As of February 7, 2020, in the
ordinary course of business, Sugarmade, Inc. (the “Company”) acquired a 40% interest in Indigo Dye Group, Inc (“Indigo’).
The Company had entered into a share purchase agreement with Indigo (located in Sacramento, California). Indigo carries on business
as a cannabis delivery business under the name BudCars and the Company paid $700,000 for inventory, equipment, and marketing expenses.
The Company valued the transaction at $1,750,000 with each one percentage of BudCar allocated to be worth $17,500. Subject to
the terms and conditions of the share purchase agreement (option provisions), the Company may acquire an additional 30% interest
in Indigo. Upon exercise of the option, the Company will obtain control over Indigo.
On July 22, 2020, the Company preannounced
approximate gross receipt level estimates relative to its investments in Indigo.
Gross sales estimates for the total Budcars operation for
the three-month period ending June 30, 2020, are approximately $1,009,000, which includes approximately $252,000 during the month
of April 2020, $317,000 during the month of May 2020, and approximately $440,000 for the month of June 2020. The Company believes
growth in gross sales is a result of the implementation of BudCars’ long planned strategy to expand operations, increase
the number of product lines and to enhance overall customer service levels. The gross margin is approximately 50% of gross sales.
However, due to the increased manpower, advertising and marketing expenses, the Company has not yet generated net profit from the
BudCars operation. The Company estimates for net sales for the BudCars operation for the three-month period ending June 30, 2020,
was approximately $953,000, which includes approximately $235,000 during the month of April 2020, $301,000 during the month of
May 2020, and approximately $417,000 for the month of June 2020.
The above estimates may be subject to change upon accounting
adjustments. These estimates may not be reliable. Further, the Company may not be able to accurately forecast our growth rate predicated
upon these estimates. A significant portion of the Company’s and BudCars’ expenses is fixed, and we may not be able
to adjust our spending quickly enough if our sales are less than expected.
Our
revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating profit growth depends
on the continued growth of demand for the cannabis products and services offered by BudCars and our other business operations.
In addition, BudCars and our business are affected by general economic and business conditions. Our sales and operating results
fluctuate for many reasons, including BudCars and our ability to retain and increase sales to existing customers, attract new customers,
and satisfy our customers’ demands, our ability to offer products and services on favorable terms, manage inventory, and
fulfill customer orders, the introduction of competitive services, websites, products, and price decreases and risks
described elsewhere in our filing of reports.