SEC Form F-1 filed by Fitell Corporation

As filed with the Securities and Exchange Commission on February 21, 2024

Registration Statement No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FITELL CORPORATION

(Exact name of registrant as specified in its charter)

23-25 Mangrove Lane

Taren Point, NSW 2229

Australia

+612 95245266

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168

(800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With a Copy to:

Mark E. Crone, Esq.

Liang Shih, Esq.

The Crone Law Group P.C.

420 Lexington Ave, Suite 2446

New York, NY 10170

Tel: 646.861.7891

Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the United States Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED FEBRUARY 21, 2024

8,000,000 Ordinary Shares

FITELL CORPORATION

This prospectus relates to the offer and sale by Fitell Corporation, a Cayman Islands company (together with its subsidiaries, “Fitell,” “us,” “our,” “we,” or the “Company”), in a firm commitment underwritten public offering, of 8,000,000 of our ordinary shares, $0.0001 par value per share (“Ordinary Shares”).

Our Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “FTEL”. On February 16, 2024, the last reported sale price of our Ordinary Shares on Nasdaq was $2.97 per share.

We have assumed a public offering price of $       per Ordinary Share, the last reported sale price of our Ordinary Shares on Nasdaq on             , 2024. The actual offering price per Ordinary Share will be negotiated between us and the underwriters based on, among other things, the trading of our Ordinary Shares prior to the offering and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

Founded in 2005 and headquartered in New South Wales, Australia, GD Wellness Pty Ltd (“GD”) is a wholly owned subsidiary of Fitell Corporation, a Cayman Islands company (together with its subsidiaries, “Fitell,” “us,” “our,” “we,” or the “Company”).

Investing in our Ordinary Shares is highly speculative and involves a high degree of risk, including the risk of losing your entire investment. Before buying any shares, you should carefully read the discussion of material risks in investing in our Ordinary Shares in “Risk Factors” beginning on page 13 of this.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy and adequacy of this prospectus. Any representation to the contrary is a criminal offense.

We are both an “emerging growth company” and “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. Please see “Prospectus Summary—Implications of Our Being an ‘Emerging Growth Company’ and ‘Foreign Private Issuer’” for additional information. We are a holding company incorporated in the Cayman Islands with no material operations of our own, and we conduct our operations primarily through our key operating subsidiary GD Wellness Ptd Ltd. Investors are cautioned that you are buying shares of a holding company issuer incorporated in the Cayman Islands with an operating subsidiary in Australia.

Ms. Jieting Zhao, our director, will beneficially own approximately       % of our outstanding shares following this public offering, and thus could have significant influence on determining the outcome of any matters submitted to shareholders for approval, including mergers, consolidations, the election of directors and other significant corporate actions. Without her consent, we may be prevented from entering into transactions that could be beneficial to us or our minority shareholders. Her interest may differ from the interests of our other shareholders. The concentration in the ownership of our Ordinary Shares may cause a material decline in the value of our Ordinary Shares.

We have granted the underwriters an option to purchase, at the public offering price, up to additional 1,200,000 Ordinary Shares, less the underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any.

The underwriters expect to deliver the shares to purchasers in the offering on or about , 2024.

The date of this prospectus is ___________, 2024.

TABLE OF CONTENTS

About this Prospectus

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Ordinary Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares and the distribution of this prospectus or any free writing prospectus outside of the United States.

Until       , 2024 (the 25th day after the date of this prospectus), all dealers that buy, sell, or trade shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Use of Certain Defined Terms

Unless otherwise indicated or the context requires otherwise, references in this prospectus to:

Our business is conducted in Australia through our Australian subsidiary GD Wellness Pty Ltd since our inception, using Australian dollars, the currency of Australia. Our financial statements are presented in United States dollars. In this prospectus, we refer to assets, obligations, commitments and liabilities in our financial statements in United States dollars. These dollar references are based on the exchange rate of Australian dollars to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have made statements in this prospectus relating to our future financial performance and results, financial condition, business strategy, plans, goals and objectives, including certain projections, milestones, targets, business trends, and other statements that are not historical facts, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. These forward-looking statements generally are identified by the words “budget,” “target,” “aim,” “strategy,” “guidance,” “outlook,” “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future; although, not all forward-looking statements contain these identifying words. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

Forward-looking statements include, but are not limited to, statements concerning:

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

While we believe these expectations, and the estimates and projections on which they are based, are reasonable and were made in good faith, the ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks, uncertainties, events, and other important factors, which include, but are not limited to, the risks described under the heading “Risk Factors” below. Any of these risk factors could cause our actual results, performance or achievements, or industry results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not rely on any of these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to correct, update, or revise any forward-looking statement to reflect new information, future events or circumstances, or otherwise, except to the extent required under federal securities laws, after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor 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. You are advised to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this prospectus.

RISK FACTORS

Investment in our Ordinary Shares involves a high degree of risk. You should carefully consider the risks described below together as well as the other information included in this prospectus, including “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and the related notes thereto incorporated by reference herein, before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our Ordinary Shares could decline due to any of these risks, and a result, you may lose all or part of your investment. You should not invest in this offering unless you can afford to lose your entire investment.

Risks Related to Our Industry and Macroeconomic Conditions

Our business is dependent on macroeconomic conditions and consumer discretionary spending, and reductions in such spending might adversely affect the Company’s business, operations, liquidity, and financial results.

We are an online retailer of gym and fitness equipment both under our proprietary brands and other brand names. Fitell’s mission is to build an ecosystem with a whole fitness and wellness experience powered by technology to our customers. Our business depends on consumer discretionary spending, and our results are highly dependent on Australian and Asian consumer confidence and the health of the Australian and Asian economies. Consumer spending may be affected by many factors outside of the Company’s control, including general economic conditions; consumer disposable income; consumer confidence and perception of economic conditions; the threat or outbreak of war, terrorism or public unrest (including, without limitation, the conflict in Ukraine) which may cause supply chain disruptions, increase fuel costs and the cost of materials, and create general economic instability; wage and unemployment levels; consumer debt and inflationary pressures; the costs of basic necessities and other goods; effects of weather and natural disasters caused by climate change or otherwise; and epidemics, contagious disease outbreaks, and other public health concerns including the ongoing COVID-19 pandemic. Decreases in consumer discretionary spending may result in a decrease in comparable sales, and average value per transaction, which might cause us to increase promotional activities, which will have a negative impact on our gross margins, all of which could negatively affect the Company’s business, operations, liquidity, and financial results, particularly if consumer spending levels are depressed for a prolonged period of time.

Uncertain global economic conditions could have a material adverse effect on our business, financial condition, results of operations or prospects.

Our financial results are tied to global economic conditions and their impact on levels of consumer confidence and consumer spending. Global consumer markets can be impacted by significant U.S. and international economic downturns, such as the current levels of inflation and the global credit crunch experienced in 2008. Continued high levels of inflation or a return to a recession or a weak recovery, due to factors that include, but are not limited to, disruptions in financial markets in the United States, or elsewhere, federal budget, tax or trade policy issues in the United States, political upheavals, war or unrest economic sanctions against trading nations, and demonetization, could cause us to experience revenue declines due to deteriorated consumer confidence and spending, and a decrease in the availability of credit or on commercially acceptable terms, which could have a material adverse effect on our business prospects or financial condition.

Our business is also dependent upon certain industries, such as the gym, fitness, and fitness equipment industries, and these are also cyclical in nature. Therefore, these industries may experience their own significant fluctuations in demand for our products based on such things as economic conditions and consumer demand. Many of these factors are beyond our control. As a result of the volatility in the industries we plan to serve, we may ultimately have difficulty increasing or maintaining our level of sales or profitability. If the industries we serve were to suffer a downturn, then our business may be further adversely affected.

Intense competition in the gym and fitness equipment industry and in retail could limit our growth and reduce our profitability.

The market for gym and fitness equipment retailers is highly fragmented, intensely competitive, and continually evolving. We compete with retailers from multiple categories and in multiple channels, including large formats; traditional and specialty formats; mass merchants; department stores; internet-based and direct-sell retailers; and increasingly from vendors that sell directly to customers. Our competitors include companies that may have greater market presence (both brick and mortar and online), name recognition and financial, marketing and other resources than we do. Further, the ability of consumers to compare prices in real-time puts additional pressure on us to maintain competitive pricing. If we are unsuccessful in marketing and advertising strategies, especially for online and social media platforms, or less successful than our competitors, we could lose customers and sales could decline, which could have an adverse impact on our revenues, business, and results of operations. Furthermore, we cannot be sure that we will be able to continue to effectively compete in our markets due to the disruptions caused by the COVID-19 pandemic or that any of our competitors are not in a better position to either respond to the disruptions caused by the COVID-19 pandemic or capitalize on potential displaced market share, including vendors with whom we compete accelerating their existing efforts to sell directly to consumers. An inability to successfully respond to competitive pressures could have a material adverse effect on our results of operations or reputation. Our responses to competitive pressures could also have a material effect on our results or reputation, including as it relates to pricing, quality, assortment, advertising, service, locations, and online shopping experiences.

Industry consolidation may result in increased competition, which could have a material adverse effect on our business.

Some of our competitors have made, or may make acquisitions or enter into partnerships or other strategic relationships to achieve competitive advantages. In addition, new entrants not currently considered competitors may enter our market through acquisitions, partnerships or strategic relationships. We expect industry consolidation to continue and/or increase. Industry consolidation may result in competitors with more compelling product offerings or greater pricing flexibility than we may have, or business practices that make it more difficult for us to compete effectively, including on the basis of price, sales, technology or supply. These competitive pressures could have a material adverse effect on our business.

The COVID-19 pandemic has impacted and is expected to continue to have an impact on our business and results of operations.

The COVID-19 pandemic has significantly affected worldwide consumer shopping patterns and caused the overall health of the worldwide economy to deteriorate, including in Australia and Asia. Many measures that have been, and in the future may be, periodically implemented to reduce the spread of COVID-19 have adversely affected workforces, customers, consumer sentiment, economies and financial markets. We are unable to predict the long-term impact that the COVID-19 pandemic will have on our business due to a number of uncertainties, including the duration of the COVID-19 pandemic, the long-term health and economic impact of the COVID-19 pandemic, the success or impact of vaccines and other mitigation or recovery efforts, changes in consumer demand and shopping patterns, and the impact of governmental regulations issued in response to the pandemic. In addition to an increase in eCommerce penetration, the COVID-19 pandemic has driven an increase in demand in certain categories due to the renewed interest and perceived importance of health and fitness, participation in socially-distant and outdoor activities, and a shift toward athletic apparel and active lifestyle products. It is uncertain whether or the extent to which these trends will continue, or whether new trends will emerge as the COVID-19 pandemic continues or after the current impacts of the COVID-19 pandemic subside. While the COVID-19 pandemic continues, governmental interventions or new outbreaks could, among other things, make it difficult or impossible to operate our business. Numerous state and local jurisdictions have imposed, and in the future may impose or re-impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders and restrictions have resulted, and in the future may result, in work stoppages, slowdowns and delays; inability to consistently procure and maintain sufficient levels of certain in-demand items; disruptions to our supply chain; travel restrictions; and cancellation of events, among other effects, which would likely negatively impact our business. Periods of changes in consumer behavior and health concerns causing a reduction in consumer demand for our products would likely have a significant adverse effect on our financial condition and results of operations.

The Company continues to consider and assess the potential impact that the COVID-19 pandemic could have on the Company’s operations, including the assumptions and estimates used to prepare its financial statements such as the Company’s inventory valuations, fair value measurements and potential asset impairment charges. These assumptions and estimates may change in the future as new events occur and additional information is obtained.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described herein, including risks relating to changes in consumer demand or shopping patterns, availability of adequate capital, our ability to execute our strategic plans, disruptions to our supply chain and third-party delivery service providers, our ability to access adequate quantities of materials and in-demand products, tariffs, and regulatory restrictions. In addition to potential damage to our reputation and brand, failure to comply with applicable federal, state and local laws and regulations such as those outlined above may result in our being subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect on our business, results of operations and financial condition.

Fluctuations in product costs and availability due to inflationary pressures, fuel price uncertainty, supply chain constraints, increases in commodity prices, labor shortages and other factors could negatively impact our business and results of operations.

Our product costs are affected, in part, by the costs of component materials. A substantial increase in the prices of raw materials or decrease in the availability of raw materials could dramatically increase the costs associated with manufacturing the equipment that we purchase from our vendors, which could cause the price of our merchandise to increase and could have a negative impact on our sales and profitability. In addition, increases in commodity prices could also adversely affect our results of operations. If we increase the price of our products in order to maintain gross margins for our products, such increase may adversely affect demand for, and sales of, our products, which could have a material adverse effect on our financial condition and results of operations.

We rely upon various means of third-party transportation to deliver products from vendors and our manufacturing facilities to our customers. Consequently, our results may be affected by those factors affecting transportation, including the price of fuel and the availability of aircraft, ships, trucks, and drivers. The price of fuel and demand for transportation services has fluctuated significantly in recent years, and has resulted in increased costs for us and our vendors. In addition, changes in regulations may result in higher fuel costs through taxation, transportation restrictions or other means. Fluctuations in transportation costs and availability could adversely affect our results of operations.

Labor shortages in the transportation industry could negatively affect transportation costs and our ability to transport products to our customers in a timely manner. Our results of operations may be adversely affected if we, or our vendors, are unable to secure adequate transportation resources at competitive prices to fulfill our delivery schedules. Further, difficulties in moving products manufactured overseas and through the ports of other jurisdictions, whether due to port congestion, government shutdowns, labor disputes, product regulations and/or inspections or other factors, including natural disasters or health pandemics, could negatively affect our business.

Approximately 53% of the products that the Company purchases in the fiscal year ended June 30, 2023, were manufactured abroad, which subjects us to various international risks and costs, including foreign trade issues, currency exchange rate fluctuations, shipment delays and supply chain disruption and political instability, which could cause our sales and profitability to suffer.

Approximately 53% of the products that the Company purchases in the fiscal year ended June 30, 2023, were manufactured abroad in China. Foreign imports subject us to risk relating to changes in import duties quotas, the introduction of taxes on imported goods or the extension of income taxes on our foreign suppliers’ sales of imported goods through the adoption of destination-based income tax jurisdiction, freight cost increases and economic and political uncertainties. We may also experience shipment delays caused by shipping port constraints, labor strikes, work stoppages, acts of war, including the current conflict in Ukraine, and terrorism, or other supply chain disruptions, including those caused by extreme weather, natural disasters, and pandemics and other public health concerns. Specifically, the ramifications of the ongoing COVID-19 pandemic have caused delays in the manufacturing or shipping of products and raw materials. To the extent the COVID-19 pandemic results in continuation or worsening of manufacturing and shipping delays and constraints, our vendors and suppliers will continue to have difficulty obtaining the materials necessary for the production, packaging and delivery of the products we sell, and we will continue to have inventory delays or product shortages online.

If any of these or other factors, including trade tensions between foreign nations, including China and Russia, were to cause a disruption of trade from the countries in which our vendors’ supplies are located, our inventory levels may be reduced and/or the cost of our products may increase. We may need to seek alternative suppliers or vendors, raise prices, or make changes to our operations, any of which could have a material adverse effect on our sales and profitability, results of operations and financial condition. Additionally, we could be impacted by negative publicity or, in some cases, face potential liability to the extent that any foreign manufacturers from whom we directly or indirectly purchase products utilize labor, environmental, workplace safety and other practices that vary from those commonly accepted in Australia. Also, the prices charged by foreign manufacturers may be affected by the fluctuation of their local currency against the Australian dollar and the price of raw materials, which could cause the cost of our products to increase and negatively impact our sales or profitability.

Failure to manage inventory at optimal levels could adversely affect our business, financial condition and results of operations.

We are required to manage a large volume of inventory effectively for our business. We depend on our forecasts for the anticipated demand for our products to make procurement plans and manage our inventory. Our forecast for demands, however, may not accurately reflect the actual market demands, which depends on a number of factors including, without limitation, launches of new products, changes in product life cycles and pricing, product defects, changes in user spending patterns, supplier back orders and other supplier-related issues, as well as the volatile economic environment in the markets where we sell our products. We cannot assure you that we will be able to maintain proper inventory levels for our business at all times, and any such failure may have a material and adverse effect on our business, financial condition and results of operations.

Inventory levels in excess of demand may result in inventory write-downs or an increase in inventory holding costs and a potential negative effect on our liquidity. As we plan to continue expanding our product offerings, we expect to include more products in our inventory, which will make it more challenging for us to manage our inventory effectively and will put more pressure on our warehousing system. If we fail to manage our inventory effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs. In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead to lower gross margins. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. Any of the above may materially and adversely affect our results of operations and financial condition.

The Company’s intangible assets consist of brand names and goodwill. At June 30, 2023 and 2022, 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 fiscal year ended June 30, 2023 and 2022.

Conversely, if we underestimate customer demand, or if our suppliers fail to provide products to us in a timely manner, we may experience inventory shortages, which may, in turn, require us to purchase our products at higher costs, leading to a negative impact on our financial condition and our relationships with distributors. Under-stocking can lead to missed sales opportunities, while over-stocking could result in inventory depreciation and decreased shelf space for stocks that are in higher demands. These results could adversely affect our business, financial condition and results of operations.

Russia’s invasion of Ukraine may present risks to our operations and investments.

Russia’s recent military interventions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military incursion and the resulting sanctions could adversely affect global financial markets and thus could affect the value of our operations and investments, even though we do not have any direct exposure to Russia or the adjoining geographic regions. Currently, we do not do any business with parties in Russia, Ukraine or Belarus, nor are any of the products that we sell or the parts for such products manufactured in Russia, Ukraine or Belarus. In addition, Russia’s invasion of Ukraine and the international sanctions against Russia that followed the invasion have not had a direct effect on our business. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond their control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our operations, results of operations, financial condition, liquidity and business outlook.

Risks Related to Our Business

If we are unable to predict or effectively react to changes in consumer demand, we may lose customers and our sales may decline.

Our success depends in part on our ability to anticipate and respond in a timely manner to changing consumer demand, preferences, and shopping patterns, which cannot be predicted with certainty and are subject to continual change and evolution. We strive to deliver a seamless shopping experience to our customers through online shopping experiences. For example, we must meet athletes’ expectations with respect to, among other things, creating appealing and consistent online experiences; delivering elevated customer service; and providing fast and reliable delivery, and convenient return options. Our customers have expectations about how they shop through eCommerce or more generally engage with businesses across different channels or media (through online and other digital or mobile channels or particular forms of social media), which may vary across demographics and may evolve rapidly. If we are unable to provide an online retail experience across all channels that aligns with our customers’ expectations and preferences, it could have an adverse impact on our revenues, business and results of operations.

We often make advance commitments to purchase products, which may make it more difficult for us to adapt to rapidly-evolving changes in consumer preferences. Furthermore, supply chain challenges due to the COVID-19 pandemic and other factors have made it more difficult to obtain certain in-demand products. Our sales could decline significantly if we misjudge the market for our new merchandise, which may result in significant merchandise markdowns and lower margins, missed opportunities for other products, or inventory write-downs, and could have a negative impact on our reputation, profitability and demand.

We may be unable to attract and retain subscribers, which could have an adverse effect on our strategy to develop new interactive fitness equipment and platforms/mobile application with subscription service.

In 2021, we began development of new interactive fitness equipment and platforms/mobile application with subscription service, which include smart cardio exercise equipment such as interactive exercise bikes, treadmills, and workout mirrors with built-in touchscreens and training content platforms and 1FinalRound, our AI-powered interactive platform with our proprietary online training content and capability to be interactive with personal trainers, follow members, and track workout progress.

The success of these new products is dependent on our ability to attract and retain subscribers, and we cannot be sure that we will be successful in these efforts, or that subscriber retention levels will not materially decline in the future. There are a number of factors that could lead to a decline in subscriber levels or that could prevent us from increasing our subscriber levels, including:

Additionally, further expansion into international markets such as Southeast Asia will create new challenges in attracting and retaining subscribers that we may not successfully address. As a result of these factors, we cannot be sure that our potential subscriber levels will be adequate to maintain or permit the expansion of our operations. A decline in future subscriber levels could have an adverse effect on our business, financial condition, and/or operating results.

Online growth in our business is complex and there are risks associated with operating our own online platform, including those relating to confidential consumer data.

Maintaining and continuing to improve our online retail platform involves substantial investment of capital and resources, integrating multiple information and management systems, increasing supply chain and distribution capabilities, attracting, developing and retaining qualified personnel with relevant subject matter expertise, and effectively managing and improving the customer experience. This involves substantial risk, including risk of cost overruns, website downtime and other technology disruptions, supply and distribution delays, and other issues that can affect the successful operation of our online platform. Technological disruptions can result from delays, or downtime caused by high volumes of users or transactions, deficiencies in design or implementation, platform enhancements, power outages, computer and telecommunications failures, computer viruses, worms, ransomware or other malicious computer programs, denial-of-service attacks, security breaches through cyber-attacks from cyber-attackers or sophisticated organizations, catastrophic events such as fires, tornadoes, earthquakes and hurricanes, and usage errors. If we are not able to successfully operate and continually improve our online platform to provide a user-friendly, secure online experience offering merchandise and delivery options expected by our customers, we could be placed at a competitive disadvantage and our reputation, operations, financial results, and future growth could be materially adversely affected.

Harm to our reputation could adversely impact our ability to attract and retain customers.

Negative publicity or perceptions involving us or our brands, products, vendors, or marketing and other partners, or failure to detect, prevent, mitigate or address issues giving rise to reputational risk could adversely impact our reputation, business, results of operations, and financial condition, and may adversely impact our ability to attract and retain customers. Issues that might pose a reputational risk include: an inability to provide an online experience that meets the expectations of consumers; failure of our cyber-security measures to protect against data breaches; product liability, product recalls, and product boycotts; our handling of issues relating to environmental, social, and governance (“ESG”) matters, including inclusion and diversity; our response to the COVID-19 pandemic; our social media activity; failure to comply with applicable laws and regulations; public stances on controversial social or political issues; product sponsorship relationships, including those with celebrity spokespersons, influencers or group affiliations; and any of the other risks enumerated in these risk factors. Furthermore, the prevalence of social media and a constant, on-demand news cycle may accelerate and in the short-term increase the potential scope of any negative publicity we or others might receive and could increase the negative impact of these issues on our reputation, business, results of operations, and financial condition.

Our strategic plans and initiatives may initially result in a negative impact on our financial results and such plans and initiatives may not achieve the desired results within the anticipated time frame or at all.

Our ability to successfully implement and execute our strategic plans and initiatives depends on many factors, some of which are out of our control. For example, a strategic determination to increase promotional activities in response to challenging conditions in the retail market may not achieve the desired results and could negatively impact our gross profit margin. Our focus on long-term strategic investments, including investments in our digital capabilities, our online platform, improvements to the consumer experience online, our supply chain, the continued development of our smart cardio exercise equipment and 1FinalRound training platform and other specialty concepts may require significant capital investment and management attention at the expense of other business initiatives and may take longer than anticipated to achieve the desired return. Additionally, any new initiative is subject to certain risks, including consumer acceptance, competition, product differentiation, and the ability to attract and retain qualified personnel to support the initiative.

We could be subject to information technology system failures, network disruptions, and breaches in data security which could negatively affect our business, financial position, results of operations and cash flows.

As dependence on digital technologies is expanding, cyber incidents, including deliberate attacks or unintentional events have been increasing worldwide. Computers and telecommunication systems are used to conduct our operations and have become an integral part of our business. We use these systems to analyze and store financial and operating data, as well as to support our internal communications and interactions with business partners. Cyber-attacks could compromise our computer and telecommunications systems and result in additional costs as well as disruptions to our business operations or the loss of our data. A cyber-attack involving our information systems and related infrastructure, or those of our business partners, could disrupt our business and negatively impact our operations in a variety of ways, such as, among others:

Unauthorized disclosure of sensitive or confidential customer, vendor or Company information could result in substantial costs and reputational damage, harm our business and standing with our athletes and could subject us to litigation and enforcement actions.

The protection of our data as well as customer data is critical. As with most online retailers, we collect, receive, store, manage, transmit and delete confidential data, including payment card and personally identifiable information, in the normal course of customer transactions, as well as other confidential and sensitive information, such as personal information about our customers and our vendors, and confidential Company information. We also work with third-party vendors and service providers that provide technology, systems and services that we use in connection with the collection, storage and transmission of this information. While we have taken significant steps to protect confidential information, the intentional or negligent actions of third parties may undermine our existing security measures and allow unauthorized parties to obtain access to our data systems and misappropriate confidential data. Our information systems, and those of our third-party service providers, are vulnerable to an increasing threat of continually evolving data protection and cyber-security risks. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will prevent a future compromise of our customer transaction processing capabilities and other personal data. Because the techniques used to obtain unauthorized access to, disable, degrade, or sabotage systems change frequently and often are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

While we have no knowledge of any material data security breaches to date, any compromise of our data security could result in a violation of applicable privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of our insurance coverage, interruption of our operations, increased operating costs associated with remediation, equipment acquisitions or disposal, added personnel, and a loss of confidence in our security measures, which could harm our business, reputation or investor confidence.

In addition, data governance failures can adversely affect our reputation and business. Our business depends on our customers’ willingness to entrust us with their personal information. Events that adversely affect that trust, including inadequate disclosure to our customers of our uses of their information or any security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could attract a substantial amount of media attention, damage our reputation, expose us to risk of litigation and material liability, disrupt our operations and harm our business. Further, the data privacy and cyber-security regulatory environment is constantly changing, with new and increasingly rigorous and complex requirements. Maintaining our compliance with those requirements, including recently enacted state consumer privacy laws, may require significant effort and cost, require changes to our business practices, and limit our ability to obtain data used to provide a personalized customer experience. In addition, failure to comply with applicable requirements could subject us to fines, sanctions, governmental investigations, lawsuits or reputational damage.

Problems with the third-party e-commerce platform for online stores and retail point-of-sale system that we utilize and our information systems could disrupt our operations and negatively impact our financial results and materially adversely affect our business operations.

We utilize a third-party e-commerce platform for online stores and retail point-of-sale system for the needs of our business, including as a provider for electronic payment processing. If any of these systems fail to function properly, it could disrupt our operations, including our ability to track, record and analyze the merchandise that we sell, process shipments of goods, process financial information or credit card or electronic payment transactions, deliver products or engage in similar normal business activities. If our independent service provider becomes unwilling or unable to provide these services to us or if the cost of using our provider increases, our business could be harmed.

Our information systems, including our back-up systems, are subject to damage or interruption from power outages; computer and telecommunications failures; computer viruses, worms, ransomware, and other malicious computer programs; denial-of-service attacks; security breaches (through cyber-attacks from cyber-attackers or sophisticated organizations); catastrophic events such as fires, tornadoes, earthquakes and hurricanes; and usage errors. If our information systems and our back-up systems are damaged, breached or cease to function properly, we may have to make a significant investment to repair or replace them, and we may suffer loss of critical data and interruptions or delays in our business operations. Any material disruption, malfunction or other similar problems in or with our core information systems could negatively impact our financial results and materially adversely affect our business operations.

We may be unable to attract, train, engage and retain key personnel.

Our long-term success and ability to implement our strategic and business planning processes depends in large part on our ability to continue to attract, retain, train and develop key personnel and qualified employees in all areas of the Company. Our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures with respect to prevailing wage rates, unemployment levels, and health and other insurance costs; the impact of legislation or regulations governing labor relations, immigration, minimum wage, and healthcare benefits; changing demographics; and our reputation within the labor market. Should we fail to increase our wages competitively in response to any increasing wage rates, the quality of our workforce could decline, causing our customer service to suffer. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition and results of operations.

In addition, in order to continue to build and enhance our online platforms, we must attract and retain a large number of skilled professionals, including technology professionals to implement our ongoing technology and other strategic offerings. The market for these professionals is increasingly competitive. An inability to provide wages and/or benefits that are competitive within the markets in which we operate could adversely affect our ability to retain and attract these employees. Further, changes in market compensation rates may adversely affect our labor costs.

The loss of one or more of our key executives or the inability to successfully attract and retain executive officers or implement effective succession planning strategies could have a material adverse effect on our business.

Our long-term success and ability to implement our strategic and business planning processes depends in large part on our ability to continue to attract and retain executive management. All employees, including members of our executive management and key personnel, are at-will employees. The loss of any one or more of our executive management, including our chief executive officer and director, Yinying Lu, or other key personnel could seriously harm our business. Additionally, effective succession planning for executive management and key personnel is vital to our long-term continued success. Failure to ensure effective transfer of knowledge, setting of strategic direction, and smooth transitions involving executive management and key personnel could hinder our long-term strategies and success.

We are dependent upon key management employees and third parties.

The responsibility of overseeing the day-to-day operations and the strategic management of our business depends substantially on our senior officers and our key personnel. Loss of such personnel may have an adverse effect on our performance. The success of our operations will depend upon numerous factors, many of which are beyond our control, including our ability to attract and retain additional key personnel in sales, marketing, technical support and finance. We currently depend upon a relatively small number of key persons to seek out and form strategic alliances and find and retain additional employees. Certain areas in which we operate are highly competitive regions and competition for qualified personnel is intense. We may be unable to hire suitable personnel or there may be periods of time where a particular position remains vacant while a suitable replacement is identified and appointed.

Our inability to hire and maintain suitable personnel could have a material adverse effect on us and could prevent us from effectively pursuing our business plan, including developing, growing, and operating our business profitably.

We also depend upon third parties, including consultants, suppliers and others, for their expertise and expect to continue to do so for the foreseeable future. Our ability to continue conducting our activities is in large part dependent upon the efforts of third parties. We may need to engage additional third parties for new business operations. If such parties’ work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on the Company. As a result, our use of the services of consultants could have a material adverse effect on us and could prevent us from effectively pursuing our business plan.

Our independent directors do not devote their full-time attention to the affairs of the Company and could allocate their time and attention to other business ventures which may not benefit the Company.

Our independent directors do not devote their time exclusively to the Company and engage in other business activities. Although there are none known to us, the potential for conflicts of interest exists among us and affiliated persons for future business opportunities that may not be presented to us. Our officers and directors may have conflicts of interests in allocating time, services, and functions between the other business ventures in which those persons may be or become involved.

Our directors and officers may in the future be in a position of conflict of interest.

Some of our directors and officers currently also serve as directors and officers of other companies involved in the fitness industry, and any of our directors may in the future serve in such positions. As at the date of this prospectus, none of our directors or officers serves as an officer or director of a gym and fitness equipment company nor possesses a conflict of interests with our business. However, there exists the possibility that they may in the future be in a position of conflict of interest.

We may acquire additional businesses or assets, form joint ventures or make investments in other companies in the future that may be unsuccessful and may harm our operating results and prospects.

As part of our business strategy, we may pursue additional acquisitions of complementary businesses or assets. The type of financing for any such acquisition will depend on circumstances existing at that time, including market conditions and our share price. If we are successful at identifying and making such acquisitions, integration of any acquired businesses or assets nevertheless involves many challenges, including a potential strain on our administrative and operational resources, unanticipated issues, expenses or liabilities, and difficulties in the assimilation of different corporate cultures and business practices. We may also seek to enter into joint ventures, pursue strategic alliances in an effort to leverage our existing operations and industry experience, increase our product offerings, expand our distribution and make investments in other companies. We do not have specific timetables for these potential activities and we cannot guarantee that we will be able to identify and complete suitable acquisitions or investments at reasonable prices, or that we will be successful in realizing any anticipated benefits from any future acquisitions or investments.

The success of any acquisitions, joint ventures, strategic alliances or investment will depend on our ability to identify, negotiate, complete and, in the case of acquisitions, integrate those transactions and, if necessary, obtain satisfactory debt or equity financing to fund those transactions. We may not realize the anticipated benefits of any acquisition, joint venture, strategic alliance or investments. We may not be able to integrate acquisitions successfully into our existing business, maintain the key business relationships of businesses we acquire, or retain key personnel of an acquired business, and we could assume unknown or contingent liabilities or incur unanticipated expenses.

Integration of acquired companies or businesses also may require management resources that otherwise would be available for ongoing development of our existing business. Any acquisitions or investments made by us also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which could harm our operating results. In addition, if we choose to issue equity as consideration for any acquisition, our shareholders may experience dilution.

Our products and services may be affected from time to time by design and manufacturing defects that could adversely affect our business and result in harm to our reputation.

We offer products and services that can be affected by design and manufacturing defects. Defects may also exist in components and products that we source from third parties. Any such defects could make our products and services unsafe, create a risk of environmental or property damage and personal injury, and subject us to the hazards and uncertainties of product liability claims and related litigation. There can be no assurance that we will be able to detect and fix all issues and defects in the products and services we offer. Failure to do so could result in widespread technical and performance issues affecting our products and services and could lead to claims against us. We maintain general liability insurance; however, design and manufacturing defects, and claims related thereto, may subject us to judgments or settlements that result in damages materially in excess of the limits of our insurance coverage. In addition, we may be exposed to recalls, product replacements or modifications, write-offs of inventory, property and equipment, or intangible assets, and significant warranty and other expenses such as litigation costs and regulatory fines. If we cannot successfully defend any large claim, maintain our general liability insurance on acceptable terms, or maintain adequate coverage against potential claims, our financial results could be adversely impacted. Further, quality problems could adversely affect the experience for users of our products and services, and result in harm to our reputation, loss of competitive advantage, poor market acceptance, reduced demand for our products and services, delays in new product and service introductions, and lost revenue.

Our business could be adversely affected by an accident, safety incident, or workforce disruption.

Our manufacturing processes and related activities, as well as our warehousing and logistics activities, could expose us to significant personal injury claims that could subject us to substantial liability. The COVID-19 pandemic increases our exposure to these risks. Our inability to timely adapt to changing norms and requirements around maintaining a safe workplace during the COVID-19 pandemic could cause employee illness, accidents, or discontent if it is perceived that we are failing to protect the health and safety of our employees. While we maintain liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate to cover fully all claims, and we may be forced to bear substantial losses from an accident or safety incident resulting from our manufacturing, warehousing, or delivery activities. Additionally, if our employees decide to join or form a labor union, we may become party to a collective bargaining agreement, which could result in higher employee costs and increased risk of work stoppages. It is also possible that a union seeking to organize one subset of our employee population, such as the employees in our manufacturing facility, could also mount a corporate campaign, resulting in negative publicity or other actions that require attention by our management team and our employees. Negative publicity, work stoppages, or strikes by unions could have an adverse effect on our business, prospects, financial condition, and operating results.

Our quarterly operating results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.

Our quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate from quarter to quarter and make it difficult to forecast our future results. Consequently, you should not rely on our past quarterly operating results as indicators of future performance. Our financial condition and operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.

The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations, the market price of our shares could fall substantially, and we could face costly lawsuits, including securities class action suits.

If we are unable to sustain pricing levels for our products and services, our business could be adversely affected.

If we are unable to sustain pricing levels for our products and services, whether due to competitive pressure or otherwise, our gross margins could be significantly reduced. Further, our decisions around the development of new products and services are grounded in assumptions about eventual pricing levels. If there is price compression in the market after these decisions are made, it could have a negative effect on our business.

We may be subject to warranty claims that could result in significant direct or indirect costs, or we could experience greater product returns than expected, either of which could have an adverse effect on our business, financial condition, and/or operating results.

We generally provide a 30-day return policy to customers for all of our non-electronic products. Our suppliers generally provide a warranty for all of our electronic products. The occurrence of any material defects in our products could result in an increase in returns or make us liable for damages and warranty claims in excess of our current reserves, which could result in an adverse effect on our business prospects, liquidity, financial condition, and cash flows if returns or warranty claims were to materially exceed anticipated levels. In addition, we could incur significant costs to correct any defects, warranty claims, or other problems, including costs related to product recalls. Any negative publicity related to the perceived quality or safety of our products could affect our brand image, decrease consumer confidence and demand, and adversely affect our financial condition and operating results. Also, warranty claims may result in litigation, the occurrence of which could have an adverse effect on our business, financial condition, and/or operating results.

Changes in how we market our products and services could adversely affect our marketing expenses and subscription levels.

Our marketing strategy focuses on delivering high quality fitness equipment to our customers and, in the future, to our licensees and their members and raising awareness of our brand through a broad range of channels. These channels include Google Search (organic and paid), Google Shopping Campaign, Google Ads word, affiliate partners programs, social media such as Facebook and Instagram, e-mail marketing, SMS marketing, E catalogue, and First Australia Fitness Mobile App.

As online and social media platforms continue to rapidly evolve or grow more competitive, we must continue to maintain a presence on these platforms and establish a presence on new or emerging popular social media and advertising and marketing platforms. If we cannot cost effectively use these marketing tools, if we fail to promote our products and services efficiently and effectively, or if our marketing campaigns attract negative media attention, our ability to acquire new customers and our financial condition may suffer and the price of our shares could decline. In addition, an increase in the use of online and social media for product promotion and marketing may increase the burden on us to monitor compliance of such materials and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations.

We may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.

We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future. However, we intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote our products and services, develop new products and services, enhance our existing products, services, and operating infrastructure, and potentially to acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. There can be no assurance that such additional funding will be available on terms attractive to us, or at all. Our inability to obtain additional funding when needed could have an adverse effect on our business, financial condition, and operating results. If additional funds are raised through the issuance of equity or convertible debt securities, holders of our shares could suffer significant dilution, and any new shares we issue could have rights, preferences, and privileges superior to those of our shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

We are subject to payment processing risk.

Our customers pay for our products and services using a variety of different payment methods, including credit and debit cards, gift cards, and online wallets. We rely on internal systems as well as those of third parties to process payment. Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are disruptions in our payment processing systems, increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment processors, or changes to rules or regulations concerning payment processing, our revenue, operating expenses and results of operations could be adversely impacted. We leverage our third-party payment processors to bill customers on our behalf. If these third parties become unwilling or unable to continue processing payments on our behalf, we would have to find alternative methods of collecting payments, which could adversely impact customer acquisition and retention. In addition, from time to time, we encounter fraudulent use of payment methods, which could impact our results of operations and if not adequately controlled and managed could create negative consumer perceptions of our services.

We may face exposure to foreign currency exchange rate fluctuations.

We have transacted in Australian dollars, U.S. dollars, and Renminbi with the majority of our customers and suppliers, and we may transact in additional foreign currencies in the future. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and operating results. In addition, to the extent that fluctuations in currency exchange rates cause our operating results to differ from our expectations or the expectations of our investors, the trading price of our Ordinary Shares could be lowered. We use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place and may introduce additional risks if we are unable to structure effective hedges with such instruments.

We depend on our suppliers and manufacturers to provide us with sufficient quantities of quality products in a timely fashion.

Our dependence on suppliers involves risk. We might be unable to obtain merchandise that consumers demand in a timely manner if there are disruptions in our relationships with key suppliers, which could cause our revenue to materially decline. The terms of our written contracts with Australian suppliers are one year. We generally do not have long-term written contracts with our suppliers in China that would require them to continue supplying us with merchandise. Key suppliers may also fail to deliver on their commitments or fail to supply us with sufficient products that comply with our safety and quality standards, whether as a result of supply chain disruptions (for example, in connection with the COVID-19 pandemic) or other causes, or fail to continue to develop new products that create consumer demand. Furthermore, vendors increasingly sell their products directly to customers or through broadened or alternative distribution channels, such as department stores or other eCommerce companies.

We have limited control over our suppliers, manufacturers, and logistics partners, which may subject us to significant risks, including the potential inability to produce or obtain quality products and services on a timely basis or in sufficient quantity.

We have limited control over our suppliers, contract manufacturers, and logistics partners, which subjects us to the following risks, many of which have materialized due to the COVID-19 pandemic:

We also rely on our logistics partners, including warehouse and delivery partners, to complete our deliveries to customers. If any of these partners do not perform their obligations or meet the expectations of us or our customers, our reputation and business could suffer. The occurrence of any of these risks could cause us to experience a significant disruption in our ability to produce and deliver our products to our customers.

Less than 16% of our revenue is derived from China and approximately 53% of the products that we purchase were manufactured in China. The ability of our licensee and suppliers to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters.

While we are a Cayman Islands exempted company headquartered in Australia, as of the date of this prospectus, less than 16% of our revenue is derived from China and approximately 53% of the products that we purchase in the fiscal year ended June 30, 2023, were manufactured abroad in China.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The central Chinese government or local governments having jurisdiction within China may impose new, stricter regulations, or interpretations of existing regulations, that would require additional expenditures and efforts on the part of our suppliers and licensee to ensure compliance with such regulations or interpretations. As such, our third-party suppliers in China or our licensee’s operations in China may be subject to governmental and regulatory interference in the provinces in which they operate. Our third-party suppliers in China or our licensee’s operations in China could also be subject to regulation by various political and regulatory entities, including local and municipal agencies and other governmental subdivisions in China. The ability of our suppliers and licensee to operate in China may be impaired by any such laws or regulations, or any changes in laws and regulations in the PRC. Our third-party suppliers or licensee may incur increased costs necessary to comply with existing and future laws and regulations or penalties for any failure to comply. If our suppliers or licensee incur increased costs, they may attempt to pass such costs on to us.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, our licensee or our suppliers may not be aware of violations of any of these policies and rules until some time after the alleged violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention to our licensee and/or our suppliers. Further, such evolving laws and regulations and the inconsistent enforcement thereof could also lead to failure to obtain or maintain licenses and permits to do business in China, which would adversely affect our licensee’s operations in China and/or our suppliers in China. Any such increased costs or disruptions could materially and adversely impact our business and results of operations.

We are subject to costs and risks associated with a complex regulatory, compliance and legal environment, including increased or changing laws and regulations affecting our business.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our operations and financial results. Establishing the necessary internal infrastructure to allow for the monitoring and other compliance requirements required by laws and regulations and enforcement efforts requires expenditure of considerable Company resources.

In addition, laws at the federal, state or local level may change, sometimes significantly and unexpectedly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include those relating to consumer products, product liability and consumer protection; reducing the spread of COVID-19; eCommerce, data protection and privacy; advertisement and marketing; labor and employment; taxes; accounting, corporate governance and securities; customs or imports; and intellectual property. Continued monitoring and efforts to ensure compliance with these regulations require considerable expenditure of Company time and money, which could detract from other operational initiatives.

Lawsuits may be filed against us or arbitration proceedings may be commenced and an adverse ruling in any such lawsuit or arbitration may adversely affect our business, or financial condition.

In the ordinary course of our business, we may become involved in, named as a party to, or be the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions, including arbitration proceedings, relating to personal injuries, workers’ compensation, employment discrimination, damages related to breaches of privacy or data security, and contract disputes. Such proceedings and actions may involve liquidated damages, consequential damages, punitive damages and civil penalties or other losses, or injunctive or declaratory relief. In addition, we may also be subject to class action lawsuits.

Due to the inherent uncertainties of litigation and other dispute resolution proceedings, the outcome of outstanding, pending or future actions or proceedings may be difficult to assess or quantify, cannot be predicted with certainty and may be determined adversely to us and as a result, could have a material adverse effect on our assets, liabilities, business, financial condition or results of operations. Even if we prevail in any such action or proceeding, they could be costly and time-consuming and may divert the attention of management and key personnel from our business operations, which could adversely affect our financial condition. The ultimate resolution of any litigation or proceeding through settlement, mediation, or a judgment could have a material impact on our reputation and adversely affect our financial performance and financial position.

Our sales and operating results could be adversely affected by product safety concerns.

If the products that we offer do not meet applicable safety standards or our customers’ expectations regarding safety, we could experience decreased sales, increased costs, and/or be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Negative customer perceptions regarding the safety and sourcing of the products we sell, and events that give rise to actual, potential, or perceived product safety concerns could expose us to government enforcement action and/or private litigation. Furthermore, reputational damage caused by real or perceived product safety concerns could have a negative impact on our sales and operating results.

Our inability or failure to protect our intellectual property rights or any third parties claiming that we have infringed on their intellectual property rights could negatively impact our brand or have a negative impact on our operating results.

Our trademarks, trade secrets, domain names and other intellectual property are valuable assets that are critical to our success. Effective trademark and other intellectual property protection may not be available in every country in which our products are manufactured or may be made available. The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brands or goodwill and cause a decline in our revenue. In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property.

Changes to tax laws and regulations could adversely affect our financial results or condition.

Our effective income tax rates could be unfavorably impacted by a number of factors, including changes in the valuation of deferred tax assets and liabilities; other changes in applicable tax laws, regulations, treaties, interpretations, and other guidance; changes in transfer pricing rules; and the outcome of income tax audits. Changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and profitability.

We are subject to anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act, or the FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control, or OFAC. Under these laws and regulations, as well as other anti-corruption laws, anti-money laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could negatively affect our business, financial condition and results of operations.

We have implemented policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants and agents with the FCPA, OFAC restrictions and other export control, anti-corruption, anti-money-laundering and anti-terrorism laws and regulations. We cannot assure you, however, that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions or other export control, anticorruption, anti-money laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, could result in fines, criminal penalties, and an adverse effect on our business.

We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics that is consistent and in full compliance with the FCPA. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees, and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, earnings or financial condition.

We are a “foreign private issuer” under U.S. securities laws and, as a result, are subject to disclosure obligations that are different from those applicable to U.S. domestic issuers listed on the Nasdaq Capital Market.

We are incorporated under the laws of the Cayman Islands and are considered a “foreign private issuer” under U.S. securities laws. Although we will be subject to the periodic reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is different from the periodic disclosure required of U.S. domestic issuers. Therefore, there may be less publicly available information about us than is regularly published by or about other public companies in the United States. We are also exempt from certain other sections of the Exchange Act that U.S. domestic issuers are otherwise subject to, including the requirement to provide our shareholders with information statements or proxy statements that comply with the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. These exemptions and leniencies may reduce the frequency and scope of information and protections to which you may otherwise have been eligible if you held ordinary shares or common stock of a domestic U.S. issuer. In addition, insiders and large shareholders of ours will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act and will not be obligated to file the reports required by Section 16 of the Exchange Act.

We would lose our foreign private issuer status if a majority of our shares became held by U.S. persons and a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Our loss of foreign private issuer status would make compliance with Nasdaq corporate governance rules applicable to U.S. domestic listed companies mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer, and prepare our financial statements under U.S. Generally Accepted Accounting Principles. To the extent we had not already done so, we may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers and may lose our ability to rely upon exemptions from certain corporate governance requirements on the Nasdaq that are available to foreign private issuers.

As a foreign private issuer, we may follow certain home country corporate governance practices instead of otherwise applicable Nasdaq corporate governance requirements, and this may result in less investor protection than that accorded to investors under rules applicable to U.S. domestic issuers.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under Nasdaq’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement. Availing ourselves of any of the other corporate governance exemptions, as opposed to complying with the requirements that are applicable to a U.S. domestic issuer, may provide less protection to you than is accorded to investors under Nasdaq’s corporate governance rules. Therefore, any foreign private issuer exemptions we have availed ourselves of, or may avail ourselves of in the future may reduce the scope of information and protection to you as an investor.

New climate-related disclosure obligations in proposed SEC rule amendments could have uncertain impacts on our business, impose additional reporting obligations on us, and increase our costs.

In March 2022, the SEC proposed rule amendments that would implement a framework for the reporting of climate-related risks and create a wide range of new climate-related disclosure obligations for all registrants, including us. The proposed rules would require us to include certain climate-related information in registration statements and annual reports, including (i) climate-related risks and their actual or likely material impacts on our business, strategy, and outlook; (ii) our governance of climate-related risks and relevant risk management processes; (iii) information on our greenhouse gas emissions; (iv) certain climate-related financial statement metrics and related disclosures in a note to our audited financial statements; and (v) information about our climate-related targets, goals, and transition plans.

The proposed rules remain open to public comment and may be subject to challenges and litigation. Thus, the ultimate scope and impact of the proposed rules on our business remain uncertain. To the extent new rules, if finalized, impose additional reporting obligations on us, we could face substantial increased costs. Separately, the SEC has also announced that it is scrutinizing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that our existing climate disclosures are misleading or deficient.

The forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, we cannot assure you that our business will grow at a similar rate, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts relating to the expected growth in the connected fitness and wellness market, including estimates based on our own internal survey data, may prove to be inaccurate. Even if the market experiences the growth we forecast, we may not grow our business at a similar rate, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. We are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and/or operating results.

Our business is subject to 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 business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, public health crises, including the COVID-19 pandemic, and similar events. The third-party systems and operations and contract manufacturers we rely on are subject to similar risks. Our insurance policies may not cover losses from these events or may provide insufficient compensation that does not cover our total losses. For example, a significant natural disaster, such as an earthquake, fire, or flood, could have an adverse effect on our business, financial condition and operating results, and our insurance coverage may be insufficient to compensate us for losses that may occur. Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our or our suppliers’ and contract manufacturers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting locations that store significant inventory of our products, that house our servers, or from which we generate content. As we rely heavily on our computer and communications systems, and the internet to conduct our business and provide high-quality customer service, these disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt suppliers’ and/or our contract manufacturers’ businesses, which could have an adverse effect on our business, financial condition, and/or operating results.

We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our Ordinary Shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or shareholder approval of any golden parachute payments not previously approved. We currently intend to take advantage of the reduced disclosure requirements regarding executive compensation. If we remain an “emerging growth company” after fiscal 2023, we may take advantage of other exemptions, including the exemptions from the advisory vote requirements and executive compensation disclosures under the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act, and the exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We may remain an “emerging growth company” until the fiscal year-end following August 10, 2028, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if we become a large accelerated filer, (2) if our gross revenue exceeds US$1.235 billion in any fiscal year or (3) if we issue more than US$1.0 billion in non-convertible notes in any three year period. The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our Ordinary Shares less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares may develop or be sustained and our stock price may decline and/or become more volatile.

Risks Related to the Offering and Our Ordinary Shares

Ms. Jieting Zhao, our director, beneficially owns approximately 42.3% of our outstanding shares currently and will beneficially own approximately        % of our outstanding shares following this public offering, and her interests may differ from the interests of other shareholders, which could cause a material decline in the value of our Ordinary Shares.

Since Jieting Zhao, our director, beneficially owns approximately 42.3% of our outstanding shares currently and will beneficially own approximately         % of our outstanding shares following this public offering, she has significant influence on determining the outcome of any matters submitted to the shareholders for approval, including mergers, consolidations, the election of directors and other significant corporate actions. Without her consent, we may be prevented from entering into transactions that could be beneficial to us or our minority shareholders. Her interest may differ from the interests of our other shareholders. The concentration in the ownership of our Ordinary Shares may cause a material decline in the value of our Ordinary Shares.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.

The price of the Ordinary Shares and other terms of this offering have been determined by us and the underwriters.

If you purchase our Ordinary Shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined by us and the underwriters. The offering price for our Ordinary Shares may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value. The trading price of the Ordinary Shares that may prevail in any market may be higher or lower than the price you paid for our Ordinary Shares.

The market price and trading volume of our Ordinary Shares may be volatile and may be affected by economic conditions beyond our control.

The market price of our Ordinary Shares may be highly volatile and subject to wide fluctuations. In addition, the trading volume of our Ordinary Shares may fluctuate and cause significant price variations to occur. If the market price of our Ordinary Shares declines, you may be unable to resell your Ordinary Shares at a competitive price. We cannot assure you that the market price of our Ordinary Shares will not fluctuate or significantly decline in the future. In addition, we cannot assure you that a trading market for our Ordinary Shares will be maintained.

Some specific factors that could negatively affect the price of our Ordinary Shares or result in fluctuations in their price and trading volume include:

In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of constituent companies. Broad market and industry factors may significantly affect the market price of our Ordinary Shares, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our Ordinary Shares shortly following this offering, and you may not realize any return on your investment in us and may lose some or all of your investment.

Certain recent public offerings of companies with relatively small public floats comparable to our public float have experienced extreme volatility that was seemingly unrelated to the actual or expected operating performance and financial condition or prospects of the respective company. Our Ordinary Shares may potentially experience rapid and substantial price volatility, which may make it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.

In addition to the risks addressed above under “— The market price and trading volume of our Ordinary Shares may be volatile and may be affected by economic conditions beyond our control,” our Ordinary Shares may be subject to rapid and substantial price volatility. Recently, companies with comparably small public floats and public offering sizes have experienced instances of extreme stock price run-ups followed by rapid price declines, and such stock price volatility was seemingly unrelated to the respective companies’ actual or expected operating performance and financial condition or prospects. Although the specific cause of such volatility is unclear, our public float may amplify the impact the actions taken by a few shareholders have on the price of our shares, which may cause our share price to deviate, potentially significantly, from a price that better reflects the underlying performance of our business. Our Ordinary Shares may experience run-ups and declines that are seemingly unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares. In addition, investors in our Ordinary Shares may experience losses, which may be material, if the price of our Ordinary Shares declines after this offering or if such investors purchase our Ordinary Shares prior to any price decline.

Shares eligible for future sale may adversely affect the market price of our Ordinary Shares, as the future sale of a substantial amount of outstanding Ordinary Shares in the public marketplace could reduce the price of our Ordinary Shares.

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Ordinary Shares. An aggregate of 15,210,909 Ordinary Shares are outstanding before the consummation of this offering and all of which, [except those held by certain shareholders who are subject to the Lock-up Agreements, see “Underwriting – Lock-up Agreements”], are freely tradable or will be in the near future. All of the shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act.

If you purchase our Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

Investors purchasing our Ordinary Shares in this offering will pay a price per share that substantially exceeds the as adjusted net tangible book value per share as of December 31, 2023. As a result, investors purchasing Ordinary Shares in this offering will incur immediate dilution of $        per share, representing the difference between our public offering price of $       per share and our pro forma as adjusted net tangible book value per share as of December 31, 2023. For more information on the dilution you may experience as a result of investing in this offering, see the section of this prospectus entitled “Dilution.”

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our Ordinary Shares.

We would be classified as a passive foreign investment company, or PFIC, for any taxable year if, after the application of certain look-through rules, either: (i) 75% or more of our gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended) (the income test), or (ii) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income (the asset test). Based on the market price of our Ordinary Shares and the composition of our income and assets, including goodwill, although not clear, we do not expect to be treated as a PFIC for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, this is a factual determination that must be made annually after the close of each taxable year, and the application of the PFIC rules is subject to uncertainty in several respects. Moreover, the value of our assets for purposes of the PFIC determination will generally be determined by reference to the market price of our Ordinary Shares, which could fluctuate significantly. Therefore, there can be no assurance that we are not a PFIC for the current taxable year or will not be classified as a PFIC in the future. Certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Taxation—Material U.S. Federal Income Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares”) if we are treated as a PFIC for any taxable year during which such U.S. Holder holds our Ordinary Shares.

The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

We are an exempted company incorporated with limited liability under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, by the Companies Act (Revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from the common law of England, the decisions of whose courts are of persuasive authority but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law may not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States.

Because we are a Cayman Islands company and all of our business is conducted in Australia, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain, and the U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in Australia.

We are incorporated in the Cayman Islands and conduct our operations primarily in Australia. Substantially all of our assets are located outside of the United States and the proceeds of this offering will primarily be held in banks outside of the United States. In addition, the majority of our directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of Australia may not permit you to enforce a judgment against our assets or the assets of our directors and officers. See “Enforceability of Civil Liabilities.”

We have broad discretion in the use of the net proceeds from this public offering and may not use them effectively.

We cannot specify with any certainty the particular uses of such net proceeds that we receive from this public offering. Our management has broad discretion in the application of such net proceeds, including the expansion of our online retail of quality gym and fitness equipment business, the development of our smart connected equipment, interactive platform and mobile application, the expansion of our licensing business, business development opportunities, and working capital and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from this public offering in a manner that does not produce income or that loses value.

We will incur increased costs as a result of operating as a U.S. listed public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a U.S. listed public company we will incur, particularly after we are no longer an “emerging growth company,” significant additional legal, accounting, and other expenses. The Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

We expect that we will need to hire additional accounting, finance, legal, and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company, and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements increase our legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors or executive officers.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, the market price and trading volume of our Ordinary Shares could decline.

The trading market for the Company’s Ordinary Shares will be influenced by the research and reports that U.S. securities or industry analysts publish about us or our business. Securities and industry analysts may discontinue research on us, to the extent such coverage currently exists, or in other cases, may never publish research on us. If no or few U.S. securities or industry analysts commence coverage of the Company, the trading price for our Ordinary Shares would be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our Ordinary Shares or publish adverse or misleading research about our business, the market price of our Ordinary Shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, demand for our Ordinary Shares could decrease, which might cause our price and trading volume to decline. In addition, research and reports that Australian securities or industry analysts may, initiate or may continue to, publish about us, our business or our Common Stock may impact the market price of our Ordinary Shares.

Nasdaq may de-list the Company’s securities from its exchange, which could limit investors’ ability to make transactions in the Company’s securities and subject the Company to additional trading restrictions.

The Company’s Ordinary Shares are currently on Nasdaq. In the future, the Company’s Ordinary Shares may fail to meet the continued listing requirements to be listed on Nasdaq. If Nasdaq delists our Ordinary Shares from trading on its exchange, the Company could face significant material adverse consequences, including:

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with liability limited by shares. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands corporation, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a lesser extent. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Substantially all of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

We have appointed Cogency Global Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

We have been advised by Ogier, our counsel as to the laws of the Cayman Islands, there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. We have also been advised by Ogier that it is uncertain whether the courts of the Cayman Islands will allow shareholders of our company to originate actions in the Cayman Islands based upon securities laws of the United States. In addition, there is uncertainty with regard to Cayman Islands law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands. We have been further advised that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign judgement, without any re-examination or re-litigation of matters adjudicated upon, provided such judgment:

Furthermore, substantially all of our assets are located in Australia. Certain of our directors and officers are citizens and residents Australia and all or a significant portion of their assets may be located outside the United States. As a result, it may not be possible for you to:

You may also have difficulties enforcing in courts outside the United States judgments that are obtained in U.S. courts against any of our non-U.S. resident directors, officers or us, including actions under the civil liability provisions of the U.S. securities laws.

There are no treaties between Australia and the United States that would affect the recognition or enforcement of foreign judgments in Australia.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of our Ordinary Shares in this offering are expected to be approximately $       million, after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us (or approximately $        million if the underwriters exercise their over-allotment option in full).

We plan to use the net proceeds we receive from this offering for the following purposes:

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. Pending the final application of the net proceeds of this offering, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. See “Risk Factors—Risks Related to the Offering and Our Ordinary Shares—We have broad discretion in the use of the net proceeds from our public offering and may not use them effectively.”

DIVIDEND POLICY

We have never declared or paid cash dividends on our Ordinary Shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our Ordinary Shares in the near future. We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our Ordinary Shares. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. See also “Risk Factors—Risks Related to the Offering and Our Ordinary Shares—We do not intend to pay dividends for the foreseeable future.”

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2023:

The pro forma information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the public offering price of our units and other terms of this offering determined at pricing. You should read this capitalization table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes appearing elsewhere in this prospectus or incorporated by reference herein.

The table above excludes 5,645,455 Ordinary Shares issuable upon the exercise of the stock purchase warrant issued in the Private Placement.

DILUTION

If you invest in our Ordinary Shares, your interest will be diluted for each Ordinary Share you purchase to the extent of the difference between the public offering price per Ordinary Share and our net tangible book value per Ordinary Share after this offering. Dilution results from the fact that the public offering price per Ordinary Share is substantially in excess of the net tangible book value per Ordinary Share attributable to the existing shareholders for our presently outstanding Ordinary Shares.

Our historical net tangible book value as of June 30, 2023 was $        or $        per share based upon 11,120,000 outstanding shares. Net tangible book value per share represents the amount of our total tangible assets, less the amount of our total liabilities, divided by the total number of shares outstanding. Dilution is determined by subtracting the as adjusted net tangible book value per Ordinary Share from the public offering price per Ordinary Share and after deducting the estimated commissions to the underwriters and the estimated offering expenses payable by us.

Our pro forma net tangible book value per share represents the amount of our total tangible assets as adjusted to take into account net cash proceeds of $3,312,000 from the Private Placement, which closed on January 15, 2024. After giving effect to this transaction, our pro forma net tangible book value per share as of June 30, 2023 would have been approximately $        per share.

After giving effect to the Private Placement and our issuance and sale of           Ordinary Shares in this offering at an assumed offering price of $          per share, assuming no exercise of overallotment and after deducting the estimated underwriting discounts and offering expenses payable by us, the pro forma net tangible book value would be $         or $        per share. This represents an immediate increase in net tangible book value to existing shareholders of $       per share. Accordingly, new investors who purchase shares in this Offering will suffer an immediate dilution of their investment of $         per share. The following table illustrates this per share dilution to the new investors purchasing shares in this Offering:

The as adjusted information as discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual public offering price of our Ordinary Shares and other terms of this offering determined at the pricing.

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 together with our financial statements and the related notes and other financial information incorporated by reference herein. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Fitell Corporation (the “Company”) runs its business through its wholly owned subsidiary called GD Wellness PTY LTD (“GD”). GD was founded in 2005 and headquartered in New South Wales, Australia. GD is a gym and fitness equipment retailer both under its proprietary brands and other reputable and industry recognized names. GD carries over 2,000 SKUs and has served over 100,000 customers with large portion of sales from repeat customers over the years – a testament of our product quality and brand loyalty. The Company has launched its global expansion strategy with initial geographic focus in South-East Asia markets in late 2021 as described in detailed in Recent Development section below.

Recent Developments

As part of company’s international expansion strategy, in November 2021, GD entered a licensing agreement with an Asian based fitness operator, named Js & Je Company Limited, to expand its footprint into South-East Asia territories by supplying fitness equipment and providing a one stop solution to fast growing gyms and fitness studios both offline and virtually, including site selection, studio designing and built-out, pre-opening and ongoing training and support. GD has collected licensing fees in the fiscal years ended June 30, 2022 and 2023 and the management plans to continue exploring the business opportunities of fitness sector in Indonesia, Singapore, Malaysia and China. The licensing arrangement has a five-year period with an option at GD’s discretion to renew for additional three years to 2029. However, the management has temporarily suspended the overseas expansions in recent months, because the market sentiments are negatively affected by the inflations and the rising in interest rate in the global market. Nevertheless, we will expand these services again, especially to the Asia market, when the time is right.

Impact of COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this prospectus. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and its impact on our financial condition, liquidity, operations, suppliers, industry, and workforce.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, financing or out-bound investment.

Key Financial Performance Indicators

In assessing our financial performance, we consider a variety of financial performance measures, including principal growth in revenue and gross profit, our ability to control costs and operating expenses to improve our operations and profitability. Our review of these indicators facilitates timely evaluation of the performance of our business and effective communication of results and key decisions, allowing our business to respond promptly to the dynamic market conditions and the different demands and preferences from our customers. The key measures that we use to evaluate the performance of our business are set forth below and are discussed in greater details under “Results of Operations”:

Revenue

Our revenue consists of both merchandise revenue and other revenue, which accounted for 84.1% and 15.9% of our total revenue for the fiscal year ended June 30, 2023, and accounted for 88.9% and 11.1% of our total revenue for the fiscal year ended June 30, 2022, respectively.

Our merchandise revenue is driven by changes in the number of sales orders, and the average order value. Almost all of our sales were sold to end users, and in most cases we do not provide credits to them. Therefore, we receive payments from customers upfront for most of our sales. The sales volume of our merchandise revenues by sales orders has decreased by 42.6% in fiscal year ended June 30, 2023, as compared to fiscal year ended June 30, 2022. This was primarily due to inflation and raising of interest rates in Australia, has significantly reduced the disposal income of Australia households and affected the consumers’ sentiment. In the fiscal year ended June 30, 2023, the inflation was more than 6% throughout the year, and the Australia cash rate target, which was set by the Reserve Bank of Australia, has also increased from 0.10% to 4.10%. However, the management believes that the impact is short-term because the salaries of Australian individuals are also increasing gradually, and the interest may start falling again in the near future. Our average order value per sales order has dropped slightly by 3.0% in fiscal year ended June 30, 2023, as compared to fiscal year ended June 30, 2022.

Our service revenue consists of licensing, management consultant income, an agency fees for distributing other miscellaneous items. All such revenue were generated outside of the Australian market. The service revenue has decreased 16.1%, from $7,246,588 for the fiscal year ended June 30, 2022, to $4,036,047 for the fiscal year ended June 30, 2023. The decrease was due to that management has temporarily suspended overseas expansions recently, because the 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.

Gross Profit

Gross profit is equal to revenue minus cost of goods sold. Cost of goods sold primarily includes inventory costs (third-party products purchase price, freight costs, custom duties, and other miscellaneous costs related to purchase). Our cost of goods sold account for 54.7% and 55.4% of our total revenue for the fiscal year ended June 30, 2023 and fiscal year ended June 30, 2022, respectively. Our gross margin was 45.3% for the fiscal year ended June 30, 2023, which was higher as compared to 44.6% for fiscal year ended June 30, 2022. This small change in gross profit margin was mainly due to the small changes in sales mixes between merchandise revenues and service revenue.

Operating Expenses

Our operating expenses consist of personnel expenses, general and administrative expenses, sale and marketing expenses, amortization of right of use asset, and depreciation expenses.

Our personnel expenses consist primarily of employee salaries, superannuation, external consulting expenses and other employment related expenses. Personnel expenses were 24.8% and 12.0% of our revenues for the fiscal year ended June 30, 2023 and 2022, respectively. Going forward, we expect our personnel expenses will increase gradually in the foreseeable future, as we plan to hire additional personnel in connection with the expansion of our business operations and the additional corporate functions after we became a public company since August 8, 2023.

Our general and administrative expenses consist primarily of insurance, warehouse costs and other corporate expenses. General and administrative expenses account for 18.5% and 6.2% of our revenue for the fiscal year ended June 30, 2023 and 2022, respectively. The increase in general and administrative expenses was mainly due to the doubtful debt provision of $429,401. Apart from this provision, the general administrative expenses in the fiscal year ended June 30, 2023, has in fact dropped by $44,529 as compared to the previous fiscal year, and this was due to the efforts by the management to save costs. Nevertheless, we expect that the absolute amount of our general and administrative expenses will increase in the foreseeable future as we expect to expand our business geographically and also add extra warehouse space to support our business expansion.

Our sale and marketing expenses consist primarily of advertising and marketing expenses on various online platforms. Sale and marketing expenses account for 9.5% and 7.4% of our revenues for the fiscal years ended June 30, 2023 and 2022, respectively. Going forward we will continue to expand our business and we expect that our overall sale and marketing expenses, including but not limited to, advertising expenses and brand promotion expenses, will increase in the future as our business further grows.

Operating lease expense refers to the amortization of the finance lease for our office and warehouse. Operating lease expense accounts for 4.1% and 2.6% of revenue for the fiscal years ended June 30, 2023 and 2022, respectively. The absolute amounts are $198,914 and $213,490 for the fiscal years ended June 30, 2023 and 2022, respectively, which is relatively stable. Subject to future cashflow and funding, we may rent a bigger office and warehouse in the foreseeable future to support our business expansion.

Results of Operations

Comparison of the Fiscal Years Ended June 30, 2023 and 2022

The following table summarizes the results of our operations during the fiscal years ended June 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years.

Revenues

We currently generate our revenue from two business activities: merchandise revenue and service revenue.

Revenues were $4,799,222 for the fiscal year ended June 30, 2023 and $8,155,734 for the fiscal year ended June 30, 2022, a decrease of $3,356,512, or 41.2%. Revenues consist primarily of merchandise revenues of $4,036,047 for the fiscal year ended June 30, 2023 and $7,246,588 for the fiscal year ended June 30, 2022, plus sales of consumable products of $223,343 for the fiscal year ended June 30, 2023 and $200,104 for the fiscal year ended June 30, 2022, and also revenue from licensing customers of $539,832 for the fiscal year ended June 30, 2023 and $709,042 for the fiscal year ended June 30, 2022.

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

Merchandise revenue

The merchandise revenue represents the sales of our various gym & fitness equipment and products. Merchandise revenue decreased significantly by 44.3% or $3,210,541 to $4,036,047 in fiscal year ended June 30, 2023 from $7,246,588 in the fiscal year ended June 30, 2022. The decrease in merchandise revenue was primarily attributable to the following: (i) a 42.6% decrease in sales orders from 26,457 in fiscal year ended June 30, 2022 to 15,189 in the fiscal year ended June 30, 2023. This was primarily due to inflation and raising of interest rates in Australia, which has reduced the disposal income of Australia households and affected consumers’ sentiment. In the fiscal year ended June 30, 2023, the inflation was more than 6% throughout the year, and the Australis cash rate target, which was set by the Reserve Bank of Australia, has also increased from 0.10% to 4.10%; (ii) a slight decrease of 3.0% in the average revenue per order from $273.9 in fiscal year ended June 30, 2022 to $265.72 in the fiscal year ended June 30, 2023.

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. The sales of consumable products have increased 11.6% or $23,239 to $223,343 in the fiscal year ended June 30, 2023 from $200,104 in fiscal year ended June 30, 2022. The increase was due to our additional efforts to diversify our revenue streams in order to mitigate the negative financial impact attributed to the decline in merchandise revenue.

Revenue from licensing customers

The revenue from licensing customers represents licensing, management consultant income, and agency fee for distributing other miscellaneous items. Revenue from licensing customers has decreased by 23.9% or $169,216 to $539,832 in fiscal year ended June 30, 2023 from $709,042 in fiscal year ended June 30, 2022. 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 plan to expand these services again, especially to the Asia market, when management identifies beneficial opportunities.

Cost of goods sold

Cost of goods sold were $2,625,821 for the fiscal year ended June 30, 2023 and $4,520,078 for the fiscal year ended June 30, 2022, a decrease of $1,894,257, or 41.9%. Cost of goods sold consist primarily of the merchandise costs, the freight costs, and also other related purchase costs such as custom duties. The decrease was in line with the drop in merchandise revenues. Our cost of goods sold account for 54.7% and 55.4% of our total revenue for the fiscal year ended June 30, 2023 and fiscal year ended June 30, 2022, respectively. The ratio for cost of goods sold to revenue has slightly dropped mainly because of the change of revenue mix, as relatively more other revenue as a ratio of total revenue was generated in fiscal year June 30, 2023 as compared to June 30, 2022.

Gross Profit

Gross profit was $2,173,401 for the fiscal year ended June 30, 2023 and $3,635,656 for the fiscal year ended June 30, 2022, a decrease of $1,462,255, or 40.2%. The decrease was a combined result of the decrease in merchandise revenue and service revenue. The gross profit margin increased 0.7% from 44.6% in the fiscal year ended June 30, 2022, to 45.3% in the fiscal year ended June 30, 2023. The slight increase in gross profit margin is mainly due to the change in revenue mix, as we have generated relatively more services revenue in the fiscal year ended June 30, 2023.

Personnel Expenses

Personnel expenses were $965,395 for the fiscal year ended June 30, 2023 and $981,711 for the fiscal year ended June 30, 2022, a decrease of $16,316, or 1.7%. Personnel expenses consist primarily of employee salaries, superannuation, external consulting expenses and other employment expenses. The management has maintained a stable and similar size team. Therefore, the personnel expenses for the fiscal year ended June 30, 2023 is similar to the fiscal year ended June 30, 2022. The management targets to hire the right persons for each different task and to maintain an effective and efficient operational team of the appropriate size.

General and Administrative Expenses

General and administrative expenses were $888,141 for the fiscal year ended June 30, 2023 and $503,269 for the fiscal year ended June 30, 2022, an increase of $384,872, or 76.5%. General and administrative expenses consist primarily of insurance, warehouse costs and other corporate expenses. The increase in general and administrative expenses was mainly due to the doubtful debt provision of $429,401. Apart from this provision, in fact the general administrative expenses in the fiscal year ended June 30, 2023 has decreased by $44,529 as compared to the previous fiscal year, and this was due to the efforts by the management to save costs.

Sales and Marketing Expenses

Sales and marketing expenses were $454,995 for the fiscal year ended June 30, 2023 and $604,200 for the fiscal year ended June 30, 2022, a decrease of $149,205, or 24.7%. Sales and marketing expenses consisted primarily of advertising and marketing expenses on various online platforms. The decrease was due to the Company’s cutting of costs in view of the economic conditions in Australia. The sales and marketing expenses, as a percentage of total revenue, have increased to 9.5% for the fiscal year ended June 30, 2023 from 7.4% for the fiscal year ended June 30, 2022. The increase is mainly due to that consumer confidence in Australia was weak during the fiscal year ended June 30, 2023 and the ability for sales and marketing activities to generate sales has decreased.

Operating lease expense

Amortization of right of use asset refers to the amortization of the finance lease for our office and warehouse. It accounts for 4.1% and 2.6% of revenue for the fiscal year ended June 30, 2023 and 2022, respectively. The absolute amount is $198,914 and $213,490 for the fiscal years ended June 30, 2023 and 2022, respectively, which is relatively stable.

Income from Operations

The Company had a loss from operations of $346,312 for the fiscal year ended June 30, 2023 and an income from operations of $1,332,256 for the fiscal year ended June 30, 2022, a decrease of $1,678,568, or 126.0%. The decrease was a result of the drop in total revenues while the operating expenses were increasing.

IPO related expenses

The IPO related expenses include the accounting fee, auditing fee, legal fees, and consulting fee which are incurred due to the initial public offering project and is not related to the daily operations of the Company. In the fiscal year ended June 30, 2023, the Company had incurred $662,418 for consulting fees related to the initial public offering project. In the fiscal year ended June 30, 2022, the Company had incurred $91,199, $153,969, $42,680, and $318,102 for accounting, audit, legal and consulting fees, respectively, related to the initial public offering project.

Unrealized loss on investment

The Company had purchased securities on the Hong Kong stock exchange for investment purposes in the fiscal year June 30, 2022. The unrealized loss on investment was attributable to the dropping in market value of the investment.

Other Income and other expense

Other income was $9,885 for the fiscal year ended June 30, 2023 and $99 for the fiscal year ended June 30, 2022, an increase of $9,885, or 100.0%. Other income consists primarily of the governmental subsidy provided for staff parental leave. Other expense was $54 for the fiscal year ended June 30, 2022. It refers to miscellaneous bank charges.

Interest Income

Interest income was $1,978 for the fiscal year ended June 30, 2023 and $99 for the fiscal year ended June 30, 2022.

Interest Expense

Interest expense was $92,800 for the fiscal year ended June 30, 2023 and $27,419 for the fiscal year ended June 30, 2022, an increase of $65,381, or 238.5%. The increase was a result of the increase in accumulated tax payable to the Australian Taxation Office.

Income Tax Expense

Income tax credit was $25,761 for the fiscal year ended June 30, 2023 and income tax expense was $219,852 for the fiscal year ended June 30, 2022, a decrease of $245,613, or 111.7%. The effective tax rate has decreased significantly from 94.6% for the fiscal year ended June 30, 2022 to 2.0% for the fiscal year ended June 30, 2023. The applicable corporate tax rate in Australia was 25% for the fiscal year ended June 30, 2023 and 2022. However, there are several items which are either tax exempted or non-tax deductible. These items include, but are not limited to, government subsidy tech boost, stock issued for services expense, IPO related expenses, provision for bad debt, unrealized loss on investments, among others. The combined effect of the aforesaid items had made the effective tax rates differ from the applicable corporate tax rate.

Net Income and Comprehensive Income

Net loss was $1,593,394 for the fiscal year ended June 30, 2023, and net profit was $12,602 for the fiscal year ended June 30, 2022, a decrease of $1,605,996, or 12,744.0%.

Comprehensive loss was $1,620,457 for the fiscal year ended June 30, 2023 and $54,347 for the fiscal year ended June 30, 2022, a difference of $1,566,110.

The net loss and comprehensive loss were a result of the drop in revenue, and the negative effect caused by various other items, such as the provision for bad debt, IPO related expenses, and the unrealized loss on investment in the fiscal year ended June 30, 2023.

Normalized Income

The net income includes some extraordinary items, which may not reflect the normalized operations of the Company. For the fiscal year ended June 30, 2023, the extraordinary items include the IPO-related expenses of $662,418 and the unrealized loss on investment of $397,116, net of tax. Such items are not related to our ordinary operations. If we remove the effect of these extraordinary items, the normalized income would be $533,860 for the fiscal year ended June 30, 2023, with a normalized net income of $968,411 for the fiscal year ended June 30, 2022, a decrease of $1,502,271 or 155.1%.

Current Liquidity and Capital Resources for the Twelve Months Ended June 30, 2023 compared to Twelve Months Ended June 30, 2022

Operating Activities

Cash used in operating activities of $373,104 during the year ended June 30, 2023 was primarily a result of our net loss of $1,593,394 reconciled with our changes in operating assets and liabilities, which include primarily (i) an unrealized loss in investments of $529,488 due to the fall in share prices of the investments; (ii) stock issued for services of $560,000 due to fund raising activities; (iii) bad debt provision of $426,971 due to recoverability problems, (iv) a decrease in inventory of $393,636 which is in-line with the decrease in revenue; and (v) an increase in trade and other payables of $363,694 because the management has obtained better credit terms from the supplier in the fiscal year ended June 30, 2023; partially offset by (vi) net increase in net account receivables of $560,215 due to increase in corporate client sales; (vii) a decrease in deferred revenue of $263,625 which is in line with the drop in sales; (viii) a decrease in income tax payable of $169,615 due to the net loss in the fiscal year ended June 30, 2023; (viii) an increase in account receivables of $133,244 due to the increase in sales to corporate clients.

Cash used in operating activities of $131,781 during the year ended June 30, 2022 was primarily a result of our $12,602 net income reconciled with our changes in operating assets and liabilities, which include primarily (i) a decrease of $662,743 in deferred revenue due to relatively more sales orders were fulfilled and delivered as at June 30, 2022 as compare to June 30, 2021; (ii) a decrease of $198,755 in account payable and accrued expenses due to more payables were settled within the fiscal year of June 30, 2022; partially offset by (iii) the unrealized loss on investments of $466,478 which is an expense item but does not have any cash implication immediately; and (iv) the increase of $235,920 in income tax payable which is mainly due to the higher taxable profit in the fiscal year June 30, 2022.

Investing Activities

There were no investing activities for the year ended June 30, 2023.

Net cash used in investing activities for the year ended June 30, 2022 was $465,295 versus $775,791 for year ended June 30, 2021. For the fiscal year ended June 30, 2022, investing activities included (i) purchase of investment of $1,490,241 which is an equity investment in a listed company on the Hong Kong Stock Exchange; (ii) purchase of plant and equipment of $51,741 to cope with business expansion; and partially offset by (iii) net repayment from a related party of $1,076,687. For the fiscal year ended June 30, 2021, the investing activities related solely to related party advances. GD had provided certain short-term financings to a related party, but the balance has been fully settled subsequent to June 30, 2021.

Financing Activities

Net cash from financing activities was $79,064 for the year ended June 30, 2023 versus net cash from financing activities of $93,915 for the year ended June 30, 2022. The net cash used in financing activities for the year ended June 30, 2023 was due to the repayment of intercompany balance to a related company. The net cash from financing activities for the year ended June 30, 2022 was from non-interest bearing short term borrowings from a related party.

INDUSTRY OVERVIEW

We operate in two major segments: (1) online fitness equipment distribution and (2) licensing business to service the large and growing boutique fitness sector of the broader health and fitness club industry. The majority of our fitness equipment business is conducted in Australia via our own ecommerce platform and, to a lesser extent, through third-party sites. Our licensing service offers a turnkey solution for personal training studios and commercial gym chains. The primary focus of our licensing business is the new concept fitness studios established to meet the increasing demand of affluent, educated middle class individuals with higher brand awareness and loyalty, from ages 28 to 55. Our typical licensees are either entrepreneurs or fitness professionals and teams with established track records who share the same vision of building the next-generation of multi-dimensional fitness centers. Boutique fitness encompasses a social, supportive community of coaches and consumers engaging through class-based programming both in small studio spaces and online to offsite consumers. A boutique fitness workout typically offers more customized programming and a more intensive experience complemented by increased levels of personal attention and guidance relative to a traditional health and fitness club.

Growth of the Fitness Market*

According to RunRepeat’s market research, the global fitness industry was worth approximately $160 billion in 2021, recovering from a 32.45% decline in 2020 and rebounding to its pre-pandemic levels. Projections estimate that the industry will reach a revenue of 434.74 billion by 2028, growing 171.75% from 2021, with an approximate 15.35% CAGR.

* Certain statistics and projections relate to the global fitness industry, which may not be representative of the fitness industry in Australia where a majority of our fitness equipment business is conducted.

The fitness equipment industry saw the greatest growth during the first year of the pandemic— increasing 50.6% from 6.8 billion in 2019 to 10.2 billion in 2020. The segment with the greatest growth over the course of the entire pandemic was the online/digital fitness industry. Supplying on-demand, live-streamed, and pre-recorded fitness content online exploded by 76.7% from 6.1 billion in 2019 to 10.7 billion by the end of 2021. In addition, online/digital fitness is the fastest-growing segment in the fitness industry. Revenue generated around delivering live-streamed, on-demand, and pre-recorded fitness content is expected to grow 33.1% each year, for a total growth of 640.1% from 2021 to 2028.

Expansion of gym locations in Australia

The number of gym and fitness center locations is growing in Australia. According to estimates from IBISWorld, there were approximately 6,466 gyms and health and fitness centers across Australia in 2023. The number of gyms and fitness centers grew at 136.85%, from 2,730 in 2011 to 6,466 in 2023. However, consumers purchasing at-home gym equipment during pandemic will have lasting effects for gyms and fitness centers.

Source: IBISWorld

Growing e-commerce in Australia

Online spending on sports, camping, and fitness goods is multiplying. According to IBISWorld, online sales of sports, camping, and fitness products has grown at a CAGR of 10.7% over the past 5 years, to reach an estimated $1.1 billion Australian Dollars in 2023. It is projected to grow at a CAGR of 7.2% to approximately $1.7 billion Australian Dollars by 2029. With e-commerce contributing to solid growth in online sales, we believe that as residents become more receptive to online shopping, it will continue to drive online sales of sporting and fitness products and improve industry margins.

Source: IBISWorld

Rise of boutique fitness studios

According to the 2024 Fitness Industry Market Report by Wellness Creative Co, boutique fitness studios will be on the rise in 2024. This high-margin operating model will increasingly be popular with fitness entrepreneurs and investors, especially in developing markets like China. There are more and more people enjoy the sense of community that boutique studios offer, especially millennials, according to the 2024 report. Boutique studios can provide members with services, personalized training, and a unique fitness experience. Although this operating model charges two to four times more than traditional fitness clubs, they have higher customer loyalty.

Rise of online and on-demand fitness and well-being industry

On-demand fitness is a key trend in the growing popularity of the online digital fitness and well-being industry. According to satista.com, revenue in digital fitness and well-being market is projected to reach $847.2 million in 2024, and is expected to show a CAGR of 5.54% from 2024 to 2028, resulting in a projected market volume of $1.1 billion by 2028, preparing the sector for stronger growth in the future. Many of these consumers intend to keep using these digital services even after the gyms reopen. According to GlobeNewswire, the global online/virtual fitness market is expected to grow from $13.3 billion in 2022 to $187.8 billion by 2032, at a compound annual growth rate of 31.2%.

Market Drivers

Based on the favorable macroeconomic environment and industry fundamentals as well as industry dynamics, we believe the following consumer trends have been and will continue to be critical drivers of industry growth:

According to the Australian Bureau of National Statistics, disposable income per capita grew at a compound annual growth rate of approximately 2.8% from 2018 to 2022. Consumers will pay more attention to health and fitness products with the developing economy and increasing disposable income. Accumulate Australia indicated that Australians spend an estimated $8 billion Australian Dollars annually on fitness services and equipment in 2022. We believe that growing disposable incomes will provide the foundation for long-term industry growth, while increased health awareness will directly contribute to the consumption of fitness industry products.

Obesity is a primary health and wellness concern in Australia. According to the Australian Government Department of Health and Aged Care, approximately 18.0 million Australians will be overweight or obese in 2030. Further, the aging of the population is a key trend, and current estimates of population growth predict rapid growth in the 65+ age group over the next decade. As a result, health awareness is expected to drive self-health investment and fitness spending among the older population.

In our view, the growth in the number of people suffering from obesity and aged people facilitated the market to respond accordingly, including opportunities for the fitness market to proliferate. We believe these trends provide a promising consumer base for the fitness industry and momentum for the longevity of the fitness industry.

Source: AIHW

OUR BUSINESS

Overview

Founded in 2005 and headquartered in New South Wales, Australia, GD Wellness Pty Ltd (“GD”) is a wholly owned subsidiary of Fitell Corporation, a Cayman Islands company (together with its subsidiaries, “Fitell,” “us,” “our,” “we,” or the “Company”). We are an online retailer of gym and fitness equipment both under our proprietary brands and other brand names. Our 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, which we believe to be a testament of our product quality and brand loyalty. Our brand portfolio can be categorized into three proprietary brands under our Gym Direct brand: Muscle Motion, Rapid Motion, and FleetX, in approximately 2,000 stock-keeping units (SKUs).

In addition to our all-around fitness equipment portfolio to individual and commercial customers, we launched three new business verticals with integration of technology in 2021.

Products and Services

Fitness Equipment

We market and sell fitness equipment and related products as well as serving as a one-stop shop for business setup from personal training studios to commercial gyms. Our full spectrum of product coverage is exemplified by the following three proprietary brand names, which represent over 84% of our revenues in the fiscal year ended June 30, 2023:

In our fitness equipment business segment, we sell our products directly to customers through online or offline platforms. Revenue from our own e-commerce website accounted for approximately 67.73% of our total sales for the fiscal year ended June 30, 2023 with the remaining sales derived from commercial sale orders, our showroom and phone orders as well as third party channels, such as Bunnings Marketplace and eBay.

Licensing Business

We offer a turnkey solution for personal training studios and commercial gym chains. The primary focus of our licensing business is the new concept fitness studios established to meet the increasing demand of affluent, educated, middle class individuals with higher brand awareness and loyalty, usually from ages 28 to 55. Our typical licensees are either entrepreneurs or fitness professionals and teams with established track records who share the same vision of building the next-generation of multi-dimensional fitness centers. We work closely with our licensees and offer the following services:

We assisted our first licensee, Js & Je Company Limited, in opening 6 mYSTEPS fitness centers in Eastern China as of April 25, 2022. Pursuant to our license agreement with our first licensee, the territories in which our licensee will seek opportunities to open fitness centers are Indonesia, Singapore, Malaysia, mainland China, Hong Kong, and Macau. Fees payable by our licensee to us are a base fee per annum of US$125,000 plus US$40,000 for each opened fitness center per annum.

We also plan to support our licensee with access to high quality accredited health supplements selected by us and to introduce trendsetting designers to design proprietarily branded clothing and accessories to the members of our licensees, enhancing both their brand loyalty and profitability. Currently, our licensee is evaluating various site opportunities and offers, and expects to open 2 to 5 more studios in the next 12 months, and will continue to explore opportunities in Indonesia, Singapore, and Malaysia. Revenue from the licensing agreement was less than 12.0% of the Company’s revenue in the fiscal year ended June 30, 2022 and less than 16.0% of the Company’s revenue in the fiscal year ended June 30, 2023.