Item 1A. Risk Factors
Item 1A. Risk Factors
As a “smaller reporting
company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. For our current
risk factors relating to our operations, other than as set forth below, see the section entitled “Risk Factors” contained
in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on September 27, 2024.
Our business may be negatively affected
by global political events and foreign policy responses, including tariffs.
Geopolitical uncertainties and events could cause damage or disruption
to international commerce and the global economy and thus could have a material adverse effect on us, our suppliers, logistics providers,
manufacturing vendors and customers, including our distributors and other channel partners. For example, escalating tensions between the
U.S., China and other countries may result in changes in laws or regulations that will affect our ability to manufacture and sell our
products. On April 2, 2025, the U.S. instituted a tariff of 24% on all goods from Malaysia and a 54% tariff on all goods from China through
an executive order. On April 9, 2025, implementation of the executive order issued on April 2, 2025, was paused for a period of 90 days
with respect to all countries other than China, instead implementing a blanket 10% tariff for all non-China imports to the U.S. As of
May 5, 2025, tariffs on most Chinese-made products entering the U.S. are 145% and may continue to increase, or decrease, over the near
term. We purchase the majority of our nicotine and cannabis vaping products from Shenzhen Yi Jia, a company located in Shenzhen, China,
which constitutes a significant portion of our cost of revenue and could increase our cost of revenue should tariffs continue to rise.
We are currently able to manufacture a wide range of cannabis hardware in Malaysia and import into the U.S. at a comparatively low tariff
rate compared to goods imported from China. However, there is no guarantee that the current tariff on goods imported from Malaysia will
not increase to the previous rate of 24% or higher. Any continuation or increase of tariffs on products imported from Malaysia or China
could materially and adversely affect our business, financial condition, and results of operations.
The
progress and continuation of trade negotiations between the U.S. and China continues to be uncertain and a further escalation of the trade
war remains a possibility. These tariffs have, and will continue to have, an adverse effect on our results of operations and profit margins.
We can provide no assurance regarding the magnitude, scope or duration of the imposed tariffs or the magnitude, scope or duration from
any relief in increases to such tariffs, as well as the potential for additional tariffs or trade barriers by the U.S., China or other
countries, nor that any strategies we may implement to mitigate the impact of such tariffs or other trade actions will be successful.
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