10-Q: iPower Reports Q1 Loss, Revenue Drops 37% Amid Supply Woes

iPower Inc. reported a significant 36.8% revenue decrease and a reduced net loss for the first fiscal quarter ended September 30, 2025, driven by decreased Amazon orders and supply chain disruptions.

Summary

• Total revenues decreased by 36.8% to $12.02 million for the three months ended September 30, 2025, compared to $19.01 million for the same period in 2024.
• Product sales, the primary revenue source, dropped 42.6% to $10.48 million, while service income increased 109.1% to $1.53 million.
• Net loss significantly decreased by 73.7% to $0.53 million for the quarter, compared to a net loss of $2.03 million in the prior year.
• Gross profit decreased by 43.4% to $4.81 million, with the overall gross profit ratio falling to 40.0% from 44.7%.
• Operating expenses decreased by 42.1% to $6.50 million, primarily due to a $0.7 million reduction in selling and fulfillment expenses and a $4.0 million reduction in general and administrative expenses, driven by cost-cutting measures.
• Cash and cash equivalents decreased by $1.10 million to $0.90 million as of September 30, 2025, from $2.01 million at June 30, 2025.
• Working capital decreased to $4.1 million from $4.9 million.
• The company deconsolidated its Variable Interest Entity (VIE) on August 4, 2025, resulting in a $39,624 loss on deconsolidation.
• A 1-for-30 reverse stock split was effectuated on October 27, 2025.
• The company was in default as of September 30, 2025, due to covenant violations under its Asset-Based Revolving Loan (ABL) facility.

Sentiment

Score: 3

Explanation: The significant revenue decline and gross profit erosion are major concerns, despite the reduced net loss driven by aggressive cost-cutting and non-operating gains. The default on loan covenants and ineffective internal controls indicate serious operational and financial weaknesses. While management expresses optimism about future cash flow and product development, the immediate financial health is poor.

Positives

• Net loss significantly reduced by 73.7% to $0.53 million from $2.03 million year-over-year.
• Operating expenses decreased by 42.1% ($4.73 million reduction), primarily due to cost-cutting measures.
• Service income more than doubled, increasing by 109.1% to $1.53 million.
• Net cash provided by operating activities improved significantly to $1.69 million from a use of $1.42 million in the prior year.
• Other non-operating income increased substantially by $620,142 due to discounted settlement and write-offs of aged accounts payable.

Negatives

• Total revenues decreased significantly by 36.8% to $12.02 million.
• Product sales, the primary revenue source, decreased by 42.6% to $10.48 million.
• Gross profit decreased by 43.4% to $4.81 million, and the gross profit ratio declined to 40.0% from 44.7%.
• Cash and cash equivalents decreased by $1.10 million to $0.90 million.
• Working capital decreased from $4.9 million to $4.1 million.
• The company was in default as of September 30, 2025, due to covenant violations under its ABL facility.
• Significant customer concentration risk, with Amazon Vendor and Amazon Seller accounting for 70% of total revenues and 73% of total accounts receivable.
• Supplier concentration risk, with one supplier accounting for 66% of total purchases for the quarter.
• Internal controls over financial reporting were not effective as of September 30, 2025, due to inadequate design or implementation of controls related to the financial statements closing process.

Risks

• Global economic disruption, including military conflicts, may increase supply chain interruptions, hinder material acquisition, and increase costs, leading to reduced profits.
• Demand for hydroponic products depends on the uncertain growth of industries like cannabis, which faces varying and rapidly changing laws and regulations, potentially impacting product demand.
• Experienced delays and increased shipping costs, leading to higher inventory levels and reduced profits, with potential for continued upward pressure on costs and inability to acquire necessary materials.
• High reliance on Amazon Vendor and Amazon Seller (70% of revenues, 73% of accounts receivable) exposes the company to significant risk if these relationships deteriorate or Amazon's policies change.
• Dependence on a single supplier for 66% of total purchases creates vulnerability to supply disruptions or unfavorable terms.
• Liquidity and the ability to meet obligations are dependent on future financial performance, which is subject to general economic, financial, and other factors beyond control (e.g., rising inflation, potential recession), and anticipated funding requirements could increase.
• The company was in default under its ABL facility due to covenant violations as of September 30, 2025, which could lead to accelerated repayment demands or other adverse actions by the lender.
• Internal controls over financial reporting were not effective, increasing the risk of material misstatements in financial reporting.
• The newly planned Digital Treasury Strategy is uncertain in its success and whether it will be commenced or continued long-term.
• The Small Business Administration (SBA) may review and reject judgments pertaining to PPP loan eligibility or forgiveness conditions, potentially requiring adjustments to financial statements.

Future Outlook

Management plans to increase investments in product and brand development, including evaluating potential acquisition opportunities. The company expects cash flow from operations to improve beyond the next 12 months as supply chain operations normalize and new suppliers transition to more favorable credit terms. There are also plans to increase the size of the in-house product catalog to improve margin profile and cash generation. The newly adopted Digital Treasury Strategy is a planned addition, but its success, commencement, or long-term continuation is uncertain. Past historical seasonality trends are anticipated to remain, with working capital expected to stay near current levels for the foreseeable future.

Management Comments

• "Our core strategy continues to focus on expanding our geographic reach across the United States and internationally through organic growth, both in terms of expanding customer base as well as brand and product development."
• "We believe we are one of the leading marketers, distributors and retailers in the consumer gardening and home goods categories based on management's estimates."
• "We are actively developing our in-house branded products and through supply chain partners, which to date include the iPower and Simple Deluxe brands and more, some of which have been designated as Amazon best seller product leaders and Amazon Choice products, among others."
• "We plan to increase investments in product and brand development."
• "We cannot predict its success or know whether we will commence this strategy or, once commenced, if we will continue with this strategy for the long term." (referring to Digital Treasury Strategy)
• "The Company will provide additional updates to shareholders when and if we do effectuate such strategy." (referring to Digital Treasury Strategy)
• "Based on our current operating plan, we believe that our existing cash and cash equivalents and cash flows from operations will be sufficient to finance our operations during the next 12 months."
• "Beyond the next 12 months we believe that our cash flow from operations should improve as supply chain operations normalize and new suppliers we are bringing online transition to credit terms more favorable to us."
• "We plan to increase the size of our in-house product catalog, which will have a net beneficial impact to our margin profile and ability to generate cash."
• "Given our current working capital position and available funding from our revolving credit line and proceeds from our June 2024 registered direct offering, we believe we will be able to work through the current challenges by managing payment terms with customers and vendors."
• "Management has evaluated remediation plans to address these deficiencies and is implementing changes to address the material weakness identified, including hiring additional accountants and consultants and implementing controls and procedures over the financial reporting process." (regarding internal controls)

Industry Context

The company operates in the e-commerce sector, specializing in consumer home, garden, and hydroponics products. Its heavy reliance on Amazon (70% of revenue) highlights both market integration and platform risk. The hydroponics segment is influenced by the evolving regulatory landscape of cannabis cultivation, presenting both opportunities and uncertainties. Global economic disruptions and supply chain issues are industry-wide challenges impacting costs and inventory management. The focus on in-house brands and product development aligns with a broader trend towards vertical integration and brand differentiation in competitive online retail markets.

Management Changes

Corporate Governance

Legal Proceedings

• Not presently party to any pending or threatened legal proceedings or claims that are believed to have a material adverse effect on the business, financial condition, or operating results.

Related Party Transactions

• On July 9, 2025, the company borrowed $500,000 as a short-term, interest-free loan from an entity owned by Mr. Allan Huang, a majority shareholder. The outstanding balance was $500,000 as of September 30, 2025.
• Formed United Package NV, LLC joint venture on June 3, 2025, with Custom Cup Factory, Inc. and Ms. Yi Yang (new director), with Ms. Yang committed to manage the business.
• Ms. Yi Yang's entity, Pacelor Inc., manages a warehouse and provides fulfillment services for the company, receiving monthly service fees. The company received $435,155 service from Pacelor for the three months ended September 30, 2025. Accounts payable to Pacelor was $(66,014) (prepayment) as of September 30, 2025.
• Ms. Yi Yang's other entity, Pacelor NV Inc., provides marketing services. Outstanding accounts payable to Pacelor NV was $315,019 as of September 30, 2025.

Stakeholder Impact

• Shareholders: Negative impact due to significant revenue decline, gross profit erosion, ABL covenant default, ineffective internal controls, and the 1-for-30 reverse stock split.
• Employees: Cost-cutting plan implemented, which could imply job reductions or reduced benefits, though not explicitly stated.
• Customers: Potential impact from supply chain disruptions and decreased Amazon orders, possibly affecting product availability or delivery times.
• Suppliers: Potential impact from decreased purchases (overall product sales down 42.6%) and changes in payment terms.
• Creditors (JPMorgan Chase Bank): The company is in default on its ABL facility, which is a significant concern for the lender and could lead to renegotiation or enforcement actions.

Next Steps

• Increase investments in product and brand development.
• Evaluate potential acquisition opportunities for companies and product brand names.
• Continue efforts to normalize supply chain operations.
• Transition new suppliers to more favorable credit terms.
• Increase the size of the in-house product catalog.
• Address material weakness in internal controls over financial reporting by hiring additional accountants and consultants and implementing new controls.
• Provide additional updates to shareholders if the Digital Treasury Strategy is effectuated.

Key Dates

Recommendation

The company faces severe headwinds, including a substantial 36.8% revenue decline, a 43.4% drop in gross profit, and a deteriorating working capital position. The default on ABL loan covenants and the acknowledged ineffectiveness of internal controls over financial reporting are critical red flags indicating significant operational and financial instability. While the net loss decreased, it was largely driven by aggressive cost-cutting and non-operating gains, not a fundamental improvement in core business performance. High customer and supplier concentration risks further exacerbate the precarious situation. The reverse stock split, while potentially aimed at maintaining listing, often signals underlying issues. Investors should consider divesting given the high risks and poor financial health.

Keywords

Hydroponics, Gardening supplies, E-commerce, Consumer goods, Supply chain, Amazon sales, Financial results, 10-Q, SEC filing, Net loss, Revenue decline, Cost cutting, Working capital, Reverse stock split, Internal controls, ABL default, Joint venture, Digital treasury