Financial Data and Key Metrics Changes - For the second fiscal quarter of 2026, total revenue was reported at $20.3 million, a decrease from $41.8 million in the same quarter of fiscal 2025, attributed to a strategic shift towards higher-quality nicotine customers [15] - Gross profit for the quarter was $3.5 million, down from $7.7 million in the previous year, with gross margins decreasing to 17.1% from 18.5% [16] - The net loss was reduced to $6.6 million from $8 million year-over-year, indicating improved financial stability [17] - Cash held by the company decreased to $17.6 million from $24.4 million as of June 30, 2025 [18] Business Line Data and Key Metrics Changes - The company has consolidated its customer base to focus on high-quality clients in the nicotine sector, moving away from lower-value cannabis clients [4] - Net accounts receivable improved to $37.9 million from $47 million at the end of fiscal 2025, with cash collected versus revenue for calendar year 2025 at 116%, compared to 67% for 2024 [7][16] Market Data and Key Metrics Changes - The international nicotine sector faced headwinds, particularly with a decline in e-cigarette volume due to pressure from Chinese manufacturers [5] - The U.S. e-cigarette market is largely dominated by illicit products, with estimates suggesting that over 90% of the market is unauthorized [9] Company Strategy and Development Direction - The company is focusing on the higher-value nicotine sector and has pivoted towards Malaysia for production, as e-cigarettes are losing favor in China [4][6] - The company is advancing its age-gating technology through its joint venture with IQTech, which is gaining traction among major tobacco players in the U.S. [9][10] - The G-Mesh technology is being developed to enhance user safety and is attracting interest from medium- and large-sized nicotine companies [13] Management's Comments on Operating Environment and Future Outlook - Management views the second quarter of fiscal 2026 as an inflection point, expecting top-line growth, consistent cash flow, and bottom-line improvement in future quarters [4][19] - The company anticipates continued improvements in financial metrics due to stringent cost management and a focus on quality customers [8][20] Other Important Information - The company has made significant progress in its IQTech joint venture and is working with regulators globally to institute age-gating technology as a standard [11][50] - The Malaysian facility is on track to ramp up production, increasing capacity from 6 to 80 production lines [13] Q&A Session Summary Question: Insights on U.S. retail and flavored products - Management noted strong demand for flavored e-cigarettes among retailers, with expectations that regulatory clarity will lead to increased shelf space allocation [23][24] Question: Details on the Charlie's partnership - The partnership is expected to produce between 2 million and 3 million chips monthly, with a goal of reaching 10 million devices over a year [26][27] Question: Impact of Chinese imports on the market - The surge in Chinese exports was driven by anticipated policy changes, with a VAT tax being imposed on e-cigarette exports starting April 1 [30][31] Question: Ownership and funding of the IKE Tech joint venture - The company is currently providing financial support for the joint venture and anticipates strong interest from investors for future expansion [36][40] Question: Implementation of age-gating technology in other countries - The company is working with regulators in several countries to mandate age-gating technology, with positive reception but no current implementations [48][50]

Financial Data and Key Metrics Changes - Total revenue for fiscal year 2025 declined from $151.9 million to $127.5 million, a decrease of $24.4 million compared to fiscal year 2024 [12][13] - Gross profit decreased to $22.7 million from $29.8 million year-over-year, with gross margins at 17.8%, down from 19.6% [14][15] - Net loss for fiscal 2025 was $39.2 million, compared to $40.8 million in fiscal 2024 [16] Business Line Data and Key Metrics Changes - Revenue from the European market increased by $8.8 million or 13.6% to approximately $74.1 million [14] - North American revenue fell to approximately $32.6 million from $63.1 million, primarily due to the strategic pivot away from cannabis [14] - Revenue from Asia Pacific decreased to approximately $12.3 million from $17.6 million [14] Market Data and Key Metrics Changes - Revenue from other countries increased by $2.6 million to $8.5 million, with the majority of sales coming from South Africa [14] - The company reduced net accounts receivable by over 21% year-over-year, marking the first decline in its history [7] Company Strategy and Development Direction - The company is shifting focus from the cannabis sector to the higher-value nicotine sector, aiming for sustainable long-term growth [4][11] - Investments in manufacturing capabilities in Malaysia are being scaled up, with plans for up to 80 production lines [5][6] - The company is pursuing breakthrough technologies like ICE-TECH and GMASH, which are gaining traction with major tobacco companies [5][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing uncertainty and financial challenges in the cannabis industry, emphasizing a focus on quality over quantity in customer relationships [7][31] - The company is optimistic about its international nicotine ODM business, which is gaining momentum after a slower start [9][10] - Management expressed confidence in the potential of their age verification technology and its regulatory approval process [24][26] Other Important Information - The company undertook significant cost optimization measures, resulting in an estimated annual savings of $10.2 million [8] - The appointment of Jay Yu as the new CFO reflects the company's commitment to strong financial stewardship during its transformation [10] Q&A Session Summary Question: Key milestones for age gating technology approval - Management indicated that the FDA's review of the component PMPA application is expected to be expedited, but the timeline for the next steps is uncertain [23][24] Question: Approval timelines in other markets - Management is optimistic about potential approvals in other countries, with at least two countries moving faster than the U.S. [26] Question: Details on receivables provision - The large provision of $22 million was a cumulative effect across multiple customers, not tied to a single client [34] Question: Future of cannabis revenue - Management believes that Q4 2025 represents the bottom for cannabis revenue, with expectations for new customer acquisition and product development to drive future growth [47][48] Question: Feedback on UK supply agreement - Initial feedback from the UK ODM client has been encouraging, with a backlog of $18 million tied to this customer [39] Question: Tariff landscape and supply chain diversification - The company is seeing increased interest from brands looking to diversify supply chains, which may lead to the consideration of a third facility in Malaysia [42][44]