iPower (IPW) - 2023 Q3 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements and detailed notes on business, accounting policies, and financial instruments Unaudited Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific dates | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :----------------------- | :------------- | :------------ | | Total Assets | $59,418,578 | $78,581,467 | | Total Liabilities | $35,692,975 | $46,184,637 | | Total Equity | $23,725,603 | $32,396,830 | | Cash and cash equivalent | $1,419,495 | $1,821,947 | | Inventories, net | $19,646,934 | $30,433,766 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details the company's revenues, expenses, and net income or loss over specific periods Three Months Ended March 31 | Metric | 2023 (Unaudited) ($) | 2022 (Unaudited) ($) | Change (%) | | :--------------------------------------- | :--------------- | :--------------- | :--------- | | Revenues | $20,225,619 | $22,808,214 | (11.32%) | | Gross Profit | $7,791,721 | $9,209,651 | (15.40%) | | Operating (Loss) Income | $(1,811,198) | $1,376,989 | (231.53%) | | Net (Loss) Income Attributable to iPower Inc. | $(1,530,534) | $1,181,757 | (229.51%) | | Basic EPS | $(0.051) | $0.042 | (221.43%) | Nine Months Ended March 31 | Metric | 2023 (Unaudited) ($) | 2022 (Unaudited) ($) | Change (%) | | :--------------------------------------- | :--------------- | :--------------- | :--------- | | Revenues | $65,502,882 | $57,300,642 | 14.31% | | Gross Profit | $25,746,963 | $24,080,965 | 6.92% | | Operating (Loss) Income | $(10,487,070) | $3,802,589 | (375.79%) | | Net (Loss) Income Attributable to iPower Inc. | $(9,003,349) | $2,867,146 | (414.02%) | | Basic EPS | $(0.303) | $0.106 | (385.85%) | - A goodwill impairment loss of $3,060,034 was recorded for the nine months ended March 31, 2023[13] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity This statement tracks changes in equity components, including net loss and stock-based compensation | Metric | June 30, 2022 ($) | March 31, 2023 ($) | | :----------------------- | :------------ | :------------- | | Total Equity | $32,396,830 | $23,725,603 | | Net Loss (9 months) | N/A | $(9,012,227) | | Stock-based compensation (9 months) | N/A | $387,722 | Unaudited Condensed Consolidated Statements of Cash Flows This statement reports cash generated and used across operating, investing, and financing activities Nine Months Ended March 31 | Cash Flow Activity | 2023 (Unaudited) ($) | 2022 (Unaudited) ($) | | :--------------------------------------- | :--------------- | :--------------- | | Net cash provided by (used in) operating activities | $8,446,447 | $(14,760,269) | | Net cash (used in) provided by investing activities | $(144,885) | $177,408 | | Net cash (used in) provided by financing activities | $(8,663,091) | $10,598,447 | | Cash and cash equivalent, end of period | $1,419,495 | $2,641,584 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the financial statements Note 1 - Nature of business and organization Details the company's business, acquisitions, and formation of joint ventures - iPower Inc. is a U.S.-based online seller and supplier of consumer home, garden, and pet products[21] - The company acquired 100% equity of E Marketing Solution Inc. and Global Product Marketing Inc. on May 18, 2021[22][23] - Formed Box Harmony, LLC (40% equity, logistics services) on January 13, 2022, and Global Social Media, LLC (60% equity, social media platform) on February 10, 2022[24][25] Note 2 – Basis of Presentation and Summary of significant accounting policies Outlines the financial statement preparation basis, accounting policies, and impairment recognition - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting requirements[28] - The company is an 'emerging growth company' and has elected to use the extended transition period for new accounting standards[31][33] - An impairment loss of $3,060,034 was recognized for goodwill as of September 30, 2022, but no impairment was noted for the three months ended March 31, 2023[47][48] - Revenue from product sales is recognized upon shipment to the customer, net of promotional discounts and return allowances[55] Note 3 - Joint Ventures Describes the company's investments in Box Harmony, LLC and Global Social Media, LLC - Box Harmony, LLC (40% owned) provides logistics services; the company has an option to increase ownership to 60%[88][90][91] - Global Social Media, LLC (60% owned) provides a social media platform for marketing; its activities were immaterial to financial statements[92][95] Note 4 - Acquisition of Anivia Limited and Subsidiaries and Variable Interest Entity Details the acquisition of Anivia Limited and its control over a Variable Interest Entity (VIE) - On February 15, 2022, the company acquired 100% of Anivia Limited, which controls Daheshou (Shenzhen) Information Technology Co., Ltd. (DHS), a VIE in China[96][98] Anivia Acquisition Consideration | Consideration Type | Fair Value ($) | | :----------------- | :----------- | | Cash | $1,500,000 | | Promissory note issued | $3,600,627 | | Common stock issued | $5,528,373 | | Total | $10,629,000 | - Approximately $6.1 million of goodwill was recognized in the acquisition[103][104] Note 5 – Variable interest entity Explains the consolidation of Daheshou (Shenzhen) Information Technology Co., Ltd. (DHS) as a VIE - DHS, a VIE, is consolidated into the company's financial statements as iPower Inc. is its primary beneficiary[109] VIE Financial Contribution (Nine Months Ended March 31, 2023, before elimination) | Metric | Amount ($) | | :------- | :------- | | Revenue | $5.0 million | | Net loss | $0.7 million | Note 6 – Accounts receivable, net Presents the net accounts receivable and allowance for credit losses | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :------------------------ | :------------- | :------------ | | Accounts receivable, net | $15,704,882 | $17,432,287 | | Allowance for credit losses | $70,000 | $70,000 | Note 7 – Inventories, net Details the net inventory value and allowance for obsolescence | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :------------------------ | :------------- | :------------ | | Inventories, net | $19,646,934 | $30,433,766 | | Allowance for obsolescence | $558,899 | $320,000 | Note 8 – Prepayments and other current assets Summarizes total prepayments and other current assets, including advances to suppliers | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :-------------------------------- | :------------- | :------------ | | Total Prepayments and other current assets | $3,470,167 | $5,444,463 | | Advance to suppliers | $1,650,804 | $3,938,881 | Note 9 – Non-current prepayments Reports non-current prepayments and their amortization expense | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :------------------------ | :------------- | :------------ | | Total Non-current prepayments | $601,873 | $925,624 | - Amortization of non-current prepayments was $323,751 for the nine months ended March 31, 2023[116] Note 10 – Intangible assets, net Provides details on net intangible assets, accumulated amortization, and remaining useful life | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :------------------------ | :------------- | :------------ | | Intangible assets, net | $4,442,414 | $4,929,442 | | Accumulated amortization | $(730,543) | $(243,515) | - Amortization expense for the nine months ended March 31, 2023, was $487,028[118] - Weighted average remaining life for finite-lived intangible assets was approximately 7.45 years as of March 31, 2023[118] Note 11 – Other payables and accrued liabilities Lists other payables and accrued liabilities, including inventory in transit | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :-------------------------------- | :------------- | :------------ | | Total Other payables and accrued liabilities | $2,442,105 | $5,915,220 | | Accrued payables for inventory in transit | $968,026 | $4,217,941 | Note 12 – Loans payable Details various loans payable, including changes in interest rates and waiver of default | Loan Type | March 31, 2023 ($) | June 30, 2022 ($) | | :-------------------------------- | :------------- | :------------ | | Long-term revolving loan payable, net | $7,653,372 | $12,314,627 | | Long-term promissory note payable, net | $0 | $1,781,705 | | Promissory note payable (current portion) | $2,004,181 | N/A | - The interest rate for the asset-based revolving loan (ABL) facility was changed from LIBOR to SOFR on October 7, 2022[129] - JPMorgan waived a default on the minimum Excess Availability requirement on November 11, 2022[130] Note 13 - Related party transactions Discloses transactions with related parties, including joint ventures and shareholders - The company recorded a sublease fee of $387,750 from Box Harmony, LLC (40% owned joint venture) as other non-operating income for the nine months ended March 31, 2023[132] | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :-------------------------------- | :------------- | :------------ | | Other receivables due from Box Harmony | $39,853 | $51,762 | | Advance from DHS shareholders | $89,968 | $92,246 | Note 14 – Income taxes Presents the provision for income taxes, deferred tax assets, and effective tax rate Total Provision for Income Taxes (Nine Months Ended March 31) | Year | Amount ($) | | :--- | :------------- | | 2023 | $(2,085,126) | | 2022 | $705,545 | Net Deferred Tax Assets (Liabilities) | Date | Amount ($) | | :--- | :------------- | | March 31, 2023 | $1,546,159 | | June 30, 2022 | $(939,115) | - The effective tax rate for the nine months ended March 31, 2023, was 18.79%[136] Note 15 – (Losses) Earnings per share Reports basic and diluted earnings per share and anti-dilutive effects Basic and Diluted EPS | Period | 2023 ($) | 2022 ($) | | :-------------------------------- | :----- | :----- | | Three Months Ended March 31 | $(0.051) | $0.042 | | Nine Months Ended March 31 | $(0.303) | $0.106 | - Warrants and stock options were not included in diluted EPS calculation for periods with net loss due to their anti-dilutive effect[138] Note 16 – Equity Details common stock, equity incentive plan, and stock-based compensation expense - Common Stock outstanding remained at 29,572,382 shares as of March 31, 2023, and June 30, 2022[141] - The Equity Incentive Plan authorizes up to 5,000,000 shares for various equity awards[143] Stock-based Compensation Expense (Nine Months Ended March 31, 2023) | Award Type | Expense ($) | | :----------- | :-------- | | RSUs | $56,576 | | Option Grants | $331,146 | - Stock option grants totaling 3,330,000 shares were issued to executive officers on May 13, 2022, with vesting tied to market capitalization and operational milestones[147] Note 17 – Warrant liabilities Provides information on outstanding warrants and their exercise status - As of March 31, 2023, 685,715 shares were issuable under outstanding warrants with an average exercise price of $5.00 per share[154] - None of the private placement investors exercised any warrants through March 31, 2023[154] Note 18 - Concentration of risk Highlights concentrations of risk in cash, customers, and suppliers - Approximately $0.4 million in cash balances exceeded the FDIC insurance limit as of March 31, 2023[156] - Amazon Vendor and Amazon Seller customers accounted for 91% of total revenues and 94% of total accounts receivable for the nine months ended March 31, 2023[159] - Two suppliers accounted for 39% of total purchases and 59% of total accounts payable for the nine months ended March 31, 2023[160] Note 19 - Commitments and contingencies Outlines lease commitments and legal contingencies, including an arbitration dispute - Total commitment for existing lease agreements is $12,440,869[166] - The company is involved in an arbitration dispute with Boustead Securities LLC, scheduled for May 22, 2023[170] - Chenlong Tan, CEO, agreed to reimburse the company up to $3.5 million for judgments/settlements related to the Boustead dispute[170] Note 20 - Subsequent events Confirms no material subsequent events requiring disclosure - No material subsequent events requiring recognition or additional disclosure were identified through the financial statement issuance date[174] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, covering operations, liquidity, and critical accounting policies Overview Provides an overview of the company's business as an online retailer of home, garden, and pet products - iPower Inc. is a U.S.-based online retailer and supplier of consumer home, garden, and pet products, operating through its e-commerce platforms and major marketplaces[178] - Hydroponic products accounted for approximately 46% of total sales for the nine months ended March 31, 2023[67] - The top five product segments accounted for 74% of total sales for the nine months ended March 31, 2023[179] Trends and Expectations Outlines strategic plans, potential impacts of global economic disruptions, and regulatory uncertainties - The company plans to increase investments in product and brand development and evaluate acquisition opportunities[180] - Global economic disruptions, including the Russia-Ukraine conflict, may lead to supply chain disruptions and increased costs[181] - The regulatory environment for hydroponic products, particularly concerning cannabis cultivation, presents uncertainties that could impact demand[183] RESULTS OF OPERATIONS Analyzes the company's financial results for the three and nine months ended March 31, 2023 and 2022 For the three months ended March 31, 2023 and 2022 Compares financial performance for the three-month periods, highlighting revenue and profit changes Financial Performance (Three Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | Variance (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Revenues | $20,225,619 | $22,808,214 | (11.32%) | | Gross Profit | $7,791,721 | $9,209,651 | (15.40%) | | Operating (Loss) Income | $(1,811,198) | $1,376,989 | (231.53%) | | Net (Loss) Income Attributable to iPower Inc. | $(1,530,534) | $1,181,757 | (229.51%) | - Revenues decreased primarily due to a decrease in sales of third-party brands[187] - Gross profit ratio decreased to 38.52% from 40.38% due to higher freight charges and channel/product category mix[189] - Operating expenses increased by 22.60% due to higher selling and fulfillment expenses ($1.4 million) and general and administrative expenses ($0.4 million)[190] For the nine months ended March 31, 2023 and 2022 Compares financial performance for the nine-month periods, detailing revenue and profit changes Financial Performance (Nine Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | Variance (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Revenues | $65,502,882 | $57,300,642 | 14.31% | | Gross Profit | $25,746,963 | $24,080,965 | 6.92% | | Operating (Loss) Income | $(10,487,070) | $3,802,589 | (375.79%) | | Net (Loss) Income Attributable to iPower Inc. | $(9,003,349) | $2,867,146 | (414.02%) | - Revenues increased due to higher sales volume and expansion into Canada, Europe, and Asia[197] - Gross profit ratio decreased to 39.31% from 42.03% due to increased freight charges and channel/product category mix[200] - Operating expenses increased by 78.68% due to a $11.9 million increase in selling and fulfillment, a $1.04 million increase in G&A, and a $3.06 million goodwill impairment loss[201] LIQUIDITY AND CAPITAL RESOURCES Examines the company's cash position, funding sources, working capital, and cash flow activities Sources of Liquidity Identifies primary funding sources and management's assessment of future liquidity | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :----------------------- | :------------- | :------------ | | Cash and cash equivalents | $1,419,495 | $1,821,947 | - The company primarily funds operations with cash from operations and its credit facility with JPMorgan Chase Bank[207] - Management believes existing cash, operational cash flows, and $10.0 million in unused credit will be sufficient for the next 12 months[208][209] Working Capital Presents the company's working capital position at specific dates | Metric | March 31, 2023 ($) | June 30, 2022 ($) | | :------------- | :------------- | :------------ | | Working Capital | $18.8 million | $32.3 million | Cash Flows Analyzes cash flows from operating, investing, and financing activities Cash Flow Activities (Nine Months Ended March 31) | Activity | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :------------- | | Net cash provided by (used in) operating activities | $8,446,447 | $(14,760,269) | | Net cash (used in) provided by investing activities | $(144,885) | $177,408 | | Net cash (used in) provided by financing activities | $(8,663,091) | $10,598,447 | - Net cash used in financing activities was primarily due to $11.9 million in debt repayments, including investment payable, promissory note, and revolving loan[214] OFF-BALANCE SHEET ARRANGEMENTS Confirms the absence of material off-balance sheet arrangements - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition, results of operations, or liquidity[215] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Discusses key accounting policies and estimates that significantly impact financial reporting Revenue recognition Explains the company's policy for recognizing revenue from product sales - Revenue from product sales is recognized upon shipment to the customer, net of promotional discounts and return allowances[217] - The company evaluates ASC 606 criteria to determine if revenue should be recorded gross or net, generally recording gross when primarily responsible for fulfilling the promise, subject to inventory risk, and having pricing discretion[218] Inventory, net Details the valuation and impairment policies for inventory - Inventory is valued at the lower of cost or market using the weighted average costing method, including inbound freight[222] - Provisions are made for slow-moving or obsolete inventory to reduce carrying value to estimated market value[223] Variable interest entities Describes the accounting treatment for consolidated variable interest entities - Daheshou (Shenzhen) Information Technology Co., Ltd. (DHS) is consolidated as a VIE because iPower Inc. is its primary beneficiary through contractual arrangements[224] Goodwill Outlines the accounting for goodwill, including impairment testing and recognition - Goodwill is not amortized but is reviewed for impairment annually or when circumstances indicate potential impairment[226] - An impairment loss of $3,060,034 was recognized as of September 30, 2022, but no impairment was noted for the three months ended March 31, 2023[226][227] Intangible Assets, net Explains the amortization and impairment review of finite-life intangible assets - Finite-life intangible assets (covenant not to compete, supplier relationships, software) are amortized on a straight-line basis over 5 to 10 years[228] - The recoverability of long-lived assets is reviewed when impairment indicators occur; no impairment was noted as of March 31, 2023[228] Stock-based Compensation Details the accounting for share-based payment transactions and compensation expense - Share-based payment transactions are measured at grant date fair value and recognized as compensation expense over the requisite service period[229] - For awards with both performance and market conditions, the market condition is incorporated into fair value, and expense is recognized if the performance condition is probable[229] Income taxes Describes the accounting for income taxes, deferred taxes, and uncertain tax positions - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[231] - Deferred tax assets are recognized only to the extent that management determines realization is more-likely-than-not[231] - No reserves for uncertain income tax positions have been recorded, as filing positions are expected to be sustained[233] Recently issued accounting pronouncements Assesses the impact of new accounting standards on the financial statements - The company does not expect recently issued FASB ASUs (2022-03, 2021-08, 2020-04, 2021-01, 2020-06, 2020-01, 2019-12) to have a material impact on its consolidated financial statements[234][235][236][237][238][239][241] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' iPower Inc. is not required to provide detailed quantitative and qualitative disclosures about market risk in this report - The company is exempt from providing detailed market risk disclosures due to its 'smaller reporting company' status[243] Item 4. Controls and Procedures Internal controls over financial reporting were ineffective due to personnel and process weaknesses, with remediation plans underway - Internal controls over financial reporting were deemed not effective as of March 31, 2023[245] - Material weaknesses include insufficient technically knowledgeable personnel, ineffective communication in subsidiaries, and inadequate financial statement closing process controls[245] - Remediation plans involve hiring additional accountants/consultants and implementing improved controls[245] PART II. Other Information Item 1. Legal Proceedings The company is in an arbitration dispute with Boustead Securities LLC, with the CEO agreeing to reimburse up to $3.5 million for settlements - The company is facing an arbitration dispute with Boustead Securities LLC over the termination of an engagement agreement, with the hearing scheduled for May 22, 2023[249] - The CEO, Chenlong Tan, has agreed to reimburse the company up to $3.5 million for any judgments or settlements related to the Boustead dispute[249] - The company believes it has meritorious defenses and does not expect a material adverse effect on its business, financial condition, or operating results[249] Item 1A. Risk Factors Risks include unstable market conditions, bank failures, and potential Nasdaq de-listing due to minimum bid price non-compliance - Unstable market and economic conditions, including recent bank failures, may adversely affect the company's business, liquidity, and ability to secure financing[251][252] - The company received a Nasdaq deficiency notice on November 9, 2022, for failing to meet the $1.00 minimum bid price requirement[255] - Nasdaq granted an extension until November 6, 2023, for the company to regain compliance with the minimum bid price requirement[256] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported in this period - No unregistered sales of equity securities were reported[258] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported in this period - No defaults upon senior securities were reported[259] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[260] Item 5. Other Information No other information was reported in this item - No other information was reported[261] Item 6. Exhibits This section lists the exhibits filed or furnished with the report, including certifications and XBRL documents - Exhibits include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents[263] Signatures The report was signed by the Chief Executive Officer and Chief Financial Officer on May 15, 2023 - The report was signed by Chenlong Tan (CEO) and Kevin Vassily (CFO) on May 15, 2023[265]