For the ~~nine months~~periods ended March 31, ~~2020~~2021 and ~~2019,~~June 30, 2020, depreciation expenses amounted to ~~$47,526~~$70,650 and ~~$26,578,~~$110,032, respectively.

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating expenses during the ~~nine months~~periods ended March 31, ~~2020 and 2019.~~

On February 7, 2020, the Company (the "Buyer") entered into a share sale and purchase agreement with Indigo Dye Group Corp. ("Indigo", the "Seller") located in Sacramento, California. Indigo carries on business as a cannabis delivery business under the name BudCars and Sugarmade has an interest in making an investment in Indigo in order to further its corporate growth goals. All the parties agree as follows:

~~Sugarmade will invest Seven Hundred Thousand Dollars ($700,000) (the “Investment”) into Indigo for inventory, equipment, and marketing expenses.~~

Sugarmade will make the Investment in twelve monthly equal installments of $58,333 with the acceleration of the payment schedule possible depending on business growth, cash flow needs and capital availability.

Sugarmade will receive a Forty Percent (40%) of the issued shares in Indigo Dye. upon execution of the final agreement. The value used for this transaction is $1,750,000 and each percentage (1%) of the company is worth $17,500.

In the event that Sugarmade is not able to make a payment of $58,333 in any month, it will have 90 days to cure the default. on the 91st day the investment plan will cease and the amount of invested capital will be calculated based on an enterprise value of $1,750,000 or $17,500 per 1% of owned equity.

~~As of March 31, 2020~~2021 and June 30, 2019, the Company made investments in total of $1,583,958 and $0, respectively. The $1,583,958 included $883,958 paid for BZRTH acquisition for the year ended June 30, 2019 which were recorded under prepaid expenses and advance to investments, and $700,000 investment in Indigo Dye Group Corp during the period ended March 31, 2020.

~~During December 2017,~~Unearned revenue amounted to $9,379 and $53,248 as of March 31, 2021 and June 30, 2020, respectively. Unearned revenues are mainly due to contracts with extended payment terms, acceptance provisions and future delivery obligation.

Other payable amounted to $812,069 and $691,801 as of March 31, 2021 and June 30, 2020, respectively. Other payables are mainly credit card payables and taxes payables. As of March 31, 2021, the Company ~~entered into~~had 8 credit cards, one American Express is a ~~master marketing agreement~~charge card with ~~BizRight, LLC, a leading marketer~~no limit and ~~manufacturer~~zero interest. The remaining 7 cards had total credit limit of hydroponic growth supplies, which offers a range of hydroponics-related products including: HPS grow lights, electronic ballasts, HPS Bulbs, nutrient mixes, environmental control products, pH measurement$85,000, and ~~calibration solutions and other grow and storage products. BizRight operates the ZenHydro.com website and other e-commerce properties, and sells various products~~APR from 11.24% to distributors and retailers. On April 11, 2018, the same rights under the master marketing agreement were assigned to BZRTH Inc. On February 5, 2019, the Company exercised its option to acquire BZRTH and the transaction had been closed on October 30, 2019 in total fair value of $18,000,000. On January 15, 2020, the Company entered into a Rescission and Mutual Release Agreement (“Agreement”) with each of the parties agreeing to rescind the transaction and return all consideration exchanged pursuant to the Stock Exchange Agreement.29.99%.

As of March 31, ~~2020~~2021 and June 30, ~~2019, the advanced to investments were $0 and $18,000,000.~~

On August 1, 2019, the Company loaned in total amount of $196,000 to Hempistry Inc. The borrower promises to repay this principal amount to the lender in the form of a 12% stake of borrower's hemp crop located at Madisonville, KY, during borrower's 2019 crop harvest. If 12% of borrower's 2019 crop does not result in a yield of 13,800 pounds of dry hemp biomass, borrower shall provide additional dry biomass above and beyond the 12% lender is entitled to, to assure lender receives at least 13,800 pounds of dry biomass as payment to this loan.

~~As of March 31,~~ 2020, ~~and June 30, 2019, the loan receivables were $206,500 and 85,533, respectively.~~

~~As of March 31, 2020 and June 30, 2019,~~ the balance owing on convertible notes, net of debt discount, with terms as described below was ~~$1,961,479~~$1,982,902 and ~~$1,046,909,~~$1,740,122, respectively.

Convertible note 1: On August 24, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 2: On September 18, 2012, the Company entered into a convertible promissory note with an accredited investor for $25,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 3: On December 21, 2012, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of six (6) months with an interest rate of 10% and is convertible to common shares at a 25% discount of the average of 30 days prior to the conversion date. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 4: On March 1, 2017, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has been purchased by other investor in total amount of $156,067 with a term of nine (9) months with an interest rate of 10% and is convertible to common shares at a 45% discount to the then current market price of our shares. As of March 31, 2020, the remaining balance of note was $60,751.

Convertible note 5: On May 17, 2017, the Company entered a convertible promissory note with an investor for a total amount of $1,375,000 (after $10,000 legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. The note is due 12 months after each funding date and bears an interest rate of 10%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. In connection with the note, the investor will also receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with exercise price of $0.15 per share and have cashless exercise option. During the three months ended September 30, 2019, the holder exercised 1,766,544 cashless warrant shares into 28,381,818 shares of the Company’s common stock. On September 23, 2019, the remaining warrant shares were settled by exchange $200,000 convertible note with interest of 10% per annum, due on September 23, 2020, with conversion price of 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the original principal balance has been fully converted, the remaining default charge balance of the note was $250,000, and the new convertible note balance was $200,000.

Convertible note 6: On September 20, 2018, the Company entered a convertible promissory note with an accredited investor for a total amount of $267,500 (includes $5,000 legal fee and an OID of $12,500). The note is due 360 days and bears an interest rate of 8%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the principal balance of 245,000 has been fully converted into the Company’s common stock.

Convertible note 7:4: On November 1, 2018, the Company entered into a convertible promissory note with an accredited investor for $100,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 8:5: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $80,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 9:6: On November 16, 2018, the Company entered into a convertible promissory note with an accredited investor for $40,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note ~~10:~~7: On December 3, 2018, the Company entered into a convertible promissory note with an accredited investor for $35,000. The note has a term of one year with an interest rate of 8% and is convertible to common shares at a fixed conversion price of $0.07. As of March 31, ~~2020,~~2021, the note is in default.

Convertible note 11: On December 26, 2018, the Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $5,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 45% of average three lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 12: On January 8, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $105,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 13: On January 22, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 14: On January 24, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $53,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 35% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 15: On February 26, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 42% of average three lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 16: On March 4, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $250,000 (includes $7,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 17: On April 2, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for the 10 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 18: On April 4, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 19: On May 2, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for the 10 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 20: On May 7, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 21: On May 29, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% of average three lowest closing bid for the 10 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 22: On June 12, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,500 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 58% of average two lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 23: On July 3, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% discount of average three lowest closing bid for the 10 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully repaid by cash.

Convertible note 24: On July 30, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $162,000 (includes $7,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 40% discount of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. During the three months ended March 31, 2020, the accredited investor converted $132,000 principal with $6,106 accrued interest expense into the Company’s common stock in total share of 64,469,956. As of March 31, 2020, the remaining principal balance was $30,000.

Convertible note 25: On August 14, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $153,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 65% of the average of lowest two closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully converted.

Convertible note 26: On August 29, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $37,500 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 27: On August 29, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $25,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 28: On September 23, 2019, the Company entered a warrant settlement agreement to exchange convertible promissory note for a total amount of $200,000. The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2020, the note has been fully settled by $127,321 of cash and 18,181,818 shares of common stock.

~~Convertible note 29:~~8: On September 27, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $165,000 (includes $16,250 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

~~Convertible note 30: On September 27, 2019, the Company entered~~issued a convertible promissory note with an accredited investor for a total amount of $165,000 (includes $16,250 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. During the year ended June 30, 2020, the note holder converted $50,000 principal with $2,992 interest expense into 56,007,062 shares of the Company’s common stock. As of March 31, 2021, the note has been fully converted.

Convertible note ~~31:~~9: On October 28, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~32:~~10: On October 28, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $225,500 (includes $23,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note 33: On November 14, 2019, the Company entered a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the average three lowest closing bid for the 10 consecutive trading days prior to the conversion date.

~~Convertible note 34:~~11: On November 29, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~35:~~12: On November 29, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $106,150 (includes $11,150 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~36:~~13: On December 10, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~37:~~14: On December 10, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $106,700 (includes $11,700 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~38:~~15: On December 27, 2019, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

Convertible note ~~39:~~16: On October 31, 2019, the Company ~~entered~~issued a convertible promissory note with ~~an accredited investor~~a former consultant for a total amount of $139,301. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is $0.008 per share. On October 1, 2020, the Company entered an amendment to settlement note to amend the conversion price at 60% of the lowest trading bid price in the 20 consecutive trading days immediately preceding to the conversion date.

Convertible note ~~40:~~17: On November 1, 2019, the Company ~~entered~~issued a convertible promissory note with ~~an accredited investor~~a former consultant for a total amount of $100,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is $0.008 per share. On October 1, 2020 the Company entered an amendment to settlement note to amend the conversion price at 60% of the lowest trading bid price in the 20 consecutive trading days immediately preceding to the conversion date.

Convertible note ~~41:~~18: On January 3, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $112,200 (includes $12,200 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note has been fully converted.

Convertible note ~~42:~~19: On January 14, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $150,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest closing prices for the 10 consecutive trading days prior to the conversion date. During the three months ended September 30, 2020, the note holder converted $50,000 principal into 29,868,578 shares of the Company’s common stock. As of March 31, 2021, the remaining principal and unpaid interest has been fully repaid by cash.

Convertible note ~~43:~~20: On January 22, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $128,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 35% discount to average of two lowest closing prices for the 20 consecutive trading days prior to the conversion date. As of March 31, 2021, the note principal and unpaid interest has been fully repaid by cash.

Convertible note ~~44:~~21: On February 4, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $110,000 (includes $10,000 OID). The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share. As of March 31, 2021, the note has been fully converted.

Convertible note ~~45:~~22: On February 18, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $100,000 (includes $10,000 OID). The note is due 360 days and bear an interest rate of 12%. The conversion price for the note is $0.001 per share.

Convertible note ~~46:~~23: On March 5, 2020, the Company ~~entered~~issued a convertible promissory note with an accredited investor for a total amount of $125,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest closing prices for the 10 consecutive trading days prior to the conversion date. As of December 31, 2020, the note has been fully converted.

Convertible note 24: On April 24, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $75,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest trading prices for the 10 consecutive trading days prior to the conversion date.

Convertible note 25: On June 10, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and $3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 26: On June 18, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $36,300 (includes $3,300 OID and $3,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 27: On July 6, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $77,000 (includes $2,000 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to average of three lowest trading prices for the 10 consecutive trading days prior to the conversion date.

Convertible note 28: On July 7, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $153,000 (includes $3,000 OID). The note is due 360 days and bear an interest rate of 10%. The conversion price for the note is 35% discount to average of two lowest trading prices for the 20 consecutive trading days prior to the conversion date.

Convertible note 29: On July 16, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $260,700 (includes $23,700 OID and $12,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 30: On July 21, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $200,200 (includes $18,200 OID and $7,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 31: On September 8, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $110,000 (includes $10,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six month anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent.

Convertible note 32: On September 10, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $227,700 (includes $20,700 OID and $7,000 legal expense). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 33: On September 24, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $212,300 (includes $19,300 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six month anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent.

Convertible note 34: On October 8, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $231,000 (includes $21,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six month anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent.

Convertible note 35: On October 13, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $275,000 (includes $25,000 OID). The note is due 180 days and bear an interest rate of 12%. The conversion price for the note is $0.01 per share. After the six month anniversary of this note, the conversion price shall be equal to the lower of the fixed price of $0.01 or 65% of the lowest trading price of the common stock for the 20 prior trading days including the day upon which a conversion notice is received by the Company or its transfer agent.

Convertible note 36: On November 10, 2020, the Company issued a convertible promissory note with an accredited investor for a total amount of $58,300 (includes $5,300 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

Convertible note 37: On February 8, 2021, the Company issued a convertible promissory note with an accredited investor for a total amount of $69,300 (includes $6,300 OID). The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 60% of the lowest trading bid for the 20 consecutive trading days prior to the conversion date.

In connection with the convertible debt, debt discount balance as of March 31, ~~2020~~2021 and June 30, ~~2019~~2020 were ~~$1,742,672~~$355,752 and ~~$1,189,341,~~$880,879, respectively, and were being amortized and recorded as interest expenses over the term of the convertible debt.

The derivative liability is derived from the conversion features in note 98 and stock warrant in note ~~11.~~10. All were valued using the weighted-average Binomial option pricing model using the assumptions detailed below. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the derivative liability was ~~$3,706,809~~$2,301,301 and ~~$2,991,953,~~$5,597,095, respectively. The Company recorded ~~$2,075,982~~$482,232 gain and ~~$3,661,383~~$1,442,295 loss from changes in derivative liability during the ~~nine months~~periods ended March 31, ~~2020~~2021 and ~~2019,~~June 30, 2020, respectively. The Binomial ~~Option Price Model~~model with the following assumption inputs:

On May 17, 2017, the Company entered a promissory note with an accredited investor for a total amount of $1,375,000 (after $10,000 legal and due diligence fee) with an OID of $125,000, the note will be fulfilled through a series of funding. In connection with the note, the investor will also receive warrants and is calculated based on 15% of the maturity amount. The warrants have a life of four years with an exercise price of $0.15 per share and have cashless exercise option. The fair value of the warrants at the grant date was $40,400. During the three months ended September 30, 2019, the holder exercised 1,766,544 cashless warrant shares into 28,381,818 shares of the Company’s common stock. On September 23, 2019, the remaining warrant shares were settled by exchange $200,000 convertible note with interest of 10% per annum, due on September 23, 2020, with conversion price of 55% of the lowest closing bid for the 20 consecutive trading days prior to the conversion date.

On September 7, 2018, the Company entered into a settlement agreement with several investors to settle all disputes by issues additional unrestricted shares. In connection with the note each individual investor will also receive warrants equal to the number of the shares the investors own as of the effective date of the settlement agreement. The warrants have a life of five years with an exercise price as of the date of exchange. The fair value of the warrants at the grant date was $56,730. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$1,737~~$1,216 and ~~$19,103,~~$1,910, respectively.

On February 4, 2020, the Company entered into a warrant agreement with an accredited investor up to 10,000,000 shares of common stock of the Company at exercise price of $0.008 per share, subject to adjustment. The warrants have a life of five years with an exercise price as of the date of exchange. The fair value of the warrants at the grant date was ~~$70,000.~~$80,000. As of March 31, 2021 and June 30, 2020, the fair value of the warrant liability was ~~$30,000.~~$23,000 and $78,000, respectively.

As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the total fair value of the warrant liability was ~~$31,737~~$24,216 and ~~$24,658,~~$79,910, respectively.

During October 2011, we entered into a revolving demand note (line of credit) arrangement with HSBC Bank USA, with a revolving borrowing limit of $150,000. The line of credit bears a variable interest rate of ~~one quarter percent (0.25%)~~0.25% above the prime rate (5.5% as of December 20, 2018). In the event the deposit account is not established or minimum balance maintained, HSBC can charge a higher rate of interest of up to 4.0% above prime rate. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the loan principal balance was ~~$25,982.~~$25,982 and $25,982, respectively.

On June 15, 2018, the Company entered into a promissory note with an accredited investor. The original principal amount was $20,000 and the note bears 8% interest per annum. The note was payable upon demand. As of March 31, 2021 and June 30, 2020, ~~the~~this note ~~is in default.~~had a balance of $20,000 and $20,000, respectively.

On January 23, 2013, the Company entered into a promissory note with ~~its~~a former employee ~~who owns less than 5%~~ of the ~~Company’s stock.~~Company. The original principal amount was $40,000 and the note ~~bore~~bears no interest. The note was payable upon demand. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, this note had a balance of ~~$15,427.~~

~~On January 14, 2015, the Company entered into a promissory note with Richard Ko (an employee of the Company, who owns less than 5% of the Company’s stock). The principle amount was $30,000~~$15,427 and the note bore no interest. The note had a term of one (1) year and was due on January 14, 2016, and became payable upon demand after January 14, 2016. As of March 31, 2020 and June 30, 2019, this note had a balance of $0 and $20,000,$15,427, respectively.

~~As of March 31, 2020 and June 30, 2019, the Company had an outstanding balance of notes payable due to related parties of $15,427 and $38,000, respectively.~~

On July 7, 2016, SWC received a loan in total amount of $30,000 from an employee. During the three months ended December 31, 2019, SWC received additional loan in total amount of 105,000 from a related party. The amount of the loan bear no interest and due on demand. During the three months ended March 31, 2020, the Company repaid $55,000 to the related party. As of March 31, 2020 and June 30, 2019, the balance of the loan due to related party was $50,000 and $30,000, respectively.

~~From time to time, SWC would receive short-term loans from company former director for its working capital needs.~~

On October 1, 2017, SGMD entered a straight promissory note with Greater Asia Technology Limited (Greater Asia) for borrowing $100,000 with maturity date on June 30, 2018; the note bears an interest rate of 33.33%. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the note was in default and the outstanding balance under this note was ~~$63,924~~$61,919 and ~~$63,924,~~$96,401, respectively.

During the year ended June 30, 2019, the Company entered a series of short-term loan agreements with Greater Asia Technology Limited (Greater Asia) for borrowing $375,000, with interest rate at 40% - 50% of the principal balance. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the outstanding balance with Greater Asia loans ~~was~~were $100,000 and $100,000, respectively.

On January 6, 2015, the Company entered into repayment agreement with its former employee for a loan of $9,500 at no interest. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the Company has an outstanding balance of $0 and ~~$3,584.~~

On December 17, 2018, the Company entered into a repayment agreement with an individual for $100,000 at no interest. As of March 31, 2020 and June 30, 2019, the Company has an outstanding balance of $2,740 and $17,834,$3,584, respectively.

On July 1, 2012, CarryOutSupplies entered an equipment loan agreement with a bank with maturity on June 21, 2024. The monthly payment is $648. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the outstanding balance under this loan were $0$18,735 and ~~$29,243,~~$24,524, respectively.

On March 18, 2020, the Company entered into a loan agreement for $150,000 with Celtic Bank ~~in total loan amount of $150,000,~~ with maturity date on March 18, ~~2021; this loan requires weekly payments of $3,808 per week for 52 weeks.~~2020. As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the outstanding balance under this loan were $0 and $117,635, respectively.

On June 26, 2020, the Company entered into a government loan agreement for $8,000 with maturity date on December 26, 2020. As of March 31, 2021 and June 30, 2020, the outstanding balance under this loan were $0 and $8,000, respectively.

On April 27, 2020, we entered into a loan borrowed $110,000 from Bank of America (“Lender”), pursuant to a Promissory Note issued by Company to Lender (the “April 2020 PPP Note”). The loan was ~~$150,000~~made pursuant to the Paycheck Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The April 2020 PPP Note bears interest at 1.00% per annum and may be repaid at any time without penalty. The April 2020 PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the April 2020 PPP Note.

On July 28, 2020, we entered into a loan borrowed $159,900 from the Lender, pursuant to a Promissory Note issued by Company to Lender (the “July 2020 PPP Note”). The loan was made pursuant to the Paycheck Protection Program. The July 2020 PPP Note bears interest at 1.00% per annum and may be repaid at any time without penalty. The July 2020 PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the July 2020 PPP Note.

On January 25, 2021, we entered into a loan borrowed $96,595 from the Lender, pursuant to a Promissory Note issued by Company to Lender (the “January 2021 PPP Note”). The loan was made pursuant to the Paycheck Protection Program. The January 2021 PPP Note bears interest at 1.00% per annum and may be repaid at any time without penalty. The January 2021 PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the January 2021 PPP Note.

The Company accounted for the PPP loans under Topic 470: (a). Initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance with the interest method under ASC Subtopic 835-30; (b). Not impute additional interest at a market rate; (c). Continue to record the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally released or (2) the debtor pays off the loan; (d). Would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received.

As of March 31, 2021 and June 30, 2020, the Company had an outstanding loan balance of $716,716 and $517,260, respectively.

On July 7, 2016, SWC received a loan from an employee. The loan bears no interest and amortized on a monthly basis over the life of the loan. As of March 31, 2021 and June 30, 2020, the balance of the loan was $63,778 and $35,943, respectively.

Starting on September 30, 2020, the Company received loans from related parties. The loans bear no interest. As of March 31, 2021 and June 30, 2020, the balance of the loans was $174,372 and $0, respectively.

As of March 31, ~~2020~~2021 and June 30, ~~2019,~~2020, the Company had an outstanding loan balance – related parties of ~~$334,475~~$238,150 and ~~$214,585,~~$35,943, respectively.

During the year ended June 30, 2020, the Company had entered into one consulting service agreement and one employment agreement, which had potential shares to be issued in total amount of $110,577.

During the six months ended December 31, 2020, the Company had potential shares to be issued to one consulting agreement of $31,000. The shares had been issued during the three months ended March 31, 2021.

As of March 31, 2021 and June 30, 2020, the Company had a balance of $136,577 and $101,577 shares to be issued, respectively.

The Company is authorized to issue ~~1,990,000,000~~10,000,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock. On April 22, 2020, the Company filed an amendment to increase the total authorized shares to 10,010,000,000 – 10,000,000,000 of which are designated as common stock, par $0.001 per share and 10,000,000 of which are designated as preferred stock, par value $0.001 per share.

During the three months ended September 30, ~~2019,~~2020, the Company issued ~~1,000,000 shares of common stock to settle the old liability to be issued in total amount of $29,000.~~

~~During the three months ended September 30, 2019, the Company issued 71,915,557~~1,081,411,606 shares of common stock for debt conversions in total amount of ~~$547,833.~~$1,273,459.

During the three months ended ~~September 30, 2019,~~December 31, 2020, the Company issued ~~11,348,591~~411,171,815 shares of common stock for ~~cash~~debt conversions in total amount of ~~$100,000.~~$320,879.

During the periods from December 14, 2014 through March 31, 2015, the Company issued 2,000,000 Series A preferred shares from an EB5 Program Investment. Five years from the date of issue (the “Conversion Date”), assuming Investor is approved for l-526, and each Preferred Share will automatically convert into that number of Common Shares having a “fair market value” of the Initial Investment plus a five (5) percent annualized return on Initial Investment, Fair market value will be determined by averaging the closing sale price of a Common Share for the 40 trading days immediately preceding the date of conversion on the U.S. stock exchange on which Common Shares are publicly traded. Should the Investor be unsuccessful in liquidating the Common Shares within 90 days after the Conversion Date, the Company shall buy back total Common Shares owned by Investor at a fixed amount of $500,000.00 plus 5% ROI per annum.

During the three months ended ~~September 30, 2019,~~December 31, 2020, those shares were automatically converted into 360,647,019 of common shares with a fair market value of $2,000,000 of initial investment plus a five percent annualized return on initial investment (“ROI”), or total ROI of $500,000.

During the three months ended March 31, 2021, the Company issued ~~28,381,818~~499,374,305 shares of common stock for ~~warrant exercise~~debt conversions in the total amount of ~~$14,132.~~ $403,755.

During the three months ended March 31, 2021, the Company issued 587,222,222 shares of common stock in exchange for $1,012,000 in cash.

During the three months ended March 31, 2021, the Company issued 15,000,000 shares of common stock for services with a total fair value of $37,500.

As of ~~September 30, 2019~~March 31, 2021 and June 30, ~~2019,~~2020, the Company had ~~2,000,000 share~~1,541,500 shares of its preferred stock ~~810,254,536~~issued and ~~697,608,570~~outstanding, and 4,718,104,197 and 1,763,277,230 shares of its common stock, respectively, issued and outstanding.

~~During the three months ended December 31, 2019, the Company issued 18,181,818 shares of common stock to settle the old liability to be issued in total amount of $290,455.~~

~~During the three months ended December 31, 2019, the Company issued 24,994,341 shares of common stock for convertible debt principal with interest conversions in total amount of $142,165.~~

~~During the three months ended December 31, 2019, the Company issued 26,621,610 shares of common stock for cash in total amount of $240,000.~~

~~During the three months ended December 31, 2019, the Company issued 500,000 shares of common stock for employee bonus in total fair value of $7,550.~~

During the three months ended December 31, 2019, the Company issued 249,373,817 shares of common stock for acquisition of BZRTH in total fair value of $3,566,046. The shares are to be cancelled in subsequent period pursuant to the rescission on January 15, 2020.

During the three months ended December 31, 2019, the Company issued 750,001 shares of preferred stock for acquisition of BZRTH in total fair value of $10,725,014. The shares of preferred stock are to be cancelled in subsequent period pursuant to the rescission on January 15, 2020.

~~During the three months ended December 31, 2019, the Company issued 415,000 shares of series B preferred stock for award to employee bonus in total fair value of $5,934,500.~~

~~As of December 31, 2019 and June 30, 2019, the Company had 3,165,001 share of its preferred stock, 1,129,926,122 and 697,608,570 shares of its common stock, respectively, issued and outstanding.~~

~~During the three months ended March 31, 2020, the Company issued 128,525,706 shares of common stock for convertible debt principal with interest conversions in total amount of $298,756.~~

~~During the three months ended March 31, 2020, the Company issued 33,542,856 shares of common stock for cash in total amount of $225,000, include $100,000 share to be issued – common stock.~~

~~During the three months ended March 31, 2020, the Company cancelled 448,873,817 shares of common stock for the termination of Bizright acquisition in total fair value of $21,552,088.~~

~~During the three months ended March 31, 2020, the Company cancelled 750,001 shares of series B preferred stock for the termination of Bizright acquisition in total fair value of $10,725,014.~~

As of March 31, 2020 and June 30, 2019, the Company had 2,415,000 and 2,000,000 share of its preferred stock, 843,120,876 and 697,608,570 shares of its common stock, respectively, issued and outstanding.

~~During the year ended June 30, 2019, the Company had entered into multiple private placement agreements and had shares to be issued under liability in total amount of $100,000.~~

~~During the three months ended September 30, 2019, the Company had entered into a private placement agreement and had increased shares to be issued for total amount of $96,000.~~

~~During the three months ended September 30, 2019, the Company had entered into an employee compensation plan and had increased shares to be issued for total amount of $12,000.~~

~~During the three months ended December 31, 2019, the Company had entered into a private placement agreement and had increased shares to be issued for total amount of $40,000.~~

~~During the three months ended December 31, 2019, the Company had entered into an employee compensation plan and had increased shares to be issued for total amount of $14,000.~~

~~As of March 31, 2020 and June 30, 2019, the Company had balance of $262,000 and $100,000 share to be issued.~~

~~As of the year ended June 30, 2019, the Company had potential shares to be issued under common stock in total amount of $29,000.~~

~~During the three months ended September 30, 2019, the Company issued the $29,000 share to be issued – equity by 1,000,000 shares of the Company’s common stock.~~

~~During the three months ended December 31, 2019, the Company recorded in total amount of $100,000 potential share to be issued – equity.~~

~~During the three months ended March 31, 2020, the Company issued 11,764,706 shares of the Company’s common stock for the $100,000 share to be issued – equity which recorded in December 31, 2019.~~

~~As of March 31, 2020 and June 30, 2019, the Company had total potential shares to be issued under common stock and preferred stock in total amount of $0 and $29,000, respectively.~~

On October 30, 2019, SGMD closed the previously announced acquisition of BZRTH, Inc., a Nevada corporation (“BZRTH”) pursuant to a Stock Exchange Agreement. BZRTH is headquartered in Irwindale, California and is a marketer and manufacturer of hydroponic growth supplies and related products to distributors and retailers. The total consideration to be paid by the Company to acquire BZRTH was 650,000,000 shares of SGMD’s common stock, 3,500,000 shares of Series B convertible preferred stock, $870,000 in cash, and 5% promissory notes in the sum of $7,130,000.00 due on or before October 31, 2021 to the BZRTH shareholders. $870,000 of cash had been paid along with 449,373,817 common shares and 750,000 Series B Convertible Preferred shares.

On January 15, 2020, the Company entered into a Rescission and Mutual Release Agreement (“Agreement”) with each of the parties agreeing to return all consideration exchanged pursuant to the Stock Exchange Agreement. The Agreement provided for mutual releases and indemnities.

The shareholders of BZRTH have agreed to surrender for cancellation, 448,873,817 common shares and 750,000 Series B Convertible Preferred shares. On an as converted to common basis the returns to Sugarmade’s treasury equal 448,873,817 relating to the common shares to be surrendered and 750,000,000 million common shares equivalents due to each Series B Convertible Preferred share converting to common shares on a 1 for 1,000 basis. Thus, on a common share equivalent basis, the surrender equals 1,199,373,817 common shares, if all Preferred Series B were converted. As of December 31, 2019, the Company recorded share to be cancelled – common stock and preferred stock in total amount of $38,225,560.

~~During the three months ended March 31, 2020, the Company cancelled 448,873,817 shares of common stock for the termination of Bizright acquisition in total fair value of $21,552,088.~~

~~During the three months ended March 31, 2020, the Company cancelled 750,001 shares of series B preferred stock for the termination of Bizright acquisition in total fair value of $10,725,014.~~

On February 23, 2018, the Company entered into a lease agreement for a new office space ~~as part of the plan to expand operation, the lease is set to commence Commencing~~commencing March 1, 2018. The term of the lease is for ~~a (5) Five Years~~five years with 1one month free onin the 1^stfirst year of the term. The monthly rent onin the 1^stfirst year ~~will be~~was $11,770 with a 3% increase for each subsequent year. Total commitment for the full term of the lease ~~will be~~is $737,367. ~~After~~

Our warehouse along with some office space is located at 20529 East Walnut Drive North, Diamond Bar, California, where we lease approximately 11,627 square feet of combined space. The lease term is for five years and two months ending on April 30, 2025. The current monthly rental payment for the ~~adoption~~facility is $13,022.

Maturities of ~~ASC842, $455,590 of operating lease right-of-use asset and $465,826 of operating~~the Company’s lease liabilities were not retroactively reflected to June 30, 2019 financial statements, and $388,332 of operating lease right-of-use asset and $401,579 of operating lease liabilities were reflected to March 31, 2020 financial statements. As of the date of this filing, this property became the headquarter of the company.are as follows:

On April ~~8, 2020,~~5, 2021, the Company ~~issued 11,609,907~~entered into a stock subscription agreement to issue 194,444,445 shares of the Company’s common stock in exchange for $350,000 in cash.

On April 15, 2021, the Company entered into a stock subscription agreement to issue 194,444,445 shares of the Company’s common stock in exchange for $350,000 in cash.

On April 26, 2021, the Company entered into a stock subscription agreement to issue 100,000,000 shares of the Company’s common stock in exchange for $180,000 in cash.

On April 27, 2021, the Company entered into a stock subscription agreement to issue 194,444,445 shares of the Company’s common stock for cash in total amount of ~~$25,000.~~$350,000.

~~On April 13, 2020, the Company~~Shares issued ~~41,846,732~~for debt conversion

Subsequent to May 14, 2021, a note holder converted approximately $52,500 of convertible notes into 40,753,063 shares of the Company’s common stock ~~for a debt conversion in total principal amount of $55,000 with accrued interest of $2,748.49.~~.

~~On April 14, 2020, the Company issued 22,206,951 shares of the Company’s common stock for a debt conversion in total principal amount of $30,000 with accrued interest of $1,703.01.~~

~~On April 15, 2020, the Company issued 2,126,500 shares of the Company’s series B preferred stock subject to a waiver agreement, described in below.~~

On April 17, 2020, the Company entered into a Series B Waiver Agreement (the “Waiver Agreement”) with its chief executive officer and corporate chairman of its board of directors, Jimmy Chan (“Chan”) relating to Chan’s ownership of One Million Five Hundred Thousand (1,500,000) of Series B Convertible Preferred Stock. Under the terms of the Waiver Agreement, Chan waives his rights (a) to the conversion rights granted to him in the Series B Convertible Preferred Stock and (b) the rights to proceeds in the event of any liquidation, dissolution or winding up as may be provided in the Certificate of Incorporation pertaining to said Series B Preferred Stock, if any. In the event that there is a merger or consolidation (other than one in which stockholder of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company, this event will be treated as a liquidation event. The Series B Convertible Preferred Stock continues to vote or have the right to vote, together with the Common Stock as if it were on an as-converted basis, and not as a separate class, subject to any adjustments for stock dividends, splits, combinations and similar events.

~~On April 17, 2020, the Company issued 45,689,101 shares of the Company’s common stock for a debt conversion in total principal amount of $60,000.~~

~~On April 20, 2020, the Company issued 14,285,714 shares of the Company’s common stock for cash in total amount of $30,000.~~

On April 24, 2020, the Company entered a convertible promissory note with an accredited investor for a total amount of $75,000. The note is due 360 days and bear an interest rate of 8%. The conversion price for the note is 38% discount to the average of the three lowest trading prices during the previous 10 trading days to the conversion date.

~~On April 29, 2020, the Company issued 47,875,470 shares of the Company’s common stock for a debt conversion in total principal amount of $60,000 with $3,196 accrued interest.~~

~~On April 29, 2020, the Company issued 24,373,340 shares of the Company’s common stock for a debt conversion in total principal amount of $ 31,598.~~Lemon Glow Merger

On May ~~4, 2020,~~12, 2021, entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and between Carnaby Spot Bay Corp, a wholly owned subsidiary of the Company ~~informs its~~(“Merger Sub”), Lemon Glow Company (“Lemon Glow”) and Ryan Santiago (the “Shareholder Representative”).

Pursuant to the Merger Agreement, the parties to the Merger Agreement agreed that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub would merge with and into Lemon Glow (the “Merger”) at which time the separate corporate existence of Merger Sub would cease, with Lemon Glow being the surviving corporation in the Merger.

As consideration for the Merger, Company agreed to provide to the shareholders of Lemon Glow (the “Lemon Glow Shareholders”), at the closing of the Merger (the “Closing”):

The individual items of consideration above are referred to collectively as the “Merger Consideration”.

Lemon Glow is the owner of a 640-acre property located in Lake Country, California. Lemon Glow is in the process of improving 32 acres of the 640 acres for use as a regulated cannabis cultivation site. The Company and ~~other interested parties relative to new purchase orders received for consumable sanitary supplies and non-medical grade protective gear. Sugarmade, via its CarryOutSupplies.com operation, has begun~~Lemon Glow expect that the annual potential cultivation yield at the property is approximately 4,000 pounds per acre of dry trimmed cannabis flower, although there can be no assurance that the property will yield this amount or any at all.

At the Closing, each outstanding share of common stock of Lemon Glow, of which there were 11,000 shares at the Effective Time of the Merger, were converted into the right to receive ~~a substantial number of large purchase orders from both private and public institutions and businesses and in many cases, has begun to deliver products~~the Merger Consideration. The Company paid the Merger Consideration to the ~~ordering customers.~~Lemon Glow Shareholders, paying the cash consideration, issuing the Notes, and issuing the restricting shares of Company common stock and Series B Stock.

At the Effective Time, all the property, rights, privileges, powers and franchises of Lemon Glow and Merger Sub vested in Lemon Glow as the surviving corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of Lemon Glow and Merger Sub became those of Lemon Glow as the surviving corporation. In addition, at the Effective Time, the Articles of Incorporation and Bylaws of Lemon Glow remained in place as the Articles of Incorporation and Bylaws of Lemon Glow as the surviving corporation.

At the Effective Time, each outstanding share of common stock of Merger Sub (100 shares) was converted into one share of common stock of Lemon Glow which became the only outstanding capital stock of the ~~close~~Lemon Glow at the Effective Time. In addition, each share of ~~business on May 1, 2020, these purchase orders totaled in excess~~Lemon Glow common stock of ~~ten million US dollars ($10,000,000). Considering the Company’s revenue of $4,367,644 and $4,439,324 for the recently completed fiscal years ending June 30, 2019, and June 30, 2018, respectively,~~ the Company ~~believes~~held in the ~~receipt~~treasury of ~~these purchase orders is potentially a material event~~Lemon Glow immediately prior to the Effective Time was canceled and ~~thus, puts forth these disclosures pursuant to Regulation FD.~~

Executives at the Company have identified numerous sources to supply the products with several factories having available capacity to meet a substantial portion, if not all, of these orders. These supply sources include factories in both Vietnam and Southern China. In many cases, executives at Sugarmade have long standing relationship with these factories and the principal operators. While the Company will work toward delivering on as many of these purchase orders as is possible, airfreight transportation resources between Asia and Los Angeles, and relative to other routes, is at a premium with demand generally exceeding supply.retired. As a result, the Company became the sole owner of 100% of the ~~current transportation constraints, the Company may be limited in its ability to fully deliver on orders being received.~~

~~There are numerous others risks to fulfilling the orders received. These include, but are not limited to availability~~issued and outstanding common stock of financing, ability for contracted factory operations to produce the products, access to adequate logistical resource, customs clearance, ability for the ordering party to pay and risks related to transportation of finished goods to end customers.

~~Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~Lemon Glow.

~~N/A~~In addition, at the Effective Time, the Articles of Incorporation and Bylaws of Lemon Glow remained in place as the Articles of Incorporation and Bylaws of Lemon Glow (as the surviving corporation). Also, at the Effective Time, the executive officers and directors of Lemon Glow remained in place as the executive officers and directors of Lemon Glow.

The Merger is intended to be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Merger Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal income tax purposes.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis may include statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, factors listed in other documents we file with the Securities and Exchange Commission ~~(SEC)~~(“SEC”). We do not assume an obligation to update any forward- looking statement. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Quarterly Report on Form 10-Q. See “SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS” above.

Sugarmade, Inc. (hereinafter referred to as “we,” “us” or “Company”) is a publicly-traded company incorporated in the state of Delaware. Our previous legal name was Diversified Opportunities, Inc. Our Company operates our business activities through multiple subsidiaries, which includes SWC Group, Inc., a California corporation (“SWC”), SugarRush, Inc., a California corporation and ~~Financial Condition~~NUG Avenue, Inc., a California corporation.

Our legacy business operation, CarryOutSupplies.com, is a producer and wholesaler of custom printed and generic supplies, servicing more than 2,000 businesses in the Quick Service Restaurant Sector. Our products include double poly paper cups for cold beverage; disposable, clear, plastic cold cups, paper coffee cups, yogurt cups, ice cream cups, cup lids, cup sleeves, edible packaging, food containers, soup containers, plastic spoons, and many other similar products for this market sector. CarryOutSupplies.com was founded in 2009. Our products are viewable on our website: www.CarryOutSupplies.com.

We believe we occupy a defensible space within the Quick Service Restaurant Sector by way of our significant experience in serving this customer base, our knowledge of the industry fundamentals, and our significant experience in Asia factory sourcing and importing goods from Asian factories. Our niche within the market pertains to serving the many quick-service restaurants that wish to acquire custom printed products, such as those embossed with logos, but the minimum order size for such customization had been cost-prohibitive. With that in mind, CarryOutSupplies.com was founded to provide products to this underserved section of the market. Since that time, the Company has become a key supplier to more than 2,000 establishments, particularly within the frozen dessert segment.

The business of supplying such products to the quick-service restaurant sector remains highly competitive. Over the past few years, operating margins have compressed as a result of increased competition, the emergence of relatively inexpensive digital printing processes, and the larger printing and paper product manufacturers lowering minimum order quantities. Sugarmade expects the sector to remain highly competitive and is responding to the industry changes by realigning staff, eliminating less profitable products, and introducing new product areas.

The CarryOutSupplies operation has recently expanded its product offerings to include consumable sanitary supplies, such as non-medical gloves, non-medical facemasks, face shields, and other non-medical protective equipment. We believe our significant experience in sourcing products from Asian factories and the importation of goods from Asia makes us well-equipped to operate within the marketplace for non-medical, consumable, protective equipment.

We plan to continue our business pursuits relative to our CarryOutSuppies.com business, and have significantly restructured the operations over the past year. We plan to continue to modify our strategies and product lines to remain competitive in these niche market sectors.

In early 2020, our Company entered into an agreement to purchase Bud Cars, Inc., a California corporation, which is engaged in the licensed, and legal under California state law, delivery of cannabis and cannabis-containing products. Under the terms of the acquisition agreement, Sugarmade acquired a 29% stake in the operation and an option to gain a controlling interest in the delivery service.

Cannabis is already one of the fastest-growing markets in the U.S. According to Fortune Business Insights, during 2019, the cannabis market produced approximately $100 billion in U.S. sales. Growth over the next few years is expected to top 32% compounded annually. The U.S. cannabis segment has clearly been one of the fastest-growing markets within the American economy over the past 50 years. The California market clearly leads the U.S. market, with the legal California market worth at least $13 billion annually with strong growth continuing. The illegal market is likely even more extensive.

As the market shifts from the black to white markets, the legal providers are expected to benefit further. We urge investors to consider this trend in their investment decisions. One of the primary reasons many legal providers across several states have developed business issues is flawed state government policies that have allowed illegal operators to continue in business at the expense of the licensed and heavily taxed industry.

According to BDS Analytics and Arcview Market Research, two firms that closely monitor the cannabis marketplace, California’s total cannabis market is expected to produce about $12.8 billion this year, with $8.7 billion going to illicit operators and $3.1 billion to the state-authorized market.

For the first time, the white market/black market balance is beginning to shift as authorities crackdown on unlicensed business. This is starting to benefit legal operators. For example, California regulators and law enforcement agencies have recently announced hundreds of enforcement actions across California seizing millions of dollars of black market cannabis products. We believe this trend toward enforcement against illegal operators will directly benefit companies like the BudCars cannabis delivery service.

The outbreak of COVID-19, new social unrest in the United States, and the general movement toward retail home delivery have resulted in radical shifts in the cannabis marketplace. As a result, the general market for delivery services is proliferating.

Budcars operates its delivery service in strict adherence to all state, local and municipal regulations and is fully licensed for operations by California regulators.

Starting on October 1, 2020, the Company plans to open new locations via purchasing equity in other Brand/Franchises to cover delivery for the entire California. Therefore, the Company is not likely at this time to exercise its option to acquire the additional 30% interest in Indigo. In addition, the Company is no longer involved in day-to-day operations of Indigo and going forward, the Company intends to pursue cannabis delivery independent of Indigo. As of October 1, 2020, the Company ceased to have control over the day-to-day business of Indigo and it was deconsolidated and recorded as an investment in nonconsolidated affiliate at its $505,449 estimated fair value and changed to equity method of accounting. As of March 31, 2021, the Company still holds approximately 29% of the ownership of Indigo. See Note 4 and Note 5.

Our Ownership in Nug Avenue, Inc. Relative to Licensed and Permitted Cannabis Delivery in the Los Angeles Metropolitan Area

On February 8, 2020, Sugarmade became a joint owner of Nug Avenue, Inc., a California corporation (“Nug Avenue”), which is party to a management services agreement relating to the licensed and regulated delivery of cannabis out of Lynwood, California, serving primarily the greater Los Angeles Metropolitan area (the “Lynwood Operations”).

As of February 8, 2020, the Company acquired a majority stake of seventy percent (70%), allowing for full financial statement consolidation of the Nug Avenue, Inc. Lynwood Operations. As part of the February 8, 2020, agreement, the Company also gained an option to invest in Nug Avenue’s future business opportunities pertaining to any and all legal and regulated cannabis business operations. Further, under the February 8, 2002 agreement, Nug Avenue agreed to grant the Company unlimited participation rights in future financings.

The Company believes the Los Angeles cannabis delivery market offers substantial opportunities for growth. By all measures, the California cannabis market continues to gain strength, with the Southern California sub-market representing the world’s largest single cannabis marketplace. According to the California Department of Tax and Fee Administration, the most recently reported quarterly period posted an almost 80% increase in cannabis tax compared to the year-ago period. Much of this growth was driven by increased use of delivery services, as consumers are increasingly relying on home delivery for many goods, including cannabis.

Discussions with respect to our Company’s operations included ~~herein refer~~those of, SWC and Indigo Dye Group Corp., a variable interest entity (“VIE”). During the quarter ended December 31, 2020, the Company plans to ~~our operating subsidiary, SWC.~~open new locations via purchasing equity into other Brand/Franchises to cover delivery for the entire California. Therefore, the Company is not likely at this time to exercise its option to acquire the additional 30% interest in Indigo. In addition, the Company is no longer involved in Indigo’s day-to-day operations and going forward, the Company intends to pursue cannabis delivery, independent of Indigo. As of October 1, 2020, the ~~date~~Company continues to hold approximately 29% of ~~this filing,~~the ownership of Indigo but ceased to have a controlling interest in the partnership and it was deconsolidated and recorded as an investment in nonconsolidated affiliate at its $505,449 estimated fair value and changed to equity method of accounting. During the quarter ended December 31 ,2020, the Company invested additional $61,484 in Indigo, or 3.5% of Indigo’s issued shares. As of March 31, 2021, the Company continues to hold approximately 29% of the ownership of Indigo. As of March 31, 2021, we had no other operations other than ~~those of SWC.~~CarryOutSupplies.com and NUG Avenue.

On May 14, 2021, Carnaby Spot Bay Corp, a wholly owned subsidiary of the Company (“Merger Sub”) merged with and into Lemon Glow Company (“Lemon Glow”), at which time the separate corporate existence of Merger Sub would cease (the “Merger”), with Lemon Glow being the surviving corporation in the Merger.

As consideration for the Merger, at the closing of the Merger (the “Closing”) Company provided to the shareholders of Lemon Glow (the “Lemon Glow Shareholders”):

Lemon Glow is the owner of a 640-acre property located in Lake Country, California. Lemon Glow is in the process of improving 32 acres of the 640 acres for use as a regulated cannabis cultivation site. The Company and Lemon Glow expect that the annual potential cultivation yield at the property is approximately 4,000 pounds per acre of dry trimmed cannabis flower, although there can be no assurance that the property will yield this amount or any at all.

At the Closing, each outstanding share of common stock of Lemon Glow, of which there were 11,000 shares at the effective time of the Merger, were converted into the right to receive the Merger Consideration. Also at the Closing, each outstanding share of common stock of Merger Sub (100 shares) was converted into one share of common stock of Lemon Glow which became the only outstanding capital stock of the Lemon Glow at the effective time of the Merger. In addition, each share of Lemon Glow common stock of the Company held in the treasury of Lemon Glow immediately prior to the Closing was canceled and retired. As a result, the Company became the sole owner of 100% of the issued and outstanding common stock of Lemon Glow.

Our business and operating results for 2020 was impacted by the COVID-19 pandemic. However, we have seen improvement in our business, which we expect to continue throughout 2021.

The following table sets forth the results of our operations for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, revenues were ~~$416,356~~$404,843 and ~~$572,678,~~$416,356, respectively. The decrease was primarily due to ~~business loss within~~ the ~~stick supply industry.~~COVID-19 pandemic.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, costs of goods sold were ~~$253,223~~$229,818 and ~~$398,281~~$253,223, respectively. The decrease was primarily due to the ~~business loss within the stick supply industry.~~COVID-19 pandemic.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, gross profit was ~~$163,133~~$175,025 and ~~$174,397,~~$163,133, respectively. The ~~decrease~~increase was primarily due to the ~~business loss within~~higher margin for the ~~stick supply industry.~~cannabis delivery services.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, operating expenses were ~~$870,621~~$776,276 and ~~$634,705,~~$870,621, respectively. The ~~increase~~decrease was primarily due to the ~~increase of employee stock~~decrease in stock-based compensation.

The Company had total other non-operating expense of ~~$1,423,624~~$4,984,908 and ~~$949,848~~$1,423,624 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in non-operating ~~income~~expense is related to the accounting for the changes in derivative ~~liabilities.~~liabilities due to conversions.

Net loss totaled ~~$1,487,876~~$5,537,403 for the three months ended March 31, ~~2020,~~2021, compared to a net loss ~~totaling $2,131,111~~of $2,131,112 for the three-month period ended March 31, ~~2019.~~2020. The increase was mainly due to the ~~increase of employee stock compensation.~~accounting for the changes in derivative liabilities due to conversions.

The following table sets forth the results of our operations for the nine months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

For the nine months ended March 31, ~~2020~~2021 and ~~2019,~~2020, revenues were ~~$1,891,140~~$2,851,822 and ~~$3,459,511,~~$1,891,140, respectively. The ~~decrease~~increase was primarily due to ~~business loss within~~ the ~~stick supply industry.~~new cannabis delivery business.

For the nine months ended March 31, ~~2020~~2021 and ~~2019,~~2020, costs of goods sold were ~~$1,181,081~~$1,502,247 and ~~$2,528,680~~$1,181,081, respectively. The ~~decrease~~increase was primarily due to the ~~business loss within the stick supply industry.~~new cannabis delivery business.

For the nine months ended March 31, ~~2020~~2021 and ~~2019,~~2020, gross profit was ~~$710,059~~$1,349,575 and ~~$930,831,~~$710,059, respectively. The ~~decrease~~increase was primarily due to the ~~business loss within the stick supply industry.~~new cannabis delivery business.

For the nine months ended March 31, ~~2020~~2021 and ~~2019,~~2020, operating expenses were ~~$9,290,184~~$3,395,996 and ~~$5,371,662,~~$9,290,184, respectively. The ~~increase~~decrease was due to the ~~increase of employee stock~~decrease in stock-based compensation.

The Company had total other non-operating expense of ~~$3,333,061~~$3,912,812 and ~~$5,611,756~~$3,333,060 for the nine months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in non-operating income is related to the accounting for the changes in derivative ~~liabilities.~~liabilities due to conversions.

Net loss totaled ~~$11,913,186~~$5,912,591 for the nine months ended March 31, ~~2020,~~2021, compared to a net loss ~~totaling $10,052,587~~of $11,913,186 for the nine-month period ended March 31, ~~2019.~~2020. The ~~increase~~decrease was mainly due to the ~~increase of employee stock compensation.~~decrease in stock-based compensation and the accounting for the changes in derivative liabilities due to conversions.

We have primarily financed our operations through the sale of unregistered equity and convertible notes payable. As of March 31, ~~2020,~~2021, our Company had cash balance of ~~$7,510,~~$269,885, current assets totaling ~~$2,268,534~~$2,550,469 and total assets of ~~$4,724,003.~~$4,265,316. We had current and total liabilities totaling ~~$10,028,019~~$9,553,200 and ~~$10,315,923,~~$10,510,811, respectively. Stockholders’ equity reflected a deficiency of ~~$59,002,136.~~$6,245,495.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Net cash ~~(used in) provided by~~used in operating activities was ~~$(2,509,063)~~$2,647,840 for the nine months ended March 31, ~~2020,~~2021, and ~~$(1,504,097)~~$2,509,064 for the nine months ended March 31, ~~2019.~~2020.

~~There were $(700,000) and $(297,154)~~Net cash used in investing activities ~~during the nine months ended March 31, 2020 and 2019, respectively.~~

~~Net cash (used in) provided by financing activities~~ was ~~$3,182,202 for the nine months ended nine months ended March 31, 2020 and $1,793,046~~$55,810 for the nine months ended March 31, ~~2019.~~2021, and $700,000 for the nine months ended March 31, 2020.

Net cash provided by financing activities was $2,532,530 for the nine months ended March 31, 2021 and $3,182,202 for the nine months ended March 31, 2020.

Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenues and gross margins adequate to equal or exceed our ongoing operating expenses. Other than the notes payable discussed above, borrowings from our bank and the production credit facility with our suppliers, we do not have any credit agreement or source of liquidity immediately available to us.

Given estimates of our Company’s future operating results and our credit arrangements with our suppliers, we are currently forecasting that we will need to secure additional financing to obtain adequate financial resources to reach profitability. As of ~~the date of this report,~~March 31, 2021, we estimate that the cash necessary to implement our current business plan for the next twelve months is approximately $2,000,000.

Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our unaudited condensed consolidated financial statements and our independent public accountants have included a similar discussion in their opinion on our financial statements through June 30, ~~2019.~~2020. We will be required in the near future to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no firm arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.

Our current plans do not call for our Company to expend significant amounts for capital expenditures for the foreseeable future beyond relatively insignificant expenditures for office furniture and information technology related equipment as we add employees to our Company. We are however continually evaluating the production processes of our ~~third party~~third-party contract manufacturers to determine if there are investments we could make in their processes to achieve manufacturing improvements and significant cost savings. Any such desired investments would require additional cash above our current forecast requirements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

These interim unaudited condensed consolidated financial statements should be read in conjunction with our Company’s Annual Report on Form 10-K for the year ended June 30, 2020, which contains our audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operation, for the fiscal year ended June 30, 2020. The interim results for the period ended March 31, 2021 are not necessarily indicative of the results for the full fiscal year.

The consolidated financial statements include the accounts of our Company, its wholly owned subsidiary, SWC Group Inc., and Indigo Dye Group Corp., an investment in nonconsolidated affiliate (formerly a variable interest entity as of September 30, 2020). All significant intercompany transactions and balances have been eliminated in consolidation.

The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Management is endeavoring to increase revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms to our Company, or which may not be available at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us and/or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of our common stock.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’’) No. 606, Revenue Recognition. Sugarmade applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied.

Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.

Property and equipment are stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes as follows:

Expenditures for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

Upon sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed from their respective accounts and any gain or loss is recorded in the statements of income.

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment was recorded in operating expenses during the nine months ended March 31, 2021 and 2020.

Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company, as of June 30, 2020, performed an impairment test of all of its intangible assets. Based on the Company’s analysis, the company had an amortization of intangible assets of $1,022 and $1,050 for the nine months ended March 31, 2021 and 2020, respectively.

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to recognize the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The new standard became effective April 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on July 1, 2019 using the modified retrospective transition approach as of the effective date of the initial application. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements.

The most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases. All existing leases are reported under this rule.

Under ASC 840, leases were classified as either capital or operating, and the classification significantly impacted the effect the contract had on the company’s financial statements. Capital lease classification resulted in a liability that was recorded on a company’s balance sheet, whereas operating leases did not impact the balance sheet. After the new adoption, $1,105,755 of operating lease right-of-use asset and $1,140,041 of operating lease liabilities were reflected on the Company’s June 30, 2020 financial statements and $786,817 of operating lease right-of-use asset and $822,420 of operating lease liabilities were reflected on the Company’s March 31, 2021 financial statements.

Stock based compensation

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Stock based compensation cost to employees is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Binomial Option Pricing Model. Key assumptions used to estimate the fair value of stock options will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common stock. We use our company’s own data among other information to estimate the expected price volatility and the expected forfeiture rate. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

Earnings (Loss) per share

We calculate basic earnings (loss) per share (“EPS”) by dividing our net income (loss) by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.

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~~Table~~

Fair value of ~~Contents~~financial instruments

ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - unobservable inputs which are supported by little or no market activity.

The Company used Level 3 inputs for its valuation methodology for the derivative liabilities in determining the fair value using the Binomial option-pricing model for the six months ended December 31, 2020.

Derivative instruments

The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under non-operating income (expense).

Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Segment Reporting

FASB ASC Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

The Company’s financial statements as of December 31, 2020 substantially all of its operations are conducted in three industry segments – (1) paper and paper-based products such as paper cups, cup lids, food containers, etc., which accounts for approximately 24% of the Company’s revenues; (2) non-medical supplies such as non-medical fascial mask, which accounts for approximately 3% of the Company’s total revenues; and cannabis products delivery service and sales.

New accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes an ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company have adopted this ASU on the consolidated financial statements in the quarter ended September 30, 2019.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for us beginning in the first quarter of fiscal 2021, with early adoption permitted. We are still evaluating the impact this guidance will have on our consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815), which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Intentionally omitted pursuant to Item 305(e) of Regulation S-K.~~Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

As required by the ~~Securities and Exchange Commission~~SEC Rule 13a-15(e) and Rule 15d-15(e), we carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~September 30, 2019,~~March 31, 2021, our disclosure controls and procedures were ~~ineffective due to~~not effective because the Company is relatively inexperienced with certain complexities within ~~USGAAP~~U.S. GAAP and SEC reporting.

We have taken, and are continuing to take, certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We plan to hire additional credentialed professional staff and consulting professionals with greater knowledge and experience of U.S. GAAP and related regulatory requirements to oversee our financial reporting process in order to ensure our compliance with U.S. GAAP and other relevant securities laws. In addition, we plan to provide additional training to our accounting personnel on U.S. GAAP, and other regulatory requirements regarding the preparation of financial statements.

Notwithstanding the above identified material weakness, the Company’s management believes that its unaudited condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

Changes in Internal Controls over Financial Reporting

There have not been any changes in our internal controls over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

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From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. Except as set forth below, as of March 31, 2021, there were no legal claims pending or threatened against the Company that in the opinion of our management would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

On December 11, 2013, the Company was served with a complaint from two convertible note holders and investors in the Company. On February 21, 2017, the Company signed a settlement agreement with the plaintiffs in the matter of Hannan vs. Sugarmade. Under the terms of the settlement agreement, the Company agreed to pay the plaintiffs an aggregate of $227,000 to settle all claims against the Company, which included the payoff of two notes outstanding. The parties estimated the value of the notes at approximately $80,000. As of June 30, 2020, third parties had purchased two notes of approximately $80,000. As of March 31, 2021, there remains a balance, plus accrued interest on the $227,000 and on the $80,000 due under the notes.

Investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this herein before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your investment. You should also read the section entitled “Special Notes Regarding Forward-Looking Statements” belowNot required for ~~a discussion of what types of statements are forward-looking statements as well as the significance of such statements in the context of this report.~~smaller reporting companies.

The Company, as of the end of the 2019 fiscal year (June) was at a stage where it requires external capital to continue with its business. It must obtain additional significant capital in the future to continue its operations. There can be no certainty that the Company can obtain these funds.

During the ~~three~~nine months ended March 31, ~~2020,~~2021, the Company ~~issued/cancelled shares as followings:~~issued the following shares:

All of the aforementioned securities were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 thereunder.

~~Delaware~~		94-3008888
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

750 Royal Oaks Dr., Suite 108, Monrovia, CA		91016
(Address of principal executive offices)		(Zip Code)