Executive Summary / Key Takeaways

• Ispire Technology Inc. is undergoing a significant strategic pivot, shifting its core focus from the challenging cannabis vaping market to the higher-value global nicotine sector, aiming for a more sustainable and profitable business model.
• The company's investment in IKE Tech LLC, a joint venture developing a blockchain-based, point-of-use age-gating system, represents a transformative technological differentiator with FDA acceptance for its component PMTA, potentially unlocking a multi-billion dollar market for flavored e-cigarettes.
• Strategic expansion of manufacturing capabilities in Malaysia, including an interim nicotine product manufacturing license and plans for up to 80 production lines, is crucial for diversifying supply, mitigating geopolitical risks, and capitalizing on global ODM opportunities.
• Despite a net loss of $39.24 million in fiscal year 2025, recent cost optimization measures and improved accounts receivable management are enhancing financial stability, with management anticipating a return to positive operating cash flow in the near term.
• Ispire's blend of proprietary vaping technologies, strategic international partnerships, and a strong commitment to regulatory compliance positions it as a key innovator in the evolving global vaping landscape, particularly as markets shift towards regulated, age-verified products.

The Vaping Vanguard: Ispire's Strategic Reimagining

Ispire Technology Inc. (ISPR) stands at a pivotal juncture, strategically reorienting its business to capture the burgeoning opportunities within the global nicotine vaping market while leveraging its technological prowess. Founded on the innovative spirit of Tuanfang Liu, who established Shenzhen Yi Jia in 2010, Ispire has evolved from its roots in Aspire Global, consolidating its operating subsidiaries, Aspire North America (cannabis) and Aspire Science (nicotine), in 2022. This foundational history, marked by early technological breakthroughs like the BVC (bottom vertical coil) in 2014 and the introduction of closed-system vaping devices in 2018, has shaped Ispire's current strategic imperative: to become a leading manufacturer of precision dosing vaping technology for global nicotine companies.

The vaping industry is intensely competitive, populated by over 50 companies vying for market share. Major players such as Smoore International Holdings Limited (SMORF) dominate the tobacco vapor segment, while global giants like Philip Morris International (PM), Altria Group (MO), and British American Tobacco (BTI) command significant resources and market presence. Ispire, in this landscape, positions itself as a challenger brand, emphasizing innovation and agility in niche segments. Its overarching strategy involves a deliberate pivot away from the financially challenging U.S. cannabis market, a significant investment in diversified manufacturing, and the development of breakthrough age-gating technology to address critical regulatory and public health concerns. This multi-pronged approach underpins Ispire's ambition to carve out a sustainable and profitable future.

Technological Edge: The Foundation of Ispire's Moat

Ispire's competitive advantage is deeply rooted in its proprietary vaping technologies, which offer distinct benefits across its product lines. The company's BDC (Bottom Dual Coil) technology provides an expanded heating area, delivering enhanced flavor and vapor production. This system uniquely allows for two separate oil tanks, enabling optimized heating temperatures for different substances, such as terpenes (low evaporation temperature) and cannabis oil (higher evaporation temperature), without burning either. This dual-coil design also incorporates hidden wick cotton with specially designed wick holes, extending tank e-liquid capacity and improving wicking speed for increased coil life. The BVC (Bottom Vertical Coil) technology, originally introduced by Aspire Global in 2014, utilizes a vertical heating wire surrounded by cotton, ensuring uniform temperature and efficient wicking, which translates to longer coil life and a purer, cleaner taste from e-liquids.

Further innovation is seen in the Cleito tank, which features a revolutionary coil design that replaces the standard chimney, maximizing airflow and delivering an expanded flavor profile and increased vapor production. For its cannabis products, Ispire employs patented DuCore Dual Coil technology, enabling users to create massive vapor plumes without burning cannabis oil. This technology is also critical for its best-in-class airflow, taste, and, crucially, its ability to eliminate oil leakage, a significant disadvantage in many existing products. In June 2023, Ispire introduced Ispire ONE technology, designed to streamline the manufacturing process by eliminating capping issues, increasing consistency and quality of filled devices, and preventing leaking, spitting, or overheating. This technology also enhances consumer safety by sealing devices in a sterilized factory environment, thereby reducing contamination risks and improving productivity while lowering production costs per unit.

The company is also developing G-Mesh technology, to be marketed under the Silica Series trademark. This innovation uses a 1-millimeter-thick porous glass sheet to draw e-liquid to an interlocking mesh coil, promising improved particle size for better nicotine uptake, flavor superior to ceramic coils, and potentially less hazardous vaping by eliminating ceramic dust. These technological advancements collectively contribute to Ispire's competitive moat by offering superior product performance, enhanced safety, and greater manufacturing efficiency, which are critical for capturing market share and improving margins.

IKE Tech: A Game-Changer for Regulatory Compliance and Market Access

Perhaps the most transformative technological initiative is Ispire's 40% interest in IKE Tech LLC, a joint venture focused on developing a blockchain-based, point-of-use age-gating system for vapor e-cigarette devices. This technology aims to fundamentally reshape the regulatory landscape for nicotine delivery systems by requiring continuous, real-time authentication, a significant leap beyond traditional single-point-of-purchase age verification. Clinical studies have demonstrated 100% effectiveness of the IKE System in preventing underage use.

The FDA's acceptance of IKE Tech's component PMTA (Premarket Tobacco Product Application) in May 2025, within an unprecedented four weeks of submission, signals the regulatory body's recognition of this technology's potential to enhance public health. An expedited review is anticipated, and if approved, this would be the first component PMTA in FDA history, allowing for modular deployment across hundreds of ENDS (Electronic Nicotine Delivery Systems) products. This is a critical development, as the U.S. legal ENDS market, currently estimated at $11 billion and limited to tobacco and menthol flavors, is dwarfed by an illicit market potentially three to seven times larger, representing a $30 billion to $60 billion opportunity. IKE Tech's solution could unlock the market for flavored e-cigarettes, providing regulated alternatives for adult consumers while effectively preventing youth access. Ispire plans to integrate this technology into its own pod systems and disposable vapes, initially introducing four flavored products with potential expansion to six to ten offerings. The company also holds critical patents in this space, particularly concerning device communication and blockchain-based technology, providing strong IP defensibility.

Operational Transformation: Malaysian Manufacturing and Efficiency Gains

A cornerstone of Ispire's strategic pivot is the significant investment in its Malaysian manufacturing operations. The company commenced manufacturing on two production lines in February 2024 at its approximately 31,000 square foot facility in Malaysia. In May 2025, this facility received an interim license from the Malaysian Government for manufacturing nicotine products for export, a crucial milestone as it is the first and only such license issued in Malaysia approved by both federal and state authorities. This cements Ispire's position with full authorization for export, import, and production in the country.

Ispire plans to expand its Malaysian capacity to up to 80 production lines, a substantial increase from the current six. This expansion is projected to enable the production of between 700 million pod devices annually, providing immense capacity to support global demand. This diversification of the production base is strategically vital, as it de-risks operations from geopolitical factors and offers a competitive advantage in terms of tariff rates. For instance, Malaysia's tariff rates are lower compared to other Southeast Asian countries where competitors (e.g., in Indonesia at 35% and Vietnam at 45%) are establishing manufacturing facilities. Ispire is even considering a third, larger facility to accommodate potential large ODM projects.

Further enhancing operational efficiency, Ispire unveiled the I-80 vape filling machine in October 2024. This revolutionary machine can fully fill and seal 4,000 0.5-gram vapor devices per hour, making it up to 10 times faster than traditional systems and twice as fast as current automated systems. It eliminates the need for device capping, boosting overall workflow efficiency by up to 1,000% compared to manual methods and 100% over current automated systems. This innovation is critical for driving cost savings and productivity for ODM clients, strengthening Ispire's value proposition.

Financial Performance in Transition

Fiscal year 2025 marked a period of significant transition for Ispire, reflected in its financial performance. Revenue declined by 16.1% to $127.49 million, down from $151.91 million in fiscal year 2024. This decrease was primarily a direct consequence of the strategic pivot away from the cannabis industry, particularly impacting North American sales, which fell from $63.08 million in FY2024 to $32.57 million in FY2025. Gross profit decreased to $22.65 million from $29.78 million, with gross margins contracting to 17.8% from 19.6%. This margin compression was attributed to changes in product mix, with fewer higher-margin products sold, and the strategic repositioning.

Operating expenses saw a substantial increase of 38.5%, rising to $60.50 million in FY2025 from $43.68 million in FY2024. This surge was largely driven by a significant increase in credit loss expenses, which jumped by 266.3% to $22.03 million (from $6.02 million in FY2024) due to longer collection times and higher allowances. Sales and marketing expenses also increased as the company ramped up activities for its nicotine business. Consequently, Ispire reported a net loss of $39.24 million, widening from a $14.77 million net loss in FY2024.

However, recent quarterly trends offer a more optimistic view. In Q1 FY2025 (three months ended September 30, 2024), despite a slight dip in top-line revenue, Ispire achieved a 12.1% year-over-year increase in gross profit to $7.7 million and expanded its gross margin to 19.5% from 16%. This improvement, achieved with lower revenue, reflects the success of the company's strategic focus on high-quality accounts and enhanced operational efficiency, including the early benefits from its Malaysian facility. The sequential decline in gross margin from Q4 FY2024 to Q1 FY2025 was attributed to initial inefficiencies in a new ODM relationship with a European brand.

From a liquidity perspective, cash stood at $24.35 million as of June 30, 2025, a reduction of $10.72 million from the prior year, with a working capital balance of $0.37 million. Net cash used in operating activities for FY2025 improved significantly to $7.37 million, compared to $18.30 million used in FY2024. Management believes current cash and operating cash flows, along with proceeds from equity offerings and borrowing, will be sufficient for the next 12 months. The board's authorization of a $10 million stock repurchase program through January 2027 signals confidence in Ispire's long-term vision and belief that its equity is undervalued.

Outlook and Strategic Initiatives

Ispire's outlook is anchored in its strategic pivot and technological roadmap. The company anticipates a continued trend of declining costs, with an estimated $10.2 million in annual savings from ongoing cost optimization measures, including a $3.6 million reduction in annual payroll in May 2025. The international nicotine ODM business is gaining significant momentum and is expected to be a substantial contributor to revenue growth in the coming quarters.

For the cannabis segment, management believes Q4 FY2025 marked a bottom, with new products and a focus on high-quality customers expected to drive increased revenue. The potential rescheduling of cannabis could prompt Ispire to re-evaluate and potentially increase investment in this sector. Overall, Ispire is optimistic about its full fiscal year 2026 revenue, striving to match or exceed last year's growth rate, with global nicotine initiatives expected to be the primary driver. The company aims to achieve positive operating cash flow by the March quarter (Q3 FY2026), though one-time charges related to restructuring might cause a slight delay.

International expansion is a key focus. Ispire successfully launched its BrkFst nicotine product in South Africa and Nigeria, establishing a presence in over 500 retail locations and planning to expand to over 2,000 stores. A landmark 5-Year Master Distributor Agreement with ANDS for the Middle East and North Africa (MENA) region and Global Duty-Free markets further extends its reach. The company is also preparing to launch its age-gated GMAS products in the UK market in the first half of calendar 2025, capitalizing on the UK's disposable vape ban, a trend expected to spread across Europe.

Risks and Competitive Dynamics

Despite its strategic initiatives, Ispire faces several risks. The cannabis industry's persistent cash flow challenges, largely due to IRS Code Section 280E and limited banking services, remain a concern, impacting Ispire's ability to collect accounts receivable. The regulatory environment for nicotine products is highly volatile, with the PMTA approval process being expensive, time-consuming, and uncertain. Disposable vape bans in key markets like the UK necessitate rapid product adaptation. Dependence on Shenzhen Yi Jia, a related party, for a majority of its manufacturing, introduces potential conflicts of interest and supply chain risks. Furthermore, the long-term health effects of vaping products remain under scrutiny, posing product liability and reputational risks. Geopolitical tensions and tariffs, particularly on imports from China and Malaysia, could impact costs and profitability. Internally, material weaknesses in financial reporting controls have been identified, requiring ongoing remediation.

In the competitive arena, Ispire's smaller scale and financial resources compared to industry giants like Philip Morris International, Altria Group, and British American Tobacco mean it lags in overall market share, R&D investment scale, and broad distribution networks. These larger competitors benefit from established brand recognition, extensive marketing budgets, and operational efficiencies. However, Ispire's strategic responses directly address these competitive pressures. Its Malaysian manufacturing offers a tariff advantage and de-risks supply chains, while its focus on high-quality ODM relationships aims to improve payment terms and financial stability. The IKE Tech joint venture is a direct response to regulatory hurdles, aiming to create a new market segment where Ispire's technology could be a mandated standard, thus creating a significant competitive moat. The company's agility in product innovation, particularly with its advanced coil technologies and the I-80 filling machine, allows it to offer differentiated solutions that cater to evolving consumer preferences and industry needs.

Conclusion

Ispire Technology Inc. is in the midst of a profound transformation, strategically pivoting its business towards the global nicotine market, underpinned by significant technological innovation and operational restructuring. While fiscal year 2025 presented financial headwinds, including widening losses and increased credit loss expenses, these largely reflect the costs of this strategic reorientation. Recent quarterly performance, particularly the expansion of gross margins and improved operating cash flow, signals that the company's focus on higher-quality customers, cost optimization, and enhanced operational efficiency is beginning to yield tangible benefits.

The core investment thesis for Ispire hinges on its ability to capitalize on its technological leadership, especially through the groundbreaking age-gating system developed by IKE Tech, which has the potential to redefine safety standards and unlock substantial new market opportunities for flavored e-cigarettes. Coupled with the strategic expansion of its Malaysian manufacturing capabilities, which offers both cost advantages and supply chain resilience, Ispire is building a robust foundation for future growth. Despite the inherent risks in a highly regulated and competitive industry, Ispire's strategic agility and commitment to differentiated technology position it as a compelling player poised for long-term value creation in the evolving global vaping landscape.