| Basis of Presentation and Summary of significant accounting policies | 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 the Company’s Annual Report on 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., Global Product Marketing Inc., Global
Social Media, LLC, and Anivia Limited and its subsidiaries and VIE. All inter-company balances and transactions have been eliminated. Reclassifications Certain prior period expense accounts have been
reclassified in conformity with current period presentation including reclassification of $1.8 million from general administrative expenses
to selling and fulfillment expenses for the nine months ended March 31, 2021. 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. Foreign currency translation and transactions The reporting and functional currency of iPower
and subsidiaries is the U.S. dollar (USD). iPower’s VIE in China uses the local currency, Renminbi (“RMB”), as its functional
currency. Assets and liabilities of the VIE are translated at the current exchange rate as quoted by the People’s Bank of China
(the “PBOC”) at the end of the period. Income and expense accounts are translated at the average translation rates and the
equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other
comprehensive income (loss) in the statement of changes stockholders’ in equity. Transaction gains and losses that arise from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations
as incurred. The balance sheet amounts of the VIE, with
the exception of equity, on March 31, 2022, were translated at 6.34 6.35 Cash and cash equivalents Cash and cash equivalents consist of amounts held
as cash on hand and deposits in financial institutions. From time to time, the Company may maintain bank
balances in interest bearing accounts in excess of the $ 250,000 Accounts receivable, net 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. Equity method investment The Company accounts for its ownership interest
in Box Harmony, a 40 Business Combination On February 15, 2022,
the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”) and its subsidiaries, including the VIE. The
Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in
a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values. Management
utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the
purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded
as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase
gain is recognized. Acquisition-related costs are expensed as incurred. See Note 4 for details on acquisition. Variable interest entities On February 15,
2022, the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”) and its subsidiaries, including
Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”). Pursuant to
the terms of the Agreements, the Company does not have direct ownership in DHS but is actively involved in DHS’s operations as
the sole manager to direct the activities and significantly impact DHS’s economic performance. DHS’s operational funding
is provided by the Company after February 15, 2022. During the term of the agreements, the Company bears all the risk of loss and has
the right to receive all of the benefits from DHS. As such, based on the determination that the Company is the primary beneficiary
of DHS, in accordance with ASC 810-10-25-38A through 25-38J, DHS is considered a variable interest entity (“VIE”) of the
Company and the financial statements of DHS have been consolidated from the date such control existed, February 15, 2022. See Note 4
and Note 5 for details on acquisition. 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 The Company
does not have any other indefinite-lived intangible assets. The impairment test for goodwill uses a two-step approach. Step one compares
the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value,
step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities
of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the
carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized
in an amount equal to the excess. Intangible Assets, net Finite
life intangible assets at March 31, 2022 include covenant not to compete, supplier relationship, and software recognized as part of the
acquisition of Anivia Limited. Intangible assets are recorded at the estimated fair value of these items at the date of acquisition,
February 15, 2022. Intangible assets are amortized on a straight-line basis over their estimated useful life as followings:
Schedule of estimated useful life
Useful Life
Covenant Not to Compete 10
Supplier relationship 6
Software 5 Fair values of financial instruments ASC 825, “Disclosures
about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820,
“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. 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. On February 15,
2022, as part of the consideration for the acquisition of Anivia Limited, the Company issued a two-year unsecured 6 3.5 3.6
Corporate
bond yield 3.1%
Risk-free
rate 1.6%
Liquidity
premium 0.4%
Discount rate 3.5% As of March 31, 2022,
the outstanding principal balance of the Purchase Note was $ 3,626,879 100,629 26,250 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 in the United States, Canada,
Europe and other regions, 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 and nine months were as following:
Schedule of advertising costs
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Advertising and promotion $ 733,241 $ 443,163 $ 1,945,222 $ 1,164,119 Cost of revenue Cost of revenue mainly consists of costs for purchases
of products and related inbound freight and delivery fees. Inventory, 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 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. For the nine months ended
March 31, 2022, sales through Amazon to Canada were approximately 5.7 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. |
