What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-15 compared with 2022-09-28 · 372 added, 391 removed, 245 unchanged (76% 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.

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.

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.

The MD&A contains forward-looking statements that involve risks

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

Any statements that are not statements of

historical fact are forward-looking statements.

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 indicate future

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

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.

Driven by tech and data, iPower

is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies, and consumer home goods.

the operations of our e-commerce platforms and channel partners, our 99,000 square foot fulfillment center in Rancho Cucamonga, California,

and our combined 121,000 square foot fulfillment centers in Los Angeles, California, we believe we are one of the leading marketers, distributors

and retailers in the consumer gardening and home goods categories, based on management’s estimates.

Our core strategy continues

to focus on expanding our geographic reach across the United States and internationally through organic growth, both in terms of expanding

customer base as well as brand and product development.

iPower has developed a set of methodologies driven by proprietary data formulas

to effectively bring products to market and sales.

We are actively developing

and acquiring our in-house branded products, which to date include the iPower and Simple Deluxe brands and

consist of more than 4,000 SKUs of products such as grow-light systems, ventilation systems, activated carbon filters, nutrients,

growing media, hydroponic water-resistant grow tents, trimming machines, pumps and many more hydroponic-related items;

some of which have

been designated as Amazon best seller product leaders, among others.

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

accounted for 70% of our total sales.

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

include nutrients.

more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others.

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.

for total consideration with a fair value of $10.6 million, we acquired 100% of the ordinary shares of Anivia, a corporation organized

under the laws of the British Virgin Islands (“BVI”), in accordance with the terms of a share transfer framework agreement

(the “Transfer Agreement”), dated February 15, 2022, by and between the Company, White Cherry Limited, a BVI company (“White

Cherry”), White Cherry’s equity holders, Li Zanyu and Xie Jing (together with White Cherry, the “Sellers”), Anivia,

Fly Elephant Limited, a Hong Kong company, Dayourenzai (Shenzhen) Technology Co., Ltd., and Daheshou (Shenzhen) Information Technology

Anivia owns 100% of the equity of Fly Elephant Limited, which in turn owns 100% of the equity of Dayourenzai (Shenzhen) Technology

Co., Ltd., a corporation located in the PRC and which is a wholly foreign-owned enterprise (“WFOE”) of Fly Elephant Limited.

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,

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

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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.

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

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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.

It was contemplated that only approximately 300-400

square feet will be initially used by GSM.

However, since the space was never utilized by GSM, iPower resumed using the contemplated space

during the fiscal year ended June 30, 2023.

Trends and Expectations

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Ongoing COVID-19 Outbreak and Related Disruptions

We are continuing to closely

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

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.

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

slow the COVID-19 outbreak, 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 outbreak, including any resurgences, will continue to negatively impact global economic activity.

While the COVID-19 outbreak 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 worst of the COVID-19 pandemic has seemingly passed, we are

continuing to closely monitor its impact on our business, results of operations and financial results.

The situation surrounding the COVID-19

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

certain developments including the length of time any regional outbreaks, the impact on consumer activity and behaviors and the effect

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

While the COVID-19 outbreak

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.

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.

Regulatory Environment

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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.

example, certain countries and a total of 46 U.S.

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

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

CBD, while the U.S.

Controlled Substances Act and the laws of U.S.

states prohibit growing cannabis.

Demand for our products could be impacted

by changes in the regulatory environment with respect to such industries and segments.

Demand for our products could be

impacted by changes in the regulatory environment with respect to such industries and segments.

RESULTS OF OPERATIONS

For the years ended June, 2022 and 2021

For the fiscal years ended June, 2023 and

The following table presents

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Cost of goods sold

Selling, fulfillment, general and administrative expenses

Operating income

Operating expenses

(Loss) Income from operations

(13,483,543 )

Other (expenses)

Income (Loss) before income taxes

Income tax expenses

Net income (loss)

(Loss) Income before income taxes

(14,667,573 )

Income tax (benefit) expenses

Net (loss) income

(11,977,073 )

Non-controlling interest

Net income (loss) attributable to iPower Inc.

Other comprehensive income

Comprehensive income (loss) attributable to iPower Inc.

Net (loss) income attributable to iPower Inc.

(11,965,390 )

Other comprehensive (loss) income

Comprehensive (loss) income attributable to iPower Inc.

$ (12,033,202 )

Gross profit % of revenues

Operating income % of revenues

Net income (loss) attributable to iPower Inc.

Operating (loss) income % of revenues

Net (loss) income attributable to iPower Inc.

% of revenues

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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.

However, while the revenues for the current year ended June 30, 2023 improved over last year, we cannot be assured that this

trend will continue.

Costs of Goods Sold

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due to an increase in sales, as discussed above.

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.

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

as a result of the increased freight charges capitalized in the inventories sold during the year ended June 30, 2023.

We have seen decreasing

freight charges since September 2022;

however, we can provide no assurance that this trend will continue.

Gross profit was $34,797,461

for the year ended June 30, 2023 as compared to $33,199,893 for the year ended June 30, 2022.

The gross profit ratio 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, 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.

The gross profit ratio decreased to 39.14%

for the year ended June 30, 2023 from 41.80% for the year ended June 30, 2022.

The decrease in gross profit ratio was mainly driven by

an increase in costs of goods sold during the year ended June 30, 2023, as discussed above.

Operating Expenses

Operating expenses for the

year ended June 30, 2023 increased 56.31% to $48,281,004 as compared to $30,887,856 for the year ended June 30, 2022.

The increase was

mainly due to the combination of an increase in selling and fulfillment expenses of $13.2 million as a result of increased advertising,

merchant fees, delivery fees, rental expenses, storage costs and fulfillment workforce, general and administrative expenses of $1.08 million,

which included payroll expenses, stock-based compensation expense, insurance expenses, legal fees related to the Boustead case, and other

operating expenses including expenses associated with being a publicly traded company, and $3.06 million of impairment loss on goodwill

triggered by a decrease in the Company’s share price of its common stock and the net loss incurred during the quarter ended September

(Loss) Income from Operations

(Loss) income from operations

was ($13,483,543) for the year ended June 30, 2023 as compared to $2,312,037 for the year ended June 30, 2022.

The decrease was due to

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

Other (Expense)

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as compared to $248,419 for the year ended June 30, 2022.

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

The increase in other expenses was mainly due to a combined result of decrease

in other non-operating income of $404,115, and an increase in interest, including amortization of debt discount, on the revolving loan

of $608,121 during the year ended June 30, 2023.

Net (Loss) Income Attributable to iPower

Net (loss) attributable to

for the year ended June 30, 2023 was ($11,965,390) as compared to net income of $1,517,875 for the year ended June 30, 2022,

representing a decrease of $13,483,265.

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

as discussed above.

Comprehensive (loss) Income 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.

Comprehensive Income (loss) Attributable

Comprehensive (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.

for the year ended June 30, 2023 was ($12,033,202) as compared to comprehensive income of $1,523,553 for the year ended

June 30, 2022, representing a decrease of $13,556,755.

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

loss of $(67,812) as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency

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

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

During year ended June 30,

2022 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through completion of two

private placements in 2020 and 2021, completion of our initial public offering in May of 2021, and borrowing under our credit facility

and loans from the Small Business Administration and JPMorgan Chase Bank.

During the fiscal year ended

June 30, 2023 we primarily funded our operations with cash and cash equivalents generated from operations, as well as through borrowing

under our credit facility from JPMorgan Chase Bank (“JPM”).

We had cash and cash equivalents of $3,735,642 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.

2023, representing a $1,913,695 increase from $1,821,947 in cash as of June 30, 2022.

The cash increase was primarily the result of the

increase in net cash provided by operating activities, including decreased inventory and accounts receivable and increased accounts payable.

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.

plan, we believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to finance our operations

during the next 12 months.

However, our liquidity and our ability to meet our obligations and fund our capital requirements are dependent

on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control, such

as rising inflation and potential recession, and our anticipated funding requirements could increase.

See the “Risk Factors”

section in this report.

Our cash requirements consist

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

In addition, we have approximately $12.0 million

Currently, we have approximately $18.0 million in

unused credit under the revolving line with JPM.

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

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

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

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As of June 30, 2023 and 2022,

our working capital was $32,300,646 and $23,281,891, respectively.

The historical seasonality in our business during the year can cause

cash and cash equivalents, inventory, and accounts payable to fluctuate, resulting in changes in our working capital.

We anticipate that

past historical trends to remain in place through the balance of the fiscal year with working capital remaining near this level for the

foreseeable future.

our working capital was $17.9 million and $32.3 million, respectively.

The historical seasonality in our business during the year can

cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital.

We anticipate

that past historical trends to remain in place through the balance of the fiscal year with working capital remaining near this level for

the foreseeable future.

Operating Activities

Net cash used in operating

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

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.

Net cash provided by (used

in) operating activities for the years ended June 30, 2023 and 2022 was $9,211,269 and ($16,603,005), respectively.

The increase 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 years ended June 30,

2022 and 2021, net cash used in investing activities was $139,386 and $61,498, respectively, The increase in use of cash in investing

activities was mainly related to the purchase of office equipment and investment in joint venture, which was partially offset by cash

acquired from acquisition of Anivia in February 2022.

2023 and 2022, net cash used in investing activities was $140,813 and $139,386, respectively.

The increase in cash used in investing activities

was because the Company made additional purchase of equipment during the year ended June 30, 2023.

Financing Activities

Net cash 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.

Net cash (used in) provided

by financing activities was ($7,153,620) and $11,911,916, respectively, for the years ended June 30, 2023 and 2022.

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:

$1.5 million to pay off investment payable;

(2) $1.8 million to pay down note payable;

and (3) $8.6 million to pay down the outstanding

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

OFF-BALANCE SHEET ARRANGEMENTS

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Revenue recognition

The Company has adopted Accounting

Standards Codification (“ASC”) 606 since its inception on April 11, 2018 and recognizes revenue from product sales revenues,

net of promotional discounts and return allowances, when the following revenue recognition criteria are met:

a contract has been identified,

separate performance obligations are identified, the transaction price is determined, the transaction price is allocated to separate performance

obligations and revenue is recognized upon satisfying each performance obligation.

The Company transfers the risk of loss or damage upon

shipment, therefore, revenue from product sales is recognized when it is shipped to the customer.

Return allowances, which reduce product

revenue by the Company’s best estimate of expected product returns, are estimated using historical experience.

The Company recognizes revenue

from product sales revenues, net of promotional discounts and return allowances, when the following revenue recognition criteria are met:

a contract has been identified, separate performance obligations are identified, the transaction price is determined, the transaction

price is allocated to separate performance obligations and revenue is recognized upon satisfying each performance obligation.

transfers the risk of loss or damage upon shipment, therefore, revenue from product sales is recognized when it is shipped to the customer.

Return allowances, which reduce product revenue by the Company’s best estimate of expected product returns, are estimated using

historical experience.

The Company evaluates the

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goods ready for sale and is stated at the lower of cost or market.

The Company value its inventory using the weighted average costing

The Company’s policy is to include as a part of cost of goods sold any freight incurred to ship the product from its vendors

to warehouses.

Outbound freight costs related to shipping costs to customers are considered period costs and reflected in selling and

fulfillment expenses.

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

The Company values its inventory using the weighted average costing

The Company’s policy is to include as a part of inventory and cost of goods sold any freight incurred to ship the product

from its vendors to warehouses.

Outbound freight costs related to shipping costs to customers are considered period costs and reflected

in selling and fulfillment expenses.

The Company regularly review inventory and consider forecasts of future demand, market conditions

and product obsolescence.

If the estimated realizable

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

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.

February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including Daheshou (Shenzhen) Information

Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”).

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,

During the term of the agreements, which run for a term of 10 years from February 2022 to February 2032, the Company bears all the

risk of loss and has the right to receive all of the benefits from DHS.

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.

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.

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

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, an impairment loss will be recognized in an amount equal to that excess, limited

to the total amount of goodwill allocated to that reporting unit.

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 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 for the period ended June 30,

Due to the decrease in the Company’s share price subsequent to the filing of the June 30, 2022 Form 10-K and the net loss

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

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 on the discounted cash flows with the revised projections reflecting the increase in freight and storage costs in the

current interim quarter.

The Company also considered the Market Capital Method, which is an alternative market approach, suggested the

Company’s goodwill is partially impaired.

Subsequent to the quarter

ended September 30, 2022, during the period ended June 30, 2023, the Company performed a qualitative and quantitative goodwill impairment

analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment.

As of June 30, 2023 and 2022, the goodwill

balance amounted to $3,034,110 and $6,094,144, respectively.

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.

life intangible assets at June 30, 2023 include a covenant not to compete, supplier relationship and software recognized as part of the

acquisition of Anivia.

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

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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.

of long-lived assets, including intangible assets, when events or changes in circumstances occur that indicate the carrying value of the

asset may not be recoverable.

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

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

If these cash flows

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

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, 2023, there were no indicators of impairment.

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forfeitures of such equity-based compensation as they occur.

issued accounting pronouncements

The Company accounts for income

taxes under the asset and liability method.

Deferred tax assets and liabilities are recognized for future tax consequences attributable

to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases.

tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary

differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized

in income in the period that includes the enactment date.

Valuation allowances are recorded, when necessary, to reduce deferred tax assets

to the amount expected to be realized.

As of June 30, 2023, the Company expected that the deferred tax assets are fully realizable so

did not record any valuation allowance.

As a result of the implementation

of certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty

in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and

measurement related to accounting for income taxes.

The Company has adopted the provisions of ASC 740 since its inception on April 11,

2018, and has subsequently analyzed filing positions in each of the federal and state jurisdictions where the Company is required to file

income tax returns, as well as open tax years in such jurisdictions.

The Company has identified the U.S.

federal jurisdiction and the

states of Nevada and California as its “major” tax jurisdictions.

However, the Company has certain tax attribute carryforwards

which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect

to the year in which such attributes are utilized.

The Company believes that

our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a

material change to its financial position.

Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC

The Company’s policy for recording interest and penalties associated with income-based tax audits is to record such items as

a component of income taxes.

Recently issued accounting pronouncements

In September 2022, FASB

issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.

The amendments in this ASU require that a company that uses a supplier finance program in connection with the purchase of goods or services

disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity

during the period, changes from period to period, and potential magnitude.

ASU 2022-04 is effective for fiscal years, including interim

periods within those fiscal years, beginning after December 15, 2022, except for the rollforward of the supplier finance program obligations,

which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

An entity should apply ASU No.

retrospectively to all periods in which a balance sheet is presented, except for the obligation rollforward, which should be applied prospectively.

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

In June 2022, FASB issued ASU

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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

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.

1 unchanged sentence

after December 15, 2024.

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

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

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

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.

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

In March 2020 and January

2021, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial

Reporting and ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope, respectively (collectively, “Topic 848”).

848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference

the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate

The expedients and exceptions provided by Topic 848 are effective for all entities as of March 12, 2020 through December 31,

In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which

deferred the sunset date of Topic 848, Reference Rate Reform to December 31, 2024, after which entities will no longer be permitted to

apply the relief in Topic 848.

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

financial statements.

In August 2020, the FASB issued

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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.

In January 2020, the FASB

issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and

Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU among other

things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity

method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement

alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The 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.

for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

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

The Company adopted ASU

2020-01 on July 1, 2022.

The adoption of ASU 2020-01 did not have material impact on the Company's consolidated financial statements.

In December 2019, the FASB

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The new standard

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

is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15,

however, early adoption is permitted.

The Company does not expect the

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.

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

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.

ASU 2017-04 became effective for accelerated filing companies for annual periods or any interim goodwill impairment tests in

fiscal years beginning after December 15, 2019.

All other entities, including not-for-profit entities, that are adopting the amendments

in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022.

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

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

Company has adopted ASU 2017-04.

See disclosures above on Goodwill for further details.

The Company does not believe

4 unchanged sentences

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:

Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A.

(“JPM”), as administrative agent, issuing bank and

swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows:

Borrowing base equal to the sum of

14 unchanged sentences

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

On May 11, 2021, the Company

entered into an underwriting agreement (the “Underwriting Agreement”) with D.A.

Davidson & Co., a Delaware limited liability

company (“D.A.

Davidson”), pursuant to which D.A.

Davidson agreed to act as the lead underwriter in our initial public offering

(the “IPO”) of up to 3,864,000 shares of the Company’s common stock, at an initial public offering price of $5.00 per

share (the “IPO Purchase Price”).

The IPO closed on May 14, 2021, with the sale of 3,360,000 shares of the Company’s

Common Stock for gross proceeds of $16.80 million, and on May 21, 2021, the Company closed on a $2.52 million overallotment option through

the sale of an additional 504,000 shares at the IPO Purchase Price.

Private Placement of Convertible Notes and

On January 27, 2021, the Company

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”), and warrants

(the “Warrants”) pursuant to an exemption from registration under Rule 506(b) of Regulation D of the Securities Act of 1933,

Boustead Securities, LLC acted as placement agent in the Convertible Note and Warrant offering and received commissions and

non-accountable reimbursements of 8% of the gross proceeds received, of which one-half of such fees and expenses were payable upon the

conversion of the Convertible Notes.

In connection with the Convertible Note and Warrant offering, we issued placement agent warrants

to purchase 7% of the shares of Common Stock underlying the Convertible Notes exercisable at the conversion price of the Convertible Note

(the “Conversion Price”), of which Boustead Securities, LLC received 80% of the placement agent warrants, which were cashlessly

exercised for a total of 21,378 shares of Common Stock on May 14, 2021.

Upon completion of our IPO,

the Convertible Notes automatically converted into 857,144 shares of common stock in accordance with the terms of the Convertible Notes.

In addition to the Convertible Notes, the purchasers of the Convertible Notes received three-year warrants entitling the holders to purchase

a total of 685,714 shares of Common Stock which equals 80% of the number of shares of Common Stock issuable upon conversion of the Convertible

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

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

Company sold in a private placement to approximately three accredited investors under Rule 506(b) promulgated under the Securities Act

of 1933, as amended, an aggregate of 34,500 shares of the Company’s Series A convertible preferred stock (the “Series A Preferred

Stock”) and received gross proceeds of $345,000.

Boustead Securities, LLC acted as placement agent in such private placement and

received commissions of $24,150 or 7% of the gross proceeds received, a non-accountable expense allowance of 1% of such gross proceeds

and warrants to purchase 2,415 shares of Series A Preferred Stock at an exercise price equal to $10 per share, the offering price of the

Series A Preferred Stock, which warrants were cashlessly exercised for a total of 3,073 shares of common stock on May 14, 2021.

Upon completion

of our IPO, the Series A Preferred Stock automatically converted into a total of 98,572 shares of our common stock.

Terms of the Series A Convertible Preferred

Pursuant to the certificate

of designations of rights, privileges and limitations, the Series A Preferred Stock, prior to conversion:

pays a dividend of nine percent (9%) per annum (the “Dividend”), which Dividend shall be cumulative and payable in cash only in the event of Redemption of the Series A Preferred Stock.

In the event that the Series A Preferred Stock is converted into shares of Common Stock, no Dividend shall accrue or be payable;

has one vote per share;

however, shall have no right to vote as a separate class on any matter submitted to vote by the stockholders of the Corporation, excluding any proposed amendment that would adversely alter or change any preference or any relative or other right given to the Series A Preferred Stock, in which event the Series A Preferred Stock may vote as a separate class with respect to such amendment;

on a sale or liquidation of the Company the Series A Preferred Stock has a $10.00 per share preference over the Company Common Stock;

by its terms, upon consummation of this offering, all of the issued and outstanding shares of Series A Preferred Stock will automatically convert into shares of the Common Stock (the “Conversion Shares”) at a conversion price equal to 70% of the initial price per share of the Common Stock upon closing of the IPO);

if the IPO has not been completed by December 31, 2021, the Company shall redeem and repurchase for cash all of the outstanding shares of Series A 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 Preferred Stock by the total number of outstanding shares of Series A Preferred Stock, plus (b) all accrued and unpaid Dividends owed thereon.

Below is a summary of the

interest expense recorded for the years ended June 30, 2023 and 2022:

Accrued interest

Credit utilization fees

Amortization of debt discount

As of June 30, 2023 and 2022,

the outstanding amount of the JPM revolving loan payable, net of debt discount and including interest, was $9,791,191 and $12,314,627,

respectively.

October 7, 2022, the Company entered into a second amendment to the credit agreement and consent (the “Second Amendment to the

Credit Agreement”), originally dated November 12, 2021, as amended, with JPM, as administrative agent and lender.

The Company entered

into the Second Amendment to the Credit Agreement primarily for the purpose of changing the interest rate repayment calculations from

LIBOR to the Secured Overnight Financing Rate, or SOFR, which adjustment had originally been anticipated under the terms of the original

Credit Agreement.

In addition, two of the negative covenants set forth in the original credit agreement were amended in order to (i)

adjust the definition of “Covenant Testing Trigger Period” to increase the required cash availability from $3,000,000 to

$4,000,000, or 10% of the aggregate revolving commitment for the preceding 30 days, and (ii) require that the Company will not and will

not permit any of its subsidiaries, after reasonable due diligence and due inquiry, to knowingly sell their products, inventory or services

directly to any commercial businesses that grow or cultivate cannabis;

it being acknowledged, however, that the Company does not generally

conduct due diligence on its individual retail customers.

On November 11, 2022, the Company and JPM entered into a default waiver and

consent agreement (the “Waiver Letter”) pursuant to which the parties recognized that the Company was in default on its failure

to satisfy the minimum Excess Availability requirement of $7,500,000, as defined in the Credit Agreement, and deliver a certificate to

JPM accurately reflecting the Excess Availability (together, the “Existing Defaults”).

Under the terms of the Waiver Letter,

JPM agreed to waive the right to enforce an event of default based on the aforementioned Existing Defaults.

As of June 30, 2023, the

Company was in compliance with the ABL covenants.

Promissory note payable

On February 15, 2022, as part

of the consideration for the acquisition of Anivia, the Company issued a two-year unsecured 6% subordinated promissory note, payable in

equal semi-annual installments commencing August 15, 2022 (the “Purchase Note”).

The principal amount of the Purchase Note

was $3.5 million with a fair value of $3.6 million as of February 15, 2022.

In October 2022, the Company paid the first installment of

$875,000, and in February 2023, the Company paid the second installment of $875,000.

For the year ended June 30, 2023, the Company recorded

accrued interest of $157,500 and amortization of note premium of $50,418.

As of June 30, 2023, including $236,250 of accrued interest

and $31,602 of unamortized premium, the total outstanding balance of the Purchase Note was $2,017,852, which is presented on the consolidated

balance sheet as a current portion of $2,017,852 and a non-current portion of $0.

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, including $78,750 of accrued interest and

$82,020 of unamortized premium, the total outstanding balance of the Purchase Note was $3,660,770, which was presented on the consolidated

balance sheet as a current portion of $1,879,065 and a non-current portion of $1,781,705.

Emerging Growth Company

We are an “emerging

growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Accordingly, certain specified

reporting and other regulatory requirements for public companies are reduced for businesses that meet the qualifications for emerging

growth companies.

growth company,” as defined in the JOBS Act.

Accordingly, certain specified reporting and other regulatory requirements for public

companies are reduced for businesses that meet the qualifications for emerging growth companies.

These provisions include:

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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