What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2023-02-14 · 202 added, 227 removed, 351 unchanged (55% of the section changed)

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The following Management’s

Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein.

This Management’s Discussion and Analysis (“MD&A”) contains forward-looking statements that involve risks and uncertainties,

such as statements of our plans, objectives, expectations and intentions.

Any statements that are not statements of historical fact are

forward-looking statements.

When used, the words “believe,” “plan,” “intend,” “anticipate,”

“target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,”

“may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking

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.

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.

This MD&A contains forward-looking statements that involve

risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.

Any statements that are not statements

of historical fact are forward-looking statements.

When used, the words “believe,” “plan,” “intend,”

“anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional

constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify

certain of these forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that could cause

actual results or events to differ materially from those expressed or implied by the forward-looking statements in this report.

results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several

Historical results may not

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Through the operations of our e-commerce platform, www.simpledeluxe.com

and www.Zenhydro.com, our combined 121,000 square foot fulfillment centers in Los Angeles, California, as well as our 99,000 square foot

fulfillment center in Rancho Cucamonga, California, we believe we are one of the leading marketers, distributors and retailers of home

fans, shelving, gaming chairs, grow-light systems, ventilation systems, activated carbon filters, nutrients, hydroponic water-resistant

grow tents, trimming machines, pumps, accessories for hydroponic gardening and certain pet products, based on management’s estimates.

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 of home fans, shelving, gaming chairs, grow-light systems, ventilation systems, activated carbon filters, nutrients,

hydroponic water-resistant grow tents, trimming machines, pumps, accessories for hydroponic gardening and certain pet products, 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

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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best seller product leaders, among others.

For the six months ended December 31, 2022, our top five product segments accounted for 78%

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.

For the nine months ended March 31, 2023, our top five product segments accounted for 74% of

While we continue to focus on our top product categories, we are working to expand our product catalog to include new and

adjacent categories.

Trends and Expectations

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of our products are sourced either in the United States or Mainland China, the military conflict between Russia and Ukraine may nonetheless

increase the likelihood of supply chain disruptions or otherwise hinder our ability to find the materials we need to make our products.

In addition, supply chain disruptions may make it harder for us to find favorable pricing and reliable sources for the materials we need,

putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue

to make certain products.

increase the likelihood that we may experience supply chain disruptions or otherwise hinder our ability to find the materials we need

to make our products.

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

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

services we need to continue to make certain products.

Ongoing COVID-19 Epidemic and Related Disruptions

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emergency paid time off and targeted hourly pay increases as well as developing no contact delivery methods.

In an effort to contain or

slow the COVID-19 epidemic, authorities across the world have implemented various measures, some of which have been subsequently rescinded

or modified, including travel bans, stay-at-home orders and shutdowns of certain businesses.

We anticipate that these actions and the

global health crisis caused by the COVID-19 epidemic, including any resurgences, will continue to negatively impact global economic activity.

While the COVID-19 epidemic has not had a material adverse impact on our operations to date and we believe the long-term opportunity that

we see for shopping online remains unchanged, it is difficult to predict all of the positive or negative impacts the COVID-19 outbreak

will have on our business.

In the short term, we have

continued to see increased sales and order activity in the market since the COVID-19 outbreak.

In order to keep up with the increased

orders, we have hired and are continuing to hire additional personnel.

However, much is unknown and, accordingly, the situation remains

dynamic and subject to rapid and possibly material change.

We will continue to actively monitor the situation and may take further actions

that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the

best interests of our customers, employees, suppliers, stockholders and communities.

While the COVID-19 epidemic

has not had a material adverse impact on our operations to date and we believe the long-term opportunity for shopping online remains unchanged,

it is difficult to predict all of the positive or negative impacts the COVID-19 epidemic will have on our business.

Regulatory Environment

We sell hydroponic gardening

products to end users that may use such products in new and emerging industries or segments, including the growing of cannabis.

for hydroponic gardening products depends on the uncertain growth of these industries or segments due to varying, inconsistent and rapidly

changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions.

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.

products to end users that may use such products in new and emerging industries or segments, including for use in growing cannabis.

demand for hydroponic gardening products depends on the uncertain growth of these industries or segments due to varying, inconsistent

and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions.

For example, certain countries and a total of 44 U.S.

states plus the District of Columbia have adopted frameworks that authorize, regulate

and tax the cultivation, processing, sale and use of cannabis for medicinal and/or non-medicinal use, including legalization of hemp and

CBD, while the U.S.

Controlled Substances Act and the laws of certain U.S.

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RESULTS OF OPERATIONS

For the three months ended December 31,

2022 and 2021

For the three months ended March 31, 2023

The following table presents

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Three Months Ended

December 31, 2022

March 31, 2023

Three Months Ended

December 31, 2021

March 31, 2022

Cost of goods sold

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Comprehensive (loss) income attributable to iPower Inc.

$ (1,512,930 )

Gross profit % of revenues

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Revenues for the three months

ended December 31, 2022 increased 12.43% to $19,254,590 as compared to $17,125,663 for the three months ended December 31, 2021.

pricing remained stable, the increased revenue mainly resulted from an increase in sales volume and expansion of sales to other regions,

such as Canada, Europe and Asia.

In addition to our organic growth and diversified product mix, which we achieved as a result of improved

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

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

ended March 31, 2023 decreased 11.32% to $20,225,619 as compared to $22,808,214 for the three months ended March 31, 2022.

While pricing

remained stable, the decreased revenue mainly resulted from a decrease in sales of the third-party brands we carry.

Costs of Goods Sold

Costs of goods sold for the three

months ended December 31, 2022 increased 17.95% to $11,285,064 as compared to $9,568,051 for the three months ended December 31, 2021.

The increase was due to an increase in sales, which resulted in increased accompanying costs.

Costs of goods sold for the

three months ended March 31, 2023 decreased 8.56% to $12,433,898 as compared to $13,598,563 for the three months ended March 31, 2022.

The decrease was due to a decrease in sales, which resulted in decreased accompanying costs.

See discussions on gross profit below.

have seen decreasing freight charges since September 2022 but cannot be assured that this trend will continue.

Gross profit was $7,791,721

for the three months ended December 31, 2022 as compared to $7,557,612 for the three months ended December 31, 2021.

The gross profit

ratio decreased to 41.39% for the three months ended December 31, 2022 from 44.13% for the three months ended December 31, 2021.

in the gross profit ratio was mainly driven by the increase in cost of goods sold as a result of increased freight charges as well as

for the three months ended March 31, 2023 as compared to $9,209,651 for the three months ended March 31, 2022.

The gross profit ratio

decreased to 38.52% for the three months ended March 31, 2023 from 40.38% for the three months ended March 31, 2022.

The decrease in the

gross profit ratio was mainly driven by the increase in cost of goods sold as a result of higher than normal freight charges as well as

channel and product category mix.

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Operating expenses for the

three months ended December 31, 2022 increased 87.66% to $12,052,092 as compared to $6,422,327 for the three months ended December 31,

The increase was mainly due to the combination of an increase in selling and fulfillment expenses of $5.7 million as a result of

increased costs related to advertising, merchant fees, and delivery fees, and a decrease in general and administrative expenses of $0.07

million, which included payroll expenses, stock-based compensation expense, insurance expenses and other operating expenses including

expenses associated with being a publicly traded company.

three months ended March 31, 2023 increased 22.60% to $9,602,919 as compared to $7,832,662 for the three months ended March 31, 2022.

The increase was mainly due to the combination of an increase in selling and fulfillment expenses of $1.4 million as a result of increased

costs related to advertising, merchant fees, rental expenses, and delivery fees, and an increase in general and administrative expenses

of $0.4 million, which included payroll expenses, stock-based compensation expense, insurance expenses and other operating expenses.

(Loss) Income from Operations

(Loss) Income from operations

was ($4,082,566) for the three months ended December 31, 2022 as compared to $1,135,285 for the three ended December 31, 2021.

in income was resulted from the increase in operating expenses being greater than the increase in gross profit received, as discussed

was ($1,811,198) for the three months ended March 31, 2023 as compared to $1,376,989 for the three months ended March 31, 2022.

in income was resulted from the increase in operating expenses and the decrease in gross profit, as discussed above.

Other Expenses

Other expenses for the three

months ended December 31, 2022 was $258,457 as compared to $14,709 for the three months ended December 31, 2021.

months ended March 31, 2023 was ($312,155) as compared to ($159,447) for the three months ended March 31, 2022.

The increase in other

expenses was mainly due to an increase in interest, including amortization of debt discount on the revolving loan of $239,007 during the

period ended December 31, 2022.

expenses was mainly due to an increase in interest, including amortization of debt discount on the revolving loan and other non-operating

expenses during the period ended March 31, 2023.

Net (Loss) Income Attributable to iPower

Net loss attributable to iPower

for the three months ended December 31, 2022 was ($3,290,439) as compared to net income of $797,861 for the three months ended December

for the three months ended March 31, 2023 was ($1,530,534) as compared to net income of $1,181,757 for the three months ended March

31, 2022, representing a decrease of ($2,712,291 ).

The decrease was primarily due to the increase in operating expenses as discussed above.

The decrease was primarily due to the decrease in gross profit and increase in operating

expenses as discussed above.

Comprehensive (Loss) Income Attributable

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to iPower Inc.

for the three months ended December 31, 2022 was ($3,243,290) as compared to comprehensive income of $797,861 for the three

months ended December 31, 2021, representing a decrease of $4,041,151.

for the three months ended March 31, 2023 was ($1,512,930) as compared to comprehensive income of $1,178,531 for the three

months ended March 31, 2022, representing a decrease of ($2,691,461).

The decrease was due to the reasons discussed above, along with

the other comprehensive income of $17,604 as a result of 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.

For the six months ended December 31, 2022

the functional currency of our VIE in the PRC, to USD, the reporting currency of the Company.

For the nine months ended March 31, 2023

The following table presents

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period to period.

Six Months Ended

December 31, 2022

Six Months Ended

December 31, 2021

Nine Months Ended

March 31, 2023

Nine Months Ended

March 31, 2022

Cost of goods sold

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Operating (loss) income

(10,487,070 )

Other (expenses)

(Loss) Income before income taxes

(11,097,353 )

Income tax (benefit) expense

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Comprehensive (loss) income attributable to iPower Inc.

$ (9,050,071 )

Gross profit % of revenues

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Net (loss) income % of revenues

Revenues for the six months

ended December 31, 2022 increased 31.27% to $45,277,263 as compared to $34,492,428 for the six months ended December 31, 2021.

While pricing

remained stable, the increased revenue mainly resulted from an increase in sales volume and expansion of sales to other regions, such

as Canada, Europe and Asia.

In addition to our organic growth and diversified product mix, which we achieved as a result of improved products

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

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

Revenues for the nine months ended March 31, 2023 increased 14.31%

to $65,502,882 as compared to $57,300,642 for the nine months ended March 31, 2022.

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.

to our organic growth and diversified product mix, which we achieved as a result of improved products and more effective online marketing

and merchandising efforts.

However, while the revenues for the current nine months ended March 31, 2023 improved over the same period

last year, we cannot assure that this trend will continue.

Costs of Goods Sold

Costs of goods sold for the

six months ended December 31, 2022 increased 39.25% to $27,322,021 as compared to $19,621,114 for the six months ended December 31, 2021.

nine months ended March 31, 2023 increased 19.68% to $39,755,919 as compared to $33,219,677 for the nine months ended March 31, 2022.

The increase was due to an increase in sales, as discussed above.

In addition, we experienced an increase in costs of goods sold as a

percentage of revenue as a result of the increased freight charges during the six months ended December 31, 2022.

However, the freight

costs have been decreasing since September 2022, causing the increase in costs of goods sold for the six months was more significant comparing

to the increase in the three months ended December 31, 2022.

See discussions on gross profit below.

We have seen decreasing freight charges

since September 2022 but could not be assured that this trend will continue.

percentage of revenue as a result of the increased freight charges during the nine months ended March 31, 2023.

See discussions on gross

profit below.

We have seen decreasing freight charges since September 2022 but can give no assurance that this trend will continue.

Gross profit was $25,746,963

for the six months ended December 31, 2022 as compared to $14,871,314 for the six months ended December 31, 2021.

The gross profit ratio

slightly decreased to 39.66% for the six months ended December 31, 2022 from 43.11% for the six months ended December 31, 2021.

in gross profit ratio was mainly driven by an increase in freight charges during the six months ended December 31, 2022 as well as channel

and product category mix.

for the nine months ended March 31, 2023 as compared to $24,080,965 for the nine months ended March 31, 2022.

The gross profit ratio decreased

to 39.31% for the nine months ended March 31, 2023 from 42.03% for the nine months ended March 31, 2022.

The decrease in gross profit

ratio was mainly driven by an increase in freight charges during the nine months ended March 31, 2023 as well as channel and product category

Operating Expenses

Operating expenses for the

six months ended December 31, 2022 increased 113.98% to $26,631,114 as compared to $12,445,714 for the six months ended December 31, 2021.

nine months ended March 31, 2023 increased 78.68% to $36,234,033 as compared to $20,278,376 for the nine months ended March 31, 2022.

The increase was mainly due to the combination of an increase in selling and fulfillment expenses of $11.9 million as a result of increased

advertising, merchant fees, delivery fees, storage costs and fulfillment workforce, general and administrative expenses of $0.7 million,

which included payroll expenses, stock-based compensation expense, insurance expenses and other operating expenses including expenses

associated with being a publicly traded company, and $3.1 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.

advertising, merchant fees, delivery fees, rental expenses, storage costs and fulfillment workforce, general and administrative expenses

of $1.04 million, which included payroll expenses, stock-based compensation expense, insurance expenses 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.

(Loss) Income from Operations

(Loss) Income from operations was

($8,675,872) for the six months ended December 31, 2022 as compared to $2,425,600 for the six months ended December 31, 2021.

(Loss) Income from operations

was ($10,487,070) for the nine months ended March 31, 2023 as compared to $3,802,589 for the nine months ended March 31, 2022.

was due to the increase in operating expenses was greater than the increase in gross profit as discussed above.

Other Expenses

Other expenses for the six

months ended December 31, 2022 was $298,128 as compared to $74,521 for the six months ended December 31, 2021.

Other expenses for the nine

months ended March 31, 2023 was ($610,283) as compared to ($233,968) for the nine months ended March 31, 2022.

The increase in other expenses

was mainly due to a combined result of an increase in other non-operating income of $261,770, and an increase in interest, including amortization

of debt discount on the revolving loan of $487,048 during the period ended December 31, 2022.

was mainly due to a combined result of an increase in other non-operating income of $ 113,652 , and an increase in interest, including

amortization of debt discount on the revolving loan of $ 573,641 during the period ended March 31, 2023.

Net (Loss) Income Attributable to iPower

Net loss attributable to iPower

for the six months ended December 31, 2022 was ($7,472,815) as compared to net income of $1,685,389 for the six months ended December

for the nine months ended March 31, 2023 was ($9,003,349) as compared to net income of $2,867,146 for the nine months ended March

31, 2022, representing a decrease of ($11,870,495).

The decrease was primarily due to the increase in operating expenses as discussed above.

The decrease was primarily due to a decrease in gross profit and an increase in operating

expenses as discussed above.

Comprehensive (Loss) Income Attributable

to iPower Inc.

Comprehensive loss

attributable to iPower Inc.

for the six months ended December 31, 2022 was ($7,537,141) as compared to comprehensive income of

$1,685,389 for the six months ended December 31, 2021, representing a decrease of $9,222,530.

The decrease was due to the reasons

discussed above, along with other comprehensive loss of $64,326 as a result of 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.

Comprehensive loss attributable

to iPower Inc.

for the nine months ended March 31, 2023 was ($9,050,071) as compared to comprehensive income of $2,863,920 for the nine

months ended March 31, 2022, representing a decrease of ($11,913,991).

The decrease was due to the reasons discussed above, along with

other comprehensive loss of $ (46,722) 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.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

During the six months ended

December 31, 2022 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through the

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 ("JPM”).

We had cash and cash equivalents

of $3,997,125 as of December 31, 2022, representing a $2.2 million increase from $1,821,947 of cash as of June 30, 2022.

The cash increase

was primarily the result of the increase in net cash provided by operating activities.

During the nine months ended

March 31, 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”).

We had cash and cash equivalents of $1,419,495 as of March 31,

2023, representing a $0.4 million decrease from $ 1,821,947 of cash as of June 30, 2022.

The cash decrease was primarily the result of

the decrease in net cash provided by financing activities resulting from our payments to pay down the note payable and the JPM revolving

Based on our current operating

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

We lease all our office and warehouse facilities.

We lease all of our office and warehouse

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 flows from operations should improve as supply chains begin to return to normal and new suppliers that we bring 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 $9.0 million in unused

credit under our revolving line of credit with JPM as of December 31, 2022.

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 our

customers and vendors.

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.

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 flows from operations should improve as supply chains begin to return to normal and new suppliers that

we bring 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 $10.0 million

in unused credit under our revolving line of credit with JPM as of March 31, 2023.

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 our customers and vendors.

Working Capital

As of December 31, 2022 and June

As of March 31, 2023 and June

30, 2022, our working capital was $18.8 million and $32.3 million, respectively.

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anticipate that past historical trends will remain in place through the balance of the fiscal year with working capital remaining near

this level for the foreseeable future.

this current level for the foreseeable future.

Operating Activities

Net cash provided by (used in)

operating activities for the six months ended December 31, 2022 and December 31, 2021 was $7,778,208 and ($12,243,043), respectively.

The increase in cash provided by operating activities mainly resulted from decreased accounts receivable, inventories, prepayments and

other current assets and increased accounts payable.

Net cash provided by (used

in) operating activities for the nine months ended March 31, 2023 and 2022 was $8,446,447 and ($14,760,269), respectively.

in cash provided by operating activities mainly resulted from decreased accounts receivable, inventories, prepayments and other current

assets and increased accounts payable.

Investing Activities

For the six months ended

December 31, 2022 and December 31, 2021, net cash used in investing activities was $127,367 and $56,424, respectively.

in cash used in investing activities was because the Company made additional purchase of equipment during the six months ended

December 31, 2022.

For the nine months ended March

31, 2023 and 2022, net cash (used in) provided by investing activities was ($144,885) and $177,408, respectively.

The increase in cash

used in investing activities was because the Company made additional purchase of equipment during the nine months ended March 31, 2023.

Financing Activities

Net cash (used in) provided by

financing activities was ($5,540,436) and $6,739,520, respectively, for the six months ended December 31, 2022 and December 31, 2021.

The main reason the Company experienced a decrease in net cash provided by financing activities was primarily due to our payment of $8.6

Net cash (used in) provided

by financing activities was ($8,663,091) and $10,598,447, respectively, for the nine months ended March 31, 2023 and 2022.

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) $6.2 million to pay down

the outstanding balance of the asset-based revolving loan facility with JPMorgan Chase Bank.

and 3] $8.6 million to pay down the outstanding

balance of the asset-based revolving loan facility with JPM.

OFF-BALANCE SHEET ARRANGEMENTS

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If the estimated realizable

value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated market value.

value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated market

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

Business Combination

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

its variable interest entity (“VIE”), Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the

laws of the People’s Republic of China (“DHS”).

The Company applies the acquisition method of accounting for business

combinations.

Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and

liabilities assumed at their acquisition date fair values.

Management utilizes valuation techniques appropriate for the asset or liability

being measured in determining these fair values.

Any excess of the purchase price paid 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

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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 VIE of the Company and the financial

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

all of 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 VIE of the Company and the

financial statements of DHS have been consolidated into the Company’s financial statements following the date such control existed,

February 15, 2022.

See Note 4 and Note 5 for details on acquisition.

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in an amount equal to that excess, limited to the total

amount of goodwill allocated to that reporting unit The Company engaged an independent third-party

valuation firm in August 2022 to conduct an evaluation of goodwill impairment for the Company as a whole at the consolidated reporting

amount of goodwill allocated to that reporting unit.

The Company engaged an independent third-party

valuation firm in August of 2022 to conduct an evaluation of goodwill impairment for the Company as a whole at the consolidated reporting

unit level as of June 30, 2022, which evaluation was conducted prior to the Company’s filing of its Annual Report on Form 10-K.

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quarter ended September 30, 2022, the Company engaged the same valuation firm to review goodwill for impairment.

Based on this review, the Company concluded an impairment loss of $3,060,034 as of September 30, 2022 was required.

Based on this review,

the Company concluded an impairment loss of $3,060,034 as of September 30, 2022 was required.

The impairment amount was determined based

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During the three months ended

December 31, 2022, the Company performed a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C

March 31, 2023, the Company performed a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C

and noted no goodwill impairment.

As of December 31, 2022, the remaining goodwill balance amounted to $3,034,110.

As of March 31, 2023, the remaining goodwill balance amounted to $ 3,034,110.

Intangible Assets, net

life intangible assets at June 30, 2022 include a 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

life intangible assets at June 30, 2022 included a covenant not to compete, supplier relationship, and software recognized as part of

the acquisition of Anivia Limited.

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

February 15, 2022.

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

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other fair value determinations.

As of December 31, 2022, there were no indicators of impairment.

As of March 31, 2023, there were no indicators of impairment.

Stock-based Compensation

Company applies ASC No.

718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with

employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized

as compensation expense over the requisite service period, with a corresponding addition to equity.

Under this method, compensation cost

related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and

is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the

vesting period.

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 applies ASC No.

718, “Compensation-Stock Compensation,” which requires that share-based payment transactions with employees and nonemployees

upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense

over the requisite service period, with a corresponding addition to equity.

Under this method, compensation cost related to employee share

options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period

during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

to the requisite service period, the Company also evaluates the performance condition and market condition under ASC 718-10-20.

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 will be met.

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

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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

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.

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should apply ASU 2020-01 prospectively at the beginning of the interim period that includes the adoption date.

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.

The update is intended to simplify the

current rules regarding the accounting for income taxes and addresses several technical topics including accounting for franchise taxes,

allocating income taxes between a loss in continuing operations and in other categories such as discontinued operations, reporting income

taxes for legal entities that are not subject to income taxes, and interim accounting for enacted changes in tax laws.

The new standard

is effective for fiscal years beginning after December 15, 2021;

The Company adopted ASU

2020-01 on July 1, 2022.

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.

The update is intended to simplify the current rules regarding the accounting

for income taxes and addresses several technical topics including accounting for franchise taxes, allocating income taxes between a loss

in continuing operations and in other categories such as discontinued operations, reporting income taxes for legal entities that are not

subject to income taxes, and interim accounting for enacted changes in tax laws.

The new standard is effective for fiscal years beginning

after December 15, 2021;

however, early adoption is permitted.

The adoption of this standard did

not have material impact on the consolidated financial statements.

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.

In January 2017, the FASB

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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-Q

Item 2. Management’s Discussion and Analysis