What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-09-20 compared with 2023-09-15 · 394 added, 287 removed, 330 unchanged (67% of the section changed)

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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

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

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

of several factors.

Historical results may not indicate future

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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

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, 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

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

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

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

other businesses, in the marketing of their products.

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

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

was issued 4,000 GSM Equity Units.

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

Under the terms of the GSM

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

and Bro Angel granted GSM, pursuant to the terms of an intellectual property licensing agreement, dated February 10, 2022 (the “IP

License Agreement”), an exclusive worldwide paid up right and license to use all intellectual property of Bro Angel and its members

for the purpose of furthering the proposed business of GSM.

The LLC Agreement prohibits the issuance of additional GSM Equity Units and

certain other actions unless approved in advance by the Company.

Pursuant to the GSM Joint

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

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

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

It 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.

the operations of our e-commerce platforms and channel partners, our combined 121,000 square foot fulfillment centers in Rancho Cucamonga

and Los Angeles, California, we believe we are one of the leading marketers, distributors and retailers in the consumer gardening and

home goods categories, based on management’s estimates.

Our core strategy continues to focus on expanding our geographic reach across

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

iPower has developed a set of methodologies driven by proprietary data formulas to effectively bring products to market and sales.

We are actively developing our

in-house branded products and through supply chain partners, which to date include the iPower and Simple Deluxe

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

Trends and Expectations

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and services we need to continue to make certain products.

Ongoing COVID-19 Outbreak and Related Disruptions

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

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

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

Recent Developments

On June 18, 2024, we closed

on the Registered Direct offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase 2,083,334 Warrant Shares,

which were sold for gross aggregate proceeds of $5,000,002.

The Shares were sold pursuant to a prospectus supplement, filed on June 18,

2024, to the Registration Statement on Form S-3, originally filed on September 25, 2023, with the SEC (File No.

333-274665), and declared

effective by the SEC on September 29, 2023.

The Warrants, which were issued pursuant to an exemption from registration under Section 4(a)(2)

or Regulation D of the Securities Act, have a term of five years and are immediately exercisable at $2.40 per share.

The Shares and Warrants

were sold to a Purchase Agreement to a securities purchase agreement, dated June 16, 2024, between the Company and the purchaser.

Capital Partners, LLC acted as Placement Agent, pursuant to a Placement Agency Agreement.

The Company paid the Placement Agent as compensation

a cash fee equal to 6.5% of the gross proceeds of the Offering plus reimbursement of certain expenses and legal fees.

On July 9, 2024, as required

by the Purchase Agreement, we filed a resale registration statement on Form S-1 with the SEC (the "Resale Form S-1").

an amendment on July 23, 2024, the Resale Form S-1 was declared effective by the SEC on July 26, 2024.

RESULTS OF OPERATIONS

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Operating expenses

(Loss) Income from operations

(13,483,543 )

Loss from operations

Other expenses

(Loss) Income before income taxes

(14,667,573 )

Income tax (benefit) expenses

Net (loss) income

(11,977,073 )

Loss before income taxes

Income tax benefit

Non-controlling interest

Net (loss) income attributable to iPower Inc.

(11,965,390 )

Other comprehensive (loss) income

Comprehensive (loss) income attributable to iPower Inc.

$ (12,033,202 )

Net loss attributable to iPower Inc.

Other comprehensive loss

Comprehensive loss attributable to iPower Inc.

Gross profit % of revenues

Operating (loss) income % of revenues

Net (loss) income attributable to iPower Inc.

Operating loss % of revenues

Net loss attributable to iPower Inc.

% of revenues

Revenues for the year ended

June 30, 2023 increased 11.94% to $88,902,048 as compared to $79,418,473 for the year ended June 30, 2022.

June 30, 2024 decreased 3.18% to $86,071,485 as compared to $88,902,048 for the year ended June 30, 2023.

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

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.

the decreased revenue mainly resulted from a slight decrease in sales volume.

Costs of Goods Sold

Costs of goods sold for the

year ended June 30, 2023 increased 17.06% to $54,104,587 as compared to $46,218,580 for the year ended June 30, 2022.

The increase was

due to an increase in sales, as discussed above.

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.

year ended June 30, 2024 decreased 13.47% to $46,818,232 as compared to $54,104,587 for the year ended June 30, 2023.

The decrease was

mainly due to the decrease in sales, freight costs, and lowered product costs resulted from management’s efforts on supply chain

Gross profit was $ 39,253,253

for the year ended June 30, 2024 as compared to $34,797,461 for the year ended June 30, 2023.

The gross profit ratio decreased to 39.14%

The gross profit ratio increased to 45.61%

for the year ended June 30, 2024 from 39.14% for the year ended June 30, 2023.

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.

The increase in gross profit ratio was mainly driven by

the decrease in costs of goods sold during the year ended June 30, 2024, 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)

year ended June 30, 2024 decreased 16.70% to $40,216,145 as compared to $48,281,004 for the year ended June 30, 2023.

The decrease was

mainly due to the combination of a decrease in selling and fulfillment expenses of $4.33 million, including vendor warranty credits for

prior year purchases of $2.48 million recorded during the year ended June 30, 2024 and decreased costs related to advertising, merchant

fees, delivery fees, rental expenses, storage costs and fulfillment workforce, a decrease in general and administrative expenses of $0.67

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 a decrease of $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.

We have seen decreased operating expenses during the year ended June 30, 2024;

however, we can provide no assurance

that this trend will continue.

Loss from Operations

Loss from operations was 962,892

for the year ended June 30, 2024 as compared to $13,483,543 for the year ended June 30, 2023.

The decrease was due to combination of the

decrease in operating expenses and the increase in gross profit as discussed above.

Other Expenses

Other expenses consist of

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

Other expenses for the year ended June 30, 2023 were $1,184,030

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

The increase 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.

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

Other expenses for the year ended June 30, 2024 were $829,921 as

compared to $1,184,030 for the year ended June 30, 2023.

The decrease in other expenses was mainly due to decrease in other

non-operating loss of $71,761, and in interest, including amortization of debt discount, on the revolving loan of $277,855 during

the year ended June 30, 2024 resulted from the decreasing loan balance.

Net Loss Attributable to iPower Inc.

Net loss attributable to iPower

for the year ended June 30, 2024 was $1,528,159 as compared to $11,965,390 for the year ended June 30, 2023, representing a decrease

of net loss of $10,437,231.

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

Comprehensive loss Attributable to iPower

Comprehensive loss attributable

to iPower Inc.

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

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

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.

for the year ended June 30, 2024 was $1,676,431 as compared to $12,033,202 for the year ended June 30, 2023, representing

a decrease of comprehensive loss of $10,356,771.

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

of $148,272 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

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

We had cash and cash equivalents of $3,735,642 as of June 30,

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

The cash increase was primarily the result of the

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

Additionally, on June 18, 2024, we closed on the Registered Direct

offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase 2,083,334 Warrant Shares, which were sold for

gross aggregate proceeds of $5,000,002.

We had cash and cash equivalents of $7,377,837 as of June 30, 2024, representing a $3,642,195

increase from $3,735,642 in cash as of June 30, 2023.

The cash increase was primarily the result of the cash we received in the Registered

Direct in June 2024.

Based on our current operating

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See the “Risk Factors”

section in this report.

section in this Annual Report.

Our cash requirements consist

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Beyond the next 12 months we

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

online transition to credit terms more favorable to us.

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

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

Currently, we have approximately $18.0 million in

unused credit under the revolving line with JPM.

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

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

believe that our cash flow from operations should improve as supply chain operations normalize and new suppliers we are bringing online

transition to credit terms more favorable to us.

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

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

Currently, we have approximately $18.0 million in unused

credit under the revolving line with JPM, which will be expired and we are in negotiations on a renewal in November 2024.

Given our current working

capital position and available funding from our revolving credit line and proceeds from our June Registered Direct offering, we believe

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

Working Capital

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Operating Activities

Net cash provided by (used

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

The increase in cash

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

and increased accounts payable.

Our largest source of cash

provided by operations is from sales of products.

Our primary uses of cash from operating activities include payments to suppliers for

products, to employees for compensation, and other general expenses.

Net cash provided by operating activities for the years ended June

30, 2024 and 2023 was $6,164,076 and $9,211,269, respectively.

The decrease in cash provided by operating activities mainly resulted from

a decrease in cash received from customers and an increase in cash paid for cost of revenues and operating expenses.

Investing Activities

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2024 and 2023, net cash used in investing activities was $0 and $140,813, 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.

The decrease in cash used in investing activities

was because the Company did not purchase any additional equipment during the year ended June 30, 2024, whereas such equipment had been

purchased in the same period during 2023.

Financing Activities

Net cash (used in) provided

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

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.

Net cash used in financing activities

was $2,397,801 and $7,153,620, respectively, for the years ended June 30, 2024 and 2023.

The decrease in net cash used in financing activities

was primarily due to a combination of increase in proceeds from our registered offering and loans and our payment of approximately $16.8

(1) $3.8 million to pay off the notes payable to White Cherry;

(2) $12 million to pay down the outstanding balance of the

asset-based revolving loan facility with JPM;

and (3) $1.0 million of offering cost settlement payment to Boustead.

OFF-BALANCE SHEET ARRANGEMENTS

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financial statements in accordance with accounting principles generally accepted in the United States, or GAAP and pursuant to the rules

and regulations of the Securities Exchange Commission (“SEC”).

The preparation of consolidated financial statements in conformity

with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements

and accompanying notes.

Actual results could differ from those estimates.

In some cases, changes in the accounting estimates are reasonably

likely to occur from period to period.

and regulations of the SEC.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Actual results could

differ from those estimates.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates.

To the extent that there

are material differences between these estimates and actual results, our financial condition and results of operations will be affected.

We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these

estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting policies, which we discuss further

While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements,

we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation

of our audited consolidated financial statements.

To the extent that there are material differences between these

estimates and actual results, our financial condition and results of operations will be affected.

We base our estimates on experience

and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

refer to accounting estimates of this type as critical accounting policies, which we discuss further below.

While our significant accounting

policies are more fully described in Note 2 to our audited consolidated financial statements, we believe that the following accounting

policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated financial

Revenue recognition

The Company recognizes revenue

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

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

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

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

The Company recognizes revenue from service and 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 or completion of service, therefore, revenue from product sales is recognized when it is shipped to the customer and the revenue

from services is recognized upon completion of services.

For the years ended June 30, 2024 and 2023, the revenues from services were immaterial.

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

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Generally, when the Company is primarily responsible

for fulfilling the promise to provide a specified good or service, the Company is subject to inventory risk before the good or service

has been transferred to a customer and the Company has discretion in establishing the price, revenue is recorded at gross.

for fulfilling the promise to provide a specified good or service and the Company has discretion in establishing the price, revenue is

recorded at gross.

Payments received prior to the delivery of goods

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Shipping and handling costs are recorded as selling expenses.

Accounts receivable, net

ordinary course of business, the Company extends unsecured credit to its customers.

Accounts receivable are stated at the amount the Company

expects to collect from customers.

Management reviews its accounts receivable balances each reporting period to determine if an allowance

for credit loss is required.

evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability

of accounts receivable.

If there are any indicators that a customer may not make payment, the Company may consider making provision for

non-collectability for that particular customer.

At the same time, the Company may cease further sales or services to such customer.

following are some of the factors that the Company develops allowance for credit losses:

the customer fails to comply with its payment schedule;

the customer is in serious financial difficulty;

a significant dispute with the customer has occurred regarding job progress or other matters;

the customer breaches any of its contractual obligations;

the customer appears to be financially distressed due to economic or legal factors;

the business between the customer and the Company is not active;

other objective evidence indicates non-collectability of the accounts receivable.

receivable are recognized and carried at carrying amount less an allowance for credit losses, if any.

The Company maintains an allowance

for credit losses resulting from the inability of its customers to make required payments based on contractual terms.

The Company reviews

the collectability of its receivables on a regular and ongoing basis.

The Company has also included in calculation of allowance for credit

losses the potential impact of the COVID-19 pandemic on our customers’ businesses and their ability to pay their accounts receivable.

After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

The Company also considers

external factors to the specific customer, including current conditions and forecasts of economic conditions, including the potential

impact of the COVID-19 pandemic.

In the event we recover amounts previously written off, we will reduce the specific allowance for credit

Inventory, net

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Variable interest entities

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.

On February 15, 2022, the

Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including Daheshou (Shenzhen) Information Technology Co.,

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

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, 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.

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.

See Note 4 for details on acquisition.

Goodwill represents the excess

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Intangible Assets, net

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.

Finite life intangible assets

at June 30, 2024 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 15, 2022.

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

Intangible assets

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

Covenant Not to Compete

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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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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

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Recently issued accounting pronouncements

In September 2022, FASB

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

In December 2023, The FASB

issued ASU 2023-09, Improvements to Income Tax Disclosures.

Under this ASU, public business entities must annually “(1) disclose

specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold

(if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or

loss] by the applicable statutory income tax rate).” This ASU’s amendments are effective for public business entities for

annual periods beginning after December 15, 2024.

For entities other than public business entities, the amendments are effective for annual

periods beginning after December 15, 2025.

Entities are permitted to early adopt the standard “for annual financial statements that

have not yet been issued or made available for issuance.” The amendments should be applied on a prospective basis.

Retrospective

application is permitted.

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

In November 2023, The FASB

issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments apply to all public

entities that are required to report segment information in accordance with Topic 280, Segment Reporting.

The amendments in this ASU are

intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The key amendments:

Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly

provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.

that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description

of its composition.

The other segment items category is the difference between segment revenue less the significant expenses disclosed

and each reported measure of segment profit or loss.

Require that a public entity provide all annual disclosures about a reportable

segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting,

in interim periods.

Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance

and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the

measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s

consolidated financial statements.

Require that a public entity disclose the title and position of the CODM and an explanation of how

the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU

and all existing segment disclosures in Topic 280.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim

periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments

retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories and amounts

disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of

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

In October 2023, the FASB

issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative.

This ASU incorporates certain U.S.

Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards

Codification™ (“Codification”).

The amendments in the ASU are expected to clarify or improve disclosure and presentation

requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures

with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s

In SEC Release No.

33-10532, Disclosure Update and Simplification, issued August 17, 2018, the SEC referred certain of its

disclosure requirements that overlap with, but require incremental information to, generally accepted accounting principles to the FASB

for potential incorporation into the Codification.

The ASU incorporates into the Codification 14 of the 27 disclosures referred by the

They modify the disclosure or presentation requirements of a variety of Topics in the Codification.

The requirements are relatively

narrow in nature.

Some of the amendments represent clarifications to, or technical corrections of, the current requirements.

the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments.

For entities subject to the

SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation

for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date

for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments

will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations,

the amendments will be removed from the Codification and not become effective for any entity.

The Company does not expect the adoption

of this standard to have a material impact on its consolidated financial statements.

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,

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.

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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.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2022, FASB issued ASU

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

In August 2020, the

FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815-40).” This ASU reduces the number of accounting models for convertible debt

instruments and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s

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

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

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

Adoption is either a

modified retrospective method or a fully retrospective method of transition.

The Company does not expect the adoption of this standard

to have a material impact on the consolidated financial statements.

In March 2020 and January

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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.

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

ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts

in Entity’s Own Equity (Subtopic 815-40).” This ASU reduces the number of accounting models for convertible debt instruments

and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s

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

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

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

Adoption is either a

modified retrospective method or a fully retrospective method of transition.

The Company does not expect the adoption of this standard

to have a material impact on the consolidated financial statements.

In January 2017, 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.

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

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, and interim periods within fiscal years beginning after December 15,

however, early adoption is permitted.

The Company adopted ASU 2019-12 on July 1, 2022.

The adoption of this standard did not have

material impact on the consolidated financial statements.

In January 2017, the FASB

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

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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.

On 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

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

As of June 30, 2024 and 2023, the Company was in compliance with the ABL covenants.

Promissory note payable

3 unchanged sentences

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.

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

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.

In August 2023, the Company paid the

third installment of $875,000.

In February 2024, the Company paid the fourth installment of $875,000.

For the year ended June 30, 2024,

the Company recorded accrued interest of $39,429 and amortization of note premium of $31,602.

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, 2024, the total outstanding balance

of the Purchase Note was $0.

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.

Short-term loans payable

8, 2023, the Company entered into an agreement with White Cherry Limited (“White Cherry”), a BVI company owned by the former

owner of DHS, for an on-demand, unsecured and subordinated loan (“On-demand Loan”).

Pursuant to the agreement, White Cherry

agreed to loan the Company the amount requested.

The On-demand Loan bears interest at the rate of the Secured Overnight Financing Rate,

or SOFR, plus 1% per annum.

The On-demand Loan is due in 30 days upon receipt of White Cherry’s notice of repayment.

2023, the Company borrowed $2,000,000 from White Cherry, repaid $1 million on July 31, 2023 and $1 million on January 31, 2024.

year ended June 30, 2024, the Company recorded interest of $32,911.

As of June 30, 2024, the outstanding balance of the On-demand Loan

was fully paid off.

8, 2024, the Company entered into an agreement with an unrelated accredited investor (the “Investor”) for an on-demand, unsecured

and subordinated loan (“On-demand Loan 2”).

Pursuant to the agreement, the Investor agreed to loan the Company the amount

The On-demand Loan 2 bears interest at the rate of the Secured Overnight Financing Rate, or SOFR, plus 1.5% per annum.

On-demand Loan 2 is due in 30 days upon receipt of the Investor’s notice of repayment.

For the year ended June 30, 2024, the Company

borrowed $483,599 and recorded interest expense of $7,615.

As of June 30, 2024, the outstanding balance of the On-demand Loan 2, including

accrued interest of $7,615, was $491,214.

1, 2024, the Company borrowed $350,000 short-term loan (“RP Loan”) from an entity owned by Mr.

Allan Huang, one of the majority

shareholders of the Company.

The RP Loan bears no interest and is due upon receipt of request of repayment.

As of June 30, 2024, the outstanding

balance of the RP Loan was $350,000.

June 2024 Registered Direct Offering

On June 18, 2024, the Company,

closed on a Registered Direct Offering of 2,083,334 Shares and a concurrent Private Placement of Warrants to purchase 2,083,334 Warrant

Shares, which were sold for gross aggregate proceeds of $5,000,002.

The Shares were sold pursuant to a prospectus supplement, filed on

June 18, 2024, to the Registration Statement on Form S-3, originally filed on September 25, 2023, with the SEC (File No.

and declared effective by the SEC on September 29, 2023.

The Warrants, which were issued pursuant to an exemption from registration pursuant

to Section 4(a)(2) or Regulation D on the Securities Act, have a term of five years and are immediately exercisable at $2.40 per share.

The Shares and Warrants were sold to a purchaser pursuant to a securities purchase agreement, dated June 16, 2024, between the Company

and the purchaser (the “Purchase Agreement”).

Roth Capital Partners, LLC (the “Placement Agent”) acted as placement

agent, pursuant to a placement agency agreement between the Company and the Placement Agent dated June 16, 2024 (the “Placement

Agency Agreement”).

The Company paid the Placement Agent as compensation a cash fee equal to 6.5% of the gross proceeds of the offering

plus reimbursement of certain expenses and legal fees.

The net proceeds of the offering, after deducting the Placement Agent’s fees

and expenses and other offering expenses payable by the Company, is approximately $4,543,089.

A holder will not have the

right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or,

at the election of the holder, 9.99%), respectively, of the number of shares of common stock outstanding immediately after giving effect

to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants.

However, upon notice from the

holder to the Company as described in the Purchase Agreement, the holder may increase the beneficial ownership limitation, which may not

exceed 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise of Warrants.

According to the terms of

the Purchase Agreement, on July 9, 2024, we filed a Form S-1 to register the resale, from time to time, of up to an aggregate of 2,083,334

Warrant Shares, issuable upon the exercise of the Warrants issued in the Private Placement by the selling stockholder named therein.

resale registration statement was declared effective by the SEC on July 26, 2024.

As of June 30, 2024, no Warrants have been exercised.

Emerging Growth Company

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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