UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-40391

iPower Inc.

(Exact name of registrant as specified in its charter)

Nevada		82-5144171
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

8798 9^th Street

Rancho Cucamonga, CA 91730

(Address of principal executive offices) (Zip Code)

(626) 863-7344

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		IPW		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock on February 14, 2024 was 29,818,286.

iPower Inc.

TABLE OF CONTENTS

		Page No.

	PART I. Financial Information

Item 1.	Unaudited Condensed Consolidated Financial Statements.	3

	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended December 31, 2023 and 2022	4

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended December 31, 2023 and 2022	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023 and 2022	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	49

	PART II. Other Information

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

	Signatures	53

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

iPower Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

As of December 31, 2023 and June 30, 2023


	December 31,			June 30,
	2023			2023
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,488,027		$	3,735,642
Accounts receivable, net		11,765,833			14,071,543
Inventories, net		15,782,322			20,593,889
Prepayments and other current assets		1,483,209			2,858,196
Total current assets		30,519,391			41,259,270

Non-current assets
Right of use - non-current		7,141,633			7,837,345
Property and equipment, net		456,006			536,418
Deferred tax assets		3,122,363			2,155,250
Non-current prepayments		390,612			531,456
Goodwill		3,034,110			3,034,110
Investment in joint venture		31,287			33,113
Intangible assets, net		3,955,385			4,280,071
Other non-current assets		419,289			427,254
Total non-current assets		18,550,685			18,835,017

Total assets	$	49,070,076		$	60,094,287

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	13,931,800		$	13,244,957
Credit cards payable		340,912			366,781
Customer deposit		340,876			350,595
Other payables and accrued liabilities		3,715,996			4,831,067
Advance from shareholders		87,305			85,200
Lease liability - current		2,065,177			2,159,173
Short-term loan payable - related party		1,032,189			–
Long-term promissory note payable - current portion		1,150,508			2,017,852
Revolving loan payable, net		2,862,857			–
Income taxes payable		283,519			276,683
Total current liabilities		25,811,139			23,332,308

Non-current liabilities
Long-term revolving loan payable, net		–			9,791,191
Lease liability - non-current		5,503,365			6,106,047
Total non-current liabilities		5,503,365			15,897,238

Total liabilities		31,314,504			39,229,546

Commitments and contingency		–			–

Stockholders' Equity
Preferred stock, $0.001 par value; 20,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2023 and June 30, 2023		–			–
Common stock, $0.001 par value; 180,000,000 shares authorized; 29,710,939 and 29,710,939 shares issued and outstanding at December 31, 2023 and June 30, 2023		29,712			29,712
Additional paid in capital		29,883,647			29,624,520
Accumulated deficits		(11,903,785	)		(8,702,442	)
Non-controlling interest		(30,906	)		(24,915	)
Accumulated other comprehensive loss		(223,096	)		(62,134	)
Total stockholders’ equity		17,755,572			20,864,741

Total liabilities and stockholders’ equity	$	49,070,076		$	60,094,287

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

iPower Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended December 31, 2023 and 2022


	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2023			2022			2023			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

REVENUES	$	16,800,122		$	19,254,590		$	43,308,496		$	45,277,263

TOTAL REVENUES		16,800,122			19,254,590			43,308,496			45,277,263

COST OF REVENUES		9,481,882			11,285,064			24,231,411			27,322,021

GROSS PROFIT		7,318,240			7,969,526			19,077,085			17,955,242

OPERATING EXPENSES:
Selling and fulfillment		6,936,980			9,338,737			17,000,451			17,757,549
General and administrative		2,933,607			2,713,355			5,897,658			5,813,531
Impairment loss - goodwill		–			–			–			3,060,034
Total operating expenses		9,870,587			12,052,092			22,898,109			26,631,114

LOSS FROM OPERATIONS		(2,552,347	)		(4,082,566	)		(3,821,024	)		(8,675,872	)

OTHER INCOME (EXPENSE)
Interest expenses		(182,612	)		(314,119	)		(410,977	)		(562,160	)
Loss on equity method investment		(801	)		(3,938	)		(1,826	)		(7,328	)
Other non-operating income		128,838			59,600			61,672			271,360
Total other expenses, net		(54,575	)		(258,457	)		(351,131	)		(298,128	)

LOSS BEFORE INCOME TAXES		(2,606,922	)		(4,341,023	)		(4,172,155	)		(8,974,000	)

PROVISION FOR INCOME TAX BENEFIT		(688,939	)		(1,047,749	)		(964,821	)		(1,495,545	)
NET LOSS		(1,917,983	)		(3,293,274	)		(3,207,334	)		(7,478,455	)

Non-controlling interest		(3,155	)		(2,835	)		(5,991	)		(5,640	)

NET LOSS ATTRIBUTABLE TO IPOWER INC.	$	(1,914,828	)	$	(3,290,439	)	$	(3,201,343	)	$	(7,472,815	)

OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments		(160,255	)		47,149			(160,962	)		(64,326	)

COMPREHENSIVE LOSS ATTRIBUTABLE TO IPOWER INC.	$	(2,075,083	)	$	(3,243,290	)	$	(3,362,305	)	$	(7,537,141	)

WEIGHTED AVERAGE NUMBER OF COMMON STOCK
Basic		29,790,242			29,742,620			29,777,378			29,687,878

Diluted		29,790,242			29,742,620			29,777,378			29,687,878

LOSSES PER SHARE
Basic	$	(0.06	)	$	(0.11	)	$	(0.11	)	$	(0.25	)

Diluted	$	(0.06	)	$	(0.11	)	$	(0.11	)	$	(0.25	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

iPower Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity

For the Three and Six Months Ended December 31, 2023 and 2022


	Common Stock				Additional		Retained Earnings (Accumulated			Non-controlling			Accumulated other Comprehensive
	Shares		Amount		Paid in Capital		Deficit)			interest			income (loss)			Total
Balance, June 30, 2023		29,710,939	$	29,712	$	29,624,520	$	(8,702,442	)	$	(24,915	)	$	(62,134	)	$	20,864,741
Net loss		–		–		–		(1,286,515	)		(2,836	)		–			(1,289,351	)
Stock-based compensation		–		–		117,882		–			–			–			117,882
Foreign currency translation adjustments		–		–		–		–			–			(707	)		(707	)
Balance, September 30, 2023, unaudited		29,710,939	$	29,712	$	29,742,402	$	(9,988,957	)	$	(27,751	)	$	(62,841	)	$	19,692,565
Net loss		–		–		–		(1,914,828	)		(3,155	)		–			(1,917,983	)
Stock-based compensation		–		–		141,245		–			–			–			141,245
Foreign currency translation adjustments		–		–		–		–			–			(160,255	)		(160,255	)
Balance, December 31, 2023, unaudited		29,710,939	$	29,712	$	29,883,647	$	(11,903,785	)	$	(30,906	)	$	(223,096	)	$	17,755,572




Balance, June 30, 2022		29,572,382	$	29,573	$	29,111,863	$	3,262,948		$	(13,232	)	$	5,678		$	32,396,830
Net loss		–		–		–		(4,182,376	)		(2,805	)		–			(4,185,181	)
Stock-based compensation		–		–		137,882		–			–			–			137,882
Foreign currency translation adjustments		–		–		–		–			–			(111,475	)		(111,475	)
Balance, September 30, 2022, unaudited		29,572,382	$	29,573	$	29,249,745	$	(919,428	)	$	(16,037	)	$	(105,797	)	$	28,238,056
Net loss		–		–		–		(3,290,439	)		(2,835	)		–			(3,293,274	)
Stock-based compensation		–		–		132,266		–			–			–			132,266
Foreign currency translation adjustments		–		–		–		–			–			47,149			47,149
Balance, December 31, 2022, unaudited		29,572,382	$	29,573	$	29,382,011	$	(4,209,867	)	$	(18,872	)	$	(58,648	)	$	25,124,197

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

iPower Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2023 and 2022


	For the Six Months Ended December 31,
	2023			2022
	(Unaudited)			(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,207,334	)	$	(7,478,455	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense		402,342			393,168
Inventory reserve		222,755			74,998
Loss on equity method investment		1,826			7,328
Impairment loss - goodwill		–			3,060,034
Stock-based compensation expense		259,127			270,148
Non-cash operating lease expense		(966	)		30,023
Amortization of debt premium / discount and non-cash financing costs		107,452			107,349
Change in operating assets and liabilities
Accounts receivable		2,305,710			5,785,530
Inventories		4,588,812			7,100,607
Deferred tax assets / liabilities		(967,113	)		(1,788,694	)
Prepayments and other current assets		1,278,027			1,729,990
Non-current prepayments		140,844			215,834
Other non-current assets		7,965			5,420
Accounts payable		686,843			2,607,691
Credit cards payable		(25,869	)		(584,648	)
Customer deposit		(9,719	)		95,260
Other payables and accrued liabilities		(848,767	)		(3,844,758	)
Income taxes payable		103,796			(8,617	)
Net cash provided by operating activities		5,045,731			7,778,208

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		–			(127,367	)
Net cash used in investing activities		–			(127,367	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties		–			94,409
Payments to related parties		–			(82,500	)
Proceeds from short-term loans - related party		2,000,000			31,385
Payment on investment payable		–			(1,500,000	)
Payments on short-term loans - related party		(1,000,000	)		–
Payments on short-term loans		(875,000	)		(906,385	)
Proceeds from long-term loans		–			3,022,655
Payments on long-term loans		(7,300,000	)		(6,200,000	)
Net cash used in financing activities		(7,175,000	)		(5,540,436	)

EFFECT OF EXCHANGE RATE ON CASH		(118,346	)		64,773

CHANGES IN CASH		(2,247,615	)		2,175,178

CASH AND CASH EQUIVALENT, beginning of period		3,735,642			1,821,947

CASH AND CASH EQUIVALENT, end of period	$	1,488,027		$	3,997,125

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income tax	$	–		$	55,000
Cash paid for interest	$	–		$	–

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Right of use assets acquired under new operating leases	$	632,732		$	–

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

iPower Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

As of December 31, 2023 and June 30, 2023 and for the Three and Six Months Ended December 31, 2023 and 2022

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 consumer home, garden and other products and accessories mainly in the North America.

On May 18, 2021, the Company acquired 100% of the equity ownership of its variable interest entity, E Marketing Solution Inc. (“E Marketing”), an entity incorporated in California and owned by one of the minority shareholders of the Company. As a result, E Marketing became the Company’s wholly owned subsidiary.

On May 18, 2021, the Company acquired 100% of the equity ownership of its variable interest entity, Global Product Marketing Inc. (“GPM”), an entity which was incorporated in the State of Nevada on September 4, 2020, and was owned by Chenlong Tan, the Company’s Chairman, CEO and President, and one of the majority shareholders of the Company. As a result, GPM became the Company’s wholly owned subsidiary.

On January 13, 2022, the Company entered into a joint venture agreement and formed a Nevada limited liability company, Box Harmony, LLC (“Box Harmony”), for the principal purpose of providing logistics services primarily for foreign-based manufacturers and distributors who desire to sell their products online in the United States, with such logistics services to include, without limitation, receiving, storing and transporting such products. The Company owns 40% of the equity interest in Box Harmony, retaining significant influence, but does not own a majority equity interest in or otherwise control Box Harmony. See details at Note 3 below.

On February 10, 2022, the Company entered into another joint venture agreement and formed a Nevada limited liability company, Global Social Media, LLC (“GSM”), for the principal purpose of creating a social media platform in order to provide content and services to assist businesses, including the Company and other businesses, in marketing their products. The Company owns 60% of the equity interest in GSM and controls its operations. See details at Note 3 below.

On February 15, 2022, the Company acquired 100% of the ordinary shares of Anivia Limited (“Anivia”), a corporation organized under the laws of the British Virgin Islands (“BVI”), in accordance with the terms of a share transfer framework agreement (the “Transfer Agreement”), dated February 15, 2022, by and between the Company, White Cherry Limited, a BVI company (“White Cherry”), White Cherry’s equity holders, Li Zanyu and Xie Jing (together with White Cherry, the “Sellers”), Anivia, Fly Elephant Limited, a Hong Kong company, Dayourenzai (Shenzhen) Technology Co., Ltd., and Daheshou (Shenzhen) Information Technology Co., Ltd. Anivia owns 100% of the equity of Fly Elephant Limited, which in turn owns 100% of the equity of Dayourenzai (Shenzhen) Technology Co., Ltd., a corporation located in the People’s Republic of China (“PRC”) and which is a wholly foreign-owned enterprise (“WFOE”) of Fly Elephant Limited. The WFOE controls, through contractual arrangements summarized in Note 4 below, the business, revenues and profits of Daheshou (Shenzhen) Information Technology Co., Ltd., a company organized under the Laws of the PRC (“DHS”) and located in Shenzhen, China. See details on Note 4 below.

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 VIE 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 the Company’s 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, 2024, 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, 2023, which are included in Form 10-K filed with the SEC on September 14, 2023.

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, including Fly Elephant Limited, Dayourenzai (Shenzhen) Technology Co., Ltd. and Daheshou (Shenzhen) Information Technology Co., Ltd. All inter-company balances and transactions have been eliminated.

Emerging Growth Company Status

The company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of utilizing the emerging growth company reduced reporting requirements difficult.

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. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the Company’s actual results could differ significantly from those estimates.

Foreign currency translation and transactions

The reporting and functional currency of iPower and its subsidiaries is the U.S. dollar (USD). iPower’s WFOE and 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 in stockholders’ 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 December 31, 2023, were translated at 7.0786 RMB to $1.00. The equity accounts were stated at their historical rates. The average translation rates applied to statements of operations and comprehensive income (loss) accounts for the six months ended December 31, 2023 was 7.2201 RMB to $1.00. Cash flows were also translated at average translation rates for the period and, therefore, amounts reported on the statement of cash flows would not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheet.

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, which is currently the maximum amount insured by the FDIC 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, 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.

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; or

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

Accounts receivable are recognized and carried at the 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% owned joint venture, following the equity method of accounting, in accordance with ASC 323, Investments — Equity Method and Joint Ventures. Under this method, the carrying cost is initially recorded at cost and then increased or decreased by recording its percentage of gain or loss in Box Harmony’s statement of operations and a corresponding charge or credit to the carrying value of the asset.

Business Combination

On February 15, 2022, the Company acquired 100% of the ordinary shares of 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 regarding the acquisition.

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. See Note 4 and Note 5 for details regarding the 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.

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. The Company engaged an independent third-party valuation firm in August 2022 to conduct an evaluation of goodwill impairment for the Company as a whole at the consolidated reporting unit level as of June 30, 2022, which evaluation was conducted prior to the Company’s filing of its Annual Report on Form 10-K for the period ended June 30, 2022. Due to the decrease in the Company’s share price subsequent to the filing of the June 30, 2022 Form 10-K and the net loss incurred during the quarter ended September 30, 2022, the Company engaged the same valuation firm to review goodwill for impairment. Based on this review, the Company concluded an impairment loss of $3,060,034 as of September 30, 2022 was required. The impairment amount was determined based on the discounted cash flows with the revised projections reflecting the increase in freight and storage costs in the quarter ended September 30, 2022. The Company also considered the Market Capital Method, an alternative market approach, which suggested the Company’s goodwill is partially impaired.

During the period ended December 31, 2023, in addition to a qualitative goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C, the Company also performed a quantitative analysis using the Discounted Cash Flow and Market Capital Method and noted no goodwill impairment. As of December 31, 2023 and 2022, the goodwill balance amounted to $3,034,110 and $3,034,110, respectively.

Intangible Assets, net

Finite life intangible assets at December 31, 2023 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 followings:

Schedule of estimated useful life
		Useful Life
Covenant Not to Compete		10 years
Supplier relationships		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. As of December 31, 2023 and 2022, there were no indicators of impairment.

SEC Form 10-Q filed by iPower Inc.