The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
iPower Inc. and Subsidiaries
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
iPower Inc. and Subsidiaries
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
iPower Inc. and Subsidiaries
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note 1 - Nature of business and organization
iPower Inc., formerly known as BZRTH Inc., a Nevada
corporation (the “Company”), was incorporated on April 11, 2018. The Company is principally engaged in the marketing and sale
of advanced indoor and greenhouse lighting, ventilation systems, nutrients, growing media, grow tents, trimming machines, pumps and accessories
in the United States.
Effective on March 1, 2020, as amended and restated
pursuant to an agreement dated October 26, 2020, the Company entered into an agreement with E Marketing Solution Inc. (“E Marketing”),
an entity incorporated in California and owned by one of the shareholders of the Company. Pursuant to the terms of the agreement, the
Company agreed to provide technical support, management services and other services on an exclusive basis in relation to E Marketing’s
business during the term of the agreement. The Company also agreed to fund E Marketing for operational cash flow needs and bear the risk
of E Marketing’s losses from operations and E Marketing agreed that iPower has rights to E Marketing’s net profits, if any.
Under the terms of the agreement, the Company may at any time, at its option, acquire for nominal consideration 100% of either the equity
of E Marketing or its assets subject to assumption of all of its liabilities. E Marketing was considered a variable interest entity (“VIE”).
On May 18, 2021, the Company acquired 100% equity ownership of E Marketing. As a result, E Marketing has become the Company’s wholly
owned subsidiary.
On September 4, 2020, the Company entered into
an agreement with Global Product Marketing Inc. (“GPM”), an entity incorporated in the State of Nevada on September 4, 2020.
GPM was then wholly owned by Chenlong Tan, the Chairman, CEO and President and one of the majority shareholders of the Company. Pursuant
to the terms of the agreement, the Company was to provide technical support, management services and other services on an exclusive basis
in relation to GPM’s business during the term of the Agreement. In addition, the Company agreed to fund GPM for operational cash
flow needs and bear the risk of GPM’s losses from operations and GPM agreed that the Company has the right to GPM’s net profits,
if any. Under the terms of the agreement, the Company may at any time, at its option, acquire for nominal consideration 100% of either
the equity of GPM or its assets subject to assumption of all of its liabilities. GPM was considered a VIE. On May 18, 2021, the Company
acquired 100% equity ownership of GPM. As a result, GPM has become the Company’s wholly owned subsidiary.
Note 2 – Basis of Presentation and Summary
of significant accounting policies
Basis of presentation
The unaudited condensed consolidated financial
statements include the accounts of the Company and its subsidiaries and have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and the requirements of the U.S. Securities and Exchange Commission
(“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally
required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the
same basis as its annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only
of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim
results are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2022, or for any other interim
period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the
Annual Report for the year ended June 30, 2021, which are included in Form 10-K filed on September 28, 2021.
Principles of Consolidation
The unaudited condensed consolidated financial
statements include the accounts of the Company and its subsidiaries, E Marketing Solution Inc. and Global Product Marketing Inc. All inter-company
balances and transactions have been eliminated.
Prior period reclassification
Certain prior period expense accounts have been
reclassified in conformity with current period presentation including reclassification of $0.57 million from general administrative expenses
to selling and fulfillment expenses. The reclassification had no effect to the company’s unaudited condensed consolidated statements
of operations, statements of cash flow or statements of changes in stockholders’ equity.
Use of estimates and assumptions
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosures
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during
the periods presented. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents consist of amounts held
as cash on hand and bank deposits.
From time to time, the Company may maintain bank
balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance Corporation for interest
bearing accounts (there is currently no insurance limit for deposits in noninterest bearing accounts). The Company has not experienced
any losses with respect to cash. Management believes our Company is not exposed to any significant credit risk with respect to its cash.
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.
Management reviews its accounts receivable balances each reporting period to determine if an allowance for credit loss is required.
In July 2020, the Company adopted ASU 2016-13,
Topics 326 - Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an
expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, for its accounting standard for
its trade accounts receivable.
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.
|
The adoption of the credit loss accounting standard
has no material impact on the Company’s consolidated financial statements. 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 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 losses.
Fair values of financial instruments
The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and all other current assets and liabilities approximate fair values due to their short-term nature.
For other financial instruments to be reported
at fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants
would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions
in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized
in one of the following levels:
Level 1 – Inputs are unadjusted, quoted
prices in active markets for identical assets or liabilities at the measurement date;
Level 2 – Inputs are observable, unadjusted
quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities
in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant
to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Revenue recognition
The Company has adopted Accounting Standards Codification
(“ASC”) 606 since its inception on April 11, 2018 and recognizes revenue from product sales revenues, net of promotional discounts
and return allowances, when the following revenue recognition criteria are met: a contract has been identified, separate performance obligations
are identified, the transaction price is determined, the transaction price is allocated to separate performance obligations and revenue
is recognized upon satisfying each performance obligation. The Company transfers the risk of loss or damage upon shipment, therefore,
revenue from product sales is recognized when it is shipped to the customer. Return allowances, which reduce product revenue by the Company’s
best estimate of expected product returns, are estimated using historical experience.
The Company 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, 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.
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 sale is recognized. 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.
Advertising costs
Advertising costs are expensed as incurred. Total
advertising and promotional costs included in selling and fulfillment expenses for the three months ended September 30, 2021 and 2020
were $633,416 and $329,049, respectively.
Cost of revenue
Cost of revenue mainly consists of costs for purchases
of products and related inbound freight and delivery fees.
Inventory
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 cost of goods sold any freight incurred to ship the product from its vendors to warehouses. Outbound
freight costs related to shipping costs to customers are considered periodic costs and are 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 inventory and obsolescence and records allowance for obsolescence.
Segment reporting
The Company follows ASC 280, Segment Reporting.
The Company’s chief operating decision maker, the Chief Executive Officer, reviews the consolidated results of operations when making
decisions about allocating resources and assessing the performance of the Company as a whole and, hence, the Company has only one reportable
segment. The Company does not distinguish between markets or segments for the purpose of internal reporting. The Company’s long-lived
assets are all located in California, United States, and substantially all of the Company’s revenues are derived from within the
United States. Therefore, no geographical segments are presented.
Leases
On its inception date, April 11, 2018, the Company
adopted ASC 842 – Leases (“ASC 842”), which requires lessees to record right-of-use (“ROU”) assets and related
lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.
ROU assets represent our right to use an underlying
asset for the lease terms and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the
Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated
rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU
asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line
basis over the lease term.
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.
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. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
As a result of the implementation of certain provisions
of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax position, as defined,
ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting
for income taxes. The Company has adopted the provisions of ASC 740 since inception, April 11, 2018, and 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.
The Company believes that our income tax filing
positions and deductions will be sustained upon audit and do not anticipate any adjustments that will result in a material change to its
financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. 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.
Commitments and contingencies
In the ordinary course of business, the Company
is subject to certain contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of
matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it
is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making
these assessments including historical and specific facts and circumstances of each matter.
Earnings per share
Basic earnings per share are computed by dividing
net income attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share reflect the potential dilution that could occur if securities to issue common stock were exercised.
Recently issued accounting pronouncements
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 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity for purposes of
reducing form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. This
standard becomes effective for the Company on July 1, 2022, 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
have a material impact on the 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, 2020; however, early adoption is permitted. Adoption of this standard did not have a material impact
on the consolidated financial statements.
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.
Subsequent events
The Company evaluated subsequent events and transactions
that occurred after the balance sheet date through the date that the consolidated financial statements are available to be issued. Material
subsequent events that required recognition or additional disclosure in the consolidated financial statements are presented.
Note 3 - Accounts receivable
Accounts receivable for the Company consisted
of the following as of the dates indicated below:
Schedule of accounts receivable
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Accounts receivable
|
|
$
|
13,083,946
|
|
|
$
|
7,896,347
|
|
Less: allowance for credit losses
|
|
|
–
|
|
|
|
–
|
|
Total accounts receivable
|
|
$
|
13,083,946
|
|
|
$
|
7,896,347
|
|
There was no credit loss for the three months ended September 30, 2021
and the year ended June 30, 2021, respectively.
Note 4 – Inventories, net
As of September 30, 2021 and June 30, 2021,
inventories consisted of finished goods ready for sale, net of allowance for obsolescence, amounted to $14,594,078
and $13,065,741, respectively.
As of September 30, 2021 and June 30, 2021, allowance
for obsolescence was $95,574 and $95,574, respectively.
Note 5 – Prepayments and other current assets
As of September 30, 2021 and June 30, 2021, prepayments and other
current assets consisted of the following:
Schedule of prepayments and other current assets
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Advance to suppliers
|
|
$
|
5,074,079
|
|
|
$
|
3,969,625
|
|
Prepaid expenses and other receivables
|
|
|
1,169,850
|
|
|
|
723,375
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,243,929
|
|
|
$
|
4,693,000
|
|
Other receivables consisted of delivery fees of
$164,858 and $178,581 and receivables from two unrelated parties for their use of the Company’s courier accounts at September 30,
2021 and June 30, 2021.
Note 6 – Non-current prepayments
Non-current prepayments included $1.16
million for product sourcing, marketing research and promotion, and other management advisory and consulting services to companies
owned by an employee and minority shareholder and by relatives of a minority shareholder of the Company. The terms of these services
are from two years to five years. In addition, there was a $90,675
down payment on a four-year car lease. As of September 30, 2021 and June 30, 2021, total non-current
prepayments were $1,249,375
and $1,357,292,
respectively. For the three months ended September 30, 2021 and 2020, the Company recorded amortization expenses of $107,917
and $0, respectively.
Note 7 – Loans payable
Short-term loans
Revolving credit facility
On May 3, 2019, the Company entered into an agreement
with WFC Fund LLC (“WFC") for a revolving loan of up to $2,000,000. The revolving loan bore interest equal to the prime rate
plus 4.25% per annum on the outstanding amount. On May 26, 2020, the Loan and Security Agreement was amended and restated as a Receivable
Purchase Agreement (the “Original RPA”). On November 16, 2020, the Original RPA was further amended and restated (the “Restated
RPA”) to increase the credit limit of the revolving credit facility from $2,000,000 to $3,000,000. The Restated RPA bears a discount
rate of 3.055555%, subject to a rebate of 0.0277% per day. This revolving credit facility is secured by all of the Company’s assets
and guaranteed by Chenlong Tan, the CEO and one of the Company’s major shareholders and founders. Pursuant to the agreement, all
purchases of accounts receivable are without recourse to the Company, and WFC assumes the risk of nonpayment of the accounts receivable
due to a customer’s financial inability to pay the accounts receivable or the customer’s insolvency but not the risk of non-payment
of the accounts receivable for any other reason. The Company is obligated to collect the accounts receivables and to repurchase or pay
back the amount drawn down if the accounts receivable are not collected.
During the three months ended September 30, 2021,
the Company terminated the Restated RPA and paid off the balance due to WFC.
As of September 30, 2021 and June 30, 2021, the
outstanding balance due under the RPA was $0 and $162,769, respectively.
Long-term loan
SBA loan payable
On April 18, 2020, the Company entered into an
agreement with the U.S. Small Business Administration (“SBA”) for a loan of $500,000 under Section 7(b) of the Small Business
Act pursuant to which we issued a promissory note (the “SBA Note”) to the SBA. The SBA Note bears interest at the rate of
3.75% per annum and matures 30 years from the date of the SBA Note. Monthly installment payments, including principal and interest, will
begin twelve months from the date of the SBA Note. As of September 30, 2021 and June 30, 2021, the outstanding balance of the SBA Note
was $478,067 and $487,815, which included a current portion of $29,244 and a non-current portion of $448,823 and $458,571, respectively.
Note 8 – Related party transactions
On December 1, 2018, the Company acquired certain assets and assumed
liabilities from BizRight, LLC, an entity owned and managed by the founders and officers of the Company and the purchase price was recorded
as payable due to related parties. During the three months ended September 30, 2020, the Company recorded proceeds of $133,577 and payments
of $90,000, respectively. The Company had paid off the amount due to related party during the quarter ended June 30, 2021. The amount
due to related parties was $0 as of September 30, 2021 and June 30, 2021.
Note 9 – Income taxes
On December 22, 2017, the President of the United
States signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”). The Tax Legislation significantly
revised the U.S. tax code by (i) lowering the U.S. federal statutory income tax rate from 35% to 21%, (ii) implementing
a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, (iv) requiring
a current inclusion of global intangible low taxed income of certain earnings of controlled foreign corporations in U.S. federal taxable
income, (v) creating the base erosion anti-abuse tax regime, (vi) implementing bonus depreciation that will allow for full expensing of
qualified property, and (vii) limiting deductibility of interest and executive compensation expense, among other changes. The Company
has computed its tax expenses using the new statutory rate effective on January 1, 2018 of 21%.
Other provisions of the new legislation include,
but are not limited to, limiting deductibility of interest and executive compensation expense. These additional items have been considered
in the income tax provision for the three months ended September 30, 2021 and 2020 and the impact was not material to the overall financial
statements.
The income tax provision for the three months ended September 30,
2021 and 2020 consisted of the following:
Schedule of provision for income tax expense
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
234,629
|
|
|
$
|
202,003
|
|
State
|
|
|
108,346
|
|
|
|
93,941
|
|
Total current income tax provision
|
|
|
342,975
|
|
|
|
295,944
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
–
|
|
|
|
–
|
|
State
|
|
|
–
|
|
|
|
–
|
|
Total deferred taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
342,975
|
|
|
$
|
295,944
|
|
The Company is subject to U.S. federal income
tax as well as state income tax in certain jurisdictions. The tax years 2018 to 2020 remain open to examination by the major taxing
jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income
tax at the calculated statutory rates:
Schedule of reconciliation of effective income tax rate
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Statutory tax rate
|
|
|
|
|
|
|
|
|
Federal
|
|
|
21.00%
|
|
|
|
21.00%
|
|
State of California
|
|
|
8.84%
|
|
|
|
8.84%
|
|
State of Nevada
|
|
|
0.00%
|
|
|
|
0.00%
|
|
Net effect of state income tax deduction and other permanent differences
|
|
|
(1.97%
|
)
|
|
|
(1.87%
|
)
|
Effective tax rate
|
|
|
27.87%
|
|
|
|
27.97%
|
|
As of September 30, 2021 and June 30, 2021, the
income taxes payable was $377,145
and $790,823,
respectively.
Note 10 – Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share for the periods presented:
Schedule of computation of earnings per share
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
887,528
|
|
|
$
|
761,996
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic and diluted earnings per share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,484,528
|
|
|
|
20,204,496
|
|
Diluted
|
|
|
26,495,420
|
|
|
|
20,204,496
|
|
Earnings per share - Basic
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
*
|
On November 16, 2020, the Company implemented a 2-for-1
forward split of the issued and outstanding shares of Class A Common Stock of the Company. The computation of basic and diluted EPS
was retroactively adjusted for all periods presented.
|
The computation of basic and diluted EPS did not include the Class
B Common Stock as the holders of Class B Common Stock have no dividend or liquidation right until such time as their shares of Class B
Common Stock have been converted into Class A Common Stock.
*
|
The computation of diluted EPS included the underlying 10,892 shares of
warrants calculated using treasury method for the three months ended September 30, 2021.
|
*
|
For the three months ended September 30, 2021, the 40,019 vested shares of restricted stock units under the Amended and Restated 2020
Equity Incentive Plan (as discussed in Note 10) are considered issued shares and therefore are included in the computation of basic earnings
(loss) per share as of grant date when the shares are fully vested.
|
Note 11 – Equity
Common Stock
The Company was incorporated in Nevada on April
11, 2018. As of September 30, 2021, the total authorized shares of capital stock were 200,000,000 shares consisting of 180,000,000 shares
of Common Stock (“Common Stock”) and 20,000,000 shares of preferred stock (the “Preferred Stock”), each with a
par value of $0.001 per share.
On November 16, 2020, the Company filed an amended
and restated articles of incorporation in Nevada to consummate a 2-for-1 forward split of our outstanding shares of Class A Common Stock.
All share numbers of Class A Common Stock are stated at a post-split basis.
The holders of Class A Common Stock shall be entitled
to one vote per share in voting or consenting to the election of directors and for all other corporate purposes. The Company issued 20,000,000
shares to its founders at inception.
On January 15, 2020, pursuant to a rescission
and mutual release agreement with an unrelated company, the Company issued 204,496 shares of its Class A Common Stock as settlement for
a payment of $427,010 received by the Company.
On October 20, 2020, the Company entered into
stock purchase agreements with Chenlong Tan and Allan Huang (the “Founders”) pursuant to which each of the Founders received
7,000,000 shares of the Company’s Class B Common Stock, for a purchase price of $0.001 per share in cash. Based on the fact that
other than the total consideration of $14,000 (total par value of the Class B Common Stock issued), the Founders did not provide additional
services or other means of considerations for the issuance of these shares of Class B Common Stock, the issuance of the Class B Common
Stock to the Founders was considered as a nominal issuance, in substance a recapitalization transaction. As such, in accordance with FASB
ASC 260-10-55-12 and SAB Topic 4D, the Company recorded and presented the issuance retroactively as outstanding for all reporting periods.
The Class B Common Stock was entitled to ten (10)
votes per share in voting or consenting to the election of directors and for all other corporate purposes. In accordance with the Company’s
amended and restated articles of incorporation, the Class B Common Stock was eligible to convert into shares of Class A Common Stock,
on a ten-for-one basis, at any time following twelve (12) months after the Company’s completion of the initial public offering of
its Class A Common Stock. Holders of Class B Common Stock had no dividend or liquidation rights until such time as their shares of Class
B Common Stock were converted into shares of Class A Common Stock. As of June 30, 2020, the outstanding shares of Class B Common Stock
were retroactively stated as 14,000,000 and 14,000,000, respectively.
Effective April 14, 2021, the Company amended
its articles of incorporation to allow conversion of its Class B Common Stock at any time after issuance. On that same date, the Class
B Common stockholders, Chenlong Tan and Allan Huang, elected to convert all of their 14,000,000 outstanding shares of the Company’s
Class B Common Stock into 1,400,000 shares of Class A Common Stock. On April 23, 2021, the Company further amended and restated its articles
of incorporation to eliminate the Class A and Class B Common Stock designations and authorize for issuance a total of 180,000,000 shares
which are solely designated as Common Stock.
On May 14, 2020, the Company closed its initial
public offering (“IPO”) under a registration statement effective May 11, 2021, in which it issued and sold 3,360,000 shares
of its Common Stock at a purchase price of $5.00 per share. On May 21, 2021, the Company closed on the IPO’s overallotment option,
selling an additional 504,000 shares of Common Stock to the IPO’s underwriters at the public offering price of $5.00 per share.
The Company received net proceeds of approximately $16.6 million from the IPO after deducting underwriting discounts and offering expenses.
On May 14, 2021, upon closing on the Company’s
IPO, the Series A convertible preferred stock and Convertible Notes were converted into an aggregate of 955,716 shares of the Company’s
Common Stock.
On May 14, 2021, the Company issued 24,451 shares
of Common Stock upon cashless exercise of warrants held by Boustead Securities LLC, the placement agent for the Company’s private
placement offerings completed in December 2020 and January 2021.
As of September 30, 2021 and June 30, 2021, there
were 26,448,663 and 26,448,663 shares of Common Stock issued and outstanding, respectively.
Preferred Stock
The Preferred Stock was authorized as “blank
check” series of Preferred Stock, providing that the Board of Directors is expressly authorized, subject to limitations prescribed
by law, by resolution or resolutions and by filing a certificate pursuant to the applicable law of the State of Nevada, to provide, out
of the authorized but unissued shares of Preferred Stock, for series of Preferred Stock, and to establish from time to time the number
of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof. As of September 30, 2021 and June 30, 2021, there were no shares of Preferred
Stock was issued and outstanding.
Equity Incentive Plan
On May 5, 2021, the Company’s Board adopted,
and its stockholders approved and ratified, the iPower Inc. Amended and Restated 2020 Equity Incentive Plan (the “Plan”).
The Plan allows for the issuance of up to 5,000,000 shares of Common Stock, whether in the form of options, restricted stock, restricted
stock units, stock appreciation rights, performance units, performance shares and other stock or cash awards. The general purpose of the
Plan is to provide an incentive to the Company’s directors, officers, employees, consultants and advisors by enabling them to share
in the future growth of the Company’s business.
Following completion of the IPO on May 11, 2021,
pursuant to their letter agreements, the Company awarded 46,546 restricted stock units (“RSUs”) under the Plan to its independent
directors, Chief Financial Officer, and certain other employees and consultants, all of which are subject to certain vesting conditions
in the next 12 months and restrictions until filing of a Form S-8 for registration of the shares. The fair value of the RSUs was determined
to be based on $5.00 per share, the initial listing price of the Company’s common stock on the grant date. During the three months
ended September 30, 2021, the Company granted an additional 11,745 shares of RSUs to three employees. These RSUs were valued at market
price at grant date. As of September 30, 2021, the Company had granted a total of 58,291 RSUs, of which 40,019 were fully vested and 18,272
remained subject to certain vesting conditions. For the three months ended September 30, 2021, the Company recorded $103,054 of stock-based
compensation expense. There was no forfeiture occurred during the three months ended September 30, 2021. As of September 30, 2021, the
unvested number of RSUs was 18,272 and the unamortized expense was $91,360.
Note 12 – Warrants
On January 27, 2021, the Company completed a private
placement offering pursuant to which the Company sold to two accredited investors an aggregate of $3,000,000 in Convertible Notes and
warrants to purchase shares of Class A Common Stock equaling 80% of the number of shares of Class A Common Stock issuable upon conversion
of the Convertible Notes. The convertible note warrants shall be exercisable for a period of three years from the IPO completion date
at a per share exercise price equal to the IPO. In accordance with the terms of the warrants, in the event the Convertible Notes are repaid
in cash by the Company, the warrants issued in conjunction with the Convertible Notes will expire and have no further value.
In connection with the Convertible Note offering,
the Company also issued placement agent warrants to purchase 7.0% of the shares of Common Stock underlying the Convertible Notes exercisable
at the conversion price of the Convertible Note (the “Conversion Price”). The placement agent warrants had an exercise period
of five years from the issuance date.
On May 14, 2021, upon closing of its IPO, the
Company remeasured the warrants to fair value using the Modified Black Scholes Option Pricing Model, based on the expected fair value
of the underlying stock with the following assumptions:
Schedule of assumptions for warrant liabilities
|
|
|
As of May 14, 2021
|
Expected term
|
1 day to 3 years
|
Expected volatility
|
3.3% to 58%
|
Risk-free interest rate
|
0.35% to 0.92%
|
Expected dividend rate
|
0%
|
Probability
|
100%
|
As of May 14, 2021, the fair value of the warrant
liabilities was $1,361,347, which includes $4,610 preferred stock warrants, $1,324,668 warrants issued to the Convertible Note investors
and $32,069 warrants issued to the placement agent. The increase in fair value immediately before the IPO was $617,593, which was reported
in other non-operating expenses for the year ended June 30, 2021.
Upon closing the IPO on May 14, 2021, the
Placement Agent exercised its warrants in full to purchase a total of 24,451
shares of the Company’s Common Stock and, as such, there were no Placement Agent Warrants outstanding as of June 30, 2021. At
the same time, the outstanding warrants held by the Convertible Note investors were reclassified to additional paid in capital as
the terms became fixed upon closing of the IPO. Through September 30, 2021, none of the private placement investors had exercised
any of their warrants. As such, as of September 30, 2021 and June 30, 2021, the number of shares issuable under the outstanding
warrants was 685,715,
with an exercise price of $5.0 per share.
Note 13 - Concentration of risk
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
As of September 30, 2021 and June 30, 2021, $1,219,580
and $6,651,705, respectively, were deposited with various major financial institutions in the United States. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. The Company had approximately $0.74 million and $5.4
million, respectively, in excess of the FDIC insurance limit, as of September 30, 2021 and June 30, 2021.
Accounts receivable are typically unsecured and
derived from revenue earned from customers, thereby exposing the Company to credit risk. The risk is mitigated by the Company’s
assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company maintains reserves
for estimated credit losses, and such losses have generally been within expectations.
Customer and vendor concentration risk
For the three months ended September 30, 2021
and 2020, Amazon Vendor and Amazon Seller customers accounted for 89% and 75% of the Company's total revenues, respectively. As of September
30, 2021 and June 30, 2021, accounts receivable from Amazon Vendor and Amazon Seller accounted for 98% and 98% of the Company’s
total accounts receivable.
For the three months ended September 30, 2021
and 2020, two suppliers accounted for 47% (36% and 11%) and 36% (28% and 8%) of the Company's total purchases, respectively. As of September
30, 2021, accounts payable to one supplier accounted for 21% of the Company’s total accounts payable. As of June 30, 2021, accounts
payable to two suppliers accounted for 11% and 10% of the Company’s total accounts payable.
Note 14 - Commitments and contingencies
Lease commitment
The Company has adopted ASC842 since its inception
date, April 11, 2018. The Company has entered into a lease agreement for office and warehouse space with a lease period from December
1, 2018 until December 31, 2020. On August 24, 2020, the Company negotiated for new terms to extend the lease. As a result, the lease
term was amended and extended through December 31, 2023.
On September 1, 2020, in addition to the primary
fulfillment center, the Company leased a second fulfillment center in City of Industry, California. The base rental fee is $27,921 to
$29,910 per month through October 31, 2023.
Total commitment for the full term of these leases
is $2,346,200. $1,648,133 and $1,819,421 of operating lease right-of-use assets and $1,725,962 and $1,901,496 of operating lease liabilities
were reflected on the September 30, 2021 and June 30, 2021 financial statements, respectively.
Three Months Ended September 30, 2021 and 2020:
Schedule of lease cost and other information
|
|
|
|
|
|
|
|
|
Lease cost
|
|
9/30/2021
|
|
|
9/30/2020
|
|
Operating lease cost (included in selling and fulfillment expenses in the Company's statement of operations)
|
|
$
|
205,517
|
|
|
$
|
156,536
|
|
Other information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
209,763
|
|
|
$
|
162,607
|
|
Remaining term in years
|
|
|
2.25
|
|
|
|
3.2
|
|
Average discount rate - operating leases
|
|
|
8%
|
|
|
|
8%
|
|
The supplemental balance sheet information related to leases for the
period is as follows:
Operating leases
|
|
9/30/2021
|
|
|
6/30/2021
|
|
Right of use asset - non-current
|
|
$
|
1,648,133
|
|
|
$
|
1,819,421
|
|
Lease Liability - current
|
|
|
749,132
|
|
|
|
731,944
|
|
Lease Liability - non-current
|
|
|
976,830
|
|
|
|
1,169,552
|
|
Total operating lease liabilities
|
|
$
|
1,725,962
|
|
|
$
|
1,901,496
|
|
Maturities of the Company’s lease liabilities
are as follows:
Schedule of maturities of lease liabilities
|
|
|
|
|
|
|
Operating
|
|
|
|
Lease
|
|
For years ending June 30:
|
|
|
|
|
2022
|
|
|
638,081
|
|
2023
|
|
|
859,881
|
|
2024
|
|
|
371,640
|
|
Less: Imputed interest/present value discount
|
|
|
(143,640
|
)
|
Present value of lease liabilities
|
|
$
|
1,725,962
|
|
On July 28, 2021, the
Company entered into a Lease agreement (the “Lease Agreement”) with 9th & Vineyard, LLC, a Delaware limited liability
company (the “Landlord”), to lease from the Landlord approximately 99,347 square feet of space located at 8798 9th Street,
Rancho Cucamonga, California (the “Premises”). The Company expects to use the Premises for the storage and distribution of
hydroponic equipment, lighting and garden accessories, home products, pet products, other consumer products and other ancillary uses.
The term of the Lease Agreement is for 62 months, commencing on the date on which the Landlord completes certain proscribed improvements
on the property (the “Rent Commencement Date”). The Lease Agreement does not provide for an option to renew.
Under the terms of the
Lease Agreement, the Company paid an initial security deposit of $228,498.10, which
was included in other non-current assets, and, upon the Rent Commencement Date (which shall be the date on which the Premises
is delivered to the Company following completion of certain improvements to be made by the Landlord, with such delivery to be on or before
January 15, 2022), the Company’s initial monthly base rent (the “Base Rent”) will be approximately $114,249.05 and
will increase on each anniversary of the Rent Commencement Date as follows:
Schedule of rent commencement
|
|
|
Months
|
Price Per Square Foot of the Premises Per Month
|
Monthly Base Rent
|
1-12
|
|
$114,249.05
|
13-24
|
|
$118,222.93
|
25-36
|
|
$122,196.81
|
37-48
|
|
$126,170.69
|
49-60
|
|
$130,144.57
|
61-62
|
|
$135,111.92
|
In addition, the Company
will be responsible for its pro rata share of certain costs, including utility costs, insurance and common area costs, as further detailed
in the Lease Agreement. Following the Rent Commencement Date, the first two months of the Base Rent will be abated.
Contingencies
Except as disclosed below, the Company is not
currently a party to any material legal proceedings, investigation or claims. However, the Company may, from time to time, be involved
in legal matters arising in the ordinary course of its business. While the Company is not presently subject to any material legal proceedings,
other than the proceeding detailed below, there can be no assurance that such matters will not arise in the future or that any such matters
in which the Company is involved, or which may arise in the ordinary course of the Company’s business, will not at some point proceed
to litigation or that such litigation will not have a material adverse effect on the business, financial condition or results of operations
of the Company.
Pursuant to an engagement agreement, dated
and effective August 31, 2020 (the “Engagement Agreement”), with Boustead Securities LLC (“Boustead”), the
Company engaged Boustead to act as its exclusive placement agent for private placements of its securities and as a potential
underwriter for its initial public offering. On February 28, 2021, the Company informed Boustead that it was terminating the
Engagement Agreement and any continuing obligations the Company may have had under its terms. On April 15, 2021, the Company
provided formal written notice to Boustead of its termination of the Engagement Agreement and all obligations thereunder, effective
immediately. On April 30, 2021, Boustead filed a statement of claim with the Financial Institute Regulatory Authority, or FINRA,
demanding to arbitrate the dispute, and is seeking, among other things, monetary damages against the Company and D.A. Davidson &
Co. (who acted as underwriter in the Company’s IPO). The FINRA arbitration has been scheduled for June 20, 2022. The Company
has agreed to indemnify D.A. Davidson & Co. and the other underwriters against any liability or expense they may incur or be
subject to arising out of the Boustead dispute. Additionally, Chenlong Tan, the Company’s Chairman, President and Chief
Executive Officer and a beneficial owner more than 5% of the Company’s Common Stock, has agreed to reimburse the Company for
any judgments, fines and amounts paid or actually incurred by the Company or an indemnitee in connection with such legal action or
in connection with any settlement agreement entered into by the Company or an indemnitee up to a maximum of $3.5 million in the
aggregate, with the sole source of funding of such reimbursement to come from sales of shares then owned by Mr. Tan.
In an effort to contain or slow the COVID-19 outbreak,
authorities across the world have implemented various measures, some of which have been subsequently rescinded or modified, including
travel bans, stay-at-home orders and shutdowns of certain businesses. The Company anticipates that these actions and the global health
crisis caused by the COVID-19 outbreak, including any resurgences, will continue to negatively impact global economic activity. While
the COVID-19 outbreak has not had a material adverse impact on the Company’s operations to date, it is difficult to predict all
of the positive or negative impacts the COVID-19 outbreak will have on the Company’s business.
Note 15
- Subsequent events
On November 12, 2021, the Company and its subsidiaries entered to a Credit Agreement with JPMorgan Chase Bank,
N.A., as administrative agent, issuing bank and swingline lender, for an asset-based revolving loan (“ABL”) of up to $25
million with key terms listed as follows:
|
·
|
Borrowing base equal to the sum of
|
|
Ø
|
Up to 90% of eligible credit card receivables
|
|
Ø
|
Up to 85% of eligible trade accounts receivable
|
|
Ø
|
Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of net
orderly liquidation value of eligible inventory
|
|
·
|
Interest rates of between LIBOR plus 2% and LIBOR plus 2.25% depending on utilization
|
|
·
|
Undrawn fee of between 0.25% and 0.375% depending on utilization
|
|
·
|
Maturity Date of November 12, 2024
|
In addition, the ABL includes an accordion feature that allows the
Company to borrow up to an additional $25 million. Upon closing of the ABL, the Company paid its financial advisor 2% of $25.0 million
or $500,000 in financing fees.