, a Hong Kong corporation (“Aspire Science”). On July 29, 2022, we acquired 100% of the equity interest
in Aspire North America from Aspire Global Inc. (“Aspire Global”), and our wholly-owned subsidiary Ispire International Limited,
a British Virgin Islands corporation (“Ispire International”), acquired 100% of the equity interest in Aspire Science from
a wholly-owned subsidiary of Aspire Global in connection with a restructure by Aspire Global pursuant to which the equity in Aspire North
America and Aspire Science was transferred to us, and, at the time of the transfer, we had the same stockholders as Aspire Global and
our stockholders held the same percentage interest in us as they had in Aspire Global at the time of the transfer. See “Business
– Acquisition of Our Business from a Related Party” and “Certain Relationships and Related Party Transactions.”
Unless the context indicates otherwise, all references
to “we,” “us,” “our,” the “Company,” or similar terms used in this prospectus refer to
(i) Ispire Technology Inc., including its subsidiaries, and (ii) for periods prior to July 29, 2022, the date we acquired our operating
subsidiaries, the operations of our subsidiaries prior to our acquisition of the equity in the subsidiaries. Our consolidated financial
statements reflect the consolidated operations of us and our subsidiaries as if the acquisition of the subsidiaries occurred on July 1,
2020. See Note 1 of Notes to Consolidated Financial Statements.
Our reporting currency is the U.S. dollar. The
functional currency of Aspire Science, which is located in Hong Kong, is the Hong Kong Dollar (“HKD”). For Aspire Science,
results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated
at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating
to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances
on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into
U.S. dollars are included in determining comprehensive income/loss. Transactions denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies
are translated into the functional currencies at the exchange rates prevailing at the balance sheet date with any transaction gains and
losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the results of operations as incurred.
The information
presented in this prospectus that relates to the industry has been derived from industry reports prepared by Euromonitor International
Limited. Euromonitor is an independent research firm. The tobacco report was commissioned by Aspire Global, and we commissioned the cannabis
report. Investors are cautioned not to place any undue reliance on the information, including statistics and estimates, set forth in this
section or similar information included elsewhere in this prospectus.
Overview
We are engaged in the research and development,
design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. We sell our tobacco
products worldwide except for the PRC, the United States, and Russia. Our tobacco products are marketed under the Aspire brand name and
are sold primarily through our distribution network.
We currently sell our cannabis vaping hardware
only in the United States, and we have recently commenced marketing activities in Canada and Europe. All of our products are vaping hardware.
Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device, and includes dabbing, which
is the recreational inhalation of extremely concentrated cannabinoids, typically tetrahydrocannabinol, the main psychotropic cannabinoid
derived from the marijuana plant. Our cannabis products are marketed under the Ispire brand name, primarily on an ODM basis to other
cannabis vapor companies. ODM generally involves the design and customization of core products to meet each brand’s unique image
and needs, and our products are sold by our customers under their own brand names although they may also include our brand name on the
products.
Our
products use our BDC (bottom dual coil) coil technology which uses bottom dual coils to provide
much higher temperature and an expanded heating that achieves much greater flavor and vapor
production. We believe that the use of our dual-coil technology enhances the flavor performance
of e-liquid, and the hidden wick cotton with special designed wick holes can both extend
the tank e-liquid capacity and improve the speed of wicking to increase the coil life.
Our BVC (bottom vertical coil) coil represents
a significant technological breakthrough for us in coil technology utilizing a vertical heating wire surrounded by cotton. This design
can enable the coil heating to provide uniform temperature from the tank, together with more efficient wicking. This new technology,
which Aspire Global introduced in 2014, enables the coil to last longer while still giving users what we believe is the purest and cleanest
taste from e-liquids. The BVC coils are still very popular for MTL (mouth to lung) vapors today.
Our Cleito tank brings new and innovative
technological advancement to the vaping industry. The Cleito uses a revolutionary new coil design that replaces the standard chimney
and, we believe, delivers maximized airflow. This design frees up even more restriction in the airflow by eliminating the need for a
static chimney within the tank itself, which results in an expanded flavor profile and increased vapor production. Combined with a Clapton
kanthal coil for maximum flavor, the Cleito tank delivers a rush of intense flavor and huge vapor with a broad profile. The simple top-fill
design makes filling very easy and use more convenient and enjoyable.
Our Ispire cannabis vapor products use our
patented DuCore™ (Dual Coil) technology for cannabis vaporizers. This technology enables users to create massive plumes of vape
without burning the cannabis oil. These products incorporate our patented dual coil technology for what we believe is best-in-class airflow
and taste, and our technology for eliminating the leakage of the oil from the unit, which overcomes a major disadvantage with many existing
products.
In June 2023, we introduced our proprietary
Ispire ONETM technology and products. Ispire ONETM is designed to eliminate capping issues in the manufacturing/co-packing
process; increase consistency and quality of the filled devices; eliminate leaking, spitting, or overheating for cartridges, disposables,
and PODs; and improve consumer safety, as the devices are sealed in a sterilized factory environment to eliminate risk of contamination
during filling process by Ispire’s customers.
Our products are manufactured and supplied
by Shenzhen Yi Jia, which is 95% owned by our co-chief executive officer and controlling stockholder, Tuanfang Liu. We have taken steps
toward the development of manufacturing operations in California. We expect to receive our first fully automated assembly system and
related equipment in our California facility in late January 2024. We plan to fine-tune the system with a view to completing the clean
room where the system will be housed. As the initial steps to establish a manufacturing facility in Malaysia, we have leased a site for
our proposed manufacturing facility and have begun to hire employees for these operations. Initially, our primary manufacturing operations
will be assembling from components that we purchase from other companies. Although we expect that we will commence these assembly operations
in both California and Malaysia during first half of 2024, due to the nature of these activities and the infrastructure required, we
may encounter unexpected timing issues or operational and regulatory challenges which could impact our ability to meet this timetable
for either or both locations, we cannot assure you that we will be able to meet this timetable or that we will be able to effectively
and efficiently establish or conduct such operations.
We sell the Aspire brand of tobacco vaporizer
technology products in more than 30 countries through our global network of more than 150 distributors. The primary markets for our tobacco
products are Europe and the Asia Pacific region, which does not include the PRC.
The following table sets forth our tobacco
revenue and percentage for tobacco products by region for the years ended June 30, 2022 and 2023 based on information provided to us
by our distributors (dollars in thousands).
| |
Year Ended June 30, | |
| |
2022 | | |
2023 | |
| |
Revenue | | |
% | | |
Revenue | | |
% | |
Europe | |
$ | 51,886 | | |
| 76.2 | % | |
$ | 58,764 | | |
| 77.8 | % |
Asia Pacific (excluding PRC) | |
| 13,213 | | |
| 19.4 | % | |
| 14,919 | | |
| 19.7 | % |
North America | |
| 2,849 | | |
| 4.2 | % | |
| 1,565 | | |
| 2.1 | % |
Others | |
| 169 | | |
| 0.2 | % | |
| 315 | | |
| 0.4 | % |
Total | |
| 68,117 | | |
| 100 | % | |
| 75,563 | | |
| 100 | % |
For the years ended June 30, 2022 and 2023,
our revenues from cannabis products was approximately $20.0 million and $40.0 million, respectively, all of which was in the North American
market. All sales of cannabis products to date have been in the United States, although we have recently commenced marketing efforts
in Canada and Europe, primarily the European Union.
Industry Developments
Historically, combustible tobacco products, primarily
cigarettes and cigars, have been, and continue to be, the principal tobacco products used by adult smokers. Diverse customer demands are
driving the innovation in the tobacco industry. During the past few decades, a number of alternatives to combustible tobacco products
have entered the market. These products can be classified in three categories – smokeless oral-use products (including moist snuff,
snus, and nicotine pouches), e-vapor products and heated tobacco products.
Vapor devices are distinguished from traditional
combustible tobacco products by their production of vapor through a process of heating rather than the burning associated with the consumption
of cigarettes, cigars, cigarillos or smoking tobacco. In their current form, vapor devices usually include electronic circuitry and a
power source supplying energy to the heating mechanism. Vapor products are not distinguished by the absence of tobacco. While the majority
of current devices (e-cigarettes) are intended for use with a tobacco-derived or synthesized nicotine containing liquid the category includes
tobacco products where it is heated and not combusted, such as heat-not-burn devices. Closed vaping systems designed to look like a cigarette
are referred to as cigalikes.
Our products are vapor devices, a category which
includes closed system vaping devices (non-cigalikes), vaping components, and open system vaping devices.
Over the past ten years, both technological advances
and consumer demand resulting in large part from a desire to obtain the effects of smoking without the adverse health effects resulting
from smoking cigarettes, have led to both an increase in the global popularity of vaping along with the application of anti-tobacco legislation
and regulation to electronic products, including vaping. Innovation in battery and other component technologies have greatly improved
product functionality and reliability. Many consumers are attracted to the discreetness that vaporizers provide in terms of size and ease
of use, style/fashion, and the perception that vaping is less detrimental to health than cigarettes. The e-vapor market worldwide has
experienced rapid growth through 2019. However, the growth rate decreased in 2020, in part, we believe, because of the steps taken by
governments worldwide to address the COVID-19 pandemic, which was reflected in our decrease in revenue in the year ended June 30, 2020.
However, government regulations, particularly in the United States, have materially impacted our revenue in the United States.
Cannabis has a long and entrenched history
in the United States due to considerable popularity of medical and recreational use in addition to long-standing industrial
production of hemp. While the 20th century saw the growth of increasingly negative attitudes towards cannabis from policy makers and
the general public, recent decades have witnessed a significant shift in the perception of cannabis. In the late 1990s, acceptance
of medical cannabis grew enough to allow for changes in regulation and the 2010s saw rapid expansion of social acceptance for
recreational use. Medical cannabis in particular has seen an increasing approval as Americans seek alternatives to pharmaceutical
products. Legalization is also increasing thanks to
growing movements seeking to reform the US criminal justice system. For example, on October 6, 2022, President Biden announced
pardons of all prior federal convictions for simple marijuana possession, urged states to take a similar approach to state marijuana
convictions, and ordered officials in his administration to revisit the Schedule I status of marijuana under the federal Controlled
Substances Act. Increasing numbers of American political reformers see eliminating criminal penalties for use and sale of cannabis
as a way to address various social and economic inequalities.
Adult-use cannabis has attracted mainly recreational
consumers who use cannabis for relaxation and socializing. Former medical cannabis users have also been attracted to the adult-use space
as it has expanded due to its lower barriers to entry (no requirement to get permission from a doctor to gain access) and significant
overlap of products between medical and adult-use product line-ups. Nonetheless some medical patients do opt to continue using medical
cannabis even after adult-use legalization due to preferential tax rates on medical products in some states, and social acceptance of
cannabis is growing in the United States.
Cannabis vaping is the action of inhaling and
exhaling vapor containing cannabis oil produced by a vaporizer technology device. We believe that vaping has become the preferred choice
of many cannabis users due to its discreetness in both carrying and smell, ease of use, and perceived health benefits relative to smoking
cannabis cigarettes or bowls which create smoke. Cannabis vaping products for adult recreational use is largely limited to the United
States with modest use in Canada.
Our Strategy
We are
implementing a multi-prong growth strategy directed at increasing the sales of our e-cigarette and cannabis vaporizer technology products.
In addition to increasing sales to
our existing customers, we plan to increase sales of our e-cigarette vaporizer technology products by increasing the number of distributors
and regions where our products are sold. We plan to increase sales of our cannabis products by increasing sales to existing customers,
increasing our customer base in the United States and seeking to penetrate the Canadian and European markets as they develop. We closely
follow the legalization of cannabis globally and plan to enter markets when opportunities arise.
Research and development is at the core of
our business. We plan to continue to innovate via our own research and development efforts. Tuanfang Liu, our
co-chief executive officer, developed the patented DuCoreTM technology, which patent, along with the related underlying intellectual
property has been assigned to us. This technology enables our cannabis vaporizer products to heat cannabis oil, and we believe it is
the first leak-proof patented design, which enables the consumer to get the full flavor experience of the cannabis. We plan to continue
to expand our technology leadership and invest in vaporizer and similar technology research and development. Our present products are
designed for adult recreational use. Our research and development activities will be oriented to focus on both medical and recreational
usage of cannabis products. We recognize that industry trends can change rapidly. We believe that our products must be at the forefront
of technology if we are going to develop our business. The cannabis vaping business is in its early stages and we will seek to develop
a strong and leading position in this market. This market is currently largely in the United States and we plan to be in the forefront
as other markets develop.
Through our global sales network, we have
a strong understanding of all of the markets in which our products are sold. We will use forum and community groups as a means to increase
engagement and collect feedback for future improvements in product research and development. We will seek to introduce new products to
meet customer needs based on our assessment of the direction of the market.
We will also consider mergers and acquisitions
and strategic relationships if we believe that such relationships can increase our technological human resources and technology and product
portfolio. We believe that we have a strong management team adept at integrating any such acquisitions and we believe that we are an
attractive platform to potential acquirees. As of the date of this prospectus, we do not have any agreements or informal understandings
with respect to any potential merger, acquisition or strategic relationship.
We plan to develop manufacturing capabilities.
However, initially, and for at least a few years, our manufacturing operations will primarily involve the assembly of products from components
manufactured for us in accordance with our specifications. We are planning to establish a manufacturing facility in Malaysia, and to
this end, we have established a subsidiary in Malaysia. As the initial steps to establishing a manufacturing facility in Malaysia, we
have leased a site for our proposed manufacturing facility and have begun to hire employees for these operations. However, we cannot
assure you that we will be able to do so establish and operate a manufacturing facility in Malaysia.
We are expanding our OEM and ODM business.
OEM generally means making and selling the products as we design them and putting customers’ logos on the products. For OEM products,
cost is important to the customer. ODM generally involves the design and customize the core products to meet each brand’s image
and needs. For ODM, technology, performance and uniqueness are often more important, with cost generally being a secondary consideration.
Historically, for our tobacco products, we have focused on building and growing our own branded business, with OEM and ODM sales accounting
for a minor portion of our revenue. OEM and ODM sales accounted for approximately $0.7 million and $4.5 million, or 1.0% and 6.0%, of
revenue of tobacco products in the years ended June 30, 2022 and 2023, respectively. As Aspire Global continued to innovate in the last
decade and the Aspire brand has become recognized as a leading innovator in the vaping industry, Aspire Science has been sought after
by other brands for OEM and ODM work. We believe that OEM and ODM for our tobacco products will represent a key growth area for us in
the future. In seeking to introduce new products, we will, at least initially, continue to rely upon our chairman, Tuanfang Liu, who
has been largely responsible for the development of the technology underlying our tobacco and cannabis vaping products.
Sales of our cannabis products to date are
largely sales to cannabis brands on an ODM basis, and we anticipate that our cannabis sales will continue to be primarily ODM sales for
the near future. It is the responsibility of our customers, which are cannabis brands, to manufacture the cannabis oil and load the oil
into our vaping hardware product. We also sell hardware products to end users, but our sales are primarily to ODM users. None of our
products include cannabis oil or hemp oil.
Effects of COVID-19 Pandemic
In December 2019, coronavirus disease 2019 (COVID-19)
was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic has resulted
in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which are no longer
in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department
of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023.
The extent to which COVID-19 impacts our operations
on an ongoing basis is highly uncertain. Since our products are presently manufactured in the PRC by a related party, any changes in
the outbreak in the PRC and any changes in the PRC government’s policy may affect our supplier’s operations which could affect
its ability to manufacture and deliver product in a timely manner.
Supply Chain Risks
One of effects of the COVID-19 has been delays
resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped
to the country of destination, and delivered from the port of entry to the customer’s location. As the port delays have significantly
decreased, we do not believe that the supply chain issues that affected our operations are currently affecting us. We cannot assure you
that delays will not affect our business in the future.
In 2021, Shenzhen Yi Jia suffered a chip shortage resulting in a slowdown
in delivery of its products to the Company from April to August 2021. To secure the supply of chips, Shenzhen Yi Jia changed the payment
terms to chip suppliers from 30 days after delivery in the past to prepayment, and it engaged two new chip suppliers. Since September
2021, Shenzhen Yi Jia has obtained a supply of chips to meet its production needs and the chip shortage no longer affects its production.
In 2022, a slowdown in the delivery of components to Shenzhen Yi Jia resulting from supply chain slowdowns as a result of the effects
of mainland China’s COVID policy resulted in an increase in cost of revenue during the period. We cannot assure you that we will
not suffer from a chip shortage or that the effects of China’s COVID policy will not affect Shenzhen Yi Jia’s ability or the
ability of its suppliers to delivery products in a timely manner.
Controlled Company
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, a group or another
company. We are a controlled company because Mr. Tuanfang Liu, our co-chief executive officer, holds more than 50% of our
voting power. For so long as we remain a controlled company, we are exempt from the obligation to comply with certain Nasdaq corporate
governance requirements, including:
|
● |
our board of directors is not required to be comprised of a majority of independent directors. |
|
|
|
|
● |
our board of directors is not subject to the compensation committee requirement; and |
|
|
|
|
● |
we are not subject to the requirements that director nominees be selected either by the independent directors or a nomination committee comprised solely of independent directors. |
The controlled company exemptions do not apply
to the audit committee requirement or the requirement for executive sessions of independent directors. We are required to disclose in
our annual report that we are a controlled company and the basis for that determination. Although we do not plan to take advantage of
the exemptions provided to controlled companies, other than including our co-chief executive officer and controlling stockholder, Tuanfang
Liu, as the chairman of the nominating and corporate governance committee, we may in the future take advantage of such exemptions.
Implications of Being an Emerging Growth Company
As a company with less than US$1.235 billion in
revenue for the last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups
Act of 2012, as amended (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, or Section 404, 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 currently take advantage of certain of these exemptions.
We will remain an emerging growth company until
the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.235 billion;
(ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which
we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on
which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), which would occur if the market value of our common stock that are held by non-affiliates exceeds US$700 million as
of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months.
Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Matters Relating to PRC Laws
In
this prospectus, “China” or the “PRC” refers to the People’s
Republic of China; mainland China refers to the PRC, excluding Taiwan, the Hong Kong Special
Administrative Region and the Macao Special Administrative Region, and PRC Laws refer to
the laws, rules, regulations, statutes, notices, circulars and court judicial interpretation
or the like of mainland China. Any PRC Laws refer to those currently in force, published
for comments (if specifically stated) or being promulgated but have not come into effect
(if specifically stated) and publicly available in mainland China as of the date of this
prospectus. The majority of our operations are in United States. We are mainly engaged in
the research and development, design, commercialization, sales, marketing and distribution
of branded e-cigarettes and cannabis vaping products. The sales of our tobacco products are
conducted worldwide except for the PRC, the United States, and Russia. Through our global
distributor network of more than 150 distributors, we sell the Aspire brand of tobacco vaporizer
technology products in more than 30 countries and the main markets for such tobacco products
are Europe and the Asia Pacific region, which does not include the PRC. We do not conduct
business and we do not have any employees, assets or funds in mainland China. Although most
of our cash is in Hong Kong banks, a significant portion of these funds is to be paid to
related parties. See “Certain Relationships and Related Party Transactions.”
Our operations are primarily in the United States. Although Tuanfang Liu, our co-chief executive
officer, lives in mainland China, where Shenzhen Yi Jia is located, the services that he
performs for us in his capacity as our co-chief executive officer are performed primarily
in Hong Kong and the United States. In addition to serving as our co-chief executive officer,
Mr. Liu is chairman of Shenzhen Yi Jia, and the services he provides in mainland China are
performed in his capacity as chairman of Shenzhen Yi Jia. Our employees are largely in the
United States, with 62 employees based in the United States and where our research and development
activities are conducted, and seven employees in Hong Kong. Our facilities are located primarily
in the United States, where we lease more than 41,221 square feet of office, manufacturing
and storage space and where our research and development activities are conducted, as compared
with 1,850 square feet of office space in Hong Kong. We are also leasing approximately 31,000
square feet for our proposed manufacturing facility in Malaysia. We do not have any variable
interest entities arrangements or any similar agreements. As of the date of this prospectus,
we do not believe we are subject to PRC Laws applicable to those Chinese companies established
in mainland China, based on advice from Han Kun Law Offices.
We have two operating subsidiaries established
in California and Hong Kong, and we have recently established a subsidiary in Malaysia. Hong Kong was established as a special administrative
region of the PRC in accordance with Article 31 of the Constitution of the PRC. The Basic Law of the Hong Kong Special Administrative
Region of the PRC (the “Basic Law”) was adopted and promulgated on April 4, 1990 and became effective on July 1, 1997, when
the PRC resumed the exercise of sovereignty over Hong Kong. Pursuant to the Basic Law, Hong Kong is authorized by the National People’s
Congress of the PRC to exercise a high degree of autonomy and have executive, legislative and independent judicial power, and the PRC
laws and regulations shall not be applied to Hong Kong, other than those relating to national defense, foreign affairs, and certain other
matters that are not within the scope of autonomy of Hong Kong. While the National People’s Congress of the PRC has the power to
amend the Basic Law, the Basic Law also expressly provides that no amendment to the Basic Law shall contravene the established basic
policies of the PRC regarding Hong Kong. As a result, as of the date of this prospectus, national laws of the PRC that would be applicable
to us if we were a Chinese corporation do not apply to our Hong Kong subsidiary. However, there is no assurance that certain PRC laws
and regulations, including existing laws and regulations and those enacted or promulgated in the future, will not be applicable to our
Hong Kong subsidiary due to change in the current political arrangements between mainland China and Hong Kong or other unforeseeable
reasons. The application of such laws and regulations may have a material adverse impact on us, as relevant PRC authorities may impose
fines and penalties upon our Hong Kong subsidiary, delay or restrict the repatriation of the proceeds from this offering into Hong Kong,
and any failure of us to fully comply with such new regulatory requirements may significantly limit or completely hinder our ability
to offer or continue to offer our common stock, cause significant disruption to our business operations, and severely damage our reputation,
which would materially and adversely affect our financial condition and results of operations and cause our common stock to significantly
decline in value or in extreme cases, become worthless. See “Risk Factors – Risks Related to Our Business and Industry –
Although we believe that our business is not subject to PRC Laws, our business could be materially impaired if it is determined that
our business is subject to PRC Laws.” on page 26 and “Business -- Matters Relating to PRC Laws” on page 47.
At present, our products are manufactured
and supplied by Shenzhen Yi Jia, a Chinese company under common control. However, we have taken steps toward the development of manufacturing
operations in California and anticipate commencing initial production to commence prior to the end of 2023. As the initial steps to establishing
a manufacturing facility in Malaysia, we have leased a site for our proposed manufacturing facility and have begun to hire employees
for these operations. We can give no assurance that we will be successful in developing and sustaining manufacturing operations in California
or in Malaysia or elsewhere in Southeast Asia.
Our Organization
We are a Delaware corporation, incorporated
on June 13, 2022. Aspire North America, LLC, a California limited liability company was formed on February 22, 2020, and 100% of its
ownership was transferred to Aspire Global on September 23, 2020 and was transferred by Aspire Global to Ispire Technology on July 29,
2022. Aspire Science, a Hong Kong corporation, was formed on December 9, 2016 as a subsidiary of Aspire Global, and 100% of its equity
was transferred to our subsidiary, Ispire International, on July 29, 2022. Ispire International was organized on July 6, 2022. Ispire
Malaysia Sdn Bhd was formed by on our behalf by Tuanfang Liu, our Chairman and Co-Chief Executive Officer, under the laws of the Federation
of Malaysia on September 1, 2023 and assigned to us on September 22, 2023. Aspire North America and Aspire Science are our operating
companies.
The following chart shows our corporate structure.
Our principal executive offices are located at 19700 Magellan Dr,
Los Angeles, CA 90502. Our telephone number is 310 742 9975. Our principal website is www.ispiretechnology.com. The information contained
on, or that can be accessed through, our website or any other website or any social media, is not a part of this prospectus.
The
Offering
Common stock outstanding. |
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54,268,992
shares as of August 9, 2023(1). |
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Common stock offered by Selling Stockholders: |
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1,179,520 shares. |
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Use of proceeds |
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We will not receive
any proceeds from the sale of the common stock by the selling stockholders. |
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Nasdaq Symbol and Trading |
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Our common stock is
currently listed on Nasdaq under the symbol “ISPR”. |
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Risk Factors |
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Investing in our securities
involves a high degree of risk. See “Risk Factors” beginning on page 11 and the other information in this prospectus
for a discussion of the factors you should consider carefully before you decide to invest in our securities. |
(1) |
Excludes
14,995,517 shares issuable pursuant to our 2022 Equity Incentive Plan and 62,100 shares issuable pursuant to the warrant held by
Tiger Securities. |
SUMMARY OF RISK FACTORS
Our business is subject to numerous risks described
in the section titled “Risk Factors” and elsewhere in this prospectus. The main risks set forth below and others you should
consider are discussed more fully in the section entitled “Risk Factors,” which you should read in its entirety.
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Existing laws, regulations and policies as well as changes in existing laws, regulations and policies and the issuance of new laws, regulations, policies and any other entry barriers in relation to the e-vapor industry have materially and adversely affected and may further materially and adversely affect our business operations. |
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As a result of regulations
in the United States, we are able to sell only one product line, the Nautilus Prime, in the United States. Our tobacco vaping sales
in the United States were approximately $0.9 million for the year ended June 30, 2022 and approximately $0.6 million for the nine
months ended March 31, 2023. Because the volume of sales did not justify the marketing and regulatory costs, we have
ceased marketing tobacco vaping products in the United States. If any similar regulations are adopted with respect to
cannabis products, our business will be severely impacted since all of our cannabis revenue for the year ended June 30, 2022 and the
nine months ended March 31, 2023 was generated from sales in the United States and at present there is a very limited market for
cannabis vaping products outside of the United States. |
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The recent amendments to the Prevent All Cigarette Trafficking (“PACT”) Act and regulations of the United States Postal Service extend the PACT Act to include e-cigarette and all vaping products, which include cannabis as well as tobacco products. These regulations place significant burdens on sellers of vaping products in the United States which may make it difficult to operate profitably in the United States. We use a combination of advanced accounting software and PACT Act compliant carriers to remain compliant with the tax and delivery restrictions of the PACT Act. To the extent that the carriers that we currently use change their policies and refuse to ship vaping products and we are not able to find other carriers that are PACT Act compliant, our business and prospects will be materially impaired, and we may not be able to continue in business. |
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Although
we plan to establish manufacturing facilities in California and Malaysia, we have no experience in the establishment and operation
of manufacturing facilities. In order to operating a manufacturing facility, even if it is limited to assembly from components manufactured
by others, we will need to hire qualified personnel and comply with applicable laws, the failure of which could materially impair
our business and operating results. |
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The market for cannabis vaping products has not developed, with the vast majority of sales being in the United States, with no assurance that a significant market will develop either in the United States or worldwide or that, if a market develops, we will be able to compete successfully with other companies that may enter the market as well as other legal and illegal forms of cannabis. |
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Because our co-chief executive officer, Tuanfang Liu, and his wife
own 65.9% of our common stock and he also owns 95% of the equity in, and is chief executive officer of, Shenzhen Yi Jia, the Chinese company
that is presently our sole supplier and, as chief executive officer, he has significant authority over the conduct of our business, including
the determination of price and other terms on which we purchase product from the supplier, he has a conflict of interest which may affect
the development of our business and therefore the price of our common stock. |
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We sustained losses of
approximately $2.0 million for the year ended June 30, 2022 and approximately $6.1 million for the nine months ended March 31, 2023,
and we cannot assure you that we can or will operate profitably in the future. |
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Because cannabis oil, unlike nicotine oil, is not of a uniform quality, products we design may not perform as intended, which could result in a loss of business. |
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If it is determined or perceived that the usage of e-vapor tobacco or cannabis products poses long-term health risks, the use of e-vapor products may decline significantly, which would materially and adversely affect our business, financial condition and results of operations. |
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Our business and the industry in which we operate are subject to inherent risks and uncertainties, including, among others, developments in regulatory landscape, medical discovery and market acceptance of vaping devices. |
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We are exposed to product liabilities and user complaints arising from the products we sell, which could have a material adverse impact on us. |
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Outbreaks of communicable diseases, natural disasters or other events may materially and adversely affect our business, results of operations and financial condition, including the effects of the COVID-19 pandemic and steps taken by governments to address the pandemic, which resulted in a four-month slowdown of our supplier, Shenzhen Yi Jia’s, production during 2020 leading to a negative impact on our revenue and net income. |
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Misuse or abuse of our products may lead to potential adverse health effects, subjecting us to complaints, product liability claims and negative publicity. |
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We face competition from companies in the e-vapor industry, including companies which are larger, better known and have a significantly larger market share than we do, and we may fail to compete effectively, as well as, with respect to cannabis, other legal and illegal forms of cannabis and distribution channels. |
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Misconduct, including illegal, fraudulent or collusive activities, by our employees, distributors, retailers or suppliers, may harm our brand and reputation and adversely affect our business and results of operations. |
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We may be subject to liability if private information that we receive is not secure or if we violate privacy laws and regulations. |
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Our need to restate our unaudited financial statements
reflects a material weakness in our internal controls over financial reporting. |
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As a result of our restatement of our unaudited
financial statements our internal controls over financial reporting are not effective, which could have a significant and adverse
effect on our business and reputation, and we need to take steps to institute effective internal controls over financial reporting. |
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Our intellectual property rights, which were developed by our co-chief
executive officer, Tuanfang Liu, and Shenzhen Yi Jia and which we have acquired from Shenzhen Yi Jia, Aspire Global and Mr. Liu, our co-chief
executive officer with respect to cannabis and are licensing from Shenzhen Yi Jia, Aspire Global and our co-chief executive officer with
respect to tobacco, are critical to our success. Infringement of our intellectual property rights by any third party or loss of our intellectual
property rights may materially and adversely affect our business, financial condition and results of operations. |
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We and Shenzhen Yi Jia may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. As the patents may expire and may not be extended, the patent applications may not be granted and the patent rights may be contested, circumvented, invalidated or limited in scope, our patent rights may not protect us effectively. |
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Our co-chief executive officer, Tuanfang Liu, who is also the chief
executive officer and principal stockholder of Aspire Global and the 95% owner and chief executive officer of Shenzhen Yi Jia, has potential
conflicts of interest with us, which may materially and adversely affect our business and financial condition. |
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Because we are a controlled company, as defined by Nasdaq’s rules, we can take advantage of exemptions from certain Nasdaq corporate governance requirements, and, to the extent that we take advantage of these exemptions, you will not have the corporate governance protections normally provided to stockholders of a Nasdaq-listed company. |
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Our failure to collect accounts receivable from our customers may adversely affect the results of our operations. |
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We may be liable for improper use or appropriation of personal information provided by our customers. |
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The sale or the anticipation of the sale by the selling stockholders may have an adverse effect upon the market price of our common stock. |
RISK FACTORS
An investment in our common stock involves
a high degree of risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties
described below, before making an investment in our common stock. Any of the following risks could have a material adverse effect on our
business, financial condition and results of operations. In any such case, the market price of our common stock could decline, and you
may lose all or part of your investment.
Risks Related to Our Business and Industry
We sustained losses of approximately
$2.0 million for the year ended June 30, 2022 and $6.1 million for the year ended June 30, 2023, and we cannot assure you that we can
or will operate profitably in the future.
We sustained a loss of approximately $2.0
million, or $0.04 per share (basic and diluted) in the year ended June 30, 2022 and a loss of approximately $6.1 million, or $0.12 per
share (basic and diluted) for the year ended June 30, 2023. The losses resulted primarily because of increased operating expenses for
both periods. We cannot assure you that we will be able to operate profitably in the future.
Existing laws, regulations and policies
and the issuance of new or more stringent laws, regulations, policies and any other restrictions or limitations in relation to the tobacco
vaping industry have and can materially and adversely affect our business operations.
As vaping products have become more and more popular
in recent years, government authorities worldwide have imposed laws, regulations and policies to regulate nicotine vaping products and
the vaping industry and may impose more stringent controls either with changes in existing laws or regulations, with new laws or regulations,
or with new interpretations of existing laws or regulations. Some governments have prohibited the usage of vaping products in certain
areas, imposed specific taxes on vaping products or imposed restrictions, in certain areas such as product advertising, flavorings or
nicotine concentration. Governments, primarily state and municipal, have imposed restrictions or prohibitions on smoking in public and
on public transportation, such as on trains, airplanes and buses. Such prohibitions have been or may in the future be extended to e-cigarettes,
including vaping products, and such restrictions may be imposed by local, regional or national governments. As a result of government
laws and regulations affecting tobacco products, we ceased selling nicotine vaping products in the United States.
We cannot assure you that government authorities
will not impose further restrictions on vaping nicotine products in the future, including but not limited to requirements to obtain and
maintain licenses, approvals or permits for relevant business operation. Such restrictions, if any, may adversely affect supplies of raw
materials, production and sales activities, taxation or other aspects of our business operation. We may not be able to comply with any
or all changes in existing laws and regulations or any new laws and regulations and may incur significant compliance costs. All of the
above may affect our production or market demand for vaping products and thus adversely affect our business, financial condition and results
of operations. To the extent that we grow in scale and significance, we expect to face increased scrutiny, which may result in increased
investment in compliance and related capabilities.
The WHO and the United States Centers for Disease
Control and Prevention (“CDC”) have been clear in their view of the harmful effects of nicotine. Although they recognize that
e-cigarettes may expose users to fewer harmful chemicals than burned cigarettes, which are considered very dangerous, and that any tobacco
product, including e-cigarettes, is unsafe particularly for young people and pregnant women.
Countries have taken different steps to address
the dangers of nicotine and to consider the difference between e-cigarettes and burned cigarettes. However, instances of death or serious
illness resulting or perceived to result from the use of e-cigarettes as well as significant reported use by certain populations, including
adolescents as well as nicotine-naïve individuals, may spur governments at all levels to increase restrictions on vaping products.
We cannot assure you that the actions taken by municipal, state or provincial and national governments will not materially and adversely
affect the market for vaping products generally and our business in particular.
Cannabis vapor products are subject to regulations
and restrictions in the United States and are prohibited in many other countries.
Cannabis products are subject to federal and state
regulation in the United States, and Western Europe generally prohibits the sale and use cannabis products, although some countries permit
the use of approved cannabis products for medical purposes. Although an increasing number of states in the United States permit adult
use of recreational marijuana, states have restrictions as to where the products can be sold and many of the states that permit recreational
use of marijuana require that sales be made only at licensed stores. The U.S. federal government still prohibits non-hemp cannabis products
(unless approved by the FDA) but has generally not enforced against entities and individuals operating in compliance with state laws permitting
such products. Likewise, under certain circumstances, devices intended for use in consuming federally prohibited cannabis products may
also technically qualify as prohibited drug paraphernalia under federal law and the laws of certain states that continue to broadly restrict
production and sale of non-hemp cannabis. However, the Federal Controlled Substances Act includes an exemption for “any person authorized
by local, State, or Federal law to manufacture, possess, or distribute such items.”
No country in Western Europe has yet legalized
recreational cannabis, but the region has some of the most developed cannabis cultures in the world, such as in the Netherlands and Spain.
However, great differences persist among consumers, with older generations typically being more reluctant to allow cannabis use. Clear
generational and social gaps still exist that make legalization and development of the market a slow process, although the potential legalization
of adult-use cannabis in Germany is likely to accelerate the cannabis debate within the EU and promote the development of the industry
at a regional level. Our ability to expand our marketing of cannabis products in the European market is dependent upon whether recreational
cannabis will become legal in Western Europe, and we cannot give any assurance that we will be able to sell products in Western Europe.
These restrictions on the sale and use of cannabis could impair our ability to market and sell our products.
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. 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), if at all. If there are significant new regulatory barriers for the U.S. adult use cannabis
industry, such increased regulation may have a material negative impact the sale of our cannabis vaporizer products in the U.S. marketplace.
While we believe that our business and sales
do not violate the Federal Paraphernalia Law, legal proceedings alleging violations of such law or changes in such law or interpretations
thereof could adversely affect our business, financial condition or results of operations.
Under U.S. Code Title 21 Section 863 (the “Federal
Paraphernalia Law”), the term “drug paraphernalia” means “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.” That law exempts “(1) any person
authorized by local, State, or Federal law to manufacture, possess, or distribute such items” and “(2) any item that, in the
normal lawful course of business, is imported, exported, transported, or sold through the mail or by any other means, and traditionally
intended for use with tobacco products, including any pipe, paper, or accessory.” Any non-exempt drug paraphernalia offered
or sold by any person in violation of the Federal Paraphernalia Law can be subject to seizure and forfeiture upon the conviction of such
person for such violation, and a convicted person can be subject to fines under the Federal Paraphernalia Law and even imprisonment.
Several states with legal cannabis programs, including
California, have enacted legislation invoking this exemption to shield state-legal businesses from federal enforcement on paraphernalia
grounds. In addition, a recent court decision from the U.S. Court of International Trade applied this exemption in prohibiting U.S. Customs
and Border Protection from refusing import entry of cannabis paraphernalia components that the importer could legally possess in the state
of importation.
We
believe our sales do not violate the Federal Paraphernalia Law. We restrict the sale of products to comply with the Federal Paraphernalia
Law’s exemption for sales authorized by state law. In particular, we (a) do not sell any vaping equipment or hardware into the 11
states that have maintained complete or near complete cannabis prohibition (i.e., Georgia, Idaho, Indiana, Kansas, Kentucky,
Nebraska, North Carolina, South Carolina, Tennessee, Wisconsin, and Wyoming), and
have the distributors we work with covenant that they will not sell our products into these states, and (b) in any states with laws that
allow the sale of vaping equipment or hardware, but require such products to be sold to licensed cannabis businesses (such as dispensaries),
we limit sales accordingly.
While
we believe that our business and sales are legally compliant with the Federal Paraphernalia
Law in all material respects, any legal action commenced against us under such law could
result in substantial costs and could have an adverse impact on our business, financial condition
or results of operations. In addition, changes in cannabis laws or interpretations of such
laws are difficult to predict and are subject to change, which could significantly affect
our business.
Because Tuanfang Liu, our co-chief executive
officer, who is also director, and his wife, Jiangyan Zhu, who is also a director, beneficially own 65.2% of our common stock and Mr.
Liu owns 95% of the equity of our sole supplier, Mr. Liu has a conflict of interest.
Because our co-chief executive officer, Tuanfang
Liu, and his wife own 65.2%, of our common stock, 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 sole 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-chief executive officer, Mr. Liu has significant
authority in the implementation of our business plan, including the expected commencement of our proposed manufacturing operations in
California and 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.
As a result of the voting power of Mr. Liu and
his wife, Ms. Zhu, investors will have little, if any, power to influence our business or to approve any action submitted to stockholders
for their approval. The fact that they have a controlling interest in us may, by itself, serve as a deterrent to any person seeking to
obtain control of us or to enter into any business relationship which might be beneficial to the minority stockholders.
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-chief 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.
The recent implementation of regulations
relating to e-cigarettes has resulted in our decision not to market nicotine products in the United States.
The FDA has authority to regulate e-liquids, e-cigarettes,
and other vaping products that contain (or are used to consume e-liquid containing) tobacco-derived ingredients and nicotine from any
source as “tobacco products” under the federal Food, Drug and Cosmetic Act (the “Food, Drug and Cosmetic Act”),
as amended by Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Control Act”) and subsequent legislation.
Through the issuance of the “Deeming Regulation” that became effective on August 8, 2016, the FDA began regulating e-liquids,
e-cigarettes, and other vaping products that qualify as “tobacco products” under the Food, Drug and Cosmetic Act’s requirements
added by the Tobacco Control Act. The Food, Drug and Cosmetic Act requires that any Deemed Tobacco Product that was not commercially marketed
as of the “grandfather” date of February 15, 2007, obtain premarket authorization before it can be marketed in the United
States. The compliance policy generally allowed companies to market Deemed Tobacco Products that qualify as “new tobacco products”
but that were on the U.S. market on August 8, 2016, until September 9, 2020, and the continued marketing of such products without otherwise-required
authorization for up to one year during the FDA’s review of a pending marketing application submitted by September 9, 2020. The
compliance policy did not apply to otherwise-eligible products (i) for which the manufacturer has failed to take (or is failing to take)
adequate measures to prevent minors’ access and (ii) that are targeted to minors or with marketing that is likely to promote use
by minors. In the absence of this policy, we would have had to obtain prior authorization from the FDA to market any of our products after
August 8, 2016. Accordingly, through September 9, 2020, Aspire North America marketed tobacco vaping products in the United States pursuant
to the FDA’s compliance policy based on evidence that they were on the U.S. market on August 8, 2016, and had not been physically
modified since.
FDA authorization to introduce a “new tobacco
product” (or to continue marketing a “new tobacco product” covered by the current compliance policy for Deemed Tobacco
Products that were on the U.S. market on August 8, 2016) could be obtained via any of the following three authorization pathways: (1)
submission of a premarket tobacco product application (“PMTA”) and receipt of a marketing authorization order; (2) submission
of a substantial equivalence report and receipt of a substantial equivalence order; or (3) submission of a request for an exemption from
substantial equivalence requirements and receipt of a substantial equivalence exemption determination.
Since there were few, if any, e-liquid, e-cigarette,
or other vaping products on the market as of February 15, 2007, there is no way to utilize the less onerous substantial equivalence or
substantial equivalence exemption pathways that traditional tobacco companies can utilize for cigarettes, smokeless tobacco, and other
traditional tobacco products. In order to obtain marketing authorizations, manufacturers of practically all e-liquid, e-cigarette, or
other vaping products would have to use the PMTA pathway, which could potentially cost $1.0 million or more per application. Furthermore,
the Deeming Regulation created a significant barrier to entry for any new e-liquid, e-cigarette, or other vaping product seeking to enter
the market after August 8, 2016, since any such product would require an FDA marketing authorization through one of the aforementioned
pathways.
We
filed a PMTA for the Nautilus Prime open system vaping products on September 9, 2020, and
the FDA has not to date taken final action on our PMTA. For this reason, and based on public
FDA statements, it appears that the FDA would not prioritize enforcement of the premarket
review requirements against any covered Nautilus Prime products during the continued pendency
of the PMTA’s review, despite the fact that the one-year compliance period closed on
September 9, 2021. The PMTA application process is very expensive, and we did not submit
a PMTA for any other product. The Nautilus Prime System is an enhancement of an earlier developed
Nautilus line, for which we did not submit a PMTA. Our tobacco vaping sales in the United
States were $0.9 million for the year ended June 30, 2022 and approximately $0.9 million
for the year ended June 30, 2023, largely as a result of our inability to sell products that
we sold in prior years. We cannot assure you that our pending PMTA (or any other PMTA filed
in the future) will ultimately result in the FDA’s timely issuance of marketing orders
for the Nautilus Prime product line (or other products). See “Regulations.” We
have stopped marketing tobacco vapor products in the United States because our sales volume
in the United States did not justify the marketing and regulatory compliance costs.
Further, although we are not marketing tobacco
vapor products in the United States market, and we can contractually prohibit our distributors from selling our tobacco vaping products
in the United States market, in the event that those products are sold in the United States market, we cannot assure you that we will
not be subject to regulatory or enforcement action as a result of such products’ being sold in the United States. We may also face
regulatory or enforcement action from the FDA for certain of our products that remained distributed in the United States between September
9, 2020, and April 30, 2021, and for which we did not file a PMTA by the September 9, 2020, deadline. While we have taken steps intended
to ensure that no such distribution occurs, we cannot assure you that, should the FDA prioritize these violations for regulatory action,
the FDA will follow its standard of approach of issuing a public warning letter and seeking voluntary corrective action rather than initiating
an enforcement action under its various Food, Drug, and Cosmetic Act authorities. Such a result could materially and adversely affect
our business, financial condition, and results of operations.
On March 17, 2021, the FDA issued letters to four
companies operating in the e-cigarette industry, including Aspire North America, requesting documents related to their social media marketing
practices. Specifically, the FDA requested the documents “to further understand the relationship between rising youth exposure to
online e-cigarette marketing and youth e-cigarette use,” and the FDA asserted in each letter that each recipient had “active
brand pages on multiple popular social media platforms, a large number of followers, and did not use age restriction tools to prevent
youth exposure.” Under its Food, Drug, and Cosmetic Act authority requiring industry members to produce certain documents upon request,
the FDA requested that we respond within 60 days but granted us a 30-day extension. On June 15, 2021, Aspire North America provided the
required information to the FDA. To date, the FDA has not substantively responded or taken any further action in the matter. However,
we cannot assure you that the FDA will consider the response adequate and will not initiate regulatory or enforcement action based on
an alleged failure to comply with the request or that the FDA will not initiate regulatory or enforcement action on other grounds based
on the contents of the documents produced in the response. Either result could materially and adversely affect our business, financial
condition, and results of operations.
In
the event that similar legislation or regulations are adopted with respect to cannabis products,
our business is likely to be materially impaired since all of our sales of cannabis products
were in the United States.
Recently enacted legislation and regulations
in the United States may make it more difficult to sell nicotine and cannabis vaping products in the United States.
Provisions of the 2021 Appropriations Act
subjected e-cigarettes and other vaping devices (including, based on recent regulations, cannabis and hemp vaporization products
that aerosolize liquids), as well as e-liquids products, to the provisions of the Prevent All Cigarette Trafficking Act of 2009 (the
“PACT Act”), which imposes stringent rules on interstate shippers and, in particular, online sellers. Under the PACT
Act, interstate shippers must register with the U.S. Attorney General and the tobacco tax administrator of each jurisdiction into
which they ship products as well as submit monthly reports to such tobacco tax administrators. In addition, online retailers making
delivery sales to consumers must also (i) verify the age of customers using a commercially available database, (ii) use private
shipping services that collect an adult signature and verify the recipient’s age using government-issued identification at the
point of delivery, (iii) if shipping to jurisdictions that tax vaping products, collect and remit all applicable local and state
taxes and comply with all applicable licensing requirements of the recipient’s jurisdiction, (iv) comply with shipping-package
quantity restrictions and labeling requirements, and (v) maintain records for five years of any delivery interrupted because the
carrier or delivery service determines or has reason to believe that the person ordering the delivery is in violation of the PACT
Act. Shippers and delivery sellers who do not comply with the PACT Act are subject to civil and criminal penalties. Accordingly,
compliance with the requirements of the PACT Act may significantly increase the costs of our and our customers’ online
businesses, increasing the prices of our products sold online and making them less attractive to consumers as compared to products
sold at local retailers. In addition, failure to comply with the PACT Act could expose us to significant penalties that could
materially adversely affect our business and our financial condition and results of operations. Further, as a result of the issuance
of final regulations implementing the PACT Act amendments by the United States Postal Service (the “USPS”), the USPS
generally prohibits the mailing of such products, subject to potential exceptions already applicable to combusted cigarettes and
smokeless tobacco (e.g., for shipments between legally operating businesses). The USPS issued these final regulations on October 21,
2021, and the regulations took effect immediately. Further, the most commonly used carriers,
Federal Express and United Parcel Service, have recently announced that they would cease all deliveries of vapor products.
These restrictions on use of the USPS to ship our products and the decisions by private carriers not to deliver vapor
products in the United States could materially impair our ability to sell products in the United States which would adversely affect
our business, financial condition and results of operations. Further, since most of our revenue from cannabis vapor product sales is
from sales to other cannabis vaping brands, if our customers are not able to deliver product in the United States, which is the
largest market for cannabis vaping products, our ability to generate revenue from cannabis products would be materially impaired. We
use a combination of advanced accounting software and PACT Act compliant carriers to remain compliant with the tax and delivery
restrictions of the PACT Act. To the extent that the carriers that we currently use change their policies and refuse to ship or are
prohibited from shipping vaping products and we are not able to find other carriers that are PACT Act compliant, our business and
prospects will be materially impaired, and we may not be able to continue in the cannabis vaping business.
We are exposed to risks relating to our
relationship with a related party, and we may not be able to successfully establish and operate manufacturing operations.
All 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 product 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-chief 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 establish manufacturing
facilities.
In 2021, Shenzhen Yi Jia suffered a chip shortage
resulting in a slowdown in delivery of its products to us from April to August 2021. Since September 2021, Shenzhen Yi Jia has obtained
a supply of chips to meet its production need and Shenzhen Yi Jia has advised us that a chip shortage no longer affect its production.
However, we cannot assure you that we will not suffer from a chip shortage affecting Shenzhen Yi Jia or any other supplier. The delay
in shipment and chip shortage had a negative impact on the results of our operation. In the year ended June 30, 2022, we suffered a loss
of potential sales orders of approximately $2 million, around 2.3% of our total sales, which caused a decline of $0.3 million in our gross
profit, resulting from delay in supply chain. Although we are not presently experiencing delays in our orders for Shenzhen Yi Jia, we
cannot assure you that we will not suffer delays or shortages in the future. We cannot assure you that we will not suffer from a chip
shortage affecting Shenzhen Yi Jia or any other supplier.
If it is determined or perceived that the
usage of nicotine or cannabis vaping products poses long-term health risks, the use of vaping products may decline significantly, which
is likely to materially and adversely affect our business, financial condition and results of operations.
Since vaping products were only introduced to
the market in the last two decades and are rapidly evolving, studies relating to the long-term health effects of nicotine and cannabis
vaping product usage are still ongoing. Currently, there remain uncertainties regarding whether vaping products are sufficiently safe
for their intended use, and health risks associated with the usage of vaping products have been under scrutiny. According to the WHO,
there is no conclusive evidence that the use of nicotine vaping products facilitates smoking cessation. The WHO recommended governments
to strengthen relevant laws and regulations on the sale of vaping products, including to, among others, prohibit marketing strategies
targeting the underage and the non-smoking population.
Negative publicity on the health consequences
of vaping products or other similar devices may also adversely affect the usage of vaping products. For example, the FDA and the CDC issued
a joint statement on August 30, 2019, linking a number of cases of respiratory illnesses to nicotine vaping product use. On November 8,
2019, the CDC announced that it had preliminarily linked cases of severe respiratory illness to the presence of Vitamin E acetate, which
was found in certain cannabis-derived tetrahydrocannabinol-containing vaping cartridges not intended for use with nicotine-containing
e-liquids that may have been obtained illegally. However, evidence is not sufficient to rule out the contribution of other chemicals of
concern, including chemicals in either cannabis or non-cannabis products. In January 2020, after further research, the FDA and CDC recommended
against the use of cannabis-containing vaping products, especially those from unofficial sources, and that the underage, pregnant women
and adults who do not currently use tobacco products should not start using vaping products. On February 25, 2020, the CDC issued
a final update, stating that the number of cases of severe respiratory illnesses had declined to single digits as of February 9,
2020. The CDC also reconfirmed that (i) Vitamin E acetate, which was found in some cannabis-derived vaping cartridges that were mostly
obtained illegally, was strongly linked to and indicated to be the primary cause of the severe respiratory illnesses, and (ii) cannabis-derived
vaping products from illicit sources were linked to most cases of severe respiratory illnesses. Furthermore, there have been recent claims
that users of vaping products may suffer a greater risk of more serious COVID-19 complications. However, it remained unclear whether the
exposure to toxic chemicals through vaping product usage will increase the risk of COVID-19.
Research regarding the actual causes of these
illnesses is still ongoing. If vaping product usage is determined or perceived to pose long-term health risks or to be linked to illnesses,
the usage of vaping products may significantly decline, which would have a material adverse effect on our business, financial condition
and results of operations.
Any perceived correlation between cannabis and
Vitamin E acetate may adversely affect the public’s perception of vaping products in general, regardless of whether such products
contain cannabis and/or Vitamin E acetate and may impact sales of our cannabis vapor product.
Because cannabis oil, unlike nicotine oil,
is not of a uniform quality, products we design may not perform as intended, which could result in a loss of business.
We
do not include cannabis oil in our products. The cannabis oil is provided by our customer
before selling the product or a cartridge with oil is inserted in the product by the customer
or the end user. Unlike nicotine oil, cannabis oil is not of a uniform quality or viscosity.
If the end user uses cannabis oil that is too viscous for our product and does not have the
desired experience from the product, our client may reject an order, cancel an order or seek
a refund of the payment made to us and/or discontinue purchasing our products. These refunds
and the cost of cancellation of orders are reflected as sales return, the amount for both
the years ended June 30, 2022 and 2023 was not material. We cannot assure you that we will
not incur significant warranty expenses and lose business as a result cannabis oil not providing
the end user’s desired experience or that we will not lose significant business as
a result of this problem.
The vaping market may develop more slowly
or differently than we expect.
The tobacco vaping market worldwide has experienced
rapid growth through 2019 and the cannabis market is developing, with the United States accounting for the overwhelming majority of sales.
The growth rate for tobacco vapor products decreased in 2021 and 2022, in part, we believe, because of the steps taken by governments
worldwide to address the COVID-19 pandemic, which negatively affected our revenue and industry sales in general. The growth of cannabis
vaping products is largely confined to those states in the United States where recreational cannabis is legal. The growth rate may decrease
or decline due to uncertainties with respect to the acceptance of vaping technologies and products, health studies relating to vaping
product use, general economic conditions, disposable income growth, and pace of development of technologies and other factors. There can
be no assurance that the penetration of vaping products among adult smokers will further deepen, or that
the tobacco and cannabis vaping market will grow at a pace that we expect. Additionally, vapor market development is subject to the uncertainty
of overall regulatory landscape for such products, which may have a material impact on the market development of vaping products, particularly
in Western Europe. There can be no assurance that the regulatory regime will be favorable to nicotine or cannabis vaping products in general
and us. It is also uncertain whether our products and services will achieve and sustain high levels of market acceptance and meet users’
expectations. Our ability to increase the sales of our vaping products depends on several factors, some of which may be beyond our control,
including users’ receptiveness towards and adoption of vaping technologies and products, market awareness of our brand, the market
acceptance of our products and services, the “word-of-mouth” effects of our products and services, our ability to attract,
retain and effectively train customer representatives, our ability to develop effective relationships with distributors and expand our
distribution networks and the cost, performance and functionality of our products and services and meeting consumer trends. The market
for nicotine products has recently seen a change in consumer preference as closed systems are overtaking open systems in market share.
If we are not successful in implementing our business strategies, developing our vaping products, anticipating consumer trends or reaching
adult smokers, or if these users do not accept our vaping products, the market for our products may not develop or may develop more slowly
than we expect, any of which could materially and adversely affect our profitability and growth prospects.
We are exposed to product liability and
user complaints arising from the products we sell, which could have a material adverse impact on us.
Currently, we primarily sell our tobacco products
to our distributors, who then supply our products to wholesale companies that in turn sell to retail outlets, and we sell our cannabis
products primarily to other cannabis brands on an ODM basis, and the customers sell the products through their own distribution networks.
The retail market is dominated by stores, primarily grocery stores, convenience stores and tobacco stores. Even though we generally do
not sell our products directly to users, we may nevertheless be liable for defects in our products pursuant to general laws on product
liability. We are exposed to potential product liability claims from users of our products in the event that the use of our products results
in any personal injury, property damage or health and safety issues.
There is no assurance that we can succeed in defending
ourselves, and we may be required to pay significant amounts of damages for product liability claims and, to the extent that we are able
to obtain product liability coverage, product liability insurance may not provide sufficient coverage against claims of injury based on
the fact that they are inhaling a nicotine product. Further, product liability claims against us, whether or not successful, are costly
and time-consuming to defend. These claims, whether against us or another manufacturer, may result in negative publicity that could severely
damage our reputation and affect the marketability of our products, and could result in substantial costs and diversion of our resources
and management’s attention. Any of the above could in turn materially and adversely affect our business, financial condition and
results of operations. Although we may seek indemnification or contribution from our suppliers in certain circumstances, we cannot assure
you that we will be able to receive indemnification or contribution in full, or at all.
We maintain limited product liability
insurance for claims of personal injury and property damage caused by our products. Our insurance coverage may not be adequate to
cover claims which may be made against us. Our insurance does not provide coverage for all liabilities (including liability for certain events involving
pollution or other environmental claims). In addition, there can be no assurance that we will be able to maintain our product
liability insurance on acceptable terms. If we cannot maintain our product liability insurance on reasonable terms or our insurance
does not sufficiently compensate us for the losses we sustain in the event of a legal proceeding, our business, financial condition
and results of operations would be adversely affected.
At present, our products are manufactured by Shenzhen
Yi Jia, a Chinese company of which Tuanfang Liu, our co-chief 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-chief 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 Ji Jia.
Further, although we may have legal recourse against
Shenzhen Yi Jia pursuant to applicable laws, attempts to enforce our rights against Shenzhen Yi Jia may be expensive, time-consuming and
may not be successful, particularly since Shenzhen Yi Jia is located in China, and we may not be able prevail in a Chinese court.
The interests of the stockholders of Shenzhen
Yi Jia in their capacities as such stockholders may differ from our interests. What is in the best interests of Shenzhen Yi Jia may not
be in our best interests, including with respect to matters such as the warranty period and allocation of expenses with respect to the
warranted repair or replacement. There can be no assurance that when conflicts of interest arise, the stockholders of Shenzhen Yi Jia,
principally, our chairman as 95% owner, will act in our best interests of or that any conflicts of interest will be resolved in our favor.
In addition, these related parties may breach or refuse to renew the existing cooperation arrangements with us.
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.
Furthermore, negative publicity including but
not limited to negative online reviews on social media and crowd-sourced review platforms, industry findings or media reports related
to the quality, functionality and health concerns of vaping products, whether or not accurate, and whether or not concerning our products,
can adversely affect our business, results of operations and reputation. Such negative publicity may reduce users’ confidence in
us, our products and our brand, which may adversely affect our business and results of operations.
Our business, financial condition and results
of operations may be adversely impacted by product defects or other quality issues.
Our products may contain defects that are not
detected until after they are shipped or inspected by our users. The failure of our supplier or, when we commence manufacturing operations,
our operations to maintain the consistency and quality throughout our production process could result in substandard quality or performance
of our products, and product defects could cause significant damage to our market reputation and reduce our sales and market share. For
example, the products we distribute may contain lithium-ion or similar types of batteries. Defects in these products could result in personal
injury, property damage, pollution, release of hazardous substances or damage to equipment and facilities. As we primarily rely on one
supplier, Shenzhen Yi Jia, which is a related party, to supply our products, if this supplier does not produce products that meet the
industrial and our standards, we may fail to maintain our quality control over our products. Actual or alleged defects in the products
we distribute may give rise to claims against us for losses and expose us to claims for damages. If we deliver any defective products,
or if there is a perception that our products are of substandard quality, we may incur substantial costs associated with mass product
recalls, product returns and replacements and significant warranty claims, our credibility and market reputation could be harmed and our
results of operations and market share may be adversely affected.
Further, defective products may result in compliance
issues that could subject us to administrative proceedings and unfavorable results such as product recall and other actions. Such proceedings
and unfavorable results could have a material adverse effect on our brand, reputation and results of operations.
Our business and the industry in which we
operate are subject to inherent risks and uncertainties, including, among others, developments in regulatory landscape, medical discovery
and market acceptance of vaping devices.
Our business and the industry in which we operate
are subject to inherent risks and uncertainties, including, among others, developments in regulatory landscape, medical discovery and
market acceptance of vaping devices. Our business and the vaping industry are subject to inherent risks, challenges and uncertainties,
including but not limited to the following:
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the regulatory landscape in the jurisdictions to which we market our products are constantly evolving, and there may be further restrictions, bans or requirements with respect to e-cigarettes and vaping devices that may increase our cost of compliance or prevent us from marketing our products to certain jurisdictions; |
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we may face unforeseen capital requirements caused by the changing industry requirements or consumer tastes and demands; demands for our vaping devices may decline significantly due to the decrease in market acceptance for our products or vaping devices generally; |
|
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we may not be able to establish business relationships with customers or compete with other more established competitors as, for an evolving industry, customers generally prefer to choose more established suppliers, including Juul Labs, Inc. the largest producer of nicotine vapor products, rather than us. |
|
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we may not be able to adjust our procurement and/or production in time to meet the changes in market demands; and |
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future changes in our industry may not be consistent with our prediction. Therefore, our industrial prospects, research and development focus and business plans may not be effective in helping sustain our competitive position in the vaping industry. |
If we fail to cope with the challenges and compete
with other industry players in such uncertain and evolving vaping industry, our future prospects, business, financial conditions and
results of operations may be materially and adversely affected.
We may not be able to develop and introduce
new products or upgrade existing products in a timely and cost-effective manner, which may adversely affect our business, results of
operations and prospects.
To optimize adult smokers’ experience,
we must introduce new products and upgrade our existing products to meet our users’ evolving preferences and to incorporate the
latest technological developments. It is difficult to predict the preferences of users or a specific segment of users. Changes and upgrades
to our existing products may not be well received by our users, and newly introduced products may not achieve expected results. Going
forward, we may introduce new products with different features. Such efforts may require substantial investments of additional human
capital and financial resources. However, if we are not able to develop or obtain rights to the latest technological developments, we
may not be able to market a product that meets the adult consumer’s changing taste. If we fail to improve our existing products
or introduce new products that meet consumer taste ones in a timely or cost-effective manner, our ability to attract and retain users
may be impaired, and our results of operations and prospects may be adversely affected.
Although we endeavor to understand user preferences
through surveys, sampling and other forms of interactions from time to time, we cannot assure you that we can anticipate, identify, develop
or market products that respond to changes in users’ preferences and expectations. For example, our surveys may not yield accurate
or useful insights on user behaviors, and feedbacks on our products may be different after such products are commercially available to
a wider public. There can be no assurance that any of our new products will achieve market acceptance or generate sufficient revenues
to offset the costs and expenses incurred in relation to our development and promotion efforts. There can be no assurance that each of
our new products will achieve market acceptance and be successful.
Outbreaks of communicable diseases, natural
disasters or other events, such as the COVID-19 pandemic, have materially and adversely affected, and in the future, may materially and adversely affect our business,
results of operations and financial condition.
Our business could be adversely affected by the effects
of communicable diseases, pandemics and epidemics, such a COVID-19. On January 30, 2020, the World Health Organization (“WHO”)
declared the outbreak a public health event of international concern, and on March 11, 2020, the WHO declared the COVID-19 outbreak a
pandemic. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department
of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023. Despite
these declarations, the lasting impacts of COVID-19 on the United States and broader global economy, including, in particular, China,
including supply chain disruption, may have a significant continuing negative effect on the Company and may continue to materially impact
the Company.
The extent to which COVID-19 impacts our operations
on an ongoing basis is highly uncertain. Since our products are presently manufactured in China by a related party, any changes in the
outbreak in China and any changes in the Chinese government’s policy may affect our supplier’s operations which could affect
its ability to manufacture and deliver product in a timely manner.
We are also vulnerable to natural disasters and
other calamities that may affect our supplier and may affect us when we establish our own manufacturing facilities.
Misuse or abuse of our products may lead
to potential adverse health effects, subjecting us to complaints, product liability claims and negative publicity.
We
are unable to control how our users use our products. For example, we cannot prevent the
users from misusing or abusing our products or prevent minors from obtaining access to our
products. Our users may also use our products to inhale chemicals obtained from sources other
than licensed dealers or distributors, including illegal or grey market sources, and in other
potentially hazardous applications that can result in personal injury, product liability
and environmental claims.
Misuse or abuse of our products, including use
of our products in combination with other products and components from third parties, may significantly and adversely affect the health
of our users, subjecting us to user complaints and product liability litigation, even though such products were not used in the manner
recommended by us. Applicable law may render us liable for damages without regard to negligence or fault. The FDA strongly advises against
vaping during pregnancy on the ground that any products containing nicotine are not safe to use during pregnancy since nicotine is a
health risk for pregnant women and developing babies and can damage a baby’s brain and lungs. We cannot assure you that we would
not be subject to liability resulting from a birth defect in a baby born to a woman who used vaping products during pregnancy, notwithstanding
our warnings not to use during pregnancy. Any such liability may not be covered by insurance and may materially impair our ability to
operate profitably.
Regardless of whether these complaints or product
liability litigation have merit, they may be costly and time-consuming to defend and resolve, bring negative publicity that could damage
our reputation and result in higher scrutiny by the government or stricter regulations, all of which could materially and adversely affect
our business, financial condition and results of operations.
Our business may be impacted by supply
chain issues, which are affecting businesses worldwide.
One of effects of the COVID-19 were delays
resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped
to the country of destination, and delivered from the port of entry to the customer’s location. To the extent that products are shipped by sea, there are additional risks
resulting from ports not being able to unload ships promptly, causing delays in getting into port, including potential damage from seawater
and fire, product degradation and the possibility of containers being destroyed, damaged or falling off the ship into the water. The
inability to delivery products to the ultimate vendor impaired our ability to generate revenue from our products. As the port delays
have significantly decreased, we do not believe that the supply chain issues that affected our operations are currently affecting us.
We cannot assure you that such delays will not affect our business in the future.
In 2021, our supplier, Shenzhen Yi Jia, suffered
a chip shortage resulting in a slowdown in the delivery of its products to us from April to August 2021. Since September 2021, Shenzhen
Yi Jia has been able to meet our requirements and a chip shortage no longer affect its production. However, we cannot assure you that
Shenzhen Yi Jia and, if and when we commence manufacturing operations, any other supplier we may engage, will not suffer from a chip
shortage in the future.
The delay in shipment and chip shortage had a
negative impact on our results of operation. In 2022, there was a loss of potential sales orders of approximately $2 million, around 2.3%
of our total sales, which caused a decline of $0.3 million in our gross profit, resulting from delay in supply chain. We believe delays
in supply chain may continue in the coming year, which may affect around 3% of our total sales orders. Since our manufacturing operations
will initially be assembly, we may continue to face supply chain issues with respect to components and delivery delays with respect to
one or a small number of components may affect our ability to assemble our products.
Failure to manage inventory at optimal
levels could adversely affect our business, financial condition and results of operations.
We are required to manage a large volume of inventory
effectively for our business. We depend on our forecasts for the anticipated demand for our products to make procurement plans and manage
our inventory. Our forecast for demand, however, may not accurately reflect the actual market demands, which depends on a number of factors
including, without limitation, launches of new products, changes in product life cycles and pricing, product defects, changes in user
spending patterns, supplier back orders and other supplier-related issues, distributors’ and retailers’ procurement plans,
as well as the volatile economic environment in the markets where we sell our products. We do not have long-term contracts with some
of our distributors, which makes the demands for our products from distributors unstable and unpredictable. In addition, when we launch
a new product with new components or raw material, it may be difficult to establish relationships, determine appropriate raw material
and product selection, and accurately forecast market demand for such product. We cannot assure you that we will be able to maintain
proper inventory levels for our business at all times, and any such failure may have a material and adverse effect on our business, financial
condition and results of operations.
Inventory levels in excess of distributor demand
with respect to tobacco products and customer demand with respect to cannabis products may result in inventory write-downs, expiration
of products or an increase in inventory holding costs and a potential negative effect on our liquidity. As we plan to continue expanding
our product offerings, we expect to include more products in our inventory, which will make it more challenging for us to manage our
inventory effectively and will put more pressure on our warehousing system. If we fail to manage our inventory effectively, we may be
subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs.
In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead to lower gross margins. High
inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important
purposes. Any of the above may materially and adversely affect our results of operations and financial condition.
Conversely, if we underestimate distributor demand,
or if our supplier fails to provide products to us in a timely manner, we may experience inventory shortages, which may, in turn, require
us to purchase our products at higher costs, result in unfulfilled user orders, leading to a negative impact on our financial condition
and our relationships with distributors.
Additionally, the distributors largely determine
the inventory levels of the retail outlets they operate or to whom they sell, based on their estimation, and such inventory levels might
not correspond to actual market demands and could lead to under-stocking or over-stocking in the retail outlets. We cannot assure you
that there will not be under-stocking or over-stocking in these stores which would materially impact the results of our operations and
our working capital.
Under-stocking can lead to missed sales opportunities,
while over-stocking could result in inventory depreciation and decreased shelf space for stocks that are in higher demands. These results
could adversely affect our business, financial condition and results of operations.
One customer accounts for a significant
portion of our sales.
Although
we have more than 150 distributors, our largest distributor, who is a non-exclusive distributor
of tobacco products for the United Kingdom and France, accounted for approximately 38.6%
and 32.4% of our revenue for the years ended June 30, 2022 and 2023, 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. No other customer accounted for 10% or
more of our revenue during either year. The loss of this distributor could have a material
adverse effect upon our business. See “Business – Sales and Distribution.”
Our business may be affected by inflation.
Although
inflation has not materially affected our business or the results of our operations through
the years ended June 30, 2022 and 2023, in view of the global inflationary trends, we may
incur increased costs of manufacture and delivery which we may not be able to pass on to
our customers as a result of competitive pressure which would impact the results of our operations.
We face competition from companies in the
vaping industry as well as other sources of nicotine and cannabis, and we may fail to compete effectively.
Vaping products for both tobacco and cannabis
compete with tobacco and marijuana cigarettes and a wide range of other tobacco and legal and illegal cannabis products. The vaping industry
worldwide is intensely competitive.
Some of our current and potential competitors
have greater financial, marketing, ordering quantities, portfolios of products and intellectual properties and other resources and some,
such as JUUL Labs, Inc., which is the major seller of vaping nicotine products, and British American Tobacco Plc, another major producer
of vaping nicotine products, are better known and have greater resources than we do. Certain competitors may be able to secure raw materials
and products from suppliers and manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing or inventory policies, and devote substantially more resources to product development and technology. Increased
competition may adversely affect our results of operations, market share and brand recognition, or force us to incur losses. There can
be no assurance that we will be able to successfully compete against current and future competitors, and competitive pressures may have
a material adverse effect on our business, prospects, financial condition and results of operations.
The cannabis vaping market is in the early stages
and at present is mainly limited to the United States, although there is a developing market in Canada and a potential market in Europe.
Our ability to be successful in this market is dependent upon our ability to develop vaping systems that attracts and retains consumer
interest and the regulatory environment in the United States. Our cannabis vaping products compete with other forms of legal and illegal
cannabis, marijuana cigarettes, CBD oil and other CBD products, food products and other vaping products. Since most of our revenue from
cannabis is derived from sales to other brands rather than sales to distributors and consumers, we compete based on our technology and
ability to work with the customers to develop a product that they can successfully market.
Misconduct, including illegal, fraudulent
or collusive activities, by our employees, distributors, retailers, suppliers and manufacturers, may harm our brand and reputation and
adversely affect our business and results of operations.
Misconduct, including illegal, fraudulent or
collusive activities, unauthorized business conduct and behavior, or misuse of corporate authorization by our employees, contractors,
distributors, retailers, suppliers and manufacturers and other business relationships could subject us to liability and negative publicity.
Our employees, distributors, retailers, suppliers and manufacturers may conduct fraudulent activities or violations of the Foreign Corrupt
Practices Act, such as accepting payments from or making payments to other distribution channel participants or other third parties in
order to bypass our internal system and to complete shadow transactions and/or transactions outside our official or authorized distribution
channels, disclosing users’ information to competitors or other third parties for personal gains, or applying for fake reimbursement.
They may conduct activities in violation of unfair competition law, which may expose us to unfair competition allegations and risks.
We cannot assure you that such incidents will not occur in the future. It is not always possible to identify and deter such misconduct,
and the precautions we take to detect and prevent these activities may not be effective. Such misconduct could damage our brand and reputation,
which could adversely affect our business and results of operations.
We may become subject to governmental regulations
and other legal obligations related to privacy, information security, and data protection, and any security breaches, and our actual
or perceived failure to comply with our legal obligations could harm our brand and business.
Most of our revenue is derived from sales to
distributors for our tobacco products and other cannabis brands for our cannabis products, and we do not sell online. As a result, in
the normal course of business we do not collect, store and process personal, transactional, statistical and behavioral data, including
certain personal and other sensitive data from our users. To the extent that we market to the public and collect personal data, such
as credit card information, we would face risks inherent in handling large volumes of data and in securing and protecting such data.
In particular, we would face a number of data-related challenges related to our business operations, including: (i) protecting the data
in and hosted on our system and cloud servers, including against attacks on our system and cloud servers by external parties or fraudulent
behavior by our employees; (ii) addressing concerns related to privacy and sharing, safety, security and other factors; and (iii) complying
with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including
any requests from regulatory and government authorities relating to such data.
We may be subject to liability if private
information that we receive is not secure or if we violate privacy laws and regulations.
We are or may become subject to a variety of
laws and regulations in the United States and abroad regarding privacy, data security, cybersecurity and data protection. These laws
and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us
are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous United States
federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing,
disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject
to differing interpretations, and may be inconsistent among different jurisdictions. To the extent that we deal with the public and obtain
private information on our computer system including information on our system as a result of internet sales of our products, we would
be subject to these laws.
In June 2018, California adopted the California
Consumer Privacy Act (“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 General 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.
We are also subject to laws restricting disclosure
of information relating to our employees. We strive to comply with all applicable laws, policies, legal obligations, and industry codes
of conduct relating to privacy, data security, cybersecurity and data protection. However, given that the scope, interpretation, and
application of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted
and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any
failure or perceived failure by us or our third-party service-providers to comply with our privacy or security policies or privacy-related
legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information
or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect
on our business and operating results. Although we maintain cybersecurity insurance, we cannot assure you that this insurance will cover
or satisfy any claim made against us or adequately cover any defense costs we may incur.
Any significant cybersecurity incident
or disruption of our information technology systems or those of third-party partners could materially damage user relationships and subject
us to significant reputational, financial, legal and operation consequences.
We depend on our information technology systems,
as well as those of third parties, to develop new products and services, host and manage our services, store data and process transactions.
Any material disruption or slowdown of our systems or those of third parties upon whom we depend could cause outages or delays in our
services, particularly in the form of interruption of services delivered by our website, which could harm our brand and adversely affect
our operating results. Our failure to implement adequate cybersecurity protections could subject us to claims for any breach of security,
particularly if it results in disclosure of information relating to our customers. If changes in technology cause our information technology
systems, or those of third parties whom we depend upon, to become obsolete, or if our or their information systems are inadequate to
handle our growth, we could lose users, and our business and operating results could be adversely affected.
Infringement of our intellectual property
by any third party or loss of our intellectual property rights may materially and adversely affect our business, financial condition
and results of operations.
We, through our operating subsidiaries, either
own or will own or license as an exclusive licensee patent, trademark, copyright and trade secret and other intellectual property, as
well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. We also enter into confidentiality
agreements with our employees and any third parties who may access our proprietary information, and we control access to our proprietary
technology and information.
Intellectual property protection may not be sufficient.
Confidentiality agreements may be breached by counterparties, we may not be able to enforce these agreements and there may not be adequate
remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights
or to enforce our contractual rights, and, with respect to rights licensed to us, the licensor, which is a related party, may not be
willing or able to enforce its intellectual property rights against alleged infringers. Policing any unauthorized use of our intellectual
property, whether owned or licensed, is difficult, time-consuming and costly, and the steps we have taken may be inadequate to prevent
the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights,
such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance
that we will prevail in such litigation, and we cannot assure you that our licensor will take steps to sufficiently protect the licensed
intellectual property. Furthermore, we or our licensor may be subject to the risks of losing our intellectual property rights or the
intellectual property rights licensed from other third-parties due to several reasons. Certain intellectual property rights, such as
patents, are subject to a limited period of time. Upon the expiry of such period of time, others may freely use such intellectual properties
without any license or charges, which may impose competitive harm to us and in turn adversely affect our business and prospects. The
intellectual property rights that we currently have may also be revoked, invalidated or deprived by regulatory authorities as a result
of intellectual property claims or challenges successfully raised by third parties. We may also rely on certain intellectual property
rights licensed from other third parties. There can be no guarantee that we will be able to maintain such licenses at all times or renew
such licenses upon expiry. Moreover, our trade secrets may be leaked or otherwise become available to, or be independently discovered
by, our competitors. Any failure in maintaining, protecting or enforcing our intellectual property rights could have a material adverse
effect on our business, financial condition and results of operations.
We may be subject to intellectual property
infringement claims from third parties, which may be expensive to defend with no assurance of success and may disrupt our business and
operations.
We cannot be certain that our operations or any
aspects of our business do not or will not infringe upon or otherwise violate patents, copyrights or other intellectual property rights
held by third parties. Through our operating subsidiaries, we are acquiring patent, trademark and other intellectual rights from Tuanfang
Liu, Aspire Global and Shenzhen Yi Jia all of their intellectual property relating to the cannabis vaping products, and we are licensing
patent, trademarks and other intellectual property rights relating to the tobacco vaping products from Mr. Liu, Aspire Global and Shenzhen
Yi Jia. We may, and from time to time in the future be, subject to legal proceedings and claims relating to the intellectual property
rights of others. There could also be existing patents or other intellectual property of which we are not aware that we may infringe.
While we do not know of any intellectual property rights on which our products or our business infringe, we cannot assure you that holders
of patents or other intellectual property rights purportedly relating to some aspect of our technology or business, would not seek to
enforce such patents against us or the licensor of intellectual property licensed by us, including intellectual property licensed by
Shenzhen Yi Jia, or that they will not be successful in any such enforcement action. If we fail to maintain our patents or if our licensor
is not able to maintain its rights, we may be subject to intellectual property infringement claims from third parties. We and Shenzhen
Yi Jia have patents and patent applications in a number of jurisdictions, including the United States and the European Union. If we are
found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or
may be prohibited from using such intellectual property, and we may incur licensing fees or damages or be forced to develop alternatives
of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from
our business and operations to defend against these third-party infringement claims, regardless of their merits. Although the intellectual
property transfer agreement (the “Intellectual Property Transfer Agreement”) dated September 30, 2022, among Mr. Liu, Aspire
Global, Shenzhen Yi Jia, us and Aspire North America, and the exclusive license agreement (the “Intellectual Property License Agreement”)
dated September 30, 2022, among Mr. Liu, Aspire Global, Shenzhen Yi Jia, us and Aspire Science, provide that Mr. Liu, Aspire Global and
Shenzhen Yi Jia will indemnify us against any liability in the event that the transferred or licensed intellectual property infringes
the intellectual property rights of a third party, we cannot assure you that we will be able to enforce such indemnification. Further,
since Shenzhen Yi Jia and Mr. Liu are located in the PRC, we cannot assure you that we will be able to enforce any action or any judgment
we may receive from a U.S. court in a Chinese court.
As the patents we own or are licensed may
expire and may not be extended, our patent applications may not be granted and our patent rights may be contested, circumvented, invalidated
or limited in scope, our patent rights and license may not protect us.
As of the date of this prospectus, our operating
subsidiaries own or license more than 200 patents relating to various aspects of our operations. The rights granted under any issued
patents, however, may not provide us with proprietary protection or competitive advantages. The claims under any patents that issue may
not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. It is also
possible that the intellectual property rights of others will bar us from licensing. Numerous patents owned by others exist in the fields
in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent
applications filed by our transferor or licensor and we or our licensor may not be able to enforce these rights. Finally, in addition
to those who may claim priority, any of our existing patents may also be challenged by others on the basis that they are otherwise invalid
or unenforceable. Any failure in extending our existing patents, or if our patent rights were to be contested, circumvented, invalidated
or limited in scope could materially and adversely affect our business, financial condition and results of operations.
If we are unable to manage our growth or
execute our strategies effectively, our business and prospects may be materially and adversely affected.
To accommodate our growth, we anticipate that
we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement
of our accounting and other internal management systems. We will also need to continue to expand, train, manage and motivate our workforce
and manage our relationships with customers and third-party suppliers. All of these endeavors involve risks and will require substantial
management effort and significant additional expenditures. We may not be able to manage our growth or execute our strategies effectively,
and any failure to do so may have a material adverse effect on our business and prospects.
Our success depends on our ability to retain
our core management team and other key personnel.
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-chief 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 and 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-chief 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. Since we plan to establish manufacturing facilities
in California and Malaysia, we need to hire key personnel who have experience and operating manufacturing operations in the United States
and Malaysia, and become familiar with all legal requirements affecting our business since each country has its own legal requirements
and business customs and our failure to comply with any such legal requirements and to operate in accordance with local practice could
materially impair our business and the results of our operations.
Competition for highly skilled employees
is intense, and we may not be able to attract and retain the highly skilled employees needed to support our business.
As we continue to experience growth, we believe
our success depends on the efforts and talents of our employees, including management team and financial personnel. Our future success
depends on our continued ability to attract, develop, motivate and retain highly qualified and skilled employees. Competition for highly
skilled personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with
our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources
than we do and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expense
in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees,
we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve
customers could diminish, resulting in a material adverse effect on our business.
Our business, financial condition and results
of operations may be adversely affected by an economic downturn.
In recent years, the United States and other markets
have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including, as a result of the COVID-19
pandemic, supply chain disruptions, the Russian invasion of Ukraine, instability in the U.S. and global banking systems, rising fuel prices,
increasing interest rates or foreign exchange rates and increased inflation and the possibility of a recession. A significant downturn
in economic conditions may affect the market for our products and our supplier’s ability to provide products to us on acceptable
terms.
We cannot predict the timing, strength, or duration
of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and
the markets in which we operate worsen from present levels, our business, financial condition, operating results could be adversely affected.
For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of
the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on
its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its
funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global
credit and financial markets. If Congress does not raise the debt ceiling and if the U.S. government defaults on its payment obligations
or experiences delays in making payments when due, such payment default or delay by the U.S. government, as well as continued uncertainty
surrounding the U.S. debt ceiling or the U.S. Government’s ability to pay debts, could result in a variety of adverse effects for
financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget deficit concerns
have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession
in the United States. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings
agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the
debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness
could adversely affect economic conditions, as well as our business, financial condition and operating results.
Our need to restate our unaudited financial
statements reflects a material weakness in our internal controls over financial reporting.
During the preparation of our financial statements
for the year ended June 30, 2023, we determined that we needed to restate our unaudited financial statements for the six months ended
December 31, 2022 and the nine months ended March 31, 2023. In September 2022, certain intangible assets were transferred to us by a
controlling stockholder. The value of the transferred assets was initially determined based on the fair value of the assets. Because
the transfer was from a controlling stockholder, under GAAP, the transfer should have been recorded at the value on the books of the
transferor and not at fair market value. In our unaudited condensed consolidated statements of changes in stockholders’ equity,
we reflected the transfer of the intangible assets at the fair value of $74,259,915 rather than the carrying cost of nil. As a result
of the restatement, our net loss for the six months ended December 31, 2022 decreased from $2,950,921, or $0.06 per share (basic and
diluted), to $2,178,290, or $0.04 per share (basic and diluted) and our net loss for the nine months ended March 31, 2023 decreased from
$6,057,776, or $0.12 per share (basic and diluted), to $4,512,513, or $0.09 per share (basic and diluted). The decrease in net loss reflects
the elimination of amortization of the intangible assets transferred from the controlling stockholder. On the March 31, 2023 balance
sheet, (i) intangible assets decreased from $74,480,651 to nil. (ii) capital contribution decreased from $74,259,915 to nil and (iii)
stockholders’ equity decreased from $79,953,608 to $7,238,957. Similar changes affected our financial statements at December 31,
2022 and for the six months ended December 31, 2022. On September 19, 2023, we filed an amendment for our Form 10-Q for the nine months
ended March 31, 2023 to reflect the restated financial statements. A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the issuing
company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our need to restate our unaudited
financial statements at December 31, 2022 and for the six months ended December 31, 2022 and at March 31, 2023 and for the nine months
ended March 31, 2023 reflects a material weakness. We are taking steps to address this material weakness. The unaudited financial statements
for the six months ended December 31, 2021 were included in our final prospectus dated April 3, 2023 relating to our initial public offering.
We cannot assure you that a claim will not be made against us as a result of our failure to accurately reflect in accordance with GAAP
the value of the intangible assets acquired from a controlling stockholder and the resulting restatement of our financial statements.
As a result of our restatement of our
unaudited financial statements as described in the preceding risk factor, our internal controls over financial reporting are not effective,
which could have a significant and adverse effect on our business and reputation.
We are subject to the reporting requirements
of the Securities Act, the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. We expect that the requirements
of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more
difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Based upon our need
to restate our unaudited financial statements for the six months ended December 31, 2022 and the nine months ended March 31, 2023, we
have determined that our disclosure controls and procedures were not effective as of June 30, 2023.
Subsequent to June 30, 2023, we appointed
a new chief financial officer and a vice president of finance and we are implementing new controls in order that we can be confident
that we maintain books are records such that we are able to generate financial statements that are prepared in accordance with GAAP.
Any controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our internal
controls may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their
implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and
may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls
also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation
reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic
reports that we will file with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and
internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness
of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will
continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure
to maintain the adequacy of our internal controls, or our consequent inability to produce accurate financial statements on a timely basis,
could increase our operating costs and could materially and adversely affect our ability to operate our business. In the event that our
internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may
lose confidence in our operating results and the price of our common stock could decline. In addition, if we are unable to continue to
meet these requirements, we may not be able to maintain our listing on Nasdaq.
Our independent registered public accounting
firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer
an emerging growth company or a non-accelerated filer. At such time, our independent registered public accounting firm may issue a report
that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Any failure
to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our
company’s business and operating results.
Although we believe that our business is
not subject to PRC Laws, our business could be materially impaired if it is determined that our business is subject to PRC Laws.
Based upon the nature of our existing
business operations we do not believe, based on advice from PRC counsel, that we are subject to PRC Laws. There is no assurance that
certain PRC Laws, including existing laws and regulations and those enacted or promulgated in the future, will not be applicable to
our Hong Kong subsidiary due to change in the current political arrangements between mainland China and Hong Kong or other
unforeseeable reasons. The application of such PRC Laws may have a material adverse impact on us, as relevant PRC authorities may
impose fines and penalties upon our Hong Kong subsidiary, delay or restrict the repatriation of the proceeds from this offering into
Hong Kong, and any failure of us to fully comply with such new regulatory requirements may significantly limit or completely hinder
our ability to offer or continue to offer our common stock, cause significant disruption to our business operations, and severely
damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our
Common Stock to significantly decline in value or in extreme cases, become worthless.
We have limited insurance coverage, which
could expose us to significant costs and business disruption.
We are exposed to various risks associated with
our business and operations, and we have limited liability insurance coverage and product liability insurance coverage, and Aspire Science
does not have product liability insurance. A successful liability claim against us due to injuries or damages suffered by users of our
product could materially and adversely affect our reputation, results of operations and financial conditions. Even if unsuccessful, such
a claim could cause us adverse publicity, require substantial costs to defend, and divert the time and attention of our management. In
addition, we do not have any business disruption insurance. Any business disruption event could result in substantial costs to us and
a diversion of our resources.
The occurrence of natural disasters may
adversely affect our business, financial condition and results of operations.
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 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.
Because we are a “controlled company”
as defined in the Nasdaq Stock Market Rules, you may not have protection of certain corporate governance requirements which otherwise
are required by Nasdaq’s rules.
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-chief 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:
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our board of directors
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our board of directors
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we are not subject to the
requirements that director nominees be selected either by the independent directors or a nomination committee comprised solely of
independent directors. |
We have not taken advantage of these exemptions except
that our co-chief 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, o who are Tuanfang Liu,
our co-chief executive officer and his wife Jiangyan Zhu, who are based in China based on foreign laws.
Although we are a Delaware corporation, two of our
directors, -- who are Tuanfang Liu, our co-chief executive officer, director 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-chief 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.
The recognition and enforcement of foreign judgments
are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements
of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of
reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that
provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the
PRC courts will not enforce a foreign judgment against our directors and officers who are residents of China if they decide that the judgment
violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and
on what basis a PRC court would enforce a judgment rendered by a court in the United States.
Our failure to collect accounts receivable
from our customers may adversely affect the results of our operations.
Our business relies on the collection of accounts
receivable from our customers in a timely manner to maintain liquidity and support our ongoing operations. We recorded no allowance for
doubtful accounts for the year ended June 30, 2022 and an allowance of approximately $1.5 million for the year ended June 30, 2023. 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 customers; (ii) our failure to accurately assess the creditworthiness
of our customers; (iii) our failure to implement effective collection efforts; and (iv) disputes over contract terms, product quality
or delays in delivery. Although we may implement strategies to mitigate these risks, but there can be no assurance that such measures
will be effective, and we may continue to incur write-offs of accounts receivable, which may impair our ability to operate profitably.
Risks Related to Our Common Stock
Our failure to meet the continued listing
requirements of Nasdaq could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements
of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist
our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability
to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance
with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock
to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping
below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
If our shares are delisted from Nasdaq
and become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00,
other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation
systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange
or system. If we do not obtain or retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock
will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt
from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules
require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment
of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and
dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in
the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
The trading price of our common stock may
be volatile, which could result in substantial losses to investors.
The trading price of our common stock may be
volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors.
The securities of some newly public companies have experienced significant volatility since their initial public offerings, including,
in some cases, substantial increase followed by a substantial decline in their trading prices. The trading performances of other vaping
companies’ securities after their offerings may affect the attitudes of investors toward vaping companies listed in the United
States, which consequently may impact the trading performance of our common stock, regardless of our actual operating performance. In
addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure
or other matters of other vaping companies may also negatively affect the attitudes of investors towards us. In addition to the above
factors, the price and trading volume of our common stock may be highly volatile due to multiple factors, including the following:
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regulatory developments
affecting us, our customers, or our industry; |
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announcements of studies
and reports relating to our service offerings or those of our competitors; |
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actual or anticipated fluctuations
in our results of operations and changes or revisions of our expected results; |
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changes in financial estimates
by securities research analysts; |
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announcements by us or
our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments; |
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additions to or departures
of our senior management; |
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detrimental negative publicity
about us, our management or our industry; |
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release or expiry of lock-up or
other transfer restrictions on our outstanding common stock; and |
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sales or perceived potential
sales of additional common stock. |
As an “emerging growth company”
under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure
requirements.
As an “emerging growth company” under
the JOBS Act, we are permitted to rely and rely on exemptions from certain disclosure requirements. We are an emerging growth company
until the earliest of:
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the last day of the fiscal
year during which we have total annual gross revenues of $1.235 billion or more; |
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the
last day of the fiscal year following the fifth anniversary of our initial public offering, which was on April 3, 2023; |
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the date on which we have,
during the previous three-year period, issued more than $1 billion in non-convertible debt; or |
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the
date on which we are deemed a “large accelerated filer” as defined under the federal securities laws. |
For so long as we remain an emerging growth
company, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that
are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering. We cannot predict
if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading market for our common stock and the trading price of our common stock
may be more volatile. In addition, our costs of operating as a public company may increase when we cease to be an emerging growth company.
If securities or industry analysts do not
publish research or publish inaccurate or unfavorable research about our business, the market price for our common stock and trading
volume could decline.
The trading market for our common stock depends
in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not
establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our common stock or publish
inaccurate or unfavorable research about our business, the market price for our common stock would likely decline. If one or more of
these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets,
which, in turn, could cause the market price or trading volume for our common stock to decline.
Our by-laws include forum selection provisions
which may limit your ability to commence an action against us.
Our by-laws provide that unless we consent in
writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not
have jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for (i) any derivative
action or proceeding brought on our behalf; (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors,
officers, employees, or agents to us or our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, our certificate of incorporation, or our by-laws; or (iv) any action asserting a claim governed by
the internal affairs doctrine; in each case, subject to said court having personal jurisdiction over the indispensable parties named
as defendants therein.
Our by-laws also provide that unless we consent
in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive
forum for the resolution of any complaint for the resolution of any complaint for which such courts have exclusive jurisdiction, including,
but not limited to, any complaint asserting a cause of action arising under the Securities Exchange Act. Our by-laws also provide that
the exclusive forum provisions do not apply to actions arising under the Securities Act.
There is uncertainty as to whether a court would
enforce these provisions, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements
to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements
by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”
“estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements include, but are not limited to, statements about:
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our goals and growth strategies; |
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our expectations regarding
demand for and market acceptance of our brand and platforms; |
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our future business development,
results of operations and financial condition; |
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our
ability to establish manufacturing operations in the United States, particularly in California, and potentially in Malaysia or elsewhere
in Southeast Asia; |
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our ability to establish
relationships with suppliers other than Shenzhen Yi Jia; |
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the effect of regulations
relating to the marketing and sale of vaping products in the United States and other countries; |
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our ability to maintain
and improve our infrastructure necessary to operate our business; |
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competition in the vaping
industry; |
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the expected growth of,
and trends in, the markets for our products and services in the markets in which jurisdictions that we sell our products; |
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the development of a market
for cannabis vaping products outside of the United States, including the legalization of cannabis in certain European countries; |
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the expected growth of,
and trends in, the markets for our products and services in the markets in which jurisdictions that we sell our products; |
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the effect of supply chain
issues on our ability to manufacture and our ability and the ability of our distributors to distribute product; |
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the development of a market
for cannabis vaping product and our ability to market cannabis products to adult users; |
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our ability to compete
successfully in selling both tobacco and cannabis products, the expected growth of, and trends in, the markets for our products and
services jurisdictions that we sell or plan to sell our products; |
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our ability to implement
and maintain effective internal controls over financial reporting; |
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effects of the COVID-19
pandemic and steps taken by governments to address the pandemic; |
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government policies and
regulations relating to our operations, including regulations relating to the sale and distribution of our vaping products and those
relating to manufacturing operations; |
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our ability to develop
and maintain effective disclosure controls and internal controls over financial reporting; |
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our ability to comply with
the continued listing standards on the exchange or trading market on which our shares of common stock is listed for trading; |
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our ability to attract
and retain qualified senior management personnel and research and development staff; |
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the volatility of the Company's
operating results and financial condition and the price of its common stock; |
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general economic and business
condition in China and elsewhere; and |
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assumptions underlying
or related to any of the foregoing. |
You should read thoroughly this prospectus and
the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from
and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business
and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time
and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors
on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
This prospectus contains certain data and information
that we obtained from various government and private publications. Statistical data in these publications also include projections based
on a number of assumptions. The e-vapor industry may not grow at the rate projected by market data, or at all. Failure of this market
to grow at the projected rate may have a material and adverse effect on our business and the market price of the shares of common stock.
In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating
to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data
are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue
reliance on these forward-looking statements.
You should not rely upon forward-looking statements
as predictions of future events. The forward-looking statements made in this prospectus relate only to events or information as of the
date on which the statements are made in this prospectus. We undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the
occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed
as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual
future results may be materially different from what we expect.
USE OF PROCEEDS
We will not receive any proceeds from the sale
of the common stock by the selling stockholders.
MARKET INFORMATION FOR SECURITIES
Our
common stock is currently listed on Nasdaq under the symbols “ISPR.” The last
reported sale price of our common stock Nasdaq on October 10, 2023 was $8.99 per share.
Holders of Record
As of September 30, 2023, we had approximately
18 holders of record of our common stock. Because most of our shares of common stock held by persons other than our original stockholders
are held by brokers and other institutions on behalf of stockholders, this number does not represent the number of beneficial owners
of our common stock..
Securities Authorized for Issuance under Equity
Compensation Agreements
The following table sets forth information
concerning securities authorized under the 2022 Equity Incentive Plan (the “Plan”) as of September 30, 2023.
Plan Category | |
Number of securities to
be
issued upon exercise of outstanding options | | |
Weighted-average exercise
price of outstanding options | | |
Number of granted restricted
stock unit awards outstanding | | |
Number of securities
remaining available for future issuance under equity compensation plans | |
Equity compensation plans approved by security
holders | |
| 2,605,000 | | |
$ | 9.76 | | |
| 587,235 | | |
| 11,807,765 | |
Equity compensation plans not approved
by security holders | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| - | | |
$ | - | | |
| - | | |
| 11,807,765 | |
ENFORCEMENT OF CIVIL LIABILITIES
Our executive officers and directors are located
in the United States except that two directors, one of whom is our chairman and chief executive officer, and one director-designee are
located in mainland China. As a result, it may be difficult for a stockholder to effect service of process within the United States upon
the directors and officers who are located outside of the United States.
We have been advised by Han Kun Law Offices that
there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts obtained against these persons
predicated upon the civil liability provisions of the United States federal and state securities laws. Han Kun Law Offices has further
advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may
recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between
China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form
of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition,
according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against our directors and officers if
they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result,
it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under
the PRC Civil Procedures Law, foreign stockholders may originate actions based on PRC law against a company in China for disputes if
they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including,
among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause
for the suit. It will be, however, difficult for U.S. stockholders to originate actions in the PRC against our directors who are located
in the PRC in accordance with PRC laws because we are incorporated under the laws of the State of Delaware and it will be difficult for
U.S. stockholders, by virtue only of holding our common stock, to establish a connection to the PRC for a PRC court to have jurisdiction
as required under the PRC Civil Procedures Law. As a result of the foregoing, it would be very expensive and time-consuming for a stockholder
to either seek to enforce a U.S. judgment in China or to commence an action in a Chinese court, with a strong likelihood that the stockholder
will not be successful.
SELLING STOCKHOLDERS
The following table sets forth the names of the
selling stockholders, the number of shares of common stock owned beneficially by the selling stockholders as of August 10, 2023 and the
number of our shares of common stock that may be offered by the selling stockholders pursuant to this prospectus. The table and the other
information contained under the captions “Selling Stockholders” and “Plan of Distribution” has been prepared based
upon information furnished to us by or on behalf of the selling stockholders. The following table sets forth, as to the selling stockholders,
the number of shares of common stock beneficially owned, the number of shares being sold, the number of shares beneficially owned upon
completion of the offering and the percentage beneficial ownership upon completion of the offering.
| |
| | |
| | |
After Sale of Shares in Offering | |
Name | |
Shares Beneficially Owned | | |
Shares Being Sold | | |
Shares Beneficially Owned | | |
Percent of Outstanding | |
Yanlin Rong | |
| 556,661 | | |
| 556,661 | | |
| 0 | | |
| 0 | % |
Layn Holding Group Inc. | |
| 490,759 | | |
| 490,759 | | |
| 0 | | |
| 0 | % |
Oriental Star Capital Management Limited | |
| 70,000 | | |
| 70,000 | | |
| 0 | | |
| 0 | % |
US Tiger Securities, Inc. | |
| 62,100 | | |
| 62,100 | | |
| 0 | | |
| 0 | % |
None
of the selling stockholders has, and within the past three years has not had, any position, office or material relationship with us or
with any of our predecessors or affiliates except as described below.
Yanlin Rong, Layn Holding Group Inc. and Oriental
Star Capital Management Limited purchased the shares of common stock listed in the table above from us on June 26, 2023 in a private
placement of shares.
Tiger Securities was the representative of
the underwriters for our initial public offering. The 62,100 shares being sold by Tiger Securities are issuable pursuant to warrants
which we issued to Tiger Securities pursuant to the underwriting agreement dated April 3, 2023 relating to our initial public offering
of 2,700,000 shares of common stock with a right to purchase an additional 405,000 shares to cover over-allotments in the sale of the
initial 2,700,000 shares. The over-allotment option was exercised in full. Pursuant to the underwriting agreement, we paid the underwriters
underwriting discounts and commissions of 6% of the gross proceeds, which was $1,304,100, a non-accountable expense allowance of 1% of
the gross proceeds, which was $217,350, and we paid Tiger Securities, as representative of the underwriters, $450,000 for its out-of-pocket
expenses in connection with the offering. We also granted Tiger Securities demand and piggyback registration rights with respect to the
common stock issuable upon exercise of the warrants.
PLAN OF DISTRIBUTION
The selling stockholders and any of its pledgees,
donees, assignees and successors-in-interest may, from time to time, sell any or all of its shares of common stock on any stock exchange,
market or trading facility on which the shares are traded or in private transactions or by gift. The shares offered by this prospectus
may be sold by the selling stockholders at market prices prevailing at the time of sale or at negotiated prices. The selling stockholders
may use any one or more of the following methods when selling or otherwise transferring shares:
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ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers; |
|
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block trades in which a
broker-dealer will attempt to sell the shares as agent but may purchase a position and resell a portion of the block as principal
to facilitate the transaction; |
|
● |
sales to a broker-dealer
as principal and the resale by the broker-dealer of the shares for its account; |
|
● |
an exchange distribution
in accordance with the rules of the applicable exchange if we are listed on an exchange at the time of sale; |
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● |
privately negotiated transactions,
including gifts; |
|
● |
covering short sales made
after the date of this prospectus; |
|
● |
pursuant to an arrangement
or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share; |
|
● |
a combination of any such
methods of sale; and |
|
● |
any other method of sale
permitted pursuant to applicable law. |
To the extent permitted under Rule 144, the selling
stockholders may also sell shares of common stock owned by it pursuant to Rule 144 rather than pursuant to this prospectus.
Broker-dealers engaged by the selling stockholders
may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders
(or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders
do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Other than Tiger Securities,
which is a registered broker-dealer, none of the selling stockholders is an affiliate of any broker-dealer.
The selling stockholders may from time to time
pledge or grant a security interest in some or all of the shares owned by them and, if the selling stockholders defaults in the performance
of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending
the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this
prospectus.
In connection with the sale of our shares of
common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial
institutions which may in turn engage in short sales of our shares of common stock in the course of hedging the positions they assume.
The selling stockholders may, after the date of this prospectus, also sell our shares of common stock short and deliver these securities
to close out its short positions, or lend or pledge its shares of common stock to broker-dealers that in turn may sell these securities.
The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares
of common stock offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders also may transfer the
shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, they will be subject to the prospectus delivery requirements of the Securities Act,
any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act, and federal securities laws, including Regulation M, may restrict
the timing of purchases and sales of our shares of common stock by the selling stockholders and any other persons who are involved in
the distribution of the shares of common stock pursuant to this prospectus. The selling stockholders has informed us that it does not
have any agreement or understanding, directly or indirectly, with any person to distribute the shares of common stock. Since the warrants
held by Tiger Securities were issued pursuant to the underwriting agreement relating to our initial public offering, any proceeds realized
by Tiger Securities on the sale of the common stock issuable upon exercise of the warrants may be deemed underwriting compensation.
We may be required to amend or supplement this
prospectus in the event that (a) a selling stockholders transfers securities under conditions which require the purchaser or transferee
to be named in the prospectus as a selling stockholders, in which case we will be required to amend or supplement this prospectus to
name the selling stockholders, or (b) the selling stockholders sells shares to an underwriter, in which case we will be required to amend
or supplement this prospectus to name the underwriter and the method of sale.
We are paying all fees and expenses incident
to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
SELECTED FINANCIAL DATA
The following statements of operations data
for the years ended June 30, 2022 and 2023, balance sheet data as of June 30, 2022 and 2023 and statements of cash flows data for the
years ended June 30, 2022 and 2023 have been derived from our audited consolidated financial statements included elsewhere in this prospectus.
You should read the Selected Financial Data together with our financial statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
(dollars in thousands, except per share amounts)
Consolidated Statement of Operations Data:
| |
Year Ended June 30, | |
| |
2022 | | |
2023 | |
Revenue | |
$ | 88,095 | | |
$ | 115,606 | |
Cost of revenue | |
| 74,789 | | |
| 94,529 | |
Gross profit | |
| 13,306 | | |
| 21,076 | |
Operating expenses | |
| 14,295 | | |
| 25,645 | |
Income (loss) from operations | |
| (989 | ) | |
| (4,569 | ) |
Other income (expense) | |
| 186 | | |
| (284 | ) |
Loss before income taxes | |
| (803 | ) | |
| (4,853 | ) |
Net loss | |
| (1,874 | ) | |
| (6,099 | ) |
Net loss per share | |
$ | (0.04 | ) | |
$ | (0.12 | ) |
Average shares of common stock outstanding (basic and
diluted) | |
| 50,000,000 | | |
| 50,725,814 | |
Consolidated Balance Sheet Data
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Assets | |
$ | 100,735 | | |
$ | 90,693 | |
Current assets | |
| 99,449 | | |
| 84,811 | |
Working capital | |
| 10,481 | | |
| 28,849 | |
Retained earnings | |
| 11,946 | | |
| 5,848 | |
Stockholders’ equity | |
| 11,767 | | |
| 31,375 | |
Consolidated Cash Flows Data:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Net cash used in operating activities | |
$ | (7,558 | ) | |
$ | (7,582 | ) |
Net cash used in investing activities | |
| (122 | ) | |
| (10,154 | ) |
Net cash used in financing activities | |
| (3,089 | ) | |
| (16,444 | ) |
Net decrease (34,180)in cash and cash equivalents | |
| (10,769 | ) | |
| (34,180 | ) |
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 “Selected Consolidated Financial Data” and
our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion
contains forward-looking statements reflecting our current expectations that involve risks, uncertainties and assumptions. See “Special
Note Regarding Forward-Looking Statements.” Actual results and the timing of events could differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those
discussed in “Risk Factors” and elsewhere in this prospectus.
Overview
We are engaged in the research and development,
design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. We sell our tobacco
products worldwide except for the PRC and Russia. Our tobacco products are marketed under the Aspire brand name and are sold primarily
through our distribution network. We currently sell our cannabis vaping hardware only in the United States, and we have recently commenced
marketing activities in Canada and Europe, primarily in the European Union. All of our products are vaping hardware. Vaping refers to
the practice of inhaling and exhaling the vapor produced by an electronic vaping device, and includes dabbing, which is the recreational
inhalation of concentrated tetrahydrocannabinol, the main psychotropic cannabinoid derived from the Cannabis Sativa L. plant, commonly
known as marijuana. Our cannabis products are marketed under the Ispire brand name, primarily on an ODM basis to other cannabis vapor
companies. ODM generally involves the design and customization of the core products to meet each brand’s unique image and needs,
and our products are sold by our customers under their own brand names although they may also include our brand name on the products.
In April 2023, we completed our initial public
offering, from which we raised net proceeds, after underwriting expenses and other offering expenses, of approximately $18.3 million.
In June 2023, we raised net proceeds of approximately $7.4 million, after placement agent fees and offering expenses, from the private
placement of our common stock to three investors. We plan to use the proceeds from both of our initial public offering and the private
placement for working capital and general corporate purposes, which may include, but not be limited to, the completion of establishing
manufacturing operations in California and the establishment of manufacturing operations in Malaysia, research and development activities
and continued marketing and promotion.
Restatement of Unaudited Financial Statements
We were required to restate our unaudited
financial statements at December 31, 2022 and for the six months then ended and at March 31, 2023 and for the three and nine months then
ended. The unaudited financial statements at March 31, 2023 and for the nine months then ended have been restated in an amendment to
our Form 10-Q, which was filed with the SEC on September 19, 2023. The restated financial statements correct the amount at which intangible
assets consisting of intellectual property rights which were transferred to us by a controlling stockholder was recorded. Under GAAP,
assets transferred by a controlling stockholder should be recorded at the transferor’s book value. Our unaudited financial statements
had recorded the intangible assets that were transferred by the controlling stockholder at $74,259,915, which represents a third party
evaluation of the assets.
We determined that the intangible assets were
incorrectly recorded in our unaudited financial statements, which were restated to record the acquired intangible assets at the transferor’s
book value, which was nil. Accordingly, the unaudited financial statements have been restated to reverse the intangible assets and the
elimination of related amortization and contributed capital. As a result of the restatement, our net loss for the six months ended December
31, 2022 decreased from $2,950,921, or $0.06 per share (basic and diluted), to $2,178,290, or $0.04 per share (basic and diluted), and
our net loss for the nine months ended March 31, 2023 decreased from $6,057,776, or $0.12 per share (basic and diluted), to $4,512,513,
or $0.09 per share (basic and diluted), and a decline in stockholders’ equity at December 31, 2022 from $83,218,167 to $ 9,730,883,
and at March 31, 2023 from $79,953,608 to $7,238,957.
Regulatory Risks
The sale of tobacco and cannabis products
is subject to regulations worldwide. Many countries prohibit the sale of any cannabis products, and many countries have regulations relating
to tobacco products, with a particular emphasis on underage sales. As a result of regulations in the United States, we are able to sell
only one tobacco vaping product line, the Nautilus Prime, in the United States. Our tobacco vaping sales in the United States were approximately
$0.9 million and $0.9 million for the years ended June 30, 2022 and 2023, respectively. Because the volume of sales did not justify the
marketing and regulatory costs, we have ceased marketing tobacco vaping products in the United States. If any similar regulations are
adopted with respect to cannabis products, our business will be severely impacted since all of our cannabis revenue for the year ended
June 30, 2022 and 2023 was generated from sales in the United States. See “Regulations.”
Effects of COVID-19 Pandemic
In December 2019, coronavirus disease 2019
(COVID-19) was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic
has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which
are no longer in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United
States Department of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day
on May 11, 2023.
The extent to which COVID-19 impacts our operations
on an ongoing basis is highly uncertain. Since our products are presently manufactured in the PRC by a related party, any changes in
the outbreak in the PRC and any changes in the PRC government’s policy may affect our supplier’s operations which could affect
its ability to manufacture and deliver product in a timely manner.
Supply Chain Risks
One of the effects of the COVID-19 has been
delays resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured,
shipped to the country of destination, and delivered from the port of entry to the customer’s location. As the port delays have
significantly decreased, we do not believe that the supply chain issues that affected our operations are currently affecting us. We cannot
assure you that delays will not affect our business in the future.
In 2021, Shenzhen Yi Jia suffered a chip shortage
resulting in a slowdown in delivery of its products to the Company from April to August 2021. To secure the supply of chips, Shenzhen
Yi Jia changed the payment terms to chip suppliers from 30 days after delivery in the past to prepayment, and it engaged two new chip
suppliers. Since September 2021, Shenzhen Yi Jia has advised us that it obtained a supply of chips to meet its production needs and the
chip shortage no longer affects its production. In 2022, a slowdown in the delivery of components to Shenzhen Yi Jia resulting from supply
chain slowdowns as a result of the effects of the PRC’s COVID policy resulted in an increase in cost of revenue during the period.
We cannot assure you that we will not suffer from a chip shortage or that the effects of COVID or the PRC’s COVID policy will not
affect Shenzhen Yi Jia’s ability or the ability of its suppliers to delivery products in a timely manner.
Accounts Receivables
Our business relies on the collection of accounts
receivable from our customers in a timely manner to maintain liquidity and support our ongoing operations. We recorded an allowance for
doubtful accounts of $0 for the year ended June 30, 2022 and approximately $1.5 million for the year ended June 30, 2023. 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 customers; (ii) our failure to accurately assess the creditworthiness of
our customers; (iii) our failure to implement effective collection efforts; and (iv) disputes over contract terms, product quality or
delays in delivery. Although we may implement strategies to mitigate these risks, but 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 the 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 cost of seeking such approval. |
|
|
|
|
● |
Our ability to develop
and market tobacco and cannabis vaping products to meet the changing tastes of users. |
|
|
|
|
● |
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. |
|
|
|
|
● |
Our ability implement
and maintain effective disclosure controls and internal controls over financial reporting. |
|
|
|
|
● |
The effect of both the
outbreak any other pandemic or other disease outbreak results in restrictions imposed by governments which may impact our ability
to purchase or assemble products as well as the ability of end users to purchase our products. |
Results of Operations
The following table sets forth a summary of
our consolidated statements of operations and comprehensive income for the years ended June 30, 2022 and 2023 (dollars in thousands except
per share amounts).
| |
Year
Ended June 30, | |
| |
2022 | | |
2023 | |
| |
| | |
% of
Revenue | | |
| | |
% of
Revenue | |
Revenue | |
$ | 88,095 | | |
| 100.0 | % | |
$ | 115,606 | | |
| 100.0 | % |
Cost of revenue | |
| (74,789 | ) | |
| (84.9 | )% | |
| (94,530 | ) | |
| (81.8 | )% |
Gross profit | |
| 13,306 | | |
| 15.1 | % | |
| 21,076 | | |
| 18.2 | % |
Operating expenses | |
| (14,295 | ) | |
| (16.2 | )% | |
| (25,645 | ) | |
| (22.2 | )% |
Loss from operations | |
| (989 | ) | |
| (1.1 | )% | |
| (4,569 | ) | |
| (4.0 | )% |
Other income(loss), net | |
| 186 | | |
| 0.2 | % | |
| (285 | ) | |
| (0.2 | )% |
Loss before income taxes | |
| (803 | ) | |
| (0.9 | )% | |
| (4,854 | ) | |
| (4.2 | )% |
Income taxes | |
| (1,071 | ) | |
| (1.2 | )% | |
| (1,245 | ) | |
| (1.1 | )% |
Net loss | |
| (1,874 | ) | |
| (2.1 | )% | |
| (6,099 | ) | |
| (5.3 | )% |
Other comprehensive (loss)income | |
| (117 | ) | |
| (0.1 | )% | |
| 21 | | |
| (0.1 | )% |
Comprehensive loss | |
| (1,991 | ) | |
| (2.3 | )% | |
| (6,078 | ) | |
| (5.3 | )% |
Net loss per ordinary share (basic and diluted) | |
$ | (0.04 | ) | |
| | | |
$ | (0.12 | ) | |
| | |
Weighted ordinary shares outstanding | |
| 50,000,000 | | |
| | | |
| 50,725,814 | | |
| | |
Years Ended June 30, 2023 and 2022
Revenue
The following table sets out the breakdown of our revenue percentage
by region based on information provided to us by our distributors.
| |
Years ended
June 30, | |
| |
2022 | | |
2023 | |
Europe | |
| 58.9 | % | |
| 50.8 | % |
Asia Pacific (excluding China) | |
| 15.0 | % | |
| 12.9 | % |
North America | |
| 25.9 | % | |
| 36.0 | % |
Others | |
| 0.2 | % | |
| 0.3 | % |
Total | |
| 100.0 | % | |
| 100.0 | % |
Our revenue increased by $27,510,118, or 31.2%,
from $88,095,418 for the year ended June 30, 2022, to $115,605,536 for the year ended June 30, 2023. The increase in revenue is the combined
effect of (i) increases in sales of cannabis vaping products in the United States of $20.0 million from $20.0 million for the year ended
June 30, 2022 to $40.0 million for the year ended June 30, 2023 and (ii) increases in sales of tobacco vaping products in Europe of $6.9
million from $51.9 million for the year ended June 30, 2022 to approximately $58.8 million for the year ended June 30, 2023.
Cost of Revenue
Cost of revenue mainly consists of cost of
purchases of vaping products, that are mostly purchased from Shenzhen Yi Jia. Cost of revenue increased by $19,740,391, or 26.4%, from
$74,789,378 for the year ended June 30, 2022 to $94,529,769 for the year ended June 30, 2023. The increase in cost of revenue reflects
both the increase in period-to-period unit sales and the effects of a slowdown in the delivery of components to Shenzhen Yi Jia resulting
from supply chain slowdowns as a result of the effects of mainland China’s COVID policy which impacted both years ended June 30,
2022 and 2023.
Gross Profit
The following tables show the revenue, cost
of revenue and gross profit of our tobacco and cannabis vaping products (dollars in thousands).
| |
Year Ended
June 30, 2022 | |
| |
Revenue | | |
Cost of
revenue | | |
Gross
profit | | |
Gross
profit % | |
Tobacco vaping products | |
$ | 68,117 | | |
$ | 57,503 | | |
$ | 10,614 | | |
| 15.6 | % |
Cannabis vaping products | |
| 19,978 | | |
| 17,286 | | |
| 2,692 | | |
| 13.5 | % |
Total | |
$ | 88,095 | | |
$ | 74,789 | | |
$ | 13,306 | | |
| 15.1 | % |
| |
Year Ended
June 30, 2023 | |
| |
Revenue | | |
Cost of
revenue | | |
Gross
profit | | |
Gross
profit % | |
Tobacco vaping products | |
$ | 75,563 | | |
$ | 63,669 | | |
$ | 11,894 | | |
| 15.7 | % |
Cannabis vaping products | |
| 40,043 | | |
| 30,861 | | |
| 9,182 | | |
| 22.9 | % |
Total | |
$ | 115,606 | | |
$ | 94,530 | | |
$ | 21,076 | | |
| 18.2 | % |
Gross profit increased by $7,769,727, or 58.4%,
from $13,306,040 for the year ended June 30, 2022 to $21,075,767 for the year ended June 30, 2023, while our gross margin increased from
15.1% to 18.2%. The gross margin for tobacco vaping products remains constant. The increase in gross margin for cannabis vaping products
was primarily due to (i) a lower margin on cannabis vaping products in the year ended June 30, 2022 as a result of greater discounts
in price offered as we commenced the cannabis business in late 2021 and our primary focus was on capturing market of cannabis vaping
products; (ii) a change in product mix with more higher margin products being sold during the year ended June 30, 2023, and (iii) an
increase in sales volume that led to economies of scale.
Operating Expenses
Operating expenses increased $11,350,190,
or 79.4%, from $14,294,711 for the year ended June 30, 2022 to $25,644,901 for the year ended June 30, 2023.
Our sales and marketing expenses mainly consist
of employees’ salaries and benefits, marketing expense, travel expenses and others.
Sales and marketing expenses decreased by $788,707,
or 14.3%, from $5,503,630 for the year ended June 30, 2022 to $4,714,923 for the year ended June 30, 2023. The decrease in sales and
marketing expenses was primarily due to a reduction in our marketing activities of our tobacco vaping products of $0.6 million and a
reduction in marketing and advertising for cannabis vaping products of $0.2 million.
Our general and administrative expenses mainly
consist of employee’s salaries and benefits, rental expense, professional fees and other administrative expenses. General and administrative
expenses increased by $12,138,897, or 138.1%, from $8,791,081 for the year ended June 30, 2022 to $20,929,978 for the year ended June
30, 2023. The increase was primarily due to (i) an increase of $3.7 million for payroll and contract worker expenses as more employees
were hired and contract workers were engaged by us for expansion of our cannabis business and building our proposed manufacturing plant,
(ii) bad debt expense as an allowance for doubtful accounts of $2.4 million was recorded by Aspire North America on accounts under dispute
due to delayed shipment, and a direct write off of doubtful accounts of $0.9 million, (iii) an increase of patent expenses of $0.9 million
incurred by the transferred patents from Tuanfang Liu, Aspire Global and Shenzhen Yi Jia at zero cost in September 2022, (iv) an increase
in rental and warehouse expenses of $2.0 million incurred by us in connection with our plan to establish a manufacturing facility in
Los Angeles, (v) an increase in professional fees of $1.5 million incurred for expansion of cannabis business, (vi) an increase in insurance
expenses incurred by cannabis business of $0.4 million, and (vii) an increase in other miscellaneous expenses totaling approximately
$0.3 million. The increase in our expenses in both years is not the result of inflation. Inflation in Hong Kong, was relatively stable.
The increase in expenses for our United States business results from the growth of our business. The cannabis vapor business commenced
in late calendar 2021, and the increase in expenses resulted from our growth relating to this increase in business. However, inflationary
pressures may affect our operations in the future. As a result of our public offering, we anticipate that our general and administrative
expenses will significantly increase as a result of our being a public corporation, including additional legal, audit and insurance expenses
as well as expenses in implementing and maintaining our disclosure controls and internal control over financial reporting. Professional
fees relating to our initial public offering were included in general and administrative expenses during both years ended June 30 2022
and 2023. The offering was completed in April 2023, and the financial statements for the year ending June 30, 2023 treats these professional
fees of $0.9 million as a reduction of the proceeds of the offering and, accordingly, are charged to additional paid-in capital.
Other income(expense), net
Other income, net includes interest income,
interest expense, exchange gain (loss), net and other income (expense).
Interest income increased $190,131, from $5,078
for the year ended June 30, 2022, to $195,209 for the year ended June 30, 2023. The increase in interest income is mainly due to increase
in interest rate and more interest income from bank deposits.
Other income (expense) mainly consists of
interest expense, mold charge income and other miscellaneous expenses. decreased by $277,544, or 226.8%, from income of $122,394 for
the year ended June 30, 2022 to expense of $155,150 for the year ended June 30, 2023.
Exchange gain (loss), net decreased by $382,368,
or 657.6%, from net exchange gain of $58,143 for the year ended June 30, 2022 to net exchange loss of $324,225 for the year ended June
30, 2023.
As a result of these factors, total other
income (expense) decreased by $469,781, from other income of $185,615 for the year ended June 30, 2022 to other expense of $284,166 for
the year ended June 30, 2023
Income Taxes
Income
taxes increased by $174,206 or 16.3%, from $1,071,097 for the year ended June 30, 2022 to $1,245,303 for the year ended June 30, 2023.
We had a consolidated net loss for both year ended June 30, 2022 and 2023, which was the combined effect of a profit by Aspire Science
and a loss by Aspire North America. 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 $4,224,450, from net loss of $1,874,153, or $(0.04) per share (basic and diluted) for the year ended June 30, 2022 to a net loss of
$6,098,603, or $(0.12) per share (basic and diluted), for the year ended June 30, 2023.
Liquidity and Capital Resources
The following table summarizes our changes
in working capital from June 30, 2022 to June 30, 2023 (dollars in thousands).
| |
June
30,
2022 | | |
June
30, 2023 | | |
Change | | |
%
Change | |
Current Assets | |
$ | 99,449 | | |
$ | 84,811 | | |
$ | (14,638 | ) | |
| (14.7 | )% |
Current Liabilities | |
| 88,968 | | |
| 55,962 | | |
| (33,006 | ) | |
| (37.1 | )% |
Working Capital | |
| 10,481 | | |
| 28,849 | | |
| 18,368 | | |
| 175.3 | % |
The following table sets forth information
as to consolidated cash flow information for the years ended June 30, 2022 and 2023 (dollars in thousands).
| |
Year Ended
June 30, | | |
Increase | |
Consolidated cash flow data: | |
2022 | | |
2023 | | |
(Decrease) | |
Net cash used in operating activities | |
$ | (7,558 | ) | |
$ | (7,582 | ) | |
$ | (24 | ) |
Net cash used in investing activities | |
| (122 | ) | |
| (10,154 | ) | |
| (10,032 | ) |
Net cash used in financing activities | |
| (3,089 | ) | |
| (16,444 | ) | |
| (13,355 | ) |
Net decrease in cash and cash equivalents and restricted cash | |
| (10,769 | ) | |
| (34,180 | ) | |
| (23,411 | ) |
Net cash flow used in operating activities
for the year ended June 30, 2022 of $7.6 million, reflected our net loss of $1.9 million, adjusted primarily as follows: an increase
in accounts payable of $8.9 million offset by an increase in inventories of $11.5 million, and an increase in accounts receivable of
$4.0 million.
Net cash flow used in operating activities for
the year ended June 30, 2023 of $7.6 million, reflected our net loss of $6.1million, adjusted primarily as follows: add back of impairment
of account receivable of $3.3 million, an increase in accounts payable of $10.6 million, a decrease in inventory of $7.1 million, offset
by an increase in accounts receivable of $19.6 million, and an increase in prepaid expenses and other current assets of $3.1 million.
Net cash flow used in investing activities
for the year ended June 30, 2022 of $0.1 million reflected primarily the purchase of property, plant and equipment of $0.1 million.
Net cash flow used in investing activities
for the year ended June 30, 2023 of $10.1 million reflected primarily purchase of short term investments of $9.1 million, and purchase
of property, plant and equipment of $1.0 million.
Net cash flow used in financing activities
for the year ended June 30, 2022 of $3.0 million reflected primarily payments of previously declared dividends of $0.5 million and $2.4
million of repayment of advances to related parties.
Net cash flow used in financing activities
for the year ended June 30, 2023 of $16.4 million reflected primarily proceeds from initial public offering of $21.7 million, and proceeds
from private placement of $8.0 million, offset by repayment of advances to related parties of $37.9 million, payment of initial public
offering costs of $3.5 million and dividend payment of $3.4 million.
To date, we have financed our operations primarily
through cash flow from operations and working capital loans 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 cash flows provided by operating activities, and the net proceeds from our initial public offering
of $18.3 million will be sufficient to meet our working capital needs in the next 12 months. If we experience an adverse operating environment
or incur unanticipated capital expenditure requirements, or if we decide to accelerate our growth, then additional financing may be required.
We cannot give any assurance that additional financing will not be required or, if required, would be available on favorable terms if
at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves
the sale of equity securities or instruments that are convertible into equity securities could result in dilution to our stockholders
which may be substantial.
The cash at bank held by our Hong Kong operating
subsidiary can be freely transferred within our corporate structure without restriction. If our Hong Kong operating subsidiary were to
incur additional debt on its own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries
to transfer cash to our U.S. investors.
Contractual Obligations
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Trend Information
Other than as disclosed elsewhere in this
registration statement, particularly with respect to government regulations relating to nicotine and cannabis, 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.
Critical Accounting Policies and Estimates
Estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires us 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 doubtful accounts, the useful lives of property
and equipment and intangible asset, impairment of long-lived assets, and deferred cost. Actual results could differ from those estimates.
Basis of consolidation
Our consolidated financial statements include
the financial statements of us and our subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation.
Because we acquired 100% of the equity of Aspire North America and Aspire Science from a related party for no consideration on July 29,
2022, the acquisitions are treated as the subsidiaries were acquired on July 1, 2020, the first day of the year ended June 30, 2021,
and the outstanding common stock was issued on July 1, 2020.
Revenue
We sell our products to customers around the
world and recognize revenue in accordance with the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts
with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of our 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 us are customer rebates, 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. The range of possible consideration outcomes
is primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in
the various markets served. Because we serve numerous markets, the sales incentive programs offered vary across businesses, but the most
common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.
There are no material instances where variable
consideration is constrained and not recorded at the initial time of sale. Product returns are recorded as a reduction of revenue based
on anticipated sales returns that occur in the normal course of business. We have elected to present revenue net of sales taxes and other
similar taxes.
Our warranties are of an assurance-type and
come standard with all of our products to cover repair or replacement should a product not perform as expected. We offer a warranty for
all major products, including all types of E-vapor kits, atomizers, replacement coils and mods, but no warranty for accessories such
as spare parts or packaging consumables. We generally offer a 90-day warranty period from date of purchase for products sold to all regions,
but from May 2019, we offer a six-month warranty period from date of purchase for products sold in the UK and France. We offer a refund
or replacement of products for manufacturer defective items, dead on arrival items and items that do not appear the same as listed on
our website, and exclude damaged goods caused by misuse or unauthorized repair. Provisions for estimated expenses related to product
warranties are made at the time products are sold. These estimates are established using historical information about the nature, frequency
and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively studies
trends of warranty claims and takes action to improve product quality and minimize warranty costs. We estimate the actual historical
warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. As of 2022 and June
30, 2023, products returned for repair or replacement have been immaterial. Accordingly, a warranty liability has not been deemed necessary.
Disaggregated Revenue
In accordance with ASC 606-10-50-5, we have
taken into consideration the nature, amount, timing, and uncertainty of revenue and cash flows, and have determined to disaggregate our
net sales by whether the products are tobacco or cannabis products, as it is important information for the Company to make resource allocation
decisions. The net sales disaggregated by products for the years ended June 30, 2022 and 2023 were as follows, respectively:
| |
Years ended
June 30, | |
Net sales by products branded | |
2022 | | |
2023 | |
Tobacco vaping products | |
$ | 68,116,810 | | |
$ | 75,562,711 | |
Cannabis vaping products | |
| 19,978,608 | | |
| 40,042,825 | |
Total | |
$ | 88,095,418 | | |
$ | 115,605,536 | |
Income Tax
We account for income taxes under ASC 740.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The provisions of ASC 740-10 prescribe a more-likely-than-not
threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax
return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
For the years ended June 30, 2023 and 2022, we did not incur any interest or penalties related to an uncertain tax position. We do not
believe that there were any uncertain tax positions as of June 30, 2023 and June 30, 2022.
Recent Accounting Pronouncements
The discussion of the recent accounting pronouncements
contained in our consolidated financial statements, “Summary of Significant Accounting Policies,” is incorporated herein
by reference.
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.
INDUSTRY
The information
presented in this section and information elsewhere in this prospectus that relates to the industry has been derived from, to provide
information regarding our industry and our market position. Neither we nor any other party involved in this offering has independently
verified such information, and neither we nor any other party involved in this offering makes any representation as to the accuracy or
completeness of such information. Investors are cautioned not to place any undue reliance on the information, including statistics and
estimates, set forth in this section or similar information included elsewhere in this prospectus.
Tobacco Products
Historically, combustible tobacco products, primarily
cigarettes and cigars, have been, and continue to be, the principal tobacco products used by adult smokers. Diverse customer demands are
driving the innovation in the tobacco industry. Creative tobacco products, such as short cigarettes, king size cigarettes and flavor capsule
cigarettes, have become increasingly popular among the smoking population. To profit from this rising market, tobacco manufacturers will
expend more effort in their product diversification. Raising the price of tobacco products through tobacco tax increases is one of the most
effective tobacco control strategies, because an increase in tobacco prices may encourage existing smokers to quit or cut down and may
deter the youth population from beginning to smoke. Such trend will adversely affect the tobacco industry.
During the past few decades, a number of alternatives
to combustible tobacco products have entered the market. These products can be classified in three categories – smokeless (including
moist snuff and chewing tobacco), e-vapor products and heated tobacco.
Smokeless tobacco is the general term used to
describe tobacco products that are utilized without combustion. Smokeless tobacco is used either in the mouth or in the nose, by chewing
inhaling or sucking, and traditionally has been divided into two subcategories, snuff and chewing tobacco. Snuff was originally a nasal
product but today is more commonly used in the mouth (oral snuff, moist snuff) in a manner similar to that of chewing tobacco.
Vapor devices are distinguished from traditional
combustible tobacco products by their production of vapor through a process of heating rather than the burning associated with the consumption
of cigarettes, cigars, cigarillos or smoking tobacco. In their current form, vapor devices usually include electronic circuitry and a
power source supplying energy to the heating mechanism. Vapor products are not distinguished by the absence of tobacco. While the majority
of current devices (e-cigarettes) are intended for use with a non-tobacco nicotine containing liquid, the category includes tobacco products
where it is heated and not combusted, such as heat-not-burn devices. Closed vaping systems designed to look like a cigarette are referred
to as cigalikes.
Heated tobacco is the consumable element of tobacco
vapor products and can come in the form of tobacco pods such as PloomTech capsules or in specially designed cigarettes.
Our products are vapor devices, which are categorized
as closed system vaping devices (non-cigalikes), vaping components, and open system vaping devices.
Over the past ten years, both technological advances
and consumer demand resulting in large part from a desire to obtain the effects of smoking without the adverse health effects resulting
from smoking cigarettes, have led to both an increase in the global popularity of vaping along with the application of anti-tobacco legislation
and regulation to electronic products, including vaping. Innovation in battery and other component technologies have greatly improved
product functionality and reliability. Many consumers are attracted to the discreetness that vaporizers provide in terms of size and ease
of use, style/fashion, and the perception that vaping is less detrimental to health than cigarettes. As a result, the market for vaping
devices has been growing rapidly over the past few years.
The following table shows the estimated retail
sales for the years of 2017 through 2022 for all smokeless tobacco products, all vapor products, all e-vapor products, all closed vaping
systems other than cigalikes and all open vaping systems (in millions of US dollars).
| |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
All smokeless tobacco products | |
$ | 29,448 | | |
$ | 40,213 | | |
$ | 50,248 | | |
$ | 55,819 | | |
| 67,917 | | |
| 79,835 | |
E-vapor products | |
| 11,438 | | |
| 15,520 | | |
| 20,540 | | |
| 20,06 | | |
| 22,791 | | |
| 26,304 | |
Closed System Rechargeable and Cartridges | |
| 3,659 | | |
| 6,599 | | |
| 11,820 | | |
| 11,434 | | |
| 13,102 | | |
| 15,725 | |
Open vaping systems | |
| 7,356 | | |
| 8,402 | | |
| 8,303 | | |
| 7,852 | | |
| 8,440 | | |
| 9,063 | |
Source: Euromonitor International Limited,
Tobacco 2022, retail value RSP incl sales tax, US$, fixed 2021 exchange rates, current terms. Data extracted on 25 August, 2022.
The following table shows the estimated projected
retail sales for the years of 2023 through 2026 for all smokeless tobacco products, all vapor products, all e-vapor products, all closed
vaping systems other than cigalikes and all open vaping systems (in millions of US dollars).
| |
2023 | | |
2024 | | |
2025 | | |
2026 | |
All smokeless tobacco products | |
$ | 93,263 | | |
$ | 108,68 | | |
$ | 123,872 | | |
$ | 141,658 | |
E-vapor products | |
| 29,911 | | |
| 33,245 | | |
| 36,742 | | |
| 40,478 | |
Closed System Rechargeable and Cartridges | |
| 18,575 | | |
| 20,941 | | |
| 23,404 | | |
| 25,949 | |
Open systems | |
| 9,622 | | |
| 10,431 | | |
| 11,313 | | |
| 12,357 | |
Source: Euromonitor International Limited,
Tobacco 2022, retail value RSP incl sales tax, US$, fixed 2021 exchange rates, current terms. Data extracted on 25 August, 2022.
Certain health research institutions have published
reports providing tentative indication that e-vapor products may serve to mitigate certain health risks that are commonly associated with
use of combustible tobacco products, reduce harm of second-hand smoke and help reduce tobacco use. However, currently there remain uncertainties
regarding whether e-vapor products are sufficiently safe for their intended use and health risks associated with the usage of e-vapor
products have been under scrutiny. According to certain health research institutions, e-vapors products’ long-term health effects
and risks are unclear given the early stage of development of the products. The United States Centers for Disease Control states on its
website that heated tobacco products produce emissions that are not as safe as clean air, studies of secondhand emissions from heated
tobacco products suggest that the products expose both users and bystanders to some of the same chemicals found in cigarette smoke, although
at lower levels than cigarette smoke, and additional research is needed to understand the health effects of heated tobacco products and
their emissions. The use of any tobacco product is harmful, especially for youth, young adults, and pregnant women, as well as adults
who do not currently use tobacco products. Further, regardless of whether they are heated by flame or electronically, heated tobacco products
contain nicotine, which is highly addictive, and nicotine exposure can also harm the developing adolescent brain, and nicotine is toxic
to developing fetuses.
The general lack of industry standards has resulted
in significant variations among different brands and products in terms of product features, quality assurance and control.
Cannabis Products
Cannabis has a long and entrenched history in
the United States due to considerable popularity of medical and recreational use in addition to long-standing industrial production of
hemp. While the 20th century saw the growth of increasingly negative attitudes towards cannabis from policy makers and the
general public, recent decades have witnessed a significant shift in the perception of cannabis. In the late 1990s, acceptance of medical
cannabis grew enough to allow for changes in regulation, and the 2010s have seen rapid expansion of social acceptance for recreational
use. Medical cannabis in particular has seen increasing approval as Americans seek alternatives to pharmaceutical products in the wake
of a serious public health crisis related to prescription opioids. Legalization is also increasing thanks to growing movements seeking
to reform the U.S. criminal justice system. Increasing numbers of American political reformers see eliminating criminal penalties for use
and sale of cannabis as a way to address various social and economic inequalities.
An estimated 28.6 million Americans participated
in the legal cannabis market in 2021 up from 23.7 million in 2019. This rapid growth is the result of growing legalization of medical
and adult-use cannabis as well as consistent if somewhat diminished growth in CBD use. During the forecast period, growth will continue
as consumers new to cannabis enter the market and also as illicit market users switch to legal products.
Adult-use cannabis has attracted mainly recreational
consumers who use cannabis for relaxation and socialization. Former medical cannabis users have also been attracted to the adult-use space
as it has expanded due to its lower barriers to entry (no requirement to get permission from a doctor to gain access) and significant
overlap of products between medical and adult-use product line-ups. Nonetheless some medical patients do opt to continue using medical
cannabis even after adult-use legalization due to preferential tax rates on medical products in some states. Reasons for CBD use vary
widely as claims made regarding its effects have been extremely numerous, although common examples are medical and include relief from
anxiety and pain. The inability of manufacturers to make specific claims about the benefits of their products leads consumers to gather
information on CBD’s uses from secondary sources of varying credibility. This lack of clarity is compounded by a lack of broad scientific
consensus regarding CBD’s uses and best practices for consumers. Further research and a more clearly defined framework from the
FDA could be extremely valuable in ameliorating confusion regarding CBD among consumers.
Social
acceptance of cannabis is growing in the U.S. as 2020 saw a further four states legalize adult-use cannabis, including states that previously
held negative attitudes towards cannabis. Euromonitor survey data indicate that, in legal adult-use states, more than 40% of legal age
consumers have consumed cannabis. CBD use is also widespread among Americans interested in pain relief and relaxation.
Cannabis vaping is the action of inhaling and
exhaling vapor containing cannabis oil produced by a vaporizer technology device. We believe that vaping has become the preferred choice
of many cannabis users due to its discreetness in both carrying and smell, ease of use, and perceived health benefits relative to smoking
combusted cannabis. As the tables below show, cannabis vaping products for adult recreational use are largely
limited to the United States with modest sales in Canada.
The following table shows the estimated projected
retail sales of cannabis vapor products for adult recreational use worldwide and in the United States and Canada for the years of 2022
through 2025 (in millions of US dollars)
| |
2022 | | |
2023 | | |
2024 | | |
2025 | |
Worldwide | |
$ | 5,710 | | |
$ | 7,313 | | |
$ | 8,864 | | |
$ | 10,580 | |
United States | |
| 5,060 | | |
| 6,467 | | |
| 7,797 | | |
| 9,318 | |
Canada | |
| 650 | | |
| 842 | | |
| 1,060 | | |
| 1,247 | |
Source: Euromonitor International Limited,
Cannabis 2022, retail value RSP incl sales tax, US$, fixed 2021 exchange rates, current terms. Data extracted between January 12-28, 2022.
No country in Western Europe has yet legalized
recreational cannabis, but the region has some of the most developed cannabis cultures in the world, such as in the Netherlands and Spain.
However, great differences persist among consumers, with older generations typically being more reluctant to allow cannabis use. Clear
generational and social gaps still exist that make legalization and development of the market a slow process, although the potential legalization
of adult-use cannabis in Germany is likely to accelerate the cannabis debate within the EU and promote the development of the industry
at a regional level.
Western Europe’s cannabis market is still
in its infancy, with limited consumption due to restrictive legislation on recreational and medical cannabis across the region. Legalization
of medical and recreational cannabis across countries will increase the consumer base and expand the availability of products rapidly
in the region, with consumer awareness of its wellbeing properties rising among the European population. The coalition government in Germany
stated clearly that it is introducing the controlled supply of recreational cannabis to adults in licensed shops. However, implementation
is proving to be a monumental task since legalization involves almost every federal government ministry.
BUSINESS
Overview
We are engaged
in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping
products. We sell our tobacco products worldwide except for the PRC, the United States, and Russia. Our tobacco products are marketed under the Aspire brand
name and are sold primarily through our distribution network.
We currently sell our cannabis vaping hardware
only in the United States, and we have recently commenced marketing activities in Canada and Europe. All of our products are vaping hardware.
Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device, and includes dabbing, which
is the recreational inhalation of extremely concentrated cannabinoids, typically tetrahydrocannabinol, the main psychotropic cannabinoid
derived from the marijuana plant. Our cannabis products are marketed under the Ispire brand name, primarily on an ODM basis to other
cannabis vapor companies. ODM generally involves the design and customization of core products to meet each brand’s unique image
and needs, and our products are sold by our customers under their own brand names although they may also include our brand name on the
products.
Our products use our BDC (bottom dual coil) coil
technology which uses bottom dual coils to provide much higher temperature and an expanded heating that achieves much greater flavor and
vapor production. We believe that the use of our dual-coil technology enhances the flavor performance of e-liquid, and the hidden wick
cotton with special designed wick holes can both extend the tank e-liquid capacity and improve the speed of wicking to increase the coil
life.
Our BVC (bottom vertical coil) coil represents
what we believe is a significant technological breakthrough for us in coil technology utilizing a vertical heating wire surrounded by
cotton. This design can enable the coil heating to provide uniform temperature from the tank, together with more efficient wicking. This
new technology, which Aspire Global introduced in 2014, enables the coil to last longer while still giving users what we believe is the
purest and cleanest taste from e-liquids. The BVC coils are still very popular for MTL (mouth to lung) vapors today.
Our Cleito tank brings new and innovative
technological advancement to the vaping industry. The Cleito uses a revolutionary new coil design that replaces the standard chimney
and, we believe, delivers maximized airflow. This design frees up even more restriction in the airflow by eliminating the need for a
static chimney within the tank itself, which results in an expanded flavor profile and increased vapor production. Combined with a Clapton
kanthal coil for maximum flavor, the Cleito tank delivers a rush of intense flavor and huge vapor with a broad profile. The simple top-fill
design makes filling very easy and use more convenient and enjoyable.
Our Ispire cannabis vapor products use our patented
DuCore™ (Dual Coil) technology for cannabis vaporizers. This technology enables users to create massive plumes of vape without burning
the cannabis oil. These products incorporate our patented dual coil technology for what we believe is best-in-class airflow and taste,
and our technology for eliminating the leakage of the oil from the unit, which overcomes a major disadvantage with many existing products.
In June 2023, we introduced our proprietary Ispire
ONETM technology and products. Ispire ONETM is designed to eliminate capping issues in the manufacturing/co-packing
process; increase consistency and quality of the filled devices; eliminate leaking, spitting, or overheating for cartridges, disposables,
and PODs; and improve consumer safety, as the devices are sealed in a sterilized factory environment to eliminate risk of contamination
during filling process by Ispire’s customers.
Our products are manufactured and supplied
by Shenzhen Yi Jia, which is 95% owned by our co-chief executive officer and controlling stockholder, Tuanfang Liu. We have taken steps
toward the development of manufacturing operations in California and Malaysia. We expect to receive our first fully automated assembly
system and related equipment in our California facility in late January 2024. We anticipate fine-tuning the system and completing the
clean room where the system will be housed with initial production expected to commence in the first half of 2024. Initially, our primary
manufacturing operations will be assembling from components that we purchase from other companies. Although we expect that we will commence
these assembly operations in both California and Malaysia during by first half of 2024, due to the nature of these activities and the
infrastructure required, we may encounter unexpected timing issues or operational and regulatory challenges which could impact our ability
to meet this timetable for either or both locations, we cannot assure you that we will be able to meet this timetable or that we will
be able to effectively and efficiently establish or conduct such operations in either location. As the initial steps to establishing
a manufacturing facility in Malaysia, we have leased a site for our proposed manufacturing facility and have begun to hire employees
for these operations. Although we expect that we will commence these assembly operations in both California and Malaysia during by first
half of 2024, due to the nature of these activities and the infrastructure required, we may encounter unexpected timing issues or operational
and regulatory challenges which could impact our ability to meet this timetable for either or both locations, we cannot assure you that
we will be able to meet this timetable or that we will be able to effectively and efficiently establish or conduct such operations in
either location.
We sell the Aspire brand of tobacco vaporizer
technology products in more than 30 countries through our global network of more than 150 distributors. The primary markets for our tobacco
products are Europe and the Asia Pacific region, which does not include the PRC.
The following table sets forth our tobacco
revenue and percentage for tobacco products by region for the years ended June 30, 2022 and 2023 based on information provided to us
by our distributors (dollars in thousands).
| |
Year Ended June 30, | |
| |
2022 | | |
2023 | |
| |
Revenue | | |
% | | |
Revenue | | |
% | |
Europe | |
$ | 51,886 | | |
| 76.2 | % | |
$ | 58,764 | | |
| 77.8 | % |
Asia Pacific (excluding PRC) | |
| 13,213 | | |
| 19.4 | % | |
| 14,919 | | |
| 19.7 | % |
North America | |
| 2,849 | | |
| 4.2 | % | |
| 1,565 | | |
| 2.1 | % |
Others | |
| 169 | | |
| 0.2 | % | |
| 315 | | |
| 0.4 | % |
Total | |
| 68,117 | | |
| 100 | % | |
| 75,563 | | |
| 100 | % |
For the years ended June 30, 2022 and 2023,
our revenues from cannabis products was approximately $20.0 million and $40.0 million, respectively. All sales of cannabis products to
date have been in the United States, although we have recently commenced marketing efforts in Canada and Europe, primarily the European
Union.
Acquisition of Our Business from a Related
Party
We were formed on June 13, 2022. We have two operating
subsidiaries, Aspire North America LLC, a California limited liability company (“Aspire North America”), and Aspire Science
and Technology Limited, a Hong Kong corporation (“Aspire Science”). On July 29, 2022, we acquired 100% of the equity interest
in Aspire North America from Aspire Global Inc. (“Aspire Global”), and our wholly-owned subsidiary Ispire International Limited,
a British Virgin Islands corporation (“Ispire International”), acquired 100% of the equity interest in Aspire Science from
a wholly-owned subsidiary of Aspire Global in connection with a restructure by Aspire Global pursuant to which the equity in Aspire North
America and Aspire Science was transferred to us, and, at the time of the transfer, we had the same stockholders as Aspire Global.
Aspire North America commenced marketing cannabis
vaping products in mid-2020. Aspire Science markets tobacco vaping products worldwide, except for the PRC and Russia. Since Aspire North
America and Aspire Science were acquired from a related party for no consideration, our consolidated financial statements for the years
ended June 30, 2022 and 2023 include the assets and liabilities of these subsidiaries on the balance sheet dates at their historic costs
and the results of their operations and cash flows for the years then ended as if these subsidiaries were owned by us on July 1, 2021.
Aspire
Global is a related party. Tuanfang Liu is Aspire Global’s chief executive officer and a director of both us and Aspire Global,
and his wife, Jiangyan Zhu, is also a director of both companies. Mr. Liu and Ms. Zhu beneficially 61.3% and 4.6%, respectively, of our
outstanding common stock and 66.5% and 5.9% of Aspire Global’s ordinary shares. Upon
our formation we issued 50,000,000 shares of common stock to the stockholders of Aspire Global in the same proportion as their stockholdings
in Aspire Global.
We presently purchase our tobacco vaping and cannabis
vaping hardware from Shenzhen Yi Jia. Pursuant to agreements dated January 27, 2023, between Aspire North America and Shenzhen Yi Jia
and between Aspire Science and Shenzhen Yi Jia, we purchase our cannabis and tobacco vaping products form Shenzhen Yi Jia at market prices,
provided that the price, delivery, warranty and other terms are no less favorable to us that the price, delivery, warranty and other terms
that are provided to any other customer of Shenzhen Yi Jia.
Our intellectual property was developed primarily
by our co-chief executive officer, Tuanfang Liu. Our research and development team is headed by Mr. Liu. Our intellectual property was
owned by Shenzhen Yi Jia, which had patents or patent application in the United States, the PRC, the European Union and elsewhere relating
to various functional and ornamental aspects of our products. These patents cover both the cannabis and tobacco products. Pursuant to
the Intellectual Property Transfer Agreement, Mr. Liu, Aspire Global and Shenzhen Yi Jia transferred to Aspire North America all patent
and other intellectual property rights, including trademarks, Know-how and Know-how Documentation, as defined in the agreement, relating
to the cannabis vaping products, and to transfer to us any new intellectual property developed or acquired by Mr. Liu, Aspire Global and
Shenzhen Yi Jia which relates to cannabis vaping products. The patents, all of which are United States patents and patent applications,
have been transferred to Aspire North America.
Pursuant to the Intellectual Property License
Agreement, Mr. Liu, Aspire Global and Shenzhen Yi Jia granted Aspire Science a perpetual royalty free sole and exclusive right and license
to use and practice all of the Licensed Technology worldwide except for the PRC and Russia. The Licensed Technology includes all patents,
know-how, know-how documentation and trademarks, whether now existing or hereafter developed or acquired by, or for, Mr. Liu, Aspire Global
and/or Shenzhen Yi Jia that relate, directly or indirectly, to the tobacco vaping market. Pursuant to the License Agreement, neither Mr.
Liu, Aspire Global nor Shenzhen Yi Jia has any right to market or sell or grant distributors the right to market or sell tobacco vaping
products in the world other than in the PRC and Russia.
Effects of COVID-19 Pandemic
In December 2019, coronavirus disease 2019 (COVID-19)
was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic has resulted
in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which are no longer
in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United States Department
of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day on May 11, 2023.
The extent to which COVID-19 impacts our operations
on an ongoing basis is highly uncertain. Since our products are presently manufactured in the PRC by a related party, any changes in
the outbreak in the PRC and any changes in the PRC government’s policy may affect our supplier’s operations which could affect
its ability to manufacture and deliver product in a timely manner.
Matters Relating to PRC Laws
The majority of our operations are in United States.
We are mainly engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes
and cannabis vaping products. The sales of our tobacco products are conducted worldwide except for the PRC, the United States, and Russia.
Through our global distributor network of more than 150 distributors, we sell the Aspire brand of tobacco vaporizer technology products
in more than 30 countries and the main markets for such tobacco products are Europe and the Asia Pacific region, which does not include
the PRC. We do not conduct business and we do not have any employees, assets or funds in mainland China. Although most of our cash is
in Hong Kong banks, a significant portion of these funds is to be paid to related parties. See “Certain Relationships and Related
Party Transactions.” Our operations are primarily in the United States. Although Tuanfang Liu, our co-chief executive officer,
lives in mainland China, where Shenzhen Yi Jia is located, the services that he performs for us in his capacity as our co-chief executive
officer are performed primarily in Hong Kong and the United States. In addition to serving as our co-chief executive officer, Mr. Liu
is chairman of Shenzhen Yi Jia, and the services he provides in mainland China are performed in his capacity as chairman of Shenzhen
Yi Jia. Our employees are largely in the United States, with 62 employees based in the United States and where our research and development
activities are conducted, and seven employees in Hong Kong. Our facilities are located primarily in the United States, where we lease
more than 41,221 square feet of office, manufacturing and storage space and where our research and development activities are conducted,
as compared with 1,850 square feet of office space in Hong Kong. We do not have any variable interest entities arrangements or any similar
agreements. As of the date of this prospectus, we do not believe we are subject to PRC Laws applicable to those Chinese companies established
in mainland China, based on advice from Han Kun Law Offices.
We have two operating subsidiaries established
in California and Hong Kong. Hong Kong was established as a special administrative region of the PRC in accordance with Article 31 of
the Constitution of the PRC. The Basic Law of the Hong Kong Special Administrative Region of the PRC (the “Basic Law”) was
adopted and promulgated on April 4, 1990 and became effective on July 1, 1997, when the PRC resumed the exercise of sovereignty over
Hong Kong. Pursuant to the Basic Law, Hong Kong is authorized by the National People’s Congress of the PRC to exercise a high degree
of autonomy and enjoy executive, legislative and independent judicial power, and the PRC laws and regulations shall not be applied to
Hong Kong, other than those relating to national defense, foreign affairs, and certain other matters that are not within the scope of
autonomy of Hong Kong. While the National People’s Congress of the PRC has the power to amend the Basic Law, the Basic Law also
expressly provides that no amendment to the Basic Law shall contravene the established basic policies of the PRC regarding Hong Kong.
As a result, as of the date of this prospectus, national laws of the PRC that would be applicable to us if we were a Chinese corporation
do not apply to our Hong Kong subsidiary. However, there is no assurance that certain PRC laws and regulations, including existing laws
and regulations and those enacted or promulgated in the future, will not be applicable to our Hong Kong subsidiary due to change in the
current political arrangements between mainland China and Hong Kong or other unforeseeable reasons. The application of such laws and
regulations may have a material adverse impact on us, as relevant PRC authorities may impose fines and penalties upon our Hong Kong subsidiary,
delay or restrict the repatriation of the proceeds from this offering into Hong Kong, and any failure of us to fully comply with such
new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our common stock,
cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect
our financial condition and results of operations and cause our common stock to significantly decline in value or in extreme cases, become
worthless.
Our Corporate Organization
We are a Delaware corporation, incorporated
on June 13, 2022. Aspire North America, LLC, a California limited liability company was formed on February 22, 2020, and 100% of its
ownership was transferred to Aspire Global on September 23, 2020 and was transferred by Aspire Global to Ispire Technology on July 29,
2022. Aspire Science, a Hong Kong corporation, was formed on December 9, 2016 as a subsidiary of Aspire Global, and 100% of its equity
was transferred to our subsidiary, Ispire International, on July 29, 2022. Ispire International was formed on July 6, 2022. Ispire Malaysia
Sdn Bhd was formed on our behalf by Tuanfang Liu, our Chairman and Co-Chief Executive Officer, under the laws of the Federation of Malaysia
on September 1, 2023 and assigned to us on September 22, 2023. Aspire North America and Aspire Science are our operating companies.
The following chart shows our corporate structure.
Our Strategy
We are implementing a multi-prong growth strategy
directed at increasing the sales of our e-cigarette and cannabis vaporizer technology products.
In addition to increasing sales to our existing
customers, we plan to increase sales of our e-cigarette vaporizer technology products by increasing the number of distributors and regions
where our products are sold. We plan to increase sales of our cannabis products by increasing sales to existing customers, increasing
our customer base in the United States and seeking to penetrate the Canadian and European markets as they develop. We closely follow the
legalization of cannabis globally and plan to enter markets when opportunities arise.
Research and development is at the core of our business. We will continue
to innovate via our own research and development efforts. Tuanfang Liu, our co-chief executive officer developed the patented DuCoreTM
technology, which has been assigned to us, enabling our cannabis vaporizer products to heat cannabis oil, which, we believe is the first
leak-proof patented design, which enables the consumer to get the full flavor experience of the cannabis. We will continue to expand our
technology leadership and invest in vaporizer and similar technology research and development. Our present products are designed for adult
recreational use. Our research and development activities will be oriented to focus on both medical and recreational usages of cannabis
products. We recognize that industry trends can change rapidly. We believe that our products must be at the forefront of technology if
we are going to develop our business. The cannabis vaping business is in its early stages and we will seek to develop a strong and leading
position in this market. This market is currently largely in the United States and we plan to be in the forefront as other markets develop.
Through our global sales network, we have a strong
understanding of all of the markets in which our products are sold. We will use forum and community groups as a means to increase engagement
and collect feedback for future improvements in product research and development. We will seek to introduce new products to meet customer
needs based on our assessment of the direction of the market.
We will also pursue mergers and acquisitions
and strategic relationships to increase our technological human resources and technology and product portfolio. We believe that we have
a strong management team adept at integrating such acquisitions and we believe that we are an attractive platform to potential acquirees.
We plan to develop manufacturing capabilities in California and Malaysia.
However, initially, and for at least a few years, our manufacturing operations will primarily involve the assembly of products from components
manufactured for us in accordance with our specifications.
We are expanding our OEM and ODM business. OEM generally means making
and selling the products as we design them and putting customers’ logos on the products. For OEM products, cost is important to
the customer. ODM generally involves the design and customize the core products to meet each brand’s unique image and needs. For
ODM, technology, performance and uniqueness are often more important, with cost generally being a secondary consideration. Historically,
for our tobacco products, we have focused on building and growing our own branded business, with OEM and ODM sales accounting for a minor
portion of our revenue. OEM and ODM sales accounted for approximately $0.7 million and $4.5 million, or 1.0% and 6.0%, of total revenue
of tobacco products in the years ended June 30, 2022 and 2023, respectively. As Aspire Global continued to innovate in the last decade
and the Aspire brand has become recognized as a leading innovator in the vaping industry, Aspire Science has been sought after by other
brands for OEM and ODM work. We believe that OEM and ODM for our tobacco products will represent a key growth area for us in the future.
In seeking to introduce new products, we will, at least initially, rely upon our chairman, Tuanfang Liu, who has been largely responsible
for the development of the technology underlying our tobacco and cannabis vaping products.
Sales of our cannabis products to date are largely
sales to cannabis brands on an ODM basis, and we anticipate that our cannabis sales will continue to be primarily ODM sales for the near
future. It is the responsibility of our customers, which are cannabis brands, to manufacture the cannabis oil and load the oil into our
vaping hardware product. We also sell some hardware products to end users, but our sales are primarily to ODM users. None of our products
include cannabis oil or hemp oil.
Our Products
Tobacco Products
We develop and sell both branded and, to a
significantly lesser extent, OEM and ODM tobacco vaping systems and components (cartridges and batteries) to meet the needs of adult
users worldwide, excluding the United States, the PRC and Russia. Such battery-powered systems and components are commonly used in tobacco
(e-liquid).
There are generally two types of vaping systems
– open system and closed system.
The term open system generally refers to vaping
devices consisting of tanks, which include heating coils, and mods, which include the battery packs. Open system vaping devices allow
end consumers to refill the tanks with their own liquid by themselves. With open systems, consumers have great flexibility in mixing different
coils, mods, and e-liquid to create a more personalized experience. Our open system vaping devices are sold under our own brands, including
“Nautilus,” and “Zestquest.”
The term closed system generally refers to vaping
devices that consist of cartridges, which include a heating core (sometimes referred to as atomizers) and is filled with e-liquid,
and batteries, which power the cartridges. The closed system vaping devices includes rechargeable closed system vaping devices and disposable
closed system vaping devices. The cartridge can last from a few days to two weeks, depending upon the frequency of use. We market a line
of closed systems. Unlike the open system, the closed system includes the coils and liquid. We believe that the market for closed systems
is increasing rapidly and it is becoming the dominant form of tobacco vaping.
Initially, all of our products were open systems.
The first closed system was introduced in 2018.
Our vaping components include cartridges, lithium
batteries, metal parts such as coils, plastic parts that are molded, circuit boards (printed circuit board assembly) and liquid cartridges
for our products. The cartridges of closed system vaping devices are consumable products that need to be frequently replaced.
Our products use our BDC (bottom dual coil)
coil technology which uses bottom dual coils to provide double temperature and expand the heating area and achieve double flavor and
vapor production. This technology allows for two separate oil tanks/cartridges to be integrated into one product/design. Each of the
cartridges has its own heating coil that can be regulated separately to generate the desired heating temperatures independent of each
other. This is beneficial to the consumers because one cartridge could be designed for terpenes (which has a very low evaporation temperature,
typically 100-120 degree Fahrenheit), and the other can be for cannabis oil (which has a evaporating temperature in the range of 400-430
degree Fahrenheit). Conventional cartridge design would have the terpenes and cannabis oil mixed together in one cartridge and be heated
to a single temperature that would typically burn the terpenes and yet under-heat the cannabis oil. With the double flavor design, we
can optimize the heating temperature to evaporate both terpenes and cannabis oil without burning them. We believe that the use of our
dual-coil technology enhances the flavor performance of e-liquid, and the hidden wick cotton with special designed wick holes can both
extend the tank e-liquid capacity and improve the speed of wicking to increase the coil life.
The only tobacco vaping product that we may
now sell in the United States under current regulations is the Nautilus Prime product line, which is an open system. When the
products on the market primarily used plastic atomizers, we created Nautilus, with a high-end and attractive appearance. It is the
world’s first tank using a stainless steel top and base hardware, a 5ml Pyrex glass tank, and long stainless steel drip tip,
as well as our revolutionary airflow control system. This unique four-port adjustable airflow system allows the users to adjust the
draw, warmth of vapor, and amount of vapor produced with the lower ring with four settings according to their vaping needs. This BVC
coil can provide pure and intense flavor. We believe that all of these features make the Nautilus a special atomizer and provide the
best vaping experience possible at the moment. The Nautilus Prime system is the only system that we may sell in
the United States. The Nautilus Prime is an enhancement of our original Nautilus product, for which we do not have authorization to
sell in the United States. Because of low sales volume for the only product that we may sell in the United States and the current
regulations, in 2020, we ceased marketing tobacco vaping products in the United States.
Our BVC (bottom vertical coil) coil represents
a big technological breakthrough for us in coil technology with a vertical heating wire surrounded by cotton. This design can enable
the coil heating to provide uniform temperature from the tank, together with more efficient wicking. This new technology, which Aspire
Global introduced in 2014, enables the coil to last longer while still giving users what we believe is the purest and cleanest taste from
e-liquids. The BVC coils are still very popular for MTL (mouth to lung) vapors today.
We believe that our Cleito tank brings new
and innovative technological advancement to the vaping industry. The Cleito uses a revolutionary new coil design that replaces the standard
chimney and, we believe, delivers maximized airflow. This design frees up even more restriction in the airflow by eliminating the need
for a static chimney within the tank itself, which results in an expanded flavor profile and increased vapor production. Combined with
a Clapton kanthal coil for maximum flavor, the Cleito tank delivers a rush of intense flavor and huge vapor with a broad profile. The
simple top-fill design makes filling very easy use more convenient and more enjoyable.
Cannabis Products
In December 2020, we introduced the Ispire
line of cannabis vaping products. For the years ended June 30, 2022 and 2023, our sales of Ispire products were $20.0 million and $40.0
million, respectively, all of which was in the United States, although we have commenced marketing efforts in Canada and Europe, primarily
in the European Union. Our Ispire products use our patented Ducore™ (Dual Coil) technology for cannabis vaporizers. Similar to
the Nautilus series, this technology enables users to create massive plumes of vape without burning the cannabis oil. These products
incorporate our patented dual coil technology for what we believe is best-in-class airflow and taste, and our technology for eliminating
the leakage of the oil from the unit, which overcomes a major disadvantage with many existing products. In addition to the base unit,
we offer a range of cartridges, mouthpieces and color options. In our ODM services, we work with the customer to design the product that
has the desired appearance. All the products are made of stainless steel and the fluid housing is Pyrex glass. We are not involved in
cannabis or hemp plant or oil business, and we do not provide or procure cannabis or hemp oil. Our product, which is hardware only, is
designed for our customers to fill the cartridge with their own cannabis or hemp oil. Cannabis oil, unlike nicotine oil or liquids which
is generally of a uniform consistency, is not of a uniform consistency, with the result that if the oil is too viscous, the user will
not have good experience with the product and our customer may reject or return the product. We do not package the oil with our product
and either our customer purchases the oil separately from the product it purchases from us or the end user purchases the oil independently.
We have no way to ensure that the consumer will use a cannabis oil that will work in the product we have manufactured for our customer.
In June 2023, we introduced our proprietary Ispire
ONETM technology and products. Ispire ONETM is designed to eliminate capping issues in the manufacturing/co-packing
process; increase consistency and quality of the filled devices; eliminate leaking, spitting, or overheating for cartridges, disposables,
and PODs; and improve consumer safety, as the devices are sealed in a sterilized factory environment to eliminate risk of contamination
during filling process by Ispire’s customers.
Sales and Distribution
Most of our revenue from tobacco products
comes from sales to our distributors. We are looking to increase our OEM and ODM sales of tobacco products, which accounted for 1.0%
and 4.5% of our tobacco revenue for the years ended June 30, 2022 and 2023, respectively. Most of our revenue from cannabis products
is from ODM sales to other cannabis vaping brands, and we work with the customer to design the product, which is sold under the customer’s
brand name and for some customers, the Ispire brand is also on the product.
Prior to our acquisition, Aspire Global sold
tobacco vaping products in the United States through its distribution network. We decided not to market in the United States as a result
of the effect of changes in regulations in the United States because Aspire North America would currently be able to sell one product
line in the United States and that product line did not generate sufficient revenue to justify the marketing and regulatory expenses.
We believe that we have the ability to evaluate
the market need for vaping products and develop products for both the tobacco and cannabis markets. We believe that we have the state-of-the-art
technology, which enables us to market to other cannabis vaping brands. We believe that we have implemented systems of quality control
that cover the key steps of supply chain management to provide high-quality products to adult smokers in a consistent manner. We strictly
uphold our extensive internal standards for various aspects of our products and conduct thorough quality assurance and control practices
throughout the entire production cycle.
Our cannabis vapor products are sold directly
by us, with most of our sales being to other cannabis vaping brands who purchase the product from us on an ODM basis and sell the products
under their brand name, although our Ispire brand may be included on the product. We work with the customer in the design and appearance
of the product. We also sell Ispire hardware online, but such sales do not generate significant volume. We do not sell cannabis or hemp
oil, either as part of a product or separately.
For our tobacco products, we have a network
of more than 150 distributors, whose territories cover more than 30 countries or regions. Our distributors have non-exclusive agreements
and generally are not restricted from selling competing vapor products. Our largest distributor, whose territory was United Kingdom and
France, is Your-Buyer International Limited, which accounted for revenue of approximately $34.1 million 38.8% of revenue and approximately
$37.4 million, or 32.4% of revenue for the years ended June 30, 2022 and 2023, respectively. No other distributor or customer accounted
for 10% or more of our revenues for either the year ended June 30, 2022 or 2023.
Typically, our distributors sell our products
to wholesalers who in turn sell to retail distributors although distributors may sell products directly to retail outlets. The vast majority
of sales of all classes of smokeless tobacco is sold in stores, primarily grocery stores, convenience stores and tobacco stores, which
generally purchase product from wholesale distributors. Our products are also available from our distributors on the internet, including
both websites and services such as Amazon. These internet distribution channels are operated by our distributors. The distributors are
responsible for complying with the laws of the countries in which they sell our products. We previously sold tobacco vaping products to
a distributor for Russia, and we no longer sell to that distributor.
We assist our distributors in marketing our products
through websites, blogs, search engine optimization (SEO), opt-in and e-mail marketing, social media marketing, influencer, marketing
and digital advertising promotions. Opt-in and email marketing strategies include newsletter sign-ups to receive new product updates and
promotions, giveaway promotional activities to drive conversion, coupons and discounts promotion activities to increase sales.
We may use social media to promote our products
and we market to consumers through our websites and Instagram. We use social media to educate on current and new products and offers as
well as to provide real-time support to customers. Our social media strategies aim to convert and nurture leads, to increase brand awareness.
We also provide distributors with discounts and
other sales incentives. From time to time, based on our sales or marketing strategy for a specific region or product, we will give distributors
discounts. Although our distributors do not have sales quotas, they have sales goals and, from time to time, we may reward distributors
for exceeding their sales targets. These promotions are not part of a standard plan, but developed by us from time to time based on our
sales and marketing program.
All of our sales of Ispire cannabis products
are made directly by our sales team in California and not through distributors. Our effort in marketing, branding and sales initiatives
for this product since the product introduction in late 2020 has resulted in a significant increase in brand awareness, as reflected
in our sales growth from approximately $20.0 million in the year ended June 30, 2022, the second year in which we had sales of cannabis
products, to approximately $40.0 million in the year ended June 30, 2023. Our sales of Ispire cannabis products to date, which have been
primarily through direct sales of Ispire branded atomizers to other cannabis brands as semi-finished products on an ODM basis. Pursuant
to our agreements with our ODM customers, we design and sell these atomizers pursuant to purchase orders by the customers. Our logo is
printed on some of these products. To a lesser extent we sell heating devices directly to consumers as internet sales.
Source of Supply
We purchase all of our current tobacco and cannabis
vaping products from Shenzhen Yi Jia. The products that we sell are the same products that Aspire Science and Aspire North America sold
prior to the transfer of the equity in these subsidiaries to us. Pursuant to agreements dated January 27, 2023, between Aspire North America
and Shenzhen Yi Jia and between Aspire Science and Shenzhen Yi Jia, we purchase our cannabis and tobacco vaping products form Shenzhen
Yi Jia at market prices, provided that the price, delivery, warranty and other terms are no less favorable to us than the price, delivery,
warranty and other terms that are provided to any other customer of Shenzhen Yi Jia. In addition, the agreement provides that Shenzhen
Yi Jia will be responsible for any warranty expenses.
We have taken steps toward the development
of manufacturing operations in California . We expect to receive our first fully automated assembly system and related equipment in our
California facility in late January 2024. We plan to fine-tune the system with a view to completing the clean room where the system will
be housed As the initial steps to establishing a manufacturing facility in Malaysia, we have leased a site for our proposed manufacturing
facility and have begun to hire employees for these operations. Our manufacturing operations will, at least initially, consist of primarily
assembling products from components we purchase from suppliers. In this connection, we may purchase components from Shenzhen Yi Jia’s
present suppliers as well as other suppliers which we may identify. Quality control will be a crucial part of our manufacturing process.
We will need to include quality control checks and balances throughout our supply chain and manufacturing process. When selecting suppliers,
we will have our quality control and procurement team visit potential suppliers. We will need to conduct annual inspections of the factories
and we will also visit the factory if any quality issues arise. In connection with the establishment of any manufacturing facilities
we will have to employ qualified manufacturing, supervisory and administrative personnel.
Warranties
We will pass on to our customers the warranties
which Shenzhen Yi Jia provides to us, as a customer. These warranties are of an assurance-type and come standard with all of products
we purchase from Shenzhen Yi Jia and cover repair or replacement should product not perform as expected. We offer these warranties for
all major products, including all types of E-vapor kits, atomizers, replacement coils and mods, but no warranty for accessories such
as spare parts or packaging consumables. Shenzhen Yi Jia generally offers 90-day warranty period from date of purchase for products sold
to all regions, but Shenzhen Yi Jia offers six months warranty period from date of purchase for products sold in the United Kingdom and
France. The warranty offers refund or replacement of products for manufacturer defective items, dead on arrival items and items that
do not appear the same as listed on our website, and exclude damaged goods caused by misuse or unauthorized repair. We generally require
our customers to test our hardware with their oils to confirm the hardware performance and approve the hardware designs, in order to
minimize any hardware related discrepancy or performance issues specific to the formulation of their oils. Since we are passing on the
warranties of Shenzhen Yi Jia, we do not provide for estimated expenses related to product warranties. Management actively studies trends
of warranty claims and takes action to improve product quality and minimize warranty costs. We estimate the actual historical warranty
claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. As of June 30, 2022 and 2023,
products returned for repair or replacement have been immaterial. Accordingly, we do not believe that a warranty liability is required.
Research and Development
We believe that design and attention to detail
are at the heart of our business. Historically, research and development relating to our existing products were conducted primarily by
Shenzhen Yi Jia. We have commenced research and development activities independent of Shenzhen Yi Jia, which has related primarily to
cannabis vaping products. This research and development effort, which is headed by our chairman, Tuanfang Liu, has eleven members, who
are based in Los Angeles. Prior to the transfer of the equity of Aspire North America and Aspire Science to us, the research and development
activities were conducted by Shenzhen Yi Jia. As discussed under “Business – Intellectual Property” we have rights
to intellectual property generated by the research and development efforts of Shenzhen Yi Jia and Mr. Liu.
During the years ended June 30, 2022 and 2023,
research and development effort included the development of the Ispire cannabis vaping system, including patented dual-coil technology,
a closed system for tobacco vaping that is designed to eliminate the problem of oil leaking out of the unit was conducted by Shenzhen
Yi Jia under the leadership of Tuanfang Liu, who is our co-chief executive officer and chief executive officer of Aspire Global. Since
the transfer of Aspire North America and Aspire Science to us in July 2022, we have established our research and development group independent
of Aspire Global and Shenzhen Yi Jia, and the Shenzhen Yi Jia research and development activities relating to both cannabis and tobacco
product are being transitioned to us. We are also entitled to the benefits of Shenzhen Yi Jia’s research and development pursuant
to the Intellectual Property Transfer Agreement and the License Agreement.
Intellectual Property
Shenzhen Yi Jia has patents or patent applications
in the United States, the PRC, the European Union and elsewhere relating to various functional and ornamental aspects of our products.
Pursuant to the Intellectual Property Transfer Agreement, Aspire North America, Aspire Global, Shenzhen Yi Jia and Mr. Liu have transferred
to our subsidiary, Aspire North America, all their intellectual property, including patents, trademarks, brand names, know-how and know-how
documentation that relate directly or indirectly to cannabis and hemp vaping products, and the patents and trademarks, all of which are
United States patents, trademarks and patent and trademark application, have been transferred to Aspire North America. Pursuant to the
License Agreement, Aspire Science has the right to an exclusive (to the exclusion of Shenzhen Yi Jia and Mr. Liu) right and license to
any patents, trademarks and other intellectual property that relates to tobacco vaping products in the territory, which include the world
except for China and Russia.
We believe that the utility patents form the core
intellectual property for our electronic cigarette and vaporizer products. The utility patents primarily relate to atomizer, heating coil,
and battery technologies, which we believe provide enhanced functionality and an improved smoking experience to users of our products.
Our atomizer technology is directed toward enhancing the atomization of e-liquid, including by enabling the user to adjust the airflow
through the atomizer to provide a customized smoking experience. Our heating coil technology is directed towards heating coil designs
and arrangements that deliver heat more efficiently from the heating coil to the e-liquid, thereby producing vapor more effectively. Our
battery technology is directed towards battery assemblies that are replaceable and that are controllable to help facilitate a customized
smoking experience in combination with the atomizer and heating coil technologies.
We believe the design patents cover the visual
aspects of certain of our products and serve to enhance the protection provide by our utility patents. We either own, with respect to
cannabis vaping products, or license on an exclusive basis, with respect to tobacco products, designs patents for the ornamental appearance
of the housing of certain of our electronic cigarettes and cannabis vaping products. Our design patents also extend to the ornamental
appearance of certain electronic cigarette components, including certain aspects of our atomizers and heating coils.
The patents are primarily based on inventions
developed by our chairman, Tuanfang Liu, who has received more than 200 patents in China, the United States, the European Union and other
countries. All of these patents are being or have been assigned, licensed, or otherwise transferred to Shenzhen Yi Jia, which, in turn
is either transferring to Aspire North America, with respect to intellectual property relating to cannabis products, and licensing on
a sole and exclusive basis in the territory, to Aspire Science, with respect to tobacco products. The territory covered by the License
Agreement is the world except for the PRC and Russia. The earliest of patents were filed in 2012. Overall, the patents expire at various
dates through 2037, depending on priority filing date, patent type, and jurisdiction. We intend to work to improve our technology and
products and to seek further patent protection as warranted in connection with any new developments.
We cannot guarantee that our patent rights are
sufficient to protect all aspects of our products or that we will be able to enforce those rights against third parties, as patents can
be challenged, circumvented, or otherwise found to be invalid.
Shenzhen Yi Jia has obtained trademark registrations
for Ispire in the countries which we believe are major markets for our products, including the United States, China, the European Union,
and other countries. In addition to the Ispire mark, Shenzhen Yi Jia has also been granted trademark registrations in the United States
and China for certain products and components, including the marks CLEITO, PERSEUS, PLATO, PROTEUS, and ZESTQUEST. Furthermore, Shenzhen
Yi Jia has submitted trademark applications for the mark Ispire in the United States, China, the European Union, and other jurisdictions
we believe are important markets. To the extent any of these trademarks were held by our chairman, Tuanfang Liu or Shenzhen Yi Jia, those
trademarks have been assigned to Aspire North America with respect to cannabis products pursuant to the Intellectual Property Transfer
Agreement and licensed on an exclusive license (to the exclusion of Aspire Global, Shenzhen Yi Jia and Mr. Liu) to Aspire Science pursuant
to the License Agreement.
We cannot assure you that our patent and trademark
rights are sufficient to protect all aspects of our brands or that we will be to enforce those rights to prevent third parties from using
the same or confusingly similar marks, as trademarks can be opposed, cancelled, or otherwise challenged, especially by parties with rights
to similar marks.
Competition
Vaping products for both tobacco and cannabis
compete with tobacco and marijuana cigarettes and a wide range of other tobacco and legal and illegal cannabis products. In each case,
vaping products seek to provide the user with pleasure that the user derives without the disadvantages.
The worldwide market for tobacco vaping products
is highly competitive, with more than 50 companies selling products which compete with our products. In terms of volume of product sold,
by far the largest worldwide producer of tobacco vapor products is Juul Labs, Inc. British American Tobacco Plc is also a major producer
of tobacco vapor products.
We anticipate that the market for vaping products
will evolve, with technological innovation, changing standards and changes in needs and preferences of adult vapor users. Vaping devices
are more than an alternative to traditional cigarettes. Instead, they represent the user’s taste and offer them a new and fun experience,
as they provide large amounts of vapor, different tastes of e-liquid and fashionable design. In light of such trend and to further differentiate
their vaping devices, manufacturers are upgrading their products in terms of technology and design. Many manufacturers are now providing
full-spectrum vaping devices, including closed system vaping devices, open system vaping devices and other kinds of vaping devices, so
as to be more competitive in the market. In the next few years, with the technology becoming more mature, we anticipate that more differentiated
vaping devices will continuously emerge to draw consumers’ attention. Our recent enhancements to our vaping products, such as the
big smoke effect, have increased interest and sales of our products. We believe that our ability to remain profitable and to increase
our market share is dependent upon our ability to anticipate market demand and develop and market products that address these trends.
The market for cannabis vapor products is a developing
market and at present is mainly limited to the United States, although there is a developing market in Canada, and we believe that a market
is developing in Europe. Our ability to be successful in this market is dependent upon our ability to develop vaping systems that attracts
and retains consumer interest and the regulatory environment in the United States. Our cannabis vaping products compete with other forms
of legal and illegal cannabis, marijuana cigarettes, CBD oil and other CBD products, food products and other vaping products.
Seasonality
Seasonality does not materially affect our business
or the results of our operations.
Human Capital
We believe our people are central to the foundation and future of our
success. Our culture and commitment to our employees are important factors in attracting, retaining, developing and progressing qualified
employees. As of September 30, 2023, we had a total of 78 employees, of which 29 are operations personnel, four are general management
personnel, 25 are in sales and marketing, eleven, including Tuanfang Liu, our co-chief executive officer, are in research and development
relating to cannabis products, and nine are employed by our Malaysian subsidiary.
Culture and Engagement
We value and support our people through, among
other initiatives, our talent management, health and safety, employment practices and total reward programs. We are committed to fostering
a culture of inclusion where differences are welcomed, appreciated and celebrated to positively impact our people and business, and where
our people are engaged and encouraged to support the communities in where they live and work.
Talent Management
We are committed to providing our people with
opportunities to learn, grow and be recognized for their achievements. Through our integrated talent management strategy, we strive to
attract, retain, develop and progress a workforce that embraces our culture of inclusion and reflects our diversity efforts. Our talent
programs play a critical role in attracting and progressing a diverse pipeline of talent. We are also committed to investing in our people
by providing learning and networking opportunities and to drive retention, progression and engagement and help them excel in their current
and future roles.
Health and Safety
We are committed to providing safe and healthy
working environments and taking reasonable preventative measures to protect the health and safety of our employees and customers. We drive
environmental, health and safety excellence across the Company and strive for incident-free workplaces – continuously assessing
and developing measures that are in place to help keep our employees, customers and communities safe. In response to the COVID-19 pandemic,
we have implemented significant changes to our business designed to protect the health and well-being of our employees and to support
appropriate physical distancing and other health and safety protocols. These efforts continue to include: enhanced cleaning and sanitation
procedures; domestic and international travel restrictions; return to work and visitor screening protocols; split shifts at facilities
and the postponement or cancellation of attending large events.
Employment Practices and Total Rewards
We are committed to the fair, consistent and equitable
treatment of our employees in relation to working conditions, wages, benefits, policies and procedures. To this end, our policies and
programs are designed to respond to the needs of our employees in a manner that provides a safe, professional, efficient and rewarding
workplace. Our total rewards programs are designed to offer competitive compensation, comprehensive benefits and other programs to support
employees’ growth, both personally and professionally, and the diverse needs and well-being of our employees worldwide. During 2020,
we enhanced certain of our benefits to support the health and well-being of our employees during the COVID-19 pandemic, including family
leave and voluntary leave of absence policies and programs.
From time to time, we hire part-time employees
as need in connection with our manufacturing. We consider our employee relations to be good.
We enter into labor contracts and standard
confidentiality and intellectual property agreements with our key employees. We believe that maintaining good working relationships with
our employees is essential, and we have not experienced any labor disputes except for the matter set forth below. None of our employees
are represented by labor unions..
Property
Our headquarters are located at 19700 Magellan
Dr, Los Angeles, CA 90502 and we maintain offices, manufacturing and storage facilities at the same location. We do not own any real property,
and we leased an aggregate of approximately 85,483 square feet of real property. We do not expect to experience difficulties in renewing
any of the leases when they expire. If we require additional space, we expect to be able to obtain additional facilities on commercially
reasonable terms.
The following table sets forth information as to the real property
leased by us as of October 5, 2023:
Location | |
Square Feet | | |
Current Annual Rent | | |
Expiration Date |
|
1410 Abbot Kinney Blvd., PH 1, Venice, CA 90291 | |
| 4,121 | | |
$ | 276,000 | | |
June 30, 2026 |
|
19700 Magellan Dr, Los Angeles, CA 90502 | |
| 37,100 | (1) | |
| 734,580 | | |
July 31, 2027 |
|
55 King Yip Street, King Palace Plaza, Floor 31, Suite J, Kwun Tong, Hong Kong | |
| 1,850 | | |
| 81,507 | | |
July 14, 2025 |
|
No. 16, Jalan I-Park SAC 3, Taman Perindustrian I-Park SAC, 81400 Senai, Johor, Malaysia | |
| 31,202 | | |
| 134,641 | | |
August 17, 2026 |
|
Jalan Indah 15/2, Taman Bukitt Indah, 79100, Iskandar Puerti, Johor, Malaysia | |
| | (2) | |
| 6,600 | | |
September 15, 2025 |
|
| (1) | The number in the table reflects the square feet of building
that we occupy. The leased property also includes land, and the total leased land and building is 79,512 square feet. |
| (2) | This location
is a hostel rental for our China personnel who provide technical support. |
Insurance
We consider our insurance coverage to be consistent
with customary industry standards adopted by other companies in the same industry and of similar size although Aspire Science does not
have product liability insurance.
Legal Proceedings
From time to time, we may be subject to legal
or regulatory proceedings, investigations and claims incidental to the conduct of our business.
Other than disclosed below, we are not a party
to, nor are we 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.
On March 17, 2021, the FDA sent a letter to Aspire
North America requesting that Aspire North America submit documents relating to its marketing practices for Aspire products. Specifically,
the FDA requested documents related to youth exposure to Aspire North America’s social media marketing of Aspire as well as Aspire
North America’s use of influencers in social media marketing. This request applied to all of Aspire electronic nicotine delivery
system (ENDS) products and their components or parts. The FDA requested these documents based on the epidemic of youth ENDS use and based
on Aspire North America’s marketing of Aspire products on social media platforms (e.g., Facebook, YouTube, and Instagram). The FDA
requested that Aspire North America respond within 60 days but granted a 30-day extension. On June 15, 2021, Aspire North America provided
the required information to the FDA. To date, the FDA has not substantively responded or taken any further action in the matter. However,
we cannot assure you that the FDA will consider the response adequate and will not initiate regulatory or enforcement action based on
an alleged failure to comply with the request or that the FDA will not initiate regulatory or enforcement action on other grounds based
on the contents of the documents produced in the response. Either result could materially and adversely affect our business, financial
condition, and results of operations.
REGULATIONS
United States
Premarket Tobacco Product Application (“PMTA”)
filings are required for electronic nicotine delivery systems (“ENDS”) products, including devices, components, and/or parts
that deliver aerosolized e-liquid when inhaled. For existing ENDS products that were on the U.S. market on August 8, 2016, a PMTA was
required to be submitted to the FDA by September 9, 2020. We timely filed our PMTA for our Nautilus Prime open system vaping products,
which are the only products we can presently sell in the United States. For new ENDS products that were not on the U.S. market on August
8, 2016, and not the subject of a pending PMTA filed by September 9, 2020, a premarket authorization is required before introducing the
product to the U.S. market. Selling ENDS products without authorization can result in civil penalties, seizures, injunctions, and even
criminal prosecutions.
The PMTA pathway remains open for us to add
further products, but we (and anyone else) cannot now bring new tobacco products to the U.S. market without actual premarket authorizations.
The PMTA process is expensive, time-consuming, and uncertain.
Under the Family Smoking Prevention and Tobacco
Control Act of 2009 (the “TCA”), a PMTA’s components include:
|
● |
Full reports of all information published or known to, or which should reasonably be known to, the applicant concerning investigations which have been made to show the health risks of such tobacco product and whether such tobacco product presents less risk than other tobacco products. |
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● |
Full statement of the components, ingredients, additives, and properties, and of the principle or principles of operation. |
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● |
Full description of the methods used in, and the facilities and controls used for, the manufacture, processing, and when relevant, packing and installation. |
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● |
An identifying reference to
any tobacco product standard, if applicable. |
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● |
Samples of the tobacco product as required. |
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● |
Specimens of proposed labeling. |
In adopting the Consolidated Appropriations
Act, 2021, the COVID-19 relief bill that was signed on December 27, 2020, Congress amended the PACT Act to apply to e-cigarettes and
all vaping products, which includes cannabis vaping products. The legislation amends the PACT Act’s definition of
“cigarette” to include ENDS, which is defined to include “any electronic device that, through an aerosolized
solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device. The term “any other
substance” has been interpreted in regulations to include liquids containing cannabis derivatives as well as nicotine. This
amendment prohibits mailing covered products through the United States Postal Service to consumers (with exceptions for certain
business-to-business mailings) and requires reporting to federal and state agencies. These restrictions make it more difficult for a
seller of vaping products to sell the products in the United States.
Briefly, the PACT Act requires any person who
sells, transfers, or ships “cigarettes,” which is defined to include ENDS, which, as noted above, is very broadly defined,
in interstate commerce for profit to, or who advertises or offers cigarettes or smokeless tobacco for such sale, transfer, or shipment
to:
|
● |
File a statement setting forth the name, address, phone number, email address, website address, with the U.S. Attorney General and the tobacco tax administrator of the State where shipment is being made or in which an advertisement or offer is disseminated; |
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● |
On
the 10th day of every month, file a memorandum or a copy of the invoice covering each and every shipment of “cigarettes”
during the previous calendar month with the state tobacco tax administrator and, where there are also local taxes on cigarettes,
with local/tribal official |
|
● |
Comply
with (i) certain shipping requirements if using common carriers other than the Postal Service, such as FedEx or UPS (e.g., label
requirements, weight restrictions, 21+ age verification on delivery, etc.), and (ii) recordkeeping requirements (e.g., detailed invoices
covering every delivery sale, organized by the state, the city or town, and zip code into which the delivery sale is made); (iii)
all state, local, tribal, and other laws generally applicable to sales of cigarettes, including: excise taxes, licensing and tax-stamping
requirements; restrictions on sales to minors; and other payment obligations or legal requirements relating to the sale, distribution,
or delivery of cigarettes or smokeless tobacco. |
Importantly, neither the mail ban nor the
other PACT Act’s “delivery sale” provisions apply to business-to-business deliveries. Under an exception to the
mail ban provision of the PACT Act, covered products may be mailed for business purposes between legally operating businesses that
have all applicable State and Federal Government licenses or permits and are engaged in product manufacturing, distribution,
wholesale, export, import, testing, investigation, or research or for regulatory purposes between any business described above and
an agency of the federal government or a state government. A business must apply for and obtain Postal Service approval of an
exception to avail itself of this exception.
Except for the mail ban, the amendment to the
PACT Act took effect on March 28, 2021. The mail ban took effect on October 21, 2021 pursuant to final regulations issued by the Postal
Service. It applies to cannabis and hemp vaping products that aerosolize liquids only. Further, the most commonly used carriers, Federal
Express and UPS, have recently announced that they would cease all deliveries of vapor products in the United States.
The other requirements of the PACT Act applicable
to “delivery sellers” and “delivery sales” do not apply to business-to-business sales, as those terms involve
delivery to “consumers.” The PACT Act defines “consumer” as “any person that purchases cigarettes or smokeless
tobacco” and specifically excludes “any person lawfully operating as a manufacturer, distributor, wholesaler, or retailer
of cigarettes or smokeless tobacco.
Starting
on February 6, 2020, the FDA has prioritized for immediate enforcement against: (i) flavored, cartridge-based ENDS products (other than
tobacco- or menthol-flavored ENDS products), and (ii) any flavored ENDS products (including tobacco and menthol flavors) that are targeted
at minors. Several states in the United States have imposed temporary emergency flavor bans on ENDS products, and a few of these bans
have been enjoined by courts while several have become permanent. Several states and the District of Columbia have also enacted permanent
prohibitions on the sale of flavored ENDS products. Flavor bans are not the same as a total ban on e-cigarettes, and none of the states
in the U.S. have imposed a total ban on e-cigarettes.
Our self-branded vaping systems are not affected
by the flavor bans. The flavor bans are mainly aimed at ENDS products that are sold with pre-filled non-tobacco flavored or non-menthol-flavored
cartridges, and our self-branded products do not contain any pre-filled cartridges.
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. As a result of the reduced revenue to states resulting from the effects of the COVID 19
pandemic, states may seek to raise revenue by permitting and taxing the use of cannabis products. We cannot predict what action states
will take or the nature and amount of taxes they may impose upon cannabis products. However, the shipping restrictions of the USPS under
the PACT Act applied to certain cannabis products, and cannabis products cannot, with certain exceptions, be sent through the USPS. Major
overnight courier services, such as Federal Express, do not ship vaping products that may not be sent using the USPS. We use a combination
of advanced accounting software and PACT Act compliant carriers to remain compliant with the tax and delivery restrictions of the PACT
Act.
Under federal law and the laws of certain states
that continue to broadly restrict production and sale of cannabis, vaping devices intended for use in consuming cannabis products may
qualify as prohibited drug paraphernalia. However, the federal Controlled Substances Act includes an exemption for “any person authorized
by local, State, or Federal law to manufacture, possess, or distribute such items.” Several states with legal cannabis programs,
including California, have enacted legislation invoking this exemption to shield state-legal businesses from federal enforcement on paraphernalia
grounds. In addition, a recent court decision from the U.S. Court of International Trade applied this exemption in prohibiting U.S. Customs
and Border Protection from refusing import entry of cannabis paraphernalia components that the importer could legally possess in the state
of importation.
In distributing cannabis vaping devices in the
United States, we rely on this exemption by (i) not selling our own branded cannabis vaping products directly into states that have maintained
complete or near-complete cannabis prohibition, (ii) requiring distributors to whom we sell cannabis vaping products to covenant that
they will not sell our products into these states, and (iii) limiting the sale of our custom made and white label cannabis vaping products
to state-licensed dispensaries and entities, such as licensed cultivators or manufacturers.
To the extent that we conduct manufacturing
operations in California we will be subject to federal and California state laws and regulations applicable to manufacturing operations
generally, including employee health and safety and environmental laws and regulations.
Europe
The European Commission issued the Tobacco Products
Directive (the “TPD’’), which has been entered into force on May 19, 2014 and became applicable in the EU Member States
on May 20, 2016. Under the TPD, an e-cigarette is widely defined as a product that can be used for, including all types of vaping devices,
HNB devices and their respective components, the consumption of nicotine-containing vapor via a mouthpiece, or any component of that product.
The TPD regulates e-cigarettes on five main aspects: (i) the information to be provided by the manufacturer and/or distributor, (ii) the
advertising and promotion, (iii) safety issues and warnings, (iv) product presentation, and (v) provisional measures in case of suspected
risk. Member states of the European Union are required to ensure that advertisements for any tobacco related product are prohibited, unless
the advertisement is specifically targeted at professionals specializing in the electronic cigarettes trading. Moreover, no promotion
whatsoever shall be made as to those devices with an intention (direct or indirect) to promote electronic cigarettes.
The sale of cannabis vaping products for recreational
(as contrasted with medical) use is illegal in the European Union, although we believe that a market is developing, particularly in Germany,
where the new coalition government stated clearly that it is introducing the controlled supply of recreational cannabis to adults in licensed
shops.
United Kingdom
The Medicines and Healthcare Products Regulatory
Agency (“MHRA”) is the authority for a notification scheme for e-cigarettes and refill containers in Great Britain and Northern
Ireland and is responsible for implementing the majority of provisions under Part 6 of the Tobacco and related Products Regulations (TRPR)
and the Tobacco Products and Nicotine Inhaling Products (Amendment) (EU Exit) Regulations 2020.
The TRPR introduced rules which ensure:
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● |
minimum standards for the safety and quality of all e-cigarettes and refill containers (otherwise known as e-liquids) |
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that information is provided to consumers so that they can make informed choices |
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an environment that protects children from starting to use these products. |
The requirements:
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restrict e-cigarette tanks to a capacity of no more than 2ml |
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restrict the maximum volume of nicotine-containing e-liquid for sale in one refill container to 10ml |
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restrict e-liquids to a nicotine strength of no more than 20mg/ml |
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require nicotine-containing products or their packaging to be child-resistant and tamper evident |
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ban certain ingredients including colorant, stimulants and any carcinogenic, mutanegenic or reprotoxic elements |
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include new labelling requirements and warnings in line with the Classification, Labelling & Packaging regulations of the European Union |
|
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require all e-cigarettes and e-liquids be notified to the MHRA before they can be sold. |
The Tobacco Products and Nicotine Inhaling Products
(Amendment) (EU Exit) Regulations 2020 explains the changes from a policy perspective:
The 2020 Regulations sets out the requirements
for new products to be notified from January 1, 2021. This will mean that:
| ● | Producers
placing products on the Northern Ireland market will be required to notify using the EU Common Entry Gate (EU-CEG) system for the notification
of tobacco and e-cigarette products. |
| ● | Producers
placing products on the Great Britain market will be required to notify on the Great Britain domestic system. |
| ● | Notifiers
will be required to pay one fee if they notify in relation to placing products on one of the Great Britain or Northern Ireland markets
and the same one fee if they notify in relation to placing products on the two markets. |
A producer is anyone who manufactures or imports
these products or who re-brands any product as their own.
Part 6 of the Tobacco and Related Products
Regulations 2016 sets out the requirements for e-cigarettes and refill containers.
Producers must submit information about their
products to the MHRA through the MHRA Submission Portal and European Common Entry Gate (EU-CEG) notification portal for UK wide supply.
Under the TRPR, it is the responsibility of the
producer to ensure that their products comply with the TRPR requirements. We check notifications submitted for completeness and verify
TRPR compliance with producers. Where this review has been completed, the compliance status of products is recorded as ‘declared’
to indicate that the notification is complete, and the product has been declared compliant by the producer.
Producers of new e-cigarette and refill container
products must submit a notification to the MHRA six months before they intend to put their product on the market in Great Britain and/or
Northern Ireland. Once the notification has been published on the MHRA website, producers can launch the product in the notified region.
A product which has been substantially modified will count as a new product and must also follow this process. Further information regarding
what qualifies as a substantial modification can be found in the guidance on submission type below.
The TRPR does not include any requirements as
to where testing of e-cigarettes and refill containers has to take place nor has any international testing standards been established.
The notifier will need to be satisfied as to the standards of any testing carried out as they have to submit a declaration that they bear
full responsibility for the quality and safety of the product when placed on the market and used under normal or reasonably foreseeable
conditions.
The sale of cannabis products is illegal in the
United Kingdom.
Malaysia
We have taken the initial steps to manufacturing operations in Malaysia.
We have formed a subsidiary and leased premises for our proposed manufacturing facility. If we are to commence manufacturing operations
in Malaysia, we will have to comply with laws and regulations relating to manufacturing operations, including regulatory approval for
us to establish manufacturing operations, including satisfying the applicable government authority that we have sufficient capital to
cover all of our planned activities. We would also be subject to wage and hour laws and laws relating to employee health and safety and
environmental laws and regulations. We plan to structure our operations in Malaysia to comply with applicable laws and regulations.
Other requirements for e-cigarettes
Replacement e-cigarette parts that could contain
nicotine only require notification if they have not already been notified as part of a device or e-cigarette kit. Identical replacement
parts that have already been notified as part of another notified e-cigarette product do not need to be separately re-notified if it is
clear on the labelling what notified product the part is for. Any non-identical replacement part, particularly one that alters the consumer
safety profile of a product (for example by changing its refill capacity), would require a separate notification.
The Conformitè Europëenne (CE) Mark
is defined as the European Union’s (EU) mandatory conformity marking for regulating the goods sold within the European Economic
Area (EEA) since 1985. The CE marking represents a manufacturer’s declaration that products comply with the EU’s New Approach
Directives. These directives not only apply to products within the EU but also for products that are manufactured in or designed to be
sold in the EEA. This makes the CE marking recognizable worldwide even to those unfamiliar with the EEA.
Regulations Relating to Privacy and Security
We are or may become subject to a variety of laws
and regulations in the United States and abroad regarding privacy, data security, cybersecurity and data protection. These laws and regulations
are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain
and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous United States federal, state, and
local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure,
and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing
interpretations, and may be inconsistent among different jurisdictions. To the extent that we deal with the public and obtain private
information on our computer system, we would be subject to these laws. To the extent that we conduct internet sales, we may be subject
to these laws.
In June 2018, California adopted the California
Consumer Privacy Act (“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 on the Internet, we may be subject to the CCPA as well as other consumer protection
laws.
The European Union Parliament approved a new data
protection regulation, known as the General 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
through our website, we may become subject to provisions of the GDPR.
We are also subject to laws restricting disclosure
of information relating to our employees. We strive to comply with all applicable laws, policies, legal obligations, and industry codes
of conduct relating to privacy, data security, cybersecurity and data protection. However, given that the scope, interpretation, and application
of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted and
applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure
or perceived failure by us or our third-party service-providers to comply with our privacy or security policies or privacy-related legal
obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information
or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect
on our business and operating results. Although we maintain cybersecurity insurance, we cannot assure you that this insurance will cover
or satisfy any claim made against us or adequately cover any defense costs we may incur.
Environmental Laws and Regulations
As our supplier, Shenzhen Yi Jia is responsible
for compliance with Chinese environmental laws and regulations. To the extent that such compliance results in increased manufacturing
costs, we anticipate that our prices will be increased, although we may not know the details of the expense of such compliance.
As a distributor of products made by third
parties, we do not have any material costs in complying with environmental laws and regulations. If we are able to establish manufacturing
operations in California and in Malaysia, we will be required to comply with applicable environmental laws and regulations. We cannot
estimate the ongoing costs of such compliance. As we establish manufacturing facilities, we expect that the cost of such compliance will
be included in our capital budget for any facilities we establish.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding
our executive officers and directors as of the date of this prospectus:
Name |
|
Age |
|
Position/Title |
Tuanfang Liu3 |
|
50 |
|
Co-Chief Executive Officer and Chairman |
Michael Wang |
|
60 |
|
Co-Chief Executive Officer and President of Aspire North America |
Daniel J. Machock |
|
48 |
|
Chief Financial Officer |
Tirdad Rouhani |
|
40 |
|
Chief Operating Officer |
Jiangyan Zhu |
|
47 |
|
Director |
Christopher Robert Burch1,2 |
|
55 |
|
Independent Director |
Brent Cox1,2,3 |
|
40 |
|
Independent Director |
John Fargis1,2,3 |
|
57 |
|
Independent Director |
| 1 | Member of the Audit Committee |
| 2 | Member of the Compensation Committee |
| 3 | Member Nominating and Corporate Governance Committee. |
Tuanfang Liu has been serving as
our chairman of the board of directors and chief executive officer since our organization and co-chief executive officer since August
7, 2023. Mr. Liu has also served as chairman of the board and chief executive officer of Aspire Global, a position he has held since its
organization. Mr. Liu also serves as chairman of Shenzhen Yi Jia since he founded the company in June 2010. He is responsible for our
daily operations and research and development of the e-cigarette and cannabis vaporizer technology products. Mr. Liu has served as the
vice-chairman of the European Union E-cigarette Association since 2019, vice-chairman and founding member of the Canada E-cigarettes Association
since 2019, vice chairman of the China Electronics Chamber of Commerce since 2017, and executive vice-chairman and founder of the Shenzhen
E-Vapor Industry Association since October 2017. He received “Shenzhen High-level Professionals” award in 2019. Mr. Liu holds
doctorate degrees in business management from Victoria University School of Management in Switzerland and EuroPort Business School in
the Netherlands, respectively. He has more than 14 years of experience in research and development of the e-cigarette products and quality
control management. Mr. Liu is the spouse of Jiangyan Zhu.
Michael Wang has been serving as
co-chief executive officer since August 7, 2023, having served as our chief financial officer from our organization until August 7, 2023,
and he has served as president of Aspire North America since its organization in 2020. Mr. Wang served chief financial officer of Aspire
Global from August 2020 until his resignation in September 2022. Mr. Wang is an experienced chief executive officer, chief operating officer
and president of various companies with leadership skills in profit and loss management, finance, human resources, products, technology,
sales and operations. Mr. Wang has approximately 12 years of internet technology and e-commerce experience. From September 2018 through
August 2020, he was the president, chief operating officer and co-chief executive officer of The Pharm/Sunday Goods (located in California
and Arizona), a vertically integrated leader in the cannabis cultivation, processing, manufacturing, distribution, wholesale, and retail
industry. Mr. Wang managed and transformed the cultivation, manufacturing and wholesale divisions. Mr. Wang was with Onestop Commerce,
a leading e-commerce technology and service company, as president and chief operating officer from February 2013 to July 2015 and as chief
executive officer from July 2015 to June 2018. Onestop Commerce managed omni-channel-commerce for major lifestyle brands and retailers.
From May 2005 through June 2010, he was the chief operating and fulfillment officer and an investor in Zazzle, a leader in online customization
and personalization service. He started his career in 1992 at Honeywell and also worked at Technicolor, ESS Technology and Vitec Group.
Mr. Wang received bachelor of science and master of science degrees in aerospace engineering in 1983 and 1985 respectively, from the Beijing
University of Aeronautics & Astronautics also known as Beihang University. In 1987, he received a master of science degree in systems
engineering from Oakland University in Rochester, Michigan. In 1992, Mr. Wang received an MBA in Finance and General Management from the
University of Chicago’s Booth School of Business.
Daniel J. Machock has been our chief
financial officer since August 7, 2023. Mr. Machock has 25 years of experience overseeing the financial strategy and performance for a
number of companies. From January 2017 to October 2021, Mr. Machock was the chief financial officer at Appetize Technologies, a point-of
sale hardware and software company. Prior to that, he was chief financial officer at Chrome River (2016-2017), chief financial officer
at PostSMSCo (2010-2016), and vice president- finance and controller at Business.com (2004-2010). Early in his career, he worked in public
accounting at Ernst and Young. Mr. Machock received his bachelor’s degree in accounting and finance from Indiana University.
Tirdad Rouhani has been the
chief operating officer since July 2022. In the prior four years, Mr. Rouhani has been deeply entrenched in the cannabis industry.
He held the role of chief operating officer at Touchstone (one of the largest cannabis extraction lab and co-packing businesses in California)
before taking on the role of chief executive officer for Napalm Brands in March 2020. Mr. Rouhani co-founded two tech companies before
converging on the cannabis industry. Between 2008 and 2015, he was a business process consultant at Live Nation. Mr. Rouhani received
his undergraduate and graduate degrees from the University of Arizona where he studied business. He started his career in audit and consulting
with Deloitte, expanding into tech and finance, evolving into operating roles.
Jiangyan Zhu has been serving as
our director since inception. Ms. Zhu is one of the founders of Aspire Global and is a director of Aspire Global, and, since 2013, she
has served as vice president of finance of Shenzhen Yi Jia, where she is responsible for financial management, assisting in human resources
management and establishing and improving the automated office system. Ms. Zhu holds a bachelor’s degree in business management
from Jiangxi University of Technology. She also holds a Business Management certificate from the College of Continuing Education Graduate
School of Shenzhen Tsinghua University. Ms. Zhu is the spouse of Mr. Tuanfang Liu.
Christopher
Robert Burch has been serving as a director since July 2023. He has worked in the finance and venture capital industries for more
than 15 years. Currently, Mr. Burch is consulting for Bioglobal Inc., a biopesticides company. From September 2020 to May 2022, Mr. Burch
served as Chief Financial Officer at Braun Bio-Technology (Shan Dong) Co. Ltd. in China where he was responsible for fundraising and corporate
strategies. Prior to that, from January 2020 to September 2020, Mr. Burch served as Chief Financial Officer at Waton Corporation Limited
where he was responsible for fundraising, financial planning, cash flow management, investor relations, banking relations, securities
licensing, and strategy direction. From July 2019 to November 2019, Mr. Burch worked at Zhejiang Panshi Information Technology Co. Ltd.
as a Vice President responsible for corporate strategic investment. From March 2017 to July 2019, Mr. Burch served as a Managing Director
at Feiyang Group Co. Ltd. in Hong Kong and China where he was responsible for fundraising and providing advisory services to the sector.
Prior to joining the Company, from October 2008 to October 2014 Mr. Burch served on the board of directors of KeenHigh Technologies Limited,
listed on Taiwan’s Emerging Stock Market (TW:3651). In 2006, Mr. Burch received a Master of Business Administration with a focus
on technology management from Tsinghua University. In 1993, Mr. Burch received a bachelor’s degree in business administration with
concentration in decision sciences from Georgia State University. In 1991, Mr. Burch received a bachelor’s degree in business administration
with concentration in finance from University of Georgia. We believe that Mr. Burch is well qualified to serve as a member of our board
of directors because of his experience in finance, operations of public companies and corporate fundraising and strategy.
Brent Cox has been serving as a
director since April 2023. He also serves as the co-founder and managing partner of The Inception Companies, a private investment firm,
a position he has held since 2016. From September 2008 to April 2016, he served as a principal investor of the Yucaipa Companies, a Los
Angeles, California based private equity firm where he was responsible for sourcing, analyzing and executing investment opportunities,
structuring financing for investments and monitoring the performance and strategic initiatives of its portfolio companies. From 2006 to
2008, Mr. Cox served as an investment banking analyst in the Leveraged Finance Group of Jefferies & Co. a multinational independent
investment bank and financial services company. Mr. Cox received a bachelor of science degree from the University of Southern California.
Mr. Cox previously served on the boards of Medmen Enterprises Inc. (OTC: MMNFF), The Pharm, LLC, Pacific Dutch Group, LLC, and has also
served as a board observer for Soho House & Co Inc. (NYSE: SHCO) , Americold Realty Trust (NYSE: COLD), Versacold International Corp,
Stephen Webster Limited , Garrard & Co. Limited, and Eimskipafélag Íslands hf. (IC: EIM). We believe Mr. Cox is well-qualified
to serve as a member of our board of directors due to his experience in investment banking and prior corporate governance experience having
served on corporate boards of directors.
John Fargis has been serving as
a director since April 2023. He is the co-founder and principal of BYG Advantage since June 2014, a Beijing-based platform that outsources
business development, sales acceleration bridging best in class technology into the Asia Pacific region. Clients include Hashicorp, Trustonic,
Tomorrow.io, and EF. Its services include market analysis, market entry, market acceleration, government relations and special vehicle
creation across the region. Mr. Fargis founded and runs Dustybrine LLC, a market entry consulting firm in New York State. Mr. Fargis has
been serving as the professor of management, strategy, and emerging markets at Hult International Business School since February 2014,
where he teaches courses including strategy, management, emerging markets, leadership, operations and big data. Mr. Fargis has been also
serving as the Adjunct Professor of Strategy and China History since January 2014 in Shanghai, China. Mr. Fargis has been serving as the
principal Asia-Pacific of Hortonworks since 2014. From March 2010 to December 2013, Mr. Fargis served as the executive vice president
and general manager at Kaseya where he incorporated, staffed and ran offices for Kaseya in Beijing, Seoul, Tokyo and Hong Kong. The company
was purchased by Insight Venture Partners in June 2013. From 2007 to April 2010, Mr. Fargis served as the vice president sales and general
manager of Asia of On2 Technologies which was purchased by Google in February 2010. From August 2005 to October 2007, Mr. Fargis served
as the general manager Asia Pacific of Global IP Solutions (GIPS), where he oversaw sales and business development strategy for Global
IP Sound (GIPS) in Asia. GIPS provides premiere quality speech processing technology for Voice Over IP (VOIP) networks, and its software
enables numerous clients including application providers such as Skype, Google, AOL, Tencent, etc. From January 2004 to July 2005, Mr.
Fargis served as the chief executive officer of SiMa Systems, where he oversaw funding and alliance strategy and general management for
this digital clipboard solutions company. In 1998, Mr. Fargis received his master of arts in law and diplomacy degree in international
consulting at The Fletcher School of Law and Diplomacy. In 1992, Mr. Fargis received his master’s degree in special education at
Hunter College. In 1988, Mr. Fargis received his bachelor’s degree in medieval studies at Wesleyan University. We believe Mr. Fargis
is well-qualified to serve as a member of our board of directors due to his experience in business strategy, emerging markets, and his
contacts and relationships.
Family Relationships
Tuanfang Liu, our chairman and chief executive
officer, and Jiangyan Zhu, one of our directors, are married. Other than this relationship, there are no other direct family relationships
among any of our directors or executive officers.
Committees of the Board of Directors
We have an audit committee, a compensation committee
and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s
members and functions are described below.
Audit Committee. Our audit committee
consists of Brent Cox, John Fargis and Christopher Robert Burch, with Mr. Cox as chair. We have determined that each of these three directors
satisfies the “independence” requirements of the Nasdaq Listing Rules and meet the independence standards under Rule 10A-3
under the Exchange Act. We have determined that Brent Cox and Christopher Robert Burch qualify as an “audit committee financial
expert.” The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements.
The audit committee is responsible for, among other things:
|
● |
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
|
● |
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; |
|
● |
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
|
● |
discussing the annual audited financial statements with management and the independent registered public accounting firm; |
|
● |
reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any special steps taken to monitor and control major financial risk exposures; |
|
● |
annually reviewing and reassessing the adequacy of our audit committee charter; |
|
● |
meeting separately and periodically with management and the independent registered public accounting firm; |
|
● |
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and |
|
● |
reporting regularly to the board. |
Our audit committee reviews all proposed related
party transactions on an ongoing basis and any such transactions must be approved by the audit committee. The audit committee also approves
certain pricing matters pursuant to our supply agreements with Shenzhen Yi Jia. In determining whether to approve a related party transaction,
the audit committee considers, among other factors, the following factors to the extent relevant to the related party transaction:
|
● |
whether the terms of the related party transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a related party; |
|
● |
whether there are business reasons for us to enter into the related party transaction; |
|
● |
whether the related party transaction would impair the independence of an outside director; |
|
● |
whether the related party transaction or the approval of the related party transaction would present an improper conflict of interest for any director or executive officer, taking into account the size of the transaction, the overall financial position of the director, executive officer or the related party, the direct or indirect nature of the director’s, executive officer’s or the related party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the audit committee deems relevant; and |
|
● |
any pre-existing contractual obligations. |
Compensation Committee. Our compensation
committee consists of Christopher Robert Burch, Brent Cox and John Fargis, with Brent Cox as chair. We have determined that each of these
directors satisfies the “independence” requirements of the Nasdaq Listing Rules. The compensation committee assists the board
in reviewing and approving the compensation structure, including all forms of compensation relating to our directors and executive officers.
Tuanfang Liu,our co-chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon.
The compensation committee is responsible for, among other things:
|
● |
reviewing and approving, or recommending to the board for its approval,
the compensation for our co-chief executive officers and other executive officers; |
|
● |
reviewing and recommending to the board for determination
with respect to the compensation of our non-employee directors;
|
|
● |
reviewing periodically and approving any incentive compensation or equity plans, programs or other similar arrangements; and |
|
● |
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Nominating and Corporate Governance Committee.
Our nominating and corporate governance committee consists of Tuanfang Liu, Brent Cox and John Fargis, with Tuanfang Liu as chair.
We have determined that Mr. Cox and Mr. Fargis satisfy the “independence” requirements of the Nasdaq Listing Rules. Because
we are a controlled corporation, we have included Tuanfang Liu, our co-chief executive officer, who is not an independent director, as
a member and chair of the nominating and corporate governance committee. The nominating and corporate governance committee assists the
board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The
nominating and corporate governance committee is responsible for, among other things:
|
● |
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; |
|
● |
reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience, expertise, diversity and availability of service to us; |
|
● |
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; |
|
● |
developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and |
|
● |
evaluating the performance and effectiveness of the board as a whole. |
Terms of Directors
Our directors are elected for a term of one year,
until the next annual meeting of stockholders and until their successors are elected and qualified. Pursuant to our bylaws, our officers
serve at the pleasure of the board of directors subject to any rights they may have pursuant to employment agreements and applicable law.
EXECUTIVE COMPENSATION
The
following table sets forth information regarding the compensation awarded to, earned by, or paid during the years ended June 30, 2023
and 2022, to our chief executive officer and the two most highly paid executive officers other than the chief executive officer who were
serving as executive officers at June 30, 2023. These three officers are referred to as our “Named Executive Officers.”
Summary Compensation Table
Name and Principal Position | |
Year
Ended
June 30, | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
Nonequity
incentive
plan
compensation
($) | | |
Nonqualified
deferred
compensation
earnings
($) | | |
All other
compensation
($) | | |
Total
($) | |
Tuanfang Liu | |
2023 | |
| 206,720 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 206,720 | |
CEO(2)(3) | |
2022 | |
| 153,757 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 153,757 | |
Michael Wang | |
2023 | |
| 393,447 | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| 393,447 | |
CFO(3) | |
2022 | |
| 350,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 350,000 | |
Tirdad Rouhani | |
2023 | |
| 233,493 | | |
| 25,000 | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 258,493 | |
COO(4) | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (1) | The
compensation in the table for the year ended June 30, 2022 reflects compensation paid by Aspire North America and/or Aspire Science prior
to the date these entities were transferred to us and does not include any dividends received or accrued by Mr. Liu as a 95% stockholder
in Shenzhen Yi Jia. |
| (2) | Mr.
Liu’s compensation is paid in Hong Kong dollars, which are converted into U.S. dollars
at the average exchange rates during the period, which was 7.8045 Hong Kong dollars to $1.00
for the year ended June 30, 2022 and 7.8367 Hong Kong dollars to $1.00 for the year ended
June 30, 2023. |
| (3) | Mr.
Liu and Mr. Wang are currently co-chief executive officers. |
| (4) | Mr. Rouhani was appointed as chief operating officer on July 1, 2022. |
Employment
Agreements
We have employment agreements dated January 31,
2023, with Tuanfang Liu, our co-chief executive officer, and Michael Wang, our co-chief executive officer who formerly was our chief financial
officer.
Tuanfang Liu
The employment agreement with Mr. Liu has a term
of five years and continues on year-to-year basis unless terminated by either us or Mr. Liu on notice given not later than 60 days prior
to the expiration of the initial five-year term or any one-year extension. Mr. Liu receives compensation from us at the annual rate of
1,920,000 Hong Kong dollars. Any increase in his annual compensation and any bonus compensation are subject to the discretion of the Compensation
Committee and Mr. Liu is also eligible for such options or other equity-based compensation, if any, as may be determined by the Compensation
Committee. Mr. Liu will perform his services at such location as he may determine, and we anticipate that he will perform his services
in the PRC. The agreement acknowledges that Mr. Liu is also chairman, chief executive officer and a director of Aspire Global and the
chief executive officer and 95% owner of Shenzhen Yi Jia. The agreement has customary non-competition and non-solicitation provisions.
Mr. Liu has agreed that we have title to all rights to any intellectual property rights which may be developed by Mr. Liu that relate
to cannabis or cannabis related vaping or other products during the term of the employment agreement and he will execute such documents
as may be necessary to effect our ownership of such intellectual property, including, but not limited to assignment of patents and trademarks.
With respect to any intellectual property relating to tobacco vaping and other nicotine products, we shall have an exclusive license in
the territory, which is worldwide except for the PRC and Russia, with respect to such intellectual property. We acknowledge the Mr. Liu
is also employed as chief executive officer of Aspire Global and Shenzhen Yi Jia. Both Aspire Global and Shenzhen Yi Jia agreed to the
provisions of Mr. Liu’s employment agreement relating to intellectual property developed by Mr. Liu. Although Mr. Liu does not receive
any compensation from Aspire Global or Shenzhen Yi Jia, for his services as its chief executive officer of Aspire Global, as the 95% owner
of Shenzhen Yi Jia, he receives dividends from Shenzhen Yi Jia.
Michael Wang
The employment agreement with Mr. Wang has
a term of three years and continues on a quarter-to-quarter basis unless terminated by either us or Mr. Wang on notice given not later
than 30 days prior to the expiration of the initial three-year term or any quarterly extension. Mr. Wang receives annual compensation
at the rate of $393,447. Any increase in his annual compensation and any bonus compensation are subject to the discretion of the Compensation
Committee and Mr. Wang is also eligible for such options or other equity-based compensation, if any, as may be determined by the Compensation
Committee. The agreement has customary assignment of invention provisions. In connection with our organization, we issued to Peak Group
LLC, a limited liability company owned by Mr. Wang a 2% interest in Aspire Global for services rendered which, when our common stock
was issued to the holders of the Aspire Global capital stock, resulted in the issuance to Mr. Wang of 1,000,000 shares of common stock,
which were valued at $473,235. The issuance of these shares is treated as compensation for services rendered by Mr. Wang to Aspire Global,
the then parent of Aspire North America and Aspire Science, as its chief financial officer.
Daniel J. Machock
We have agreed to pay Daniel J. Machock, our chief financial officer,
an initial annual base salary of $300,000 and an annual discretionary performance bonus target of 50% of base salary. In addition, we
have granted Mr. Machock an option to purchase 200,000 shares of common stock at an exercise price of $9.22 per share. The option vests
over a period of four years.
Director Compensation
The following table provides information as to
compensation in the year ended June 30, 2023 to directors who are not Named Executive Officers:
Name | |
Fees Earned or Paid in C ash ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Nonequity incentive plan compensation ($) | | |
Nonqualified deferred compensation earnings ($) | | |
All other compensation ($) | | |
Total ($) | |
Jiangyan Zhu(1) | |
$ | 91,875 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 91,875 | |
Joel Paritz(2) | |
| 15,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 15,000 | |
Brent Cox | |
| 12,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 12,000 | |
John Fargis | |
| 12,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 12,000 | |
(1) |
Ms. Zhu’s compensation
is paid in Hong Kong dollars, which are converted into U.S. dollars at the average exchange rates during the period, which was 7.8367
Hong Kong dollars to $1.00 for the year ended June 30, 2023. |
| (2) | Mr. Paritz resigned as a director on July 1, 2023. |
We
have an agreement with Ms. Zhu pursuant to which we pay her annual compensation of 720,000 Hong Kong dollars. Ms. Zhu is also a director
of Aspire Global and she does not receive compensation from Aspire Global.
On
August 3, 2023, the board of directors (i) authorized the issuance of a total of 4,483 shares
of common stock to Brent Cox, John Fargis and Joel Paritz who were our independent directors
on the date of our initial public offering as described below; and (ii) adopted the non-employee
director compensation policy. Pursuant to the non-employee director compensation policy:
| ● | Each
outside director (a director who is not also serving as an employee of us or any of our subsidiaries)
shall receive an annual cash retainer of $48,000 for his or her service on the Board, and
each outside director who serves as chair of the Audit Committee will be paid an additional
annual cash retainer of $12,000. The payment is made in four equal quarterly installments.
The retainer is pro rated if the outside director is not an outside director for the entire
quarter. |
| ● | Each
outside director automatically will be granted fully vested shares of the common stock equal
in value to such outside director’s retainer for the calendar quarter. The number of
shares granted shall be equal to: (A) the retainer earned by the outside director for such
calendar quarter, divided by (B) the volume-weighted average price, generally known as VWAP,
of our common stock on the principal trading market on which our common stock trades during
each trading day of the preceding calendar quarter, rounded down to the nearest whole share.
To be eligible for a quarterly share grant an outside director must be serving as an outside
director on the last day of the calendar quarter. The shares shall be granted pursuant to
our 2022 Equity Incentive Plan or any successor plan. |
The
compensation policy is effective commencing with the quarter beginning July 1, 2023.
In
August 2023, we issued, pursuant to our 2022 Equity Incentive Plan, 1,601 shares of common
stock to each of Brent Cox, a director, and Joel Paritz, a former director, and 1,281 shares
of common stock to John Fargis, a director, for service as a director and, in the case of
Mr. Cox and Mr. Paritz, for service as audit committee chair.
2022
Equity Incentive Plan
In
October 2022, our directors and stockholders approved the 2022 Equity Incentive Plan (the “Plan”) pursuant to which up to
15,000,000 shares of common stock may be issued pursuant to options or restricted stock grants. The Plan is administered by the Compensation
Committee. Awards under the Plan may be granted to officers, directors, employees and those consultants who qualify as a consultant or
advisor under the instructions to Form S-8. The Compensation Committee has broad discretion in making awards; provided that any options
shall be exercisable at the fair market value on the date of grant. As of September 4, 2023, we have grant the aggregated of 2,605,000
options and the aggregate of 587,235 restricted stock units to our certain directors and employees, pursuant to the Plan.
Outstanding
Equity Awards at Fiscal Year-End
On
June 30, 2023, there were no outstanding equity awards under the Plan.
On
August 3, 2023, the board of directors (i) authorized the issuance of a total of 4,483 shares of common stock to Brent Cox, John Fargis
and Joel Paritz who were our independent directors on the date of our initial public offering as described below under Director Compensation.
On
September 4, 2023, the board of directors, as the administrator of the Plan, granted options to purchase a total of 2,605,000 shares
of common stock at an exercise price of $9.76 per share being the closing price on the common stock on the trading day before the date
of grant (which was a legal holiday). The options become exercisable cumulatively as to 25% of the shares subject to the option on the
first four anniversaries of the date of grant. On September 4, 2023, the board of directors also issued 587,235 restricted stock units
which vest cumulatively as to one-third of the restricted stock units on each of the first three anniversaries of the date of grant.
The following table sets forth the options and restricted stock grants issued to our executive officers and all other employees as a
group.
Name | |
Shares
subject to Options | | |
Restricted
Stock Grants | |
Michael
Wang | |
| 1,000,000 | | |
| 282,787 | |
Tirdad
Rouhani | |
| 300,000 | | |
| 84,837 | |
Daniel
J. Machock | |
| 200,000 | | |
| 40,000 | |
Others | |
| 1,105,000 | | |
| 179,611 | |
Total | |
| 2,605,000 | | |
| 587,235 | |
In
granting the options and restricted stock grants, the board agreed to accelerate the vesting of the options and the restricted stock
grants to Mr. Wang, Mr. Rouhani and Mr. Machock and four other option holders and three other restricted stock grantees in the event
of a change of control.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following are transactions from July 1, 2020
through June 30, 2023 between us, and enterprises that directly or indirectly through one or more intermediaries, control or are controlled
by, or are under common control with, (a) us, (b) our directors; (c) individuals owning, directly or indirectly, an interest in the voting
power of the Company that gives them significant influence over the Company, and close members of any such individual’s family;
(d) key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling our activities
of the Company, including senior management of companies and close members of such individuals’ families; and (e) enterprises in
which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which
such a person is able to exercise significant influence.
Our audit committee reviews all related party transactions
on an ongoing basis and all such transactions be approved by the audit committee. In determining whether to approve a related party transaction,
the audit committee considers, among other factors, the following factors to the extent relevant to the related party transaction:
|
● |
whether the terms of the related party transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a related party; |
|
● |
whether there are business reasons for the Company to enter into the related party transaction; |
|
● |
whether the related party transaction would impair the independence of an outside director; |
|
● |
whether the related party transaction or the approval of the related party transaction, would present an improper conflict of interest for any director or executive officer of the Company, taking into account the size of the transaction, the overall financial position of the director, executive officer or the related party, the direct or indirect nature of the director’s, executive officer’s or the related party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the audit committee deems relevant; and |
|
● |
any pre-existing contractual obligations. |
The following are forth the major related parties
and their relationships with us:
Name of related parties and Relationship with the Company |
- Tuanfang Liu is the chief executive officer and chairman of the Company. |
- Jiangyan Zhu is the wife of Tuanfang Liu and a director of the Company. |
- Eigate (Hong Kong) Technology Co., Limited (“Eigate”) is a company wholly owned and controlled by our chief executive officer. |
- Aspire Global is a company controlled by the chief executive officer of the Company. |
- Shenzhen Yi Jia is 95% owned by the Company’s chief executive officer and 5% by the chief executive officer’s cousin. |
Tuanfang
Liu is also Aspire Global’s chief executive officer and a director of both us and Aspire Global, and his wife, Jiangyan Zhu, is
also a director of both companies. Mr. Liu and Ms. Zhu beneficially own 66.5% and 5.0%, respectively,
of our outstanding common stock and of the outstanding shares of Aspire Global. Michael Wang, our chief financial officer, was chief financial
officer of Aspire Global from August 2020 until September 2022.
In connection with our organization in July 2022,
we issued a total 50,000,000 shares to the holders of capital stock of Aspire Global in the same proportion as their share ownership in
Aspire Global. Prior to the transfer of Aspire North America and Aspire Science to us, Aspire Global issued a 2% equity interest to an
entity owned by Michael Wang, our co-chief executive officer who was Aspire Global’s and our chief financial officer, and a 1.1%
interest in Aspire Global to an entity owned by a consultant, in each case for services rendered to Aspire Global and its subsidiaries.
When we issued 50,000,000 shares of common stock to the holders of Aspire Global capital stock, these issuances resulted in the entities
owned by Mr. Wang and the consultant of 1,000,000 shares and 537,500 shares, respectively. Because the transfer of the equity interest
in Aspire North America and Aspire Science from Aspire Global and its wholly-owned subsidiary was made for no consideration to a corporation
that had identical stockholders as Aspire Global, these shares are deemed to be outstanding since July 1, 2020.
In connection with the restructure of Aspire Global,
on July 29, 2022, for no consideration:
|
● |
Aspire Global transferred 100% of the equity interest in Aspire North America to us. |
|
● |
Aspire Holdings transferred 100% of the equity of Aspire Science to our subsidiary, Ispire International. |
In the year ended June 30, 2020, Aspire Science,
declared a dividend of $3,832,272, which is payable to Tuanfang Liu, who, at the date the dividend was declared, was the sole stockholder
of Aspire Science. The dividend was declared prior to the transfer of the equity interest in Aspire Science by Mr. Liu to a subsidiary
of Aspire Global, which subsequently transferred the equity interest to Ispire International. During the year ended June 30, 2022, Aspire
Science paid $469,633 to Mr. Liu, and the balance due to Mr. Liu was $3,362,639 and $3,384,678 at December 31, 2022, which was paid
on February 2, 2023.
For
the years ended June 30, 2022 and 2023, substantially all of Aspire North America’s and Aspire Science’s tobacco and cannabis
vaping products were purchased from Shenzhen Yi Jia. As of June 30, 2022 and June 30, 2023, the accounts payable to Shenzhen Yi Jia was
$41,982,373 and $51,698,588 respectively. For the years ended June 30, 2022 and 2023, the purchases from Shenzhen Yi Jia were $74,787,679
and $83,060,957 respectively.
As
of June 30, 2022, Aspire Science had a balance due to Eigate of $40,672,768, and as at June 30, 2023 the amount due to related party
represents $710,910 due to Shenzhen Yi Jia. The balances were all non-interest bearing, unsecured, have no due date and are repayable
on demand. Prior to 2020, both Aspire Science and Eigate were owned by Mr. Liu, and Eigate lent money to Aspire Science for working capital.
On February 2, 2023, we made the payments to Mr. Liu and Eigate. Although Aspire Science had the funds to make this payment and the dividend
payable to Mr. Liu, payment was delayed because, as a result of the size of the transfer, in order to for Aspire Science to wire the
money it was necessary for an authorized person to personally go to the bank to wire the funds. This was not possible because of COVID-19
restrictions which required Mr. Liu, who is based in mainland China, to go to the bank in Hong Kong and be subject to quarantine when
he returns to mainland China. Since January 8, 2023, no centralized quarantine or mass PCR testing will be undertaken on travelers entering
mainland China. Travelers to mainland China are only required to take PCR test 48 hours prior to their departure and report the PCR test
findings on their customs health declaration form. Only those whose test results are positive prior to departure will have to postpone
their travel until the PCR results turn negative. As a result of these changes, Mr. Liu was able to travel to Hong Kong to make the payments
without being subject to quarantine upon his return.
At
June 30, 2022 and 2023, we had the following balance due from related parties:
|
|
As
of June 30, |
|
|
|
2022 |
|
|
2023 |
|
Shenzhen
Yi Jia |
|
$ |
1,872,035 |
|
|
$ |
- |
|
Tuanfang Liu |
|
|
62,820 |
|
|
|
- |
|
Total |
|
$ |
1,934,855 |
|
|
$ |
- |
|
The balances are payment made by Aspire Science
on behalf of these related parties. These balances were all non-interest bearing, unsecured, have no due date and are repayable on demand,
and were paid in full on November 28. 2022. Our audit committee reviews and approves all proposed related party transactions, as defined
in Item 404 of Regulation S-K under the Securities Act. The audit committee will not approve any loan or extension of credit in the form
of personal loans to or for the benefit of any director or executive officer.
On July 29, 2022, for no consideration:
|
● |
Aspire Global transferred 100% of the equity interest in Aspire North America to the Company, and |
|
● |
Aspire Holdings transferred 100% of the equity of Aspire Science to Ispire International. |
These transfers were made in connection with a
restructure by Aspire Global pursuant to which the equity in Aspire North America and Aspire Science was transferred to us. At the time
of the transfer, we had the same stockholders as Aspire Global and the stockholders held the same percentage equity interest in both us
and Aspire Global.
Pursuant to the Intellectual Property Transfer
Agreement, Mr. Liu, Aspire Global and Shenzhen Yi Jia agreed to transfer to Aspire North America all patent and other intellectual property
rights, including trademarks, Know-how and Know-how Documentation, as defined in the agreement, relating to the cannabis vaping products,
and to transfer to us any new intellectual property developed or acquired by Mr. Liu, Aspire Global and Shenzhen Yi Jia which relates
to cannabis vaping products. The patents and patent applications, all of which are United States patents and applications, have been transferred
to Aspire North America
Pursuant to the Intellectual Property License
Agreement, Mr. Liu, Aspire Global and Shenzhen Yi Jia granted Aspire Science a perpetual royalty free sole and exclusive right and license
to use and practice all of the Licensed Technology worldwide except for the PRC and Russia. The Licensed Technology includes all patents,
know-how, know-how documentation and trademarks, whether now existing or hereafter developed or acquired by, or for, Mr. Liu, Aspire Global
and/or Shenzhen Yi Jia that relate, directly or indirectly, to the tobacco vaping market. Pursuant to the License Agreement, neither Mr.
Liu, Aspire Global nor Shenzhen Yi Jia has any right to market or sell or grant distributors the right to market or sell tobacco vaping
products in the world other than in the PRC and Russia.
In January 2023, Aspire North America and Aspire
Science entered into supply agreements with Shenzhen Yi Jia pursuant to which:
|
● |
Shenzhen Yi Jia agreed to sell products to us at the most favorable market price that it sells similar products to third parties and such prices must be commercially reasonable in order to enable us to generate a gross margin based on purchase prices or a purchase price structure acceptable to our audit committee. |
|
● |
Shenzhen Yi Jia is to provide us with quality products and services in a timely manner, to provide to our customers the same warrant that we provide to our customer and to honor the warranty. |
|
● |
Shenzhen Yi Jia is to give us first priority to the manufacture of our products over any other manufacturing obligations it has. |
|
● |
We need to provide Shenzhen Yi Jia with periodic forecasts and place orders consistent with the forecasts. |
|
● |
Any intellectual property developed in connection with the manufacture of the cannabis products will be assigned, and the patents and patent applications have been assigned, to Aspire North America pursuant to the Intellectual Property Transfer Agreement and any intellectual property developed in connection with the manufacture of tobacco products will be licensed to Aspire Science pursuant to the Intellectual Property License Agreement. |
The agreement has an initial term of ten years,
and automatically renews for two-year periods unless terminated by either party on not less than six months’ notice prior to the
expiration of the initial term or any two-year extension.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information regarding the beneficial ownership of our shares of
common stock as of September 30, 2023 by:
|
● |
Each holder
of 5% or more of our common stock; |
|
● |
Each
member of our board of directors; |
|
● |
Each
Named Executive Officer; and |
|
● |
All
directors and executive officers as a group |
For purposes of the following table, “beneficial
ownership” means the sole or shared power to vote, or to direct the voting of, a security, or sole or shared investment power with
respect to a security, or any combination thereof, and the right to acquire such power (for example, through the exercise of warrants
granted by us) within 60 days of September 15, 2023. Unless otherwise indicated, the person identified in this table has sole voting
and investment power with respect to all shares shown as beneficially owned by him, subject to applicable community property laws. Unless
otherwise noted, the mailing address of each listed beneficial owner is 19700 Magellan Dr, Los Angeles, CA 90502
Name
of Beneficial Owners(1) | |
Number | | |
Percentage | |
Tuanfang
Liu and Jiangyan Zhu (2)(3)(4) | |
| 35,750,000 | | |
| 65.2 | |
Pride
Worldwide Investment Limited(2)(3) | |
| 33,250,000 | | |
| 60.6 | |
Michael
Wang(5) | |
| 1,425,644 | | |
| 2.6 | |
Tirdad Rouhani | |
| 84.,837 | | |
| * | |
Daniel J. Machock | |
| 40,000 | | |
| * | |
Christopher Robert Burch | |
| 0 | | |
| 0.0 | % |
Brent Cox | |
| 1,601 | | |
| * | |
John Fargis | |
| 1,281 | | |
| * | |
All
directors and officers as a group (six individuals owning stock)(2)(3)(5) | |
| 37,303,363 | | |
| 68.0 | % |
| (1) | The
percentage of ownership is based on 54,856,231 shares of common stock outstanding on September
15, 2023. |
| (2) | The
business address of Pride Worldwide Investment Limited is 14
Jian’an Road, Tangwei Fuyong Town, Bao’an District, Shenzhen, Guangdong Province, China. |
(3) |
The shares beneficially owned by Tuanfang Liu, our co-chief executive officer, are held by Pride
Worldwide Investment Limited. Mr. Liu is the sole stockholder and holds the voting and dispositive power over the common stock held
by such entity. Mr. Liu disclaims beneficial interest in shares beneficially owned by his wife, Jiangyan Zhu. |
(4) |
The shares beneficially owned Jiangyan Zhu,
our director and spouse of Tuanfang Liu, are held by Honor Epic International Limited. Ms. Zhu is the sole stockholder and holds the
voting and dispositive power over the common stock held by such entity. Ms. Zhu disclaims beneficial interest in shares beneficially
owned by her husband. |
(5) |
The shares beneficially owned by Michael Wang are held by Peak Group LLC. Mr. Wang has sole voting and dispositive powers over the shares of common stock owned by Peak Group LLC. |
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 140,000,000
shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. As of the
date of this prospectus, there were 54,268,992 shares of common stock outstanding. Holders of our common stock are entitled to equal
voting rights, consisting of one vote per share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative
voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the
directors. The presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled
to vote are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding
shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of
incorporation. In the event of liquidation, dissolution or winding up of our company, either voluntarily or involuntarily, each outstanding
share of the common stock is entitled to share equally in our assets, subject to the rights of the holders of any series of preferred
stock which may be created by the board of directors.
Holders of our common stock have no pre-emptive
rights, no conversion rights and there are no redemption provisions applicable to our common stock. They are entitled to receive dividends
when and as declared by our board of directors, out of funds legally available therefore. We have not paid cash dividends in the past
and do not expect to pay any within the foreseeable future.
Preferred Stock
Our certificate of incorporation gives our board
of directors the power to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has
the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion
rights, redemption privileges and liquidation preferences, of each series of preferred stock. The purpose of authorizing our board of
directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote
on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third
party from acquiring, a majority of our outstanding voting stock. The rights granted to the holders of a series of preferred stock could
restrict payment of dividends on the common stock, dilute the voting power of the common stock, impair the liquidation rights of the holders
of the common stock and delay or prevent a change in control without further action by stockholders. We have no present plans to issue
any shares of preferred stock.
Other Provisions of Our Certificate of Incorporation
Our certificate of incorporation provides that
we shall indemnify to the fullest extent permitted by law as it presently exists or may hereafter be amended any person made or threatened
to be made a party to an action or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such
person, or such person’s testator or intestate, is or was a director or officer of the Corporation or any predecessor of the Corporation,
or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.
Any amendment, repeal, or modification of this provision in the certificate of incorporation shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.
Our certificate of incorporation provides that,
to the fullest extent permitted by the Delaware General Corporation Law as it presently exists or may hereafter be amended, a director
shall not be personally liable to us or to our stockholders for monetary damages for any breach of fiduciary duty as a director. No amendment
to, modification of, or repeal of this provision of the certificate of incorporation shall apply to or have any effect on the liability
or alleged liability of any of our directors for or with respect to any acts or omissions of such director occurring prior to such amendment.
Our certificate of incorporation provides that
where, in connection with a compromise or arrangement between us and any class of creditors or stockholders, if a majority in number and
three-fourth in value of the creditors or stockholders or class of creditors or stockholders, as the case may be, approve a compromise
or arrangement which is sanctioned by the court, it is binding on all of the creditors or class of creditors or stockholders or class
of stockholders.
Forum Selection
Our by-laws provide that unless we consent in
writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not
have jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for (i) any derivative
action or proceeding brought on our behalf; (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors,
officers, employees, or agents to us or our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, our certificate of incorporation, or our by-laws; or (iv) any action asserting a claim governed by the
internal affairs doctrine; in each case, subject to said court having personal jurisdiction over the indispensable parties named as defendants
therein
Our by-laws also provide that unless we consent
in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive
forum for the resolution of any complaint for the resolution of any complaint for which such courts have exclusive jurisdiction, including,
but not limited to, any complaint asserting a cause of action arising under the Securities Exchange Act of 1934. The forum selection provision
does not apply to actions commenced against us under the Securities Act.
Delaware Law Provisions Relating to Business
Combinations with Related Persons
We are subject to the provisions of Section 203
of the Delaware General Corporation Law statute which prohibits a publicly-held Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for a period of three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested
stockholder” is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more
of the corporation’s voting stock.
SEC Policy on Indemnification for Securities
Act liabilities
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Transfer Agent
The transfer agent for the common stock is Vstock
Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11593, telephone (212) 828-8436.
LEGAL MATTERS
Ellenoff Grossman & Schole LLP, New York,
New York is acting as counsel in connection with the registration of our securities under the Securities Act, and as such, will pass upon
the validity of the securities offered hereby.
EXPERTS
The
consolidated financial statements as of June 30, 2022 and 2023 and for each of the years
then ended included in this prospectus have been so included in reliance on the report of
MSPC Certified Public Accountants and Advisors, A Professional Corporation, given on the
authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement
on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and
schedules filed with the registration statement. For further information about us and the common stock offered hereby, we refer you to
the registration statement and the exhibits filed with the registration statement. Statements contained in this prospectus regarding
the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete,
and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit
to the registration statement. The SEC also maintains an internet website that contains reports, proxy statements and other information
about registrants, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
We are required to file periodic reports, proxy
statements, and other information with the SEC pursuant to the Exchange Act. These reports, proxy statements, and other information will
be available on the website of the SEC referred to above.
We also maintain a website at www.ispiretechnology.com
through which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with,
or furnished to, the SEC. Information contained on or accessed through our website is not a part of this prospectus and the inclusion
of our website address in this prospectus is an inactive textual reference only.
ISPIRE TECHNOLOGY INC.
Index
to Consolidated Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Ispire Technology Inc. and Subsidiaries
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of Ispire Technology Inc. and Subsidiaries (the Company) as of June 30, 2023 and 2022, and the related consolidated statements
of operations and comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the years in the two-year
period ended June 30, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and
the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2023, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
|
/s/ MSPC |
|
MSPC |
|
Certified Public Accountants
and Advisors, |
|
A Professional Corporation |
We have served as the Company's auditor since
2022.
New York, New York
September 19, 2023
|
|
www.mspc.cpa |
|
|
|
|
|
An independent firm associated with
Moore Global Network Limited |
|
340 North Avenue, Cranford, NJ 07016-2496
546 5th Avenue, 6th Floor, New York, NY 10036-5000 |
|
908 272-7000
212 682-1234 |
|
|
|
ISPIRE TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
| |
June 30, | |
| |
2022 | | |
2023 | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 74,480,651 | | |
$ | 40,300,573 | |
Accounts receivable, net | |
| 8,260,574 | | |
| 24,526,262 | |
Inventories, net | |
| 14,580,557 | | |
| 7,472,108 | |
Prepaid expenses and other current assets | |
| 192,499 | | |
| 3,378,617 | |
Due from related parties | |
| 1,934,855 | | |
| - | |
Held-to-maturity investment | |
| - | | |
| 9,133,707 | |
Total current assets | |
| 99,449,136 | | |
| 84,811,267 | |
Other assets: | |
| | | |
| | |
Property, plant and equipment, net | |
| 114,025 | | |
| 1,088,131 | |
Rental deposit | |
| 876,100 | | |
| 732,334 | |
Right-of-use assets – operating leases | |
| 295,804 | | |
| 4,061,617 | |
Total other assets | |
| 1,285,929 | | |
| 5,882,082 | |
Total assets | |
$ | 100,735,065 | | |
$ | 90,693,349 | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 290,541 | | |
$ | 1,274,391 | |
Accounts payable – related party | |
| 41,982,373 | | |
| 51,698,588 | |
Contract liabilities | |
| 1,672,051 | | |
| 988,556 | |
Dividends payable | |
| 3,362,639 | | |
| - | |
Accrued liabilities and other payables | |
| 159,296 | | |
| 281,361 | |
Due to related parties | |
| 40,672,768 | | |
| 710,910 | |
Income tax payable - current | |
| 481,113 | | |
| 63,853 | |
Operating lease liabilities – current portion | |
| 347,541 | | |
| 944,525 | |
Total current liabilities | |
| 88,968,322 | | |
| 55,962,184 | |
| |
| | | |
| | |
Other liabilities: | |
| | | |
| | |
Operating lease liabilities – net of current portion | |
| - | | |
| 3,356,232 | |
Total liabilities | |
$ | 88,968,322 | | |
$ | 59,318,416 | |
Stockholders’ equity: | |
| | | |
| | |
Common stock, par value $0.0001 per share; 140,000,000 shares authorized; 50,000,000 and 54,222,420 shares issued and outstanding as of June 30, 2022 and June 30, 2023 | |
| 5,000 | | |
| 5,422 | |
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued at June 30, 2022 and 2023 | |
| - | | |
| - | |
Additional paid-in capital | |
| - | | |
| 25,685,475 | |
Accumulated other comprehensive loss | |
| (184,664 | ) | |
| (163,768 | ) |
Retained earnings | |
| 11,946,407 | | |
| 5,847,804 | |
Total stockholders’ equity | |
| 11,766,743 | | |
| 31,374,933 | |
Total liabilities and stockholders’ equity | |
$ | 100,735,065 | | |
$ | 90,693,349 | |
See notes to consolidated financial statements.
ISPIRE TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
| |
Years ended June 30, | |
| |
2022 | | |
2023 | |
Revenue | |
$ | 88,095,418 | | |
$ | 115,605,536 | |
Cost of revenue | |
| 74,789,378 | | |
| 94,529,769 | |
Gross profit | |
| 13,306,040 | | |
| 21,075,767 | |
Operating expenses: | |
| | | |
| | |
Sales and marketing expenses | |
| 5,503,630 | | |
| 4,714,923 | |
General and administrative expenses | |
| 8,791,081 | | |
| 20,929,978 | |
Total operating expenses | |
| 14,294,711 | | |
| 25,644,901 | |
Loss from operations | |
| (988,671 | ) | |
| (4,569,134 | ) |
Other income (expense): | |
| | | |
| | |
Interest income | |
| 5,078 | | |
| 195,209 | |
Exchange gain(loss), net | |
| 58,143 | | |
| (324,225 | ) |
Other income(expense), net | |
| 122,394 | | |
| (155,150 | ) |
Total other income(expense), net | |
| 185,615 | | |
| (284,166 | ) |
Loss before income taxes | |
| (803,056 | ) | |
| (4,853,300 | ) |
Income taxes - current | |
| (1,071,097 | ) | |
| (1,245,303 | ) |
Net loss | |
$ | (1,874,153 | ) | |
$ | (6,098,603 | ) |
Other comprehensive (loss)
income | |
| | | |
| | |
Foreign currency translation adjustments | |
| (117,085 | ) | |
| 20,896 | |
Comprehensive loss | |
| (1,991,238 | ) | |
| (6,077,707 | ) |
Net loss per share | |
| | | |
| | |
Basic and diluted | |
$ | (0.04 | ) | |
$ | (0.12 | ) |
Weighted average shares outstanding: | |
| | | |
| | |
Basic and diluted | |
| 50,000,000 | | |
| 50,725,814 | |
See notes to consolidated financial statements.
ISPIRE TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
| |
Ordinary shares | | |
Preferred shares | | |
Additional | | |
| | |
Accumulated Other | | |
Total | |
| |
Number of
Shares | | |
Amount | | |
Number of
Shares | | |
Amount | | |
Paid-in
Capital | | |
Retained
Earnings | | |
Comprehensive
(Loss)/Income | | |
Shareholders’
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, July 1, 2021 | |
| 50,000,000 | | |
$ | 5,000 | | |
| - | | |
$ | - | | |
$ | - | | |
$ | 13,820,560 | | |
$ | (67,579 | ) | |
$ | 13,757,981 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,874,153 | ) | |
| - | | |
| (1,874,153 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (117,085 | ) | |
| (117,085 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| 50,000,000 | | |
$ | 5,000 | | |
| - | | |
$ | - | | |
$ | - | | |
$ | 11,946,407 | | |
$ | (184,664 | ) | |
$ | 11,766,743 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,098,603 | ) | |
| - | | |
| (6,098,603 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock | |
| 4,222,420 | | |
| 422 | | |
| - | | |
| - | | |
| 25,685,475 | | |
| - | | |
| - | | |
| 25,685,897 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 20,896 | | |
| 20,896 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2023 | |
| 54,222,420 | | |
$ | 5,422 | | |
| - | | |
$ | - | | |
$ | 25,685,475 | | |
$ | 5,847,804 | | |
$ | (163,768 | ) | |
$ | 31,374,933 | |
See notes to consolidated financial statements.
ISPIRE TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
Years ended June 30, | |
| |
2022 | | |
2023 | |
Cash flows from operating activities: | |
| | |
| |
Net loss: | |
$ | (1,874,153 | ) | |
$ | (6,098,603 | ) |
Adjustments to reconcile net loss from operations to net cash provided by operating
activities: | |
| | | |
| | |
Depreciation and amortization | |
| 10,402 | | |
| 46,662 | |
Depreciation of right-of-use assets | |
| 135,141 | | |
| 1,061,442 | |
Accounts receivable impairment | |
| - | | |
| 3,332,825 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (3,950,508 | ) | |
| (19,579,339 | ) |
Inventories | |
| (11,525,561 | ) | |
| 7,108,449 | |
Prepaid expenses and other current assets | |
| 29,007 | | |
| (3,088,466 | ) |
Accounts payable | |
| 8,875,590 | | |
| 10,574,989 | |
Contract liabilities | |
| 543,890 | | |
| (690,637 | ) |
Accrued liabilities and other payables | |
| (282,487 | ) | |
| 168,179 | |
Income tax payable | |
| 481,113 | | |
| (417,260 | ) |
Net cash used in operating activities | |
$ | (7,557,566 | ) | |
$ | (7,581,759 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property, plant and equipment | |
| (121,516 | ) | |
| (1,020,768 | ) |
Purchase of short term investment | |
| - | | |
| (9,133,707 | ) |
Net cash used in investing activities | |
$ | (121,516 | ) | |
$ | (10,154,475 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Net proceeds from initial public offering | |
| - | | |
| 21,735,000 | |
Payment of initial public offering costs | |
| - | | |
| (3,475,171 | ) |
Proceeds from private placement | |
| - | | |
| 7,969,221 | |
Payment of private placement costs | |
| - | | |
| (543,153 | ) |
Payment of dividends of subsidiary | |
| (469,633 | ) | |
| (3,362,639 | ) |
Repayment to related parties | |
| (2,498,689 | ) | |
| (37,893,063 | ) |
Principal portion of lease payment | |
| (120,942 | ) | |
| (874,039 | ) |
Net cash used in financing activities | |
$ | (3,089,264 | ) | |
$ | (16,443,844 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (10,768,346 | ) | |
| (34,180,078 | ) |
Cash and cash equivalents – beginning of year | |
| 85,248,997 | | |
| 74,480,651 | |
Cash and cash equivalents – end of year | |
$ | 74,480,651 | | |
$ | 40,300,573 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash (refund) paid for income taxes | |
$ | (69,647 | ) | |
$ | 1,663,240 | |
Cash paid for interest | |
$ | - | | |
$ | - | |
See notes to consolidated financial statements.
ISPIRE TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Ispire Technology Inc. (the “Company”)
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 owns a 100% equity interest in Ispire
International Limited, a business company incorporated under the laws of the British Virgin Islands (“BVI”) (“Ispire
International”) on July 6, 2022.
Prior to July 29, 2022, all of the equity
of Aspire North America LLC, a California limited liability company (“Aspire North America”), was owned by Aspire Global
Inc. (“Aspire Global”), and all of the equity of Aspire Science and Technology Limited, a Hong Kong corporation (“Aspire
Science”), was owned by Aspire Global Holdings Limited (“Aspire Holdings”), a wholly-owned subsidiary of Aspire Global.
Aspire Global and the Company are related
parties since the same individual was the chief executive officer of both companies, the chief executive officer and his wife are directors
of both companies and, prior to the transfer of equity described below, owned 66.5% and 5.0%, respectively, of the equity of both Aspire
Global and the Company. At the time of the transfer, the Company had the same stockholders as Aspire Global and the Company’s stockholders
held the same percentage interest in the Company as they had in Aspire Global. Because the transfer of the equity in Aspire North America
and Aspire Science is a transfer between related parties, the historical financial information of the subsidiaries is carried forward
as the historical financial information of the Company and the 50,000,000 shares that were issued at or about the time of the Company’s
organization are treated as being outstanding on July 1, 2020.
On July 29, 2022:
| ● | Aspire Global transferred 100% of the equity interest in Aspire North America to the Company |
| ● | Aspire Holdings transferred 100% of the equity of Aspire Science to Ispire International. |
The following table sets forth information
concerning the Company and its subsidiaries as of June 30, 2023:
Name
of Entity |
|
Date of Organization |
|
Place of Organization |
|
%
of Ownership |
|
Principal
Activities |
Ispire Technology Inc. |
|
June 13, 2022 |
|
Delaware |
|
Parent Company |
|
Holding Company |
Ispire International |
|
July 6, 2022 |
|
BVI |
|
100% |
|
Holding Company |
Aspire North America |
|
February 22, 2020 |
|
California |
|
100% |
|
Sales and Marketing |
Aspire Science |
|
December 9, 2016 |
|
Hong Kong |
|
100% |
|
Sales and Marketing |
Ispire is a holding company and does not engage
in any active operations. Its business is 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 development, marketing and sales of tobacco vaping products.
In October 2022, the directors and stockholders
of the Company approved the 2022 Equity Incentive Plan (the “Plan”) pursuant to which up to 15,000,000 shares of common stock
may be issued pursuant to options or restricted stock grants. The Plan will be administered by the Compensation Committee. Awards under
the Plan may be granted to officers, directors, employees and those consultants who qualify as a consultant or advisor under the instructions
to Form S-8. Awards are made at the discretion of the Board of Directors; provided that any options shall be exercisable at the fair
market value on the date of grant. As of June 30, 2023, no awards had been granted since the Plan was approved.
Impact of COVID-19
In December 2019, coronavirus disease 2019
(COVID-19) was first reported to have surfaced in Wuhan, China. During 2020, the disease spread to many parts of the world. The epidemic
has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in much of the world, most of which
are no longer in effect. The World Health Organization ended the global emergency status for COVID-19 on May 5, 2023, and the United
States Department of Health and Human Services declared that the public health emergency from COVID-19 expired at the end of the day
on May 11, 2023.
The extent to which COVID-19 impacts the Company’s
operations on an ongoing basis is highly uncertain. Since the Company’s products are presently manufactured in China by a related
party, any changes in the outbreak in China and any changes in the Chinese government’s policy may affect the Company’s supplier’s
operations which could affect its ability to manufacture and deliver product in a timely manner.
Supply Chain Risks
One of effects of the COVID-19 has been delays
resulting from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped
to the country of destination, and delivered from the port of entry to the customer’s location. As the port delays have significantly
decreased, the Company does not believe that the supply chain issues that affected its operations are currently affecting the Company.
The Company cannot assure you that delays will not affect its business in the future.
In 2021, Shenzhen Yi Jia, the Company’s
principal supplier of products, suffered a chip shortage resulting in a slowdown in delivery of its products to the Company from April
to August 2021. To secure the supply of chips, Shenzhen Yi Jia has advised the Company that it has obtained a supply of chips to meet
its production needs and the chip shortage no longer affects its production. In 2022, a slowdown in the delivery of components to Shenzhen
Yi Jia resulting from supply chain slowdowns as a result of the effects of mainland China’s COVID policy resulted in an increase
in cost of revenue during the period. The Company cannot assure you that it will not suffer from a chip shortage or that the effects
of China’s COVID policy will not affect Shenzhen Yi Jia’s ability or the ability of its suppliers to delivery products in
a timely manner.
Market and Economic Conditions
In recent years, the United States and other
markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including, as a result of
the COVID-19 pandemic, supply chain disruptions, the Russian invasion of Ukraine, instability in the U.S. and global banking systems,
rising fuel prices, increasing interest rates or foreign exchange rates and increased inflation and the possibility of a recession. A
significant downturn in economic conditions may affect the market for the Company’s products and its supplier’s ability to
provide products on acceptable terms.
The Company cannot predict the timing, strength,
or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general
economy and the markets in which the Company operates worsen from present levels, its business, financial condition, operating results
could be adversely affected.
E-cigarette regulation
Regulation regarding e-cigarette varies across
countries, from no regulation to a total ban. The legal status of e-cigarettes is currently pending in many countries. But 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, regulation in countries and regions that our major customers
located in may adversely affect the Company’s business.
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 August 8,
2016, a PMTA was required to be submitted to the FDA by September 9, 2020; for ENDS products that were not on the U.S. market prior
on August 8, 2016, and for which a PMTA was not filed by September 9, 2020, a PMTA a premarket authorization issued in response
to a PMTA is required before the subject product may enter the U.S. market. The Company has 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 the Company’s application and may prevent the Company’s
ENDS products from being sold in U.S., which will adversely affect the Company’s business.
Amendments to the Prevent All Cigarette Trafficking
(“PACT”) Act, which became law in 2021, extend the PACT Act to include e-cigarette and all vaping products, and place significant
burdens on sellers of vaping products in the United States which may make it difficult to operate profitably in the United States. Because
of tighter government regulations, the Company has stopped marketing tobacco vaping products in the United States, as the volume of sales
from the one tobacco vaping product which the Company may sell in the United States does not justify the marketing and regulatory costs
involved.
In the United States, cannabis vaping products
are governed by state laws, which vary from state to state. Most states do not permit the adult recreational use of cannabis, and no
states permit the sale of recreational cannabis products to minors. As a result of the reduced revenue to states resulting from the effects
of the COVID 19 pandemic, states may seek to raise revenue by permitting and taxing the use of cannabis products. The Company cannot
predict what action states will take or the nature and amount of taxes they may impose. However, 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.
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. The Company has complied with TPD requirement that for all its tobacco
products sold in Europe.
The sale of cannabis vaping products is illegal
in the European Union and the United Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Certain items for June 30, 2022 have been reclassified to conform
to the June 30, 2023 presentation.
Emerging growth company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered
public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations
regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the
JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides
that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period, which means that when a standard is issued or revised and it has different application dates for public or private
companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the
new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither
an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible
because of the potential differences in accounting standards used.
Basis of consolidation
The consolidated financial statements include
the financial statements of the Company and its subsidiaries as if the subsidiaries were acquired by the Company as of July 1, 2020.
All inter-company transactions and balances have been eliminated upon consolidation.
Use of estimates
The preparation of the 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 doubtful accounts, the useful lives
of property and equipment and intangible asset, impairment of long-lived assets, and deferred cost. Actual results could differ from
those estimates.
Cash and cash equivalents
Cash includes currency on hand, deposits held
by banks that can be added or withdrawn without limitation and highly liquid investments with maturities of three months or less when
purchased.
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. |
Accounts receivable
Accounts receivable are recognized and carried
at the original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful accounts is made
when collection of the full amount is no longer probable. Past due accounts are generally written off against the allowance for bad debts
only after all collection attempts have been exhausted and the potential for recovery is considered remote.
The
Company have different payment terms for different businesses. For tobacco vaping business, the Company requires a deposit of 30% of
sales amount upon placing order, and the payment of remaining 70% to be made before shipment. For cannabis vaping business, tailored
payment term are designed for each customer, based on business relationship, order size and other considerations. The Company maintains
an allowance for potential credit losses on accounts receivable. The Company reviews accounts receivable on a periodic basis. For tobacco
vaping business, the Company makes provisions of 80% for accounts receivable aged between 1.5 years to 2 years, and 100% for balances
aged over 2 years. For cannabis business, the Company makes provisions of 10% for accounts receivable aged over 3 months. Additionally,
specific provisions are made when there is doubt as to collectability of individual balances. In evaluating the collectability of individual
receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, the
customer’s current credit-worthiness and current economic trends. The Company write-off accounts receivable against the provision
when they are deemed uncollectible.
Investment
The investment represents a certificate of
deposit that the Company holds in HSBC bank. The entire balance of the investment presented on the balance sheet as of June 30, 2023
is $9,133,707 and it matures on February 8, 2024.
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 when inventory costs exceed expected market value due to obsolescence or damage, 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. These writedowns
are recorded based on estimates. The Company did not write down any inventory during the years ended June 30, 2022 and 2023. When there
is an indicator, the Company evaluates the ability to realize the value of inventories based on a combination of factors such as forecasted
sales, estimated current and future market value.
Property, plant and equipment, net
Property, plant and equipment are stated at
cost less accumulated depreciation and depreciated on a straight-line basis over the estimated useful lives of the assets from the time
the assets are placed in service. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its
existing use. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.
When assets are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income/loss in the
year of disposition. Estimated useful lives are as follows:
|
|
Estimated
Useful Life |
Office
and other equipment |
|
3 - 5 years |
Furniture
& fixtures |
|
7 years |
Leasehold
improvements |
|
Shorter of the term of the lease or the estimated useful life of the assets |
Leases
A contract is, or contains, a lease if the
contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed
where the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right
to direct the use of the identified asset. All leases with an initial term of more than 12 months are recognized as assets representing
the right-of-use of the underlying asset and liabilities representing the obligation to make lease payments. Both the assets and the
liabilities are initially measured as present value of the discounted lease payments over the lease term. As the Company’s leases
typically do not provide an implicit rate, the Company uses an estimate of its incremental borrowing rate based on the information available
at the lease commencement date to determine the discount rate. Right-of-use assets are measured at cost less any accumulated depreciation
and impairment losses and adjusted for any re-measurement of the lease liabilities. Right-of-use assets are depreciated on a straight-line
basis over the shorter of the useful lives of the assets or the lease terms. Lease liabilities are initially measured at the present
value of the lease payments to be made under the lease terms and subsequently adjusted by the effect of the interest on and the settlement
of the lease liabilities, and the re-measurement arising from any reassessment of the lease liabilities or lease modifications.
Lease
payments on leases with an initial term of twelve months or less and leases of low-value assets are recognized as an expense on a straight-line
basis over the lease term and are not treated as right of use assets.
Accounts payable
Accounts payable represents payables to suppliers.
The Company’s major supplier is a related party to the Company. See Note 13.
Contract liabilities
Contract liabilities represent advanced deposits
received from customers after an order has been placed but before a product has been shipped. The Company’s normal policy is to
require a customer deposit in the range of 25% to 30% of the purchase price upon placement of a sales order, although the Company exempts
certain customers from this requirement. Contract liabilities are realized as revenue when the conditions to revenue recognition are
met, primarily when control of goods has transferred to customers.
Impairment of long-lived assets
In accordance with ASC Topic 360-10, Impairment
and Disposal of Long-Lived Assets, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the years ended
June 30, 2022 and 2023.
Revenue recognition
The Company sells its products to customers
around the world and recognizes revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers.
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 customer rebates, 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. The range of possible consideration
outcomes is primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions
in the various markets served. Because the Company serves numerous markets, the sales incentive programs offered vary across businesses,
but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.
There are no material instances where variable
consideration is constrained and not recorded at the initial time of sale. Product returns are recorded as a reduction of revenue based
on anticipated sales returns that occur in the normal course of business. The Company has elected to present revenue net of sales taxes
and other similar taxes.
The
Company’s warranties are of an assurance-type and come standard with all Company products to cover repair or replacement should
a product not perform as expected by a reasonable customer. The Company offers warranty for all major products, including all types of
E-vapor kits, atomizers, replacement coils and mods, but no warranty for accessories such as spare parts or packaging consumables. The
Company generally offers a 90 day warranty period from date of purchase for products sold to all regions, but from May 2019, the
Company offers a six month warranty period from date of purchase for products sold in the UK and France. The Company offers refund or
replacement of products for defects in manufacture, dead on arrival items and items that do not appear the same as listed on the Company’s
or distributors’ website, and excludes damaged goods caused by misuse or unauthorized repair. Provisions for estimated expenses
related to product warranties are made at the time products are sold. These estimates are established using historical information about
the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management
actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. The Company estimates
the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes.
As of June 30, 2022 and 2023, products returned for repair or replacement have been immaterial. Accordingly, a warranty liability
has not been deemed necessary.
Disaggregated Revenue
In accordance with ASC 606-10-50-5, 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 of tobacco vaping products and cannabis vaping products. The net sales disaggregated by products for the years ended June 30,
2022 and 2023 were as follows:
| |
Years ended June 30, | |
Net sales by products branded | |
2022 | | |
2023 | |
Tobacco vaping products | |
$ | 68,116,810 | | |
$ | 75,562,711 | |
Cannabis vaping products | |
| 19,978,608 | | |
| 40,042,825 | |
Total | |
$ | 88,095,418 | | |
$ | 115,605,536 | |
Cost of revenue
Cost of revenue for the years ended June 30,
2022 and 2023 consisted primarily of the cost of purchasing vaping products, which were purchased from a related party. See Note 13.
Shipping and handling costs
Shipping and handling costs for the years
ended June 30, 2022 and 2023 are $335,677 and $298,703, respectively. They are included in the sales and marketing expenses.
Interest income
For the years ended June 30, 2022 and
2023, interest income related to interest on bank deposits.
Income taxes
The Company accounts for income taxes under
ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The provisions of ASC 740-10 prescribe a more-likely-than-not
threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax
return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
The Company classifies the interest and penalties, if any, as a component of income tax expense. For the years ended June 30, 2022 and
2023, the Company did not incur any interest or penalties related to an uncertain tax position. The Company does not believe that there
was any uncertain tax positions as of June 30, 2022 and 2023.
Foreign currency translation
The reporting currency of the Company is the
U.S. dollar (“USD”). The functional currency of Aspire Science, which is located in Hong Kong, is the Hong Kong Dollar (“HKD”).
For the entities whose functional currency is the HKD, results of operations and cash flows are translated at average exchange rates
during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated
at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not
necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process
of translating the local currency financial statements into USD are included in determining comprehensive income/loss. Transactions denominated
in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and
liabilities denominated in foreign currencies are translated into the functional currencies at the exchange rates prevailing at the balance
sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency included in the results of operations as incurred.
Translations of amounts from HKD into USD
were made at the following exchange rates for the respective dates and periods:
| |
At June 30, | |
| |
2022 | | |
2023 | |
Consolidated balance sheets: | |
| | |
| |
HKD to $1.00 | |
| 7.8478 | | |
| 7.8373 | |
| |
| | | |
| | |
Consolidated statements of operations and comprehensive loss: | |
| | | |
| | |
HKD to $1.00 | |
| 7.8045 | | |
| 7.8367 | |
Earnings per share
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 shares outstanding for the period. Diluted EPS is similar
to basic EPS but presents the dilutive effect on a per share basis of potential common shares (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. The Company has no
dilutive securities as of and for the years ended June 30, 2022 and 2023.
Comprehensive loss
Comprehensive loss consists of two components,
net loss and other comprehensive (loss) income. The foreign currency translation gain or loss resulting from translation of the financial
statements expressed in USD is reported in other comprehensive (loss) income in the consolidated statements of income and comprehensive
loss.
Commitments and contingencies
In the normal course of business, the Company
is subject to contingencies, such as legal proceedings and claims arising out of its business, which cover a wide range of matters. Liabilities
for contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably
estimated.
If the assessment of a contingency indicates
that it is probable that a material loss is incurred and the amount of the liability can be estimated, then the estimated liability is
accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss, if determinable and material, is disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Segment reporting
The Company uses the management approach to
determine operating segments. The management approach considers the internal organization and reporting used by the Company’s chief
operating decision maker (“CODM”) for making decisions, allocating resources, and assessing performance. The Company’s
CODM has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources
and assessing performance of the Company.
The Company’s CODM reviews the consolidated
financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and has determined
that the Company has only one reportable segment. Notwithstanding that the Company has customers located around the world and the Company’s
Hong Kong subsidiary serves as one of the sales and marketing centers, the Company’s long-lived assets and management are located
substantially in the U.S. and management operates its business as a single segment.
Related parties
Parties are considered to be related to the
Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company, its management, immediate family members of principal
owners of the Company and other parties with which the Company may deal with if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. The Company discloses all significant related party transactions in Note 13.
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.
Accounting pronouncements adopted during
the year ended June 30, 2023
In November 2018, the Financial Accounting
Standards Boards (“FASB”) issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between
Topic 808 and Topic 606, which clarifies that elements of collaborative arrangements could qualify as transactions with customers in
the scope of ASC 606. The amendments require the application of existing guidance to determine the units of account in collaborative
arrangement for purposes of identifying transactions with customers. For transactions outside the scope of ASC 606, companies can apply
elements of ASC 606 or other relevant guidance by analogy, or apply a reasonable accounting policy if there is no appropriate analogy.
ASU 2018-18 is effective retrospectively for us for the year ended June 30, 2023. The adoption of this guidance had no material
impact on our financial position, results of operations and cash flows.
In March 2020, the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, ASU 2020-04,
which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects
of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London
Interbank Offered Rate (“LIBOR”). Specifically, to the extent the Company’s debt agreements are modified to replace
LIBOR with another interest rate index, ASU 2020-04 will permit the Company to account for the modification as
a continuation of the existing contract without additional analysis. Companies may generally elect to apply the guidance for
periods that include March 12, 2020 through December 31, 2022. The Company did not elect retrospective application.
The adoption of this update had no material impact on the Company’s consolidated financial statements.
Accounting pronouncements not yet effective
As the Company is an emerging growth company,
the effective dates of the pronouncements applicable to us are the same as those applicable to private companies.
In June 2016, the FASB amended guidance
related to the impairment of financial instruments as part of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology with an expected credit loss
model for which a company recognizes an allowance based on the estimate of expected credit loss. For public business entities that meet
the definition of a U.S. Securities and Exchange Commission (“SEC”) filer (“SEC filer”), excluding entities eligible
to be smaller reporting companies as defined by the SEC, ASU No. 2016-13 is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. For all other entities, including smaller reporting companies, ASU No. 2016-13
is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. 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. The Company is in the process of
evaluating the impact that this guidance will have on its consolidated financial statements.
On September 29, 2022, FASB issued ASU 2022-04:
Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires that a
buyer in a supplier finance program disclose additional information about the program to allow financial statement users to better understand
the effect of the programs on an entity’s working capital, liquidity, and cash flows. This update will be effective for the Company
for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information, which is effective for fiscal
years beginning after December 15, 2023. Early adoption is permitted. The Company does not expect this standard will have a material
effect on its consolidated financial statements.
Concentration and risks
Risks and Uncertainties
The Company’s business, financial condition
and results of operations may be negatively impacted by risks related to government regulations, natural disasters, extreme weather conditions,
health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations.
Customer and Supplier Concentration
(a) Customers
For the years ended June 30, 2022 and
2023, the Company’s major customers, who accounted for more than 10% of the Company’s consolidated revenue, were as follow:
| |
Year Ended
June 30, | |
| |
2022 | | |
2023 | |
Major Customers | |
| | |
| |
A | |
| 39 | % | |
| 32 | % |
(b) Suppliers
For the years ended June 30, 2022 and
2023, the Company’s suppliers, who accounted for more than 10% of the Company’s total purchases, were as follows:
| |
Year Ended
June 30, | |
| |
2022 | | |
2023 | |
Major Suppliers | |
| | |
| |
B(1) | |
| 99 | % | |
| 92 | % |
Credit Risk
The Company is subject to credit risk from
cash and cash equivalents, account receivables, financial assets included in prepayments and deposits and amounts due from related parties.
All the Company’s cash and cash equivalents are held in major financial institutions located in Hong Kong and the United States,
which management believes are of high credit quality. At June 30, 2022 and 2023, the Company had credit risk exposure of uninsured cash
in banks of $74,000,991 and $39,792,081, respectively. The Company has policies in place to evaluate credit risk when accepting new business
and to limit its credit exposure to individual customers. The management considers the Company does not have a significant concentration
of credit risk. The Company does not require collateral to support financial instruments that are subject to credit risk.
3. CASH AND CASH EQUIVALENTS
Below is a breakdown of the Company’s
cash balances in banks for both years, both by geography and by currencies (translated into U.S. dollars):
| |
As of June 30, | |
By Geography: | |
2022 | | |
2023 | |
Cash in HK | |
$ | 71,221,649 | | |
$ | 25,841,880 | |
Cash in U.S. | |
| 3,259,002 | | |
| 14,458,693 | |
Total | |
$ | 74,480,651 | | |
$ | 40,300,573 | |
| |
| | | |
| | |
By Currency: | |
| | | |
| | |
USD | |
$ | 64,187,756 | | |
$ | 39,835,636 | |
HKD | |
| 415,930 | | |
| 363,416 | |
EUR | |
| 4,097 | | |
| 59,702 | |
GBP | |
| 24,680 | | |
| 22,143 | |
RMB | |
| 9,848,188 | | |
| 19,676 | |
Total | |
$ | 74,480,651 | | |
$ | 40,300,573 | |
“HKD” refers to Hong Kong dollars,
“GBP” refers to British pounds, and “EUR” refers to Euros.
4. FAIR VALUE MEASUREMENT
As of June 30, 2022 and 2023, information
about inputs into the fair value measurement of the Company’s assets and liabilities that are measured at fair value on a recurring
basis in periods subsequent to their initial recognition is as follows:
Cash and cash equivalents, accounts receivable,
prepaid expenses, other current assets, due from related parties and held-to-maturity investment are financial assets with carrying values
that approximate fair value due to their short-term nature. Accounts payable, account payable – related party, contract liabilities,
accrued liabilities and other payables and due to related parties are financial liabilities with carrying values that approximate fair
value due to their short-term nature.
5. ACCOUNTS RECEIVABLE, NET
As of June 30, 2022 and 2023, accounts
receivable consisted of the following:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Accounts receivable – gross | |
$ | 8,260,574 | | |
$ | 26,025,068 | |
Allowance for doubtful accounts | |
| - | | |
| (1,498,806 | ) |
Accounts receivable, net | |
$ | 8,260,574 | | |
$ | 24,526,262 | |
The Company
recorded bad debt expense of nil and $3,332,825 for years ended June 30, 2022 and 2023 respectively.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of June 30, 2022 and 2023, prepaid
expenses and other current assets consisted of the following:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Prepaid inventories | |
$ | - | | |
$ | 3,209,413 | |
Other receivable | |
| 127,423 | | |
| 127,595 | |
Prepayment | |
| 50,460 | | |
| 26,974 | |
Deposit paid | |
| 14,616 | | |
| 14,635 | |
Total | |
$ | 192,499 | | |
$ | 3,378,617 | |
Prepayments primarily consist of prepayment
for raw materials and consulting services provided by suppliers.
7. PROPERTY, PLANT AND EQUIPMENT, NET
As of June 30, 2022 and 2023, property,
equipment and leasehold improvement consisted of the following:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Leasehold improvement | |
$ | 433 | | |
$ | 518,854 | |
Office and other equipment | |
| 146,798 | | |
| 339,155 | |
Furniture and fixture | |
| - | | |
| 309,990 | |
| |
| 147,231 | | |
| 1,167,999 | |
Less: accumulated depreciation | |
| (33,206 | ) | |
| (79,868 | ) |
Total | |
$ | 114,025 | | |
$ | 1,088,131 | |
For
the years ended June 30, 2022 and 2023, depreciation expense amounted to $11,437 and $46,629, respectively.
8. INTANGIBLE ASSETS
On September 30, 2022, an intellectual property
transfer agreement and an exclusive license agreement was signed such that all patents, trademarks, Know-how and Know-how Documentation
related to cannabis vaping products and tobacco vaping products were transferred from Tuanfang Liu, Aspire Global and Shenzhen Yi Jia
to Aspire North America and Aspire Science. As the intangible assets were transferred from Tuanfang Liu, the controlling stockholder,
the Company recorded the assets at his cost, which is $0, in accordance with ASC 805-50-30-5 and SEC Staff Accounting Bulletin Topic
5. The Company engaged a third party firm to perform a valuation on the fair values of the intangible assets on the date of transfer
and the estimated fair values were $74,259,915, in accordance with ASC 350.
9. CONTRACT LIABILITIES
As of June 30, 2022 and 2023, the Company
had total contract liabilities of $1,672,051 and $988,556, respectively. These liabilities are advance deposits received from customers
after an order has been placed. The balance of $1,672,051 as of June 30, 2022 was recognized as revenue during 2023. As of June 30 2023,
the Company expects all of the contract liabilities to be settled in less than one year. The decrease in balance at June 30, 2023 was
due to less orders on hand on that date.
10. LEASES
The Company has operating lease arrangements
for office premises for HK and California. 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 on the consolidated balance sheet 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 where
the Company is the lessee are presented as follow:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Right-of-use assets | |
$ | 295,804 | | |
$ | 4,061,617 | |
| |
| | | |
| | |
Lease liabilities - current | |
$ | 347,541 | | |
$ | 944,525 | |
Lease liabilities – non-current | |
| - | | |
| 3,356,232 | |
Total | |
$ | 347,541 | | |
$ | 4,300,757 | |
As of June 30, 2023, the maturities of our
lease liabilities (excluding short-term leases) are as follows:
| |
As of June 30, 2023 | |
Year Ended June 30, | |
| | |
2024 | |
| 1,260,719 | |
2025 | |
| 1,338,878 | |
2026 | |
| 1,383,636 | |
2027 | |
| 968,111 | |
2028 | |
| 80,676 | |
Total future lease payments | |
| 5,032,020 | |
Less: imputed interest | |
| (731,263 | ) |
Total lease liabilities | |
| 4,300,757 | |
The Company incurred lease costs, which includes
the amortization of the right-of-use assets and the payment of short-term leases, of $667,712 and $1,237,868 on the Company’s consolidated
statements of operations and comprehensive loss for the years ended June 30, 2022 and 2023, respectively.
The Company made payments of $304,291 and
$1,141,142 under the lease agreements during the years ended June 30, 2022 and 2023, respectively.
The weighted-average remaining lease term
related to the Company’s lease liabilities as of June 30, 2022 and 2023 was 1 and 3.8 years, respectively.
The discount rate related to the Company’s
lease liabilities as of both June 30, 2022 and June 30, 2023 was 5.8% and 8.1%. The discount rates are generally based on estimates of
the Company’s incremental borrowing rate, as the discount rates implicit in the Company’s leases cannot be readily determined.
As of June 30, 2023, the Company had $0.2
million of future payments under additional leases, primarily for office, which had not yet commenced. This lease, which has a two-year
term, will commence in July 2023.
11. ACCRUED LIABILITIES AND OTHER PAYABLES
As of June 30, 2022 and 2023, accrued
liabilities and other payables consisted of the following:
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Accrued salaries and related benefits | |
$ | 43,487 | | |
$ | 97,314 | |
Other payables | |
| 81,226 | | |
| 148,197 | |
Accrued expenses | |
| 34,583 | | |
| 35,850 | |
Total | |
$ | 159,296 | | |
$ | 281,361 | |
12. DIVIDENDS PAYABLE
Dividends payable represent a dividend declared
by the Company’s HK subsidiary, Aspire Science, in the year ended June 30, 2020, which was payable to Aspire Science’s then
sole stockholder, who was the Company’s chief executive officer and is co-chief executive officer. The dividend was declared prior
to the transfer of the equity interest in Aspire Science to Aspire Holdings, which subsequently transferred the equity interest to Ispire
International. Set forth below is the information relating to the dividend payable at June 30, 2022 and 2023.
| |
As of June 30, | |
| |
2022 | | |
2023 | |
At the beginning of the year | |
$ | 3,832,272 | | |
$ | 3,362,639 | |
Dividends declared | |
| - | | |
| - | |
Dividends paid | |
| (469,633 | ) | |
| (3,362,639 | ) |
At the end of the year | |
$ | 3,362,639 | | |
$ | - | |
13. RELATED PARTY TRANSACTIONS
| a) | The table below sets forth the major related parties and their relationships with the Company: |
Name
of related parties and Relationship with the Company |
-Tuanfang Liu is the Chairman of the Company. |
-Jiangyan Zhu is the wife of Tuanfang Liu and a director of the Company. |
-Eigate (Hong Kong) Technology Co., Limited (“Eigate”) is a wholly-owned subsidiary of Aspire Global. |
-Aspire Global is a company controlled by the Chairman of the Company. |
-Shenzhen Yi Jia, a Chinese company that is 95% owned by the Company’s chairman and 5% by the chairman’s cousin. |
| 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. At June 30, 2023, Mr. Liu and Ms. Zhu beneficially owned 66.5% and 5.0%, 61.3% and 4.6%, respectively, of the outstanding shares of both Aspire Global and the Company. See Note 15. |
| c) | The Company had the following balances due from related parties: |
| |
As of June 30, | |
| |
2022 | | |
2023 | |
Shenzhen Yi Jia | |
$ | 1,872,035 | | |
$ | - | |
Tuanfang Liu | |
| 62,820 | | |
| - | |
Total | |
$ | 1,934,855 | | |
$ | - | |
The balances represent payment on behalf of
these related parties, such as freight and tariff charges and others. These balances as of June 30, 2022 were all non-interest bearing,
unsecured, have no due date and are repayable on demand and the balances were fully settled in November 2022.
| d) | The balances in due to related parties at June 30, 2022 and 2023 represent amount due to Eigate of $40,672,768 and amount due to Shenzhen Yi Jia of $710,910, respectively. These balances were all non-interest bearing, unsecured, have no due date and are repayable on demand. |
| e) | For the years ended June 30, 2022 and 2023, substantially all of the Company’s tobacco and cannabis vaping products were purchased from Shenzhen Yi Jia. As of June 30, 2022 and 2023, the accounts payable - related party was $41,982,373 and $55,769,526, respectively, which was payable to Shenzhen Yi Jia. For the years ended June 30, 2022 and 2023, the purchases from Shenzhen Yi Jia were $74,787,679 and $83,060,957, respectively. |
14. INCOME TAXES
British Virgin Islands (“BVI”)
Under the current laws of the BVI, the Company’s
BVI subsidiary, Ispire International, is not subject to income or capital gains taxes. In addition, dividend payments are not subject
to withholding tax in the BVI.
Hong Kong
Under
the two-tiered profits tax rates regime for Hong Kong, the first 2 million HKD of profits of the qualifying entity will be taxed at 8.25%,
and profits above HKD 2 million will be taxed at 16.5%.
United States
The
Company and Aspire North America LLC are each subject to the federal income tax rate if in a taxable position.
For the years ended June 30, 2022 and
2023, loss before income taxes consists of:
| |
Years ended
June 30, | |
| |
2022 | | |
2023 | |
HK | |
$ | 6,679,431 | | |
$ | 7,444,203 | |
U.S. | |
| (7,482,487 | ) | |
| (12,297,503 | ) |
Total | |
$ | (803,056 | ) | |
$ | (4,853,300 | ) |
The reconciliation of the actual income taxes
to the amount of tax computed by applying the aforementioned statutory tax rate to pre-tax income is as follows:
| |
Years ended June 30, | |
| |
2022 | | |
2023 | |
Expected taxation at HK statutory rate | |
$ | (132,504 | ) | |
$ | (800,795 | ) |
Tax effect of two-tiered profits tax regime | |
| (21,142 | ) | |
| (21,055 | ) |
Effect of income tax rate difference in other jurisdictions | |
| (336,712 | ) | |
| (553,388 | ) |
Non-deductible expenses | |
| 116,287 | | |
| 61,208 | |
Non-taxable income | |
| (10,764 | ) | |
| (22,378 | ) |
Change in valuation allowance | |
| 1,455,390 | | |
| 2,574,664 | |
Others | |
| 542 | | |
| (7,047 | ) |
Income tax expense | |
$ | 1,071,097 | | |
$ | 1,245,303 | |
For the years ended June 30, 2022 and
2023, there are net operating losses of $8,519,617 and $14,584,702 that arose from Aspire North America LLC, which can be carried forward
indefinitely to offset up to 80% of each year’s taxable income, until fully utilized. At June 30, 2022 and 2023, these net operating
loss carryforwards may result in future income tax benefits of $1,789,120 and $3,062,787, respectively.
Valuation allowances provided against the
deferred tax assets are related to the net operating loss carryforwards, as the Company’s management does not believe that sufficient
positive evidence exists to conclude that the benefits of such deferred tax assets are more likely than not to be realized in full. The
amount of the valuation allowance as of June 30, 2022 and 2023 was $1,925,780 and $4,500,444, respectively.
Deferred tax assets and liabilities represent
the future effects on income taxes that result from temporary differences and carryforwards that exist at the balance sheet date, and
are measured using enacted rates and provisions of the tax law. Deferred tax assets are recognized for deductible temporary differences
as well as tax attributes.
Significant components of the Company’s
deferred tax liabilities and assets as of June 30, 2022 and 2023 are as follows:
| |
Years ended June 30, | |
Deferred tax assets: | |
2022 | | |
2023 | |
Net operating loss carryforward | |
$ | 1,789,120 | | |
$ | 3,062,787 | |
Foreign payables | |
| 160,009 | | |
| 981,956 | |
Accounts receivable impairment | |
| - | | |
| 508,980 | |
Property, plant and equipment | |
| (23,349 | ) | |
| (53,279 | ) |
Total deferred tax assets | |
| 1,925,780 | | |
| 4,500,444 | |
Less: Valuation allowance | |
| (1,925,780 | ) | |
| (4,500,444 | ) |
Net deferred tax asset | |
$ | - | | |
$ | - | |
Movement of valuation allowance:
| |
Years ended June 30, | |
| |
2022 | | |
2023 | |
At the beginning of the year | |
$ | 375,307 | | |
$ | 1,925,780 | |
Current year addition | |
| 1,550,473 | | |
| 2,574,664 | |
At the end of the year | |
$ | 1,925,780 | | |
$ | 4,500,444 | |
The Company is subject to income taxes in
the U.S. federal, state, and various foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation
of the related tax laws and regulations and require significant judgment to apply. All of the Company’s tax years will remain open
for examination by the US federal and state tax authorities from the date the returns are filed or are due, whichever is later. The Company
does not have any tax audits or other issues pending.
15. STOCKHOLDERS’ EQUITY
On April 6, 2023, the Company completed the
public offering of 2,700,000 shares of common stock at a public offering price of $7.00 per share, par value $0.0001 per share, with
option for underwriters to purchase up to an additional 405,000 at the initial public offering price as over-allotment. On April 25,
2023, the underwriters fully exercised their over-allotment option, and 405,000 shares were issued at public offering price of $7.00
per share, par value $0.0001 per share. These two transactions altogether generated proceeds of $21,735,000, offset by offering costs
of $3,475,171, which contributed an increase of share capital of $311 and additional paid in capital of $18,259,518.
On June 26, 2023, pursuant to purchase agreements
dated June 26, 2023, the Company sold to three investors in a private placement an aggregate of 1,117,420 shares of common stock, at
a purchase price of $7.1318 per share. This private replacement generated proceeds of $7,969,221, offset by offering cost of $543,153,
which contributed an increase of share capital of $111 and additional paid in capital of $7,425,957.
16. EARNINGS PER SHARE
The following table presents a reconciliation
of basic net loss per share:
| |
Years ended June 30, | |
| |
2022 | | |
2023 | |
Net loss | |
$ | (1,874,153 | ) | |
$ | (6,098,603 | ) |
Weighted average basic and diluted ordinary shares outstanding | |
| 50,000,000 | | |
| 50,725,814 | |
Net loss per basic and diluted share of common stock | |
$ | (0.04 | ) | |
$ | (0.12 | ) |
17. LEGAL PROCEEDINGS
From time to time, we may be subject to legal
or regulatory proceedings, investigations and claims incidental to the conduct of our business.
Other than disclosed below, we are not a party
to, nor are we 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.
On March 17, 2021, the FDA sent a letter to
Aspire North America requesting that Aspire North America submit documents relating to its marketing practices for Aspire products. Specifically,
the FDA requested documents related to youth exposure to Aspire North America’s social media marketing of Aspire as well as Aspire
North America’s use of influencers in social media marketing. This request applied to all of Aspire electronic nicotine delivery
system (ENDS) products and their components or parts. The FDA requested these documents based on the epidemic of youth ENDS use and based
on Aspire North America’s marketing of Aspire products on social media platforms (e.g., Facebook, YouTube, and Instagram). The
FDA requested that Aspire North America respond within 60 days but granted a 30-day extension. On June 15, 2021, Aspire North America
provided the required information to the FDA. To date, the FDA has not substantively responded or taken any further action in the matter.
However, we cannot assure you that the FDA will consider the response adequate and will not initiate regulatory or enforcement action
based on an alleged failure to comply with the request or that the FDA will not initiate regulatory or enforcement action on other grounds
based on the contents of the documents produced in the response. Either result could materially and adversely affect our business, financial
condition, and results of operations.
18. SUBSEQUENT EVENTS
In July 2023, the Company registered the grant
of up to 15,000,000 shares of common stock, par value $0.0001 per share, to certain employees of and consultants to the Company either
as stock grants, stock options or other equity-based incentives, and the subsequent exercise of any stock options pursuant to the 2022
Equity Incentive plan (the “Plan”).
On September 4, 2023, the Board, as administrator
of the Plan, granted pursuant to the Plan non-qualified stock options to its executive officers, and other employees to purchase an aggregate
of 2,605,000 shares of common stock, at exercise price of $9.76 per share, being the fair market value on the date of grant. These options
shall vest cumulative as to 25% of the shares subject to the options over four years on the annual anniversary of date of grant.
On September 4, 2023, the Board also issued
587,235 restricted stock units to its executive officers, and other employees, pursuant to the Plan. The restricted stock units vest
cumulatively as to one-third of the restricted stock units over three years on the annual anniversary of the date of grant.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
The following table sets forth an itemized
statement of the amounts of all expenses (excluding underwriting discounts and commissions and non-accountable expense allowance) payable
by us in connection with the registration of the common stock offered hereby. With the exception of the SEC registration fee, the FINRA
filing fee and the NASDAQ initial listing fee, the amounts set forth below are estimates.
SEC registration fee | |
$ | | |
Accounting fees and expenses | |
| | |
Printing expenses | |
| | |
Legal fees and expenses | |
| | |
Miscellaneous | |
| | |
Total | |
| | |
Item 14. Indemnification
of Directors and Officers
The Company’s certificate of incorporation
provides that the Company shall indemnify to the fullest extent permitted by law as it presently exists or may hereafter be amended any
person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative, or investigative, by
reason of the fact that such person, or such person’s testator or intestate, is or was a director or officer of the Company or any
predecessor of the Company, or serves or served at any other enterprise as a director or officer at the request of the Company or any
predecessor to the Corporation. Any amendment, repeal, or modification of this provision of the Company’s certification shall not
adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such
repeal or modification.
The Company’s certificate of incorporation
provides that to the fullest extent permitted by the Delaware General Corporation Law as it presently exists or may hereafter be amended,
a director of the Company shall not be personally liable to the Company or to its stockholders for monetary damages for any breach of
fiduciary duty as a director. No amendment to, modification of, or repeal of this provision of the certificate of incorporation shall
apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
Section 145 of the Delaware General Corporation
Law gives the Company broad authority to indemnify our officers and directors. under certain prescribed circumstances and subject to certain
limitations against certain costs and expenses, including attorney’s fees actually and reasonably incurred in connection with any
action, suit or proceeding, whether civil, criminal, administrative or investigative, to which a person is a party by reason of being
a director or officer if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such
statutory provisions.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
1. | In connection with the Company’s organization, the
Company issued 50,000,000 shares of common stock to the stockholders of Aspire Global Inc. The shares were issued in connection with
a restructure of Aspire Global, in connection with which 100% of the equity of Aspire North America LLC and Aspire Science and Technology
Limited, which were wholly-owned direct or indirect subsidiaries of Aspire Global, was transferred to the Company on July 29, 2022. The
issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction
not involving a public offering. |
2. | On June 26, 2023, the Company entered into agreements (collectively,
“Purchase Agreements”) dated June 26, 2023 with three investors pursuant to which the investors purchased from the Company
in a private placement (the “Private Placement”) an aggregate of 1,117,420 shares (“Shares”) of the Company’s
common stock, par value $0.0001 per share, at a purchase price of $7.1318 per Share. The gross proceeds to the Company, before deducting
placement agent fees and other offering expenses, were approximately $7,969,221. The Private Placement closed on June 26, 2023. The issuance
of the Shares was exempt from registration (i) pursuant to Section 4(a)(2) under the Securities Act with respect to 490,759 shares issued
to one United States investor and (ii) pursuant to Regulation S of the Securities Act with respect to 626,661 shares issued to two investors
who are not US Persons. US Tiger Securities Inc. (“US Tiger”), who was the managing underwriter of the Company’s initial
public offering in April 2023, acted as the exclusive placement agent for the Private Placement, with TFI Securities and Futures Limited
acting as a selling group member. US Tiger received a fee of $478,153 for serving as exclusive placement agent. |
3. | Pursuant to an agreement dated April 14, 2023, with Acorn Management
Partners, L.L.C. (“Acord”), in August 2023, the Company issued 24,089 shares of common stock to Acorn for investor relations
services. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not
involving a public offering. No brokerage or placement agent fees were paid in connection with the issuance. |
4. | Pursuant to an agreement dated July 19, 2023, with FORCE
Family Office, LLC (“FORCE”), in August 2023, the Company issued 18,000 shares of common stock to FORCE’s designee
for investor relations services rendered by FORCE. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2)
of the Securities Act as a transaction not involving a public offering. No brokerage or placement agent fees were paid in connection
with the issuance. |
Item 16. Exhibits and Financial Statement Schedules
Exhibit
number |
|
Description |
3.1 |
|
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
3.2 |
|
By-laws (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
4.1 |
|
Representative’s Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s
Form 8-K filed with the SEC on April 6, 2023) |
5.1 |
|
Opinion of Ellenoff Grossman & Schole LLP as to the legality of the securities being registered2 |
10.1 |
|
Intellectual Property Transfer Agreement dated September 30, 2022, by and among Aspire Global Inc., Shenzhen Yi Jia, Tuanfang Liu, Aspire North America LLC and Ispire Technology Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
10.2 |
|
Intellectual Property License Agreement dated September 30, 2022, by and among Aspire Global Inc., Shenzhen Yi Jia, Tuanfang Liu, Aspire Science and Technology Limited and Ispire Technology Inc. (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
10.3 |
|
Employment agreement dated January 31, 2023, between the Company and Tuanfang Liu (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (No. 333-269470) filed with the SEC on February 16, 2023)† |
10.4 |
|
Employment agreement dated January 31, 2023, between the Company and Michael Wang (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A (No. 333-269470) filed with the SEC on February 16, 2023)† |
10.5 |
|
2022
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1 (No.
333-269470) filed with the SEC on January 31, 2023)† |
10.6 |
|
Independent
director agreement dated September 29, 2023 with Brent Cox2 |
10.7 |
|
Form of independent director agreement dated September 29, 2023 with John Fargis2 |
10.8 |
|
Distributorship Agreement dated January 1, 2021, between Aspire Science and Technology Limited and Your-Buyer International Limited (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1(No. 333-269470) filed with the SEC on January 31, 2023) |
10.9 |
|
Supply agreement dated January 27, 2023 by and between Aspire North America LLC and Shenzhen Yi Jia (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
10.10 |
|
Supply agreement dated January 27, 2023 by and between Aspire Science and Technology Limited and Shenzhen Yi Jia (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (No. 333-269470) filed with the SEC on January 31, 2023) |
10.11 |
|
Form of Subscription Agreement dated June 26, 2023 between the Company and the Purchasers in the Private Placement (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-41680) filed with the SEC on June 27, 2023) |
10.12 |
|
Independent director agreement dated September 29, 2023 with Christopher Robert Burch2 |
23.1 |
|
Consent of MSPC Certified Public Accountants and Advisors, A Professional Corporation2 |
23.2 |
|
Consent of Ellenoff Grossman & Schole, LLP (included as part of Exhibit 5.1 hereto)2 |
23.3 |
|
Consent of Han Kun Law Offices1 |
23.4 |
|
Consent of Euromonitor International Limited1 |
24.1 |
|
Power
of Attorney (included on signature page of the initial filing of Registration Statement on Form S-1) |
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
107 |
|
Calculation of Filing Fee Table1 |
1 |
Previously filed |
2 |
Filed herewith |
† |
Compensatory plan, contract or arrangement |
The agreements included as exhibits to this registration
statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties
were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical
statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii)
may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable
agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the
applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified
in the agreement.
We acknowledge that, notwithstanding the inclusion
of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information
regarding material contractual provisions are required to make the statements in this registration statement not misleading.
(b) Financial Statement Schedules
Schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes
to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant undertakes:
(1) To file, during any period
in which offers or sales are being made, a post-effective amendment to this registration statement:
| i. | To
include any prospectus required by Section 10(a)(3) of the Securities Act; |
|
ii. |
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; |
|
iii. |
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(2) That, for the purpose
of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide
offering thereof;
(3) To remove from registration
by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of
determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(5) For the purpose of determining
any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) That, for the purpose
of determining liability under the Securities Act to any purchaser:
Each prospectus filed by the
registrant pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying
on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
Pursuant to the requirements of
the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Los Angeles, California, on October 10, 2023.
|
ISPIRE TECHNOLOGY INC. |
|
|
|
|
By: |
/s/ Michael Wang |
|
|
Michael Wang |
|
|
Co-Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS that
each individual whose signature appears below constitutes and appoints Tuanfang Liu and Michael Wang and each of them acting singly, his
true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place, and stead, in any and all
capacities, to sign (1) any and all amendments (including post-effective amendments) to this Registration Statement, and (2) any registration
statement or post-effective amendment thereto to be filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the
Securities Act, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange
Commission or any other regulatory authority, granting unto each said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute
or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the
Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated:
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Michael Wang |
|
Co-Chief executive officer |
|
October
10, 2023 |
Michael Wang |
|
(principal executive officer) |
|
|
|
|
|
|
|
/s/ Daniel
J. Machock |
|
Chief financial officer |
|
October 10, 2023 |
Daniel J. Machock
|
|
Principal financial and accounting officer |
|
|
/s/
Tuanfang Liu |
|
Director |
|
October
10, 2023 |
Tuanfang Liu |
|
|
|
|
|
|
|
|
|
/s/ Jiangyan
Zhu |
|
Director |
|
October 10, 2023 |
Jiangyan Zhu |
|
|
|
|
|
|
|
|
|
/s/ Christopher
Robert Burch |
|
Director |
|
October 10, 2023 |
Christopher Robert Burch |
|
|
|
|
|
|
|
|
|
/s/ Brent
Cox |
|
Director |
|
October 10, 2023 |
Brent Cox |
|
|
|
|
|
|
|
|
|
/s/ John
Fargis |
|
Director |
|
October 10, 2023 |
John Fargis |
|
|
|
|
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In arriving at the opinion expressed
below, we have examined the following documents: (i) the Registration Statement and the prospectus contained within the Registration Statement
in substantially the form to be filed with the Commission; (ii) Certificate of Incorporation of the Company as filed with the Secretary
of State of Delaware , as amended to date; (iii) By-laws of the Company, as amended to date; (iv) corporate resolutions and other actions
of the Board of Directors that authorize and provide for sale of the Resale Shares to the Selling Stockholders, the issuance of the Warrants
and the issuance of the Warrant Shares upon exercise of the Warrants and the filing of the Registration Statement; and (v) the Warrants.
Dear Mr. Cox:
1. Term. This Agreement
shall have an initial term of one year, beginning on the effective date of April 3, 2023 (the “Appointment Date”) and
continuing until the Company’s annual meeting of stockholders in 2024. Your position as a director shall be up for re-election each
year at the Company’s annual meeting. You understand that the Company’s Nominating and Corporate Governance Committee has
the authority and responsibility to make recommendations for the Board of Director’s nominees for director, and nothing in this
Agreement shall be construed as a commitment to include you as such a nominee. If you are reelected as a director, this Agreement shall
continue in full force and effect as long as you serve as a director. You have executed a consent to serve as a director, and the consent
has been filed as an exhibit to the Registration Statement.
2. Services. You shall
render services as a member of the Board in accordance with high professional and ethical standards and in accordance with all applicable
laws and rules and regulations pertaining to your performance hereunder including the Company’s Code of Ethics and Insider Trading
Policy. You shall serve on such committee or committees of the board of directors to which you shall be appointed for no additional compensation.
You are expected to attend all meetings of the Board and each committee of which you are a member which may be called from time to time
either in-person, or by telephone conference or other communications equipment by which all persons participating in the meeting can hear
each other, The services described in this Section 2 shall hereinafter be referred to as your “Duties.”
3. Services for Others.
You shall be free to represent or perform services for other persons during the term of this Agreement. You represent that you do not
presently perform and you agree that you will not perform, during the term of this Agreement, similar Duties, consulting, or other services
for companies whose businesses are or would be, in any way, competitive with the Company (except for companies previously disclosed by
you to the Company in writing). Should you propose to perform similar duties, consulting, or other services for any such company, you
agree to notify the Company in writing in advance (specifying the name of the organization for whom you propose to perform such services)
and to provide information to the Company sufficient to allow it to determine if the performance of such services would conflict with
areas of interest to the Company. You agree that, in performance of your services for other persons, you will comply with your non-disclosure
covenant in Section 6 of this Agreement and that, in performing your Duties, you will not violate any non-disclosure covenant that you
have with any other person. You represent that you are not a party to any agreement which impairs your ability to perform the Duties.
4. Compensation. As
compensation for your services pursuant to this Agreement, the Company shall pay you the cash compensation and stock grants set forth
in Sections 4.1 and 4.2. The Company’s compensation obligations in this Agreement shall at all times be subject to the Company’s
Independent Director Compensation Policy (the “Policy”). In the event the terms of this Agreement and the Policy conflict,
the Policy’s terms shall be deemed controlling and operative. All cash fees and stock grants services subsequent to the first year
of this Agreement, are subject to approval and/or change as deemed appropriate by the Compensation Committee of the Board.
4.1. Annual
Cash Retainer. Commencing on the Appointment Date you shall receive cash compensation of $48,000 annually (the “Retainer”).
If you serve as Chair of the Board’s Audit Committee, you shall receive an additional cash retainer of $12,000 annually for such
service. The Retainer will be paid in four (4) equal quarterly payments at the end of each calendar quarter in arrears. The quarterly
payment will be pro-rated if you are first appointed during the calendar quarter or ceases to serve on the Board or a committee during
the calendar quarter, with the payment pro-rated based on the number of actual days served by you during such calendar quarter.
5. No Assignment. Because
of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you.
6. Confidential Information;
Non-Disclosure. In consideration of your access to the premises of the Company and/or you access to certain Confidential Information
of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
6.1. Definition.
For purposes of this Agreement, the term “Confidential Information” means:
a. Any information
that the Company possesses that has been created, discovered, or developed by or for the Company, and that has or could have commercial
value or utility in the business in which the Company is engaged or confidential information of third parties which the Company is required
by contract or by law to treat as confidential; or
b. Any information
that is related to the business of the Company and is generally not known by non-Company personnel.
c. By way of illustration,
but not limitation, Confidential Information includes trade secrets and any information concerning products, processes, formulas, designs,
inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries,
concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software,
formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics,
and agreements and the substance of any discussions at or in connection with, or memoranda or other documentation provided in connection
with, meetings of the Board of Directors or any Committee thereof and any information and material provided to you by counsel for the
Company in your capacity as a director or Committee member.
6.2. Exclusions.
Notwithstanding the foregoing, the term Confidential Information shall not include:
a. Any information
that becomes generally available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or
any other agreement requiring confidentiality between the Company and you;
b. Information you
receive from a third party in rightful possession of such information who is not restricted from disclosing such information; and
c. Information known
by you prior to receipt of such information from the Company, which prior knowledge can be documented by you.
6.3. Documents.
You agree that, without the express prior written consent of the Company, you will not remove from the Company’s premises, any notes,
formulas, programs, data, records, machines, or any other documents or items that in any manner contain or constitute Confidential Information,
nor will you make reproductions or copies of same. In the event you receive any such documents or items by personal delivery from any
duly designated or authorized personnel of the Company, you shall be deemed to have received the express written consent of the Company.
In the event that you receive any such documents or items, other than through personal delivery as described in the preceding sentence,
you agree to inform the Company promptly of your possession of such documents or items. You shall promptly return any such documents or
items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon
your termination or resignation, as provided in Section 7 herein.
6.4. Non-Disclosure. You agree that you will hold
in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information
or anything relating to such information without the prior written consent of the Company, except as maybe necessary in the course of
your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written
consent of the Company, except as may be necessary in the course of the performance of your Duties, and that the provisions of this Section
6.4 shall survive termination of this Agreement.
7. Termination and Resignation.
Your membership on the Company’s Board may be terminated by the Company, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, and you may resign as a director for any or no reason. Upon the effective
date of the termination or resignation, your right to compensation hereunder will terminate subject to the Company’s obligations
to pay you any cash compensation or stock grants which becomes payable or issuable prior to the date of termination or resignation and
to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of
such termination or resignation.
8. Independent Contractor.
You understand, acknowledge and agree that your relationship with the Company is that of an independent contractor and nothing in this
Agreement is intended to or should be construed to create a relationship other than that of independent contractor. Nothing in this Agreement
shall be construed as a contract of employment/engagement between you and the Company or as a commitment on the part of the Company to
retain you in any capacity, for any period of time or under any specific terms or conditions, or to continue your service to the Company
beyond any period. Except as may be expressly authorized by the Board of Directors, you shall have no authority to execute agreements
on behalf of the Company.
9. Governing Law; Consent
to Jurisdiction. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations
of the parties hereunder, shall be determined in accordance with the laws of Delaware applicable to agreements made and to be performed
wholly within such state without reference to principles of conflicts of laws; provided, however, that your duties as a director of the
Company shall be governed by the Delaware General Corporation Law. The parties hereby consent to the jurisdiction of the federal or state
courts sitting in the State of Delaware for any action or proceeding arising out of or relating to this Agreement, which courts shall
be the exclusive forum for any action relating to this Agreement. The parties agree that in any such proceeding, each party shall waive,
if applicable, inconvenience of forum. TO THE MAXIMUM EXTENT PEMITTED BY LAW, EACH PARTY WAIVES THE RIGHT TO A TRIAL BY JURY.
10. Entire Agreement;
Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes
and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended
and observance of any term of this Agreement may be waived only with the written consent of the parties hereto in the case of an amendment
and by the party granting the waiver in the case of a waiver. Waiver of any term or condition of this Agreement by a party shall not be
construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this
Agreement. The failure of a party at any time to require performance by the other party of any provision of this Agreement shall not affect
the right of such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be
executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement,
and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable,
as an original of such signature.
This Agreement has been executed and delivered
by the undersigned and is made effective as of the date set first set forth above.
Dear Mr. Fargis:
1. Term. This Agreement
shall have an initial term of one year, beginning on the effective date of April 3, 2023 (the “Appointment Date”) and
continuing until the Company’s annual meeting of stockholders in 2024. Your position as a director shall be up for re-election each
year at the Company’s annual meeting. You understand that the Company’s Nominating and Corporate Governance Committee has
the authority and responsibility to make recommendations for the Board of Director’s nominees for director, and nothing in this
Agreement shall be construed as a commitment to include you as such a nominee. If you are reelected as a director, this Agreement shall
continue in full force and effect as long as you serve as a director. You have executed a consent to serve as a director, and the consent
has been filed as an exhibit to the Registration Statement.
2. Services. You shall
render services as a member of the Board in accordance with high professional and ethical standards and in accordance with all applicable
laws and rules and regulations pertaining to your performance hereunder including the Company’s Code of Ethics and Insider Trading
Policy. You shall serve on such committee or committees of the board of directors to which you shall be appointed for no additional compensation.
You are expected to attend all meetings of the Board and each committee of which you are a member which may be called from time to time
either in-person, or by telephone conference or other communications equipment by which all persons participating in the meeting can hear
each other, The services described in this Section 2 shall hereinafter be referred to as your “Duties.”
3. Services for Others.
You shall be free to represent or perform services for other persons during the term of this Agreement. You represent that you do not
presently perform and you agree that you will not perform, during the term of this Agreement, similar Duties, consulting, or other services
for companies whose businesses are or would be, in any way, competitive with the Company (except for companies previously disclosed by
you to the Company in writing). Should you propose to perform similar duties, consulting, or other services for any such company, you
agree to notify the Company in writing in advance (specifying the name of the organization for whom you propose to perform such services)
and to provide information to the Company sufficient to allow it to determine if the performance of such services would conflict with
areas of interest to the Company. You agree that, in performance of your services for other persons, you will comply with your non-disclosure
covenant in Section 6 of this Agreement and that, in performing your Duties, you will not violate any non-disclosure covenant that you
have with any other person. You represent that you are not a party to any agreement which impairs your ability to perform the Duties.
4. Compensation. As
compensation for your services pursuant to this Agreement, the Company shall pay you the cash compensation and stock grants set forth
in Sections 4.1 and 4.2. The Company’s compensation obligations in this Agreement shall at all times be subject to the Company’s
Independent Director Compensation Policy (the “Policy”). In the event the terms of this Agreement and the Policy conflict,
the Policy’s terms shall be deemed controlling and operative. All cash fees and stock grants services subsequent to the first year
of this Agreement, are subject to approval and/or change as deemed appropriate by the Compensation Committee of the Board.
4.1. Annual
Cash Retainer. Commencing on the Appointment Date you shall receive cash compensation of $48,000 annually (the “Retainer”).
If you serve as Chair of the Board’s Audit Committee, you shall receive an additional cash retainer of $12,000 annually for such
service. The Retainer will be paid in four (4) equal quarterly payments at the end of each calendar quarter in arrears. The quarterly
payment will be pro-rated if you are first appointed during the calendar quarter or ceases to serve on the Board or a committee during
the calendar quarter, with the payment pro-rated based on the number of actual days served by you during such calendar quarter.
5. No Assignment. Because
of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you.
6. Confidential Information;
Non-Disclosure. In consideration of your access to the premises of the Company and/or you access to certain Confidential Information
of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
6.1. Definition.
For purposes of this Agreement, the term “Confidential Information” means:
a. Any information
that the Company possesses that has been created, discovered, or developed by or for the Company, and that has or could have commercial
value or utility in the business in which the Company is engaged or confidential information of third parties which the Company is required
by contract or by law to treat as confidential; or
b. Any information
that is related to the business of the Company and is generally not known by non-Company personnel.
c. By way of illustration,
but not limitation, Confidential Information includes trade secrets and any information concerning products, processes, formulas, designs,
inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries,
concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software,
formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics,
and agreements and the substance of any discussions at or in connection with, or memoranda or other documentation provided in connection
with, meetings of the Board of Directors or any Committee thereof and any information and material provided to you by counsel for the
Company in your capacity as a director or Committee member.
6.2. Exclusions.
Notwithstanding the foregoing, the term Confidential Information shall not include:
a. Any information
that becomes generally available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or
any other agreement requiring confidentiality between the Company and you;
b. Information you
receive from a third party in rightful possession of such information who is not restricted from disclosing such information; and
c. Information known
by you prior to receipt of such information from the Company, which prior knowledge can be documented by you.
6.3. Documents.
You agree that, without the express prior written consent of the Company, you will not remove from the Company’s premises, any notes,
formulas, programs, data, records, machines, or any other documents or items that in any manner contain or constitute Confidential Information,
nor will you make reproductions or copies of same. In the event you receive any such documents or items by personal delivery from any
duly designated or authorized personnel of the Company, you shall be deemed to have received the express written consent of the Company.
In the event that you receive any such documents or items, other than through personal delivery as described in the preceding sentence,
you agree to inform the Company promptly of your possession of such documents or items. You shall promptly return any such documents or
items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon
your termination or resignation, as provided in Section 7 herein.
6.4. Non-Disclosure. You agree that you will hold
in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information
or anything relating to such information without the prior written consent of the Company, except as maybe necessary in the course of
your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written
consent of the Company, except as may be necessary in the course of the performance of your Duties, and that the provisions of this Section
6.4 shall survive termination of this Agreement.
7. Termination and Resignation.
Your membership on the Company’s Board may be terminated by the Company, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, and you may resign as a director for any or no reason. Upon the effective
date of the termination or resignation, your right to compensation hereunder will terminate subject to the Company’s obligations
to pay you any cash compensation or stock grants which becomes payable or issuable prior to the date of termination or resignation and
to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of
such termination or resignation.
8. Independent Contractor.
You understand, acknowledge and agree that your relationship with the Company is that of an independent contractor and nothing in this
Agreement is intended to or should be construed to create a relationship other than that of independent contractor. Nothing in this Agreement
shall be construed as a contract of employment/engagement between you and the Company or as a commitment on the part of the Company to
retain you in any capacity, for any period of time or under any specific terms or conditions, or to continue your service to the Company
beyond any period. Except as may be expressly authorized by the Board of Directors, you shall have no authority to execute agreements
on behalf of the Company.
9. Governing Law; Consent
to Jurisdiction. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations
of the parties hereunder, shall be determined in accordance with the laws of Delaware applicable to agreements made and to be performed
wholly within such state without reference to principles of conflicts of laws; provided, however, that your duties as a director of the
Company shall be governed by the Delaware General Corporation Law. The parties hereby consent to the jurisdiction of the federal or state
courts sitting in the State of Delaware for any action or proceeding arising out of or relating to this Agreement, which courts shall
be the exclusive forum for any action relating to this Agreement. The parties agree that in any such proceeding, each party shall waive,
if applicable, inconvenience of forum. TO THE MAXIMUM EXTENT PEMITTED BY LAW, EACH PARTY WAIVES THE RIGHT TO A TRIAL BY JURY.
10. Entire Agreement;
Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes
and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended
and observance of any term of this Agreement may be waived only with the written consent of the parties hereto in the case of an amendment
and by the party granting the waiver in the case of a waiver. Waiver of any term or condition of this Agreement by a party shall not be
construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this
Agreement. The failure of a party at any time to require performance by the other party of any provision of this Agreement shall not affect
the right of such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be
executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement,
and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable,
as an original of such signature.
This Agreement has been executed and delivered
by the undersigned and is made effective as of the date set first set forth above.
Dear Mr. Burch:
1. Term. This Agreement
shall have an initial term of one year, beginning on the effective date of July 5, 2023 (the “Appointment Date”) and
continuing until the Company’s annual meeting of stockholders in 2024. Your position as a director shall be up for re-election each
year at the Company’s annual meeting. You understand that the Company’s Nominating and Corporate Governance Committee has
the authority and responsibility to make recommendations for the Board of Director’s nominees for director, and nothing in this
Agreement shall be construed as a commitment to include you as such a nominee. If you are reelected as a director, this Agreement shall
continue in full force and effect as long as you serve as a director. You have executed a consent to serve as a director, and the consent
has been filed as an exhibit to the Registration Statement.
2. Services. You shall
render services as a member of the Board in accordance with high professional and ethical standards and in accordance with all applicable
laws and rules and regulations pertaining to your performance hereunder including the Company’s Code of Ethics and Insider Trading
Policy. You shall serve on such committee or committees of the board of directors to which you shall be appointed for no additional compensation.
You are expected to attend all meetings of the Board and each committee of which you are a member which may be called from time to time
either in-person, or by telephone conference or other communications equipment by which all persons participating in the meeting can hear
each other, The services described in this Section 2 shall hereinafter be referred to as your “Duties.”
3. Services for Others.
You shall be free to represent or perform services for other persons during the term of this Agreement. You represent that you do not
presently perform and you agree that you will not perform, during the term of this Agreement, similar Duties, consulting, or other services
for companies whose businesses are or would be, in any way, competitive with the Company (except for companies previously disclosed by
you to the Company in writing). Should you propose to perform similar duties, consulting, or other services for any such company, you
agree to notify the Company in writing in advance (specifying the name of the organization for whom you propose to perform such services)
and to provide information to the Company sufficient to allow it to determine if the performance of such services would conflict with
areas of interest to the Company. You agree that, in performance of your services for other persons, you will comply with your non-disclosure
covenant in Section 6 of this Agreement and that, in performing your Duties, you will not violate any non-disclosure covenant that you
have with any other person. You represent that you are not a party to any agreement which impairs your ability to perform the Duties.
4. Compensation. As
compensation for your services pursuant to this Agreement, the Company shall pay you the cash compensation and stock grants set forth
in Sections 4.1 and 4.2. The Company’s compensation obligations in this Agreement shall at all times be subject to the Company’s
Independent Director Compensation Policy (the “Policy”). In the event the terms of this Agreement and the Policy conflict,
the Policy’s terms shall be deemed controlling and operative. All cash fees and stock grants services subsequent to the first year
of this Agreement, are subject to approval and/or change as deemed appropriate by the Compensation Committee of the Board.
4.1. Annual
Cash Retainer. Commencing on the Appointment Date you shall receive cash compensation of $48,000 annually (the “Retainer”).
If you serve as Chair of the Board’s Audit Committee, you shall receive an additional cash retainer of $12,000 annually for such
service. The Retainer will be paid in four (4) equal quarterly payments at the end of each calendar quarter in arrears. The quarterly
payment will be pro-rated if you are first appointed during the calendar quarter or ceases to serve on the Board or a committee during
the calendar quarter, with the payment pro-rated based on the number of actual days served by you during such calendar quarter.
5. No Assignment. Because
of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you.
6. Confidential Information;
Non-Disclosure. In consideration of your access to the premises of the Company and/or you access to certain Confidential Information
of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
6.1. Definition.
For purposes of this Agreement, the term “Confidential Information” means:
a. Any information
that the Company possesses that has been created, discovered, or developed by or for the Company, and that has or could have commercial
value or utility in the business in which the Company is engaged or confidential information of third parties which the Company is required
by contract or by law to treat as confidential; or
b. Any information
that is related to the business of the Company and is generally not known by non-Company personnel.
c. By way of illustration,
but not limitation, Confidential Information includes trade secrets and any information concerning products, processes, formulas, designs,
inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries,
concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software,
formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics,
and agreements and the substance of any discussions at or in connection with, or memoranda or other documentation provided in connection
with, meetings of the Board of Directors or any Committee thereof and any information and material provided to you by counsel for the
Company in your capacity as a director or Committee member.
6.2. Exclusions.
Notwithstanding the foregoing, the term Confidential Information shall not include:
a. Any information
that becomes generally available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or
any other agreement requiring confidentiality between the Company and you;
b. Information you
receive from a third party in rightful possession of such information who is not restricted from disclosing such information; and
c. Information known
by you prior to receipt of such information from the Company, which prior knowledge can be documented by you.
6.3. Documents.
You agree that, without the express prior written consent of the Company, you will not remove from the Company’s premises, any notes,
formulas, programs, data, records, machines, or any other documents or items that in any manner contain or constitute Confidential Information,
nor will you make reproductions or copies of same. In the event you receive any such documents or items by personal delivery from any
duly designated or authorized personnel of the Company, you shall be deemed to have received the express written consent of the Company.
In the event that you receive any such documents or items, other than through personal delivery as described in the preceding sentence,
you agree to inform the Company promptly of your possession of such documents or items. You shall promptly return any such documents or
items, along with any reproductions or copies to the Company upon the Company’s demand, upon termination of this Agreement, or upon
your termination or resignation, as provided in Section 7 herein.
6.4. Non-Disclosure. You agree that you will hold
in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information
or anything relating to such information without the prior written consent of the Company, except as maybe necessary in the course of
your business relationship with the Company. You further agree that you will not use any Confidential Information without the prior written
consent of the Company, except as may be necessary in the course of the performance of your Duties, and that the provisions of this Section
6.4 shall survive termination of this Agreement.
7. Termination and Resignation.
Your membership on the Company’s Board may be terminated by the Company, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, and you may resign as a director for any or no reason. Upon the effective
date of the termination or resignation, your right to compensation hereunder will terminate subject to the Company’s obligations
to pay you any cash compensation or stock grants which becomes payable or issuable prior to the date of termination or resignation and
to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of
such termination or resignation.
8. Independent Contractor.
You understand, acknowledge and agree that your relationship with the Company is that of an independent contractor and nothing in this
Agreement is intended to or should be construed to create a relationship other than that of independent contractor. Nothing in this Agreement
shall be construed as a contract of employment/engagement between you and the Company or as a commitment on the part of the Company to
retain you in any capacity, for any period of time or under any specific terms or conditions, or to continue your service to the Company
beyond any period. Except as may be expressly authorized by the Board of Directors, you shall have no authority to execute agreements
on behalf of the Company.
9. Governing Law; Consent
to Jurisdiction. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations
of the parties hereunder, shall be determined in accordance with the laws of Delaware applicable to agreements made and to be performed
wholly within such state without reference to principles of conflicts of laws; provided, however, that your duties as a director of the
Company shall be governed by the Delaware General Corporation Law. The parties hereby consent to the jurisdiction of the federal or state
courts sitting in the State of Delaware for any action or proceeding arising out of or relating to this Agreement, which courts shall
be the exclusive forum for any action relating to this Agreement. The parties agree that in any such proceeding, each party shall waive,
if applicable, inconvenience of forum. TO THE MAXIMUM EXTENT PEMITTED BY LAW, EACH PARTY WAIVES THE RIGHT TO A TRIAL BY JURY.
10. Entire Agreement;
Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes
and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended
and observance of any term of this Agreement may be waived only with the written consent of the parties hereto in the case of an amendment
and by the party granting the waiver in the case of a waiver. Waiver of any term or condition of this Agreement by a party shall not be
construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this
Agreement. The failure of a party at any time to require performance by the other party of any provision of this Agreement shall not affect
the right of such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be
executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement,
and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable,
as an original of such signature.
This Agreement has been executed and delivered
by the undersigned and is made effective as of the date set first set forth above.
We consent to the inclusion in this Registration Statement on Form S-1 of Ispire Technology Inc. (Amendment No 1) of our report dated
September 19, 2023 relating to the consolidated financial statements of Ispire Technology Inc. as of June 30, 2023 and 2022 and for the
years then ended. We also consent to the reference to us under the heading “Experts” in this Registration Statement.