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Good day, thank you for standing by, and welcome to the Ispire Technology Q3 2026 earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to James Carbonara with Hayden Investor Relations. Please go ahead.

Good afternoon, welcome to Ispire Technology's fiscal third quarter 2026 earnings conference call. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant. These forward-looking statements involve known and unknown uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC.

The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or changes in expectation, except as may be required by law. I will now turn the call over to Michael Wang, Co-Chief Executive Officer of Ispire Technology. Michael, you may begin.

Thank you, operator, and thank you all for joining us. This quarter marks a turning point for Ispire. Our business has stabilized. Our operating model is sharper and more disciplined. We ended the quarter with $18 million in cash, up $468,000 sequentially. This sequential cash growth is one of the clearest signs of progress in the quarter. It demonstrates improving financial control and a more focused operating posture, and reinforces our confidence in becoming cash flow positive in the second half of this calendar year 2026. The transition we set out to make is behind us. Now we are executing against a phased growth roadmap. Multiple catalysts, each tied to billion-dollar markets where we have clear competitive advantages. The first and most immediate of these is Malaysia.

Our Malaysia manufacturing platform is live today, and we believe this is one of the most strategically important developments in the company's history. In addition, Malaysia provides us with an estimated 25% tariff advantage over China, giving us both economic and strategic leverage as we pursue opportunities in the $73 billion global vape market. This is both a manufacturing milestone and a structural advantage that we believe can support margin improvement, customer acquisition, and long-term market relevance. Second, plans are underway to launch our vapor ODM initiative in July. This initiative will initially serve small and mid-sized brands with larger brand opportunities targeted for 2027. We see this as another practical commercialization pathway that can convert our manufacturing, design, and regulatory capabilities into higher value customer relationships. Beyond these near-term drivers, we continue to build long-duration optionality through differentiated technology.

Through IKE Tech, we believe our age-gating platform has the potential to help unlock the approximately $50 billion-$70 billion U.S. flavored vape market. A market that remains effectively inaccessible today under the current framework. In parallel, our G-Mesh glass technology is growing interest in a $24 billion-plus legal global market, including licensing discussions with major tobacco participants. These are proprietary assets that could materially expand our strategic and financial opportunities beginning in 2027 and beyond. The accomplishments we achieved during the fiscal third quarter are clear. We strengthened liquidity, improved operating discipline, and advanced a roadmap with multiple high-value catalysts. We believe that combination gives Ispire a stronger foundation for both profitability and long-term shareholder value creation as we move forward. I will now turn the call over to Jay for a more detailed review of our financial results. Jay?

Thank you, Michael. For the fiscal 3rd quarter ended March 31, 2026, Ispire reported revenue of $18.7 million, compared with $26.2 million in the 3rd quarter of fiscal 2025, and $20.3 million in the prior quarter. The modest sequential decline primarily reflected seasonal factory downtime associated with Chinese New Year and represents the most resilient 2nd to 3rd quarter performance pattern in our history. Gross profit for the quarter was $2 million, and gross margin was 10.7%. Importantly, gross profit was impacted by approximately $2.2 million of one-time product returns from legacy cannabis customer, with whom we have ceased doing business. We view those returns as part of final cleanup associated with our strategic repositioning, not a representative of the normalized earning profile of the go-forward business.

In that sense, we view this quarter as one in which reported margin observed a legacy headwind, while the underlying business mix continues moving in an improved direction. On the cost side, we continued to make meaningful progress. Total operating expenses, excluding credit loss, were $5.9 million, down 36% year-over-year from $9.3 million and down 3.7% sequentially from $6.1 million in the December quarter. This performance reflects the impact sustained cost discipline and a more focused operating structure. It also reinforce our belief that profitability is increasingly a matter of near-term execution and skill. Credit loss in the quarter was $5.6 million, down roughly $500,000 year-over-year.

This improvement is another indication that the financial cleanup tied to legacy activity is moving in the right direction, and we are committed to continued discipline around receivables and working capital management. Net loss for the quarter was $9.5 million, compared with $10.9 million in the year-ago period and $6.6 million in the prior quarter. While the quarter still reflects transition-related pressure, the broader trend is encouraging. We have materially reduced our cost base while positioning the company for higher quality value streams and better operating leverage over time. We ended the quarter with $80 million in cash, an increase of approximately $468,000 sequentially. This sequential cash growth is a meaningful achievement in the context of an ongoing repositioning.

It strengths our balance sheet, support our near-term growth investments, and underpin our confidence in reaching cash flow positive performance in the second half of this calendar year 2026. From a financial perspective, the foundation for improved profitability has been built. The company is leaner, more disciplined, and better aligned with high-value growth markets. I will now turn the call back to Michael.

Thank you. This quarter marks the beginning of a new phase for Ispire. The transition in our business reflects reduced exposure to low-quality revenue and is now about converting that reset into a stronger earnings model, a stronger cash profile, and a stronger strategic position in global nicotine and compliance technology markets. Our priorities are clear. First, we are focused on profitability and the path to becoming cash flow positive in the second half of this calendar year 2026. We intend to build on the momentum we have established this quarter through operating discipline, working capital management, and the ramp of new revenue catalysts. Second, we are focused on winning from a position of strategic advantage.

Our licensed manufacturing presence in Malaysia gives us a highly differentiated foothold in a critical geography with regulatory exclusivity and tariff advantages that we believe can translate into both commercial and financial benefits over time. Malaysia is a platform for expansion. Finally, we are building a company with multiple avenues for value creation. Near-term scale commercialization through vapor ODM and longer-term upside through age-gating and G-Mesh. Together, these initiatives create a diversified roadmap that we believe is unusual in our industry and compelling from an investor perspective. Thank you for your time and continued support. Operator, please open the line for questions.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw it, please press star then two. We will now pause momentarily to assemble our. Today's first question comes from Nick Anderson with ROTH Capital Partners. Please proceed.

Yeah, good morning. Thanks for taking the questions, and congrats on the quarter. First for me, just on the vape news and the recent flavored approval, there was discussion around the digital leash software, which maybe was a reason the FDA viewed that application favorably. I guess 2 questions off that. Do you believe proximity-based restrictions will be the path the FDA takes? If so, do you have the ability to incorporate that into your tech if you don't have it already? Thank you.

Nick, thank you. The first part of the question, actually, I will go straight to the second part. Yes, we do have that built into our solution. From day one, that was the key differentiation between our technology and other solutions out there. More importantly, our platform is now moving out of the old app model more into a platform model. This again reinforced the continuous authentication capabilities. More importantly, because it's a platform, we would allow for brands to customize and set their own, I guess, performance parameter, you can say.

Really brand, from brand to brand, we provide that capability because we also want to make sure brands, in dealing with the different regulations across the world, they can set the parameters differently country by country, depending on regulations too. A simple answer is yes, we have the continuous authentication capability, and it's in our solution. The advantage really is so, many solutions out there, especially solutions developed years ago, tend to be, either having the device turned on, after initial age verification and then stay on forever, which is, of course, highly undesirable from a regulatory point of view. Or, they would have a periodic, re-authentication or verification. That also create gaps where, potential misuse of the device could happen.

That's why from day one, our solution was continuous authentication, and that proves to be very important to regulators, not only with FDA but outside the U.S. as well. Nick, I hope I answered your question.

Yeah. That's perfect and very encouraging. Second for me, just on partnerships, this PMTA announcement also validated age gating positioning and getting flavors to market. I know this is maybe too early, but what have you seen with discussions with potential partners in terms of potentially accelerating off of this approval? What has changed in the last few days in terms of the clients you're talking to?

You are right. Indeed, in the last 48 hours, up to 72 hours, the ground was moving per se. That's really encouraging to us. Donald Trump's pressure on the FDA obviously went a long way for the industry. The immediate approval of the 4 additional SKUs for Glass sent a strong signal to the industry. I think all the key players in the industry are familiar with the pros and cons of different solutions. Collectively, we have the shared consensus that our solution is most advanced versus other technologies. With the news over the last couple of days, certainly, we got accelerated existing conversations with brands.

In a couple of situations, we actually have even moved one step further, discussing using our technology in some of their existing PMTAs, through a so-called supplemental PMTA, to accelerate the approval of their flavored products. It's clear, the industry recognize the floodgate is opening, and the age-gating is the only way to get a flavored approval. Lastly, with everybody's understanding for our solution being far ahead of competition. We are absolutely getting I would say, yesterday, put it this way, I worked 17 hours. That's much longer than my typical day of 12 hours. It says a lot about the effort we put into entertaining those conversations.

That's great to hear. If I could squeeze just one more in on the state-by-state structures. With regulators becoming more constructive around vape, how do you anticipate states will respond? Several markets still have banned flavors, some have banned foreign imports. How do you see the state landscape changing as potentially more flavors come to market in the legal market? Thank you.

I think from a flavor ban point of view, those I think five, six states literally are aligned with FDA's flavor ban. They are just, yeah, reinforcing these bans accordingly. From that point of view, there is a consistency. I certainly hope with FDA feeling comfortable with age-gating technology and start approving flavors, those states would align as well, would support approved flavors. Of course, we all know the general flavor ban in place right now is really trying to minimize the impact of a black market from selling devices to underage users. That was a real goal by those states. I think from that point of view, there is a perfect alignment with the FDA.

I certainly hope state would follow FDA's lead in terms of supporting approved flavors. But regarding other state-by-state situation, Texas, for example, is driving toward banning China-made vaping devices. So that is absolutely supporting our strategy of producing our product in Malaysia. So I think that's a plus for us. But some other state-by-state restrictions I think involve in probably banning disposables. We all know disposables are not environmentally friendly approach to vaping. I think the industry is moving further into pod systems versus disposable. California, I think, as we know, banned online sales to further protect consumers. I don't think that is going to change.

That is the right policy because online sales is so hard to regulate and verify, certify. Ultimately, the true solution in protecting underage consumers or people and to protect adult consumers from using risky, dangerous product is by FDA approving flavored devices with age gating built in. I think I'm happy for the industry, knowing Glass devices were approved, and this is a new beginning for the industry. I'm happy for consumers. Certainly, this is a major win for the regulators as well. Instead of doing nothing, for flavored products, finally, this is the right thing to do. Using technology here to solve the problem. Nick, that's my answer.

Great. That's it for me. Congrats, and I'll pass it on.

This concludes today's question and answer session. I would now like to turn the conference back over to Michael Wang for any closing remarks.

Thank you, operator. Obviously, this quarter is a low quarter in terms of revenue for us. It's not a surprise. Q3 has always been a low quarter due to the Chinese New Year shutdown of the factories. Generally, from Q2 to Q3, we saw over 30% drop in business. For this time, it's only 8% drop. That's really, as Jay indicated, it's the lowest drop in history. What I do believe, from top line and bottom line point of view, Q3 was a low point. We feel very strongly, as Jay stated, our foundation is set solidly.

We have a lot of work to do, certainly, to prove to investors that we're over the hump, and we are now on a upward trajectory. I look forward to sharing more performance and developments with investors in the coming month. Certainly, we are here to show what we can accomplish this current quarter and the September quarter. I hope there'll be a trend to regain some of the investors' trust and confidence, and we'll never look back again. Thanks again to everybody on today's call. This conclude it all. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Ispire Technology Inc. Earnings Conference Call for the 2026. I'll now hand the call over to Philip Carlson, from KCSA Strategic Communications. Please go ahead, sir.

Hello, everyone, and welcome to Ispire Technology Inc. earnings conference call for the 2026 ended 12/31/2025. At this time, I would like to inform you that the conference call is being recorded and that all participants are in a listen-only mode. Following the company's prepared remarks, we'll be holding a question and answer session. With us today are Mr. Michael Wang, the company's Co-Chief Executive Officer, and Mr. Jie Yu, the company's Chief Financial Officer. Michael Wang will start by discussing Ispire Technology Inc.'s second fiscal quarter financial results and recent corporate highlights. Jie Yu will then discuss the company's financial results for the 2026 in more detail. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant. These forward-looking statements involve known and unknown uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectation except as may be required by law. I will now hand the call over to Michael Wang. Michael Wang, please go ahead.

Thank you, Philip. And welcome to all of you joining us today. I'm pleased to share our financial results for the 2026 and the recent corporate highlights. This quarter represented an inflection point for Ispire Technology Inc. after our year-long cost-cutting and customer quality rationalization efforts, and we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement. We are confident we have laid a solid foundation for future success. During the 2026, we continue to fortify our financial position and strengthen our cash flow. Since late fiscal 2025, we have consolidated our customer base to prioritize high-quality clients. This aligned with our strategic focus on the higher value nicotine sector and the shift away from the cannabis sector and from slower-paying clients. We have seen this translate to promising results across key measures, including improved accounts receivable. While our revenue declined in the second fiscal quarter, this was an expected outcome due to our deliberate move towards higher quality nicotine sector customers and away from lower value clients who have difficulties meeting payment timelines. Several key metrics, including accounts receivable, operating expenses, and net loss, indicate how our efforts to solidify our financial stability are beginning to deliver improvements in these areas. In addition, there were headwinds for the nicotine sector internationally, with the e-cigarette volume declining with the pressure from Chinese manufacturers making an impact. It is worth noting that with China's cost base going up, this will benefit Malaysian producers, aligning with Ispire Technology Inc.'s strategic pivot to Malaysia as e-cigarettes are no longer a preferred industry in China. For the 2026, our net accounts receivable improved to $37.9 million, down from $47 million at the end of fiscal 2025. Other measures demonstrating this progress include average payment terms and the days sales outstanding, which have all improved. In particular, cash collected versus revenue for calendar year 2025 was 116% versus 67% for calendar year 2024. Also, our average payment terms were shortened, and the average days sales outstanding improved by eight days, comparing the 2026 to the 2025. We were also able to reduce our net loss to $6.6 million from $8 million in the 2025. And for the six months ending 12/31/2025, net loss was reduced by $3.7 million compared to the same period year over year. One important item I would also like to highlight is that from April 2025, towards the end of calendar 2025, we burned only $1 million in operating cash as we focused on our cost reduction and customer quality rationalization efforts. This is a significant measure, and combined with other financial metrics, shows that our stringent cost management and focus on financial discipline have yielded positive results. And these are trends that we expect to continue through fiscal 2026. The Ispire Technology Inc. team progressed several significant projects over the second fiscal quarter, mostly related to our iTech joint venture Gmesh technology, and building out our Malaysian facility. We continue to see increased traction worldwide for our groundbreaking age-gating technology joint venture with iQTEP. In the US, in particular, interest from and discussions with several major tobacco players have intensified over the last three months. After the FDA indicated that age-gating technology is the only way to unlock the legal flavor of the e-cigarette market. As we all know, the US nicotine vaping market is mainly dominated by illicit products. In other words, products that have not been authorized by the FDA. By various estimates, the US e-cigarette retail market is nearly $100 billion in size and more than 90% of it is illicit in nature. Consumers want flavored e-cigarettes, but the legal market does not have FDA-approved flavored e-cigarettes. As such, consumers can only purchase flavored products from the illicit market, potentially risking their health and life. We strongly support the FDA's initiatives to use age-gating technology to unlock the flavored market with legally approved products, to not only offer consumers the flavor that they want, but also to protect consumers from using dangerous products from the illicit market that are currently being sold across the US illegally. While there are several technology solutions out there, our technology stands out for its reliability and low-friction nature. Our revolutionary technology uses a blockchain-based age verification chip and requires timely authentication at the point of use in order for the user to power it up. This contrasts with existing systems that just rely on single verification only at the point of purchase and therefore ensures that only adults can vape, not just purchase these products. We have been working with regulators globally across Europe, Southeast Asia, and the Middle East to institute age-gating technology as a compulsory standard for the industry, and we have made material progress in getting these measures mandated in several countries across the world. Also, recently, we were invited to participate in the FDA's small manufacturers roundtable session, with Steve Casbella, our Chief Legal Officer and ICTECH board member, representing the company on the panel taking place next week. While we welcome the US federal government's stringent enforcement mandate of the illicit trade effects, we want to emphasize that this can only be effective when combined with technology-based solutions that are able to secure devices before misuse occurs. This is where we are seeing macroeconomic tailwinds in our favor relating to the US FDA stance on flavored products and age-gating technology. The FDA's explicit position is that you must have age-gating technology if you want flavored products approved. Our joint venture, iQTEC, as most of you already know, has the leading and the most low-friction technology in that space, and we look forward to capitalizing on this opportunity in due time. Ispire Technology Inc. and iQTEC's first-ever premarket tobacco product application or PMTA with the FDA last year shows our commitment to advancing safety and compliance for consumers. It's no surprise that our age-gating technology is receiving a lot of attention from the big tobacco players globally. Furthermore, we look forward to announcing a significant development deal around our age-gating technology with a leading global nicotine company in the coming weeks. Another area where Ispire Technology Inc. is leading innovation is with our Gmesh technology. Gmesh vaping hardware is built with superconductive glass, which unlike traditional ceramic or cotton core, provides higher purity which enhances user safety. As we mentioned on our last earnings call, Gmesh is garnering attention from several medium and large-sized nicotine companies who are interested in the opportunity that technology presents for their next-generation vaping devices. We are currently involved in discussions about these opportunities. We'll share an update on this in the coming month for a potential licensing and/or partnership agreement. Lastly, an update on the progress of our manufacturing facility in Malaysia. The build-out is on track to ramp up production in fiscal 2026. The modest increase in capacity that the Malaysian facility could hold once finished, which will go to 80 production lines from the current six lines, is a material improvement and aligns with our focus on Malaysia as a production center. We look forward to providing more updates on this in the coming quarters as well. To sum up, we are excited about the innovations that our team is working on, and we are optimistic about upcoming developments over the coming quarters. Our focus on fiscal management and pivoting to quality nicotine sector customers is delivering results with improved net loss, operating expenses, and accounts receivable. We expect these trends to continue through fiscal 2026, as well as a pickup in revenue generation as we move closer to profitability. I will now hand the call over to our Chief Financial Officer, Jie Yu, to review our second quarter financial results in more detail.

Thank you, Michael. And thanks to everyone with us on the call today. As we discuss Ispire Technology Inc.'s key financial results for the 2026. To recap, I will refer to the 2026 as the quarter ended on 12/31/2025. All comparisons are to the prior 2025 ended 12/31/2024, unless stated otherwise. For the 2026, Ispire Technology Inc. reported a total revenue of $20.3 million, a decrease from $41.8 million in the 2025. As Michael has discussed, this was largely due to our strategic realignment of the business away from lower value cannabis customers to high-quality nicotine customers with better payment profiles. Gross profit for the 2026 was $3.5 million, declining from $7.7 million in the 2025. Gross margins decreased to 17.1% in Q2 2026, down slightly from 18.5% in the 2025. The decrease in gross margin was primarily due to changes in product mix with fewer higher margin products being sold during the three months ended 12/31/2025. As Michael has spoken to in recent quarters, we have continued to improve our accounts receivable balance by focusing on quality customers in the nicotine sector, which has allowed us to collect account receivables in a timely manner. As of 12/31/2025, our net account receivable balance was $37.9 million, down from $47 million at 06/30/2025. In addition, we were able to reduce operating expenses for this three-month period to 12/31/2025 to $10.3 million from the $15.1 million in the 2025. For Q2 2026, we also reduced net loss to $6.6 million compared to $8 million for the same period in fiscal 2025. On top of these results, from April 2025 through the end of calendar 2025, we burned only $1 million in operating cash, which showed that we remain focused on expense management and reducing costs across our business. We expect this trend of declining costs and improved account receivable to continue through fiscal 2026. Moving on to the balance sheet, as of 12/31/2025, Ispire Technology Inc. held cash of $17.6 million versus $24.4 million at 06/30/2025. Net cash flow used in operating activity was $5.2 million over the six-month period to December '85, versus $400,000 provided by in the six months to 12/31/2024. Net cash used in investing activity for the first half of fiscal 2026 was $900,000, compared to $1.1 million used in investing activity for the same period last year. Net cash used in financing activities for the six months to December '95 was $0.7 million relative to nonuse over the same period ending in 12/31/2024. That ends the detailed recap of Ispire Technology Inc.'s financial results for the 2026. I will now hand the call back to Michael for closing comments.

Thank you, Jie. In closing, the 2026 marks an inflection point for Ispire Technology Inc. as our year-long cost-cutting and customer quality rationalization efforts are taking hold, and we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement. Furthermore, we have several exciting and game-changing opportunities that we continue to make significant progress on, which include our iTech venture, Gmesh technology, and the Malaysian facility build-up. We have continued to strengthen our company's financial footprint by improving cash flow, as well as cutting operating expenses, reducing our account receivable, and the net loss. Our focus on higher quality customers in the nicotine sector is also delivering improvement in these areas, and we expect this to continue through fiscal 2026. With the progress we have made over the past year, and our industry-changing technology and the infrastructure we continue to build up, the future is extremely bright for Ispire Technology Inc., and we look forward to sharing our Q3 results on our next quarterly call. Thank you all again to everyone joining us today. Investors can always email [email protected] with any questions. This concludes our prepared remarks. And I will now ask the operator to open the lines for questions.

Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Nick Anderson with Roth Capital Partners. Please proceed with your question.

Yeah. Good morning, and thanks for taking the question. First one for me, just on US Retail. Walgreens announced the resumption of selling vape products in January. Just curious what you've seen or heard from retailers regarding the category and what that might mean for shelf space allocation moving forward. Assuming as we get regulatory clarity around flavor products, legal retail adoption would closely follow. But just want to hear your thoughts. Thank you.

Thank you. The Walgreens situation is not an isolated case. Through our conversations with representatives of the retail space, there is tremendous demand, number one, for e-cigarettes, and number two, for flavored, especially. Convenience stores, like 7-Eleven or Circle K, a gas station network, those are typical retailers who really are desperate for flavored e-cigarettes. As we all know, even though cigarettes and e-cigarettes do not occupy that much shelf space in those retail stores, they represent tremendous revenue and foot traffic to the stores. So, they have seen significant reduction in their retail traffic just because they control our flavored e-cigarette side. As far as the FDA is concerned, because large chains are not going to risk any compliance issues by selling unauthorized products, consequently, they are losing business. I strongly believe, and some players in the industry strongly believe, there is a tremendous potential for retailers such as Walgreens to get into this game, especially as the enforcement efforts from the US Customs and the FDA are intensifying, and consumers still need flavored e-cigarettes. So when flavored products indeed get authorized by the FDA, I think the dam will get wide open. So on the other hand, enforcement and solution will have to go hand in hand. If there is not a solution that the FDA and the consumers can depend on, enforcement efforts will be very, very ineffective. Nick, I hope I answered your question.

Yeah. That's encouraging. Thank you for the color. Second one for me on iQTEC. Congrats on the Charlie's partnership, but just wondering if you could provide a little more color on the deal. What the expected production numbers are, regions you'll be focused on, and just whether or not this is driving more interest from other pipeline candidates as they look to integrate the age-gating process. Thank you.

Yeah. Charlie's deal is certainly a groundbreaking deal for us and for Charlie's. Charlie's has always positioned themselves as a consumer safety-oriented brand, and they have done a lot in that area. So certainly, I think many people, because Charlie's is a publicly traded company, many people are aware of their situation. So from that point of view, they are launching a brand new product. Initial volume, of course, this is based on customer's feedback and assessment, that would be somewhere between 2 million chips a month and 3 million chips a month, with the goal of selling up to 10 million devices, therefore, chips, on a monthly basis over a twelve-month period. But, of course, that's based on customers' feedback. With a few months of experience behind, I think we'll all have more confidence in indication with exactly where that's trended. This is slated by Charlie's to launch in the next two to three months. So we don't expect to see a lift in terms of volume for iQTEC in the immediate quarter, this current quarter, but we should start seeing results in the next quarter. As far as your second half of the question, yes. Indeed. In the last year, we have talked to the MSOs and the large brands in the cannabis space. Every single company showed interest in introducing age-gated products on the regulated cannabis side. And they all have shared the same concern about the devices getting in the hands of youth. So, they have been embracing this technology and solution. We are in rather deep conversation with a couple of players there. For the time being, even though there is immediate revenue potential there, we have spent most of our energy on the nicotine sector because of the potential volume available.

I appreciate that color. If I could squeeze just one more in on the Chinese imports, it looks like they've been curtailed in the 2025, but then significantly grew in the second half of the year. Do you have any color as to what drove that spike? And it looks like some states have implemented measures to combat this. Have any of these states seen any differences in illicit vape mix? Any color there would be helpful. Thank you.

Yes. So the surge in export late last year was partially driven by the expected policy change in China toward the manufacturing of e-cigarettes. As most of you are aware, effective April 1 this year, the Chinese government will stop what they call the VAT refund initiative. Even though export is not for domestic consumption, generally speaking, the government shouldn't impose a VAT on such products for export purposes. However, the regulators there are saying effective April 1 this year, the 13% VAT tax would also apply to e-cigarette export. So that means the cost base and the selling price would both go up effective April 1. So I think that was one reason a lot of the manufacturers really tried to rush before this new deadline to get as much product to the international market as possible. I suspect the increase would continue into the current quarter. But, of course, I expect a bit of a slowdown when April 1 kicks in. But so far, the feedback and the data we have gathered is the US states' efforts and initiatives have barely put a dent in the illicit market. The general feedback is it's not affecting at all, even though enforcement activities took place across the country, with the seizure of products and arrest of players. But it has not put a dent in the illicit market on the demand side. So that's why an adequate solution like iQTEC's age-gating is so crucial to using the FDA's term to unlock this flavored market to protect consumers at the same time. So, Nick, that's my answer to your question.

Got it. I appreciate that color. Congrats on the quarter. I'll jump back in the queue.

Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic and Associates. Please proceed with your question.

Thank you, and good morning, everyone. Look, just first, Michael, a bit of a housekeeping question. Can you remind us of what percent you own of the iQTEC joint venture? And if that business begins to take off, you know, how will you fund the expansion needed, the expansion capital? Is there a risk of dilution, or would you want to take full control of that business? You can just remind us of that. Thank you.

Yeah. Pablo, thank you. Yeah. The joint venture was created almost two years ago. Actually, twenty-one months ago. And very rapidly, we got on this mission of developing age-gated technology using the IP of our other joint venture partner, a company called Verifi. So far, as you know, a few three things I want to highlight. Number one, in November 2024, we had a meeting with the FDA, and through that conversation, of course, with the suggestion and guidance of the FDA, we worked on the so-called component PMTA. And we did that work early last year. And we turned in the component PMTA in May. And of course, as you have heard recently, especially in early November, the acting director of the Center for Tobacco Products made an opening remark at the Food and Drug Law Institute's Institute Conference. That FDA clearly understood the consumers wanted demand flavored e-cigarettes. However, so far, there was no way of authorizing flavored market without some sort of safety mechanism. So, hence, the very concept of age-gating being the solution right now. So FDA, I think, is certainly embracing that. By all indication, they are going to review PMTAs, whether with the products or, in our case, the component or solution PMTA in short order. We strongly believe, with our technology advantage, we'll get a fair shake out of this review process. So we are really optimistic about the potential, especially as I indicated in the last year and more importantly in the last three months. Activities involving discussions about our technology have really intensified. So, to answer the second half of your question, right now, the joint venture is operating with the technical engineering IP and business development contributions from the three joint venture partners. And Ispire Technology Inc. is providing the financial funding for the day-to-day operation there. With the Charlie's development and potentially a few other key, significant developments materializing in the coming months, Pablo, I strongly believe on one hand, we'll get strong interest from investors overall. On the other hand, we will be at a point where we could use some additional working capital to really blow this thing up on a global stage. As we all know, regulatory change requires a lot of efforts and resources. We are on a mission to fundamentally transform how age-gating can be used worldwide to protect consumers, both youth and adults, because of the dangerous nature of the illicit market. So Pablo, I hope I'm not answering your question.

Yes. No. That's good. Thank you very much. Just a quick follow-up. You know, assuming that the FDA were to legalize flavored nicotine because they are happy with the age-gating technology, there's not going to be just one technology out there. Right? Different manufacturers will have their own technologies. You will have yours, and you will supply it to small, midsize, maybe large manufacturers. I'm just trying to understand. Will there be different technologies out there or will, for example, the US only have one technology that will be only allowed? Do we know?

Based on what we know, there are other solutions out there. However, as far as we know, no solution is as what we call frictionless. Of course, our solution is not 100% frictionless. But in comparison to what other people are developing, we have the least friction in our experience with the consumers using the technology or the product. So that we have strong confidence here. And the other key advantages, Pablo, include because we are using blockchain technology, we don't actually transmit detailed consumer personal information through the Internet. Instead, we are just sending tokens back and forth between us and the back-end identity verification providers, such as CLEAR or ID.me or Encode and so on. So because the communication is through tokens only, there is no chance that a consumer's information would be stolen by hackers. So that's another key advantage. As far as we know, all other solutions actually transmit consumer private information. So we all know, no matter how well protected the network, the system, are, there is always a risk to be hacked and to get the information stolen. So that's another advantage. Third one, based on what we know of other products out there, for example, the initial identity verification process for all solutions, it would take just over one minute. And for other solutions, it would take anywhere between five and twelve minutes. So we all know consumers cannot bear that. So, that's why all the brands are mindful of the impact this age-gating solution would have on consumer ease of use side. So from that point of view, we know we stand out. This is partially, Pablo, because our technology transmits only tokens, and it's low bandwidth requirement and so on. And plus, the whole process is simpler than what other solutions would require. For example, some solutions would even require the consumer to type in their Social Security number online to get verification. That's just, let's call it, unscalable. Not too many consumers would give up their Social Security number for that. So I hope I answered the question. Of course, there are other solutions out there.

No. Good color. Thank you for that. And I know it's a lot of detail there, but just to know that, going back to your prepared remarks, I think you said that some countries in Europe or the Middle East or Asia have already mandated age-gating technology. I mean, I want to make sure I hear that right. And, if you can say which countries specifically, and are they using your technology already? Or were you talking more in general about future plans in those countries? I'm just trying to understand if anyone has actually implemented this anywhere in the world right now.

No one has implemented it. That statement says we have been working with those regulators in those countries to push for a mandate. And the reception has been very positive because similar to the US, in addition to consumer safety and protecting youth from using e-cigarettes, there is another consideration. Same is true in the US. The illicit market generally does not pay their share of sales tax. So that's made sales tax or excise tax because that's where the government gets their share of the trade. So the illicit market generally avoids paying a lot of tax. So some of those countries basically are saying not only do we want to protect, say, adults in using safe devices, not only do we want to prevent youth from using the devices, we also want to collect sales tax, our revenue, tax revenue. So with these three objectives in mind, many countries are looking at our technology. Some are even contemplating mandating all e-cigarettes sold in their countries must have age-gating. So right now, I can't share under NDA. I can't, I guess, share their name with everybody. But two countries in Southeast Asia, actually, one country in serious conversation in the Middle East, second one, a war-torn zone. And in Europe, we have been working with the UK regulator lawmakers for just nearly a year in changing the requirement, especially, we try to make a difference towards the upcoming UK tobacco bill, which is likely to be formed up in the next two to three months. But the support in the UK for this technology has increased tremendously over the ten-month period. And both from the parliament and the house floor and the executive branch, we are receiving support from every branch. So the best indication for where this technology is going. Certainly, the FDA is the most important consideration for us now. But we know through our talks with regulators outside the US, there is increased interest in this technology outside the US as well. So we are trying to work. In some countries, as we know, regulations and laws could be established in short order, unlike, let's say, heavily democratic countries like the UK and the US. Right. So we hope we would actually be able to launch the technology in other countries, potentially even ahead of the US.

Right. Thank you very much. Very last one. And just a short answer. I think you, I know you're gonna make forward comments, but you talked about that you will be disclosing a new deal in the coming weeks. Is this something similar to a Charlie's partnership, or are we talking about something much larger? Can you just give some general context? And I realize that we cannot forward comments here. Thank you. That's all.

Let's say much greater strategic and financial impact.

Right. Thank you very much. That's all. Thank you.

Thank you, Pablo.

Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Michael Wang for any final comments.

Thank you all again. We really, as I said a couple of times in my prepared remarks, we saw Q2 as an inflection point for us, not only financially but strategically as well. So I hope to have more advanced, exciting developments to share with you all in the coming weeks and months as they come about. Thanks again. Operator.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.