Overview

We are committed to delivering superior products that challenge industry norms, with the goal of delivering an unmatched customer and adult consumer experience. 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 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. We sell our e-cigarette (or nicotine) products globally, and our cannabis vaping hardware in the United States, Canada, South Africa, and Germany.

Since our initial public offering in April 2023, we have completed three fundraising rounds, raising a total of approximately $36.3 million in net proceeds. We used these funds for various purposes, including the establishment and operation of our manufacturing facility in Malaysia, the funding of a joint venture, and working capital and general corporate purposes.

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. Changes in the regulatory environment can be enacted swiftly and may lead to our products becoming non-compliant in one or more international markets.

E-cigarette regulation

Regulation regarding e-cigarettes varies across countries, from limited regulation to a total ban. In many markets, e-cigarettes and other nicotine products are subject to an excise tax, which is a key determining factor in our pricing and the value proposition to our adult consumer target market.

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 to submit Premarket Tobacco Product Applications (PMTAs) to the FDA. We have submitted a PMTA filing for one ENDS product, and the agency will not enforce the premarket review requirements for that product pending review of its PMTA. However, the FDA may reject our application and prevent our ENDS products from being sold in the U.S.

European Market

The European Commission issued the Tobacco Products Directive, which regulates e-cigarettes on the packaging, labelling and ingredients of the products on the European Union market. 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 $11.3 million and $5.9 million at December 31, 2024 and June 30, 2024, respectively. Our failure or inability to collect accounts receivable when due can impair our ability to operate profitably.

Key Factors that Affect Our Results of Operations

The key factors that may affect our financial condition and results of operations include:

• The effect of legislation and regulations affecting tobacco and cannabis vaping products
• Our ability to obtain regulatory approval to market additional tobacco vaping products in the United States
• Our ability to develop and market tobacco and cannabis vaping products to meet changing consumer tastes
• The effects of competition
• The development of an international market for cannabis vaping products
• The impact of pandemics or disease outbreaks on our operations and end-user demand

Results of Operations

Revenue increased slightly by 0.3% in the three months ended December 31, 2024 compared to the prior year period, driven by growth in Europe, Africa, and South America, offset by declines in North America and Asia Pacific. Revenue decreased by 4.0% in the six months ended December 31, 2024 compared to the prior year period, due to declines in North America and Asia Pacific, partially offset by growth in other regions.

Gross profit increased by 23.5% in the three months ended December 31, 2024 compared to the prior year period, and by 17.6% in the six months ended December 31, 2024, primarily due to changes in product mix with more higher margin products being sold.

Operating expenses increased significantly in both the three and six month periods, driven by increases in sales and marketing expenses, as well as general and administrative expenses, including higher bad debt expense.

As a result of these factors, net loss increased from $3.9 million in the three months ended December 31, 2023 to $8.0 million in the three months ended December 31, 2024, and from $5.3 million in the six months ended December 31, 2023 to $13.6 million in the six months ended December 31, 2024.

Liquidity and Capital Resources

As of December 31, 2024, we had $6.1 million in working capital, down from $16.6 million as of June 30, 2024. This decrease was primarily due to an increase in current liabilities, including accounts payable and accrued expenses.

Net cash provided by operating activities for the six months ended December 31, 2024 was $0.4 million, compared to net cash used of $20.2 million in the prior year period. This improvement was driven by changes in working capital accounts.

We believe our current cash and future cash flows from operations will be sufficient to meet our working capital needs in the next 12 months. However, additional financing may be required if we experience an adverse operating environment or decide to accelerate our growth.

Contractual Obligations

As of December 31, 2024, we had $2.8 million in operating lease liabilities and an unpaid $8.8 million consideration for a joint venture investment. We do not have any other material off-balance sheet arrangements.

Trend Information and Seasonality

Other than the trends and uncertainties discussed elsewhere in the report, we are not aware of any other material trends that would affect our business or results of operations. Seasonality does not materially impact our financial results.

In summary, while we have faced some challenges in the first half of fiscal 2024, including regulatory hurdles and increased operating expenses, we remain committed to delivering innovative vaping products to our adult consumer base. Our focus on risk reduction and expanding our global footprint, particularly in emerging cannabis markets, provides opportunities for future growth, though regulatory risks will continue to be a key factor in our performance.