iPower Inc.

Previous wording

Driven by tech and data, iPower Inc. is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies, and consumer home goods. Through the operations of our e-commerce platforms and channel partners, our combined 121,000 square foot fulfillment centers in Rancho Cucamonga and Los Angeles, California, we believe we are one of the leading marketers, distributors and retailers in the consumer gardening and home goods categories, based on management’s estimates. Our core strategy continues to focus on expanding our geographic reach across the United States and internationally through organic growth, both in terms of expanding customer base as well as brand and product development. iPower has developed a set of methodologies driven by proprietary data formulas to effectively bring products to market and sales.

Current wording

******Driven by technologyand data, iPower Inc. (“iPower,” “we,” “us,” or “the Company”)is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies and consumer home goods. Through the operations of our e-commerce platforms and channel partners, and our combined 121,000 sq. ft. of fulfillment centers in Rancho Cucamonga and Los Angeles, California, we believe we are one of the leading marketers, distributors and retailers in the consumer gardening and home goods categories, based on management’s estimates. Our core strategy continues to focus on expanding our geographic reach across the United States and internationally through organic growth, both in terms of expanding customer base as well as brand and product development. iPower has developed a set of methodologies driven by proprietary data formulas to effectively bring products to market and sales.

Previous wording

We are actively developing our in-house branded products and through supply chain partners, which to date include theiPower andSimple Deluxe brands and more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others.

Current wording

We are actively developing our in-house branded products and through supply chain partners, which to date include theiPowerandSimple Deluxe brands and more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others.

Previous wording

While at present the majority of our products are sourced either in the United States or China, the military conflicts between Russia and Ukraine and Israel and Hamas may nonetheless increase the likelihood of supply chain disruptions and hinder our ability to find the materials we need to make our products. Thus far, as a result of the general global economic disruptions, we have experienced a decrease in the speed with which we are able to purchase new inventory, as well as an increase in costs due to delays in shipping, the resulting increase in time with which products remain in our warehouse facilities, thus resulting in reduced profits. 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.

Current wording

While at present the majority of our products are sourced either in the United States or China, the military conflicts between Russia and Ukraine and Israel and Hamas may nonetheless increase the likelihood of supply chain disruptions and hinder our ability to find the materials we need to make our products. Thus far, as a result of the general global economic disruptions, we have experienced a decrease in the speed with which we are able to purchase new inventory, as well as an increase in costs due to delays in shipping, as well as a resulting increase in time with which products remain in our warehouse facilities, thus resulting in reduced profits. 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.

Previous wording

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 46 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.

Current wording

Among our suite of products, 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. Demand for our products could be impacted by changes in the regulatory environment with respect to such industries and segments.

Previous wording

Revenues for the three months ended September 30, 2024 decreased 28.3% to $19,008,521 as compared to $26,508,374 for the three months ended September 30, 2023. While pricing remained stable and with the additional logistics service income, the decrease was mainly due to the combination of decreased orders from Amazon and temporary disruption of product supply during the quarter ended September 30, 2024 and the increased sales generated from promotional activities in the same quarter in 2023.

Current wording

Revenues for the three months ended December 31, 2024 increased 13.5% to $19,072,571 as compared to $16,800,122 for the three months ended December 31, 2023. While pricing remained stable and with the additional logistics service income, the increase mainly resulted from an increase in sales volume during the three months ended December 31, 2024 as compared to the three months ended December 31, 2023. This was further enhanced by growth in the Company’s SuperSuite supply chain offerings.

Previous wording

Other income (expenses) consist of interest expense and other non-operating income (expenses). Other income (expenses) for the three months ended September 30, 2024 was $77,805 as compared to $(296,556) for the three months ended September 30, 2023. The increase in other income (expenses) was mainly due to the combination of an increase in other non-operating income of $285,852, and a decrease in interest, including amortization of debt discount, on the revolving loan of $88,403 during the three months ended September 30, 2024 resulted from the decreasing loan balance.

Current wording

Other expenses consist of interest expense and other non-operating income (expenses). Other expenses for the three months ended December 31, 2024 was $347,432 as compared to $54,575 for the three months ended December 31, 2023. The increase in other expenses was mainly due to the combination of an increase in other non-operating expenses of $334,796, including a foreign currency exchange loss of 45,580, and a decrease in interest, including amortization of debt discount, on the revolving loan of $41,940 during the three months ended December 31, 2024 resulted from the decreasing loan balance.

Previous wording

Net loss attributable to iPower Inc. for the three months ended September 30, 2024 was $2,029,281 as compared to $1,286,515 for the three months ended September 30, 2023, representing an increase in net loss of $742,766. The increase was primarily due to the decrease in sales being greater than the decrease in operating expenses and the increase in gross profit ratio as discussed above.

Current wording

Net income (loss) attributable to iPower Inc. for the three months ended December 31, 2024 was $218,819 as compared to $(1,914,828) for the three months ended December 31, 2023, representing an increase in net income of $2,133,647. The increase was primarily due to the combination of a decrease in the operating expenses and an increase in gross profit ratio as discussed above.

Previous wording

Comprehensive loss attributable to iPower Inc. for the three months ended September 30, 2024 was $2,084,335 as compared to $1,287,222 for the three months ended September 30, 2023, representing an increase in comprehensive loss of $797,113. The increase was due to the reasons discussed above, along with an increase in other comprehensive loss of $54,347 as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our VIE in the PRC, to USD, the reporting currency of the Company.

Current wording

Comprehensive income (loss) attributable to iPower Inc. for the three months ended December 31, 2024 was $374,949 as compared to $(2,075,083) for the three months ended December 31, 2023, representing an increase in comprehensive income of $2,450,032. The increase was due to the reasons discussed above, along with an increase in other comprehensive income of $316,384 as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our VIE in the PRC, to USD, the reporting currency of the Company.

Previous wording

Costs of goods sold for the three months ended September 30, 2024 decreased 28.7% to $10,520,624 as compared to $14,749,529 for the three months ended September 30, 2023. The decrease was primarily due to a combination of the costs related to the logistics service income and the decrease in sales, freight costs, and lowered product costs resulted from management’s efforts on supply chain management.

Current wording

Costs of goods sold for the six months ended December 31, 2024 decreased 12.5% to $21,203,309 as compared to $24,231,411 for the six months ended December 31, 2023. The decrease was primarily due to a combination of the costs related to the logistics service income and the decrease in sales, freight costs, and lowered product costs resulted from management’s efforts on supply chain management.

Previous wording

Gross profit was $8,487,897 for the three months ended September 30, 2024 as compared to $11,758,845 for the three months ended September 30, 2023. The gross profit ratio of the product sales revenues increased to 45.7% for the three months ended September 30, 2024 from 44.4% for the three months ended September 30, 2023. The increase in the gross profit ratio was mainly driven by the decrease in costs of goods sold during the three months ended September 30, 2024, as discussed above.

Current wording

Gross profit was $16,877,783 for the six months ended December 31, 2024 as compared to $19,077,085 for the six months ended December 31, 2023. The gross profit ratio of the product sales revenues increased to 46.0% for the six months ended December 31, 2024 from 44.0% for the six months ended December 31, 2023. The increase in the gross profit ratio was mainly driven by the decrease in costs of goods sold during the six months ended December 31, 2024, as discussed above.

Previous wording

Operating expenses for the three months ended September 30, 2024 decreased 13.8% to $11,234,331 as compared to $13,027,522 for the three months ended September 30, 2023. The decrease was mainly due to the combination of a decrease in selling and fulfillment expenses of $4.1 million as a result of decreased costs related to advertising, merchant fees, rental expenses and delivery fees, and an increase in general and administrative expenses of $2.4 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and other operating expenses. The increase in general and administrative expenses was mainly due to the expansion of our vendor network and development of the SuperSuite platform and an increased allowance for credit loss and inventory reserves of $1.76 million.

Current wording

Operating expenses for the six months ended December 31, 2024 decreased 17.3% to $18,940,610 as compared to $22,898,109 for the six months ended December 31, 2023. The decrease was mainly due to the combination of a decrease in selling and fulfillment expenses of $6.5 million as a result of decreased costs related to advertising, merchant fees, rental expenses and delivery fees, and an increase in general and administrative expenses of $2.5 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and other operating expenses. The increase in general and administrative expenses was mainly due to the expansion of our vendor network and development of the SuperSuite platform and an increased allowance for credit loss and inventory reserves of $1.8 million.

Previous wording

Loss from operations was $2,746,434 for the three months ended September 30, 2024 as compared to $1,268,677 for the three months ended September 30, 2023. The increase in loss resulted from the decrease in sales being greater than the decrease in operating expenses and the increase in gross profit ratio.

Current wording

Loss from operations was $2,062,827 for the six months ended December 31, 2024 as compared to $3,821,024 for the six months ended December 31, 2023. The decrease in loss from operations resulted from the decrease in operating expenses being greater than the decrease in gross profit with the improved gross profit ratio.

Previous wording

During the three months ended September 30, 2024, we primarily funded our operations with cash and cash equivalents generated from operations, as well as through borrowing under our credit facility from JPMorgan Chase Bank (“JPM”). Additionally, on June 18, 2024, we closed on the registered direct offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase up to 2,083,334 Warrant Shares, which Shares and Warrants were sold for gross aggregate proceeds of $5,000,002. As of September 30, 2024, we had cash and cash equivalents of $2,577,305, representing a $4,800,532 decrease from $7,377,837 in cash as of June 30, 2024. The cash decrease was primarily due to the result ofcash used in operating activitiesand financing activities resulting from our payments to pay down the short-term loans - related party and the JPM revolving line of credit.

Current wording

During the six months ended December 31, 2024, we primarily funded our operations with cash and cash equivalents generated from operations, as well as through borrowing under our credit facility from JPMorgan Chase Bank (“JPM”). Additionally, on June 18, 2024, we closed on a registered direct offering of 2,083,334 shares of common stock (the “Shares”) and a concurrent private placement of warrants to purchase up to 2,083,334 shares of common stock (the “Warrants”), which Shares and Warrants were sold for aggregate gross proceeds of $5,000,002. As of December 31, 2024, we had cash and cash equivalents of $2,877,457, representing a $4,500,380 decrease from $7,377,837 in cash as of June 30, 2024. The cash decrease was primarily due to the result of cash used in operating activities and financing activities resulting from our payments to pay down the short-term loans - related party and the JPM revolving line of credit.

Previous wording

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 chain operations normalize 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. Currently, we have approximately $11.0 million in unused credit under the revolving line with JPM. Given our current working capital position and 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.

Current wording

Our cash requirements consist primarily of day-to-day operating expenses and obligations with respect to warehouse leases. We lease all of 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 chain operations normalize 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. Currently, we have approximately $11.0 million in unused credit under the revolving line with JPM.

Previous wording

As of September 30, 2024 and June 30, 2024, our working capital was $12.2 million and $11.2 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.

Current wording

As of December 31, 2024 and June 30, 2024, our working capital was $13.8 million and $11.2 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.

Previous wording

Our largest source of cash provided by operations is from sales of products. Our primary uses of cash from operating activities include payments to suppliers for products, to employees for compensation, and other general expenses. Net cash (used in) provided by operating activities for the three months ended September 30, 2024 and 2023 was $(1,415,643) and $4,052,341, respectively. The decrease in cash provided by operating activities mainly resulted from a decrease in cash received from customers and an increase in cash paid for cost of revenues and operating expenses.

Current wording

Our largest source of cash provided by operations is from sales of products. Our primary uses of cash from operating activities include payments to suppliers for products, to employees for compensation, and other general expenses. Net cash (used in) provided by operating activities for the six months ended December 31, 2024 and 2023 was $(1,387,926) and $5,045,731, respectively. The decrease in cash provided by operating activities mainly resulted from a decrease in cash received from customers and an increase in cash paid for costs of revenues and operating expenses.

Previous wording

Net cash used in investing activities for the three months ended September 30, 2024 and 2023 was $202,140 and $0, respectively. The increase was due to the prepayments made for software developments during the quarter ended September 30, 2024.

Current wording

Net cash used in investing activities for the six months ended December 31, 2024 and 2023 was $(664,366) and $0, respectively. The increase was due to the prepayments made for software developments during the six months ended December 31, 2024.

Previous wording

Net cash used in financing activities was $3,308,599 and $5,075,000, respectively, for the three months ended September 30, 2024 and 2023. The decrease in net cash used in financing activities was primarily due to a decrease in payments on the revolving loan.

Current wording

Net cash used in financing activities was $2,558,389 and $7,175,000, respectively, for the six months ended December 31, 2024 and 2023. The decrease in net cash used in financing activities was primarily due to a decrease in payments on the revolving loan.

Previous wording

Accounts receivable are recognized and carried at carrying amount less an allowance for credit losses, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses the potential impact of the COVID-19 pandemic on our customers’ businesses and their ability to pay their accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the COVID-19 pandemic. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses. In late October 2024, the Company determined that the collectability of certain shortage claim receivables from Amazon was remote so the Company recorded additional allowance for credit losses of approximately $1.5 million for the quarter ended September 30, 2024.

Current wording

Accounts receivable are recognized and carried at carrying amount less an allowance for credit losses, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis. The Company has also included in calculation of allowance for credit losses the potential impact of overall economic conditions on our customers’ industry and businesses and their ability to pay our accounts receivable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company also considers external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of the COVID-19 pandemic. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses. In late October 2024, the Company determined that the collectability of certain refundable amount withheld by sales channel partners was remote so the Company recorded additional allowance for credit losses of $41,346 and $1,516,940 for the three and six months ended December 31, 2024.

Previous wording

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 inventory and 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 and fulfillment expenses. The Company regularly review inventory and consider forecasts of future demand, market conditions and product obsolescence.

Current wording

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 inventory and costs 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 and fulfillment expenses. The Company regularly reviews inventory and considers forecasts of future demand, market conditions and product obsolescence.

Previous wording

During the three months ended September 30, 2024 and 2023, the Company performed a qualitative and quantitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment. As of September 30, 2024 and 2023, the goodwill balance amounted to $3,034,110 and $3,034,110, respectively.

Current wording

During the six months ended December 31, 2024 and 2023, the Company performed a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment. As of December 31, 2024 and June 30, 2024, the goodwill balance amounted to $3,034,110.

Previous wording

The Company reviews the recoverability of long-lived assets, including intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. As of September 30, 2024, there were no indicators of impairment.

Current wording

The Company reviews the recoverability of long-lived assets, including intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. As of December 31, 2024 and 2023, there were no indicators of impairment.