SEC Info - iPower Inc. - ‘10-Q’ for 3/31/22

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		Alternative Formats (Word, et al.) Controls & Procedures Defaults Upon Senior Securities Exhibits Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Unaudited Condensed Consolidated Financial Statements Other Information Part I. Financial Information Part II. Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Table of Contents Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 202 1 Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 202 1 Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended March 31, 2022 and 202 1 Unaudited Condensed Consolidated Statements of Operations and comprehensive income for the three and nine months ended March 31, 2022 and 202 1 Unregistered Sale of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Part I. Financial Information
"	Unaudited Condensed Consolidated Financial Statements
"	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 202 1
"	Unaudited Condensed Consolidated Statements of Operations and comprehensive income for the three and nine months ended March 31, 2022 and 202 1
"	Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended March 31, 2022 and 202 1
"	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 202 1
"	Notes to Unaudited Condensed Consolidated Financial Statements
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Quantitative and Qualitative Disclosures About Market Risk
"	Controls & Procedures
"	Part II. Other Information
"	Legal Proceedings
"	Risk Factors
"	Unregistered Sale of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Other Information
"	Exhibits
"	Signatures

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(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. i ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ i No ☒

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income

*On November 16, 2020, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Class A Common Stock of the Company. The computation of basic and diluted EPS was retroactively adjusted for all periods presented.

*On October 20, 2020, the Company issued to its Founders 14,000,000 shares of the Company’s Class B Common Stock. The issuance was considered as a nominal issuance, in substance a recapitalization transaction, which was recorded and presented retroactively as outstanding for all reporting periods. The computation of basic and diluted EPS did not include the Class B Common Stock as the holders of Class B Common Stock have no dividend or liquidation right until such time as their shares of Class B Common Stock have been converted into Class A Common Stock.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity

*On November 16, 2020, the Company implemented a 2-for-1 forward split of the issued and outstanding shares of Class A Common Stock of the Company. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein. This Management’s Discussion and Analysis (“MD&A”) contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors.

Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward- looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

iPower Inc. is an online hydroponic, home and garden equipment supplier based in the United States. Through the operations of our e-commerce platform, www.Zenhydro.com, our combined 72,000 square foot fulfillment centers in Los Angeles, California, as well as our 99,000 square foot fulfillment center in Rancho Cucamonga, California, we believe we are one of the leading marketers, distributors and retailers of grow-light systems, ventilation systems, activated carbon filters, nutrients, growing media, hydroponic water-resistant grow tents, trimming machines, pumps, shelving and accessories for hydroponic gardening, based on management’s estimates. We have a diverse customer base that includes commercial users and individuals. Our core strategy continues to focus on expanding our geographic reach across the United States through organic growth, both in terms of expanding customer base as well as brand and product development.

We are actively developing and acquiring our in-house branded products, which to date include the iPower and Simple Deluxe brands and consist of more than 4,000 SKUs of products such as grow-light systems, ventilation systems, activated carbon filters, nutrients, growing media, hydroponic water-resistant grow tents, trimming machines, pumps and many more hydroponic-related items; some of which have been designated as Amazon best seller product leaders, among others. For the quarter ended March 31, 2022, our top five product segments accounted for 63.3% of total sales. While we continue to focus on our top product categories, we are working to expand our product catalog to include new and adjacent categories.

On February 15, 2022, in exchange for total consideration with a fair value of $10.6 million, we acquired 100% of the ordinary shares of Anivia Limited (the “Target Company”), a corporation organized under the laws of the British Virgin Islands (“BVI”), in accordance with the terms of a share transfer framework agreement (the “Transfer Agreement”), dated February 15, 2022, by and between the Company, White Cherry Limited, a BVI company (“White Cherry”), White Cherry’s equity holders, Li Zanyu and Xie Jing (together with White Cherry, the “Sellers”), the Target Company, Fly Elephant Limited, a Hong Kong company, Dayou Renzai (Shenzhen) Technology Company Limited, and Daheshou (Shenzhen) Information Technology Limited. The Target Company owns 100% of the equity of Fly Elephant Limited, which in turn owns 100% of the equity of Dayou Renzai (Shenzhen) Technology Co., Ltd., a corporation located in the People’s Republic of China (“PRC”) and which is a wholly foreign-owned enterprise (“WFOE”) of Fly Elephant Limited. The WFOE controls, through a series of contractual arrangements summarized below, the business, revenues and profits of Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (the “Operating Company”) and located in Shenzhen, China. The Operating Company is principally engaged in selling of a wide range of products and providing logistic services in the PRC.

On February 10, 2022, we entered into a joint venture agreement with Bro Angel, LLC, Ji Shin and Bing Luo (the “GSM Joint Venture Agreement”). Pursuant to the terms of the GSM Joint Venture Agreement, the parties formed a Nevada limited liability company, Global Social Media, LLC (“GSM”), for the principal purpose of providing a social media platform, contents and services to assist businesses, including the Company and other businesses, in the marketing of their products. Following entry into the GSM Joint Venture Agreement, GSM issued 10,000 certificated units of membership interest (the “GSM Equity Units”), of which the Company was issued 6,000 GSM Equity Units and Bro Angel was issued 4,000 GSM Equity Units. Messrs. Shin and Luo are the owners of 100% of the equity of Bro Angel.

Under the terms of the GSM limited liability operating agreement (the “GSM LLC Agreement”), the Company contributed $100,000 to the capital of GSM and Bro Angel granted GSM, pursuant to the terms of an intellectual property licensing agreement, dated February 10, 2022 (the “IP License Agreement”), an exclusive worldwide paid up right and license to use all intellectual property of Bro Angel and its members for the purpose of furthering the proposed business of GSM. The LLC Agreement prohibits the issuance of additional GSM Equity Units and certain other actions unless approved in advance by the Company.

Pursuant to the GSM Joint Venture Agreement, the Company and GSM also intend to enter into an occupancy management agreement pursuant to which the Company will grant to GSM the right to have access to and use of up to approximately 4,000 square feet of office space along with internet access at the Company’s facility located at 2399 Bateman Avenue, Irwindale, CA 91010. It is contemplated that only approximately 300-400 square feet will be initially used by GSM.

On January 13, 2020 we entered into a joint venture agreement with Titanium Plus Autoparts, Inc. (“TPA”), Tony Chiu, and Bin Xiao (the “TPA Joint Venture Agreement”). Pursuant to the terms of the TPA Joint Venture Agreement, the parties formed a Nevada limited liability company, Box Harmony, LLC (“Box Harmony”), for the principal purpose of providing logistic services primarily for foreign-based manufacturers or distributors who desire to sell their products online in the United States with such logistic services to include, without limitation, receiving, storing, and transporting such products. Following entry into the TPA Joint Venture Agreement, Box Harmony issued a total of 6,000 certificated units of membership interest, designated as Class A voting units (“Equity Units”), as follows: (i) we agreed to contribute $50,000 in cash and agreed to provide Box Harmony with the use and access to certain warehouse facilities leased by the Company in exchange for 2,400 Equity Units in Box Harmony, and (ii) TPA received 1,200 Equity Units in exchange for (a) $1,200 and contributing the TPA IP License referred to below, (b) its existing and future customer contracts, and (c) granting Box Harmony the use of shipping accounts (FedEx and UPS) and all other TPA carrier contracts, and (iii) Bin Xiao received 2,400 Equity Units in exchange for $2,400 and his agreement to manage the day to day operations of Box Harmony. We also entered into services agreement with Box Harmony pursuant to which we provide a portion of our fulfillment center infrastructure to Box Harmony in exchange for their payment.

Under the terms of the Box Harmony limited liability operating agreement, TPA and Bin Xiao each granted to us an unconditional and irrevocable right and option to purchase from Bin Xiao and TPA at any time within the first 18 months following January 13, 2022, up to 1,200 Class A voting units, at an exercise price of up to $550 per Class A voting unit, for a total exercise price of up to $660,000. If such option is fully exercised, we would own 3,600 Equity Units or 60% of the total outstanding Equity Units. The Box Harmony LLC Agreement prohibits the issuance of additional Equity Units and certain other actions unless approved in advance by us.

We plan to increase investments in product and brand development. We actively evaluate potential acquisition opportunities of companies and product brand names that can complement our product catalog and improve on existing products and supply chain efficiencies.

While at present the majority of our products are sourced either in the United States or China, the military conflict between Russia and Ukraine may nonetheless increase the likelihood of supply chain interruptions and hinder our ability to find the materials we need to make our products. In addition, supply chain disruptions may make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products.

We are continuing to closely monitor the impact of the ongoing COVID-19 outbreak on our business, results of operations and financial results. The situation surrounding the COVID-19 outbreak remains fluid and the full extent of the positive or negative impact of the COVID-19 outbreak on our business will depend on certain developments including the length of time that the outbreak continues, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, and stockholders, all of which are uncertain and cannot be predicted. Our focus remains on promoting the health, safety and financial security of our employees and serving our customers. As a result, we have taken a number of precautionary measures, including implementing social distancing and enhanced cleaning measures in our facilities, suspending all non-essential travel, transitioning certain of our employees to working-from-home arrangements, reimbursing certain employee technology purchases, providing emergency paid time off and targeted hourly pay increases and developing no contact delivery methods.

In an effort to contain or slow the COVID-19 outbreak, authorities across the world have implemented various measures, some of which have been subsequently rescinded or modified, including travel bans, stay-at-home orders and shutdowns of certain businesses. We anticipate that these actions and the global health crisis caused by the COVID-19 outbreak, including any resurgences, will continue to negatively impact global economic activity. While the COVID-19 outbreak has not had a material adverse impact on our operations to date and we believe the long-term opportunity that we see for shopping online remains unchanged, it is difficult to predict all of the positive or negative impacts the COVID-19 outbreak will have on our business.

In the short term, we have continued to see increased sales and order activity in the market since the COVID-19 outbreak. In order to keep up with the increased orders, we have hired and are continuing to hire additional personnel. However, much is unknown and, accordingly, the situation remains dynamic and subject to rapid and possibly material change. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, stockholders and communities.

We sell hydroponic gardening products to end users that may use such products in new and emerging industries or segments, including the growing of cannabis. The demand for hydroponic gardening products depends on the uncertain growth of these industries or segments due to varying, inconsistent and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions. For example, certain countries and a total of 44 U.S. states plus the District of Columbia have adopted frameworks that authorize, regulate and tax the cultivation, processing, sale and use of cannabis for medicinal and/or non-medicinal use, including legalization of hemp and CBD, while the U.S. Controlled Substances Act and the laws of U.S. states prohibit growing cannabis. Demand for our products could be impacted by changes in the regulatory environment with respect to such industries and segments.

The following table presents certain unaudited condensed consolidated and combined statement of operations information and presentation of that data as a percentage of change from period to period.

Revenues for the three months ended March 31, 2022 increased 73.7% to $22,808,214 as compared to $13,133,902 for the three months ended March 31, 2021. While pricing remained stable, the increased revenue mainly resulted from an increase in sales volume and expansion of sales to other regions, such as Canada, Europe and Asia. In addition to our organic growth, which we achieved as a result of improved products and more effective online marketing and merchandising efforts, the increase in sales was positively impacted by people continuing to shop online and pursuing gardening and growing projects during the COVID-19 pandemic. However, while the revenues for the current quarter improved from last quarter, we cannot assure that this trend will continue, and our business may be adversely affected by poor overall economic conditions and shipping delays caused by the ongoing COVID-19 pandemic, particularly in China.

Costs of goods sold for the three months ended March 31, 2022 increased 84.5% to $13,598,563 as compared to $7,369,127 for the three months ended March 31, 2021. The increase was due to an increase in sales, as discussed above. However, we experienced an increase in cost of goods sold as a percentage of revenue as a result of an increase in import duty and freight charges. See discussions on gross profit below.

Gross profit was $9,209,651 for the three months ended March 31, 2022 as compared to $5,764,775 for the three months ended March 31, 2021. The gross profit ratio decreased to 40.4% for the three months ended March 31, 2022 from 43.9% for the three months ended March 31, 2021. The decrease was mainly due to a combination of an increase in sales, as discussed above, and an increase of cost of goods sold resulting from increasing import duties and freight charges.

Selling, fulfillment, and general and administrative expenses for the three months ended March 31, 2022 increased 57.4% to $7,832,662 as compared to $4,976,041 for the three months ended March 31, 2021. The increase was mainly due to an increase in selling and fulfillment expenses of $1.9 million and general and administrative expenses of $0.9 million, which included payroll expenses, stock-based compensation expense, legal and professional fees in connection with the acquisition and joint ventures, insurance expenses and other operating expenses including expenses associated with being a publicly traded company.

Income from operations was $1,376,989 for the three months ended March 31, 2022 as compared to $788,734 for the three ended March 31, 2021. The income from operations ratio was 6.0% for the three months ended March 31, 2022, which was consistent with the 6.0% for the three months ended March 31, 2021. The result was due to a combination of an increase in sales and selling, fulfillment, general and administrative expenses as discussed above.

Other expenses for the three months ended March 31, 2022 was ($159,447) as compared to ($757,744) for the three months ended March 31, 2021. The decrease in other expenses was a combined result of a decrease in other income of $175,500, an increase in interest, including amortization of debt discount on the revolving loan, and financing expenses of $102,230 during the period ended March 31, 2022, an increase in loss on investment of $12,289, and a decrease of other non-operating expenses of $888,316 due to expenses resulting from issuance of our Series A Convertible Preferred Stock, convertible notes and warrants during the period ended March 31, 2021.

Net income (loss) attributable to iPower Inc. for the three months ended March 31, 2022 was $1,181,757 as compared to net loss of $(206,823) for the three months ended March 31, 2021, representing an increase of $1,388,580. The increase in net income as percentage of revenues for the three months ended March 31, 2022 was primarily due to a combination of the increase in operating income and a decrease in non-operating expenses discussed above and the decrease in income tax resulting from the deferred taxes and revision of income tax provision based on actual income taxes paid for the year ended June 30, 2021.

Comprehensive income (loss) attributable to iPower Inc. for the three months ended March 31, 2022 was $1,178,531 as compared to comprehensive loss of $(206,823) for the three months ended March 31, 2021, representing an increase of $1,385,354. The increase was due to the reasons discussed above and the other comprehensive loss of $3,226, which was the foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our VIE in PRC, to USD, the reporting currency of the Company.

The following table presents certain unaudited condensed consolidated and combined statement of operations information and presentation of that data as a percentage of change from period to period.

Revenues for the nine months ended March 31, 2022 increased 45.6% to $57,300,642 as compared to $39,348,154 for the nine months ended March 31, 2021. While pricing remained stable, the increased revenue mainly resulted from an increase in sales volume and expansion of sales to other regions, such as Canada, Europe and Asia. In addition to our organic growth, which we achieved as a result of improved products and more effective online marketing and merchandising efforts, the increase in sales was positively impacted by people continuing to shop online and pursuing gardening and growing projects during the COVID-19 pandemic. However, while the revenues for the current nine months ended March 31, 2022 improved over the same period last year, we cannot assure that this trend will continue, and our business may be adversely affected by poor overall economic conditions and shipping delays caused by the ongoing COVID-19 pandemic.

Costs of goods sold for the nine months ended March 31, 2022 increased 44.0% to $33,219,677 as compared to $23,073,000 for the nine months ended March 31, 2021. The increase was due to an increase in sales, as discussed above. In addition, we experienced a slight decrease in cost of goods sold as a percentage of revenue resulting from a combination of an increase of import duty and freight charges and selling more products under in-house brands as opposed to third party brands. See discussions on gross profit below.

Gross profit was $24,080,965 for the nine months ended March 31, 2022 as compared to $16,275,154 for the nine months ended March 31, 2021. The gross profit ratio slightly increased to 42.0% for the nine months ended March 31, 2022 from 41.4% for the nine months ended March 31, 2021. The slight increase was mainly due to a combination of an increase in sales, as discussed above, an increase of import duty and freight charges, and a decrease of cost of goods sold as a percentage of revenue resulting from selling more products under in-house brands as opposed to third party brands. The gross margin for in-house branded products is, on average, 20% higher than our gross margin for third party brands.

Selling, fulfillment and general and administrative expenses for the nine months ended March 31, 2022 increased 49.6% to $20,278,376 as compared to $13,556,941 for the nine months ended March 31, 2021. The increase was mainly due to an increase in selling and fulfillment expenses of $3.3 million and general and administrative expenses of $3.4 million, which included payroll expenses, stock-based compensation expense, legal and professional fees in connection with the acquisition and joint ventures, insurance expenses, and other operating expenses including expenses associated with being a publicly traded company.

Income from operations was $3,802,589 for the nine months ended March 31, 2022 as compared to $2,718,213 for the nine months ended March 31, 2021. The income from operations ratio decreased to 6.6% for the nine months ended March 31, 2022 from 6.9% for the nine months ended March 31, 2021. The decrease was due to a combination of an increase in sales as discussed above, a decrease of cost of goods sold as a percentage of revenue resulting from selling more in house branded products as opposed to third party brands, and an increase of selling, fulfillment, general and administrative expenses.

Other (expenses) consists of interest expense, financing fees and other non-operating income (expenses). Other expenses for the nine months ended March 31, 2022 was ($233,968) as compared to ($826,877) for the nine months ended March 31, 2021. The decrease in other expenses was a combined result of a decrease in other income of $175,500, an increase in interest, including amortization of debt discount on the revolving loan, and financing expenses of $99,357 during the period ended March 31, 2022, an increase in loss on investment of $12,289, and a decrease of other non-operating expenses of $880,055 due to expenses resulting from issuance of our Series A Convertible Preferred Stock, convertible notes and warrants during the period ended March 31, 2021.

Net income attributable to iPower Inc. for the nine months ended March 31, 2022 was $2,867,146 as compared to net income of $1,130,649 for the nine months ended March 31, 2021, representing an increase of $1,736,497. The increase in net income as percentage of revenues for the nine months ended March 31, 2022 was primarily due to the changes in operating and non-operating income and expenses discussed above and the decrease in income tax resulting from the deferred taxes and revision of income tax provision based on actual income taxes paid for the year ended June 30, 2021.

Comprehensive income attributable to iPower Inc. for the nine months ended March 31, 2022 was $2,863,920 as compared to comprehensive income of $1,130,649 for the nine months ended March 31, 2021, representing an increase of $1,733,271. The increase was due to the reasons discussed above and the other comprehensive loss of $3,226, which was the foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our VIE in PRC, to USD, the reporting currency of the Company.

During the nine months ended March 31, 2022 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through completion of two private placements in 2020 and 2021, completion of our initial public offering in May of 2021, and borrowing under our credit facility and loans from the Small Business Administration and JPMorgan Chase Bank. We had cash and cash equivalents of $2,641,584 as of March 31, 2022, representing a $4,010,121 decrease from $6,651,705 in cash as of June 30, 2021. The cash decrease was primarily the result of the decrease in net cash provided by operating activities, including increased investment in inventory to support our increasing sales, payment of income taxes, and the increase in accounts receivable from Amazon resulting from increased sales.

Based on our current operating plan, and despite the current uncertainty resulting from the ongoing COVID-19 pandemic, we believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to finance our operations during the next 12 months.

Our cash requirements consist primarily of day-to-day operating expenses and obligations with respect to warehouse leases. We lease all our office and warehouse facilities. We expect to make future payments on existing leases from cash generated from operations. We have credit terms in place with our major suppliers, however as we bring on new suppliers, we are often required to prepay our inventory purchases from them. This is consistent with our historical operating model which allowed us to operate using only cash generated by the business. Beyond the next 12 months we believe that our cash flow from operations should improve as supply chains begin to return to normal and new suppliers we are bringing online transition to credit terms more favorable to us. In addition, we plan to increase the size of our in-house product catalog, which will have a net beneficial impact to our margin profile and ability to generate cash. In addition, we have approximately $13.0 million unused credit under the revolving line with JPM. Given our current working capital position an available funding from our revolving credit line, we believe we will be able to manage through the current challenges by managing payment terms with customers and vendors.

As of March 31, 2022 and June 30, 2021, our working capital was $33.67 million and $23.28 million, respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital. We anticipate that past historical trends to remain in place through the balance of the fiscal year with working capital remaining near this level for the foreseeable future.

Net cash (used in) operating activities for the nine months ended March 31, 2022 and March 31, 2021 was $14,760,269 and $4,786,077, respectively. The increase in use of cash in operating activities resulted from an increased purchase of products in order to maintain the higher inventory levels required to meet our increasing sales volumes, payment of income taxes, and the increase in accounts receivable resulted from increased sales.

For the nine months ended March 31, 2022 and March 31, 2021, net cash provided by (used in) investing activities was $177,408 and ($61,498), respectively. The increase in cash provided by the investing activities was mainly resulting from a combination of the increase in purchase of additional equipment, investment in joint ventures, and cash acquired on acquisition of Anivia.

Net cash provided by financing activities was $10,598,447 and $4,344,262, respectively, for the nine months ended March 31, 2022 and March 31, 2021. The main reason the Company experienced an increase in net cash provided by financing activities was primarily due to receiving $11.6 million in proceeds from the draw-down of a $25 million asset-based revolving loan facility with JPMorgan Chase Bank.

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

We prepare our consolidated and combined financial statements in accordance with accounting principles generally accepted in the United States, or GAAP and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The preparation of consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated and combined financial statements and accompanying notes. Actual results could differ from those estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition and results of operations will be affected. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies, which we discuss further below. While our significant accounting policies are more fully described in Note 2 to our audited consolidated and combined financial statements, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated and combined financial statements.

The Company recognizes revenue from product sales revenues, net of promotional discounts and return allowances, when the following revenue recognition criteria are met: a contract has been identified, separate performance obligations are identified, the transaction price is determined, the transaction price is allocated to separate performance obligations and revenue is recognized upon satisfying each performance obligation. The Company transfers the risk of loss or damage upon shipment, therefore, revenue from product sales is recognized when it is shipped to the customer. Return allowances, which reduce product revenue by the Company’s best estimate of expected product returns, are estimated using historical experience.

The Company evaluates the criteria of ASC 606 - Revenue Recognition Principal Agent Considerations in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily responsible for fulfilling the promise to provide a specified good or service, the Company is subject to inventory risk before the good or service has been transferred to a customer and the Company has discretion in establishing the price, revenue is recorded at gross.

Payments received prior to the shipment of goods to customers are recorded as customer deposits.

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction.

Sales discounts are recorded in the period in which the related sale is recognized. Sales return allowances are estimated based on historical amounts and are recorded upon recognizing the related sales. Shipping and handling costs are recorded as selling expenses.

Inventory consists of finished goods ready for sale and is stated at the lower of cost or market. The Company values its inventory using the weighted average costing method. The Company’s policy is to include as a part of cost of goods sold any freight incurred to ship the product from its vendors to warehouses. Outbound freight costs related to shipping costs to customers are considered period costs and reflected in selling, fulfillment, general and administrative expenses. The Company regularly reviews inventory and considers forecasts of future demand, market conditions and product obsolescence.

If the estimated realizable value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated market value. The Company also reviews inventory for slow moving and obsolescence and records allowance for obsolescence.

The Company accounts for its ownership interest in Box Harmony, a 40% owned joint venture following the equity method of accounting, in accordance with ASC 323, Investments —Equity Method and Joint Ventures. Under this method, the carrying cost is initially recorded at cost and then increased or decreased by recording its percentage of gain or loss in its statement of operations and a corresponding charge or credit to the carrying value of the asset.

On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”) and its subsidiaries, including its VIE. The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred. See Note 4 for details on acquisition.

On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including its operating entity, Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”). Pursuant to the terms of the Agreements, the Company does not have direct ownership in DHS but is actively involved in DHS’s operations as the sole manager to direct the activities and significantly impact DHS’s economic performance. DHS’s operational funding is provided by the Company. During the term of the agreements, the Company bore all the risk of loss and had the right to receive all of the benefits from DHS. As such, based on the determination that the Company is the primary beneficiary of DHS, in accordance with ASC 810-10-25-38A through 25-38J, DHS is considered a variable interest entity (“VIE”) of the Company and the financial statements of DHS have been consolidated from the date such control existed, February 15, 2022. See Note 4 and Note 5 for details on acquisition. We have recently determined that we may have miscalculated the significance test, in which case DHS would be just over the 20% threshold, which would require us to provide one year of audited financial statements along with unaudited financial statements for any interim period. We are presently evaluating the requirements for any additional disclosure that would be required.

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other. The Company tests goodwill for impairment annually, or more frequently whenever events or circumstances indicate impairment may exist. Goodwill is stated at cost less accumulated impairment losses, if any. The Company recognized goodwill of $6,094,144 during the quarter ended March 31, 2022 as part of the acquisition of Anivia Limited.

The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

Definite life intangible assets at March 31, 2022 include covenant not to compete, supplier relationship, and software recognized as part of the acquisition of Anivia Limited. Intangible assets are recorded at the estimated fair value of these items at the date of acquisition, February 15, 2022. Intangible assets are amortized on a straight-line basis over their estimated useful life as followings:

Since inception on April 11, 2018, the Company adopted ASC 842 – Leases (“ASC 842”), which requires lessees to record right-of-use, or ROU, assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.

ROU assets represent our right to use an underlying asset for the lease terms and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company applies ASC No. 718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

The Company will recognize forfeitures of such equity-based compensation as they occur.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).” This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. This standard becomes effective for the Company on July 1, 2022, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company does not expect the adoption of this standard have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. The update is intended to simplify the current rules regarding the accounting for income taxes and addresses several technical topics including accounting for franchise taxes, allocating income taxes between a loss in continuing operations and in other categories such as discontinued operations, reporting income taxes for legal entities that are not subject to income taxes, and interim accounting for enacted changes in tax laws. The new standard is effective for fiscal years beginning after December 15, 2020; however, early adoption is permitted. Adoption of this standard did not have a material impact on the consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated and combined financial position, statements of operations and cash flows.

As a “smaller reporting company,” we are not required to provide the information required by this Item.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.

As of March 31, 2022, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our management concluded that our internal controls over financial reporting were not effective because, among other things, (i) we did not maintain a sufficient complement of personnel with an appropriate degree of technical knowledge commensurate with the Company’s accounting and reporting requirements, (ii) lack of effective communication procedures, and (iii) our controls related to the financial statements closing process were not adequately designed or appropriately implemented to identify material misstatements in our financial reporting on a timely basis.

Management has evaluated remediation plans to address these deficiencies and is implementing changes to address the material weakness identified, including hiring additional accountants and consultants and implementing controls and procedures over the financial reporting process.

During the nine months ended March 31, 2022, we identified misstatement of sales and related expenses during the reconciliation process for transitioning our accounting system and recorded out-of-period adjustments with no material impact to our previously issued annual and interim consolidated financial statements. Furthermore, we determined that correcting the errors in the current period would not materially misstate our annual or interim consolidated financial statements. We have since taken steps to correct such errors.

It is important to note that a deficiency does not have to result in a material misstatement in order for it to be considered a material weakness. Instead, our evaluation considered the likelihood that the identified deficiency could have resulted in a material misstatement. In order to improve controls and prevent misstatements in the future, the Company had taken remedial actions to correct the system error and implemented the following procedures:

UHY LLP, our independent registered public accounting firm, is not required to and has not provided an assessment over the design or effectiveness of our internal controls over financial reporting.

Our former placement agent, Boustead Securities LLC, brought a legal action against us following our communication to Boustead to unilaterally terminate an engagement agreement under which we and Boustead had originally intended for Boustead to be engaged to act as an exclusive underwriter in our initial public offering (“IPO”). To date, we have been unable to reach a settlement with Boustead. On April 30, 2021, Boustead filed a statement of claim with FINRA demanding to arbitrate the dispute, and is seeking, among other things, monetary damages against the Company and D.A. Davidson & Co., who acted as underwriter in our May 2020 IPO. On August 30, 2021, we had a preliminary hearing before FINRA Dispute Resolution Services and the matter is now tentatively scheduled to be heard in front of a three-judge panel of FINRA arbitrators at the end of October, 2022. We believe that we have meritorious defenses to any claims that Boustead may assert, and we do not believe that such claims will have a material adverse effect on our business, financial condition or operating results. We have agreed to indemnify D.A. Davidson & Co. and the other underwriters who participated in our IPO against any liability or expense they may incur or be subject to arising out of the Boustead dispute. Additionally, Chenlong Tan, our Chairman, President and Chief Executive Officer and a beneficial owner more than 5% of our common stock, has agreed to reimburse us for any judgments, fines and amounts paid or actually incurred by us or an indemnitee in connection with such legal action or in connection with any settlement agreement entered into by us or an indemnitee up to a maximum of $3.5 million in the aggregate, with the sole source of funding of such reimbursement to come from sales of shares then owned by Mr. Tan. For further information, see “Risk Factors – Prior to our initial public offering we unilaterally terminated an engagement agreement with Boustead Securities LLC and may be subject to litigation in the event we are not able to come to agreement on the amounts Boustead deems itself to be owed under such agreement” and “Certain Relationships and Related Transactions” in our Annual Report on Form 10-K filed with the SEC on September 28, 2021.

We are not presently party to any pending or other threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results, although from time to time, we may become involved in legal proceedings in the ordinary course of business.

Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K filed with the SEC on September 28, 2021. Any of these those factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this report, there have been no material changes to the risk factors disclosed in our 10-K filed with the SEC on September 28, 2021 except as disclosed below. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Our business and operations may be affected by the current regulatory environment in China.

There exist certain risks and uncertainties of doing business in China which are solely within the control of the Chinese government, and Chinese law regulates both the scope of the Company’s investment in China and the business conducted by it within China. As one of our subsidiaries and a large percentage of the products we distribute are acquired in China, we are exposed to certain risks and liabilities concerning those China operations and purchases. The Company cannot provide assurance that the Chinese government will permit the distribution of the Company’s products in China or that the timing of such distribution will be favorable to the Company. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. If the Company is unable to navigate China’s regulatory environment, or if the Company is unable to enforce its intellectual property or contract rights in China, the Company’s business could be adversely impacted.

Our business and operations may be adversely affected by the current military conflict between Russia and Ukraine and the potential disruption of global supply chains and the economy related thereto.

We are exposed to the risk of changes in social, geopolitical, legal and economic conditions. The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, the United States, the European Union, the United Kingdom and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia. While we do not do business in Russia or Eastern Europe, the war in Ukraine could have deleterious effects on the global economy and supply chains generally. Measures taken against Russia include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions limiting Russia’s ability to import various goods. The negative impacts arising from the conflict and these sanctions and export restrictions may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials. Although none of our operations are in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business and financial condition, results of operations and prospects.

On February 15, 2022, as part of the consideration for the acquisition of Anivia and subsidiaries, the Company issued 3,083,700 restricted shares of the Company’s common stock, valued at $2.27 per share, which was the closing price of the Company’s Common Stock as traded on Nasdaq on February 15, 2022. These shares were issued pursuant to Regulation S under the Securities Act of 1933, as amended, have a lock-up period of 180 days and are subject to insider trading restrictions.

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

i Nevada	5200	i 82-5144171
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification Number)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
i Common Stock		i IPW		The i Nasdaq Stock Market LLC

Large accelerated filer	☐	Accelerated filer	☐
i Non-accelerated filer	☒	Smaller reporting company	i ☒
		Emerging growth company	i ☒


	March 31,			June 30,
	2022			2021

ASSETS
Current assets
Cash and cash equivalent	$	i 2,641,584		$	i 6,651,705
Accounts receivable, net		i 19,083,554			i 7,896,347
Inventories, net		i 22,410,936			i 13,065,741
Other receivables – related party		i 20,746			i –
Prepayments and other current assets		i 7,813,772			i 4,693,000
Total current assets		i 51,970,592			i 32,306,793

Non-current assets
Right of use - non current		i 9,095,158			i 1,819,421
Property and equipment, net		i 165,071			i 55,659
Non-current prepayments		i 1,033,541			i 1,357,292
Goodwill		i 6,094,144			i –
Investment in joint venture		i 37,711			i –
Intangible assets, net		i 5,091,785			i –
Other non-current assets		i 300,346			i 99,645
Total non-current assets		i 21,817,756			i 3,332,017

Total assets	$	i 73,788,348		$	i 35,638,810

LIABILITIES AND EQUITY
Current liabilities
Accounts payable		i 6,342,835			i 3,940,963
Credit cards payable		i 745,585			i 584,311
Customer deposit		i 204,490			i 297,407
Other payables and accrued liabilities		i 4,895,528			i 2,487,441
Advance from shareholders		i 97,476			i –
Short-term loans payable		i –			i 162,769
Investment payable		i 1,500,000			i –
Lease liability - current		i 1,790,688			i 731,944
Long-term loan payable - current portion		i 29,244			i 29,244
Long-term promissory note payable - current portion		i 1,826,564			i –
Income taxes payable		i 864,109			i 790,823
Total current liabilities		i 18,296,519			i 9,024,902

Non-current liabilities
Long-term loan payable		i 434,201			i 458,571
Long-term revolving loan payable, net		i 11,166,577			i –
Long-term promissory note payable, net		i 1,800,315			i –
Deferred tax liabilities		i 836,330			i –
Lease liability - non-current		i 7,573,610			i 1,169,552

Total non-current liabilities		i 21,811,033			i 1,628,123

Total liabilities		i 40,107,552			i 10,653,025

Commitments and contingency		–			–

Stockholders' Equity
Preferred stock, $ i i 0.001 / par value; i i 20,000,000 / shares authorized; i i i i 0 / / / shares issued and outstanding at March 31, 2022 and June 30, 2021		i –			i –
Common stock, $ i i 0.001 / par value; i i 180,000,000 / shares authorized; i i 29,572,382 / and i i 26,448,663 / shares issued and outstanding at March 31, 2022 and June 30, 2021		i 29,573			i 26,449
Additional paid in capital		i 29,046,300			i 23,214,263
Retained earnings		i 4,612,219			i 1,745,073
Non-controlling interest		( i 4,070	)		i –
Accumulated other comprehensive income (loss)		( i 3,226	)		i –
Total equity		i 33,680,796			i 24,985,785

Total liabilities and equity	$	i 73,788,348		$	i 35,638,810


	For the Nine Months Ended March 31,
	2022			2021
	(Unaudited)			(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	i 2,867,146		$	i 1,130,649
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization expense		i 95,325			i 8,394
Inventory reserve		i 92,659			i –
Credit loss reserve		i 70,000			i 189,206
PPP loan forgiven		i –			( i 175,500	)
Stock-based compensation expense		i 306,788			i –
Amortization of debt issuance costs		i 113,016			i –
Loss on equity method investment		i 12,289			i –
Non-cash operating lease expense		i 181,781			i 86,321
Preferred stock warrant expense		i –			i 8,047
Amortization of debt discount and non-cash financing costs		i –			i 501,562
Change in fair value of warrants and conversion features		i –			i 334,564
Change in operating assets and liabilities
Accounts receivable		( i 11,257,207	)		( i 2,214,794	)
Inventories		( i 9,437,854	)		( i 4,272,742	)
Deferred tax liabilities		( i 552,783	)		( i 52,947	)
Prepayments and other current assets		( i 2,502,967	)		( i 2,307,340	)
Non-current prepayments		i 323,751			i –
Other non-current assets		( i 200,701	)		( i 99,395	)
Accounts payable		i 2,401,872			i 2,765,091
Credit cards payable		i 161,274			( i 639,240	)
Customer deposit		( i 92,917	)		( i 113,221	)
Other payables and accrued liabilities		i 2,584,973			( i 51,215	)
Income taxes payable		i 73,286			i 116,483
Net cash used in operating activities		( i 14,760,269	)		( i 4,786,077	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		( i 41,420	)		( i 61,498	)
Cash acquired on acquisition		i 268,828			i –
Investment in joint venture		( i 50,000	)		i –
Net cash provided by (used in) investing activities		i 177,408			( i 61,498	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties		i –			i 532,222
Payments to related parties		( i 20,746	)		( i 150,498	)
Proceeds from short-term loans		i 1,604,292			i 22,414,846
Payments of financing fees		( i 796,035	)		( i 120,000	)
Payments on short-term loans		( i 1,767,061	)		( i 21,691,308	)
Proceeds from convertible notes		i –			i 3,000,000
Proceeds from long-term loans		i 11,602,367			i –
Payments on long-term loans		( i 24,370	)		i –
Shares issued		i –			i 359,000
Net cash provided by financing activities		i 10,598,447			i 4,344,262

EFFECT OF EXCHANGE RATE ON CASH		( i 25,707	)		i –

CHANGES IN CASH		( i 4,010,121	)		( i 503,313	)

CASH AND CASH EQUIVALENT, beginning of year		i 6,651,705			i 977,635

CASH AND CASH EQUIVALENT, end of year	$	i 2,641,584		$	i 474,322

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income tax	$	i 1,181,710		$	i 696,119
Cash paid for interest	$	i –		$	i 109,656

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Shares issued for acquisition	$	i 5,528,373		$	i –
Promissory note issued for acquisition	$	i 3,600,627		$	i –
Investment payable for acquisition	$	i 1,500,000		$	i –
Goodwill acquired in business acquisition	$	i 6,094,144		$	i –
Deferred tax liabilities	$	i 1,389,113		$	i –
Identifiable intangible assets acquired in business acquisition	$	i 5,172,956		$	i –
Net assets acquired in business acquisition	$	i 751,015		$	i –
Right of use assets acquired under new operating leases	$	i 7,780,766		$	i 2,346,200

iPower Inc. – ‘10-Q’ for 3/31/22

On: Monday, 5/16/22, at 5:11pm ET · For: 3/31/22 · Accession #: 1683168-22-3694 · File #: 1-40391

Previous ‘10-Q’: ‘10-Q’ on 2/14/22 for 12/31/21 · Next: ‘10-Q’ on 11/14/22 for 9/30/22 · Latest: ‘10-Q’ on 2/14/24 for 12/31/23 · 3 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

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		Page No.

	PART I. Financial Information

Item 1.	Unaudited Condensed Consolidated Financial Statements	2

	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021	3

	Unaudited Condensed Consolidated Statements of Operations and comprehensive income for the three and nine months ended March 31, 2022 and 2021	4

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended March 31, 2022 and 2021	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls & Procedures	41

	PART II. Other Information

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

	Signatures	46

Schedule of estimated useful life
		Useful Life
Covenant Not to Compete		i 10 years
Supplier relationship		i 6 years
Software		i 5 years

	Corporate bond yield	3.1%
	Risk-free rate	1.6%
	Liquidity premium	0.4%
	Discount rate	3.5%

Schedule of advertising costs
	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Advertising and promotion	$	i 733,241	$	i 443,163	$	i 1,945,222	$	i 1,164,119

Schedule of allocation of acquisition price
Fair Value of Purchase Price:
Cash	$	i 1,500,000
Promissory note issued		i 3,600,627
Common stock issued		i 5,528,373
Total purchase consideration	$	i 10,629,000

Purchase Price Allocation:
Covenant not to compete	$	i 3,459,120
Supplier relationship		i 1,179,246
Software		i 534,591
Current assets		i 1,104,407
Property and equipment		i 46,548
ROU asset		i 175,231
Goodwill		i 6,094,144
Deferred tax liabilities		( i 1,389,113	)
Current liabilities		( i 394,659	)
Lease liability		( i 180,515	)
Total purchase consideration	$	i 10,629,000

Schedule of Business Acquisition, Pro Forma Information
	Nine months ended
	March 31,
	2022		2021
Total Revenues	$	i 57,300,642	$	i 39,348,154
Income from Operations	$	i 4,623,664	$	i 3,043,253
Basic and diluted income per share	$	i 0.12	$	i 0.06

Carrying amount of VIE assets and liabilities
	March 31, 2022		June 30, 2021
Cash in bank	$	i 730,227	$	i –
Prepayments and other receivables	$	i 1,289,406	$	i –
Office equipment, net	$	i 52,142	$	i –
Right of use - noncurrent	$	i 156,706		i –
Advance from shareholders	$	i 97,476	$	i –
Lease liability	$	i 161,401		i –
Income tax payable	$	i 119,291	$	i –
Other payables	$	i 147,010	$	i –

Operating results of the VIE
	March 31, 2022
Revenue	$	i –
Net loss	$	i 650,194

Schedule of accounts receivable
	March 31, 2022			June 30, 2021
Accounts receivable	$	i 19,153,554		$	i 7,896,347
Less: allowance for credit losses		( i 70,000	)		i –
Total accounts receivable, net	$	i 19,083,554		$	i 7,896,347

Schedule of prepayments and other current assets
	March 31, 2022		June 30, 2021
Advance to suppliers	$	i 6,571,914	$	i 3,969,625
Prepaid expenses and other receivables		i 1,241,858		i 723,375

Total	$	i 7,813,772	$	i 4,693,000

Schedule of intangible assets
	March 31, 2022
Covenant Not to Compete		i 3,459,120
Supplier relationship		i 1,179,245
Software		i 534,591
Accumulated amortization		( i 81,171	)
Total		i 5,091,785

Schedule of future amortization

Year Ending June 30,	Amount
2022	$	i 162,343
2023	i 649,371
2024	i 649,371
2025	i 649,371
2026	i 649,371
Thereafter	i 2,331,958
	$	i 5,091,785

	Ø	Up to 90% of eligible credit card receivables
	Ø	Up to 85% of eligible trade accounts receivable
	Ø	Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of net orderly liquidation value of eligible inventory

	·	Interest rates of between LIBOR plus 2% and LIBOR plus 2.25% depending on utilization
	·	Undrawn fee of between 0.25% and 0.375% depending on utilization
	·	Maturity Date of i November 12, 2024

Schedule of RSU activity
	Total RSUs Issued			Total Fair Market Value of RSUs Issued as Compensation (1)
RSUs granted, but not vested, at June 30, 2021		i 24,409
RSUs granted		i 97,128		$	i 227,237
RSUs forfeited		( i 4,000	)
RSUs vested		( i 107,625	)
RSUs granted, but not vested, at March 31, 2022		i 9,912

Schedule of assumptions for warrant liabilities
	As of May 14, 2021
Expected term	i 1 day to 3 years
Expected volatility	i 3.3% to 58%
Risk-free interest rate	i 0.35% to 0.92%
Expected dividend rate	i 0%
Probability	i 100%

Schedule of lease cost and other information
Lease cost	March 31, 2022		March 31, 2021
Operating lease cost (included in selling and fulfillment expenses in the Company's statement of operations)	$	i 427,692	$	i 189,647
Other information
Cash paid for amounts included in the measurement of lease liabilities	$	i 234,504	$	i 130,893
Remaining term in years		i 1.33 – 6.17		i 2.5
Average discount rate - operating leases		i 5% – 8%		i 8%

Supplemental balance sheet information related to leases
Operating leases	March 31, 2022		6/30/2021
Right of use asset - non-current	$	i 9,095,158	$	i 1,819,421

Lease Liability - current	$	i 1,790,688	$	i 731,944
Lease Liability - non-current		i 7,573,610		i 1,169,552
Total operating lease liabilities	$	i 9,364,298	$	i 1,901,496

Schedule of maturities of lease liabilities
For years ending June 30:	Operating Lease
2022	$	i 473,908
2023		i 2,381,601
2024		i 1,815,637
2025		i 1,486,231
2026 and after		i 4,579,896
Total lease payments		i 10,737,273
Less: Imputed interest/present value discount		( i 1,372,975	)
Present value of lease liabilities	$	i 9,364,298

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021			Variance
Revenues	$	22,808,214		$	13,133,902			73.7%
Cost of goods sold		13,598,563			7,369,127			84.5%
Gross profit		9,209,651			5,764,775			59.8%
Selling, fulfillment, general and administrative expenses		7,832,662			4,976,041			57.4%
Operating income		1,376,989			788,734			74.6%
Other (expenses)		(159,447	)		(757,744	)		(79.0%	)
Income before income taxes		1,217,542			30,990			3,828.8%
Income tax expenses		39,855			237,813			(83.2%	)
Net income (loss) attributable to iPower Inc.		1,181,757			(206,823	)		671.4%
Comprehensive (loss) attributable to iPower Inc.	$	1,178,531		$	(206,823	)		669.8%
Gross profit % of revenues		40.4%			43.9%
Operating income % of revenues		6.0%			6.0%
Net income (loss) % of revenues		5.2%			(1.6%	)

iPower Inc. – ‘10-Q’ for 3/31/22

On: Monday, 5/16/22, at 5:11pm ET · For: 3/31/22 · Accession #: 1683168-22-3694 · File #: 1-40391

Quarterly Report — Form 10-QFiling Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

3 Previous Filings that this Filing References

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

	Nine Months Ended March 31, 2022			Nine Months Ended March 31, 2021			Variance
Revenues	$	57,300,642		$	39,348,154			45.6%
Cost of goods sold		33,219,677			23,073,000			44.0%
Gross profit		24,080,965			16,275,154			48.0%
Selling, fulfillment, general and administrative expenses		20,278,376			13,556,941			49.6%
Operating income		3,802,589			2,718,213			39.9%
Other (expenses)		(233,968	)		(826,877	)		(71.7%	)
Income before income taxes		3,568,621			1,891,336			88.7%
Income tax expenses		705,545			760,687			(7.2%	)
Net income attributable to iPower Inc.		2,867,146			1,130,649			153.6%
Comprehensive income attributable to iPower Inc.	$	2,863,920		$	1,130,649			153.3%

Gross profit % of revenues		42.0%			41.4%
Operating income % of revenues		6.6%			6.9%
Net income % of revenues		5.0%			2.9%

		Useful Life
Covenant Not to Compete		10 years
Supplier relationship		6 years
Software		5 years

	·	Performed extensive search and reconciliations with data from third party portals to ensure accuracy and completeness of information
	·	Improved and upgraded operation system and automated synchronization with a new accounting system with more extensive details
	·	Conducted training sessions with all departments for information handling, file keeping and safeguarding
	·	Enhanced and extended reconciliation procedures to all internal and external sources
	·	Enhanced control procedures for communications and approvals of new transactions/agreements
	·	provided trainings and instructions to accounting team on how to account for a new contract or a new transaction
	·	Setup up monthly routine communication and inquiry with all related departments for new transaction types and business and review if additional evaluation or adjustments are required for either BOP, NetSuite or other procedures to correctly capture and record the transactions.

Exhibit No.		Description of Exhibit
10.1		Joint Venture Agreement, dated January 13, 2022, between iPower, Inc., Titanium Plus Autoparts, Inc., Tony Chiu, and Bin Xiao (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed January 20, 2022).
10.2		Joint Venture Agreement, dated February 10, 2022, between iPower Inc., Bro Angel LLC, Jie Shan and Bing Luo (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 14, 2022).
10.3		Amended & Restated Limited Liability Company Operating Agreement of Global Social Media LLC, dated February 10, 2022, between Global Social Media LLC, iPower Inc. and Bro Angel LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed February 14, 2022).
10.4		Intellectual Property License Agreement, dated February 10, 2022, between Bro Angel LLC and Global Social Media LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed February 14, 2022).
10.5		Share Transfer Agreement, dated February 15, 2022, between iPower Inc., White Cherry Limited, Li Zanyu, Xie Jing, Anivia Limited, Fly Elephant Limited, Dayou Renzai (Shenzhen) Technology Co., Ltd. and Daheshou (Shenzhen) Information Technology Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 22, 2022).
10.6		$3,500,000 Promissory Note, dated February 15, 2022, from iPower, Inc. to White Cherry Limited (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed February 22, 2022).
10.7		Exclusive Business Cooperation Agreement, dated December 15, 2021, between Dayao Renzai (Shenzhen) Technology Co., Ltd. and Daheshou (Shenzhen) Information Technology Co., Ltd. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed February 22, 2022).
10.8		Exclusive Equity Interest Pledge Agreement, dated December 15, 2021, between Dayao Renzai (Shenzhen) Technology Co., Ltd., Daheshou (Shenzhen) Information Technology Co., Ltd. and its equity holders (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed February 22, 2022).
10.9		Exclusive Option Agreement, dated December 15, 2021, between Dayao Renzai (Shenzhen) Technology Co., Ltd., Daheshou (Shenzhen) Information Technology Co., Ltd. and its equity holders (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed February 22, 2022).
10.10		Power of Attorney of Li Zanyu, dated December 15, 2021 (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed February 22, 2022).
10.11		JP Morgan Chase Consent Agreement, dated February 16, 2022 (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed February 22, 2022).
10.12		Amendment to Pledge and Security Agreement, dated February 16, 2022 (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed February 22, 2022).
10.13		Employment Contract, dated February 15, 2022, between Dayao Renzai (Shenzhen) Technology Co., Ltd. and Li Zanyu (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed February 22, 2022).
10.14		Form of First Amendment and Waiver Agreement, dated May 16, 2022, between iPower Inc., E Marketing Solution Inc., Global Product Marketing Inc. and JP Morgan Chase Bank NA.*
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Schema Document
101.CAL		Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Definition Linkbase Data
101.LAB		Inline XBRL Taxonomy Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	iPower Inc.

May 16, 2022	By:	/s/ *Chenlong Tan*
		Chenlong Tan
		Chief Executive Officer

This ‘10-Q’ Filing	Date	Other Filings

	2/14/32
	5/31/28
	11/12/24
	12/31/23
	10/31/23
	8/15/22
	7/1/22
	6/30/22
	6/20/22
Filed on:	5/16/22	8-K
	5/15/22
	5/13/22
	5/12/22
	5/11/22
For Period end:	3/31/22
	3/1/22
	2/23/22	8-K, DEF 14A
	2/22/22	8-K
	2/16/22
	2/15/22	8-K
	2/14/22	10-Q, 8-K
	2/10/22	8-K
	1/20/22	8-K
	1/13/22
	12/31/21	10-Q
	12/15/21
	11/12/21	8-K
	9/30/21	10-Q
	9/28/21	10-K
	8/30/21
	7/28/21	8-K
	6/30/21	10-K
	5/21/21	8-K
	5/18/21	8-K
	5/14/21	3
	5/11/21	CERT, EFFECT, S-1MEF
	5/5/21	8-A12B, CORRESP, S-1/A
	4/30/21
	4/23/21
	4/15/21	S-1/A
	4/14/21	S-1/A
	3/31/21	10-Q
	2/28/21
	1/27/21
	12/31/20
	12/15/20
	11/16/20
	10/26/20
	10/20/20
	9/30/20
	9/4/20
	9/1/20
	8/31/20
	8/24/20
	7/1/20
	6/30/20
	5/26/20
	4/18/20
	3/1/20
	1/15/20
	1/13/20
	5/3/19
	12/1/18
	4/11/18
	1/1/18
	12/22/17
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