UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of March 2024

 

Commission File Number 001-41774

 

Fitell Corporation

(Translation of registrant’s name into English)

 

23-25 Mangrove Lane

Taren Point, NSW 2229

Australia

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F ☒ Form 40-F ☐

 

 

 

 
 

 

OTHER INFORMATION

 

Attached hereto as Exhibit 99.1 is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Fitell Corporation (the “Company”) for the six months ended December 31, 2023 and 2022; attached hereto as Exhibit 99.2 are the unaudited consolidated financial statements of the Company for the six months ended December 31, 2023 and 2022; and attached hereto as Exhibit 99.3 is a press release dated March 5, 2024, announcing the Company’s unaudited financial and operating results for the six months ended December 31, 2023 and 2022.

 

EXHIBIT INDEX

 

Exhibit No.   Description
99.1   Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended December 31, 2023 and 2022
99.2   Unaudited Consolidated Financial Statements for the Six Months Ended December 31, 2023 and 2022
99.3   Press Release, dated March 5, 2024

 

 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 5, 2024 FITELL CORPORATION
     
  By: /s/ Yinying Lu
    Yinying Lu
    Chief Executive Officer and Director
    (Principal Executive Officer)

 

 

 

 

Exhibit 99.1

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the related notes for the six-month periods ended December 31, 2023 and 2022 and the audited consolidated financial statements and accompanying notes for the year ended June 30, 2023 included in our annual report on Form 20-F (“2023 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on October 30, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. “We,” “us,” “our,” or the “Company” refers to Fitell Corporation and its subsidiaries, unless the context requires otherwise.

 

Cautionary Note Regarding Forward-Looking Statements

 

This report contains forward-looking statements. All statements contained in this report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements include statements relating to:

 

  ● the timing of the development of future services;
     
  ● projections of revenue, earnings, capital structure and other financial items;
     
  ● statements regarding the capabilities of our business operations;
     
  ● statements of expected future economic performance;
     
  ● statements regarding competition in our market; and
     
  ● assumptions underlying statements regarding us or our business.

 

These forward-looking statements are subject to a number of risks and uncertainties, including:

 

  ● our dependence on macroeconomic conditions and consumer discretionary spending;
     
  ● the intense competition in the gym and fitness equipment industry;
     
  ● the impacts of the COVID-19 pandemic on our business and results of operations;
     
  ● fluctuations in product costs and availability;
     
  ● international risks and costs associated with our supply chain;
     
  ● changes in consumer demand;
     
  ● risks associated with operating our own online platform, including confidential consumer data;
     
  ● reputational harms which could adversely impact our ability to attract and retain customers;

  

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  ● the potentially negative impact of our strategic plans and initiatives on our financial results;
     
  ● unauthorized disclosure of sensitive or confidential customer, vendor, or our information;
     
  ● the inability to attract, train, engage, and retain key personnel;
     
  ● the loss of one or more of our key executives;
     
  ● the effect of design and manufacturing defects on our products and services;
     
  ● the adverse effects from accidents, safety incidents, or workforce disruptions;
     
  ● the inability to sustain pricing levels for our products and services;
     
  ● the risk of warranty claims and product returns;
     
  ● changes in marketing of our products and services which could affect our marketing expenses and subscription levels;
     
  ● the need for additional capital to support business growth and objectives;
     
  ● payment processing risk;
     
  ● foreign currency exchange rate fluctuations;
     
  ● our dependence on suppliers and manufactures to provide us with sufficient quantities of quality products in a timely fashion;
     
  ● our limited control over our suppliers, manufacturers, and logistics partners;
     
  ● the costs and risks associated with our complex regulatory, compliance, and legal environment;
     
  ● our inability or failure to protect our intellectual property rights;
     
  ● changes in tax laws and regulations;
     
  ● failure to comply with the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”);
     
  ● our status as a “foreign private issuer” under U.S. securities laws and the disclosure obligations which are applicable to us on the Nasdaq Capital Market;
     
  ● our use of home country corporate governance practices instead of otherwise applicable Nasdaq corporate governance requirements;
     
  ● the accuracy of or market growth forecasts;
     
  ● our management team’s limited experience managing a public company;
     
  ● the risk of earthquakes, fire, power outages, floods, public health crises, including the current COVID-19 pandemic, and other catastrophic events, and to interruption by man-made problems such as terrorism;
     
  ● our status as an “emerging growth company” and our election to comply with the reduced disclosure requirements as a public company that may make our Ordinary Shares less attractive to investors;
     
  ● the risk that Ms. Jieting Zhao may have different interests than that of other shareholders;
     
  ● our intention to not pay dividends for the foreseeable future;

 

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These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” and elsewhere in our 2023 Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations.

 

Results of Operations

 

Comparison of the Six-Month Periods Ended December 31, 2023 and 2022

 

The following table summarizes the results of our operations during the six-month periods ended December 31, 2023 and 2022, and provides information regarding the dollar and percentage increase (or decrease) during such periods.

 

   For the Six Months Periods Ended December 31, 
   2023   2022   Variance 
   US$   % of revenue   US$   % of revenue   US$   % 
REVENUE   2,123,119    100.0%   3,054,152    100.0%   (931,033)   -30.5%
COST OF GOODS SOLD   1,275,967    60.1%   1,461,445    47.9%   (185,478)   -12.7%
GROSS PROFIT   847,152    39.9%   1,592,707    52.1%   (745,555)   -46.8%
                               
OPERATING EXPENSES                              
Personnel expenses   421,364    19.8%   448,402    14.7%   (27,038)   -6.0%
Consulting fees   1,272,468    59.9%   -    N/A    1,272,468    N/A 
General and administrative expenses   1,268,545    59.7%   169,445    5.5%   1,099,100    648.6%
Sales and marketing expenses   175,705    8.3%   227,355    7.4%   (51,650)   -22.7%
Amortization of operating right of use asset   132,867    6.3%   98,661    3.2%   34,206    34.7%
Depreciation expenses   4,469    0.2%   6,135    0.2%   (1,666)   -27.2%
Total operating expenses   3,275,418    154.3%   949,998    31.1%   2,325,420    244.8%
                               
INCOME (LOSS) FROM OPERATION   (2,428,266)   -114.4%   642,709    21.0%   (3,070,975)   -477.8%
                               
OTHER INCOME (EXPENSE)                              
IPO related-expenses   (50,286)   -2.4%   (281,686)   -9.2%   231,400    -82.1%
Unrealized gain (loss) from marketable securities   (312,831)   -14.7%   (193,015)   -6.3%   (119,816)   62.1%
Other income (expense)   115,190    5.4%   9,806    0.3%   105,384    1074.7%
Interest income   764    0.0%   831    0.0%   (67)   -8.1%
Interest expense   (66,844)   -3.1%   (43,738)   -1.4%   (23,106)   52.8%
Total other income (expenses)   (314,007)   -14.8%   (507,802)   -16.6%   193,795    -38.2%
                               
INCOME (LOSS) BEFORE TAX   (2,742,273)   -129.2%   134,907    4.4%   (2,877,180)   -2132.7%
                               
INCOME TAX EXPENSE (CREDIT)   (80,566)   -3.8%   194,232    6.4%   (274,798)   -141.5%
                               
NET LOSS   (2,661,707)   125.4%   (59,325)   -1.9%   (2,602,382)   4386.7%

 

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Revenues

 

Revenues were $2,123,119 for the six-month period ended December 31, 2023, and $3,054,152 for the six-month period ended December 31, 2022, representing a decrease of $931,033, or 30.5%. Revenues consist primarily of (i) merchandise revenues of $2,007,562 for the six-month period ended December 31, 2023, and $2,151,872 for the six-month period ended December 31, 2022; (ii) no sale of consumable products for the six-month period ended December 31, 2023, and $605,415 in sale of consumable products for the six-month period ended December 31, 2022; and (iii) licensing income of $115,557 for the six-month period ended December 31, 2023 and $296,865 for the six-month period ended December 31, 2022.

 

The following table summarizes the breakdown of revenues by categories for the periods indicated.

 

   For the Six-Month Periods Ended December 31, 
   2023   2022   Change   Change 
   US$   %   US$   %   US$   % 
                         
Merchandise revenue   2,007,562    94.6%   2,151,872    70.5%   (144,310)   -6.7%
Sales of consumable products   0    0.0%   605,415    19.8%   (605,415)   -100.0%
Licensing income   115,557    5.4%   296,865    9.7%   (181,308)   -61.1%
Total Revenue   2,123,119    100.0%   3,054,152    100.0%   (931,033)   -30.5%

 

Merchandise revenue

 

Merchandise revenue represents the sales of our various gym and fitness equipment and products. Merchandise revenue decreased by 6.7% or $144,310 to $2,007,562 in the six-month period ended December 31, 2023 from $$2,151,872 in the six-month period ended December 31, 2022. The decrease in merchandise revenue was primarily attributable to the net effects of: (i) a 34.3% increase in sales orders from 7,716 in the six-month period ended December 31, 2022, to 10,364 in the six-month period ended December 31, 2023 due to our management team’s increased efforts on our promotional campaign and exploring new channels to solicit new customers; offset by (ii) a drop in the average revenue per order from $278.88 in the six-month period ended December 31, 2022 to $193.71, or a drop of 30.5%, in the six-month period ended December 31, 2023. The drop in average revenue per order is mainly due to the decrease in spending from consumers in response to recent economic conditions in Australia. In the calendar year 2023, the inflation rate in Australia was 4.1% and the Reserve Bank of Australia has also increased the cash rate by 4.25% on an annualized basis. We believe the increased costs of living for Australian consumers had a negative impact on their disposable income to be spent on gym and fitness equipment.

 

Management expects that the inflation and the interest rate hikes will continue to affect the market and consumer sentiment in the short term. However, management believes that the market will gradually recover, and the long-term prospect for the fitness and wellness industry in Australia is still promising.

 

   For the Three Months Periods Ended December 31, 
   2023   2022   Change   Change 
   US$   %   US$   %   US$   % 
                               
Merchandise revenue   1,057,688    49.8%   953,839    31.2%   103,849    10.9%

 

In the three-month period ended December 31, 2023, our merchandise revenue has increased $103,849 or 10.9% as compare to the corresponding period in 2022. Management believes this increase is a sign that the Australian economy and our sales are recovering.

 

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Sales of consumable products

 

Sales of consumable products represents the revenue generated by selling various lifestyle products. These consumable products include, but are not limited to, coffee and nutritional supplement products. There was no sales of consumable products in the six-month period ended December 31, 2023, but there was $605,415 in sales of consumable products in the six-month period ended December 31, 2022. Management plans to develop this business segment again whenever the business opportunity arises.

 

Licensing income

 

Licensing income refers to the services provided to gym studios in overseas markets. These services include, but are not limited to, providing the brand name and offering initial design services to gym studios. We have generated $115,557 and $296,865 in licensing income in the six-month periods ended December 31, 2023, and 2022, respectively. The decrease was due to management temporarily suspending overseas expansions recently because market sentiments are negatively affected by inflation and the rise in interest rates in the global market. Nevertheless, we will expand these services again, especially to the Asia market, when the time is right.

 

Cost of goods sold

 

Cost of goods sold were $1,275,967 for the six-month period ended December 31, 2023, and $1,461,445 for the six-month period ended December 31, 2022, representing a decrease of $185,478, or 12.7%. Cost of goods sold consist primarily of merchandise costs, freight costs, and other related purchase costs such as custom duties. The decrease was in line with the decrease in merchandise revenues. Our cost of goods sold accounted for 60.1% and 47.9% of our total revenue for the six-month period ended December 31, 2023, and six-month period ended December 31, 2022, respectively. This variance is further discussed in the Gross Profit section below.

 

Gross Profit

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
Gross Profit   847,152    1,592,707    (745,555)   -46.8%
Gross Profit Margin   39.9%   52.1%        -12.2%

 

Gross profit was $847,152 for the six-month period ended December 31, 2023, and $1,592,707 for the six-month period ended December 31, 2022, representing a decrease of $745,555, or 46.8%. The decrease was due to the drop in merchandise revenue, sales of consumable products, and licensing income. Gross profit margin dropped from 52.1% for the six-month period ended December 31, 2022, to 39.9% for the six months period ended December 31, 2023. The decrease is mainly due to the decrease in revenues attributed to the sales of consumable products and licensing income, which has relatively higher gross profit margins. Meanwhile, merchandise’s gross profit margin increased from 32.1% for the six months ended December 31, 2022 to 42.2% for the six months ended December 31, 2023, or an increase of 10.1%. The increase is due to the Company’s relatively greater number of promotional campaigns and providing more discounts to our customers in the six months ended December 31, 2022, which made the gross profit margin in that period relatively lower. The gross profit margin in six months ended December 31, 2023 has returned to the long-term average.

 

Personnel Expenses

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
Personnel expenses   421,364    448,402    (27,038)   -6.0%
as percentage of revenue   19.8%   14.7%        5.2%

 

Personnel expenses were $421,364 for the six-month period ended December 31, 2023, and $448,402 for the six-month period ended December 31, 2022, representing a slight decrease of $27,038, or 6.0%. Personnel expenses consist primarily of employee salaries, superannuation, external consulting expenses and other employment expenses. Personnel expenses and headcount were relatively stable in the six-month periods ended December 31, 2023 and 2022. Management targets to hire the right persons for each different task in order to maintain an effective and efficient operational team of the right size.

 

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Consulting fees

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
General and administrative expenses   1,272,468    -    1,272,468    N/A 
as percentage of revenue   59.9%   0.0%        59.9%

 

Consulting fees were $1,272,468 for the six-month period ended December 31, 2023, and nil for the six-month period ended December 31, 2022, representing an increase of $1,272,468, or 100.0%. Since the successful listing of the Company’s securities on Nasdaq, management has proactively engagement various consulting firms to assist us in setting long-term business development plans and to identify new business growth opportunities.

 

General and Administrative Expenses

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
General and administrative expenses   1,268,545    169,445    1,099,100    648.6%
as percentage of revenue   59.7%   5.5%        54.2%

 

General and administrative expenses were $1,268,545 for the six-month period ended December 31, 2023, and $169,445 for the six-month period ended December 31, 2022, representing an increase of $1,099,110, or 648.6%. General and administrative expenses consist primarily of merchant fees, insurance, warehouse costs and other corporate expenses. The increase was mainly due to (i) a research and development expense on mobile app of $798,684; (ii) an increase of insurance expense of $99,801, which is due to the D&O insurance coverage after the Company’s securities were successfully listed on Nasdaq ; and (iii) the increase of audit fees of $71,945 due to the listing status of the Company.

 

Sales and Marketing Expenses

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
Sales and marketing expenses   175,705    227,355    (51,650)   -22.7%
as percentage of revenue   8.3%   7.4%        0.8%

 

Sales and marketing expenses were $175,705 for the six-month period ended December 31, 2023, and $227,355 for the six-month period ended December 31, 2022, representing a decrease of $51,650, or 22.7%. However, as a percentage of revenue, sales and marketing expenses have actually increased slightly from 7.4% for the six-month period ended December 31, 2022 to 8.3% for the six-month period ended December 31, 2023. Sales and marketing expenses consist primarily of advertising and marketing expenses on various online platforms. The decrease in the absolute amount of these expenses is mainly due to management’s decision to strategically reduce spendings in this area amid recent economic conditions. However, management still intends to maintain certain levels of advertisement via search engine optimization. Therefore, sales and marketing expenses as a percentage of revenue increased by 0.8%.

 

Amortization of operating right of use asset

 

Amortization of operating right of use asset refers to our office premises and warehouse, which was $132,867 for the six-month period ended December 31, 2023, and $98,661 for the six-month period ended December 31, 2022, representing an increase of $34,206, or 34.7%. The increase was mainly due to the renewal of the office lease and the rental costs have increased since then.

 

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Income from Operations

 

The Company had a loss from operations of $2,428,266 for the six-month period ended December 31, 2023, and an income from operations of $642,709 for the six-month period ended December 31, 2022, representing a decrease of $3,070,975, or 477.8%. The decrease was mainly a result of the drop in total revenues, plus the increase in consulting fees and general and administrative expenses.

 

IPO-related expenses

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
IPO-related expenses   (50,286)   (281,686)   231,400    -82.1%
as percentage of revenue   -2.4%   -9.2%        6.9%

 

IPO-related expenses include the accounting fee, auditing fee, legal fee, and consulting fee, which were incurred due to the initial public offering process and is not related to the daily operations of the Company. IPO-related expenses decreased from $281,686 for the six-month period ended December 31, 2022, to $50,286 for the six-month period ended December 31, 2023. The decrease was mainly due to the completion of the Company’s successfully listing on Nasdaq in August 2023. Therefore, the Company has incurred relatively less IPO-related expenses as compare to the corresponding period in 2022.

 

Unrealized gain (loss) from marketable securities

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
Unrealized gain (loss) from marketable securities   (312,831)   (193,015)   (119,816)   62.1%
as percentage of revenue   -14.7%   -6.3%        -8.4%

 

The Company had purchased certain equity securities on the Stock Exchange of Hong Kong for investment purposes in 2021. It has recorded an unrealized loss of $193,015 for the six-month period ended December 31, 2022, and an unrealized loss of $312,831 for the six-month period ended December 31, 2023, due to the fluctuation of the share prices of such equity securities.

 

Other Income (expenses)

 

Other income was $115,190 for the six-month period ended December 31, 2023, and other expenses were $9,806 for the six-month period ended December 31, 2022, representing an increase of $105,384, or 1,074.7%. The increase was a result of (i) a gain on disposal generated during the disposal of the existing office and warehouse lease of $76,869 in the six-month period ended December 31, 2023; and (ii) a foreign exchange gain of $38,321 in the six-month period ended December 31, 2023.

 

Interest Income

 

Interest income was $764 for the six-month period ended December 31, 2023, and $831 for the six-month period ended December 31, 2022, representing a decrease of 67, or 8.1%. The slight decrease in interest income is due to the Company’s increased funds in the current account in the six-months period ended December 31, 2023, as compared to the corresponding period in 2022.

 

Interest Expense

 

Interest expense was $66,844 for the six-month period ended December 31, 2023, and $43,738 for the six-month period ended December 31, 2022, representing an increase of $23,106, or 52.8%. The increase was a result of the increase in tax payable to the Australian Taxation Office.

 

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Income Tax Expense

 

   For the Six-Month Periods Ended December 31,   Change 
(in US dollars, except percentage)  2023   2022   Amount   % 
Income tax expense   (80,566)   194,232    (274,798)   -141.5%
effective tax rate   2.9%   144.0%        -141.0%

 

Income tax credit was $80,566 for the six-month period ended December 31, 2023, and income tax expense was $194,232 for the six-month period ended December 31, 2022, representing a decrease of $274,798, or 141.5%. The decrease was in line with the decrease in income before tax from $134,907 for the six-month period ended December 31, 2022 to a loss before tax of $2,742,273 for the six-month period ended December 31, 2023. The effective tax rate decreased from 144.0% for the six-month period ended December 31, 2022 to 2.9% for the six-month period ended December 31, 2023, due to that several expense items in the six-month period ended December 31, 2023, are not tax deductible.

 

Net Income and Comprehensive Income

 

Net loss was $2,661,707 for the six-month period ended December 31, 2023, and net income was $59,325 for the six-month period ended December 31, 2022, a decrease of $2,602,382, or 4,386.7%. 

 

Comprehensive loss was $2,749,711 for the six-month period ended December 31, 2023, and comprehensive income was $95,563 for the six-month period ended December 31, 2022, an increase of $2,654,148 or 27.8 times. 

 

The net loss and comprehensive loss were mainly due to the aforesaid decrease in total revenues and the increase in consulting fees, plus the increase in general and administrative expenses.

 

Current Liquidity and Capital Resources for the Six-Month Period Ended December 31, 2023 compared to the Six-Month Period Ended December 31, 2022

 

   2023   2022 
Summary of Cash Flows:          
Net cash used in operating activities  $(7,108,927)  $(227,469)
Net cash used in investing activities   (2,500,000)   - 
Net cash provided by (used in) financing activities   13,623,327    (50,513)
Foreign currency translation   (88,004)   (28,245)
Net increase in cash and cash equivalents   3,926,396    (306,227)
Beginning cash and cash equivalents   236,821    716,052 
Ending cash and cash equivalents  $4,163,217   $409,825 

 

Operating Activities

 

Cash used by operations of $7,108,927 during the six-month period ended December 31, 2023 was primarily a result of our $2,661,707 net loss reconciled with our non-cash net loss from investments of $328,139, and changes in operating assets and liabilities, which include primarily (i) an increase in prepaid offering costs of $2,549,524 due to the increase in prepayment for our potential new offerings subsequent to our IPO (ii) an increase of inventory of $1,577,049 due to business expansion plans and introduction of more new products; (iii) an increase of deposits and prepaids of $210,250 mainly due to stock procurement prepayment of approximately $200,000; (iv) a decrease of accounts payable and accrued expenses of $97,345 which was mainly due to reduction in tax payable caused by tax payment; (v) the increase in deferred tax assets of $82,309 which was mainly due to accumulated tax loss has increased; and (vi) the increase in other non-current assets of $81,092 due to increase in rental deposits after the renewal of office and warehouse lease.

 

-8-
 

 

Cash used by operations of $227,469 during the six-month period ended December 31, 2022 was primarily a result of our $59,325 net loss reconciled with our stock based compensation of $2,240,000, and our non-cash net loss from investments of $193,015, and changes in operating assets and liabilities, which include primarily (i) an increase in prepaid offering costs of $2,549,524 due to the increase in prepayment for our IPO (ii) an increase of accounts receivable of $696,922 due to the sales of other consumable products and some special order gym equipment which was ordered prior to December 31, 2022; (iii) a decrease of deferred revenue of $316,645 due to the drop of merchandise revenue;; partially offset by (iv) a decrease of $245,673 in inventory due to improvements in procurement and inventory management; (v) an increase of $121,736 in tax payable due to the additional profit generated in the six-month period ended December 31, 2022.; and (vi) an increase of $118,376 in accounts payable and accrued expenses due to business expansion.

 

Investing Activities

 

There was net cash of $2,500,000 being used in investing activities for the six-month period ended December 31, 2023, which was attributed to the note receivables lent out to an independent third party.

 

There was no net cash used or received in investing activities for the six-month period ended December 31, 2022.

 

Financing Activities

 

Net cash provided by financial activities was $13,623,327 which was mainly due to the proceeds raised from the IPO of the Company in August 2023.

 

Net cash used in financing activities was $50,513 for the six-month period ended December 31, 2022, versus net cash from financing activities of $6,803 for the six-month period ended December 31, 2021. The change represents repayment of a loan to a related party.

 

Future Capital Requirements

 

Our capital requirements for 2024 and future years will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures, acquisitions, and/or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts and being a public company.

 

Inflation

 

The amounts presented in our consolidated financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

-9-

 

 

Exhibit 99.2

 

Fitell Corporation

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

For the Six Months Ended

 

December 31, 2023 and 2022

 

 

 

 

FITELL CORPORATION

 

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Financial Statements  
Consolidated Balance Sheet at December 31, 2023 (Unaudited) and June 30, 2023 F-3
Consolidated Statement of Operations and Comprehensive Income for the six months ended December 31, 2023 and 2022 (Unaudited) F-4
Consolidated Statement of Stockholders’ Equity for the six months ended December 31, 2023 and 2022 (Unaudited) F-5
Consolidated Statement of Cash Flows for the six months ended December 31, 2023 and 2022 (Unaudited) F-6
Notes to Consolidated Financial Statements (Unaudited) F-7

 

F-2
 

 

FITELL CORPORATION

CONSOLIDATED BALANCE SHEET

 

   December 31,   June 30, 
   2023   2023 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $4,163,217   $236,821 
Investment in marketable securities   166,136    494,275 
Accounts receivable, net   233,785    174,341 
Inventory, at cost   2,102,835    525,786 
Note receivables   2,500,000    - 
Deposits and prepaids   223,662    13,412 
Prepaid offering costs   549,749    5,317,866 
Total current assets   9,939,384    6,762,501 
           
Property and equipment, net   31,904    38,743 
Operating right of use asset   703,550    605,794 
Deferred tax asset   214,663    132,354 
Other non-current assets   81,092    - 
Brand names   337,504    337,504 
Goodwill   1,161,052    1,161,052 
Total assets  $12,469,149   $9,037,948 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $1,071,378   $1,168,723 
Deferred revenue   232,014    238,351 
Income tax payable   433,075    486,058 
Due to related parties   32,430    24,386 
Current portion of operating lease liability   289,065    212,062 
Total current liabilities   2,057,962    2,129,580 
           
Accrued employee benefits, non-current   19,736    18,430 
Operating lease liability, less current portion   426,597    473,015 
Total liabilities   2,504,295    2,621,025 
           
Commitments and contingencies (Note 6)          
           
Stockholders’ equity          
Common stock, $0.0001 par value; no authorization limit, 11,120,000 shares and 8,120,000 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively   1,112    812 
Additional paid-in capital   13,395,164    7,097,822 
Accumulated other comprehensive loss   (88,068)   (64)
Retained earnings   (3,343,354)   (681,647)
Total stockholders’ equity   9,964,854    6,416,923 
Total liabilities and stockholders’ equity  $12,469,149   $9,037,948 

 

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

 

F-3
 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

UNAUDITED

 

   For the six months ended 
   December 31,   December 31, 
   2023   2022 
Revenues:          
Merchandise revenues  $2,007,562   $2,151,872 
Sales of consumable products   -    605,415 
Licensing income   115,557    296,865 
Total revenues   2,123,119    3,054,152 
           
Cost of goods sold   1,275,967    1,461,445 
           
Gross profit   847,152    1,592,707 
           
Operating expenses          
Personnel expenses   421,364    448,402 
Consulting fees   1,272,468    - 
General and administrative expenses   1,268,545    169,445 
Sales and marketing expenses   175,705    227,355 
Amortization of operating right of use asset   132,867    98,661 
Depreciation expenses   4,469    6,135 
Total operating expenses   3,275,418    949,998 
           
Income (loss) from operations   (2,428,266)   642,709 
           
Other income (expenses):          
IPO related-expenses   (50,286)   (281,686)
Unrealized gain (loss) from marketable securities   (312,831)   (193,015)
Other income (expenses)   115,190    9,806 
Interest income   764    831 
Interest expense   (66,844)   (43,738)
Total net other income (expenses)   (314,007)   (507,802)
           
Income (loss) before taxes   (2,742,273)   134,907 
           
Income tax expense (credit)   (80,566)   194,232 
           
Net loss   (2,661,707)   (59,325)
Foreign currency adjustment   (88,004)   (36,238)
Comprehensive loss  $(2,749,711)  $(95,563)
           
Basic and diluted net loss per share  $(0.25)  $(0.01)
           
Weighted average shares outstanding - basic and diluted   10,487,568    8,120,000 

 

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

 

F-4
 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023

UNAUDITED

 

   Common Stock   Subscription Receivable  

Additional

Paid-in

  

Accumulated

Other

Comprehensive

   Retained     
   Shares   Amount   Shares   Amount   Capital   Income   Earnings   Total 
Balance June 30, 2023   8,120,000   $812    -    -   $7,097,822   $(64)  $(681,647)  $6,416,923 
                                         
Fund raised in IPO   3,000,000    300    -    -    6,297,342    -    -    6,297,642 
Foreign currency translation adjustment   -    -    -    -    -    (88,004)   -    (88,004)
Net loss   -    -        -       -    -    -    (2,661,707)   (2,661,707)
                                         
Balance December 31, 2023   11,120,000   $1,112    -    -   $13,395,164   $(88,068)  $(3,343,354)  $9,964,854 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022

UNAUDITED

 

   Common Stock   Subscription Receivable  

Additional

Paid-in

  

Accumulated

Other

Comprehensive

   Retained     
   Shares   Amount   Shares   Amount   Capital   Income   Earnings   Total 
Balance June 30, 2022   7,000,000   $700    -   $(56)  $1,497,990    26,999   $911,747   $2,437,380 
                                         
Stock issued for services   1,120,000    112    -    (112)   2,240,000    -    -    2,240,000 
Foreign currency translation adjustment   -    -    -    -    -    (36,238)   -    (36,238)
Net loss   -          -       -    -    -    -    (59,325)   (59,325)
                                         
Balance December 31, 2022   8,120,000   $812    -   $(168)  $3,737,990   $(9,239)  $852,422   $4,581,817 

 

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

 

F-5
 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

UNAUDITED

 

   For the six months ended 
   December 31,   December 31, 
   2023   2022 
Cash Flows from Operating Activities          
Net loss  $(2,661,707)  $(59,325)
Adjustments to reconcile net loss to net          
cash from operating activities:          
Depreciation   6,839    6,135 
Stock based compensation   -    2,240,000 
Unrealized loss on investments   328,139    193,015 
Changes in operating assets and liabilities          
Accounts receivable   (59,444)   (696,922)
Inventory   (1,577,049)   245,673 
Deposits and prepaids   (210,250)   (23,170)
Prepaid offering costs   (2,549,524)   (2,129,659)
Operating right of use asset   (67,171)   (3,248)
Deferred tax asset   (82,309)   64,520 
Other non-current assets   (81,092)   - 
Accounts payable and accrued expenses   (97,345)   118,376 
Deferred revenue   (6,337)   (316,645)
Income taxes payable   (52,983)   121,736 
Accrued employee benefits   1,306    12,045 
Net cash from operating activities   (7,108,927)   (227,469)
           
Cash Flows from Investing Activities          
Investment in note receivables   (2,500,000)   - 
Net cash from investing activities   (2,500,000)   - 
           
Cash Flows from Financing Activities          
Net activity on due to related parties   8,044    (50,513)
Fund raised in IPO, gross   13,615,283    - 
Net from financing activities   13,623,327    (50,513)
           
Foreign currency adjustment   (88,004)   (28,245)
           
Change in cash and cash equivalents   3,926,396    (306,227)
           
Cash and cash equivalents at beginning of period   236,821    716,052 
           
Cash and cash equivalents at end of period  $4,163,217   $409,825 
           
Supplemental Cash Flow Information          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $122,652   $16,763 

 

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

 

F-6
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

1. Organization and principal activities

 

Fitell Corporation (the “Company”) was incorporated in the Cayman Islands on April 11, 2022 under the Companies Act as an exempted company with limited liability. The Company conducts its primary operations of selling gym and fitness equipment in Australia through its indirectly held wholly owned subsidiaries that are incorporated and domiciled in Australia, namely GD Wellness Pty Ltd. The Company holds GD Wellness Pty Ltd (“GD”) via a wholly owned subsidiary, namely KMAS Capital and Investment Pty Ltd (“KMAS”) which was incorporated and is domiciled in Australia.

 

Details of the Company and its subsidiaries are set out in the table as follows:

 

       Percentage of
effective
ownership		       
Name  Date of incorporation   December 31, 2023   June 30,
2023		   Place of incorporation  Principal activities
Fitell Corporation   April 11, 2022    Parent    Parent   Cayman Islands  Investment holdings
KMAS Capital and Investment Pty Ltd   July 26, 2016    100%   100%  Australia  Investment holdings
GD Wellness Pty Ltd   July 22, 2005    100%   100%  Australia  Sales of gym and fitness equipment

 

As of May 5, 2022, the Company entered into a Share Exchange Agreement (“Share Exchange Agreement”) with KMAS, which holds all of the issued and outstanding shares of GD, and SKMA Capital and Investment Ltd, a company incorporated under the laws of the British Virgin Islands (“SKMA”), which holds all of the issued and outstanding shares of KMAS, pursuant to which the Company shall acquire all of the shares in the KMAS from SKMA in exchange for the Company issuing 6,439,999 Ordinary Shares to SKMA in accordance with the terms of the Share Exchange Agreement. In addition, one (1) Ordinary Share was transferred back to SKMA from the registered office service provider in the setup of the Company. Following such share exchanges, KMAS and GD became the Company’s wholly-owned subsidiaries.

 

The combination has been treated as a corporate restructuring (reorganization) of entities under common control and thus the current capital structure has been retroactively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods to which such entities were under common control. Since all of the subsidiaries were under common control for the entirety of the six months ended December 31, 2022, the results of these subsidiaries are included in the consolidated financial statements for the entire period. (“Restructuring”). After the Restructuring, the Company has 7,000,000 ordinary shares issued and outstanding.

 

F-7
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies

 

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

 

Basis of Presentation

 

The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with US GAAP and presented in US dollars. The year end is June 30.

 

Consolidation

 

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All inter-company transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk. The Company establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Revenue Recognition

 

The Company generates it main income source from the sales of merchandise, which includes the sales of various gym equipment and fitness products. It recognizes this merchandise revenue in accordance with Accounting Standards Update 2014-09, “Revenue from contracts with customers,” (Topic 606). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company’s main revenue stream is from sales of products. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon shipment. The Company offers refunds, repairs and replacements in accordance with the Australian Consumer Law. The Company recognized the sales discount and returns against its revenues in the same period as the original sales transaction.

 

The Company also occasionally sells various consumable products. These products include, but not limited to, coffee and nutritional supplement products. Similar to the aforesaid merchandise revenue, it also recognizes the revenue in accordance with Topic 606 upon shipment. If the Company provided sales discount or allowed sales returns, it is recognized against its revenues in the same period as the original sales transaction.

 

The Company also provides licensing services to gym studios in overseas. These services include, but not limited to, providing the brand name, and offer initial design services to these gym studios. Similar to the aforesaid merchandise revenue, it also recognizes the revenue in accordance with Topic 606 based on the straight-line basis over the contractual service period.).

 

F-8
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

Stock-based Compensation

 

The Company records stock-based compensation in accordance with the provisions of the ASC 718, “Accounting for Stock Compensation,” which establishes accounting standards for the transaction in which an entity exchanges its equity instruments for goods or services. In accordance with guidance provided under ASC 718, the Company recognizes an expense for the fair value of its stock awards at the time of the grant and the fair value of its outstanding stock options as they vest, whether held by employees or others. As of December 31, 2023 and June 30, 2023, there were no options outstanding.

 

Customers Loyalty program

 

For certain sales transactions, the Company offers loyalty points to its customer based on the dollar value of the transaction which giver the customer the option to acquire additional goods or services at a price that is lower than its stand-alone selling price. In accordance with Topic 606, the Company evaluates whether these loyalty points constitute separate performance obligations and the need to allocate the transaction price between revenue and performance obligation. As of December 31, and June 30, 2023, the Company does not believe that any separate performance obligation under the loyalty program is material.

 

Deferred Revenue

 

The Company recognized the deposits received from its customers as deferred revenue if the goods or service is not delivered. It would be recognized as revenue after the goods or service is delivered. During the six months ended December 31, 2023 and 2022, a total of $238,351 and $501,976 of deferred revenue was recognized into Merchandise revenue respectively. As of December 31, and June 30, 2023, a total of $232,014 and $238,351 of revenue has been deferred to be recognized in future periods as merchandise revenue respectively.

 

Fair Value Measurements

 

Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements, clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

Fair Value of Financial Instruments

 

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

F-9
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

Marketable Securities

 

Marketable securities are stated at fair value in accordance with ASC Topic 321, Investments- Equity Securities. Any changes in the fair value of the Company’s marketable securities are included in net income under the caption of net income from investments. The market value of the securities is determined using prices as reflected on an established market, using Level 1 fair value inputs. Realized and unrealized gains and losses are determined on an average cost basis. The marketable securities are in investment in shares of a publicly traded security which is traded on the Hong Kong exchange. The investments in marketable securities totals $166,136 and $494,275 as of December 31, 2023 and June 30, 2023, respectively.

 

Advertising and Promotion

 

The Company follows the policy of charging the costs of advertising, marketing, and public relations to expense as incurred. The Company has $175,705 and $227,355 in advertising expenses for the six months ended December 31, 2023 and 2022, respectively.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those 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.

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. Our federal tax return and any state tax returns are not currently under examination.

 

The Company has adopted ASC 740-10, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

Accounts Receivable

 

The Company has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2023 and June 30, 2023, the Company does not consider an allowance for doubtful accounts to be necessary.

 

Inventory

 

Inventory consists of only finished goods and are stated at the lower of cost and net realizable value on a ‘first in first out’ basis. Cost comprises of direct materials and delivery costs, direct labor, import duties and other taxes, and an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable.

 

Stock in transit is stated at the lower of cost and net realizable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable.

 

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 

F-10
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

Note Receivable

 

On August 2, 2023, the Company has entered into a loan agreement with an independent third party (“Borrower”), in which, the Company has lent $2,500,000 to the Borrower, with a loan period of 36 months, and at an annualized interest of 6.8%. The first eight months are interest-free-period.

 

Property and Equipment

 

Property and Equipment - Property and equipment is stated at cost, net of depreciation. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. Depreciation expense totaled $4,469 and $6,135 for the six months period ended December 31, 2023 and 2022, respectively.

 

Impairment Policy

 

Impairment of long lived assets – Potential impairments of long lived assets are reviewed when events or changes in circumstances indicate a potential impairment may exist. In accordance with ASC Subtopic 360-10, “Property, Plant and Equipment – Overall”, impairment is determined when estimated future undiscounted cash flows associated with an asset are less than asset’s carrying value.

 

Intangible Assets

 

The Company’s intangible assets consist of brand names and goodwill. At December 31, 2023 and June 30, 2023, the Company had brand names and goodwill with costs of approximately $337,504 and $1,161,052 respectively, which all have indefinite lives. The Company evaluates intangible assets with indefinite lives for impairment at least annually or when events or changes in circumstances indicate that an impairment may exist. The Company determined that none of its intangible assets were impaired in the six months period ended December 31, 2023 and the fiscal year ended June 30, 2023.

 

Net Income (Loss) Per Common Share

 

The Company computes income per common share, in accordance with ASC Topic 260, Earnings Per Share, which requires dual presentation of basic and diluted earnings per share. Basic income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, that could result from the exercise of outstanding stock options and warrants. No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported.

 

Comprehensive Income (loss)

 

ASC Topic 220 (SFAS No. 130) establishes standards for reporting comprehensive income and its components. Comprehensive income or loss is defined as the change in equity during a period from transactions and other events from non-owner sources. The component of comprehensive loss totaling $88,004 and $36,238 for the six months ended December 31, 2023 and 2022, respectively, related to foreign currency translation adjustment.

 

Foreign Currencies

 

The Company determined that its functional currency is the Australian dollar since the Australian dollar is the currency of the environment in which the Company primarily generates and expends cash; however, the Company’s reporting currency is the U.S. dollar. Foreign currency transaction gains and losses represent gains and losses resulting from transactions entered into in a currency other than the functional currency of the Company. These transaction gains and losses, if any, are included in results of operations.

 

F-11
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

Leases

 

The Company accounts for leases in accordance with ASC Topic 842, Lease. Operating lease right-of-use assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the consolidated statements of operations.

 

As permitted under ASC Topic 842, the Company has made an accounting policy election not to apply the lease recognition provision to short term leases (leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Company will recognize the lease payments for short term leases on a straight-line basis over the lease term. The Company did not have any short-term leases at December 31, 2023 and June 30, 2023.

 

Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Subsequent Events

 

In accordance with ASC Topic 855, Subsequent Events, the Companies evaluated subsequent events through the date the consolidated financial statements were available for issue.

 

3. Investment in marketable securities

 

As of December 31, 2023, the Company held some equity securities which are publicly traded on a registered Stock Exchange. The following table classifies the Company’s assets measures at fair value on a recurring basis into the fair value hierarchy as of December 30, 2023:

 

Description  Level 1   Level 2   Level 3   Total 
Equity securities  $166,136   $-   $-   $166,136 
Total  $166,136   $-   $-   $166,136 

 

The equity securities being held as of June 30, 2023 are as follow:

 

Description  Level 1   Level 2   Level 3   Total 
Equity securities  $494,275   $-   $-   $494,275 
Total  $494,275   $-   $-   $494,275 

 

4. Property and equipment

 

The Company’s property and equipment at December 31, 2023 and June 30, 2023 consisted of the following:

 

  

Estimated

Useful Life

  December 31, 2023   June 30, 2023 
            
Motor Vehicle  5 years  $51,741   $51,741 
Property and equipment, gross      51,741    51,741 
Less accumulated depreciation      (19,837)   (12,998)
              
Property and equipment, net     $31,904   $38,743 

 

F-12
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

5. Lease right-of-use assets and lease liabilities

 

Operating leases

 

The Company leases office space in Taren Point, NSW, Australia. The lease commenced on July 15, 2023 and ends on July 14, 2026. The monthly lease payments are $36,667 AUD and are subject to annual escalation rate of 3%.

 

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 3.70%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the six months ended December 31, 2023 and 2022, the Company recorded $132,867 and $98,661 as operating lease expense.

 

Operating right-of- use assets are summarized below:

 

   December 31, 2023   June 30, 2023 
Office Lease  $831,952   $1,541,390 
Less accumulated amortization   (128,402)   (935,596)
Right-of-use, net  $703,550   $605,794 

 

Operating lease liabilities are summarized below:

 

   December 31, 2023   June 30, 2023 
Office Lease  $715,662   $685,077 
Less: current portion   289,065    212,062 
Long term portion  $426,597   $473,015 

 

   As of 
   December 31, 2023   June 30, 2023 
Year ending June 30, 2024   300,040    233,735 
Year ending June 30, 2025    308,281    240,747 
Year ending June 30, 2026   156,419    247,970 
Total future minimum lease payments   764,740    722,452 
Less imputed interest   (49,078)   (37,375)
PV of Payments  $715,662   $685,077 

 

6. Commitments and contingencies

 

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of December 31, 2023 and June 30, 2023, the Company is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.

 

F-13
 

 

FITELL CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

7. Income taxes

 

A reconciliation of the effective tax rate to the statutory rate is shown below:

 

   December 31, 2023   December 31, 2022 
         
Income (loss) before taxes  $(2,742,273)  $134,907 
           
Expected income tax expense (credit) at statutory rate of 25%  $(685,568)  $33,727 
Increase (decrease) in income taxes resulting from:          
IPO related-expenses   12,571    56,000 
Unrealized loss on investments   78,208    114,515 
Non-tax deductible personnel expenses   11,703    - 
Non-tax deductible consulting fees   318,117    - 
Non-tax deductible general and administrative expenses   210,413    - 
Other items, net   (26,010)   (10,010)
Income tax credit  $(80,566)  $194,232 

 

The tax effects temporary differences that gave rise to the deferred tax assets and liabilities are as follows:

 

   December 31, 2023   June 30, 2023 
Deferred tax assets:          
Accrued employee benefits  $24,329   $1,877 
Unrealized loss on investments   -    22,082 
Unrealized foreign exchange gain   210    (1,394)
Depreciation   (7,976)   3,049 
Accumulated tax loss   193,969    - 
Operating right of use assets   3,028    - 
Provision for bad debt   1,103    106,740 
Net deferred tax asset  $214,663   $132,354 

 

As of December 31, 2023 and June 30, 2023, the Company had no material net operating loss or tax credit carryforwards. As of December 31, 2023 and June 30, 2023, the Company had no provision for uncertain tax positions and no provisions for penalties or interest. In addition, the Company does not believe that there are any uncertain tax benefits that could be recognized in the near future that would impact the Company’s effective tax rate.

 

8. Subsequent Event

 

The Company entered into a securities purchase agreement (the “Purchase Agreement”) with an investor on January 15, 2024. Pursuant to the Purchase Agreement filed with the Securities and Exchange Commission on Form 6-K, the Company issued to the investor a three-year senior unsecured convertible promissory note (the “Notes”) in the principal amount of $3,600,000 for the funding amount of $3,312,000. The Notes will be senior, unsecured obligations of the Company. The Notes will bear interest at a rate of 8% per annum and will mature on January 15, 2027, 36 months from the issue date, January 15, 2024.

 

F-14

 

 

Exhibit 99.3

 

A logo with a person running Description automatically generated

 

Fitell Corporation Announces First Half-Year Financial Results

 

Taren Point, New South Wales, Australia, March 5, 2023 — Fitell Corporation (Nasdaq: FTEL) (“Fitell” or the “Company”), an online retailer of gym and fitness equipment in Australia, today announced its half-year financial results for the six months ended December 31, 2023.

 

Six-month Period ended December 31, 2023 Financial Highlights

 

■Revenue was $2.1 million, a decrease of $0.9 million or 30.5% compared to the same period in 2022.
   
■Gross profit was $0.85 million, a decrease of $745,555 or 46.8% from the same period in 2022.

 

Revenue by Categories vs. Same Period of Prior Year

 

   Revenue   Change from Six-month Period ended December 31, 2022 
   US$   %   US$   % 
Merchandise revenue   2,007,562    94.6%   (144,310)   -6.7%
Sales of consumable products   0    0    (605,415)   -100.0%
Revenue from licensing customers   115,557    5.4%   (181,308)   -61.1%

 

●Merchandise revenue decreased by 6.7% or $144,310 to $2,007,562. The decrease was primarily attributable to: (i) a 34.3% increase in sales orders, primarily due to promotional campaigns and new marketing channels; and (ii) a decrease of 30.5% in the average revenue per order, mainly due to consumer spending changes in response to recent economic conditions in Australia. Management believes that the market will gradually recover, and the fitness and wellness industry in Australia is still promising in the long-term.

 

●In the three months ended December 2023, merchandise revenue increased $103,849 or 10.9% compared to the same period in 2022.

 

●Sales of consumable products represents the revenue generated by selling various lifestyle products. There were no sales of consumable products, and the management would develop this business segment again whenever business opportunity arises.

 

●Revenue from licensing customers represents the services provided to gym studios in overseas markets. Revenue from licensing customers decreased by 61.4% or $181,308 to $115,557.

 

Cost of goods sold was $1,275,967, representing a decrease by approximately $185,478, or 12.7% from the same period in 2022.

 

Gross profit was $847,152, a decrease of $745,555, or 46.8% from the same period in 2022. The decrease was due to the drop in merchandise revenue, sales of consumable products, and licensing income. Gross profit margin was 39.9%, a decrease from 52.1% for the six-month period ended December 31, 2022, due to the decline of the high-margin consumable products and licensing segments.

 

 

 

 

Consulting fees were $1,272,468 for the six-month period ended December 31, 2023, compared to nil in the same period of 2022. Since the successful listing on Nasdaq, the management has proactively engaged various consulting firms to assist the company in setting long-term business development plans and identifying new business growth opportunities.

 

General and administrative expenses were $1,268,545, an increase of $1,099,110, or 648.6% from $169,445 for the same period of 2022. The increase was mainly due to (i) research and development expenses on mobile app of $798,684; (ii) an $99,801 increase of insurance expense related to D&O insurance coverage post-Nasdaq listing; and (iii) an $71,945 increase of audit fees due to the Company’s listing.

 

Net loss was $2,661,707, a decrease of $2,602,382 from the same period in 2022. The net loss was mainly due to the aforesaid decrease in total revenues and the increase in consulting fees and general and administrative expenses.

 

About Fitell Corporation

 

Fitell Corporation, through GD Wellness Pty Ltd (“GD”), its wholly owned subsidiary, is an online retailer of gym and fitness equipment both under its proprietary brands and other brand names in Australia. The company’s mission is to build an ecosystem with a whole fitness and wellness experience powered by technology to our customers. GD has served over 100,000 customers with large portions of sales from repeat customers over the years. The Company’s brand portfolio can be categorized into three proprietary brands under its Gym Direct brand: Muscle Motion, Rapid Motion, and FleetX, in over 2,000 stock-keeping units (SKUs). For additional information, please visit the Company’s website at www.fitellcorp.com.

 

Forward-Looking Statements

 

This press release contains “forward-looking statements”. Forward-looking statements reflect our current view about future events. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “could,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “propose,” “potential,” “continue” or similar expressions. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the SEC.

 

For more information, please contact:

 

Chief Financial Officer

Jamarson Kong

jamarson@gymdirect.com.au

 

Investor Relations

ir@fitellcorp.com

 

 

 

 

FITELL CORPORATION

CONSOLIDATED BALANCE SHEET

 

   December 31,   June 30, 
   2023   2023 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $4,163,217   $236,821 
Investment in marketable securities   166,136    494,275 
Accounts receivable, net   233,785    174,341 
Inventory, at cost   2,102,835    525,786 
Note receivables   2,500,000    - 
Deposits and prepaids   223,662    13,412 
Prepaid offering costs   549,749    5,317,866 
Total current assets   9,939,384    6,762,501 
           
Property and equipment, net   31,904    38,743 
Operating right of use asset   703,550    605,794 
Deferred tax asset   214,663    132,354 
Other non-current assets   81,092    - 
Brand names   337,504    337,504 
Goodwill   1,161,052    1,161,052 
Total assets  $12,469,149   $9,037,948 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $1,071,378   $1,168,723 
Deferred revenue   232,014    238,351 
Income tax payable   433,075    486,058 
Due to related parties   32,430    24,386 
Current portion of operating lease liability   289,065    212,062 
Total current liabilities    2,057,962    2,129,580 
           
Accrued employee benefits, non-current   19,736    18,430 
Operating lease liability, less current portion   426,597    473,015 
Total liabilities   2,504,295    2,621,025 
           
Commitments and contingencies (Note 6)          
           
Stockholders’ equity          
Common stock, $0.0001 par value; no authorization limit, 11,120,000 shares and 8,120,000 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively   1,112    812 
Additional paid-in capital   13,395,164    7,097,822 
Accumulated other comprehensive loss   (88,068)   (64)
Retained earnings   (3,343,354)   (681,647)
Total stockholders’ equity   9,964,854    6,416,923 
Total liabilities and stockholders’ equity  $12,469,149   $9,037,948 

 

 

 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

UNAUDITED

 

   For the six months ended 
   December 31,   December 31, 
   2023   2022 
Revenues:          
Merchandise revenues  $2,007,562   $2,151,872 
Sales of consumable products   -    605,415 
Licensing income   115,557    296,865 
Total revenues   2,123,119    3,054,152 
           
Cost of goods sold   1,275,967    1,461,445 
           
Gross profit   847,152    1,592,707 
           
Operating expenses          
Personnel expenses   421,364    448,402 
Consulting fees   1,272,468    - 
General and administrative expenses   1,268,545    169,445 
Sales and marketing expenses   175,705    227,355 
Amortization of operating right of use asset   132,867    98,661 
Depreciation expenses   4,469    6,135 
Total operating expenses   3,275,418    949,998 
           
Income (loss) from operations   (2,428,266)   642,709 
           
Other income (expenses):          
IPO related-expenses   (50,286)   (281,686)
Unrealized gain (loss) from marketable securities   (312,831)   (193,015)
Other income (expenses)   115,190    9,806 
Interest income   764    831 
Interest expense   (66,844)   (43,738)
Total net other income (expenses)   (314,007)   (507,802)
           
Income (loss) before taxes   (2,742,273)   134,907 
           
Income tax expense (credit)   (80,566)   194,232 
           
Net loss   (2,661,707)   (59,325)
Foreign currency adjustment   (88,004)   (36,238)
Comprehensive loss  $(2,749,711)  $(95,563)
           
Basic and diluted net loss per share  $(0.25)  $(0.01)
           
Weighted average shares outstanding - basic and diluted   10,487,568    8,120,000 

 

 

 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023

UNAUDITED

 

   Common Stock   Subscription Receivable  

Additional

Paid-in

  

Accumulated

Other

Comprehensive

   Retained     
   Shares   Amount   Shares   Amount   Capital   Income   Earnings   Total 
Balance June 30, 2023   8,120,000   $812    -    -   $7,097,822   $(64)  $(681,647)  $6,416,923 
                                         
Fund raised in IPO   3,000,000    300    -    -    6,297,342    -    -    6,297,642 
Foreign currency translation adjustment   -    -    -    -    -    (88,004)   -    (88,004)
Net loss   -    -       -       -    -    -    (2,661,707)   (2,661,707)
                                         
Balance December 31, 2023   11,120,000   $1,112    -    -   $13,395,164   $(88,068)  $(3,343,354)  $9,964,854 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022

UNAUDITED

 

   Common Stock   Subscription Receivable  

Additional

Paid-in

  

Accumulated

Other

Comprehensive

   Retained     
   Shares   Amount   Shares   Amount   Capital   Income   Earnings   Total 
Balance June 30, 2022   7,000,000   $700    -   $(56)  $1,497,990    26,999   $911,747   $2,437,380 
                                         
Stock issued for services   1,120,000    112    -    (112)   2,240,000    -    -    2,240,000 
Foreign currency translation adjustment   -    -    -    -    -    (36,238)   -    (36,238)
Net loss   -    -      -       -    -    -    (59,325)   (59,325)
                                         
Balance December 31, 2022   8,120,000   $812    -   $(168)  $3,737,990   $(9,239)  $852,422   $4,581,817 

 

 

 

 

FITELL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

UNAUDITED

 

   For the six months ended 
   December 31,   December 31, 
   2023   2022 
Cash Flows from Operating Activities          
Net loss  $(2,661,707)  $(59,325)
Adjustments to reconcile net loss to net          
cash from operating activities:          
Depreciation   6,839    6,135 
Stock based compensation   -    2,240,000 
Unrealized loss on investments   328,139    193,015 
Changes in operating assets and liabilities          
Accounts receivable   (59,444)   (696,922)
Inventory   (1,577,049)   245,673 
Deposits and prepaids   (210,250)   (23,170)
Prepaid offering costs   (2,549,524)   (2,129,659)
Operating right of use asset   (67,171)   (3,248)
Deferred tax asset   (82,309)   64,520 
Other non-current assets   (81,092)   - 
Accounts payable and accrued expenses   (97,345)   118,376 
Deferred revenue   (6,337)   (316,645)
Income taxes payable   (52,983)   121,736 
Accrued employee benefits   1,306    12,045 
Net cash from operating activities   (7,108,927)   (227,469)
           
Cash Flows from Investing Activities          
Investment in note receivables   (2,500,000)   - 
Net cash from investing activities   (2,500,000)   - 
           
Cash Flows from Financing Activities          
Net activity on due to related parties   8,044    (50,513)
Fund raised in IPO, gross   13,615,283    - 
Net from financing activities   13,623,327    (50,513)
           
Foreign currency adjustment   (88,004)   (28,245)
           
Change in cash and cash equivalents   3,926,396    (306,227)
           
Cash and cash equivalents at beginning of period   236,821    716,052 
           
Cash and cash equivalents at end of period  $4,163,217   $409,825 
           
Supplemental Cash Flow Information          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $122,652   $16,763 

 

 

 

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