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What changed in iPower Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of iPower Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+283 added−284 removedSource: 10-K (2023-09-15) vs 10-K (2022-09-28)

Top changes in iPower Inc.'s 2023 10-K

283 paragraphs added · 284 removed · 194 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe plan to increase our investments in R&D relating to the improvement of existing products and the development and addition of new product lines. 2 Customers and Suppliers We have a diverse customer base, with residential gardeners and hobbyists constituting a significant portion of our customer base and thus the largest segment of our total sales.
Biggest changeCustomers and Suppliers We have a diverse customer base, with residential gardeners and home goods consumers constituting a significant portion of our customer base and thus the largest portion of our total sales. We sell to both commercial and home cultivators growing specialty crops, as well as in the home goods category.
We have 60% equity interest in GSM and a 40% equity interest in Box Harmony. Corporate Information The Company, a Nevada corporation, was formed on April 11, 2018 under the name BZRTH Inc. On September 4, 2020, we filed a Certificate of Amendment with the State of Nevada changing our name to iPower Inc.
We have a 60% equity interest in GSM and a 40% equity interest in Box Harmony. Corporate Information The Company, a Nevada corporation, was formed on April 11, 2018 under the name BZRTH Inc. On September 4, 2020, we filed a Certificate of Amendment with the State of Nevada changing our name to iPower Inc.
Large Established Distribution Infrastructure We have a fully developed distribution network through our three distribution centers in California. We work with a network of third-party common carrier trucking/freight companies that service our customers throughout the U.S., Canada and across the globe. We receive daily customer orders via our business-to-business e-commerce platform.
Large Established Distribution Infrastructure We have a fully developed distribution network through our distribution centers in California. We work with a network of third-party common carrier trucking/freight companies that service our customers throughout the U.S., Canada and across the globe. We receive daily customer orders via our business-to-business e-commerce platform.
In addition, on February 10, 2022 and January 14, 2022, respectively, we entered into joint venture agreements with Global Social Medial, LLC, a Nevada limited liability company formed in 2022 which provides social media platform and services to assist business in product marketing (“GSM”), and Box Harmony, LLC, a Nevada limited liability company formed in 2022 which provides 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 (“Box Harmony”).
In addition, on February 10, 2022 and January 14, 2022, respectively, we entered into joint venture agreements with Global Social Medial, LLC, a Nevada limited liability company formed in 2022 which provides social media platform and services to assist business in product marketing (“GSM”), and Box Harmony, LLC, a Nevada limited liability company formed in 2022 which provides logistics services primarily for foreign-based manufacturers and 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 (“Box Harmony”).
Through supply chain and industry competency, support services, and our relationships with suppliers, distributors, vendors and logistics partners, we believe we can maintain and increase our growth trajectory. 4 Intellectual Property and Proprietary Rights Our intellectual property primarily consists of our brands and their related trademarks, domain names, websites, customer lists and affiliations, as well as our marketing intangibles, product know-how and technology.
Through supply chain and industry competency, support services, and through our relationships with suppliers, distributors, vendors and logistics partners, we believe we can maintain and increase our growth trajectory. 3 Intellectual Property and Proprietary Rights Our intellectual property primarily consists of our brands and their related trademarks, domain names, websites, customer lists and affiliations, as well as our marketing intangibles, product know-how and technology.
Further, we believe our dedication to providing consumers with innovative and cutting-edge products tailored to their individual needs, combined with our industry knowledge and customer service, has positioned iPower to take advantage of the domestic and international growth anticipated for hydroponic products. 5 Corporate Structure We have been conducting business as iPower Inc.
Further, we believe our dedication to providing consumers with innovative and cutting-edge products tailored to their individual needs, combined with our industry knowledge and customer service, has positioned iPower to take advantage of the domestic and international growth anticipated for hydroponic products. 4 Corporate Structure We have been conducting business as iPower Inc.
We also hold rights to website addresses related to our business, including websites that are actively used in our daily business operations, such as www.Zenhydro.com. We own federally registered trademarks for “iPower” and “Simple Deluxe,” which correspond to our current in-house branded products.
We also hold rights to website addresses related to our business, including websites that are actively used in our daily business operations, such as Zenhydro.com and simpledeluxe.com. We own federally registered trademarks for “iPower” and “Simple Deluxe,” which correspond to our current in-house branded products.
For example, certain countries and a total of 44 U.S. states plus the District of Columbia have adopted frameworks, in varying forms, that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, as well as hemp and CBD, while the U.S.
For example, certain countries and a total of 46 U.S. states plus the District of Columbia have adopted frameworks, in varying forms, that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, as well as hemp and CBD, while the U.S.
Google advertising, social media advertising and email list marketing, in addition to auto-ship functionality, are the primary mechanisms we employ to drive traffic to www.zenhydro.com and the other portals through which we make our products available for sale, including Amazon.com, eBay and Walmart. At present, more than 50% of our total sales occur through Amazon.com.
Google advertising, social media advertising and email list marketing, in addition to auto-ship functionality, are the primary mechanisms we employ to drive traffic to our e-commerce platforms and the other portals through which we make our products available for sale, including Amazon.com, eBay and Walmart. At present, more than 90% of our total sales occur through Amazon.com.
In addition to offering products from hundreds of third-party brands, the Company has established its own in-house branded products which are also made available for purchase through our various sales channels.
While the company offers products from hundreds of third-party brands, the Company has also established its own in-house branded products which are made available for purchase through our various sales channels.
On May 18, 2021, the Company entered into equity purchase agreements (“Equity Purchase Agreements”) with the shareholders of E Marketing and GPM, pursuant to which we acquired 100% of the equity interests of each of E Marketing and GPM for nominal consideration and E Marketing and GPM became our wholly owned subsidiaries.
On May 18, 2021, the Company entered into equity purchase agreements with the shareholders of E Marketing and GPM, pursuant to which we acquired 100% of the equity interests of each of E Marketing and GPM for nominal consideration and E Marketing and GPM became our wholly owned subsidiaries. On February 15, 2022, the Company acquired Anivia Limited (“Anivia”).
On February 15, 2022, the Company acquired Anivia Limited (“Anivia”). Anivia indirectly owns Dayourenzai (Shenzhen) Technology Co., Ltd., a corporation located in the People’s Republic of China (“PRC”), which is a wholly foreign-owned enterprise of Fly Elephant Limited.
Anivia indirectly owns Dayourenzai (Shenzhen) Technology Co., Ltd., a corporation located in the People’s Republic of China (“PRC”), which is a wholly foreign-owned enterprise of Fly Elephant Limited. Dayourenzai (Shenzhen) Technology Co., Ltd.
We believe that we have the following core competitive advantages over our competitors: · In addition to our in-house branded products, we distribute products from hundreds of third-party brands, ensuring that whatever a customer’s particular need may be, they need look no further than iPower for their gardening needs. · Our knowledgeable and experienced sales team can provide guidance and insights, whether dealing with a seasoned commercial entity or a first-time purchaser looking to get their grow operations off the ground. · The convenience of our e-commerce platform allows customers to shop from the comfort of their own home and have their purchases shipped directly to them. · We offer top-to-bottom solutions, from custom build-outs to nutrients in order to ensure that their grow operations flourish and provide significant yields. · We view ourselves as an industry leader, offering products and new technologies from the largest and most trusted names in the business, as well as our own in-house branded products.
We believe that we have the following core competitive advantages over our competitors: · In addition to our in-house branded products, we distribute products from hundreds of third-party brands, ensuring that whatever a customer’s particular need may be, they need look no further than iPower for their product needs. · Our knowledgeable and experienced sales team can provide guidance and insights, whether dealing with a seasoned commercial entity or a first-time purchaser looking to get their grow operations off the ground. · The convenience of our e-commerce platform allows customers to shop from the comfort of their own home and have their purchases shipped directly to them. · We believe that our prominent position as a supplier to Amazon means that our products are prominently featured on the world’s most important retailer · We view ourselves as an industry leader, offering products and new technologies from the largest and most trusted names in the business, as well as our own in-house branded products.
In addition to our website, we offer products to consumers through established e-commerce channels such as Amazon, eBay and Walmart. Through these portals we offer various hydroponic, specialty and organic gardening products for sale.
In addition to our websites, we offer products to consumers through established e-commerce channels such as Amazon, eBay, and Walmart. Through these portals we offer various consumer products for sale.
Our principal offices are located at 2399 Bateman Avenue, Duarte, CA 91010 and our phone number is (626) 863-7344. Our business website is www.meetipower.com and our e-commerce website is www.Zenhydro.com. Information contained on our websites should not be deemed incorporated by reference and is not a part of this report.
Our principal offices are located at 8798 9th Street, Rancho Cucamonga, CA 91730, and our phone number is (626) 863-7344. Our business website is www.meetipower.com and our e-commerce websites are www.Zenhydro.com and www.simpledeluxe.com. Information contained on our websites should not be deemed incorporated by reference and is not a part of this report.
(“GPM”), to perform and conduct certain aspects of our business relative to marketing, banking and cash management. E-Marketing and GPM were wholly owned by one of our shareholders, Shanshan Huang, and one of our founders and majority shareholders, Chenlong Tan. See “ Certain Relationships and Related Transactions ” on page 84 of this report.
(“GPM”), to perform and conduct certain aspects of our business relative to marketing, banking and cash management. E-Marketing and GPM were wholly owned by one of our shareholders, Shanshan Huang, and one of our founders and majority shareholders, Chenlong Tan.
Moreover, we expect that as we continue to grow our business, we will achieve an economy of scale, and as such, will be able to make larger inventory purchases at lower volume sale prices, which will enable us to continue to maintain competitive pricing options and deliver the array of items that our customers require.
Moreover, we expect that as we continue to grow our business, we will achieve an economy of scale and, as such, will be able to further optimize supply chains, which will enable us to continue to maintain competitive pricing options and deliver the array of items that our customers require.
Based on our knowledge and communication with our suppliers, we believe some of our suppliers may sell directly to the retail market or to our wholesale customers.
Based on our knowledge and communication with our suppliers, we believe some of our suppliers may sell directly to the retail market or to our wholesale customers. Demand for Products We believe that demand for iPower’s products is strong for several reasons.
Hydroponics supplies generally include grow light systems; advanced heating, ventilation and air conditioning (“HVAC”) systems; humidity and carbon dioxide monitors and controllers; water pumps, heaters, chillers and filters; nutrient and fertilizer delivery systems; and various growing media typically made from soil, rock wool or coconut fiber, among others.
Our primary subcategories include consumer hydroponics equipment and supplies, consumer general gardening supplies, and consumer home and pet goods. Hydroponics supplies generally include grow light systems; advanced heating, ventilation and air conditioning (“HVAC”) systems; water pumps, heaters, chillers and filters; nutrient and fertilizer delivery systems; and various growing media typically made from soil, rock wool or coconut fiber, among others.
Dayourenzai (Shenzhen) Technology Co., Ltd. controls, through contractual arrangements, the business, revenues and profits of Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC and is located in Shenzhen, China (“DHS”).
Controls, through contractual arrangements, the business, revenues and profits of Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the laws of the PRC and is located in Shenzhen, China (“DHS”). DHS is principally engaged in selling a wide range of products and providing merchandizing and logistics services in the PRC.
Employees As of September 27, 2022, we have a total of 80 full-time and seven part-time employees and consultants. None or our employees are subject to collective bargaining agreements. 6
Employees As of September 14, 2023, we have a total of 70 full-time and five part-time employees and consultants. None or our employees are subject to collective bargaining agreements. 5
We seek to ensure the highest level of quality control for our products through routine factory visits, spot testing and continual, ongoing supplier due diligence. Our distributed products are sourced from more than 100 suppliers.
Quality control is a critical priority for our team charged with ensuring the supply of the products from our suppliers, specifically those coming from China. We seek to ensure the highest level of quality control for our products through routine factory visits, spot testing and continual, ongoing supplier due diligence. Our distributed products are sourced from more than 150 suppliers.
Grandview Research estimated that the size of the home goods market in the US was $740 billion in 2020 and should reach close to $1,040 billion by 2024, with a CAGR of 7.4%.
Grandview Research estimated that the size of the home goods market in the US was $740 billion in 2020 and should reach close to $1,040 billion by 2024, with a CAGR of 7.4%. 1 Research and Development The Company has not incurred any significant research and development (“R&D”) expenses during the fiscal year ended June 30, 2023.
Manufacturers We obtain both our branded proprietary products and distributed products from third party suppliers. Most of the products purchased and resold, whether our proprietary products or third-party products we sell through our platform, are applicable to indoor and outdoor growing for organics, greens and plant-based products.
For our hydroponic category, most of the products purchased and resold, whether our proprietary products or third-party products sold through our platform, are applicable to indoor and outdoor growing for organics, greens and plant-based products. Our products are sourced from more than 150 different suppliers and manufacturers, with approximately 90% sourced from China.
Approximately 90% of our sales revenue during the year ended June 30, 2022 were derived from sales on Amazon, eBay and Walmart, where we experienced approximately 47% revenue growth in the fiscal year ended June 30, 2022 as compared to the prior fiscal year.
Approximately 95% of our sales revenue during the year ended June 30, 2023 were derived from sales through Amazon, eBay and Walmart, where we experienced approximately 14% revenue growth in the fiscal year ended June 30, 2023 as compared to the prior fiscal year. Products iPower offers essential products in the hydroponic, gardening, home and pet goods categories.
Notwithstanding the foregoing, we believe that our pricing, inventory and product availability, and overall customer service provide us with the ability to compete in this marketplace.
Our competitors could also introduce products and as manufacturers are able to sell equipment directly to consumers, our distributors could cease selling products to us. Notwithstanding the foregoing, we believe that our pricing, inventory and product availability, and overall customer service provide us with the ability to compete in this marketplace.
We purchase our products from more than 100 suppliers, including manufacturers and distributors in the US and China. For the years ended June 30, 2022 and 2021, one supplier accounted for 18% and three suppliers accounted for 38% (18%, 10% and 10%) of the Company's total purchases, respectively. We do not have any long-term supply agreements.
For the years ended June 30, 2023 and 2022, one supplier accounted for 27% and 18% of the Company's total purchases, respectively. We do not have any long-term supply agreements. Manufacturers We obtain both our branded proprietary products and distributed products from third party suppliers.
We sell to both commercial and home cultivators growing specialty crops. At present, sales to customers through Amazon and other third-party online platforms accounts for more than 90% of our annual sales. We do not manufacture any of the hydroponic products we sell through our distribution channels.
At present, sales to customers through Amazon and other third-party online platforms accounts for approximately 98% of our annual sales. We do not manufacture any of the products we sell through our distribution channels. We purchase our products from more than 150 suppliers, including manufacturers and distributors in the U.S. and China.
Our in-house branded products, marketed under the iPower™ and Simple Deluxe™ brands, include 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, including products which have been designated “Amazon Choice Products” and “#1 Best Seller SKUs.” We currently offer more than 4,000 products from our proprietary, in-house branded products to consumers.
Our in-house branded products, marketed under the iPower™ and Simple Deluxe™ brands, include hydroponic-related items, fans, shelving, pet supplies and outdoor lifestyle products, some of which have been designated as Amazon best seller product leaders, and for which numerous products have been designated “Amazon’s Choice” and “#1 Best Seller.” We currently offer consumers more than 4,000 products from our proprietary, in-house branded products.
Our key competitors include many local and national vendors of gardening supplies, local product resellers of hydroponic and other specialty growing equipment, as well as other online product resellers on large online marketplaces such as Amazon.com and eBay. Our industry is highly fragmented with more than 1,000 retail outlets throughout the U.S.
Our key competitors include many local and national vendors of home and gardening supplies, local product resellers of hydroponic and other specialty growing equipment, as well as other online product resellers on large online marketplaces such as Amazon.com and eBay. We compete with companies that have greater capital resources, facilities, and diversity of product lines.
General gardening supplies generally include environmental sensors and controls and nutrients among others. Home goods supplies currently include commercial fans, floor and wall fans, storage and shelving units, and chairs among others. Hydroponic systems constitute an increasingly significant and fast-growing component of the expansive global commercial agriculture and consumer gardening sectors.
General gardening supplies generally include environmental sensors and controls and nutrients among others. Home goods supplies currently include commercial fans, floor and wall fans, storage and shelving units, and chairs among others. The home goods industry has become a significant category we sell into.
Our e-commerce site has been designed to appeal to both the professional grower, as well as the home gardener/hobbyist. Each product listed on the site contains product descriptions, product reviews and a picture so the consumer can make an informed and educated purchase. Our product filters allow the consumer to search by brand, manufacturer, or by price.
In addition to these sections, our webstores offer customers periodic flash deals, best value recommendations and clearance sale items. Each product listed on the site contains product descriptions, product reviews and a picture so the consumer can make an informed and educated purchase. Our product filters allow the consumer to search by brand, manufacturer, or by price.
Online shoppers can have the ability to peruse our various product departments, from nutrients to lighting to hydroponic and greenhouse equipment, providing consumers with an easy and quick method to find the exact products they need. In addition to these sections, our webstore frequently offers customers flash deals, best value recommendations and clearance sale items.
Online shoppers can have the ability to peruse our various product categories such as hydroponics equipment, home fans and furnishing, shelving, outdoor lifestyle products, and pet products, providing consumers with an easy and quick method to find the exact products they need.
The changing laws may cause us to experience additional capital expenditures as we adapt our business to meet the requirements of the evolving legal and regulatory landscape. As we believe certain unknown number of our end users are in the business of growing cannabis, we believe we have benefited from the nationwide efforts to legalize marijuana at the state level.
The changing laws may cause us to experience additional capital expenditures as we adapt our business to meet the requirements of the evolving legal and regulatory landscape. We believe that the growth in licensed cannabis cultivation facilities and the growth in organically grown produce will increase the general demand for hydroponics products, including the hobbyist consumer segment that we serve.
Research and Development The Company has not incurred any significant research and development (“R&D”) expenses during the fiscal year ended June 30, 2022. We do most of our development work in conjunction with our manufacturing partners, where we co-engineer designs with their development teams.
We do most of our development work in conjunction with our manufacturing partners, where we co-engineer designs with their development teams. We plan to increase our investments in R&D relating to the improvement of existing products and the development and addition of new product lines.
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ITEM 1. DESCRIPTION OF BUSINESS Our Business iPower Inc. (formerly BZRTH, Inc.), a California-based corporation, was formed in Nevada in April 2018. We own and operate the retail website www.zenhydro.com where we sell a wide array of stock keeping units (“SKUs”) and multiple best-selling products which enable our customers to grow vegetables, fruits and flowers, and other plants, including cannabis.
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ITEM 1. DESCRIPTION OF BUSINESS Our Business iPower Inc. (formerly BZRTH, Inc.), a California-based corporation, was formed in Nevada in April 2018. Driven by tech and data, iPower Inc. is a U.S.-based online retailer and supplier of consumer home, garden and pet products.
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We believe we are one of the largest online hydroponic equipment suppliers in the United States. The U.S. hydroponic and gardening industry is generally fragmented, and retail outlets are often smaller family-owned enterprises consisting of a single location.
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Through the operations of our e-commerce platforms, www.simpledeluxe.com and www.Zenhydro.com, as well as Amazon, Walmart and eBay, our combined 121,000 square foot fulfillment centers in Los Angeles, California, and our 99,000 square foot fulfillment center in Rancho Cucamonga, California, we believe we are one of the leading online marketers, distributors and retailers in our product categories, based on management’s estimates.
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We intend to take advantage of current market conditions by providing consumers with a one-stop shopping experience where they can satisfy all of their horticultural needs and have the products shipped directly to them. We have also leveraged our product development, merchandising and ecommerce expertise to extend our product catalog to address the broader general gardening and home goods market.
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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 increase sales.
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The company is also developing a suite of ecommerce services to enable companies and brands to penetrate global markets more effectively. The Company leases approximately 220,000 square feet of floor space across our four fulfillment centers just outside of Los Angeles, California and in Rancho Cucamonga, California. We have fostered relationships with recognized commercial shipping enterprises.
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We are actively developing and acquiring our in-house branded products, which to date include iPower, Simple Deluxe and other brands and consist of products such as home goods, fans, pet products and hydroponics equipment, some of which have been designated as Amazon Choice products and category best sellers, among others.
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From our four fulfillment centers, we deliver directly to customers including homes, farms and small commercial cultivators, as well as various commercial hydroponics stores across the United States.
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For the year ended June 30, 2023, our top five product categories accounted for 72% 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 through in-house products and our supply chain partners driven by market data analytics.
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In addition to iPower’s website, www.zenhydro.com , we sell our products through third party e-commerce channels including Amazon, eBay and Walmart.com, where we have worked to develop a strong presence on their platforms.
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This year, we expanded our in-house catalog to include more general home goods products, with home goods making up our largest meta category. Our Industry is Large and Rapidly Growing Our principal industry opportunity is in the retail sale and distribution of consumer goods.
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Products iPower offers essential supplies to the hydroponic, gardening and home goods industry, including nutrients, industry-leading hydroponic equipment, power-efficient lighting, and thousands of additional products for home users and professional growers.
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Consumer interest in hydroponics as a hobby and lifestyle choice a surge in interest driven by the stay-at-home necessities of the Covid-19 pandemic. This is in contrast to the weak demand environment for commercial hydroponics suppliers who are suffering from growing over capacity in the commercial sector.
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This year, our in-house catalog has expanded to include more general home goods products including floor fans, wall fans, shelving units, chairs and other items that are extensions of our hydroponic product catalog.
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Our non-hydroponics product lines are also seeing strong demand as the categories we participate in are primarily in large markets with a fragmented supply base. We also believe that our expertise in product development has created a catalog well suited to gaining market share in these categories.
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Specifically for the hydroponics market, we own and operate the retail website www.zenhydro.com where we sell a wide array of stock keeping units (“SKUs”) and multiple best-selling products which enable our customers to grow vegetables, fruits and flowers, and other plants, including cannabis. 1 Our Industry is Large and Rapidly Growing Our principal industry opportunity is in the retail sale and distribution of hydroponics equipment and supplies, general gardening supplies, and home goods.
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In addition, our relationship with our largest channel partner, Amazon, has also led to a strong demand environment. Working as a supplier on Amazon’s Vendor Central platform, we are confident that we have demonstrated our ability to supply products that consumers want, in sufficient volumes, enabling us to meet the stringent operating metrics required by Amazon.
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According to the USDA and National Gardening Survey, the agriculture, food, and related industry sector produced more than $1 trillion worth of goods in the U.S. alone in 2017. According to Statista, the market for garden supplies and equipment surpassed $100 billion in 2020, and is expected to reach $130 billion by 2024.
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We believe these has allowed us to gain share from other suppliers in our various channels. 2 E-Commerce Strategy The Company continues to grow and develop its e-commerce platforms, including zenhydro.com and simpledeluxe.com, where we sell our in house and third party products.
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According to ResearchandMarkets.com, the global industry for hydroponic systems is currently valued at approximately $12.1 billion and is projected to reach $25.1 billion by 2027. In addition, according to ResearchandMarkets.com, the global hydroponics crops market is estimated to be valued at approximately $37.7 billion in 2022 and is projected to reach $53.4 billion by 2028, recording a CAGR of 7.2%.
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In 2023, iPower purchased approximately 90% of its products and supplies from or through DHS.
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The rapid growth of hydroponics-related crop output will subsequently drive growth in the wholesale hydroponics equipment and supplies industry. The home goods industry has become a significant category we sell into.
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Increased Focus on Environmental, Social, and Governance (“ESG”) Issues We believe the growth and change in our end-markets is in part driven by a variety of ESG trends aimed at preserving resources and enhancing the transparency and safety of our food supply chains.
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It has been reported by McKinsey & Company that approximately 66% of consumers – and 75% of millennial consumers – consider sustainability when making purchases. ( See Business News Daily, “Most Consumers Want Sustainable Products and Packaging” (August 5, 2022)).
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Overall, hydroponic growing systems deliver superior performance characteristics versus traditional agriculture when compared on select key ESG performance criteria: · More efficient land usage. Hydroponics systems allow for greater crop production per square foot, reducing the amount of land needed to grow crops.
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Certain types of vertical farming are up to 20 times more productive than traditional farming per acre. · More efficient fresh water usage. Hydroponics systems allow for the management and recycling of water inside of a closed-loop system and therefore generally require less water than traditional outdoor agriculture.
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In certain instances, hydroponics systems can grow plants with up to 98% less water than soil-based agriculture. · Decreased use of fertilizer and pesticides. As hydroponics takes place in a controlled, often indoor environment, the need for pesticides application is reduced, allowing growers to apply less pesticide with more precise application compared to traditional outdoor agriculture. · Reduced carbon emissions.
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Hydroponics, especially vertical farming, allows large farming operations to be located significantly closer to end-users, thereby reducing the transportation distance of ready-to-use crops. · Reduced food waste.
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Similar to the above, since hydroponics growing systems allow for food production significantly closer to the end-user, there is less time between production and consumption and therefore reduced product spoilage, damage and waste. · Chemical runoff prevention.
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Due to the closed-loop nature of hydroponics systems, such systems significantly decrease the risk of chemical runoff, which is generally more difficult to control in traditional outdoor agriculture. · Supports organic farming. Hydroponics is well suited for organic farming, the produce of which has been in increasing demand by consumers.
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Our products are sourced from more than 100 different suppliers and manufacturers, with approximately 84% sourced from China. Quality control is a critical priority for our team charged with ensuring the supply of the products from our suppliers, specifically those coming from China.
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See “ Risk Factors — Risks Relating to Our Business.” Demand for Products Demand for indoor and outdoor growing equipment is currently high due to the legalization of plant-based medicines, primarily cannabis, which is mainly due to equipment purchases for build-out and repeat purchases of consumable nutrients needed during the growing period.
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This demand is projected to continue to grow as additional states adopt legislation supporting the sale and consumption of cannabis and cannabis-related products. Continued innovation and more efficient build-out of technologies along with larger and consolidated and combined cultivation facilities is expected to further expand market demand for iPower products and services, including our in-house branded products.
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We expect the market to continue to segment into urban farmers serving groups of individuals, community cultivators, and small- and large-scale commercial cultivation facilities across the states. We are of the opinion that as our volume increases, we will obtain volume discounts on purchasing that should allow us to maximize both our revenues and gross margins.
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In addition, the vertical farming market is increasing year over year, where it is projected to grow from $3.98 billion in 2020 to $21.15 billion in 2028, representing a 23.6% compound annual growth rate. 3 E-Commerce Strategy The Company continues to grow and develop its e-commerce platform, www.zenhydro.com., where we sell hydroponic products, including equipment, tools, nutrients and more.
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We compete with companies that have greater capital resources, facilities and diversity of product lines. Our competitors could also introduce new hydroponic growing equipment, and as manufacturers are able to sell equipment directly to consumers, our distributors could cease selling products to us.
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To date, a total of 44 states plus the District of Columbia (“D.C.”) have legalized cannabis in one form or another, with 15 states plus D.C. have legalizing marijuana for adult use, including both medicinal and recreational, 20 states having legalized marijuana for medical purposes only, and 12 states have legalized the use of CBD oil (a concentrated form of hemp extract) only.
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According to the 2019 US Cannabis Cultivation Report published by New Frontier Data, United States cultivation output is expected to grow from 29.8 million pounds in 2019 to 34.4 million pounds by 2025.
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According mjbizdaily.com, the U.S. retail cannabis industry grew to a record $27 billion in sales in 2021, is expected to hit $33 billion in 2022, with expected annual sales of $52.6 billion by 2026.
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( See https://mjbizdaily.com/us-cannabis-sales-estimates/).We intend to leverage the growth of cannabis and CBD products, in tandem with its increased legalization, to further build our brand and promote our hydroponics equipment and products within the cannabis community. We believe that the growth in licensed cannabis cultivation facilities and the increase in organically grown produce will increase the general demand for hydroponics products.
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DHS is principally engaged in selling of a wide range of products and providing logistic services in the PRC and has been iPower’s sole source of supplies and logistics support for products purchased from the PRC since iPower’s inception. In 2021, iPower purchased more than 60% of its products and supplies from or through DHS.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the more significant challenges we face include: · The ongoing conflict between Russia and Ukraine may adversely affect our business, financial condition, results from operations, or the businesses of our suppliers, vendors and logistics partners. · The continuing COVID-19 pandemic and the efforts to mitigate its impact may have an adverse impact on our business, liquidity, operations, financial condition, the businesses of our suppliers, vendors and logistics partners, and the price of our securities. · Our Company’s founders own approximately 54.26% of our Common Stock, which effectively gives our founders full control over the board of directors and management of the Company for the foreseeable future. · The Company faces intense competition in the hydroponics marketplace which could prohibit us from developing or increasing our customer base beyond present levels. · Our ability to ensure consistency in the quality of our products and supply chain. · Approximately 90% of our current revenues are derived from sales of our products through online third-party platforms, including Amazon.com, Walmart and eBay; any disruption to these business channels could be detrimental to our business. · Potential disruption of our business and supply chain that may be caused by any conflicts, trade wars or currency fluctuations or tariffs between China and the U.S. · In the event we require additional capital resources to fund our enterprise, we may not be able to obtain sufficient capital and may be forced to limit the expansion of our operations. · Certain of our products may be purchased for use in new and emerging industries or segments, such as cannabis, and may be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. · Our business depends significantly on the continuing efforts of our management team and our business may be impacted if we should lose their services. · Certain relationships, acquisitions, strategic alliances, and investments could result in operating issues, dilutions, and other harmful or unintended consequences which may adversely impact our business and the results of our operations. · Our continued investment and development in our in-house branded products is inherently risky and could disrupt our ongoing business. · If the Company is unable to maintain and continue to develop our e-commerce platform, our reputation and operating results may be materially harmed. · As the bulk of our sales are carried out through e-commerce, we are subject to certain cyber security risks, including hacking and stealing of customer and confidential data. · There are a myriad of risks, including stock market volatility, inherent in owning our securities.
Biggest changeSome of the more significant challenges we face include: · Our Company’s founders own approximately 53.98% of our common stock, which effectively gives our founders full control over the board of directors and management of the Company for the foreseeable future. · The Company faces intense competition in the hydroponics marketplace which could prohibit us from developing or increasing our customer base beyond present levels. · Our ability to ensure consistency in the quality of our products and supply chain. · Approximately 98% of our current revenues are derived from sales of our products through online third-party platforms, including Amazon.com, Walmart and eBay; any disruption to these business channels could be detrimental to our business. · Potential disruption of our business and supply chain that may be caused by any conflicts, trade wars or currency fluctuations or tariffs between China and the U.S. · The ongoing conflict between Russia and Ukraine may adversely affect our business, financial condition, results from operations, or the businesses of our suppliers, vendors and logistics partners. · The ongoing COVID-19 epidemic, and any resurgence in related infections, whether in the U.S., China or elsewhere, along with any efforts to mitigate its impact could have an adverse effect on our business, liquidity, operations, financial condition, the business of our suppliers, vendors and logistic partners, and the price of our securities. · In the event we require additional capital resources to fund our enterprise, we may not be able to obtain sufficient capital and may be forced to limit the expansion of our operations. · Certain of our products may be purchased for use in new and emerging industries or segments, such as cannabis, and may be subject to varying, inconsistent and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions. · Our business depends significantly on the continuing efforts of our management team and our business may be impacted if we should lose their services. · Certain relationships, acquisitions, strategic alliances and investments could result in operating issues, dilutions and other harmful or unintended consequences which may adversely impact our business and the results of our operations. · Our continued investment and development in our in-house branded products is inherently risky and could disrupt our ongoing business. · If the Company is unable to maintain and continue to develop our e-commerce platform, our reputation and operating results may be materially harmed. · As the bulk of our sales are carried out through e-commerce, we are subject to certain cyber security risks, including hacking and stealing of customer and confidential data. · If we fail to comply with the continued listing requirements of the Nasdaq Stock Market, it could result in our common stock being delisted, which could adversely affect the market price and liquidity of our securities and could have other adverse effects. · There are a myriad of risks, including stock market volatility, inherent in owning our securities. 6 Risks Related to Our Business and Products We sell proprietary brand offerings, as well as third party brands, which could expose us to various risks.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.
Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial condition, resulting in reduced spending for the products we sell. 9 As events are rapidly changing, we do not know how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or the full extent of that disruption.
Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial condition, resulting in reduced spending for the products we sell. As events are rapidly changing, we do not know how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or the full extent of that disruption.
The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows. We collect, process, store, use and share information collected from or about purchasers and users of our website and products.
The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows. 17 We collect, process, store, use, and share information collected from or about purchasers and users of our website and products.
The need to obtain such approval or registration could delay the launch of new products or product innovations that contain ingredients or otherwise prevent us from developing and manufacturing certain products and product innovations. 8 The ongoing conflict between Russia and Ukraine may adversely affect our business, financial condition, or results of operations .
The need to obtain such approval or registration could delay the launch of new products or product innovations that contain ingredients or otherwise prevent us from developing and manufacturing certain products and product innovations. The ongoing conflict between Russia and Ukraine may adversely affect our business, financial condition, or results of operations .
We may not have the financial resources, relationships with key suppliers, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. We may not be able to successfully develop new products or improve existing products or maintain our effectiveness in reaching consumers through rapidly evolving communication vehicles.
We may not have the financial resources, relationships with key suppliers, technical expertise or marketing, distribution, or support capabilities to compete successfully in the future. 7 We may not be able to successfully develop new products or improve existing products or maintain our effectiveness in reaching consumers through rapidly evolving communication vehicles.
Our future success depends substantially on the continued services of our executive officers, especially our Chairman, Chief Executive Officer and President, Chenlong Tan. We do not presently maintain key man life insurance on any of our executive officers and directors, although we intend to obtain such insurance in the near future.
Our future success depends substantially on the continued services of our executive officers, especially our Chairman, Chief Executive Officer and President, Chenlong Tan. We do not presently maintain key man life insurance on any of our executive officers or directors, although we intend to obtain such insurance in the near future.
Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products we require, which could harm our business and results of operations. 16 Disruptions in availability or increases in the prices of raw materials sourced by suppliers could adversely affect our results of operations.
Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products we require, which could harm our business and results of operations. Disruptions in availability or increases in the prices of raw materials sourced by suppliers could adversely affect our results of operations.
We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all.
We intend to continue to make investments to support our business, which may require us to engage in equity or debt financing to secure additional funds. Additional financing may not be available on terms favorable to us, if at all.
Accordingly, the operation of our e-commerce platform, branding and marketing of our own in-house branded products, and our relationships with third-party vendors and suppliers has been limited. If we are unable to effectively maintain our relationships with third-party vendors and suppliers, manage our e-commerce operations, as well as other sales platforms/distribution network, our business is unlikely to succeed.
Accordingly, the operation of our e-commerce platform, branding and marketing of our own in-house branded products, and our relationships with third-party vendors and suppliers have been limited. If we are unable to effectively maintain our relationships with third-party vendors and suppliers, manage our e-commerce operations, as well as other sales platforms/distribution network, our business is unlikely to succeed.
We are required, pursuant to Section 404 of t he Sarbanes-Oxley Act of 2002, or Section 404, to furnish a report by management on the effectiveness of our internal control over financial reporting for the fiscal year ending June 30, 2022.
We are required, pursuant to Section 404 of t he Sarbanes-Oxley Act of 2002, or Section 404, to furnish a report by management on the effectiveness of our internal control over financial reporting for the fiscal year ending June 30, 2023.
Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping, and proceeds of crimes. We sell our products through our website, www.Zenhydro.com, as well as through online third party retail platforms which do not exclusively sell to customers operating in the cannabis industry.
Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping, and proceeds of crimes. We sell our products through our websites, www.Zenhydro.com and www.simpledeluxe.com, as well as through online third-party retail platforms which do not exclusively sell to customers operating in the cannabis industry.
In addition to selling our products through our own online platform, www.Zenhydro.com, we sell products, including hydroponic gardening products, through third-party retailers and resellers. End users may purchase these products for use in new and emerging industries that may not achieve market acceptance in a manner that we can predict.
In addition to selling our products through our own online platforms, www.Zenhydro.com and www.simpledeluxe.com, we sell products, including hydroponic gardening products, through third-party retailers and resellers. End users may purchase these products for use in new and emerging industries that may not achieve market acceptance in a manner that we can predict.
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404.
Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities. 23 In addition to sales through our own platform, www.Zenhydro.com, we sell our products through third-party retailers and resellers.
Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities. In addition to sales through our own platforms, www.Zenhydro.com and www.simpledeluxe.com, we sell our products through third-party retailers and resellers.
Thereafter, we launched our e-commerce platform, www.Zenhydro.com, where we sell our own in-house branded products, marketed under the iPower and Simple Deluxe brands, and provide distribution for hundreds of other brands manufactured by a number of third-party vendors.
Thereafter, we launched our e-commerce platforms, www.Zenhydro.com and www.simpledeluxe.com, where we sell our own in-house branded products, marketed under the iPower and Simple Deluxe brands, and provide distribution for hundreds of other brands manufactured by a number of third-party vendors.
Our business should be viewed in light of these risks, challenges and uncertainties. An estimated 90% of our sales are carried out through third-party platforms, including Amazon.com, Walmart, and eBay; any disruption in our selling efforts on such third party platforms could substantially disrupt our business.
Our business should be viewed in light of these risks, challenges and uncertainties. 9 An estimated 98% of our sales are carried out through third-party platforms, including Amazon.com, Walmart and eBay; any disruption in our selling efforts on such third party platforms could substantially disrupt our business.
ITEM 1A. RISK FACTORS An investment in our securities involves a high degree of risk. You should carefully consider all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, including our financial statements and related notes, before making a decision to invest in our securities.
ITEM 1A. RISK FACTORS An investment in our securities involves a high degree of risk. You should carefully consider all of the risks described below, together with the other information contained in this Annual Report, including our financial statements and related notes, before making a decision to invest in our securities.
As a result, litigation may adversely affect our business, financial condition, and results of operations. Since inception, aside from a dispute with the placement agent of our 2020-2021 pre-IPO private placements, the Company has not been a party to any material litigation. See “ Business—Legal Proceedings ” for additional information.
As a result, litigation may adversely affect our business, financial condition, and results of operations. Since inception, aside from a dispute with the placement agent of our 2020-2021 pre-IPO private placements, the Company has not been a party to any material litigation. See “Item 3. Legal Proceedings” for additional information.
We could be an “emerging growth company” for up to five years following the effectiveness of this registration statement, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three year period.
We could be an “emerging growth company” for up to five years following the effectiveness of this registration statement, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three year period. 27 Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.
Our management and independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of Sarbanes-Oxley Act.
Our management and independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions under Section 404(b) of Sarbanes-Oxley Act.
Although we have been deemed an “essential” business by state and local authorities in the areas in which we operate, we have undertaken the following measures in an effort to mitigate the spread of COVID-19 including limiting business hours, and encouraging employees to work remotely if possible.
Although we were deemed an “essential” business by state and local authorities during the height of the pandemic in the areas in which we operate, we have undertaken the following measures in an effort to mitigate the spread of COVID-19 including limiting business hours, and encouraging employees to work remotely if possible.
To the extent the conflict between Russia and Ukraine may adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this “ Risk Factors ” section, as well as other risks which we may not be currently aware of.
To the extent the conflict between Russia and Ukraine may adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, as well as other risks which we may not be currently aware of.
To the extent the COVID-19 pandemic may adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this “ Risk Factors ” section, as well as other risks which we may not be currently aware of.
To the extent the COVID-19 pandemic may adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, as well as other risks which we may not be currently aware of.
Summary Risk Factors The risks described under the heading “ Risk Factors ” beginning on page 8 of this Annual Report on Form 10-K may cause us not to realize the full benefits of our strengths and/or may cause us to be unable to successfully execute all or part of our strategy.
Summary Risk Factors The risks described under the heading “Risk Factors” beginning on page 6 of this Annual Report on Form 10-K may cause us to be unable to realize the full benefits of our strengths and/or may cause us to be unable to successfully execute all or part of our strategy.
There can be no assurance that we will have available assets to pay to the holders of Common Stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, stockholders could lose some or all of their investment.
There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, stockholders could lose some or all of their investment. 28 ITEM 1B. Unresolved Staff Comments. None.
However, should we be unable to continue to absorb such costs, or should we need to pass all such costs on to consumers, such increase could cut into our competitive advantage and our volume of sales activity in the United States could be materially reduced. Any such reduction may materially and adversely affect our sales and our business.
However, should we be unable to continue to absorb such costs, or should we need to pass all such costs on to consumers, such increase could cut into our competitive advantage and our volume of sales activity in the United States could be materially reduced.
Our compliance with Section 404 will require that we incur substantial accounting expenses and expend significant management efforts.
Our compliance with Section 404 requires that we incur substantial accounting expenses and expend significant management efforts.
If we are unable to protect or preserve the value of our intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged, and our business may be harmed. 7 Although we believe that our proprietary brand products offer significant value to our customers at each price point and provide us with higher gross margins than sales of comparable third-party branded products, expanding our proprietary brand offerings subjects us to certain specific risks in addition to those discussed elsewhere in this section, such as: · potential mandatory or voluntary product recalls in the event of product defects or other issues; · the measures we take may not effectively or sufficiently protect and/or maintain the intellectual property, and proprietary rights associated with our products and business; · we may be required to heavily invest in marketing such proprietary branded products; · our ability to successfully innovate and obtain, maintain, protect and enforce our intellectual property and proprietary rights (including defending against counterfeit, knock offs, grey-market, infringing or otherwise unauthorized goods); and · our ability to successfully navigate and avoid claims related to the intellectual property and proprietary rights of third parties, which, if successful, could force us to modify or discontinue products, pay significant damages or enter into expensive licensing arrangements with the prevailing party, in addition to other harm, including to our reputation or financial results.
Although we believe that our proprietary brand products offer significant value to our customers at each price point and provide us with higher gross margins than sales of comparable third-party branded products, expanding our proprietary brand offerings subjects us to certain specific risks in addition to those discussed elsewhere in this section, such as: · potential mandatory or voluntary product recalls in the event of product defects or other issues; · the measures we take may not effectively or sufficiently protect and/or maintain the intellectual property, and proprietary rights associated with our products and business; · we may be required to heavily invest in marketing such proprietary branded products; · our ability to successfully innovate and obtain, maintain, protect and enforce our intellectual property and proprietary rights (including defending against counterfeit, knock offs, grey-market, infringing or otherwise unauthorized goods); and · our ability to successfully navigate and avoid claims related to the intellectual property and proprietary rights of third parties, which, if successful, could force us to modify or discontinue products, pay significant damages or enter into expensive licensing arrangements with the prevailing party, in addition to other harm, including to our reputation or financial results.
However, of these, approximately 5% of the goods sourced in China were purchased through our newly acquired VIE, DHS. The U.S. and China have been involved in ongoing trade disputes, resulting in increased tariffs when such goods arrive in the U.S., among other things.
However, all of the goods sourced in China were purchased through our VIE, DHS. The U.S. and China have been involved in ongoing trade disputes, resulting in increased tariffs when such goods arrive in the U.S., among other things.
U.S. and foreign governments have enacted or are considering legislation related to digital advertising and we expect to see an increase in legislation and regulation related to digital advertising, the collection and use of user data and unique device identifiers, such as IP address, and other data protection and privacy regulation.
We engage in interest-based advertising on our e-commerce website. U.S. and foreign governments have enacted or are considering legislation related to digital advertising and we expect to see an increase in legislation and regulation related to digital advertising, the collection and use of user data and unique device identifiers, such as IP address, and other data protection and privacy regulation.
In addition, the interpretation and application of privacy and data protection-related laws in some cases is uncertain, and our legal and regulatory obligations are subject to frequent changes, including the potential for various regulator or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties. 17 We engage in interest-based advertising on our e-commerce website.
In addition, the interpretation and application of privacy and data protection-related laws in some cases is uncertain, and our legal and regulatory obligations are subject to frequent changes, including the potential for various regulator or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties.
We are heavily reliant on manufacturers in China to produce many of the goods we sell in that approximately 84% of the products we purchased for resale during the fiscal year ending June 30, 2022 were manufactured in and imported from China. At present, we have 31 suppliers in the U.S. and more than 100 suppliers in China.
We are heavily reliant on manufacturers in China to produce many of the goods we sell. Approximately 90% of the products we purchased for resale during the fiscal year ending June 30, 2023 were manufactured in and imported from China. At present, we have 13 suppliers in the U.S. and more than 140 suppliers in China.
For the years ended June 30, 2022 and 2021, Amazon Vendor and Amazon Seller customers accounted for 88% and 80% of the Company's total revenues, respectively, and as of June 30, 2022 and 2021, accounts receivable from Amazon Vendor and Amazon Seller accounted for 94% and 98% of the Company’s total accounts receivable, respectively.
For the years ended June 30, 2023 and 2022, Amazon Vendor and Amazon Seller customers accounted for 91% and 88% of the Company's total revenues, respectively, and as of June 30, 2023 and 2022, accounts receivable from Amazon Vendor and Amazon Seller accounted for 95% and 94% of the Company’s total accounts receivable, respectively.
Any new laws and regulations limiting the use or cultivation of cannabis and any enforcement actions by state and federal governments could indirectly reduce demand for our products and may impact our current and planned future operations.
As a result, the laws governing the cultivation and use of cannabis may be subject to change. Any new laws and regulations limiting the use or cultivation of cannabis and any enforcement actions by state and federal governments could indirectly reduce demand for our products and may impact our current and planned future operations.
We sell certain of our products over the internet through our e-commerce platform, www.Zenhydro.com.
We sell certain of our products over the internet through our e-commerce platforms, www.Zenhydro.com and www.simpledeluxe.com.
Our founders, officers and directors collectively will beneficially own approximately 54.26% of our outstanding shares of Common Stock.
Our founders, officers and directors collectively will beneficially own approximately 53.98% of our outstanding shares of common stock.
The conflict between Russia and Ukraine may have the effect of heightening many of the other risks described in this “ Risk Factors ” section.
The conflict between Russia and Ukraine may have the effect of heightening many of the other risks described in this “Risk Factors” section.
On April 30, 2021, Boustead filed a statement of claim with the Financial Industry Regulatory Authority, or FINRA, demanding to arbitrate the dispute, and is seeking, among other things, monetary damages against the Company and D.A. Davidson & Co. We are presently waiting for the FINRA panel to schedule a hearing on the matter.
On April 30, 2021, Boustead filed a statement of claim with the Financial Industry Regulatory Authority, or FINRA, demanding to arbitrate the dispute, and is seeking, among other things, monetary damages against the Company and D.A. Davidson & Co. A pre-hearing conference is presently scheduled for the matter on September 26, 2023.
Our management has conducted an evaluation of the effectiveness of our internal controls over financial reporting and 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, and (ii) our controls related to financial statements closing process were not adequately designed or appropriately implemented to identify material misstatements in our financial reporting on a timely basis. 19 Management has evaluated remediation plans for the deficiency and has implemented changes to address the material weakness identified, including hiring additional accountants and consultants and implementing controls and procedures over financial reporting process.
Our management has conducted an evaluation of the effectiveness of our internal controls over financial reporting and concluded that our internal controls over financial reporting were not effective because, among other things, (i) we lack effective communication and reconciliation procedures in our controlled subsidiaries, and (ii) 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. 19 Management has evaluated remediation plans for the deficiency and has implemented changes to address the material weakness identified, including hiring additional accountants and consultants and implementing controls and procedures over financial reporting process.
The COVID-19 pandemic may have the effect of heightening many of the other risks described in this “ Risk Factors ” section.
The COVID-19 pandemic may have the effect of heightening many of the other risks described in this “Risk Factors” section.
Although the demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business. 13 Continued federal intervention in certain segments of the cannabis industry may have a negative impact on us.
Although the demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business.
For example, certain countries and 36 U.S. states have adopted frameworks that authorize, regulate and tax the cultivation, processing, sale and use of cannabis for medicinal and/or non-medicinal use, while the U.S. Controlled Substances Act and the laws of certain U.S. states prohibit growing cannabis.
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.
New laws, regulations and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may, as regards our China-based subsidiaries: ● Delay or impede development, ● Result in negative publicity or increase our operating costs, ● Require significant management time and attention, and ● Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our China-based business practices. 11 The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, could restrict or otherwise unfavorably impact the ability or manner in which we conduct the business of our China based subsidiaries and could require us to change certain aspects of their business to ensure compliance, which could delay our procurement of goods, reduce revenues, increase costs, or subject us to additional liabilities.
New laws, regulations and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may, as regards our China-based subsidiaries: · Delay or impede development, · Result in negative publicity or increase our operating costs, · Require significant management time and attention, and · Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our China-based business practices.
If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our Common Stock to decline. 28 Now that we are an actively-traded Nasdaq-listed company, the market price of our Common Stock may be volatile.
If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our common stock to decline.
Our most price-sensitive customers may trade down to lower priced products during challenging economic times or if current economic conditions worsen, while other customers may reduce discretionary spending during periods of economic uncertainty, which could reduce sales volumes of our products in favor of our competitors’ products or result in a shift in our product mix from higher margin to lower margin products.
Our most price-sensitive customers may trade down to lower priced products during challenging economic times or if current economic conditions worsen, while other customers may reduce discretionary spending during periods of economic uncertainty, which could reduce sales volumes of our products in favor of our competitors’ products or result in a shift in our product mix from higher margin to lower margin products. 10 Heightened inflation, increased interest rates and other economic conditions including potential recession and credit market disruptions could negatively impact our business.
A significant interruption in the operation of our or our suppliers’ facilities, especially for those products manufactured at a limited number of facilities, such as fertilizer and liquid products, could significantly impact our capacity to sell products and service our customers in a timely manner, which could have a material adverse effect on our customer relationships, revenues, earnings and financial position.
A significant interruption in the operation of our or our suppliers’ facilities, especially for those products manufactured at a limited number of facilities, such as fertilizer and liquid products, could significantly impact our capacity to sell products and service our customers in a timely manner, which could have a material adverse effect on our customer relationships, revenues, earnings, and financial position. 16 If our suppliers are unable to source raw materials in sufficient quantities, on a timely basis, and at acceptable costs, our ability to sell our products may be harmed.
However, regulation of the cannabis industry does impact those that we believe represent many end-users for our products and, accordingly, there can be no assurance that changes in regulation of the industry and more rigorous enforcement by federal authorities will not have a material adverse effect on us.
However, regulation of the cannabis industry does impact those that we believe represent many end-users for our products and, accordingly, there can be no assurance that changes in regulation of the industry and more rigorous enforcement by federal authorities will not have a material adverse effect on us. 23 Legislation and regulations pertaining to the use and cultivation of cannabis are enacted on both the state and federal government level within the United States.
Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company. See “Principal Stockholders” for further discussion of the stockholding of our founders and principal stockholders.
Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company. See “Item 12.
A substantial proportion of our sales occur on Amazon and, as such, should our Company experience any negative actions by Amazon, our sales could be significantly affected. A significant proportion of our sales occur on the Amazon.com platform.
Experiencing any of these issues could have a material adverse effect on our business and harm our reputation. 15 A substantial proportion of our sales occur on Amazon and, as such, should our Company experience any negative actions by Amazon, our sales could be significantly affected. A significant proportion of our sales occur on the Amazon.com platform.
While we maintain our own website, www.Zenhydro.com , as well as our offline wholesale department, which together account for approximately 10% of our sales, a large percentage of our overall sales, or approximately 90%, occurred on third party platforms such as Amazon.com, Walmart, and eBay .
While we maintain our own websites, Zenhydro.com and simpledeluxe.com , as well as our offline wholesale department, which together account for approximately 2% of our sales, the bulk of our overall sales, or approximately 98%, occurred on third party platforms such as Amazon.com, Walmart eBay and other platforms .
Our China-based subsidiaries, Dayourenzi (Shenzhen) Technology Co., Ltd. and Daheshou (Shenzhen) Information Technology Co., Ltd., through which we procure the majority of our inventory and overseas logistical support, are owned through contractual agreements, as required by the laws of the People’s Republic of China (“PRC”).
Any such reduction may materially and adversely affect our sales and our business. 11 Our China-based subsidiaries, Dayourenzi (Shenzhen) Technology Co., Ltd. and Daheshou (Shenzhen) Information Technology Co., Ltd., through which we procure the majority of our inventory and overseas logistical support, are owned through contractual agreements, as required by the laws of the PRC.
Due to this competition, there is no assurance that we will not encounter difficulties in increasing revenues and maintaining and/or increasing market share. In addition, increased competition may lead to reduced prices and/or margins for products we sell.
Due to this competition, there is no assurance that we will not encounter difficulties in increasing revenues and maintaining and/or increasing market share.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 27 We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We have in the past, and may in the future, experience difficulties in manufacturing our products on a timely basis and in sufficient quantities. These difficulties have primarily related to difficulties associated with ramping up production of newly introduced products and may result in increased delivery lead-times and increased costs of manufacturing these products.
These difficulties have primarily related to difficulties associated with ramping up production of newly introduced products and may result in increased delivery lead-times and increased costs of manufacturing these products.
If the difficulties experienced by our suppliers continues, we cannot guarantee that we will be able to locate alternative sources of supply for our merchandise on acceptable terms, or at all.
If the difficulties experienced by our suppliers continues, we cannot guarantee that we will be able to locate alternative sources of supply for our merchandise on acceptable terms, or at all. If we are unable to purchase appropriate amounts of inventory, our business and results of operations may be materially and adversely affected.
Although we expect minimal impact on the Company from any federal government crackdown on cannabis providers, a disruption to the cannabis industry could cause some potential customers to be more reluctant to invest in growing equipment, including equipment we sell. Moreover, the federal government’s tactics may change or have unforeseen effects, which could be detrimental to our business.
Continued federal intervention in certain segments of the cannabis industry may have a negative impact on us. Although we expect minimal impact on the Company from any federal government crackdown on cannabis providers, a disruption to the cannabis industry could cause some potential customers to be more reluctant to invest in growing equipment, including equipment we sell.
If we need additional capital to fund the expansion of our operations, we may not be able to obtain sufficient capital on terms favorable to us and may be forced to limit the expansion of our operations.
In addition, increased competition may lead to reduced prices and/or margins for products we sell. 12 If we need additional capital to fund the expansion of our operations, we may not be able to obtain sufficient capital on terms favorable to us and may be forced to limit the expansion of our operations.
Such a situation could cause us to incur significantly higher costs and lead to longer lead times associated with distributing products to our customers, which could cause us to lose customers. Experiencing any of these issues could have a material adverse effect on our business and harm our reputation.
Such a situation could cause us to incur significantly higher costs and lead to longer lead times associated with distributing products to our customers, which could cause us to lose customers.
We insure ourselves against many types of risks; however, while this insurance may mitigate certain of the risks associated with the ongoing war, our level of insurance may not cover all losses we could incur. The potential effects of these conditions could have a material adverse effect on our business, results of operations and financial condition.
We insure ourselves against many types of risks; however, while this insurance may mitigate certain of the risks associated with the ongoing war, our level of insurance may not cover all losses we could incur.
Further, the loss of our executive officers or our other key personnel, particularly with little or no notice, could cause delays on business developments and projects and could have an adverse impact on our customers and industry relationships, our business, operating results or financial condition. 12 In order to increase our sales and marketing infrastructure, we will need to grow the size of our organization, and we may experience difficulties in managing this growth.
Further, the loss of our executive officers or our other key personnel, particularly with little or no notice, could cause delays on business developments and projects and could have an adverse impact on our customers and industry relationships, our business, operating results, or financial condition.
Certain of our products may be purchased for use in the cannabis industry and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.
Our future financial performance and our ability to continue to grow our operation and effectively compete in the hydroponics industry will depend in part on our ability to effectively manage any future growth. 13 Certain of our products may be purchased for use in the cannabis industry and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.
Risks Related to Our Business and Products We sell proprietary brand offerings, as well as third party brands, which could expose us to various risks. We rely on different intellectual property rights, including trade secrets and trademarks and the strength of our proprietary brands, which we consider important to our business.
We rely on different intellectual property rights, including trade secrets and trademarks and the strength of our proprietary brands, which we consider important to our business.
Public health authorities and governments at local, national and international levels have announced various measures to respond to this pandemic. Some measures that directly or indirectly impact our business include: · voluntary or mandatory quarantines; · restrictions on travel; and · limiting gatherings of people in public places.
Some measures that directly or indirectly impact our business include: · voluntary or mandatory quarantines; · restrictions on travel; and · limiting gatherings of people in public places.
The success of our e-commerce business depends on our investment in this platform, consumer preferences and buying trends relating to e-commerce, and our ability to both maintain the continuous operation of our online store and our fulfillment operations and provide a shopping experience that will generate orders and return visits to our online store. 14 We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce business, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues associated with website software, systems and technology investments and upgrades; data and system security; system failures, disruptions and breaches and the costs to address and remedy such failures, disruptions or breaches; computer viruses; and changes in and compliance with applicable federal and state regulations.
We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce business, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues associated with website software, systems and technology investments and upgrades; data and system security; system failures, disruptions and breaches and the costs to address and remedy such failures, disruptions or breaches; computer viruses; and changes in and compliance with applicable federal and state regulations.
The COVID-19 pandemic and the efforts to mitigate its impact may have an adverse effect on our business, liquidity, results of operations, financial condition and price of our securities. The ongoing pandemic involving the novel strain of coronavirus, or COVID-19, and the measures taken to combat it, may have certain and adverse effects on our business.
The potential effects of these conditions could have a material adverse effect on our business, results of operations and financial condition. 8 The COVID-19 pandemic and the efforts to mitigate its impact may have an adverse effect on our business, liquidity, results of operations, financial condition and price of our securities.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
If our suppliers are unable to source raw materials in sufficient quantities, on a timely basis, and at acceptable costs, our ability to sell our products may be harmed. The manufacture of some of our products is complex and requires precise high-quality manufacturing that is difficult to achieve.
The manufacture of some of our products is complex and requires precise high-quality manufacturing that is difficult to achieve. We have in the past, and may in the future, experience difficulties in manufacturing our products on a timely basis and in sufficient quantities.
In September 2019, the United States House of Representatives passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, but the Senate has not taken up the SAFE Banking Act or other similar legislation. 25 Risks Related to Our Common Stock Our founders, officers and directors control, and will continue to control, our company for the foreseeable future, including the outcome of matters requiring stockholder approval.
In September 2019, the United States House of Representatives passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, but the Senate has not taken up the SAFE Banking Act or other similar legislation. 25 Risks Related to Our Common Stock If we fail to comply with the continued listing requirements of the Nasdaq Stock Market, it could result in our common stock being delisted, which could adversely affect the market price and liquidity of our securities and could have other adverse effects.
If we are unable to purchase appropriate amounts of inventory, our business and results of operations may be materially and adversely affected. 10 Poor economic conditions could adversely affect our business. Uncertain global economic conditions, particularly in light of the COVID-19 pandemic, could adversely affect our business.
Poor economic conditions could adversely affect our business. Uncertain global economic conditions, particularly in light of the COVID-19 pandemic, could adversely affect our business.
We rely on a limited number of suppliers for certain of our hydroponic products and other supplies. For the years ended June 30, 2022 and 2021, one supplier accounted for 18% and three suppliers accounted for 38% (18%, 10% and 10%) of the Company's total purchases, respectively.
For the years ended June 30, 2023 and 2022, one supplier accounted for 27% and 18% of the Company's total purchases, respectively. Such reliance on a limited number of suppliers may increase our risk of experiencing disruptions in our business.
Moreover, if customer demand for our products increases, we may be unable to secure sufficient additional capacity from our current third-party manufacturers, or others, on commercially reasonable terms, or at all. 15 Our reliance on a limited base of suppliers for certain products, such as light ballasts, may result in disruptions to our business and adversely affect our financial results.
Substitute manufacturers may not be available or, if available, may be unwilling or unable to manufacture the products we need on acceptable terms. Moreover, if customer demand for our products increases, we may be unable to secure sufficient additional capacity from our current third-party manufacturers, or others, on commercially reasonable terms, or at all.
We expect to continue to evaluate and enter into discussions regarding a wide array of potential acquisition targets and strategic transactions.
Acquisitions are an important element of our overall corporate development strategy and use of capital, and such transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential acquisition targets and strategic transactions.
Acquisitions, other strategic alliances, and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations. Acquisitions are an important element of our overall corporate development strategy and use of capital, and such transactions could be material to our financial condition and results of operations.
Moreover, the federal government’s tactics may change or have unforeseen effects, which could be detrimental to our business. 14 Acquisitions, other strategic alliances, and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.
Future sales of our Common Stock in the public market could cause the market price of our Common Stock to decline.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for further discussion of the stockholding of our founders and principal stockholders. Future sales of our common stock in the public market could cause the market price of our common stock to decline.
Negative global economic trends, such as decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability, and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.
Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.
Such reliance on a limited number of suppliers may increase our risk of experiencing disruptions in our business.
Our reliance on a limited base of suppliers for certain products, such as light ballasts, may result in disruptions to our business and adversely affect our financial results. We rely on a limited number of suppliers for certain of our hydroponic products and other supplies.
Removed
Our future financial performance and our ability to continue to grow our operation and effectively compete in the hydroponics industry will depend in part on our ability to effectively manage any future growth.
Added
If we are unable to protect or preserve the value of our intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged, and our business may be harmed.
Removed
Substitute manufacturers may not be available or, if available, may be unwilling or unable to manufacture the products we need on acceptable terms.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to our primary fulfillment centers in Duarte and Rancho Cucamonga, we maintain a 22,700 square foot fulfillment center located at 14750 E. Nelson Avenue, Unit #I, Industry City, CA 91744, which we have leased at the rate of approximately $28,000 per month since September 2020.
Biggest changeThis lease expires on December 31, 2023 and we do not currently plan to renew it. In addition to our primary fulfillment centers in Rancho Cucamonga and Duarte, we maintain a 22,700 square foot fulfillment center located at 14750 E.
The lease commencement date is February 10, 2022, the rent commencement date is May 11, 2022 and the expiration date is May 31, 2028. The base rental fee is $114,249 to $140,079 per month through the expiration date, May 31, 2028.
The term of the Rancho Cucamonga lease is for 74 months. The lease commencement date is February 10, 2022, the rent commencement date is May 11, 2022 and the expiration date is May 31, 2028. The base rental fee is $114,249 to $140,079 per month through the expiration date, May 31, 2028.
ITEM 2. PROPERTIES Our principal offices are located at 2399 Bateman Avenue, Duarte, CA 91010, which property is approximately 48,867 square feet and we lease at the rate of approximately $42,000 per month. This property serves as both our principal offices and our primary fulfillment center.
We also entered into a lease agreement for 2399 Bateman Avenue, Duarte, CA 91010, which property is approximately 48,867 square feet and we lease at the rate of approximately $42,000 per month. This property previously served as both our principal offices as well as our primary fulfillment center.
We also lease approximately 99,347 square feet of space located at 8798 9th Street, Rancho Cucamonga, California, which space is used for the storage and distribution of hydroponic equipment, lighting and garden accessories, home products, pet products, other consumer products and other ancillary uses. The term of the Rancho Cucamonga lease is for 74 months.
ITEM 2. PROPERTIES Our principal offices, which also serve as a fulfillment center, are located at 8798 9 th Street, Rancho Cucamonga, California. There we lease approximately 99,347 square feet of space, which is used for the storage and distribution of hydroponic equipment, lighting and garden accessories, home products, pet products, other consumer products and other ancillary uses.
Removed
On February 15, 2022, upon completion of the acquisition of Anivia Limited, the Company assumed operating lease of offices in People’s Republic of China. On May 1, 2022, the Company leased another fulfillment center at 2397 Bateman Avenue, Duarte, CA 91010, which is approximately 49,500 square feet.
Added
In addition, we lease a fulfilment center at 2397 Bateman Avenue, Duarte, CA 91010, which consists of approximately 49,500 square feet of space, with a base rental fee of $56,000 to $59,410 per month. The term of this lease runs from May 1, 2022 through April 30, 2025.
Removed
The base rental fee is $56,000 to $59,410 per month through April 30, 2025. 29
Added
Nelson Avenue, Unit #I, Industry City, CA 91744, which we have leased at the rate of approximately $28,000 per month since September 2020. This lease expires on October 31, 2023 and we do not plan to renew it. On February 15, 2022, upon completion of the acquisition of Anivia, the Company assumed an operating lease of offices in the PRC.
Added
The office space in the PRC is located in Shenzhen and the term of this lease expires in July of 2026.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor 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 .” 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.
Biggest changeTan. Other than the above, 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. ITEM 4.
In addition, 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 for such reimbursement to come from sales of shares then owned by Mr.
In addition, Chenlong Tan, our Chairman, President, and Chief Executive Officer and a beneficial owner of 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 for such reimbursement to come from sales of shares then owned by Mr.
ITEM 3. LEGAL PROCEEDINGS Legal Proceedings Our former placement agent, Boustead Securities LLC, has 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.
ITEM 3. LEGAL PROCEEDINGS Legal Proceedings Our former placement agent, Boustead Securities LLC ("Boustead”), has 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.
We are presently waiting for the FINRA panel to schedule a hearing date on the matter. 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. However, we have agreed to indemnify D.A.
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. However, we have agreed to indemnify D.A.
Added
The matter is presently scheduled to have a pre-hearing conference before a FINRA arbitration panel on September 26, 2023. The actual FINRA arbitration, however, has been postponed and, as a result, a date for the FINRA arbitration hearing has not yet been set. The Company and its special litigation counsel are in the process of preparing for the hearing.
Added
MINE SAFETY DISCLOSURES Not applicable. 29 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends We have never paid cash dividends on our common stock. Holders of our common stock are entitled to receive dividends, if any, declared and paid from time to time by the board of directors out of funds legally available.
Biggest changeHolders of our common stock are entitled to receive dividends, if any, declared and paid from time to time by the board of directors out of funds legally available. We intend to retain any earnings for the operation and expansion of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future.
Equity Compensation Plans 2020 Equity Incentive Plan The total number of underlying shares of the Company’s common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s Amended and Restated 2020 Equity Inventive Plan (the “Equity Incentive Plan”) was 5,000,000 shares.
Equity Compensation Plans 2020 Amended Equity Incentive Plan The total number of underlying shares of the Company’s common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s Amended and Restated 2020 Equity Inventive Plan (the “2020 Amended Equity Incentive Plan”) was 5,000,000 shares.
The Convertible Notes convert at a price equal to the lesser of (a) a price representing a 30% discount to the public offering price per share of the Class A Common Stock in this Offering, or (b) a price representing a 30% discount to the price per share equal to dividing $200 million by the total number of (x) outstanding shares of Class A Common Stock immediately prior to the IPO, (y) the number of Class A Common Stock issuable upon conversion of the 34,500 shares of Series A Preferred Stock, and (z) the number of Class A Common Stock issuable upon conversion of all outstanding Convertible Notes.
At the time of our IPO, pursuant to their terms, the Convertible Notes converted at a price equal to the lesser of (a) a price representing a 30% discount to the public offering price per share of the Class A Common Stock in this Offering, or (b) a price representing a 30% discount to the price per share equal to dividing $200 million by the total number of (x) outstanding shares of Class A Common Stock immediately prior to the IPO, (y) the number of Class A Common Stock issuable upon conversion of the 34,500 shares of Series A Preferred Stock, and (z) the number of Class A Common Stock issuable upon conversion of all outstanding Convertible Notes.
The warrants shall be exercisable for a period of three years from the IPO completion date at a per share exercise price equal to the IPO.
The warrants are exercisable for a period of three years from the IPO completion date at a per share exercise price equal to the IPO.
The Convertible Notes shall be automatically converted into the Company’s Class A Common Stock upon a qualified IPO (the “Mandatory Conversion”) or repayable in cash at the option of the holders of the Convertible Notes with repayment to commence six months after January 27, 2021.
The Convertible Notes automatically converted into the Company’s common stock upon completion of a qualified IPO (the “Mandatory Conversion”) or were repayable in cash at the option of the holders of the Convertible Notes with repayment to commence six months after January 27, 2021.
Grants made under the Equity Incentive Plan must be approved by the Company’s Board of Directors. 31 The following table provides information as of June 30, 2022 about our equity compensation plans and arrangements.
Grants made under the 2020 Amended Equity Incentive Plan must be approved by the Company’s board of directors. The following table provides information as of June 30, 2023 about our equity compensation plans and arrangements.
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted- average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 3,469,674 $ 1.12 1,530,326 Equity compensation plans not approved by security holders (1) – – – Total 3,469,974 $ 1.12 1,530,326 Recent Sales of Unregistered Securities Set forth below is information regarding all securities issued by us within the past three years.
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted- average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 3,600,802 $ 1.12 1,399,198 Equity compensation plans not approved by security holders (1) – – – Total 3, 600,802 $ 1.12 1,399,198 30 Recent Sales of Unregistered Securities Set forth below is information regarding all securities issued by us within the past three years.
Any interest accrued on the Convertible Note will be waived upon conversion. In connection with the convertible note offering, the Company issued placement agent warrants to purchase 7.0% of the shares of Class A Common Stock underlying the Convertible Notes exercisable at the conversion price of the Convertible Note (the “Conversion Price”).
In connection with the Convertible Note offering, the Company issued placement agent warrants to purchase 7.0% of the shares of Class A Common Stock underlying the Convertible Notes exercisable at the conversion price of the Convertible Note (the “Conversion Price”).
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock commenced trading on the NASDAQ Capital Market, or NASDAQ, under the symbol “IPW” on May 14, 2021. Prior to that time, our common stock was not traded on any exchange or quoted on any over the counter market.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on The Nasdaq Capital Market, or NASDAQ, under the symbol “IPW,” where we commenced trading on May 14, 2021.
Please see Note 4 of the Notes to Consolidated Financial Statements for details.
The shares issued under the Transfer Agreement were issued in accordance with Regulation S of the Securities Act. Please see Note 4 of the Notes to Consolidated Financial Statements for further details concerning the transaction.
Removed
The prices set forth below reflect the quarterly high and low sales prices per share for our common stock for the fiscal year ended June 30, 2022, as reported by the NASDAQ: High Low 2022 First Quarter $ 8.78 $ 3.92 Second Quarter 3.97 2.08 Third Quarter 2.43 1.27 Fourth Quarter 1.85 1.00 2021 Fourth Quarter $ 8.35 $ 4.83 Holders As of September 27, 2022, we had 23 holders of record of our common stock and 29,572,382 shares of common stock issued and outstanding.
Added
Prior to that time, our common stock was not traded on any exchange or quoted on any over the counter market. Holders As of September 14, 2023, we had 21 holders of record of our common stock and 29,764,374 shares of common stock outstanding. Dividends We have never paid cash dividends on our common stock.
Removed
We intend to retain any earnings for the operation and expansion of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future.
Added
Any interest accrued on the Convertible Note will be waived upon conversion. The Convertible Notes and warrants were sold pursuant to an exemption from registration under Rule 506(b) under Regulation D of the Securities Act.
Removed
The placement agent warrants were exercisable for a period of five years from the issuance date and are treated as a debt issuance cost. 32 On December 30, 2020, we issued a total of 34,500 shares of Series A convertible preferred stock, par value $0.001 per share, to a total of three accredited investors, at a purchase price of $10.00 per share, for a total purchase price of $345,000.
Added
The placement agent warrants were exercisable for a period of five years from the issuance date and are treated as a debt issuance cost. Issuer Purchases of Equity Securities None. Use of Proceeds None. ITEM 6. [Reserved]
Removed
Boustead Securities, LLC acted as placement agent in the Series A preferred offering, and received compensation of $27,600 and warrants to purchase 2,415 shares of Series A convertible preferred stock. The shares were issued to accredited investors pursuant to exemption from registration under Rule 506(b) of Regulation D under the Securities Act.
Removed
Following completion of our IPO, on May 14, 2021, the placement agent warrants issued in relation to the 2020 and 2021 private placements were exercised in full.
Removed
On October 20, 2020, we issued 14,000,000 shares of our Class B Common Stock, par value $0.001 per share, to our two founders, Allan Huang and Chenlong Tan in exchange for a total purchase price of $14,000. The shares were issued to our two founders pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act.
Removed
The shares of Class B Common Stock entitled the holders to 10 votes per share and were eligible to convert into shares of Class A Common Stock, on a one-for-ten basis, at any time following twelve (12) months after the Company’s completion of its initial public offering.
Removed
On April 14, 2021, the Company amended its articles of incorporation to permit immediate conversion of the Class B Common Stock and the Company’s two founders converted all of their 14,000,000 shares of Class B Common Stock into 1,400,000 additional shares of Class A Common Stock, bringing their total ownership to an aggregate of 16,046,668 shares of Class A Common Stock or 60.67% of the 26,448,663 shares of Class A Common Stock t.
Removed
Effective April 14, 2021, the Company amended and restated its Articles of Incorporation to permit the immediate conversion of the Class B Common Stock and to eliminate any future issuances of Class B Common Stock.
Removed
On April 23, 2021, the Company further amended and restated its articles of incorporation to eliminate the Class A and Class B Common Stock and authorize for issuance 180,000,000 shares which are solely designated as Common Stock.
Removed
On January 15, 2020, we issued a total of 204,496 shares of our Common Stock to Sugarmade Inc. as a refund of cash related to a terminated merger agreement. The shares were issued to Sugarmade Inc. pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act.
Removed
In April 2018 and July 2020, we issued a total of 20,000,000 shares of our Common Stock, par value $0.001 per share, to our two founders and four key employees. The shares were issued to our founders and key employees pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. Issuer Purchases of Equity Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended June 30, 2022 Year Ended June 30, 2021 Variance Revenues $ 79,418,473 $ 54,075,922 46.9% Cost of goods sold 46,218,580 31,257,358 47.9% Gross profit 33,199,893 22,818,564 45.5% Selling, fulfillment, general and administrative expenses 30,887,856 19,858,000 55.5% Operating income 2,312,037 2,960,564 (21.9% ) Other (expenses) (248,419 ) (2,969,551 ) (91.6% ) Income (Loss) before income taxes 2,063,618 (8,987 ) 23,062.3% Income tax expenses 558,975 766,762 (27.1% ) Net income (loss) 1,504,643 (775,749 ) Non-controlling interest (13,232 ) – Net income (loss) attributable to iPower Inc. 1,517,875 (775,749 ) 295.7% Other comprehensive income 5,678 – Comprehensive income (loss) attributable to iPower Inc. $ 1,523,553 $ (775,749 ) 296.4% Gross profit % of revenues 41.80% 42.20% Operating income % of revenues 2.91% 5.47% Net income (loss) attributable to iPower Inc. % of revenues 1.91% (1.43% ) Revenues Revenues for the year ended June 30, 2022 increased 46.9% to $79,418,473 as compared to $54,075,922 for the year ended June 30, 2021.
Biggest changeYear Ended June 30, 2023 Year Ended June 30, 2022 Variance Revenues $ 88,902,048 $ 79,418,473 11.94% Cost of goods sold 54,104,587 46,218,580 17.06% Gross profit 34,797,461 33,199,893 4.81% Operating expenses 48,281,004 30,887,856 56.31% (Loss) Income from operations (13,483,543 ) 2,312,037 (683.19% ) Other (expenses) (1,184,030 ) (248,419 ) 376.63% (Loss) Income before income taxes (14,667,573 ) 2,063,618 (810.77% ) Income tax (benefit) expenses (2,690,500 ) 558,975 (581.33% ) Net (loss) income (11,977,073 ) 1,504,643 (896.01% ) Non-controlling interest (11,683 ) (13,232 ) (11.70% ) Net (loss) income attributable to iPower Inc.
Intangible assets are amortized on a straight-line basis over their estimated useful life as followings: Useful Life Covenant Not to Compete 10 years Supplier relationship 6 years Software 5 years The Company reviews the recoverability of long-lived assets, including the intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable.
Intangible assets are amortized on a straight-line basis over their estimated useful life as followings: Useful Life Covenant Not to Compete 10 years Supplier relationship 6 years Software 5 years 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 Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.
The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.
The Operating Company is principally engaged in selling of a wide range of products and providing logistic services in the PRC. 34 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”).
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”).
See Note 4 and Note 5 for details on acquisition. 41 Goodwill 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 .
See Note 4 and Note 5 for details on acquisition. Goodwill 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 .
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. 35 Global Economic Disruption 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.
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. 32 Global Economic Disruption 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.
Recent Acquisitions and Joint Ventures 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, Dayourenzai (Shenzhen) Technology Co., Ltd., and Daheshou (Shenzhen) Information Technology Co., Ltd.
Recent Acquisitions and Joint Ventures 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, 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”), Anivia, Fly Elephant Limited, a Hong Kong company, Dayourenzai (Shenzhen) Technology Co., Ltd., and Daheshou (Shenzhen) Information Technology Co., Ltd.
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.
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.
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.
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 report. 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.
The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.
The Company does not expect the adoption of this standard to have a material impact on our consolidated financial statements.
The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.
The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial statements.
Variable interest entities On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”) and its subsidiaries, including Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”).
Variable interest entities On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”).
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 $12.0 million unused credit under the revolving line with JPM.
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 $18.0 million in unused credit under the revolving line with JPM.
Demand for our products could be impacted by changes in the regulatory environment with respect to such industries and segments. 36 RESULTS OF OPERATIONS For the years ended June, 2022 and 2021 The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from period to period.
Demand for our products could be impacted by changes in the regulatory environment with respect to such industries and segments. RESULTS OF OPERATIONS For the fiscal years ended June, 2023 and 2022 The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from period to period.
Promissory note payable and Investment Payable On February 15, 2022, as part of the consideration for acquisition of Anivia Limited, the Company issued a two-year unsecured 6% subordinated promissory note, payable in equal semi-annual installments commencing August 15, 2022 (the “Purchase Note”).
Promissory note payable On February 15, 2022, as part of the consideration for the acquisition of Anivia, the Company issued a two-year unsecured 6% subordinated promissory note, payable in equal semi-annual installments commencing August 15, 2022 (the “Purchase Note”).
The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU 2020-01 is effective.
The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
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.
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 any regional outbreaks, 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.
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.
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.
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 and fulfillment expenses.
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.
As of June 30, 2022, there were no indicators of impairment.
As of June 30, 2023, there were no indicators of impairment.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.
The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. 39 In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.
The Target Company owns 100% of the equity of Fly Elephant Limited, which in turn owns 100% of the equity of Dayourenzai (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.
Anivia owns 100% of the equity of Fly Elephant Limited, which in turn owns 100% of the equity of Dayourenzai (Shenzhen) Technology Co., Ltd., a corporation located in the PRC and which is a wholly foreign-owned enterprise (“WFOE”) of Fly Elephant Limited.
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. Working Capital As of June 30, 2022 and 2021, our working capital was $32,300,646 and $23,281,891, respectively.
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. Working Capital As of June 30, 2023 and 2022, our working capital was $17.9 million and $32.3 million, respectively.
Ongoing COVID-19 Outbreak and Related Disruptions We are continuing to closely monitor the impact of the ongoing COVID-19 outbreak on our business, results of operations and financial results.
Ongoing COVID-19 Outbreak and Related Disruptions While the worst of the COVID-19 pandemic has seemingly passed, we are continuing to closely monitor its impact on our business, results of operations and financial results.
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.
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. 36 Payments received prior to the delivery of goods to customers are recorded as customer deposits.
Revenue recognition The Company has adopted Accounting Standards Codification (“ASC”) 606 since its inception on April 11, 2018 and 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.
Revenue recognition 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.
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.
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.
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.
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.
ITEM 7. 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. The 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein.
Costs of Goods Sold Costs of goods sold for the year ended June 30, 2022 increased 47.9% to $46,218,580 as compared to $31,257,358 for the year ended June 30, 2021. The increase was due to an increase in sales as discussed above.
Costs of Goods Sold Costs of goods sold for the year ended June 30, 2023 increased 17.06% to $54,104,587 as compared to $46,218,580 for the year ended June 30, 2022. The increase was due to an increase in sales, as discussed above.
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 financial position, statements of operations and cash flows. 43 Recent Financings Asset-based revolving loan On November 12, 2021, the Company entered to a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows: · Borrowing base equal to the sum of 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 November 12, 2024 In addition, the ABL includes an accordion feature that allows the Company to borrow up to an additional $25 million.
(“JPM”), as administrative agent, issuing bank and swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows: · Borrowing base equal to the sum of 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 November 12, 2024 40 In addition, the ABL includes an accordion feature that allows the Company to borrow up to an additional $25 million.
For public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. An entity should apply ASU 2020-01 prospectively at the beginning of the interim period that includes the adoption date. The adoption of ASU 2020-01 is not expected to have material impact on the Company's Consolidated Financial Statements.
ASU 2020-01 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. An entity should apply ASU 2020-01 prospectively at the beginning of the interim period that includes the adoption date. The Company adopted ASU 2020-01 on July 1, 2022.
During the term of the agreements, the Company bears all the risk of loss and has the right to receive all of the benefits from DHS.
During the term of the agreements, which run for a term of 10 years from February 2022 to February 2032, the Company bears all the risk of loss and has the right to receive all of the benefits from DHS.
The new standard is effective for fiscal years beginning after December 15, 2021; however, early adoption is permitted. The Company does not expect the adoption of this standard have a material impact on the consolidated financial statements.
The new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022; however, early adoption is permitted. The Company adopted ASU 2019-12 on July 1, 2022. The adoption of this standard did not have material impact on the consolidated financial statements.
All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The adoption of ASU 2017-04 is not expected to have material impact on the Company's Consolidated Financial Statements.
ASU 2017-04 became effective for accelerated filing companies for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022.
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.
Based on our current operating plan, 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.
The principal amount of the Purchase Note was $3.5 million with a fair value of $3.6 million as of February 15, 2022. For the year ended June 30, 2022, the Company recorded accrued interest of $78,750 and amortization of note premium of $18,609.
For the year ended June 30, 2022, the Company recorded accrued interest of $78,750 and amortization of note premium of $18,609.
Comprehensive Income (loss) Attributable to iPower Inc. Comprehensive income (loss) attributable to iPower Inc. for the year ended June 30, 2022 was $1,523,553 as compared to comprehensive loss of ($775,749) for the year ended June 30, 2021, representing an increase of $2,299,302.
Comprehensive (loss) Income Attributable to iPower Inc. Comprehensive (loss) attributable to iPower Inc. for the year ended June 30, 2023 was ($12,033,202) as compared to comprehensive income of $1,523,553 for the year ended June 30, 2022, representing a decrease of $13,556,755.
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.
We are actively developing and acquiring our in-house branded products, which to date include the iPower and Simple Deluxe brands and more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others.
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.
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.
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.
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. However, while the revenues for the current year ended June 30, 2023 improved over last year, we cannot be assured that this trend will continue.
Through the operations of our e-commerce platform, www.Zenhydro.com, our 99,000 square foot fulfillment center in Rancho Cucamonga, California, and our combined 121,000 square foot fulfillment centers in Los Angeles, 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 and accessories for hydroponic gardening, based on management’s estimates.
Through the operations of our e-commerce platforms and channel partners, our 99,000 square foot fulfillment center in Rancho Cucamonga, California, and our combined 121,000 square foot fulfillment centers in 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.
Payments received prior to the delivery of goods to customers are recorded as customer deposits. 40 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.
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.
If the performance condition is ultimately not met, compensation cost related to the award should not be recognized (or should be reversed) because the vesting condition in the award has not been satisfied.
If the performance condition is ultimately not met, compensation cost related to the award should not be recognized (or should be reversed) because the vesting condition in the award has not been satisfied. The Company will recognize forfeitures of such equity-based compensation as they occur. Income taxes The Company accounts for income taxes under the asset and liability method.
Emerging Growth Company We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, certain specified reporting and other regulatory requirements for public companies are reduced for businesses that meet the qualifications for emerging growth companies.
Accordingly, certain specified reporting and other regulatory requirements for public companies are reduced for businesses that meet the qualifications for emerging growth companies.
See discussions on gross profit below. 37 Gross Profit Gross profit was $33,199,893 for the year ended June 30, 2022 as compared to $22,818,564 for the year ended June 30, 2021. The gross profit ratio was slightly decreased to 41.80% for the year ended June 30, 2022 from 42.20% for the year ended June 30, 2021.
Gross Profit Gross profit was $34,797,461 for the year ended June 30, 2023 as compared to $33,199,893 for the year ended June 30, 2022. The gross profit ratio decreased to 39.14% for the year ended June 30, 2023 from 41.80% for the year ended June 30, 2022.
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.
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.
The Company will recognize forfeitures of such equity-based compensation as they occur. 42 Recently issued accounting pronouncements In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 82): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.
In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.
Shipping and handling costs are recorded as selling expenses. Inventory, net Inventory consists of finished goods ready for sale and is stated at the lower of cost or market. The Company value its inventory using the weighted average costing method.
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, net Inventory consists of finished goods ready for sale and is stated at the lower of cost or market.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.
The adoption of ASU 2020-01 did not have material impact on the Company's consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.
An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Intangible Assets, net Finite life intangible assets at June 30, 2022 include covenant not to compete, supplier relationship, and software recognized as part of the acquisition of Anivia Limited.
As of June 30, 2023 and 2022, the goodwill balance amounted to $3,034,110 and $6,094,144, respectively. 37 Intangible Assets, net Finite life intangible assets at June 30, 2023 include a covenant not to compete, supplier relationship and software recognized as part of the acquisition of Anivia.
Net Income (Loss) Attributable to iPower Inc. Net income (loss) attributable to iPower Inc. for the year ended June 30, 2022 was $1,517,875 as compared to net loss of $775,749 for the year ended June 30, 2021, representing an increase of $2,293,624.
Net (loss) attributable to iPower Inc. for the year ended June 30, 2023 was ($11,965,390) as compared to net income of $1,517,875 for the year ended June 30, 2022, representing a decrease of $13,483,265. The decrease was primarily due to a decrease in gross profit and an increase in operating expenses as discussed above.
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.
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.
For the year ended June 30, 2022, the Company recorded in interest expense – $176,812 of amortization of debt discount and $182,543 of interest expense and credit utilization fees. As of June 30, 2022, the outstanding amount of the long-term revolving loan payable, net of debt discount, was $12,314,627, including interest payable of $182,543.
Below is a summary of the interest expense recorded for the years ended June 30, 2023 and 2022: 2023 2022 Accrued interest $ 670,924 $ 159,256 Credit utilization fees 43,931 23,287 Amortization of debt discount 265,218 176,812 Total $ 980,073 $ 359,355 As of June 30, 2023 and 2022, the outstanding amount of the JPM revolving loan payable, net of debt discount and including interest, was $9,791,191 and $12,314,627, respectively.
If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures must be performed. That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.
If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Other expenses for the year ended June 30, 2022 were $(248,419) as compared to $(2,969,551) for the year ended June 30, 2021.
Other (Expense) Other (expenses) consist of interest expense, financing fees and other non-operating income (expenses). Other expenses for the year ended June 30, 2023 were $1,184,030 as compared to $248,419 for the year ended June 30, 2022.
The increase was mainly due to an increase in selling and fulfillment expenses of $5.7 million and general and administrative expenses of $5.3 million, which included payroll expenses, warehouse and storage fees, 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.
The increase was mainly due to the combination of an increase in selling and fulfillment expenses of $13.2 million as a result of increased advertising, merchant fees, delivery fees, rental expenses, storage costs and fulfillment workforce, general and administrative expenses of $1.08 million, which included payroll expenses, stock-based compensation expense, insurance expenses, legal fees related to the Boustead case, and other operating expenses including expenses associated with being a publicly traded company, and $3.06 million of impairment loss on goodwill triggered by a decrease in the Company’s share price of its common stock and the net loss incurred during the quarter ended September 30, 2022.
Investing Activities For the years ended June 30, 2022 and 2021, net cash used in investing activities was $139,386 and $61,498, respectively, The increase in use of cash in investing activities was mainly related to the purchase of office equipment and investment in joint venture, which was partially offset by cash acquired from acquisition of Anivia in February 2022. 39 Financing Activities Net cash provided by financing activities was $11,911,916 and $18,492,517, respectively, for the years ended June 30, 2022 and 2021.
The increase in cash used in investing activities was because the Company made additional purchase of equipment during the year ended June 30, 2023. Financing Activities Net cash (used in) provided by financing activities was ($7,153,620) and $11,911,916, respectively, for the years ended June 30, 2023 and 2022.
As of June 30, 2022, the outstanding balance of the Purchase Note was $3,660,770, including $78,750 of accrued interest and $82,020 of unamortized premium. In addition, $1,500,000 in cash was to be paid after closing.
As of June 30, 2022, including $78,750 of accrued interest and $82,020 of unamortized premium, the total outstanding balance of the Purchase Note was $3,660,770, which was presented on the consolidated balance sheet as a current portion of $1,879,065 and a non-current portion of $1,781,705. 41 Emerging Growth Company We are an “emerging growth company,” as defined in the JOBS Act.
The increase was due to the reasons discussed above and the other comprehensive income of $5,678, 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. 38 LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity During year ended June 30, 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.
LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity During the fiscal year ended June 30, 2023 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”).
The main reason the Company experienced a decrease in net cash provided by financing activities was primarily due to receiving $12.4 million in proceeds from the draw-down of a $25 million asset-based revolving loan facility with JPMorgan Chase Bank comparing to net proceeds of $16.6 million from our IPO, our revolving facility with WFC and the closing of our private placements of an aggregate of $345,000 in Series A convertible preferred stock and $3,000,000 in convertible notes in the fiscal year ended June 30, 2021.
The main reason the Company experienced a decrease in net cash provided by financing activities was primarily due to our payment of $11.9 million for: (1) $1.5 million to pay off investment payable; (2) $1.8 million to pay down note payable; and (3) $8.6 million to pay down the outstanding balance of the asset-based revolving loan facility with JPM.
The increase in net income as percentage of revenues for the year ended June 30, 2022 was primarily due to the changes in operating and non-operating income and expenses discussed above and the slight decrease in income tax resulting from decrease in taxable income from operations, the deferred taxes and revision of income tax provision based on actual income taxes paid for the year ended June 30, 2021.
(Loss) Income from Operations (Loss) income from operations was ($13,483,543) for the year ended June 30, 2023 as compared to $2,312,037 for the year ended June 30, 2022. The decrease was due to the increase in operating expenses was greater than the increase in gross profit as discussed above.
Cash Flows Operating Activities Net cash used in operating activities for the years ended June 30, 2022 and 2021 was $16,603,005 and $12,756,949, respectively.
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. 35 Cash Flows Operating Activities Net cash provided by (used in) operating activities for the years ended June 30, 2023 and 2022 was $9,211,269 and ($16,603,005), respectively.
We had cash and cash equivalents of $1,821,947 as of June 30, 2022, representing a $4,829,758 decrease from $6,651,705 in cash as of June 30, 2021.
We had cash and cash equivalents of $3,735,642 as of June 30, 2023, representing a $1,913,695 increase from $1,821,947 in cash as of June 30, 2022. The cash increase was primarily the result of the increase in net cash provided by operating activities, including decreased inventory and accounts receivable and increased accounts payable.
Removed
Overview iPower Inc. is an online hydroponic equipment supplier based in the United States.
Added
The 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.
Removed
For the fiscal year ended June 30, 2022, our top five product categories accounted for 70% of our total sales. While we will continue focusing on our top products, we are working to expand its product line to include nutrients.
Added
Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. 31 Overview Driven by tech and data, iPower Inc. is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies, and consumer home goods.
Removed
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”).
Added
It was contemplated that only approximately 300-400 square feet will be initially used by GSM. However, since the space was never utilized by GSM, iPower resumed using the contemplated space during the fiscal year ended June 30, 2023. Trends and Expectations Product and Brand Development We plan to increase investments in product and brand development.
Removed
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.
Added
(11,965,390 ) 1,517,875 (888.30% ) Other comprehensive (loss) income (67,812 ) 5,678 (1294.27% ) Comprehensive (loss) income attributable to iPower Inc. $ (12,033,202 ) $ 1,523,553 (889.81% ) Gross profit % of revenues 39.14% 41.80% Operating (loss) income % of revenues (15.17% ) 2.91% Net (loss) income attributable to iPower Inc. % of revenues (13.46% ) 1.91% 33 Revenues Revenues for the year ended June 30, 2023 increased 11.94% to $88,902,048 as compared to $79,418,473 for the year ended June 30, 2022.
Removed
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.
Added
In addition, we experienced an increase in costs of goods sold as a percentage of revenue as a result of the increased freight charges capitalized in the inventories sold during the year ended June 30, 2023. We have seen decreasing freight charges since September 2022; however, we can provide no assurance that this trend will continue.
Removed
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.
Added
The decrease in gross profit ratio was mainly driven by an increase in costs of goods sold during the year ended June 30, 2023, as discussed above. Operating Expenses Operating expenses for the year ended June 30, 2023 increased 56.31% to $48,281,004 as compared to $30,887,856 for the year ended June 30, 2022.
Removed
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.
Added
The increase in other expenses was mainly due to a combined result of decrease in other non-operating income of $404,115, and an increase in interest, including amortization of debt discount, on the revolving loan of $608,121 during the year ended June 30, 2023. 34 Net (Loss) Income Attributable to iPower Inc.
Removed
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. Trends and Expectations Product and Brand Development We plan to increase investments in product and brand development.
Added
The decrease was due to the reasons discussed above, along with other comprehensive loss of $(67,812) 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.

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