Fitell Corporation Announces First Half-Year Financial Results

Rhea-AI Summary

Fitell Corporation (Nasdaq: FTEL) announces its half-year financial results for the six months ended December 31, 2023, with revenue of $2.1 million, a decrease of 30.5% compared to 2022. Gross profit also decreased by 46.8%. Despite challenges, management remains optimistic about the long-term prospects of the fitness industry in Australia.

Positive

• None.

Negative

• Revenue decreased by 30.5% compared to the same period in 2022, with a gross profit decline of 46.8%. Merchandise revenue dropped by 6.7%, and revenue from licensing customers decreased by 61.1%. Cost of goods sold decreased by 12.7%, but general and administrative expenses increased significantly by 648.6%. The net loss was $2,661,707, a substantial decrease from the previous year.

Insights

Market Research Analyst

The reported financial results of Fitell Corporation indicate a significant contraction in revenue and gross profit, with a notable 30.5% decrease in revenue and a 46.8% drop in gross profit compared to the previous year. The decline in merchandise revenue, complete cessation of consumable product sales and reduction of licensing income are clear contributors to this downturn. A Market Research Analyst would emphasize the importance of understanding consumer spending habits and market trends, particularly in the context of the economic conditions in Australia that have been cited as influencing average revenue per order.

Additionally, the increase in sales orders by 34.3% alongside a decrease in revenue suggests a shift towards lower-priced items or more aggressive discounting, which may affect the company's long-term profitability. The strategic decision to suspend overseas expansion due to inflation and rising interest rates reflects a cautious approach by management in a volatile global market. However, the intention to re-enter the Asian market suggests optimism about future growth potential in that region.

Financial Analyst

From a financial perspective, the sharp increase in consulting fees to $1.27 million, from nil in the prior period and the 648.6% surge in general and administrative expenses are significant. These expenses, particularly the research and development costs for a mobile app and increased insurance and audit fees associated with the Nasdaq listing, have contributed to a substantial net loss of $2.66 million. A Financial Analyst would scrutinize these investments to evaluate their potential for generating future returns and improving operational efficiency.

The gross profit margin decline to 39.9% from 52.1% is also a critical metric, indicating a shift in the company's product mix towards lower-margin items. This margin compression, if sustained, could impact the company's ability to invest in growth and innovation. The net loss widening by over $2.6 million raises concerns about the sustainability of the company's current cost structure and its capacity to navigate economic headwinds without further eroding profitability.

Economist

An Economist would consider the broader economic factors at play, such as inflation and interest rate hikes, which have a direct impact on consumer spending and business expansion plans. The cessation of consumable product sales might reflect a strategic pivot or a response to reduced disposable income among consumers. The decision to postpone international expansion can be seen as a risk mitigation strategy in response to economic uncertainties.

The long-term outlook for the fitness and wellness industry remains positive, as indicated by management's statements, suggesting that current challenges may be cyclical rather than structural. However, the company's ability to capitalize on this potential growth will depend on its adaptability to changing economic conditions and its success in controlling costs while still investing in areas that drive future revenue growth.

TAREN POINT, Australia, March 05, 2024 (GLOBE NEWSWIRE) -- Fitell Corporation (Nasdaq: FTEL) ("Fitell" or the "Company"), an online retailer of gym and fitness equipment in Australia, today announced its half-year financial results for the six months ended December 31, 2023.

Six-month Period ended December 31, 2023 Financial Highlights

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

Revenue by Categories vs. Same Period of Prior Year

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

• 
  

• Merchandise revenue decreased by 6.7% or $144,310 to $2,007,562. The decrease was primarily attributable to: (i) a 34.3% increase in sales orders, primarily due to promotional campaigns and new marketing channels; and (ii) a decrease of 30.5% in the average revenue per order, mainly due to consumer spending changes in response to recent economic conditions in Australia. Management believes that the market will gradually recover, and the fitness and wellness industry in Australia is still promising in the long-term.
  
• In the three months ended December 2023, merchandise revenue increased $103,849 or 10.9% compared to the same period in 2022.
  
• Sales of consumable products represents the revenue generated by selling various lifestyle products. There were no sales of consumable products, and management plans to develop this business segment again whenever business opportunity arises.
  
• Revenue from licensing customers represents the services provided to gym studios in overseas markets. Revenue from licensing customers decreased by 61.4% or $181,308 to $115,557. The decrease was due to management suspending overseas expansions recently due to market sentiment from inflation and rising interest rates in the global market, Management plans to expand these services again, especially to the Asia market, when the time is right.
  

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

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

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

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

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

About Fitell Corporation

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

Forward-Looking Statements

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

For more information, please contact:

Chief Financial Officer
Jamarson Kong
jamarson@gymdirect.com.au

Investor Relations
ir@fitellcorp.com

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

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

FITELL CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31, 2023 UNAUDITED
		Common Stock						Subscription Receivable				Additional Paid-in Capital			Accumulated Other Comprehensive Income				Retained Earnings				Total
		Shares		Amount				Shares		Amount
Balance June 30, 2023		8,120,000		$	812			-		-		$	7,097,822		$	(64	)		$	(681,647	)	$	6,416,923
Fund raised in IPO		3,000,000			300			-		-			6,297,342			-				-			6,297,642
Foreign currency translation adjustment		-			-			-		-			-			(88,004	)			-			(88,004	)
Net loss		-			-			-		-			-			-				(2,661,707	)		(2,661,707	)
Balance December 31, 2023		11,120,000		$	1,112			-		-		$	13,395,164		$	(88,068	)		$	(3,343,354	)	$	9,964,854

FITELL CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31, 2022 UNAUDITED
	Common Stock					Subscription Receivable						Additional Paid-in Capital			Accumulated Other Comprehensive Income				Retained Earnings			Total
	Shares		Amount			Shares		Amount
Balance June 30, 2022	7,000,000		$	700		-		$	(56	)		$	1,497,990			26,999		$	911,747		$	2,437,380
Stock issued for services	1,120,000			112		-			(112	)			2,240,000			-			-			2,240,000
Foreign currency translation adjustment	-			-		-			-				-			(36,238	)		-			(36,238		)
Net loss	-			-		-			-				-			-			(59,325	)		(59,325		)
Balance December 31, 2022	8,120,000		$	812		-		$	(168	)		$	3,737,990		$	(9,239	)	$	852,422		$	4,581,817

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

FAQ

What are Fitell Corporation's financial results for the six months ended December 31, 2023?

Fitell Corporation reported revenue of $2.1 million, a 30.5% decrease from 2022, with a gross profit decline of 46.8%.

Why did merchandise revenue decrease for Fitell Corporation?

Merchandise revenue decreased by 6.7% due to a 34.3% increase in sales orders and a 30.5% decrease in average revenue per order, influenced by economic conditions in Australia.

What caused the decrease in revenue from licensing customers for Fitell Corporation?

Revenue from licensing customers decreased by 61.1% due to management suspending overseas expansions recently, impacted by market sentiment from inflation and rising interest rates globally.

How did general and administrative expenses change for Fitell Corporation?

General and administrative expenses increased by 648.6% mainly due to higher research and development expenses, increased insurance costs, and audit fees post-Nasdaq listing.

What was the net loss for Fitell Corporation in the six months ended December 31, 2023?

Fitell Corporation reported a net loss of $2,661,707, a significant decrease from the same period in 2022, attributed to lower revenues and increased expenses.