What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-09-28 compared with 2021-09-28 · 374 added, 345 removed, 262 unchanged (73% of the section changed)

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future results, events, levels of activity, performance, or achievements.

is an online hydroponic

equipment supplier based in the United States.

Through the operations of our e-commerce platform, www.Zenhydro.com, and our combined 72,000

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.

hydroponic equipment supplier based in the United States.

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.

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 through organic growth, both in terms of expanding customer base as well as brand and product development.

We are actively developing

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For the fiscal year ended June 30, 2022, our top five product categories

consisted of ventilation systems (24% of sales), nutrients (13% of total sales), air filtration devices (8% of sales), grow light systems

(7% of sales), and gardening equipment (5% of sales).

While we will continue focusing on our top products, we are working to expand its

product line to include nutrients.

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.

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.

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.

The WFOE controls,

through a series of contractual arrangements summarized below, the business, revenues and profits of Daheshou (Shenzhen) Information Technology

Co., Ltd., a company organized under the Laws of the PRC (the “Operating Company”) and located in Shenzhen, China.

The Operating

Company is principally engaged in selling of a wide range of products and providing logistic services in the PRC.

On February 10, 2022, we entered

into a joint venture agreement with Bro Angel, LLC, Ji Shin and Bing Luo (the “GSM Joint Venture Agreement”).

the terms of the GSM Joint Venture Agreement, the parties formed a Nevada limited liability company, Global Social Media, LLC (“GSM”),

for the principal purpose of providing a social media platform, contents and services to assist businesses, including the Company and

other businesses, in the marketing of their products.

Following entry into the GSM Joint Venture Agreement, GSM issued 10,000 certificated

units of membership interest (the “GSM Equity Units”), of which the Company was issued 6,000 GSM Equity Units and Bro Angel

was issued 4,000 GSM Equity Units.

Shin and Luo are the owners of 100% of the equity of Bro Angel.

Under the terms of the

GSM limited liability operating agreement (the “GSM LLC Agreement”), the Company will contribute $100,000 to the

capital of GSM and Bro Angel granted GSM, pursuant to the terms of an intellectual property licensing agreement, dated February 10,

2022 (the “IP License Agreement”), an exclusive worldwide paid up right and license to use all intellectual property of

Bro Angel and its members for the purpose of furthering the proposed business of GSM.

The LLC Agreement prohibits the issuance of

additional GSM Equity Units and certain other actions unless approved in advance by the Company.

Pursuant to the GSM Joint

Venture Agreement, the Company and GSM also intend to enter into an occupancy management agreement pursuant to which the Company will

grant to GSM the right to have access to and use of up to approximately 4,000 square feet of office space along with internet access at

the Company’s facility located at 2399 Bateman Avenue, Irwindale, CA 91010.

It is contemplated that only approximately 300-400 square

feet will be initially used by GSM.

On January 13, 2020 we entered

into a joint venture agreement with Titanium Plus Autoparts, Inc.

(“TPA”), Tony Chiu, and Bin Xiao (the “TPA Joint Venture

Pursuant to the terms of the TPA Joint Venture Agreement, the parties formed a Nevada limited liability company, Box

Harmony, LLC (“Box Harmony”), for the principal purpose of providing logistic services primarily for foreign-based manufacturers

or distributors who desire to sell their products online in the United States with such logistic services to include, without limitation,

receiving, storing, and transporting such products.

Following entry into the TPA Joint Venture Agreement, Box Harmony issued a total of

6,000 certificated units of membership interest, designated as Class A voting units (“Equity Units”), as follows:

(i) we agreed

to contribute $50,000 in cash and agreed to provide Box Harmony with the use and access to certain warehouse facilities leased by the

Company in exchange for 2,400 Equity Units in Box Harmony, and (ii) TPA received 1,200 Equity Units in exchange for (a) $1,200 and contributing

the TPA IP License referred to below, (b) its existing and future customer contracts, and (c) granting Box Harmony the use of shipping

accounts (FedEx and UPS) and all other TPA carrier contracts, and (iii) Bin Xiao received 2,400 Equity Units in exchange for $2,400 and

his agreement to manage the day to day operations of Box Harmony.

We also entered into services agreement with Box Harmony pursuant to

which we provide a portion of our fulfillment center infrastructure to Box Harmony in exchange for their payment.

Under the terms of the Box

Harmony limited liability operating agreement, TPA and Bin Xiao each granted to us an unconditional and irrevocable right and option to

purchase from Bin Xiao and TPA at any time within the first 18 months following January 13, 2022, up to 1,200 Class A voting units, at

an exercise price of up to $550 per Class A voting unit, for a total exercise price of up to $660,000.

If such option is fully exercised,

we would own 3,600 Equity Units or 60% of the total outstanding Equity Units.

The Box Harmony LLC Agreement prohibits the issuance of

additional Equity Units and certain other actions unless approved in advance by us.

Trends and Expectations

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We plan to increase investments

in product sourcing, product and brand development, marketing research and promotion.

We actively evaluate and pursue acquisitions of

product brand names and improvements on existing products.

COVID-19 Outbreak

in product and brand development.

We actively evaluate potential acquisition opportunities of companies and product brand names that can

complement our product catalog and improve on existing products and supply chain efficiencies.

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.

Thus far, as a

result of the general global economic disruption, we have experienced a decrease in the speed with which we are able to purchase new inventory,

as well as an increase in costs due to delays in shipping, resulting increase in time with which products remain in our warehouse facilities,

thus resulting in reduced profits.

In addition, supply chain disruptions may make it harder for us to find favorable pricing and reliable

sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials

and services we need to continue to make certain products.

Ongoing COVID-19 Outbreak and Related Disruptions

We are continuing to closely

monitor the impact of the COVID-19 outbreak on our business, results of operations and financial results.

The situation surrounding the

COVID-19 outbreak remains fluid and the full extent of the positive or negative impact of the COVID-19 outbreak on our business will

monitor the impact of the ongoing COVID-19 outbreak on our business, results of operations and financial results.

The situation surrounding

the COVID-19 outbreak remains fluid and the full extent of the positive or negative impact of the COVID-19 outbreak on our business will

depend on certain developments including the length of time that the outbreak continues, the impact on consumer activity and behaviors

and the effect on our customers, employees, suppliers, and stockholders, all of which are uncertain and cannot be predicted.

Factors” beginning on page 11 for additional details.

Our focus remains on promoting the health, safety and financial security

of our employees and serving our customers.

As a result, we have taken a number of precautionary measures, including implementing social

distancing and enhanced cleaning measures in our facilities, suspending all non-essential travel, transitioning certain of our employees

to working-from-home arrangements, reimbursing certain employee technology purchases, providing emergency paid time off and targeted

hourly pay increases and developing no contact delivery methods.

remains on promoting the health, safety and financial security of our employees and serving our customers.

As a result, we have taken

a number of precautionary measures, including implementing social distancing and enhanced cleaning measures in our facilities, suspending

all non-essential travel, transitioning certain of our employees to working-from-home arrangements, reimbursing certain employee technology

purchases, providing emergency paid time off and targeted hourly pay increases and developing no contact delivery methods.

In an effort to contain or

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Other (expenses)

(Loss) Income before income taxes

Income (Loss) before income taxes

Income tax expenses

Net (loss) income

Net income (loss)

Non-controlling interest

Net income (loss) attributable to iPower Inc.

Other comprehensive income

Comprehensive income (loss) attributable to iPower Inc.

Gross profit % of revenues

Net (loss) income % of revenues

Operating income % of revenues

Net income (loss) attributable to iPower Inc.

% of revenues

Revenues for the year ended

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While pricing remained stable,

the increased revenue mainly resulted from an increase in sales volume.

In addition to our organic growth, which we achieved as a result

of improved products and more effective online marketing efforts, the increase in sales was attributable to more people shopping online

and pursuing gardening and growing projects during the COVID-19 pandemic.

However, we cannot assure that this trend will continue, and

our business may be adversely affected by poor overall economic conditions caused by the ongoing COVID-19 pandemic.

the increased revenue mainly resulted from an increase in sales volume and expansion of sales to other regions, such as Canada, Europe

In addition to our organic growth, which we achieved as a result of improved products and more effective online marketing and

merchandising efforts, the increase in sales was positively impacted by people continuing to shop online and pursuing gardening and growing

projects during the COVID-19 pandemic.

However, while the revenues for the current year improved over last year, we cannot assure that

this trend will continue, and our business may be adversely affected by poor overall economic conditions and shipping delays caused by

the ongoing COVID-19 pandemic.

Costs of Goods Sold

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due to an increase in sales as discussed above.

In addition, we experienced a decrease of cost of goods sold as a percentage of revenue

as a result of selling more products under in-house brands as opposed to third party brands.

In addition, we experienced a slight increase of cost of goods sold as a percentage of

revenue resulting from a combination of an increase of import duty and freight charges and selling more products under in-house brands

as opposed to third party brands.

See discussions on gross profit below.

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for the year ended June 30, 2022 as compared to $22,818,564 for the year ended June 30, 2021.

The gross profit ratio also increased to

42.20% for the year ended June 30, 2021 from 37.88% for the year ended June 30, 2020.

The increase was due to a combination of an increase

in sales as discussed above and a decrease in cost of goods sold resulting from selling more products under in-house brands as opposed

to third party brands.

The gross margin for in-house branded products is, on average, approximately 20% higher than our gross margin for

third party brands.

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.

The slight decrease was mainly due to an increase

of import duty and freight charges, which was partially offset by an increase in sales, as discussed above, and selling more products

under in-house brands as opposed to third party brands.

The gross margin for in-house branded products is, on average, 20% higher than

our gross margin for third party brands.

Selling, Fulfillment, General and Administrative

Selling, fulfillment,

general and administrative expenses for the year ended June 30, 2021 increased 62.51% to $19,858,000 as compared to $12,219,616 for

the year ended June 30, 2020.

The increase was mainly due to an increase in selling and fulfillment expenses of $4.5 million and

general and administrative expenses of $3.1 million, which included payroll expenses, IPO-related indirect expenses, stock-based

compensation expense, and other operating expenses.

Selling, fulfillment, general

and administrative expenses for the year ended June 30, 2022 increased 55.5% to $30,887,856 as compared to $19,858,000 for the year ended

June 30, 2021.

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.

We have recorded a net loss for the three months ended June 30, 2022 comparing to last quarter due

to the increase in the operating expenses.

Other (Expense)

Other (expenses) consists

of interest expense, financing fees and other non-operating income (expenses).

Other expenses for the year ended June 30, 2021 was $(2,969,551)

Other (expenses) consist of

interest expense, financing fees and other non-operating income (expenses).

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.

The increase in other expenses was mainly due to an increase in financing

fees of $148,139, amortization of debt discount of $1.5 million, and change in fair value of conversion feature and warrant liabilities

of $1.4 million resulted from the issuance of our Series A Convertible Preferred Stock, convertible notes and warrants during the year

The decrease in other expenses was mainly due to a decrease of amortization

of debt discount of $1.5 million, and change in fair value of conversion feature and warrant liabilities of $1.4 million resulted from

the issuance of our Series A Convertible Preferred Stock, convertible notes and warrants during the year ended June 30, 2021.

Net Income (Loss) Attributable to iPower

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.

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.

Net (Loss) Income

Net loss for the year ended

June 30, 2021 was $775,749 as compared to net income of $1,986,962 for the year ended June 30, 2020, representing a decrease of $2,762,711.

While gross profit as a percentage of revenues increased to 42.20% in the year ended June 30, 2021 as compared to 37.88% for the year

ended June 30, 2020, the decrease in net income for the year ended June 30, 2021 was primarily due to the increase in operating and non-operating

expenses discussed above.

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.

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.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

During the years ended June

30, 2021 and 2020, 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.

We had cash and cash equivalents of $6,651,705 as of June 30, 2021, representing

a $5,674,070 increase from $977,635 of cash as of June 30, 2020.

The cash increase was primarily the result of the closing of the 2020

and 2021 private placements and the IPO.

The loans and lines of credit consisted of the following:

(i) a PPP Loan, dated April 13, 2020

(the “PPP Loan”), with Royal Business Bank, pursuant to which we received a $175,500 loan, with a two year term and bearing

an interest rate of 1% per annum, which PPP Loan was fully forgiven on March 22, 2021;

(ii) a Small Business Administration Loan, dated

April 18, 2020 (the “SBA Loan”), pursuant to which we received $500,0000 in exchange for issuing a 30-year, $500,000 note

bearing an interest rate of 3.75% per annum, with repayment of $2,437 per month to commence on the one year anniversary date of the SBA

and (iii) a Loan and Security Agreement with WFC Fund, LLC (“WFC”), dated May 3, 2019 (the “Loan and Security

Agreement”), pursuant to which WFC provided us a $2,000,000 revolving loan facility with a one year maturity date, which had an

interest rate equal to the prime rate plus 4.25% per annum.

The Company’s obligations under the Loan and Security Agreement were

secured by all of the Company’s assets and guaranteed by Allan Huang, a former director and executive officer and one of our major

shareholders and founders.

On May 26, 2020, the Loan and Security Agreement was amended and restated as a Receivables Purchase Agreement

(the “Original RPA”), pursuant to which WFC may, but is not obligated to, purchase accounts receivable from the Company from

time to time.

The credit limit of the revolving facility under the Original RPA was $2,000,000, which had a discount rate equal to the

prime rate plus 4.25% per annum on the outstanding amount.

This revolving credit facility is secured by all of the Company’s assets

and guaranteed by Mr.

Pursuant to the Original RPA, the purchases of accounts receivable were made with full recourse to the Company,

and the Company was obligated to collect the accounts receivables and to repurchase or pay back the amount drawn if the accounts receivable

were not collected.

On November 16, 2020, the Original RPA was further amended and restated (the “Restated RPA”) to increase

the credit limit of the revolving facility from $2,000,000 to $3,000,000, which bears a discount rate of 3.05555%, subject to a rebate

of 0.0277% per day.

This revolving credit facility is secured by all of the Company’s assets and guaranteed by Chenlong Tan, our

CEO, President and one of our major shareholders and founders.

Pursuant to the agreement, all purchases of accounts receivables are without

recourse to the Company, and WFC assumes the risk of nonpayment of the accounts receivable due to a customer’s financial inability

to pay the accounts receivable or the customer’s insolvency (“Credit Risk”) but not the risk of non-payment of the

accounts receivable for any other reason.

The Company is obligated to collect the accounts receivables and to repurchase or pay back

the amount drawn if the accounts receivable are not collected for any reason other than Credit Risk.

The Restated RPA has an initial

term of 12 months and automatically renews for successive 12-month periods on each anniversary of the Restated RPA, unless either party

notifies the other party prior to the renewal date (or, in the case of WFC, at any time a default is continuing under the Restated RPA)

that such notifying party is terminating the Restated RPA.

If the Restated RPA is terminated six months or more prior to its then-scheduled

termination date, the Company is obligated to pay WFC a termination fee equal to 1% of the facility limit.

We do not believe that the

terms of the Restated RPA will materially change our ability to access funds, other than by providing us with an additional $1,000,000

in potential cash availability through the revolving credit facility.

The loans and revolving credit facility are discussed in greater

detail in Note 8 to our financial statements for the years ended June 30, 2021 and June 30, 2020.

On December 30, 2020, we closed

on a private placement offering pursuant to which we sold to three accredited investors an aggregate of $345,000 in Series A convertible

preferred stock, at a purchase price of $10.00 per share, which stock automatically converted into Common Stock upon completion of our

IPO at a discount of 30% to the IPO per share purchase price.

The offering was completed pursuant to an exemption from registration under

Rule 506(b) of the Securities Act of 1933, as amended.

On January 27, 2021, we completed

a private placement offering pursuant to which we sold to two accredited investors an aggregate of $3,000,000 of our 6% convertible notes

due six months from the date of issuance, subject to extension as provided below (the “Convertible Notes”).

Upon completion

of our IPO, the Convertible Notes will automatically converted into 857,144 shares of Common Stock using a conversion price equal to $3.50

per share, representing a 30% discount to the public offering price per share of the Common Stock in our IPO.

Boustead Securities LLC

acted as placement agent in both the December 30, 2020 and the January 27, 2021 private placements.

In addition to the Convertible

Notes, the purchasers of the Convertible Notes received three-year warrants entitling the holders to purchase 685,714 shares of Common

Stock which equals 80% of the number of shares of Common Stock issuable upon conversion of the Convertible Notes.

Prior to the completion of

our IPO, on April 14, 2021, we amended and restated our articles of incorporation to eliminate the Class A Common Stock and Class B Common

Stock designations.

And on May 14, 2020, the Company closed its IPO under a registration statement, effective May 11, 2021, in which we

issued and sold 3,360,000 shares of Common Stock at a purchase price of $5.00 per share (the “Public Offering Price”).

On May 21, 2021, the Company closed on the IPO’s overallotment option, selling an additional 504,000 shares of Common Stock to the

IPO’s underwriters at the Public Offering Price.

The Company received net proceeds of approximately $16.5 million from the

IPO after deducting underwriting discounts and offering expenses.

Following completion of the

IPO, on May 14, 2021, the Series A convertible preferred stock and Convertible Notes were converted into an aggregate of 955,716 shares

of the Common Stock.

The Company also issued 24,451 shares of Common Stock upon the cashless exercise of warrants held by Boustead Securities

LLC, the placement agent of the Company’s private placement offerings completed in December 2020 and January 2021.

As of the date of this report,

we had cash and cash equivalents of approximately $1.5 million.

The decrease in cash was due to an increase in purchasing additional inventory

and investing in product sourcing and marketing promotions.

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.

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.

The cash decrease was primarily the result of the

increase in net cash used in operating activities, including increased investment in inventory to support our increasing sales, payment

of income taxes, and the increase in accounts receivable from Amazon resulting from increased sales.

Based on our current operating

plan, and despite the current uncertainty resulting from the ongoing COVID-19 pandemic, we believe that our existing cash and cash equivalents

and cash flows from operations will be sufficient to finance our operations during the next 12 months.

Our cash requirements consist

primarily of day-to-day operating expenses and obligations with respect to warehouse leases.

We lease all our office and warehouse facilities.

We expect to make future payments on existing leases from cash generated from operations.

We have credit terms in place with our major

suppliers, however as we bring on new suppliers, we are often required to prepay our inventory purchases from them.

This is consistent

with our historical operating model which allowed us to operate using only cash generated by the business.

Beyond the next 12 months we

believe that our cash flow from operations should improve as supply chains begin to return to normal and new suppliers we are bringing

online transition to credit terms more favorable to us.

In addition, we plan to increase the size of our in-house product catalog, which

will have a net beneficial impact to our margin profile and ability to generate cash.

In addition, we have approximately $12.0 million

unused credit under the revolving line with JPM.

Given our current working capital position an available funding from our revolving credit

line, we believe we will be able to manage through the current challenges by managing payment terms with customers and vendors.

Working Capital

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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.

Operating Activities

Net cash (used in) / provided

by operating activities for the years ended June 30, 2021 and 2020 was ($12,756,949) and $1,109,043, respectively.

The increase in use

of cash in operating activities was resulted from an increased purchase of products in order to maintain the higher inventory levels required

to meet our increasing sales volumes and prepayments for product sourcing and marketing promotions.

Net cash used in operating

activities for the years ended June 30, 2022 and 2021 was $16,603,005 and $12,756,949, respectively.

The increase in use of cash in operating

activities resulted from an increased purchase of products in order to maintain the higher inventory levels required to meet our increasing

sales volumes, payment of income taxes, and the increase in accounts receivable resulted from increased sales.

Investing Activities

For the years ended June 30,

2021 and 2020, net cash used in investing activities was the result of additions to property and equipment of $61,498 and $6,252, respectively,

which are mainly related to the purchase of office equipment.

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.

Financing Activities

Net cash provided by / (used

in) financing activities was $18,492,517 and ($596,614), respectively, for the years ended June 30, 2021 and 2020.

The main reason for

the increase in net cash provided was primarily a result of proceeds 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.

October 2019 Share Exchange Agreement and

In October 2019, we entered

into a share exchange agreement (the “Share Exchange Agreement”) with Sugarmade, Inc., a Delaware corporation (“Sugarmade”),

pursuant to which, among other things, the Company and its stockholders agreed to sell 100% of the issued and outstanding capital stock

of the Company to Sugarmade in exchange for $870,000 in cash, $7,130,000 under a promissory note, up to 650,000 shares of Sugarmade’s

common stock, and up to 3,500,000 shares of Sugarmade’s Series B preferred stock.

Due to certain disputes that

arose between the parties with respect to certain terms and conditions contained in the Share Exchange Agreement, the parties entered

into a Rescission and Mutual Release Agreement on January 15, 2020 (the “Rescission Agreement”).

Pursuant to the terms of

the Rescission Agreement, the Company and its stockholders returned the shares of Sugarmade common stock and preferred stock and issued

to Sugarmade 102,248 (204,496 post-forward split) shares of the Company’s Common Stock then valued at $427,010.

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 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.

OFF-BALANCE SHEET ARRANGEMENTS

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of our audited consolidated financial statements.

Variable interest entity

The Company entered into an

agreement with E Marketing Solution Inc.

(“E Marketing”), an entity incorporated in California and owned by Shanshan Huang,

one of the shareholders of the Company.

The Company also entered into an agreement with Global Product Marketing Inc.

an entity incorporated in the State of Nevada on September 4, 2020.

GPM is owned by Chenlong Tan, the Chairman, CEO, President and one

of the majority shareholders of the Company.

The Company does not have direct ownership in E Marketing and GPM but has been actively involved

in their operations and has the power to direct the activities and significantly impact E Marketing’s and GPM’s economic performance.

The Company also bears all the risk of losses and has the right to receive all of the benefits from E Marketing and GPM.

As such, in accordance

with ASC 810-10-25-38A through 25-38J, E Marketing and GPM are considered variable interest entities (“VIEs”) of the Company

and the financial statements of E Marketing and GPM were consolidated from the date of control existed.

On May 18, 2021, the Company

entered into equity purchase agreements (“Equity Purchase Agreements”) with the shareholders of each of our variable interest

entities, E Marketing Solution Inc.

(“E Marketing”) and Global Product Marketing Inc.

(“GPM”), pursuant to which

we acquired 100% of the equity interests of each of E Marketing and GPM.

The Company paid nominal consideration of $10.00 for the acquisition

of each of E Marketing and GPM, which then became the Company’s wholly owned subsidiaries.

Revenue recognition

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Shipping and handling costs are recorded as selling expenses.

Inventory, net

Inventory consists of finished

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The Company also reviews inventory for slow moving and obsolescence and records allowance for obsolescence.

On its inception date, April

11, 2018, the Company adopted ASC 842 – Leases (“ASC 842”), which requires lessees to record right-of-use, or ROU, assets

and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.

assets represent our right to use an underlying asset for the lease terms and lease liabilities represent our obligation to make lease

payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value

of lease payments over the lease term.

As the Company’s leases do not provide an implicit rate, the Company generally uses its incremental

borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement

The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

Lease expense for lease payments

is recognized on a straight-line basis over the lease term.

Equity method investment

The Company accounts for its

ownership interest in Box Harmony, a 40% owned joint venture, following the equity method of accounting, in accordance with ASC 323, Investments

— Equity Method and Joint Ventures.

Under this method, the carrying cost is initially recorded at cost and then increased or decreased

by recording its percentage of gain or loss in its statement of operations and a corresponding charge or credit to the carrying value

of the asset.

Business Combination

February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”) and its subsidiaries, including

The Company applies the acquisition method of accounting for business combinations.

Under the acquisition method, the acquiring

entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values.

Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values.

of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is

recorded as goodwill.

Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain

purchase gain is recognized.

Acquisition-related costs are expensed as incurred.

See Note 4 for details on acquisition.

Variable interest entities

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”).

Pursuant to the

terms of the Agreements, the Company does not have direct ownership in DHS but is actively involved in DHS’s operations as the sole

manager to direct the activities and significantly impact DHS’s economic performance.

DHS’s operational funding is provided

by the Company after February 15, 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.

As such, based on the determination that the Company is the primary beneficiary of DHS, in accordance

with ASC 810-10-25-38A through 25-38J, DHS is considered a variable interest entity (“VIE”) of the Company and the financial

statements of DHS have been consolidated from the date such control existed, February 15, 2022.

See Note 4 and Note 5 for details on acquisition.

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 .

Goodwill is not amortized but is reviewed for potential impairment on an annual basis,

or if events or circumstances indicate a potential impairment, at the reporting unit level.

The Company’s review for impairment

includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit

is less than its carrying value, including goodwill.

If it is determined that it is more likely than not that the fair value of a reporting

unit is less than its carrying value, including goodwill, a quantitative goodwill impairment test is performed, which compares the fair

value of the reporting unit with its carrying amounts, including 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, 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.

An impairment loss is recorded to the extent that the carrying amount of goodwill

exceeds its implied fair value.

Intangible Assets, net

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.

Intangible assets are recorded at the estimated fair value of these items at the date of acquisition, February

Intangible assets are amortized on a straight-line basis over their estimated useful life as followings:

Covenant Not to Compete

Supplier relationship

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.

The assessment of possible impairment is based on the ability to recover the carrying value of the

asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations.

If these cash

flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value

and carrying value.

The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets,

as well as other fair value determinations.

As of June 30, 2022, there were no indicators of impairment.

Stock-based Compensation

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vesting period.

On October 15, 2020, the Company’s

Board adopted, and its stockholders approved and ratified, the iPower Inc.

2020 Equity Incentive Plan (the “Plan”).

allows for the issuance of up to 5,000,000 shares of Common Stock, whether in the form of options, restricted stock, restricted stock

units, stock appreciation rights, performance units, performance shares and other stock or cash awards.

The general purpose of the Plan

is to provide an incentive to the Company’s directors, officers, employees, consultants and advisors by enabling them to share in

the future growth of the Company’s business.

Following completion of the

IPO, pursuant to their letter agreements, the Company awarded a total of 46,546 restricted stock units (“RSUs”) under the

Plan to its independent directors, Chief Financial Officer, and certain other employees and consultants, all of which are subject to certain

vesting conditions.

The fair value of the RSUs was determined to be based on $5.0 per share, the initial listing price of the Company’s

common stock on the grant date.

As of June 30, 2021, the Company had granted total of 46,546 RSUs, of which 22,137 were vested and 24,409

were unvested.

For the year ended June 30, 2021, the Company recorded $110,683 of stock-based compensation expense.

Company will recognize forfeitures as they occur.

Commitments and Contingencies

In the normal course of business,

the Company is subject to certain contingencies, including legal proceedings and claims arising out of the business that relate to a wide

range of matters, such as government investigations and tax matters.

The Company recognizes a liability for such contingency if it determines

it is probable that a loss has occurred and a reasonable estimate of the loss can be made.

The Company may consider many factors in making

these assessments including historical and specific facts and circumstances of each matter.

Earnings per share

Basic earnings per share are

computed by dividing net income attributable to holders of common stock by the weighted average number of common stock outstanding during

Diluted earnings per share reflect the potential dilution that could occur if securities to issue common stock were exercised.

Convertible notes and warrants

On January 27, 2021, the Company

completed a private placement offering pursuant to which the Company sold to two accredited investors an aggregate of $3,000,000 in convertible

notes with a 6% interest per annum (the “Convertible Notes”) and warrants to purchase shares of Class A Common Stock equaling

80% of the number of shares of Class A Common Stock issuable upon conversion of the 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 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 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.

In the event the Company does not receive a minimum of $15,000,000 of gross proceeds

in the Offering or otherwise close on the Offering, the Convertible Notes will bear interest at a rate of 6% per annum which shall accrue

from January 27, 2021 and be repayable in six equal monthly installments between July 27, 2021 and January 27, 2022.

Alternatively, the

Convertible Notes may be converted at the conversion price into shares of Class A Common Stock at the option of the holder prior to the

maturity date (the “Conversion Option”).

If the notes are converted, either on a Mandatory Conversion basis or through each

holder’s exercise of the Conversion Option, any interest accrued on the Convertible Note shall be waived.

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”).

The placement agent warrants shall

be exercisable for a period of five years from the issuance date and are treated as a debt issuance cost.

The conversion feature included

in the terms of the Convertible Notes creates an obligation to the Company requiring it to repay the notes for cash in January 2022, if

an IPO does not occur.

Upon an IPO, the Conversion Option is settleable with a variable number of the Company’s shares resulting

in a fixed monetary amount known at inception in accordance with ASC 480-10-25-14a.

As such, the conversion feature was determined to

be a derivative liability, which represent an embedded derivative predominately based on fixed monetary amount.

The Convertible Note warrants

and placement agent warrants were determined to be derivative liabilities, which represent free-standing derivative instruments.

measured the derivative liabilities at fair value at the issuance date of the convertible notes, convertible note warrants and placement

agent warrants based on a Modified Black Scholes option-pricing model.

The derivative liabilities were recorded with a corresponding debit

to debt discount that will be amortized over the life of the notes using effective interest rate method.

At time of issuance, the convertible

notes and warrant liabilities were recorded on the balance sheet as liabilities.

Debt issuance costs resulting from placement agent warrants

are allocated to derivative liabilities based on its fair value at issuance to total proceeds received.

Debt issuance costs associated

with warrant liabilities are expensed immediately and the debt issuance cost associated with the debt host are amortized over the life

of the notes.

Upon conversion on May 14,

2021, the Company measured the conversion liability and placement agent warrant liability to fair value using the Modified Black Scholes

Option Pricing Model, a level 3 valuation method, based on the expected fair value of the underlying stock.

Change in fair value was recorded

in other-operating expenses.

On May 14, 2021, the fair

value of the outstanding warrants held by the Convertible Note investors were also remeasured with change in fair value recorded in other-operating

Then the fair value was reclassed to additional paid in capital as the terms became fixed upon closing of the IPO.

Series A Convertible Preferred Stock

On December 30, 2020, the

Company issued a total of 34,500 shares of Series A Convertible Preferred Stock, par value $0.001 per share.

Pursuant to the certificate

of designations, the Series A Convertible Preferred Stock automatically converted into shares of the Common Stock (the “Conversion

Shares”) at a conversion price equal to 70% of the per share purchase price of the Common Stock in our IPO.

If the IPO failed to

occur by December 31, 2021, the Company would have been obligated to redeem and repurchase for cash all of the outstanding shares of

Series A Convertible Preferred Stock for a purchase price equal to (a) the product of multiplying the $10.00 Stated Value of each outstanding

share of Series A Convertible Preferred Stock by the total number of outstanding shares of Series A Convertible Preferred Stock, plus

(b) all accrued and unpaid Dividends at 9% per annum (the “Redemption Feature”).

In the event that the Series A Convertible

Preferred Stock converted into Conversion Shares, no Dividend shall accrue or be payable.

The Redemption Feature creates

an obligation to the Company requiring it to redeem the Preferred Shares for cash on December 31, 2021, if an IPO has not yet occurred.

Upon completion of an IPO, the Conversion Option is settleable with a variable number of the Company’s shares resulting in a fixed

monetary amount known at inception in accordance with ASC 480-10-25-14a.

The Series A convertible preferred stock are mandatorily redeemable

and should be classified as a liability in accordance with ASC 480-10 and the Company has elected to record the Series A Convertible Preferred

Stock at fair value with changes in fair value recorded through earnings under the ASC 825-10-15-4 fair value option (“FVO”)

Upon conversion on May 14,

2021, the fair value of the Series A Convertible Preferred Stock was measured based on the fixed monetary amount of the convertible share

The change in fair value was recorded as other non-operating expense.

Series A Preferred Stock Warrant

In connection with the private

placement of Series A Preferred Stock the Company issued warrants to the placement agent to purchase shares of Series A Convertible Preferred

The exercise price of the warrants is $10 per share.

The Company accounts for its redeemable convertible preferred stock warrants

as a liability, and they are recorded at their estimated fair value, because the warrants may conditionally obligate the Company to transfer

assets at some point in the future.

At the end of each reporting period, changes in the estimated fair value during the period are recorded

in other income (expense), net in the statement of operations.

The Company will continue to adjust the liability for changes in

estimated fair value until the earlier of the expiration of the warrants, exercise of the warrants, or conversion of the redeemable convertible

preferred stock warrants into common stock warrants upon the completion of a liquidation event, including the completion of an IPO.

On May 14, 2021, the

fair value of the outstanding Series A Preferred Stock warrant held by the placement agent were remeasured with change in fair value recorded

in other-operating expenses.

Recently issued accounting pronouncements

In addition to the requisite service period, the Company also evaluates the performance condition and market condition

under ASC 718-10-20.

For an award that contains both a performance and a market condition, and where both conditions must be satisfied

in order for the award to vest, the market condition is incorporated into the fair value of the award, and that fair value is recognized

over the employee’s requisite service period or nonemployee’s vesting period if it is probable that the performance condition

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.

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.

The amendments in this ASU clarify the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual

sale restriction and require specific disclosures related to such an equity security.

This standard is effective for fiscal years beginning

after December 15, 2024.

The Company does not expect the adoption of this standard to have a material impact on the consolidated financial

In October 2021, the FASB

issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts

with Customers.

This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities

in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as if the entity

had originated the contracts.

The guidance is effective for fiscal years beginning after December 15, 2023, with early application permitted.

The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In August 2020, the FASB issued

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own equity to reduce form-over-substance-based accounting conclusions.

In addition, this ASU improves and amends the related EPS

In addition, this ASU improves and amends the related EPS guidance.

This standard is effective for the Company on July 1, 2024, including interim periods within those fiscal years.

either a modified retrospective method or a fully retrospective method of transition.

The Company is currently assessing the impact the

new guidance will have on our consolidated financial statements.

Adoption is either a

modified retrospective method or a fully retrospective method of transition.

The Company does not expect the adoption of this standard

to have a material impact on the consolidated financial statements.

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

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.

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.

In December 2019, the FASB

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adoption of this standard have a material impact on the consolidated financial statements.

In January 2017, the

FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill

Impairment,” which eliminates step two from the goodwill impairment test.

Under ASU 2017-04, an entity should recognize

an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of

goodwill allocated to that reporting unit.

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,

The adoption of ASU 2017-04 is not expected to have material impact on the Company's Consolidated Financial Statements.

The Company does not believe

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financial position, statements of operations and cash flows.

Recent Financing

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

Up to 90% of eligible credit card receivables

Up to 85% of eligible trade accounts receivable

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.

To secure complete payment and performance of

the secured obligations, the Company granted a security interest in all of its right, title and interest in, to and under all of the Company’s

assets as collateral to the ABL.

Upon closing of the ABL, the Company paid $796,035 financing fees including 2% of $25.0 million or $500,000

paid to its financial advisor.

The financing fees are recorded as debt discount and to be amortized over three years as financing expenses,

the term of the ABL.

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.

Promissory note payable and Investment Payable

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”).

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.

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.

addition, $1,500,000 in cash was to be paid after closing.

However, a s of the date of this report,

the $1.5 million cash portion of the consideration, which was presented as an investment payable, had not yet been paid as the seller’s

bank account was still not opened due to delays in accessing the bank resulting from COVID-19 conditions and restrictions in place in

Hong Kong and China.

Initial Public Offering

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In the event the Convertible Notes are repaid in cash by the Company, the warrants will expire and have no further value.

description of Convertible Notes and

Warrants is intended to be a useful overview of the material provisions of the Convertible Notes and Warrants.

However, you should read

the Form of Convertible Note and Warrant for a complete description of the obligations of the Company.

Private Placement of Series A Convertible

Preferred Stock

This description of Convertible

Notes and Warrants is intended to be a useful overview of the material provisions of the Convertible Notes and Warrants.

you should read the Form of Convertible Note and Warrant for a complete description of the obligations of the Company.

Private Placement of Series A Convertible Preferred

On December 30, 2020, the

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis