iPower Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) should be read in conjunction with our unaudited financial statements and the related notes thereto included elsewhere herein. This MD&A contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this report. 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 performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward- looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Overview Driven by tech and data, iPower Inc. is an online supplier of consumer goods, including hydroponics equipment, general gardening supplies, and consumer home goods. Through the operations of our e-commerce platforms and channel partners, and our 99,347 square foot fulfillment centers in Rancho Cucamonga, 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 Product and Brand Development We plan to increase investments in product and brand development. We actively evaluate potential acquisition opportunities of companies and product brand names that can complement our product catalog and improve on existing products and supply chain efficiencies. Global Economic Disruption While at present the majority of our products are sourced either in the United States or China, the military conflict between Russia and Ukraine may nonetheless increase the likelihood of supply chain interruptions and hinder our ability to find the materials we need to make our products. Thus far, as a result of the general global economic disruption, we have experienced a decrease in the speed with which we are able to purchase new inventory, as well as an increase in costs due to delays in shipping, resulting increase in time with which products remain in our warehouse facilities, thus resulting in reduced profits. In addition, supply chain disruptions may make it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products. 33 Regulatory Environment We sell hydroponic gardening products to end users that may use such products in new and emerging industries or segments, including the growing of cannabis. The demand for hydroponic gardening products depends on the uncertain growth of these industries or segments due to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain countries and a total of 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. Recent Developments Adoption of Digital Treasury Strategy On June 17, 2025, the Company adopted a digital asset reserve, allocation and development strategy (the “Digital Treasury Strategy”) with the plan of creating a Digital Treasury Strategy business. To date, we have not effectuated the Digital Treasury Strategy business and do not know if it will be effectuated. As this Digital Treasury Strategy is a newly planned addition to our business model, we cannot predict its success or know whether we will commence this strategy or, once commenced, if we will continue with this strategy for the long term. The Company will provide additional updates to shareholders when and if we do effectuate such strategy. RESULTS OF OPERATIONS For the three months ended September 30, 2025 and 2024 The following table presents certain unaudited condensed consolidated statement of operations information and presentation of that data as a percentage of change from period to period. Three Months Ended September 30, 2025 Three Months Ended September 30, 2024 Variance Revenues - product sales $ 10,484,661 18,275,412 (42.6% ) Revenues - service income 1,532,806 733,109 109.1% 12,017,467 19,008,521 (36.8% ) Cost of revenues - product costs 5,878,262 9,917,448 (40.7% ) Cost of revenues - service costs 1,332,681 603,176 120.9% 7,210,943 10,520,624 (31.5% ) Gross profit 4,806,524 8,487,897 (43.4% ) Operating expenses 6,501,703 11,234,331 (42.1% ) Operating loss (1,695,179 ) (2,746,434 ) (38.3% ) Other income 697,947 77,805 (797.0% ) Loss before income taxes (997,232 ) (2,668,629 ) (62.6% ) Income tax benefit 463,584 636,512 (27.2% ) Net loss (533,648 ) (2,032,117 ) (73.7% ) Non-controlling interest – (2,836 ) – Net loss income attributable to iPower Inc. (533,648 ) (2,029,281 ) (73.7% ) Other comprehensive loss 24,943 (55,054 ) 145.3% Comprehensive loss attributable to iPower Inc. $ (508,705 ) (2,084,335 ) (75.6% ) Gross profit % of revenues – product sales 43.9% 45.7% Gross profit % of revenues – service income 13.1% 17.7% Operating loss % of revenues (14.1% ) (14.4% ) Net loss % of revenues (4.4% ) (10.7% ) 34 Revenues Revenues for the three months ended September 30, 2025 decreased 36.8% to $12,017,467 as compared to $19,008,521 for the three months ended September 30, 2024.While pricing remained stable and with the additional logistics service income, the decrease was mainly due to the combination of decreased orders from Amazon and temporary disruption of product supply during the quarter ended September 30, 2025. In addition, the Company also experienced a significant decrease in amazon orders due to uncertainty over tariffs during quarter ended September 30, 2025. Costs of Revenues Costs of revenues for the three months ended September 30, 2025 decreased 31.5% to $7,210,943 as compared to $10,520,624 for the three months ended September 30, 2024. The decrease was primarily due to a combination of the costs related to the logistics service income and the decrease in sales, freight costs, and lowered product costs resulting from management’s efforts on supply chain management. Gross Profit Gross profit was $4,806,524 for the three months ended September 30, 2025 as compared to $8,487,897 for the three months ended September 30, 2024. While the overall gross profit ratio of the total sales revenues decreased to 40.0% for the three months ended September 30, 2025 from 44.7% for the three months ended September 30 , 2024 , the gross profit ratio of product sales revenue for the three months ended September 30, 2025 and 2024 was 43.9% and 45.7%, respectively. The decrease in the gross profit ratio was primarily driven by the increase in the logistics service income and secondarily by increases in freight costs and product costs. Operating Expenses Operating expenses for the three months ended September 30, 2025 decreased 42.1% to $6,501,703 as compared to $11,234,331 for the three months ended September 30, 2024. The decrease was mainly due to the combination of a decrease in selling and fulfillment expenses of $0.7 million as a result of decreased costs related to advertising, merchant fees, rental expenses and delivery fees, and a decrease in general and administrative expenses of $4.0 million, which included payroll expenses, stock-based compensation expense, insurance expenses, allowance for credit losses, travel expenses and other operating expenses. The decrease in general and administrative expenses was primarily attributable to the implementation of a cost-cutting plan during the current quarter, as compared to the prior-year period which included expenses related to the expansion of our vendor network, the development of the SuperSuite platform, and an increase in the allowance for credit losses and inventory reserves totaling $1.76 million for the quarter ended September 30, 2024. Loss from Operations Loss from operations was $1,695,179 for the three months ended September 30, 2025 as compared to $2,746,434 for the three months ended September 30, 2024 . The decrease in loss resulted from the decrease in operating expenses being greater than the decrease in gross profit. Other Income Other income consists of interest expense and other non-operating income. Other income for the three months ended September 30, 2025 was $697,947 as compared to $ 77,805 for the three months ended September 30, 2024 . The increase in other income was mainly due to combination of the increase in other non-operating income of $620,142 resulted from discounted settlement and write-offs of aged accounts payable, recognition of loss on deconsolidation of VIE, and a decrease in interest, including amortization of debt discount, on the revolving loan of $78,243 during the three months ended September 30, 2025 resulted from the decreasing loan balance. 35 Net Loss Attributable to iPower Inc. Net loss attributable to iPower Inc. for the three months ended September 30, 2025 was $533,648 as compared to $2,029,281 for the three months ended September 30, 2024 , representing a decrease in net loss of $1,495,633. The decrease was primarily due to the decrease in operating expenses and the increase in other income as discussed above. Comprehensive Loss Attributable to iPower Inc. Comprehensive loss attributable to iPower Inc. for the three months ended September 30, 2025 was $508,705 as compared to $2,084,335 for the three months ended September 30, 2024, representing a decrease in comprehensive loss of $1,575,630. The decrease was due to the reasons discussed above, along with an increase in other comprehensive income of $79,997 as a result of foreign currency translation adjustments resulting from the translation of RMB, the functional currency of our subsidiary and VIE in the PRC, to USD, the reporting currency of the Company. LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity During the three months ended September 30, 2025, we primarily funded our operations with cash and cash equivalents generated from operations, borrowing from related party, as well as through borrowing under our credit facility from JPMorgan Chase Bank (“JPM”). Additionally, on June 18, 2024, we closed on a registered direct offering of 69,445 shares of common stock (the “Shares”) and a concurrent private placement of warrants to purchase up to 69,445 shares of common stock (the “Warrants”), which Shares and Warrants were sold for aggregate gross proceeds of $5,000,002. As of September 30, 2025, we had cash and cash equivalents of $903,975, representing a $1,103,915 decrease from $2,007,890 in cash as of June 30, 2025. The cash decrease was primarily due to the combined result of cash provided by operating activities, cash used in investing activities and financing activities resulting from our payments to pay down the JPM revolving line of credit. Based on our current operating plan, we believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to finance our operations during the next 12 months. 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 “Item 1A - Risk Factors” in our Annual Report on Form 10-K filed with the SEC on October 9, 2025. Our cash requirements consist primarily of day-to-day operating expenses and obligations with respect to warehouse leases. We lease all of our office and warehouse facilities. We expect to make future payments on existing leases from cash generated from operations. We have credit terms in place with our major suppliers, however as we bring on new suppliers, we are often required to prepay our inventory purchases from them. This is consistent with our historical operating model which allowed us to operate using only cash generated by the business. Beyond the next 12 months we believe that our cash flow from operations should improve as supply 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 $1.0 million in unused credit under the revolving line with JPM. Given our current working capital position and available funding from our revolving credit line and proceeds from our June 2024 registered direct offering, we believe we will be able to work through the current challenges by managing payment terms with customers and vendors. 36 Working Capital As of September 30, 2025 and June 30, 2025, our working capital was $4.1 million and $4.9 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. Cash Flows Operating Activities 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 (used in) operating activities for the three months ended September 30, 2025 and 2024 was $1,686,463 and $(1,415,643), respectively. The increase in cash provided by operating activities mainly resulted from an increase in cash received from customers, which was partially offset by an increase in cash paid for cost of revenues and operating expenses. Investing Activities Net cash used in investing activities for the three months ended September 30, 2025 and 2024 was $1,037,272 and $202,140, respectively. The increase was mainly due to deconsolidation of VIE cash, payments made for investment in joint venture and prepayments made for software developments during the quarter ended September 30, 2025. Financing Activities Net cash used in financing activities was $1,778,026 and $ 3,308,599 , respectively, for the three months ended September 30, 2025 and 2024. The decrease in net cash used in financing activities was primarily due to a decrease in payments on the revolving loan. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and pursuant to the rules 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 below. While our significant accounting policies are more fully described in Note 2 to our unaudited condensed 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 unaudited condensed consolidated financial statements. Revenue recognition The Company recognizes revenues from service and product sales, 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. Return allowances, which reduce product revenue by the Company’s best estimate of expected product returns, are estimated using historical experience. 37 The Company evaluates the criteria of ASC 606 - Revenue Recognition Principal Agent Considerations in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily responsible 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 to customers are recorded as customer deposits. The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction. Sales discounts are recorded in the period in which the related sales are recorded. Sales return allowances are estimated based on historical amounts and are recorded upon recognizing the related sales. Shipping and handling costs are recorded as selling expenses. Accounts receivable During the 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, which includes the amount withheld by sales channel partners and refundable to the Company. Based on historical an expected loss rate and status of negotiations with the sales channel partner, management reviews its accounts receivable balances each reporting period to determine if an allowance for credit loss is required. The Company 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. The 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; and · other objective evidence indicates non-collectability of the accounts receivable. Accounts 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 overall economic conditions on our customers’ industry and businesses and their ability to pay our 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 recent tariff policy. In the event we recover amounts previously written off, we will reduce the specific allowance for credit losses. 38 Inventories, net Inventory consists of finished goods ready for sale and is stated at the lower of cost or market. The Company values its inventory using the weighted average costing method. The Company’s policy is to include as a part of inventory and costs 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 reviews inventory and considers forecasts of future demand, market conditions and product obsolescence. If the estimated realizable value of the inventory is less than cost, the Company makes provisions in order to reduce its carrying value to its estimated market value. The Company also reviews inventory for slow moving and obsolescence and records allowance for obsolescence. Variable interest entities On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia and its subsidiaries, including Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”). 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 has been provided by the Company following the February 15, 2022 acquisition. During the term of the Agreements, the Company bears all the risk of loss and has the right to receive all of the benefits from DHS. As such, based on the determination that the Company is the primary beneficiary of DHS, in accordance with ASC 810-10-25-38A through 25-38J, DHS is considered a VIE of the Company and the financial statements of DHS have been consolidated from the date such control existed, February 15, 2022. On August 4, 2025, the Company entered into a Variable Interest Entity (“VIE”) Contract Termination Agreement with the VIE, pursuant to which all VIE agreements were terminated. As a result, the Company no longer has a controlling financial interest in the VIE. In accordance with ASC 810-10-40, Consolidation — Deconsolidation of a Subsidiary or Derecognition of a Group of Assets , the Company deconsolidated the VIE as of the termination date. Upon deconsolidation, the Company derecognized all assets and liabilities of the VIE from its consolidated balance sheet. Because the Company retains no ownership interest or continuing involvement in the VIE following the termination of the agreements, no retained interest was recognized. Goodwill Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The Company accounts for goodwill under ASC Topic 350, Intangibles-Goodwill and Other . 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, 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. During the three months ended September 30, 2025 and 2024, the Company performed a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C and noted no goodwill impairment. As of September 30, 2025 and June 30, 2025, the goodwill balance amounted to $3,034,110 and $3,034,110, respectively. 39 Intangible Assets, net Finite life intangible assets at September 30, 2025 include a covenant not to compete, supplier relationships 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 follows: Useful Life Covenant Not to Compete 10 years Supplier relationship 6 years Software 5 years The Company reviews the recoverability of long-lived assets, including intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The 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. The Company did not record any impairment charge for the three months ended September 30, 2025 and 2024. Stock-based Compensation 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. 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 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 forfeitures of such equity-based compensation as they occur. Income taxes 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. Deferred 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. A valuation allowance must be established for deferred tax assets when it is more-likely-than-not (a probability level of more than 50%) that they will not be realized. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company has 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. 40 The Company believes that our income tax filing positions and deductions will be sustained on audit and does 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 740, Income Taxes. 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 Other than as set forth under Note 2 to the unaudited condensed consolidated financial statements under “Recently issued accounting pronouncements,” the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company,” we are not required to provide the information required by this Item.