What changed in this filing

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Item 1A. Risk Factors

2024-09-27 compared with 2023-09-19 · 309 added, 326 removed, 987 unchanged (39% of the section changed)

Investing in our securities

involves a high degree of risk.

You should carefully consider the risks and uncertainties described below, together with all of the other

information contained in this Annual Report, before deciding to invest in our securities.

If any of the following risks materialize, our

business, financial condition, results of operation and prospects will likely be materially and adversely affected.

In that event, the

market price of our common stock could decline, and you could lose all or part of your investment.

Investing in our securities involves a

high degree of risk.

You should carefully consider the risks and uncertainties described below, together with all of the other information

contained in this Annual Report, before deciding to invest in our securities.

If any of the following risks materialize, our business,

financial condition, results of operation and prospects will likely be materially and adversely affected.

In that event, the market price

of our Common Stock could decline, and you could lose all or part of your investment.

An investment in our Common Stock involves

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We sustained losses of approximately $6.0

million for the year ended June 30, 2022 and $6.1 million for the year ended June 30, 2023, and we cannot assure you that we can or will

operate profitably in the future.

million for the year ended June 30, 2023 (as restated) and $14.8 million for the year ended June 30, 2024, and we cannot assure you that

we can or will operate profitably in the future.

We sustained a loss of approximately $6.0 million,

or $0.04 per share (basic and diluted) in the year ended June 30, 2022 and a loss of approximately $6.1 million, or $0.12 per share (basic

and diluted) for the year ended June 30, 2023.

The losses resulted primarily because of increased operating expenses for both periods.

or $0.12 per share (basic and diluted) in the year ended June 30, 2023 (as restated), and a loss of approximately $14.8 million, or $0.27

per share (basic and diluted) for the year ended June 30, 2024.

The losses resulted primarily because of increased operating expenses

for both periods.

We cannot assure you that we will be able to operate profitably in the future.

Existing laws, regulations and policies

and the issuance of new or more stringent laws, regulations, policies and any other restrictions or limitations in relation to the tobacco

and the issuance of new or more stringent laws, regulations, policies and any other restrictions or limitations in relation to the nicotine

vaping industry have and can materially and adversely affect our business operations.

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by local, State, or Federal law to manufacture, possess, or distribute such items.”

No country in Western Europe has yet legalized

recreational cannabis, but the region has some of the most developed cannabis cultures in the world, such as in the Netherlands and Spain.

However, great differences persist among consumers, with older generations typically being more reluctant to allow cannabis use.

generational and social gaps still exist that make legalization and development of the market a slow process, although the potential legalization

of adult-use cannabis in Germany is likely to accelerate the cannabis debate within the EU and promote the development of the industry

at a regional level.

Our ability to expand our marketing of cannabis products in the European market is dependent upon whether recreational

cannabis will become legal in Western Europe, and we cannot give any assurance that we will be able to sell products in Western Europe.

These restrictions on the sale and use of cannabis could impair our ability to market and sell our products.

On April 1, 2024, Germany legalized recreational

cannabis use and is likely to accelerate the cannabis debate within the EU and promote the development of the industry at a regional level.

However, no other countries in Western Europe have legalized recreational cannabis, but the region has some of the most developed cannabis

cultures in the world, such as in the Netherlands and Spain.

However, great differences persist among consumers, with older generations

typically being more reluctant to allow cannabis use.

Our ability to expand our marketing of cannabis products in the European market

is dependent upon whether recreational cannabis will become legal in other Western European countries, and we cannot give any assurance

that we will be able to sell products in Western Europe.

These restrictions on the sale and use of cannabis could impair our ability to

market and sell our products.

Department of Health and Human Services

(“HHS”) recently made a recommendation to the US Drug Enforcement Agency (“DEA”) to reschedule cannabis as a Schedule

If the DEA accepts HHS’s recommendation and reschedules cannabis, there may be new regulatory compliance obligations placed

upon cannabis operators in the U.S..

Under the FD&C Act, Schedule 3 drugs must be dispensed with a prescription and the safety and

efficacy of such products would be governed by FDA regulation under the FD&C Act.

It is unclear how this would impact state-legal

cannabis programs (both medical and adult use), if at all.

If there are significant new regulatory barriers for the U.S.

adult use cannabis

industry, such increased regulation may negatively impact the sale of our cannabis vaporizer products in the U.S.

The DEA is currently going through a public comment period on the potential rescheduling.

If the DEA accepts HHS’s recommendation

and reschedules cannabis, there may be new regulatory compliance obligations placed upon cannabis operators in the U.S.

Under the FD&C

Act, Schedule 3 drugs must be dispensed with a prescription and the safety and efficacy of such products would be governed by FDA regulation

under the FD&C Act.

It is unclear how this would impact state-legal cannabis programs (both medical and adult use), if at all.

there are significant new regulatory barriers for the U.S.

adult use cannabis industry, such increased regulation may negatively impact

the sale of our cannabis vaporizer products in the U.S.

While we believe that our business and sales

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Because Tuanfang Liu, our co-chief executive

officer, who is also director, and his wife, Jiangyan Zhu, who is also a director, beneficially own 65.2% of our common stock and Mr.

Liu owns 95% of the equity of our sole supplier, Mr.

officer, who is also director, and his wife, Jiangyan Zhu, who is also a director, beneficially own 63.1% of our Common Stock as of September

24, 2024 and Mr.

Liu owns 95% of the equity of our majority supplier, Mr.

Liu has a conflict of interest.

Because our co-chief executive officer, Tuanfang Liu,

and his wife own 65.2%, of our common stock, they have the power to elect all of our directors and to approve any matter which is subject

to stockholder approval.

Liu also own 95% of the equity in Shenzhen Yi Jia, which is currently our sole supplier.

Liu is chairman

of Shenzhen Yi Jia and his wife, Jiangyan Zhu, is its vice president of finance.

The price and other terms at which Shenzhen Yi Jia sells

product to us have been largely determined by Mr.

Because our co-chief executive officer, Tuanfang Liu, and his wife

own 63.1%, of our Common Stock as of September 24, 2024, they have the power to elect all of our directors and to approve any matter which

is subject to stockholder approval.

Liu also own 95% of the equity in Shenzhen Yi Jia, which is currently our major supplier.

Liu is chairman of Shenzhen Yi Jia and his wife, Jiangyan Zhu, is its vice president of finance.

The price and other terms at which Shenzhen

Yi Jia sells product to us have been largely determined by Mr.

In addition, as our co-chief executive officer, Mr.

Liu has significant authority

in the implementation of our business plan, including the expected commencement of our manufacturing operations in California and the

proposed search for a location for additional manufacturing operations in Southeast Asia.

He has also historically been responsible for

our product development and our present products have been the result of his research and development efforts.

Liu’s interests

may be different from our interests.

Liu has significant

authority in the implementation of our business plan, including the expected commencement of our manufacturing operations in California

and the opening of additional manufacturing operations in Malaysia.

He has also historically been responsible for our product development

and our present products have been the result of his research and development efforts.

Liu’s interests may be different from

our interests.

Because of Mr.

Liu’s conflict of interest, there is a risk that any actions he may take may

have an adverse effect upon the success and development of our business and the price of our common stock.

Liu’s conflict of interest, there is a risk that any actions he may take may have an adverse effect

upon the success and development of our business and the price of our Common Stock.

As a result of the voting power of Mr.

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Liu taking actions that are in our best interests, and we run the risk that he may not do so.

The recent implementation of regulations

relating to e-cigarettes has resulted in our decision not to market nicotine products in the United States.

The recent implementation of regulations relating to e-cigarettes

has resulted in our decision not to market nicotine products in the United States until we secure PMTA approvals on our ENDS devices.

The FDA has authority to regulate e-liquids, e-cigarettes,

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market on August 8, 2016) could be obtained via any of the following three authorization pathways:

submission of a premarket tobacco product application (“PMTA”) and receipt of a marketing authorization order;

(2) submission

of a substantial equivalence report and receipt of a substantial equivalence order;

or (3) submission of a request for an exemption from

substantial equivalence requirements and receipt of a substantial equivalence exemption determination.

submission of a PMTA and receipt of a marketing authorization order;

(2) submission of a substantial equivalence report and receipt of

a substantial equivalence order;

or (3) submission of a request for an exemption from substantial equivalence requirements and receipt

of a substantial equivalence exemption determination.

Since there were few, if any, e-liquid, e-cigarette,

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September 9, 2021.

The PMTA application process is very expensive, and we did not submit a PMTA for any other product.

The Nautilus Prime

System is an enhancement of an earlier developed Nautilus line, for which we did not submit a PMTA.

Our tobacco vaping sales in the United

States were $0.9 million for the year ended June 30, 2022 and approximately $0.9 million for the year ended June 30, 2023, largely as

a result of our inability to sell products that we sold in prior years.

We cannot assure you that our pending PMTA (or any other PMTA

filed in the future) will ultimately result in the FDA’s timely issuance of marketing orders for the Nautilus Prime product line

(or other products).

See “Regulations.” We have stopped marketing tobacco vapor products in the United States because our

sales volume in the United States did not justify the marketing and regulatory compliance costs.

Further, although we are not marketing tobacco

vapor products in the United States market, and we can contractually prohibit our distributors from selling our tobacco vaping products

On September 6, 2024, we filed a PMTA for a disposable

ENDS device with a variety of characterizing flavors.

We believe that, when equipped with our IKE Tech LLC Joint Venture age-gating technology,

there is a path to getting an approval for these products, as they will have strong technological barriers to prevent youth usage.

FDA has repeatedly indicated that the only way it will approve characterizing flavors in ENDS devices is if they are equipped with technology

to prevent youth usage.

We believe the technology we have access to will be desirable to the FDA and IKE Tech LLC has a meeting with the

FDA on November 13, 2024, to discuss this technology.

Further, although we are not marketing e-cigarette

products in the United States market, and we can contractually prohibit our distributors from selling our e-cigarette vaping products

in the United States market, in the event that those products are sold in the United States market, we cannot assure you that we will

not be subject to regulatory or enforcement action as a result of such products’ being sold in the United States.

We may also face

regulatory or enforcement action from the FDA for certain of our products that remained distributed in the United States between September

9, 2020, and April 30, 2021, and for which we did not file a PMTA by the September 9, 2020, deadline.

While we have taken steps intended

to ensure that no such distribution occurs, we cannot assure you that, should the FDA prioritize these violations for regulatory action,

the FDA will follow its standard of approach of issuing a public warning letter and seeking voluntary corrective action rather than initiating

an enforcement action under its various Food, Drug, and Cosmetic Act authorities.

Such a result could materially and adversely affect

our business, financial condition, and results of operations.

Though it is highly

unlikely, we may also face regulatory or enforcement action from the FDA for certain of our products that remained distributed in the

United States between September 9, 2020, and April 30, 2021, and for which we did not file a PMTA by the September 9, 2020, deadline.

While we have taken steps intended to ensure that no such distribution occurs, we cannot assure you that, should the FDA prioritize these

violations for regulatory action, the FDA will follow its standard of approach of issuing a public warning letter and seeking voluntary

corrective action rather than initiating an enforcement action under its various Food, Drug, and Cosmetic Act authorities.

Such a result

could materially and adversely affect our business, financial condition, and results of operations.

On March 17, 2021, the FDA issued letters to four

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We are exposed to risks relating to our

relationship with a related party, and we may not be able to successfully establish and operate manufacturing operations.

All of our products are presently manufactured

relationship with a related party, and we may not be able to successfully operate manufacturing operations.

The majority of our products are presently manufactured

by Shenzhen Yi Jia, a related party.

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There is a risk in relying on any third-party supplier in that we are dependent

on the supplier’s ability to product a product which meets our quality standards and delivery requirements as well as being dependent

on the supplier’s ability to produce a product which meets our quality standards and delivery requirements as well as being dependent

upon the supplier’s priorities.

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in shipment and chip shortage had a negative impact on the results of our operation.

In the year ended June 30, 2022, we suffered a loss

of potential sales orders of approximately $2 million, around 2.3% of our total sales, which caused a decline of $0.3 million in our gross

profit, resulting from delay in supply chain.

Although we are not presently experiencing delays in our orders for Shenzhen Yi Jia, we

cannot assure you that we will not suffer delays or shortages in the future.

We cannot assure you that we will not suffer from a chip

shortage affecting Shenzhen Yi Jia or any other supplier.

Although we are not presently experiencing delays

in our orders for Shenzhen Yi Jia, we cannot assure you that we will not suffer delays or shortages in the future.

We cannot assure you

that we will not suffer from a chip shortage affecting Shenzhen Yi Jia or any other supplier.

If it is determined or perceived that the

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vaping products from illicit sources were linked to most cases of severe respiratory illnesses.

Furthermore, there have been recent claims

that users of vaping products may suffer a greater risk of more serious COVID-19 complications.

However, it remained unclear whether the

exposure to toxic chemicals through vaping product usage will increase the risk of COVID-19.

Research regarding the actual causes of these

illnesses is still ongoing.

If vaping product usage is determined or perceived to pose long-term health risks or to be linked to illnesses,

the usage of vaping products may significantly decline, which would have a material adverse effect on our business, financial condition

and results of operations.

If vaping product usage is determined or perceived

to pose long-term health risks or to be linked to illnesses, the usage of vaping products may significantly decline, which would have

a material adverse effect on our business, financial condition and results of operations.

Any perceived correlation between cannabis and

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We do not include cannabis oil in our products.

The cannabis oil is provided by our customer before selling the product or a cartridge with oil is inserted in the product by the customer

or the end user.

The cannabis oil is

provided by our customer before selling the product or a cartridge with oil is inserted in the product by the customer or the end user.

Unlike nicotine oil, cannabis oil is not of a uniform quality or viscosity.

If the end user uses cannabis oil that is

too viscous for or product and does not have the desired experience from the product, our client may reject an order, cancel an order

or seek a refund of the payment made to us and/or discontinue purchasing our products.

These refunds and the cost of cancellation of orders

are reflected as sales return, the amount for both the years ended June 30, 2022 and 2023 was not material.

We cannot assure you that

we will not incur significant warranty expenses and lose business as a result cannabis oil not providing the end user’s desired

experience or that we will not lose significant business as a result of this problem.

If the end user uses cannabis oil that is too viscous for

our product and does not have the desired experience from the product, our client may reject an order, cancel an order or seek a refund

of the payment made to us and/or discontinue purchasing our products.

These refunds and the cost of cancellation of orders are reflected

as sales return, The amount of sales return for the years ended June 30, 2023 and 2024 was $1,932,280 and $4,764,434.

We cannot assure

you that we will not incur significant warranty expenses and lose business as a result cannabis oil not providing the end user’s

desired experience or that we will not lose significant business as a result of this problem.

The vaping market may develop more slowly

or differently than we expect.

The tobacco vaping market worldwide has experienced

The e-cigarette vaping market worldwide has experienced

rapid growth through 2019 and the cannabis market is developing, with the United States accounting for the overwhelming majority of sales.

The growth rate for tobacco vapor products decreased in 2021 and 2022,

in part, we believe, because of the steps taken by governments worldwide to address the COVID-19 pandemic, which negatively affected our

revenue and industry sales in general.

The growth of cannabis vaping products is largely confined to those states in the United States

where recreational cannabis is legal.

The growth rate may decrease or decline due to uncertainties with respect to the acceptance of vaping

technologies and products, health studies relating to vaping product use, general economic conditions, disposable income growth, and pace

of development of technologies and other factors.

There can be no assurance that the penetration of vaping products among adult smokers

will further deepen, or t hat the tobacco and cannabis vaping market will grow at a pace that

Additionally, vapor market development is subject to the uncertainty of overall regulatory landscape for such products, which

may have a material impact on the market development of vaping products, particularly in Western Europe.

There can be no assurance that

the regulatory regime will be favorable to nicotine or cannabis vaping products in general and us.

It is also uncertain whether our products

and services will achieve and sustain high levels of market acceptance and meet users’ expectations.

Our ability to increase the

sales of our vaping products depends on several factors, some of which may be beyond our control, including users’ receptiveness

towards and adoption of vaping technologies and products, market awareness of our brand, the market acceptance of our products and services,

the “word-of-mouth” effects of our products and services, our ability to attract, retain and effectively train customer representatives,

our ability to develop effective relationships with distributors and expand our distribution networks and the cost, performance and functionality

of our products and services and meeting consumer trends.

The market for nicotine products has recently seen a change in consumer preference

as closed systems are overtaking open systems in market share.

If we are not successful in implementing our business strategies, developing

our vaping products, anticipating consumer trends or reaching adult smokers, or if these users do not accept our vaping products, the

market for our products may not develop or may develop more slowly than we expect, any of which could materially and adversely affect

our profitability and growth prospects.

The growth rate for e-cigarette products decreased in 2021 and 2022, in part, we believe, because of the steps taken by governments worldwide

to address the COVID-19 pandemic, which negatively affected our revenue and industry sales in general.

The growth of cannabis vaping products

is largely confined to those states in the United States where recreational cannabis is legal.

The growth rate may decrease or decline

due to uncertainties with respect to the acceptance of vaping technologies and products, health studies relating to vaping product use,

general economic conditions, disposable income growth, and pace of development of technologies and other factors.

There can be no assurance

that the penetration of vaping products among adult smokers will further deepen, or t hat

the tobacco and cannabis vaping market will grow at a pace that we expect.

Additionally, vapor market development is subject to the uncertainty

of overall regulatory landscape for such products, which may have a material impact on the market development of vaping products, particularly

in Western Europe.

There can be no assurance that the regulatory regime will be favorable to us or nicotine or cannabis vaping products

It is also uncertain whether our products and services will achieve and sustain high levels of market acceptance and meet

users’ expectations.

Our ability to increase the sales of our vaping products depends on several factors, some of which may be beyond

our control, including users’ receptiveness towards and adoption of vaping technologies and products, market awareness of our brand,

the market acceptance of our products and services, the “word-of-mouth” effects of our products and services, our ability

to attract, retain and effectively train customer representatives, our ability to develop effective relationships with distributors and

expand our distribution networks and the cost, performance and functionality of our products and services and meeting consumer trends.

The market for nicotine products has recently seen a change in consumer preference as closed systems are overtaking open systems in market

If we are not successful in implementing our business strategies, developing our vaping products, anticipating consumer trends

or reaching adult smokers, or if these users do not accept our vaping products, the market for our products may not develop or may develop

more slowly than we expect, any of which could materially and adversely affect our profitability and growth prospects.

We are exposed to product liability and

user complaints arising from the products we sell, which could have a material adverse impact on us.

Currently, we primarily sell our tobacco products

Currently, we primarily sell our e-cigarette products

to our distributors, who then supply our products to wholesale companies that in turn sell to retail outlets, and we sell our cannabis

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would be adversely affected.

At present, our products are manufactured by Shenzhen

Yi Jia, a Chinese company of which Tuanfang Liu, our co-chief executive officer is a 95% owner.

In the event of any claim of product liability

resulting from a product manufactured by Shenzhen Yi Jia, any legal action would most likely be brought against us since the plaintiff

may not be willing or able to commence an action against Shenzhen Yi Jia in China.

Our co-chief executive officer has a conflict of interest

in determining the extent to which Shenzhen Yi Jia would accept responsibility for any product liability claim relating to a product manufactured

by Shenzhen Yi Jia or for making changes in the manufacturing process to address the substance of any claim, whether or not such claim

To the extent that that we have product liability insurance, the insurer may seek to recover any amount paid from Shenzhen Yi

Jia for products manufactured by Shenzhen Yi Jia.

At present, a majority of our products are manufactured

by Shenzhen Yi Jia, a Chinese company of which Tuanfang Liu, our co-chief executive officer is a 95% owner.

In the event of any claim

of product liability resulting from a product manufactured by Shenzhen Yi Jia, any legal action would most likely be brought against us

since the plaintiff may not be willing or able to commence an action against Shenzhen Yi Jia in China.

Our co-chief executive officer

has a conflict of interest in determining the extent to which Shenzhen Yi Jia would accept responsibility for any product liability claim

relating to a product manufactured by Shenzhen Yi Jia or for making changes in the manufacturing process to address the substance of any

claim, whether or not such claim is valid.

To the extent that that we have product liability insurance, the insurer may seek to recover

any amount paid from Shenzhen Yi Jia for products manufactured by Shenzhen Yi Jia.

Further, although we may have legal recourse against

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and prospects.

To optimize adult smokers’ experience, we

To optimize adult vapers’ experience, we

must introduce new products and upgrade our existing products to meet our users’ evolving preferences and to incorporate the latest

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Our business could be adversely affected by the

effects of communicable diseases, pandemics and epidemics, such a COVID-19.

On January 30, 2020, the World Health Organization (“WHO”)

declared the outbreak a public health event of international concern, and on March 11, 2020, the WHO declared the COVID-19 outbreak a

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.

these declarations, the lasting impacts of COVID-19 on the United States and broader global economy, including, in particular, China,

including supply chain disruption, may have a significant continuing negative effect on the Company and may continue to materially impact

The extent to which COVID-19 impacts our operations

on an ongoing basis is highly uncertain.

Since our products are presently manufactured in China by a related party, any changes in the

outbreak in China and any changes in the Chinese government’s policy may affect our supplier’s operations which could affect

its ability to manufacture and deliver product in a timely manner.

effects of communicable diseases, pandemics and epidemics, such as COVID-19.

We are also vulnerable to natural disasters and

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our business, financial condition and results of operations.

Our business may be impacted by supply chain

issues, which are affecting businesses worldwide.

One of effects of the COVID-19 were delays resulting

from supply chain issues, which relate to the difficulty that companies have in having their products manufactured, shipped to the country

of destination, and delivered from the port of entry to the customer’s location.

To the extent that products are shipped by sea,

there are additional risks resulting from ports not being able to unload ships promptly, causing delays in getting into port, including

potential damage from seawater and fire, product degradation and the possibility of containers being destroyed, damaged or falling off

the ship into the water.

The inability to delivery products to the ultimate vendor impaired our ability to generate revenue from our products.

As the port delays have significantly decreased, we do not believe that the supply chain issues that affected our operations are currently

affecting us.

We cannot assure you that such delays will not affect our business in the future.

In 2021, our supplier, Shenzhen Yi Jia, suffered

a chip shortage resulting in a slowdown in the delivery of its products to us from April to August 2021.

Since September 2021, Shenzhen

Yi Jia has been able to meet our requirements and a chip shortage no longer affect its production.

However, we cannot assure you that

Shenzhen Yi Jia and, if and when we commence manufacturing operations, any other supplier we may engage, will not suffer from a chip shortage

in the future.

The delay in shipment and chip shortage had a

negative impact on our results of operation.

In 2022, there was a loss of potential sales orders of approximately $2 million, around 2.3%

of our total sales, which caused a decline of $0.3 million in our gross profit, resulting from delay in supply chain.

We believe delays

in supply chain may continue in the coming year, which may affect around 3% of our total sales orders.

Since our manufacturing operations

will initially be assembly, we may continue to face supply chain issues with respect to components and delivery delays with respect to

one or a small number of components may affect our ability to assemble our products.

Failure to manage inventory at optimal levels

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portion of our sales.

Although we have more than 150 distributors, our

largest distributor, who is a non-exclusive distributor for the United Kingdom and France, accounted for approximately 38.6% and 32.4%

of our revenue for the years ended June 30, 2022 and 2023, respectively.

On January 1, 2021, we signed a distributorship agreement with

this distributor in our standard form, which does not provide any special terms or prices.

No other customer accounted for 10% or

more of our revenue during either year or nine-month period.

The loss of this distributor could have a material adverse effect upon our

Although we have more than 150 distributors, our largest distributor,

who is a non-exclusive distributor for the United Kingdom and France, accounted for approximately 32.4% and 30.0% of our revenue for the

years ended June 30, 2023 and 2024, respectively.

On January 1, 2021, we signed a distributorship agreement with this distributor in our

standard form, which does not provide any special terms or prices.

No other customer accounted for 10% or more of our revenue during

The loss of this distributor or a significant reduction in our sales to this distributor could have a material adverse effect

upon our business.

See “Business – Sales and Distribution.”

Our business may be affected by inflation.

Although inflation has not materially affected

our business or the results of our operations through the years ended June 30, 2022 and 2023, in view of the global inflationary trends,

we may incur increased costs of manufacture and delivery which we may not be able to pass on to our customers as a result of competitive

pressure which would impact the results of our operations.

Economic factors beyond our control, and changes in the global

economic environment, including fluctuations in inflation and currency exchange rates, could result in lower revenues, higher costs and

decreased margins and earnings

A majority of our products are manufactured and

sold outside of the United States which creates exposure to the volatility of global economic conditions, including fluctuations in inflation

and foreign currency exchange rates.

Central banks deploy various strategies to combat inflation, including increasing interest rates,

which impact our borrowing costs.

Government shutdowns or the risk of government shutdowns, as well as the impact or expected impact of

elections, both in the United States and in other countries around the world, may also increase volatility.

Additionally, there has been,

and may continue to be, volatility in currency exchange rates that impact the U.S.

Dollar value relative to other international currencies.

Our international revenues and expenses generally are derived from sales and operations in foreign countries, and these revenues and expenses

are affected by currency fluctuations.

Currency exchange rate fluctuations could also disrupt the business of the independent

manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance.

currency fluctuations have adversely affected and could continue to have an adverse effect on our results of operations and financial

We face competition from companies in the

vaping industry as well as other sources of nicotine and cannabis, and we may fail to compete effectively.

Vaping products for both tobacco and cannabis

Vaping products for both nicotine and cannabis

compete with tobacco and marijuana cigarettes and a wide range of other tobacco and legal and illegal cannabis products.

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Most of our revenue is derived from sales to distributors

for our tobacco products and other cannabis brands for our cannabis products, and we do not sell online.

As a result, in the normal course

of business we do not collect, store and process personal, transactional, statistical and behavioral data, including certain personal

for our e-cigarette products and other cannabis brands for our cannabis products, and we do not sell online.

As a result, in the normal

course of business we do not collect, store and process personal, transactional, statistical and behavioral data, including certain personal

and other sensitive data from our users.

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court in a Chinese court.

As the patents we own or are licensed may

expire and may not be extended, our patent applications may not be granted and our patent rights may be contested, circumvented, invalidated

or limited in scope, our patent rights and license may not protect us.

As of the date of this annual report, our operating

subsidiaries own or license more than 200 patents relating to various aspects of our operations.

The rights granted under any issued patents,

however, may not provide us with proprietary protection or competitive advantages.

The claims under any patents that issue may not be

broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours.

It is also possible

that the intellectual property rights of others will bar us from licensing.

Numerous patents owned by others exist in the fields in which

we have developed and are developing our technology.

These patents and patent applications might have priority over our patent applications

filed by our transferor or licensor and we or our licensor may not be able to enforce these rights.

Finally, in addition to those who

may claim priority, any of our existing patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.

failure in extending our existing patents, or if our patent rights were to be contested, circumvented, invalidated or limited in scope

could materially and adversely affect our business, financial condition and results of operations.

As the patents we own or are licensed to

us may expire and may not be extended, our patent applications may not be granted and our patent rights may be contested, circumvented,

invalidated or limited in scope, our patent rights and license may not protect us.

As of the date of this Annual Report, our

operating subsidiaries own or license more than 200 patents relating to various aspects of our operations.

The rights granted under any

issued patents, however, may not provide us with proprietary protection or competitive advantages.

The claims under any patents that

issue may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours.

It is also possible that the intellectual property rights of others will bar us from licensing.

Numerous patents owned by others exist

in the fields in which we have developed and are developing our technology.

These patents and patent applications might have priority

over our patent applications filed by our transferor or licensor and we or our licensor may not be able to enforce these rights.

in addition to those who may claim priority, any of our existing patents may also be challenged by others on the basis that they are

otherwise invalid or unenforceable.

Any failure in extending our existing patents, or if our patent rights were to be contested,

circumvented, invalidated or limited in scope could materially and adversely affect our business, financial condition and results of

If we are unable to manage our growth or

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research and development personnel in a timely manner, or at all.

If we are able to identify a location in Southeast Asia where we can

establish manufacturing facilities, we would need to hire key personnel who have experience and operating manufacturing operations in

Southeast Asia, and become familiar with all legal requirements affecting our business since each country in the region has its own legal

requirements and business customs and our failure to comply with any such legal requirements and to operate in accordance with local practice

could materially impair our business and the results of our operations.

Competition for highly skilled employees

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could adversely affect economic conditions, as well as our business, financial condition and operating results.

Our need to restate our unaudited financial statements

reflects a material weakness in our internal controls over financial reporting .

Our need to restate our unaudited financial

statements reflected a material weakness in our internal controls over financial reporting .

During the preparation of our financial statements

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Similar changes affected our financial statements at December 31, 2022 and for the six months ended December

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that

there is a reasonable possibility that a material misstatement of the issuing company’s annual or interim financial statements will

not be prevented or detected on a timely basis.

Our need to restate our unaudited financial statements at December 31, 2022 and for the

six months ended December 31, 2022 and at March 31, 2023 and for the nine months ended March 31, 2023 reflects a material weakness.

are taking steps to address this material weakness.

The unaudited financial statements for the six months ended December 31, 2021 were

included in our final prospectus dated April 3, 2023 relating to our initial public offering.

We cannot assure you that a claim will not

be made against us as a result of our failure to accurately reflect in accordance with GAAP the value of the intangible assets acquired

from a controlling stockholder and the resulting restatement of our financial statements.

As a result of our restatement of our

unaudited financial statements as described in the preceding risk factor, our internal controls over financial reporting are not

effective, which could have a significant and adverse effect on our business and reputation.

During the preparation of our financial statements for the year ended

June 30, 2024, we determined that we needed to restate our audited financial statements for the year ended June 30, 2023, as well as our

unaudited financial statements as of and for the periods ended September 30, 2023, December 31, 2023, March 31, 2024.

The restatement

was to correct identified errors related to (i) the incorrect statement of cash flows presentation for right-of-use assets and lease liabilities

(and related activity), (ii) the omitted disclosure of supplement non-cash activities related to the acquisition of right-of-use assets

in exchange for operating lease liabilities, (iii) the incorrect statement of operations presentation of shipping and handling costs as

sales and marketing expenses and not cost of revenue, and (iv) the incorrect calculation of right-of-use assets and lease liabilities

at inception for the Company’s operating leases, as well as the incorrect recognition of rent expense.

As a result of the restatement,

and as of June 30, 2023, the Company’s total assets decreased from $90,693,349 to $90,395,744, total liabilities decreased from

$59,318,416 to $58,925,834 and stockholders’ equity increased from $31,374,933 to $31,469,910.

For the year ended June 30, 2023,

cost of revenue increased from $94,529,769 to $94,828,472, gross profit decreased from $21,075,767 to $20,777,064, total operating expenses

decreased from $25,644,901 to $25,251,221, loss before income taxes decreased from $4,853,300 to $4,758,323, and net loss decreased from

$6,098,603 to $6,003,626.

For the year ended June 30, 2023, net cash used in operating activities increased from $7,581,759 to $8,455,798,

net cash used in financing activities decreased from $16,443,844 to $15,569,805 and from a non-cash supplement disclosure standpoint,

leased assets obtained in exchange for operating lease liabilities was recognized as $4,988,032.

Similar changes affected our unaudited

financial statements for the periods noted above.

A material weakness is a deficiency, or a combination of deficiencies,

in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the issuing

company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our need to restate our financial

statements for the periods noted above reflects certain material weaknesses in our internal control over financial reporting.

We are taking

steps to address these material weaknesses.

The unaudited financial statements for the six months ended December 31, 2021, were included

in our final prospectus dated April 3, 2023, relating to our initial public offering.

We cannot assure you that a claim will not be made

against us as a result of our failure to accurately reflect in accordance with GAAP the value of the intangible assets acquired from a

controlling stockholder and the resulting restatement of our financial statements.

As a result of our restatement of our unaudited

financial statements as described in the preceding risk factor, our internal controls over financial reporting were not effective,

which could have a significant and adverse effect on our business and reputation.

We are subject to the reporting requirements of

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difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things,

that we maintain effective disclosure controls and procedures and internal control over financial reporting.

Based upon our need to restate

our unaudited financial statements for the six months ended December 31, 2022 and the nine months ended March 31, 2023, we have determined

that our disclosure controls and procedures were not effective as of June 30, 2023.

Subsequent to June 30, 2023, we appointed a

new chief financial officer and a vice president of finance and we are implementing new controls in order that we can be confident

that we maintain books are records such that we are able to generate financial statements that are prepared in accordance with GAAP.

Any controls that we develop may become inadequate because of changes in conditions in our business.

Further, weaknesses in our

internal controls may be discovered in the future.

Any failure to develop or maintain effective controls, or any difficulties

encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our

reporting obligations and may result in a restatement of our financial statements for prior periods.

Any failure to implement and

maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual

independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial

reporting that we are required to include in our periodic reports that we will file with the SEC under Section 404 of the

Sarbanes-Oxley Act.

Ineffective disclosure controls and procedures and internal control over financial reporting could also cause

investors to lose confidence in our reported financial and other information.

The Sarbanes-Oxley Act requires, among other things, that we maintain

effective disclosure controls and procedures and internal control over financial reporting.

We need to restate our financial statements

for the year ended 2023 for identified errors related to (i) the incorrect statement of cash flows presentation for right-of-use assets

and lease liabilities (and related activity), (ii) the omitted disclosure of supplement non-cash activities related to the acquisition

of right-of-use assets in exchange for operating lease liabilities, (iii) the incorrect statement of operations presentation of shipping

and handling costs as sales and marketing expenses and not cost of revenue, and (iv) the incorrect calculation of right-of-use assets

and lease liabilities at inception for the Company’s operating leases, as well as the incorrect recognition of rent expense.

restatement adjustments will be required for our financial statements for the quarters ended September 30, 2023, December 31, 2023 and

March 31, 2024.

Based on above, we have determined that our disclosure controls and procedures were not effective as of June 30, 2024.

On May 15, 2024, our previous chief financial

officer completed his service with us and we appointed a new chief financial officer, James Patrick McCormick.

We have implemented new

controls in order that we can be confident that we maintain books are records such that we are able to generate financial statements

that are prepared in accordance with GAAP.

Any controls that we develop may become inadequate because of changes in conditions in our

Further, weaknesses in our internal controls may be discovered in the future.

Any failure to develop or maintain effective

controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause

us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and

annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial

reporting that we are required to include in our periodic reports that we will file with the SEC under Section 404 of the Sarbanes-Oxley

Act when the company is subject to Section 404(b).

Ineffective disclosure controls and procedures and internal control over financial

reporting could also cause investors to lose confidence in our reported financial and other information.

In order to maintain and improve the effectiveness

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not be adversely affected.

In particular, our factory in Malaysia may be at risk to certain natural disasters that could interrupt production

or even cause a catastrophic loss of equipment and inventory.

Further, our logistics and supply chain could be interrupted by hurricane

or typhoon activity in Southeast Asia.

Because we are a “controlled company”

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You may experience difficulties in effecting

service of legal process, enforcing foreign judgments or bringing actions in China against two of our directors, o who are Tuanfang Liu,

our co-chief executive officer and his wife Jiangyan Zhu, who are based in China based on foreign laws.

service of legal process, enforcing foreign judgments or bringing actions in China against two of our directors, Tuanfang Liu, our co-chief

executive officer and chairman, and his wife Jiangyan Zhu, who are both based in China.

Although we are a Delaware corporation, two of

our directors, -- who are Tuanfang Liu, our co-chief executive officer, director and controlling stockholder and his wife, Jiangyan Zhu,

our directors, -- who are Tuanfang Liu, our co-chief executive officer, chairman and controlling stockholder, and his wife, Jiangyan Zhu,

who is also a director – live in mainland China.

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on what basis a PRC court would enforce a judgment rendered by a court in the United States.

Our failure to collect accounts receivable from

our customers may adversely affect the results of our operations.

Our business relies on the collection of accounts receivable from our

customers in a timely manner to maintain liquidity and support our ongoing operations.

We recorded an allowance for doubtful accounts

of approximately $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;

our failure to implement effective collection efforts;

Our failure to collect accounts receivable

from our customers may adversely affect the results of our operations.

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 credit losses of approximately $1.5 million for the year ended June 30, 2023, and approximately

$5.9 million for the year ended June 30, 2024.

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;

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.

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.

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.

Risks Related to Our Common Stock

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requirements of Nasdaq could result in a delisting of our Common Stock.

If we fail to satisfy the continued listing requirements

of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist

our common stock.

Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability

to sell or purchase our common stock when you wish to do so.

In the event of a delisting, we would take actions to restore our compliance

with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock

to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping

below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

If we fail to satisfy the continued listing requirements of Nasdaq,

such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our Common

Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or

purchase our Common Stock when you wish to do so.

In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s

listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again,

stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum

bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

If our shares are delisted from Nasdaq and

become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer

practices in connection with transactions in penny stocks.

Penny stocks are generally equity securities with a price of less than $5.00,

other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems,

provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system.

If we do not obtain or retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed

a penny stock.

The SEC has adopted rules that regulate broker-dealer practices in

connection with transactions in penny stocks.

Penny stocks are generally equity securities with a price of less than $5.00, other than

securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided

that current price and volume information with respect to transactions in such securities is provided by the exchange or system.

do not obtain or retain a listing on Nasdaq and if the price of our Common Stock is less than $5.00, our Common Stock will be deemed a

The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules,

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for our Common Stock, and therefore stockholders may have difficulty selling their shares.

The trading price of our common stock may

be volatile, which could result in substantial losses to investors.

The trading price of our common stock may be volatile

and could fluctuate widely due to factors beyond our control.

The trading price of our Common Stock may be volatile, which

could result in substantial losses to investors.

The trading price of our Common Stock may be volatile and could fluctuate

widely due to factors beyond our control.

This may happen because of broad market and industry factors.

The securities

of some newly public companies have experienced significant volatility since their initial public offerings, including, in some cases,

substantial increase followed by a substantial decline in their trading prices.

The trading performances of other vaping companies’

securities after their offerings may affect the attitudes of investors toward vaping companies listed in the United States, which consequently

may impact the trading performance of our common stock, regardless of our actual operating performance.

In addition, any negative news

or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other

vaping companies may also negatively affect the attitudes of investors towards us.

In addition to the above factors, the price and trading

volume of our common stock may be highly volatile due to multiple factors, including the following:

The securities of some newly public

companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial increase

followed by a substantial decline in their trading prices.

The trading performances of other vaping companies’ securities after

their offerings may affect the attitudes of investors toward vaping companies listed in the United States, which consequently may impact

the trading performance of our Common Stock, regardless of our actual operating performance.

In addition, any negative news or perceptions

about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other vaping companies

may also negatively affect the attitudes of investors towards us.

In addition to the above factors, the price and trading volume of our

Common Stock may be highly volatile due to multiple factors, including the following:

regulatory developments affecting us, our customers, or our industry;

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detrimental negative publicity about us, our management or our industry;

release or expiry of lock-up or other transfer restrictions on our outstanding common stock;

release or expiry of lock-up or

other transfer restrictions on our outstanding Common Stock;

sales or perceived potential sales of additional Common Stock.

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the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.

For so long as we remain an emerging growth company,

we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging

growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section

For so long as we remain an emerging growth company, we may take advantage

of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth

companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404

of the Sarbanes-Oxley Act for up to five fiscal years after the date of this our initial public offering.

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If securities or industry analysts do not

publish research or publish inaccurate or unfavorable research about our business, the market price for our common stock and trading volume

could decline.

publish research or publish inaccurate or unfavorable research about our business, the market price for our Common Stock and trading

volume could decline.

The trading market for our Common Stock depends

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enforce these provisions, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Unresolved Staff Comments

Not Applicable

Cybersecurity

Not Applicable

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors