Ispire Technology Inc. (ISPR)

ITEM 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in
conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and
in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking
statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere
in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested
below.

Overview

As stated in our corporate mission, we are committed
to delivering superior products that challenge industry norms, with the goal of delivering an unmatched customer and adult consumer experience.
In achieving this, risk reduction is central to our mission, and we aim to improve the lives of our consumers through cutting-edge research
and development. Our technology platforms look to reduce youth access to vaping products, which in turn, will facilitate our ability
to provide adult consumers with the products they desire.

We are engaged in the research and development,
design, commercialization, sales, marketing and distribution of branded and non-branded vaping hardware products in both the nicotine
and cannabis spaces. Vaping refers to the practice of inhaling and exhaling the vapor produced by an electronic vaping device. These
products are sold into the global nicotine and cannabis markets in the form of e-cigarettes or cartridges filled with oils by our customers,
respectively.

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

We currently sell our cannabis vaping hardware in the United States,
Canada, South Africa, and Germany. However, we are continuing to develop our sales network across Europe, South America, and other regions
in preparation for legalization in these markets. Our cannabis products are sold under the Ispire brand name, primarily on an ODM basis
to other cannabis vapor companies including multi and single-state operators, brand owners and co-packers. ODM generally involves the
design and customization of the core products to meet each brand’s unique image and needs. Our hardware products are sold by our
customers under their own brand names. We do not “touch the cannabis plant” in the production and sale of our hardware products
and thus are not subject to the specific cannabis-related regulatory and taxation provisions of the industry(e.g., IRS Code Section 280E).

Since our initial public offering in April 2023,
we have completed three fundraising rounds. The first was executed as part of our initial public offering, from which we raised approximately
$18.3 million after underwriting and other offering expenses.

In June 2023, we raised net proceeds of approximately
$7.4 million, after placement agent and offering expenses, from the private placement of our Common Stock to three investors.

In March 2024, we raised net proceeds of approximately $10.6 million,
after placement agent fees and offering expenses, through a public offering of our Common Stock priced at $6.00 per share. We used the
net proceeds from this offering in connection with the establishment and operation of our manufacturing facility in Malaysia, the funding
of our joint venture with Touch Point Worldwide Inc. d/b/a/ Berify and Chemular Inc. and for working capital and general corporate purposes,
including research and development.

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Regulatory Risks

The sale of nicotine and cannabis products is
subject to regulations worldwide. Many countries prohibit the sale of any cannabis products, and many countries have regulations relating
to nicotine products, with a particular emphasis on underage sales. We work closely with our various global distribution partners to
help ensure our nicotine products comply with local regulations (e.g., packaging, ingredient disclosure, health warnings, etc.). Changes
in the regulatory environment can be enacted swiftly and may lead to our products becoming non-compliant in one or more international
markets. This regulatory scenario may severely disrupt our business in these markets while we resolve the deficiencies (if possible)
with the current product offering.

E-cigarette regulation

Regulation regarding e-cigarettes varies across
countries, from limited regulation to a total ban. The legal status of e-cigarettes is currently pending in many countries. As e-cigarettes
have become more and more popular recently, many countries are considering imposing more stringent law and regulations to regulate this
market. Changes in existing law and regulations and the imposition of new laws or regulations in countries and regions that our major
customers are in may adversely affect our business.

In many markets e-cigarettes and other nicotine
products are subject to an excise tax. The amount of excise tax on our products is a key determining factor in our pricing and the value
proposition to our adult consumer target market. The structure (i.e., ad valorem vs. specific) and tax burden can vary significantly from
market to market. According to a 2023 study by Dauchy E, Fuss C. Global Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems,
the tax burden on nicotine vape products in Norway is 81.2% while the tax burden on the same products in Paraguay is 2.9%. The tax burden
and resulting retail sales price is a key factor in determining how competitive our products are compared to illicit vaping products.
The greater the price gap between legal and illicit vaping products the greater the incentive for adult consumers to buy illicit products.
These illicit vaping products are not subject to the same quality standards as our products and undermine the efforts of legal operators
seeking to help adult consumers switch from combustible tobacco products to vaping alternatives.

United States E-Cigarette Market

In the United States, the Federal Food, Drug,
and Cosmetic Act requires all Electronic Nicotine Delivery Systems (“ENDS”) product manufacturers that market products in
the United States to submit Premarket Tobacco Product Applications (“PMTAs”) to the FDA. For ENDS products that were on the
U.S. market on or before August 8, 2016, a PMTA was required to be submitted to the FDA before September 9, 2020. For ENDS products that
were not on the U.S. market prior to August 8, 2016, and for which a PMTA was not filed before September 9, 2020, a PMTA premarket authorization
issued by FDA is required before the subject product may enter the U.S. market. We have submitted a PMTA filing for one ENDS product,
and, under apparent FDA policies, the agency will not enforce the premarket review requirements for that product pending review of its
PMTA. However, even with submission of the PMTA application, the FDA may reject our application and may prevent our ENDS products from
being sold in U.S., which will adversely affect our business.

As a result of ENDS regulation noted above, we
can sell only one tobacco vaping product line, the Nautilus Prime, in the U.S. Our tobacco vaping sales related to this line in the U.S.
were approximately $0.6 million and $0.2 million for the twelve months ended June 30, 2023, and 2024, respectively. Because the volume
of sales did not justify the marketing and regulatory costs, we have ceased marketing tobacco vaping products in the U.S.

On September 6, 2024, we submitted a PMTA application
for a disposable ENDS product with 4 flavors. This is an important milestone for us, as it signals our re-entry into the US ENDS market.
It is our intention to amend or resubmit this application in the coming months, once we have finalized the age-gating technology solution
with our IKE Tech LLC joint venture. We have further plans to submit additional PMTA applications for pod-based ENDS systems, which will
include age-gating technology, in the future as well.

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Amendments to the Prevent All Cigarette Trafficking
(“PACT”) Act, which became law in 2021, extend the PACT Act to include e-cigarettes and all vaping products, and place significant
burdens on sellers of vaping products in the United States which may make it difficult to operate profitably in the United States. Because
of tighter government regulations, we have stopped marketing tobacco vaping products in the United States, as the volume of sales from
the one tobacco vaping product which we may sell in the United States does not justify the marketing and regulatory costs involved.

In the United States, cannabis vaping products
are governed by state laws, which vary from state to state. Most states do not permit the adult recreational use of cannabis, and no states
permit the sale of recreational cannabis products to minors.. Further, States may be more willing to permit recreational cannabis use
in the future given the DEA’s intention to reschedule cannabis as a Schedule III controlled substance allowing for medicinal use.
We cannot predict what action states will take or the nature and amount of taxes they may impose. However, to the extent the PACT Act
applies to cannabis products that aerosolize liquids, it may be more difficult to sell our products in states that permit the sale of
cannabis.

However, cannabis and its derivatives containing
more than 0.3% delta-9 tetrahydrocannabinol on a dry weight basis remain Schedule I controlled substances under U.S. federal law, meaning
that federal law generally prohibits their manufacture and distribution. United States federal law also deems it unlawful to sell, offer
for sale, transport in interstate commerce, import, or export “drug paraphernalia,” which includes “any equipment,
product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing,
producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance”
the possession of which federal law prohibits, including Schedule I “marijuana.” Limited exemptions exist, most notably when
state or local law authorizes these items’ manufacture, possession, or distribution.

European Market

The European Commission issued the Tobacco Products
Directive (the “TPD”), which became effective on May 19, 2014, and became applicable in the European Union member states on
May 20, 2016. The TPD regulates e-cigarettes on the packaging, labelling and ingredients of the products on the European Union market,
the creation of smoke-free environments, tax measures and activities against illegal trade and anti-smoke campaigns. Member states of
the European Union are required to ensure that advertisements for any tobacco-related product are prohibited, and no promotion shall be
made as to those devices with an intention to promote e-cigarettes. For the e-cigarettes released after May 20, 2016, TPD requires e-cigarette
manufacturers to submit product sales applications to the regulatory market six months in advance and ensure their products can meet the
TPD requirements before they can be released. We have complied with TPD requirements for all our tobacco products sold in Europe.

The sale of cannabis vaping products is illegal in the European Union,
save for Germany, and the United Kingdom.

Accounts Receivable

Our business relies on the collection of accounts
receivable from our customers in a timely manner to maintain liquidity and support our ongoing operations. The balance of the allowance
for credit losses was $1.5 million and $5.9 million at June 30, 2023 and June 30, 2024, respectively.

Our failure or inability to collect accounts
receivable when due results from a number of factors, including (i) our customer’s failure to pay as a result of adverse economic
conditions affecting the customer’s cash flow; (ii) our failure to implement effective collection efforts; and (iii) disputes over contract
terms, product quality or delays in delivery. Although we may implement strategies to mitigate these risks, there can be no assurance
that such measures will be entirely effective, and we may continue to incur write-offs of accounts receivable, which may impair our ability
to operate profitably.

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Key Factors that Affect Our Results of Operations

We believe the following key factors may affect
our financial condition and results of operations:

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, 2023 (as restated) and 2024 (dollars in thousands
except per share amounts).

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Revenue

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

Our revenue increased by $36,303,155, or 31.4%, from $115,605,536 for
the year ended June 30, 2023, to $151,908,691 for the year ended June 30, 2024. The increase in revenue is the combined effect of (i)
increases in product sales in the United States of $21.5 million from $41.6 million for the year ended June 30, 2023, to $63.1 million
for the year ended June 30, 2024, (ii) increases in sales of vaping products in Europe of $6.5 million from $58.8 million for the year
ended June 30, 2023 to approximately $65.3 million for the year ended June 30, 2024, and (iii) increases in sales of vaping products in
others of $5.7 million from $0.3 million for the year ended June 30, 2023 to approximately $6.0 million for the year ended June 30, 2024,
mainly contributed by increase in sales to South Africa of $5.2 million.

Cost of Revenue

Cost of revenue mainly consists of cost of purchases
of vaping products, that are mostly purchased from Shenzhen Yi Jia though there has been decreased reliance on this factory in 2024 vs
2023. Cost of revenue increased by $27,297,773, or 28.8%, from $94,828,472 for the year ended June 30, 2023 (as restated), to $122,126,245
for the year ended June 30, 2024. The increase in cost of revenue is in line with increase in sales.

Gross Profit

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

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Gross profit increased by $9,005,382, or 43.3%,
from $20,777,064 for the year ended June 30, 2023 (as restated), to $29,782,446 for the year ended June 30, 2024, while our gross margin
increased from 18.0% to 19.6%.

The increase in gross margin was primarily due
to changes in product mix with more higher margin products being sold during the year ended June 30, 2024.

Operating Expenses

Operating expenses increased $18,425,364, or 73.0%,
from $25,251,221 for the year ended June 30, 2023 (as restated), to $43,676,585 for the year ended June 30, 2024.

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

Sales and marketing expenses increased by $2,192,504,
or 49.6%, from $4,416,220 for the year ended June 30, 2023 (as restated), to $6,608,724 for the year ended June 30, 2024. The increase
in sales and marketing expenses was primarily due to an increase in (i) our marketing activities, marketing campaign and trade shows of
$1.1 million, (ii) stock-based compensation expense related to selling personnels of $0.5 million incurred in 2024 and (iii) headcount
and payroll expense for Aspire Science of $0.2 million.

Our general and administrative expenses mainly
consist of employee’s salaries and benefits, rental expense, professional fees, share based payment expenses and other administrative
expenses. General and administrative expenses increased by $16,232,860, or 77.9%, from $20,835,001 for the year ended June 30, 2023 (as
restated), to $37,067,861 for the year ended June 30, 2024. The increase was primarily due to (i) stock-based compensation expense of
$5.9 million incurred in 2024, as compensation and incentive for management, employees and service providers, (ii) an increase of $4.8
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 manufacturing plant, (iii) increase in bad debt expense as an allowance for credit losses of $2.7
million from accounts that are under dispute due to delayed shipment, (iv) an increase in professional fees of $2.3 million incurred for
expansion of cannabis business.

Other (expense) income, net

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

Interest income increased $170,042, from $195,209
for the year ended June 30, 2023, to $365,251 for the year ended June 30, 2024. The increase in interest income is mainly due to increase
in interest rate and more interest income from bank deposits.

Other
(expense) income mainly consists of interest expense, loss on equity method investment, credits from company credit card and other miscellaneous
expenses. Other (expense) income increased by $268,555, or 173.1%, from net expense of $155,150 for the year ended June 30, 2023 to net
income of $113,405 for the year ended June 30, 2024.

Exchange loss, net decreased by $253,932, or 78.3%,
from net exchange loss of $324,225 for the year ended June 30, 2023 to net exchange loss of $70,293 for the year ended June 30, 2024.

As a result of these factors, total other (expense)
income increased by $692,529, from other expense of $284,166 for the year ended June 30, 2023 to other expenses of $408,363 for the year
ended June 30, 2024.

Income Taxes

We account for income taxes under ASC 740. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases.

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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 2024, 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 2024.

Income taxes increased by $36,743 or 3.0%, from
$1,245,303 for the year ended June 30, 2023 to $1,282,046 for the year ended June 30, 2024. We had a consolidated net loss for both year
ended June 30, 2023 and 2024, 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 $8,764,196, from net loss of $6,003,626, or $(0.12) per share (basic and diluted) for
the year ended June 30, 2023 (as restated) to a net loss of $14,767,822, or $(0.27) per share (basic and diluted), for the year ended
June 30, 2024.

Liquidity and Capital Resources

The following table summarizes our changes in
working capital from June 30, 2023 (as restated) to June 30, 2024 (dollars in thousands).

The following table sets forth information as
to consolidated cash flow information for the years ended June 30, 2023 and 2024 (dollars in thousands).

Net cash flow used in operating activities for
the year ended June 30, 2023 (as restated), of $8.5 million, reflected our net loss of $6.0 million, 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 inventories
of $7.1 million, offset by an increase in accounts receivable of $19.6 million, an increase in prepaid expenses and other current assets
of $3.1 million and payment made for operating lease liabilities of $1.4 million.

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Net cash flow used in operating activities for
the year ended June 30, 2024 of $18.3 million, reflected our net loss of $14.8 million, adjusted primarily as follows: add back of impairment
of account receivable of $6.0 million, add back of shared based payment expenses of $6.4 million, add back of depreciation and amortization
of $0.5 million, an increase in accounts payable of $17.9 million, an increase in accrued liabilities and other payables of $2.5 million,
a decrease in inventory of $0.9 million, a decrease in prepaid expenses and other current assets of $2.4 million, an increase in contract
liabilities of $1.2 million offset by an increase in accounts receivable of $41.3 million.

Net cash flow used in investing activities for
the year ended June 30, 2023 (as restated), of $10.2 million reflected primarily the purchase of short term investment of $9.1 million
and purchase of property, plant and equipment of $1.0 million.

Net cash flow generated from investing activities
for the year ended June 30, 2024, of $3.0 million reflected primarily maturity of short term investment of $9.1 million offset by purchase
of cost other investment of $2.0 million, purchase of property, plant and equipment of $2.0 million, acquisition of intangible assets
of $1.2 million and purchase of equity method investment of $1.0 million.

Net cash flow used in financing activities for
the year ended June 30, 2023 (as restated), of $15.6 million reflected primarily proceeds from our initial public offering of $21.7 million,
and proceeds from equity offering 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.

Net cash flow generated by financing activities
for the year ended June 30, 2024, of $10.1 million reflected primarily proceeds from our equity offering of $12.3 million, offset by
payment of equity offering costs of $1.5 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. As of the date of this Annual
Report, we believe that our current cash and cash flows provided by operating activities, and the net proceeds from our equity offerings
will be sufficient to meet our working capital needs in the next 12 months. If we experience an adverse operating environment or incur
unanticipated capital expenditure requirements, or if we decide to accelerate our growth, then additional financing may be required. We
cannot give any assurance that additional financing will not be required or, if required, would be available on favorable terms if at
all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the
sale of equity securities or instruments that are convertible into equity securities could result in dilution to our stockholders which
may be substantial.

The cash held at a bank by our Hong Kong operating
subsidiary can be freely transferred within our corporate structure without restriction. If our Hong Kong operating subsidiary were to
incur additional debt on its own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries
to transfer cash to our U.S. investors.

Contractual Obligations

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.

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Trend Information

Other than as disclosed elsewhere in this Form
10-K, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect
on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause reported financial information
not necessarily to be indicative of future operating results or financial condition.

Seasonality

Seasonality does not materially affect our business
or the results of our operations.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements.

Critical Accounting Estimates

Revenue recognition

We sell our vaping products to customers and recognize
revenue in accordance with the guidance of ASC 606, Revenue from Contracts with Customers. In certain sales contracts, a right
of return is offered. With a right of return, a customer is given the right to return the products if they are not satisfied with the
product, and a credit would be given. The return rate historically is low, and we recognize a sales return reserve based on historical
return rate and apply the rate on sales for the latest three months, as it is unlikely to have sales return after the three-month period.
Should there be a change in our estimate of the return rate, or a change in the periods in which we expect return, the return reserves
would be affected, and our revenue would be affected as well.

Allowance for credit losses

We adopted Accounting Standards Update 2016-13 “Financial Instruments
– Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” in July 2023. We estimate the allowance
for current expected credit losses based on an expected loss model. Certain quantitative and qualitative factors used to estimate credit
losses are subject to uncertainty. With this model, some of the factors that are considered are based on our judgment and estimates, including
age of balance, past events, any historical default, current information available about the customers, current economic conditions, and
certain forward-looking information, including reasonable and supportable forecasts. The assumptions and estimates have not changed significantly
since the adoption of the standard. Although management believes it uses the best information necessary to establish the allowance for
credit losses, future adjustments to the allowance for credit losses may be necessary and our results of operations could be adversely
affected if circumstances differ substantially from the assumptions used in making the determinations.

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Recent Accounting Pronouncements

The discussion of the recent accounting pronouncements
contained in our consolidated financial statements, “Summary of Significant Accounting Policies,” is incorporated herein
by reference.

Emerging Growth Company

As a company with less than $1.235 billion in
revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth
company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies.
These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the
assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging
growth company does not need to comply with any new or revised financial accounting standards until such date that a private company
is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of such exemptions.
We could lose Emerging Growth Company status if we become a “Large Accelerated Filer.” This would occur if we had a public
float of $700 million or more, as of the last business day of our most recently completed second fiscal quarter.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion
should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report
on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates,
and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors”
and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance
suggested below.

Overview

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 development of manufacturing
operations in Southeast Asia, completion of establishing manufacturing operations in California, 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 have been restated to correct the amount at which intangible assets consisting of intellectual property
rights which were transferred to us by a controlling shareholder was recorded. Under GAAP, assets transferred by a controlling stockholder
should be recorded at the transferor’s book value. Our unaudited financial statements 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, 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.

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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:

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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).

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.

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.

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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).

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.

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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.

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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).

The following table sets forth information as
to consolidated cash flow information for the years ended June 30, 2022 and 2023 (dollars in thousands).

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.

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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.

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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.

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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:

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.