UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from __________ to __________.
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Incorporation or organization) | Identification No.) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
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Indicate by check mark whether
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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As of March 3, 2023,
there were
SINGULARITY FUTURE TECHNOLOGY LTD.
FORM 10-Q
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | ii | |
PART I. | FINANCIAL INFORMATION | 1 |
Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 |
Item 4. | Controls and Procedures | 41 |
PART II. OTHER INFORMATION | 43 | |
Item 1. | Legal Proceedings | 43 |
Item 1A. | Risk Factors | 43 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43 |
Item 3. | Defaults Upon Senior Securities | 43 |
Item 4. | Mine Safety Disclosures | 43 |
Item 5. | Other Information | 43 |
Item 6. | Exhibits | 43 |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements, including but not limited to statements regarding our projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond our control. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties we face that could cause our actual results to differ materially from those projected or anticipated, including but not limited to the following:
● | our ability to timely and properly deliver our services; |
● | our dependence on a limited number of major customers and suppliers; | |
● | our ability to resume our business of sales of crypto mining machines and to expand our operations after the conclusion of the investigation; |
● | current and future political and economic factors in the United States and China and the relationship between the two countries; |
● | our ability to explore and enter into new business opportunities and the acceptance in the marketplace of our new lines of business; |
● | unanticipated changes in general market conditions or other factors which may result in cancellations or reductions in the need for our services; |
● | the demand for warehouse, shipping and logistics services; |
● | the foreign currency exchange rate fluctuations; |
● | possible disruptions in commercial activities caused by events such as natural disasters, health epidemics, terrorist activity and armed conflict; |
● | our ability to identify and successfully execute cost control initiatives; |
● | the impact of quotas, tariffs or safeguards on our customer products that we service; |
● | our ability to attract, retain and motivate qualified management team members and skilled personnel; |
● | relevant governmental policies and regulations relating to our businesses and industries; | |
● | developments in, or changes to, laws, regulations, governmental policies, incentives and taxation affecting our operations; | |
● | our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners; and | |
● | the outcome of litigation or investigation in which we are involved is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update the forward-looking statements. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Information.
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, | June 30, | |||||||
2022 | 2021 (Restated) | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | $ | ||||||
Cryptocurrencies | ||||||||
Accounts receivable, net | ||||||||
Other receivables, net | ||||||||
Advances to suppliers - third parties | ||||||||
Advances to suppliers - related party | ||||||||
Prepaid expenses and other current assets | ||||||||
Due from related party, net | ||||||||
Total Current Assets | ||||||||
Property and equipment, net | ||||||||
Right-of-use assets | ||||||||
Other long-term assets - deposits | ||||||||
Investment in unconsolidated entity | ||||||||
Total Assets | $ | $ | ||||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Deferred revenue | $ | $ | ||||||
Refund payable | - | |||||||
Accounts payable | ||||||||
Lease liabilities - current | ||||||||
Taxes payable | ||||||||
Accrued expenses and other current liabilities | ||||||||
Loan payable - current | ||||||||
Total Current Liabilities | ||||||||
Lease liabilities – non-current | ||||||||
Loan payable-non-current | ||||||||
Convertible notes | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies | ||||||||
Equity | ||||||||
Preferred stock, | $ | $ | ||||||
Common stock, | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total Stockholders’ Equity attributable to controlling shareholders of the Company | ||||||||
Non-controlling Interest | ( | ) | ( | ) | ||||
Total Equity | ||||||||
Total Liabilities and Equity | $ | $ |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
Selling expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Impairment loss of Cryptocurrencies | ( | ) | ( | ) | ||||||||||||
Provision for doubtful accounts, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Stock-based compensation | ( | ) | ( | ) | ||||||||||||
Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss from disposal of subsidiary and VIE | - | ( | ) | |||||||||||||
Other expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax expense | ( | ) | ||||||||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
Net loss attributable to controlling shareholders of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Comprehensive loss | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Other comprehensive income (loss) - foreign currency | ( | ) | ( | ) | ||||||||||||
Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Less: Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
Comprehensive loss attributable to controlling shareholders of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss per share | ||||||||||||||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
Weighted average number of common shares used in computation | ||||||||||||||||
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional paid-in | Subscription | Accumulated | other comprehensive | Non-controlling | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares* | Amount | capital | receivable | deficit | loss | interest | Total | |||||||||||||||||||||||||||||||
BALANCE, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Issuance of common stock to private investor | - | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Net income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
BALANCE, September 30, 2020 (Restated) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Issuance of preferred stock to private investor | - | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock to private investor | - | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Issuance of common stock to private investor | - | |||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock into common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
Exercise of stock warrants | - | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
BALANCE, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional paid-in | Subscription | Shares to | Accumulated | other comprehensive | Non-controlling | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares* | Amount | capital | receivable | be issued | deficit | loss | interest | Total | ||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2021 (Restated) | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
Stock compensation issue to employee | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
BALANCE, September 30, 2021 (Restated) | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Stock compensation issue to former director | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Issuance of common stock to private investors | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Disposal of VIE and subsidiaries | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
BALANCE, December 31, 2021 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock to private placement | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Stock based compensation to employee | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Stock based compensation to consultants | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Cashless exercise of stock warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to private investors | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
Warrant repurchase | - | - | ( | ) | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||
BALANCE, March 31, 2022 | - | $ | - | $ | $ | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Operating Activities | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Stock-based compensation | ||||||||
Depreciation and amortization | ||||||||
Non-cash lease expense | ||||||||
Provision for doubtful accounts, net | ||||||||
Loss on disposal of fixed assets | ||||||||
Loss on disposal of subsidiaries | ||||||||
Impairment loss of cryptocurrencies | ||||||||
Gain from loan forgiveness | ( | ) | ||||||
Changes in assets and liabilities | ||||||||
Cryptocurrencies | ( | ) | ||||||
Accounts receivable | ( | ) | ( | ) | ||||
Other receivables | ( | ) | ||||||
Advances to suppliers - third parties | ( | ) | ||||||
Advances to suppliers - related party | ( | ) | ||||||
Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
Other long-term assets - deposits | ( | ) | ( | ) | ||||
Due from related parties | ||||||||
Deferred revenue | ||||||||
Refund payable | - | |||||||
Accounts payable | ||||||||
Taxes payable | ||||||||
Lease liabilities | ( | ) | ( | ) | ||||
Accrued expenses and other current liabilities | ( | ) | ||||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
Investing Activities | ||||||||
Acquisition of property and equipment | ( | ) | ( | ) | ||||
Investment in unconsolidated entity | ( | ) | ||||||
Advance to related parties | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Financing Activities | ||||||||
Proceeds from issuance of preferred stock | ||||||||
Proceeds from issuance of common stock | ||||||||
Proceeds from convertible notes | ||||||||
Repayment of convertible notes | ( | ) | ||||||
Warrant repurchase | ( | ) | ||||||
Repayment of loan payable | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Effect of exchange rate fluctuations on cash | ||||||||
Net increase in cash | ||||||||
Cash at beginning of period | ||||||||
Cash at end of period | $ | $ | ||||||
Supplemental information | ||||||||
Interest paid | $ | $ | ||||||
Non-cash transactions of operating and investing activities | ||||||||
Initial recognition of right-of-use assets and lease liabilities | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SINGULARITY FUTURE TECHNOLOGY LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
The Company is a global logistics integrated solution provider that was founded in the United States in 2001. On September 18, 2007, the Company amended its Articles of Incorporation and Bylaws to merge into a new corporation, Sino-Global Shipping America, Ltd. in Virginia. The Company primarily focuses on providing logistics and support to businesses in the Peoples’ Republic of China (“PRC”) and the United States. On January 3, 2022, the Company changed its corporate name from Sino-Global Shipping America, Ltd. to Singularity Future Technology Ltd. to reflect its expanded operations into the digital assets business.
The Company conducted its business primarily through its wholly-owned subsidiaries in the PRC (including Hong Kong) and the United States, where the majority of its clients are located. As of March 31, 2022, the Company operated in two segments: (1) freight logistics services which include shipping and warehouse services, were operated by its subsidiaries in both the United States and PRC, and (2) the sale of crypto-mining machines, which were operated by its subsidiaries in the United States. For the nine months ended September 30, 2021, the Company also engaged in shipping agency and management services, which were carried out by its subsidiary in the U.S. The Company no longer operates in the shipping agency segment because it did not receive any new orders for its services due to the uncertainty of the shipping management market which was negatively impacted by the COVID-19 pandemic.
On March
2, 2021,
On December 31, 2021, the Company entered into a series of agreements to terminate its variable interest entity (“VIE”) structure and deconsolidated its formerly controlled entity Sino-Global Shipping Agency Ltd. (“Sino-China”). The Company controlled Sino-China through its wholly owned subsidiary Trans Pacific Shipping Limited (“Trans Pacific Beijing”). The Company made the decision to dissolve both the VIE structure and Sino-China because Sino-China had no active operations and the Company wanted to remove any potential risks associated with any VIE structures. In addition, the Company dissolved its subsidiary Sino-Global Shipping LA on December 26, 2021 as this subsidiary had no material operation, Inc. On March 14, 2022, the Company dissolved its subsidiary Sino-Global Shipping Canada, Inc..
The outbreak of the novel coronavirus (COVID-19) beginning in late January 2020 in the PRC has spread rapidly to many parts of the world. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. This has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China and the U.S. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s freights logistic segments and its workforce are concentrated in China., the Company’s business, results of operations, and financial condition have been adversely affected. In early December 2022, the Chinese government eased the strict control measure for COVID-19, which has led to a surge in increased infections and a disruption in our business operations. Any future impact of COVID-19 on the Company’s operation results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and resurgence of COVID-19 variants and the actions taken by government authorities to contain COVID-19 or treat its impact, almost all of which are beyond our control.
On March 14, 2022, the company dissolved its subsidiary Sino-Global Shipping Canada, Inc. which resulted no gain and loss on it.
5
As of March 31, 2022, the Company’s subsidiaries included the following:
Name | Background | Ownership | |||
Sino-Global Shipping New York Inc. (“SGS NY”) |
● ● ● |
A New York Corporation Incorporated on May 03, 2013 Primarily engaged in freight logistics services |
|||
Sino-Global Shipping Australia Pty Ltd. (“SGS AUS”) |
● ● ● |
An Australian Corporation Incorporated on July 03, 2008 No material operations |
|||
Sino-Global Shipping HK Ltd. (“SGS HK”) |
● ● ● |
A Hong Kong Corporation Incorporated on September 22, 2008 No material operations |
|||
Thor Miner Inc. (“Thor Miner”) |
● ● ● |
A Delaware Corporation Incorporated on October 13, 2021 Primarily engaged in sales of crypto mining machines |
|||
Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) |
● ● ● |
A PRC limited liability company Incorporated on November 13, 2007. Primarily engaged in freight logistics services |
|||
Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”) |
● ● ● |
A PRC limited liability company Incorporated on May 31, 2009 Primarily engaged in freight logistics services |
|||
Ningbo Saimeinuo Supply Chain Management Ltd. (“SGS Ningbo”) |
● ● ● |
A PRC limited liability company Incorporated on September 11,2017 Primarily engaged in freight logistics services |
|||
Blumargo IT Solution Ltd. (“Blumargo”) |
● ● ● |
A New York Corporation Incorporated on December 14, 2020 No material operations |
|||
Gorgeous Trading Ltd (“Gorgeous Trading”) |
● ● ● |
A Texas Corporation Incorporated on July 01, 2021 Primarily engaged in warehouse related services |
|||
Brilliant Warehouse Service Inc. (“Brilliant Warehouse” ) |
● ● ● |
A Texas Corporation Incorporated on April 19,2021 Primarily engaged in warehouse house related services |
|||
Phi Electric Motor In. (“Phi”) |
● ● ● |
A New York Corporation Incorporated on August 30, 2021 No operations |
|||
SG Shipping &Risk Solution Inc, (“SGSR”) |
● ● ● |
A New York Corporation Incorporated on September 29, 2021 No material operations |
|||
SG Link LLC (“SG Link”) |
● ● ● |
A New York Corporation Incorporated on December 23, 2021 No operations |
6
Restatement of previously issued financial statements
From
March to June 2019, Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”), a subsidiary of the Company, received
approximately $
As such, for the fiscal year ended June 30, 2019,
accounts receivable was understated by RMB
During the fiscal year ended June 30, 2020, Baoxie
repaid a total of RMB
During
the fiscal year ended June 30, 2021, Baoyu repaid RMB
The Company analyzed the transactions and determined the RMB
Effects of the restatements are as follows:
As Previously Reported | Adjustments | As Restated | ||||||||||
Consolidate balance sheet as of June 30, 2021 | ||||||||||||
Current assets | ||||||||||||
Loan receivable - related parties | $ | $ | ( | ) | $ | |||||||
Total assets | $ | $ | ( | ) | $ | |||||||
Total equity | $ | $ | ( | ) | $ |
As | ||||||||||||
Previously | As | |||||||||||
Reported | Adjustments | Restated | ||||||||||
Consolidate Statement of Stockholder's Equity as of June 30, 2021 | ||||||||||||
Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||
Non-controlling Interest | ( | ) | ( | ) | ( | ) | ||||||
Total equity | $ | $ | ( | ) | $ |
7
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to December 31, 2021, Sino-China was considered
a VIE, with the Company as the primary beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China,
pursuant to which the Company received
As a VIE, Sino-China’s revenues were included in the Company’s total revenues, and any income/loss from operations was consolidated with that of the Company. Because of contractual arrangements between the Company and Sino-China, the Company had a pecuniary interest in Sino-China that required consolidation of the financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. The agency relationship between the Company and Sino-China and its branches was governed by a series of contractual arrangements pursuant to which the Company had substantial control over Sino-China. Management makes ongoing reassessments of whether the Company remains the primary beneficiary of Sino-China. On December 31, 2021, the Company entered into a series of agreements to terminate its VIE structure and deconsolidated its formerly controlled entity Sino-China.
Loss from disposal of Sino-China amounted to
approximately $
The carrying amount and classification of Sino-China’s assets and liabilities included in the Company’s consolidated balance sheets were as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Total current assets | ||||||||
Deposits | ||||||||
Total assets | $ | $ | ||||||
Current liabilities: | ||||||||
Other payables and accrued liabilities | $ | $ | ||||||
Total liabilities | $ | $ |
8
(b) Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 — Unobservable inputs that reflect management’s assumptions based on the best available information.
The carrying value of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of the short-term nature of these instruments.
(c) Use of Estimates and Assumptions
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include revenue recognition, fair value of stock-based compensation, cost of revenues, allowance for doubtful accounts, impairment loss, deferred income taxes, income tax expense and the useful lives of property and equipment. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(d) Translation of Foreign Currency
The accounts of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Trans Pacific Beijing and Trans Pacific Logistic Shanghai Ltd. report their financial positions and results of operations in Renminbi (“RMB”), its subsidiary Sino-Global Shipping Australia Pty Ltd., reports its financial positions and results of operations in Australian dollar (“AUD”), its subsidiary Sino-Global Shipping (HK), Ltd. reports its financial positions and results of operations in Hong Kong dollar (“HKD”) and its subsidiary Sino-Global Shipping Canada, Inc. reports its financial positions and results of operations in Canadian Dollar (“CAD”). The accompanying unaudited condensed consolidated financial statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations. The Company translates the foreign currency financial statements in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheets’ dates and revenues and expenses are translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive loss and accumulated other comprehensive loss as a separate component of equity of the Company, and also included in non-controlling interests.
The exchange rates as of March 31, 2022 and June 30, 2021 and for the three and nine months ended March 31, 2022 and 2021 are as follows:
March 31, 2022 | June 30, 2021 | Three months ended March 31, | Nine months ended March 31, | |||||||||||||||||||||
Foreign currency | Balance Sheet | Balance Sheet | 2022 Profits/Loss | 2021 Profits/Loss | 2022 Profits/Loss | 2021 Profits/Loss | ||||||||||||||||||
1USD: RMB | ||||||||||||||||||||||||
1USD: AUD | ||||||||||||||||||||||||
1USD: HKD | ||||||||||||||||||||||||
1USD: CAD |
(e) Cash
Cash consists of cash on hand and cash in bank which are unrestricted
as to withdrawal or use. The Company maintains cash with various financial institutions mainly in the PRC, Australia, Hong Kong, Canada
and the U.S. As of March 31, 2022 and June 30, 2021, cash balances of $
9
(f) Cryptocurrencies
Cryptocurrencies, mainly bitcoin, are included in current assets in the accompanying consolidated balance sheets. Cryptocurrencies purchased are recorded at cost. Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
(g) Receivables and Allowance for Doubtful Accounts
Accounts receivable are presented at net realizable
value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company reviews the accounts receivable on
a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual receivable balances.
In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances,
customers’ historical payment history, their current credit-worthiness and current economic trends.
Other receivables represent mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, project advances as well as office lease deposits. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts.
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(h) Property and Equipment, net
Property and equipment are stated at historical cost less accumulated depreciation. Historical cost comprises its purchase price and any directly attributable costs of bringing the assets to its working condition and location for its intended use. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
Buildings | ||
Motor vehicles | ||
Computer and office equipment | ||
Furniture and fixtures | ||
System software | ||
Leasehold improvements | ||
Mining equipment |
The carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset is less than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals. For the three and nine months ended March 31, 2022 and 2021, no impairment were recorded, respectively.
(i) Investments in unconsolidated entity
Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence
is generally considered to exist when the Company has voting shares representing
Investments are evaluated for impairment when
facts or circumstances indicate that the fair value of the long-term investment is less than its carrying value. An impairment loss is
recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether
a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration
of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investment;
and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. On January 10,
2020, the Company entered into a cooperation agreement with Mr. Shanming Liang, a shareholder of the Company, to set up a joint venture
in New York named LSM Trading Ltd., in which the Company holds a
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(j) Convertible notes
The Company evaluates its convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
(k) Revenue Recognition
The Company recognizes revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time.
The Company uses a five-step model to recognize revenue from customer contracts. The five-step model requires the Company to (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon performance of services. Persuasive evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. The Company’s revenues are recognized at a point in time after all performance obligations are satisfied.
Contract balances
The Company records receivables related to revenue when the Company has an unconditional right to invoice and receive payment.
Deferred revenue consists primarily of customer
billings made in advance of performance obligations being satisfied and revenue being recognized. On January 10, 2022, the Company’s
joint venture, Thor Miner, entered into a purchase and sale agreement with SOS Information Technology New York Inc. (“SOSNY”).
Pursuant to the purchase and sale agreement, Thor Miner agreed to sell and SOSNY agreed to purchase certain cryptocurrency mining hardware
and other equipment. Thor Miner and SOSNY agreed that SOSNY shall make payment equal to 50% of the total purchase price within 5 days
after the execution of the purchase and sale agreement, and the remaining 50% for each order shall be paid at least seven (7) calendar
days before the shipment. On January 14, 2022, Thor Miner received an advance payment of $
12
The Company’s disaggregated revenue streams are described as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31 | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Shipping agency and management services | $ | $ | $ | $ | ||||||||||||
Freight logistics services | ||||||||||||||||
Total | $ | $ | $ | $ |
● | Revenues from shipping agency and management services are recognized upon completion of services, which coincides with the date of departure of the relevant vessel from port. Advance payments and deposits received from customers prior to the provision of services and recognition of the related revenues are presented as deferred revenue. |
● | Revenues from freight logistics services are recognized when the related contractual services are rendered. |
Disaggregated information of revenues by geographic locations are as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
PRC | $ | $ | $ | $ | ||||||||||||
U.S. | ||||||||||||||||
Total revenues | $ | $ | $ | $ |
(l) Taxation
Because the Company and its subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. The Company uses the asset and liability method of accounting for income taxes in accordance with U.S. GAAP. Deferred taxes, if any, are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the future.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of March 31, 2022 and 2021.
Income tax returns for the years prior to 2018 are no longer subject to examination by U.S. tax authorities.
PRC Enterprise Income Tax
PRC enterprise income tax is calculated based
on taxable income determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”) at
PRC Value Added Taxes and Surcharges
The Company is subject to value added tax (“VAT”). Revenue from services provided by the Company’s PRC subsidiaries, including Trans Pacific, and the VIE, and Sino-China, are subject to VAT at rates ranging from 9% to 13%. Entities that are VAT general taxpayers are allowed to offset qualified VAT paid to suppliers against their VAT liability. Net VAT liability is recorded in taxes payable on the consolidated balance sheets.
In addition, under the PRC regulations, the Company’s
PRC subsidiaries and VIE are required to pay city construction tax (
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(m) Earnings (loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common stock of the Company by the weighted average number of shares of common stock of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock of the Company were exercised or converted into common stock of the Company. Common stock equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the three and nine months ended March 31, 2022 and 2021, there was no dilutive effect of potential shares of common stock of the Company because the Company generated net loss.
(n) Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with the authoritative guidance issued by Financial Accounting Standards Board (the “FASB”) which establishes standards for reporting comprehensive income (loss) and its component in financial statements. Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of stockholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
(o) Stock-based Compensation
The Company accounts for stock-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that stock-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company records stock-based compensation expense at fair value on the grant date and recognizes the expense over the employee’s requisite service period.
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 718 amended by ASU 2018-07. Under FASB ASC Topic 718, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received.
Valuations of stock-based compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
(p) Risks and Uncertainties
The Company’s business, financial position and results of operations may be influenced by the political, economic, health and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, health and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
In March 2020, the World Health Organization declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s business operations and the workforce are concentrated in China and United States, the Company’s business, results of operations, and financial condition have been adversely affected for the three and nine months ended March 31, 2022. The situation remains highly uncertain for any further outbreak or resurgence of the COVID-19. It is therefore difficult for the Company to estimate the impact on the business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19.
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(q) Recent Accounting Pronouncements
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after July 1, 2023, including interim periods within those fiscal years. The Company has not early adopted this update and it will become effective on July 1, 2023 assuming the Company will remain eligible to be smaller reporting company. The Company is currently evaluating the impact of this new standard on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The amendments in this Update to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for the Company for annual and interim reporting periods beginning July 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after July 1, 2021, including interim periods within those fiscal years. The Company adopted this new standard on July 1, 2021 on its accounting for the convertible notes issued in December 2021.
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Non-refundable Fees and Other Costs”. The amendments in this Update represent changes to clarify the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. ASU 2020-08 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. Early application is not permitted. All entities should apply the amendments in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. These amendments do not change the effective dates for Update 2017-08. The adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
15
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after July 1, 2021 for public business entities. Early application is permitted. The amendments in this Update should be applied retrospectively. The adoption of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
Note 3. CRYPTOCURRENCIES
The following table presents additional information about cryptocurrencies:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Beginning balance | $ | $ | ||||||
Receipt of cryptocurrencies from mining services | ||||||||
Impairment loss | ( | ) | - | |||||
Ending balance | $ | $ |
Impairment loss amounted to $
Note 4. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Trade accounts receivable | $ | $ | ||||||
Less: allowances for doubtful accounts | ( | ) | ( | ) | ||||
Accounts receivable, net | $ | $ |
Movement of allowance for doubtful accounts are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Beginning balance | $ | $ | ||||||
Provision for doubtful accounts, net of recovery | ||||||||
Exchange rate effect | ||||||||
Ending balance | $ | $ |
For the three months ended March 31, 2022 and
2021, the provision for doubtful accounts was
16
Note 5. OTHER RECEIVABLES, NET
The Company’s other receivables are as follows:
June 30, | ||||||||
March 31, 2022 | 2021 (Restated) | |||||||
Advances to customers* | $ | $ | ||||||
Employee business advances | ||||||||
Total | ||||||||
Less: allowances for doubtful accounts | ( | ) | ( | ) | ||||
Other receivables, net | $ | $ |
* |
Movement of allowance for doubtful accounts are as follows:
June 30, | ||||||||
March 31, 2022 | 2021 (Restated) | |||||||
Beginning balance | $ | $ | ||||||
Recovery for doubtful accounts | ( | ) | ||||||
Exchange rate effect | ||||||||
Ending balance | $ | $ |
Note 6. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Freight fees (1) | $ | $ | ||||||
Total Advances to suppliers-third parties | $ | $ |
(1) |
17
Note 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other assets are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Prepaid income taxes | $ | $ | ||||||
Other (including prepaid professional fees, rent, listing fees) | ||||||||
Total | $ | $ |
Note 8. OTHER LONG-TERM ASSETS – DEPOSITS, NET
The Company’s other long-term assets – deposits are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Rental and utilities deposits | $ | $ | ||||||
Freight logistics deposits (1) | ||||||||
Total other long-term assets - deposits | $ | $ | ||||||
Less: allowances for deposits | ( | ) | ( | ) | ||||
Other long-term assets- deposits, net | $ | $ |
(1) |
Movements of allowance for deposits are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Beginning balance | $ | $ | ||||||
Allowance for deposits | ||||||||
Less: Write-off | ( | ) | ||||||
Exchange rate effect | ||||||||
Ending balance | $ | $ |
18
Note 9. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment as follows:
March 31, 2022 | June 30, | |||||||
Motor vehicles | ||||||||
Computer equipment | ||||||||
Office equipment | ||||||||
Furniture and fixtures | ||||||||
System software | ||||||||
Leasehold improvements | ||||||||
Mining equipment | ||||||||
Total | ||||||||
Less: Impairment reserve | ( | ) | ( | ) | ||||
Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
Property and equipment, net | $ | $ |
Depreciation and amortization expenses for the
three months ended March 31, 2022 and 2021 were $
Note 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Salary and reimbursement payable | $ | $ | ||||||
Professional fees and other expense payable | ||||||||
Interest payable | ||||||||
Others | ||||||||
Total | $ | $ |
Note 11. LOANS PAYABLE
On May 11, 2020, the Company received loan proceeds
in the amount of approximately $
On May 26, 2020, the Company received an advance
in the amount of $
19
Note 12. CONVERTIBLE NOTES:
On December 19, 2021,
the Company issued two Senior Convertible Notes (the “Convertible Notes”) to two non-U.S. investors for an aggregate purchase
price of $
The Convertible Notes
bear an interest at
The investors may convert any conversion amount into common stock on any date beginning on June 19, 2022.
The Company evaluated the convertible notes agreement under ASC 815 Derivatives and Hedging (“ASC 815”) amended by ASU 2020-06. ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. Based on terms of the convertible notes agreements, the Company’s notes are convertible for a fixed number of shares and do not require the Company to net settle. None of the embedded terms required bifurcation and liability classification.
On March 8, 2022, the
Company issued two Amended and Restated Senior Convertible Notes (the “Amended and Restated Convertible Notes”) to the investors to
change the principal amount of the Convertible Notes to an aggregate purchase price of $
The terms of the Amended and Restated Convertible Notes are the same as that of the original Convertible Notes, except for the reduced principal amount and the waiver of interest for the $5,000,000 payment made on March 8, 2022.
For the three and nine
months ended March 31, 2022, interest expenses related to the aforementioned convertible notes amounted to $
Note 13. LEASES
The Company determines if a contract contains a lease at inception which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s leases are classified as operating leases.
The Company has several vehicle lease agreements
and office lease agreements with lease terms ranging from
The Company’s lease agreements do not contain
any material residual value guarantees or material restrictive covenants. The leases generally do not contain options to extend at the
time of expiration and the weighted average remaining lease terms are
For the three months ended March 31, 2022 and
2021, rent expense amounted to approximately $
20
The five-year maturity of the Company’s lease obligations is presented below:
Twelve Months Ending March 31, | Operating Lease Amount | |||
2023 | $ | |||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Thereafter | ||||
Total lease payments | ||||
Less: Interest | ( | ) | ||
Present value of lease liabilities | $ |
Note 14. EQUITY
After the close of the stock market on July 7,
2020, the Company effected a l-for-5 reverse stock split of its common stock in order to satisfy continued listing requirements of its
common stock on the NASDAQ Capital Market. The reverse stock split was approved by the Company’s board of directors and stockholders
and was intended to allow the Company to meet the minimum share price requirement of $
Stock issuances:
On September 17, 2020, the Company entered into
certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act of
1933, as amended, pursuant to which the Company sold an aggregate of
21
On December 8, 2020, the Company entered into
a securities purchase agreement with certain investors thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, in a registered direct offering, an aggregate of
On January 27, 2021, the Company entered into
a securities purchase agreement with certain non-U.S. investors thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, an aggregate of
On February 6, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of
On February 9, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of
On December 14, 2021,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with non-U.S. investors and accredited
investors pursuant to which the Company sold to the investors, and the investors agreed to purchase from the Company, an aggregate of
22
The warrants will be
exercisable at any time during the Exercise Window. The “Exercise Window” means the period beginning on or after June 14,
2022 and ending on or prior to 5:00 p.m. (New York City time) on December 13, 2026 but not thereafter; provided, however, that the total
number of the Company’s issued and outstanding shares of common stock, multiplied by the NASDAQ official closing bid price of the
common stock shall equal or exceed $
The Company’s outstanding warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own stock and require net share settlement. The fair value of the warrants was recorded as additional paid-in capital from common stock
On January 6, 2022, the
Company entered into Warrant Purchase Agreements with certain warrant holders (the “Sellers”) pursuant to which the Company
agreed to buy back an aggregate of
On January 7, 2022, the Company wired the purchase price to each Seller. Each Seller has agreed to deliver the Warrant to the Company for cancellation as soon as practicable following the closing date, but in no event later than January 13, 2022. The Warrants are deemed cancelled upon the receipt by the Sellers of the purchase price.
Following is a summary of the status of warrants outstanding and exercisable as of March 31, 2022:
Warrants | Weighted Average Exercise Price | |||||||
Warrants outstanding, as of June 30, 2021 | $ | |||||||
Issued | ||||||||
Exercised | ( | ) | ||||||
Repurchased | ( | ) | ||||||
Warrants outstanding, as of March 31, 2022 | $ | |||||||
Warrants exercisable, as of March 31, 2022 | $ |
Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||
2018 Series A, | $ | |||||||||
2020 warrants, | $ | |||||||||
2021 warrants, | $ |
Stock-based compensation:
23
On November 18, 2021, Mr. Jing Wang retired from
his position as a member of the Board, the Chairperson of the Committee, a member of Nominating/Corporate Governance Committee, and a
member of the Audit Committee. In connection with Mr. Wang’s retirement, the Company granted Mr. Wang
On February 4, 2022,
On February 16, 2022, the Company’s Board
approved a consulting agreement pursuant to which the Company will pay the consultant a monthly fee of $
In connection with the purchase order between
SOSNY and Thor Miner, the Company issued
During the three months ended March 31, 2022 and 2021, $
Stock Options:
A summary of the outstanding options is presented in the table below:
Options | Weighted Average Exercise Price | |||||||
Options outstanding, as of June 30, 2021 | $ | |||||||
Granted | ||||||||
Exercised | ||||||||
Cancelled, forfeited or expired | ( | ) | ( | ) | ||||
Options outstanding, as of March 31, 2022 | $ | |||||||
Options exercisable, as of March 31, 2022 | $ |
Following is a summary of the status of options outstanding and exercisable as of March 31, 2022:
Outstanding Options | Exercisable Options | |||||||||||||||||
Exercise Price | Number | Average Remaining Contractual Life | Average Exercise Price | Number | Average Remaining Contractual Life | |||||||||||||
$ | $ |
24
Note 15. NON-CONTROLLING INTEREST
The Company’s non-controlling interest consists of the following:
June 30, | ||||||||
March 31, 2022 | 2021 (Restated) | |||||||
Sino-China: | ||||||||
Original paid-in capital | $ | $ | ||||||
Additional paid-in capital | ||||||||
Accumulated other comprehensive income | ||||||||
Accumulated deficit | ( | ) | ||||||
( | ) | |||||||
Trans Pacific Logistics Shanghai Ltd. | ( | ) | ( | ) | ||||
Brilliant Warehouse Service, Inc. | ( | ) | ( | ) | ||||
Total | $ | ( | ) | $ | ( | ) |
Note 16. COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of March 31, 2022, the Company was not aware of any litigations or lawsuits against them.
The Company had employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Yang Jie. Employment agreement of Mr. Lei Cao provided for a ten-year term that extended automatically in the absence of termination notice provided at least 30 days prior to the fifth anniversary date of the agreement. Employment agreements of Mr. Tuo Pan and Mr. Yang Jie provided for five-year terms that extended automatically in the absence of termination notice provided at least 30 days prior to the fifth anniversary date of the agreement. If the Company fails to provide this notice or if the Company wishes to terminate an employment agreement in the absence of cause, then the Company is obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement, the Company would need to pay such executive (i) the remaining salary through the date of October 31, 2026. In addition, to pay Mr. Lei Cao and Ms. Tuo Pan (ii) two times of the then applicable annual salary if there has been no change in control, as defined in the employment agreements or three-and-half times of the then applicable annual salary if there is a change in control.
Note 17. INCOME TAXES
On March 27, 2020, the CARES Act was enacted and signed into law and includes, among other things, refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and alternative minimum tax credit refunds. The Company does not at present expect the provisions of the CARES Act to have a material impact on its tax provision given the amount of net operating losses currently available.
The Company’s income tax expenses for the three and nine months ended March 31, 2022 and 2021 are as follows:
For the three months Ended March 31 | For the nine months Ended March 31 | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Current | ||||||||||||||||
U.S. | $ | $ | $ | $ | ( | ) | ||||||||||
PRC | ||||||||||||||||
Total income tax expenses | ( | ) |
25
The Company’s deferred tax assets are comprised of the following:
March 31, 2022 | June 30, 2021 | |||||||
Allowance for doubtful accounts | ||||||||
U.S. | $ | $ | ||||||
PRC | ||||||||
Net operating loss | ||||||||
U.S. | ||||||||
PRC | ||||||||
Total deferred tax assets | ||||||||
Valuation allowance | ( | ) | ( | ) | ||||
Deferred tax assets, net - long-term | $ | $ |
The Company’s operations in the U.S. incurred
a cumulative U.S. federal net operation losses (“NOL”) of approximately $
The Company’s operations in China incurred
a cumulative NOL of approximately $
The Company periodically evaluates the likelihood
of the realization of deferred tax assets (“DTA”), and reduces the carrying amount of the deferred tax assets by a valuation
allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that
could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation
of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that
it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration
of trade negotiation between US and China and the outbreak of COVID-19 in 2021. The Company provided a
The Company’s taxes payable consists of the following:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
VAT tax payable | $ | $ | ||||||
Corporate income tax payable | ||||||||
Others | ||||||||
Total | $ | $ |
26
Note 18. CONCENTRATIONS
Major Customers
For the three months ended March 31, 2022, two
customers accounted for approximately
For the three months ended March 31, 2021, two
customers accounted for approximately
For the nine months ended March 31, 2022, three
customers accounted for approximately
For nine months ended March 31, 2021, one customer
accounted for approximately
Major Suppliers
For the three months ended March 31, 2022, three
suppliers accounted for approximately
For the three months ended March 31, 2021, two
suppliers accounted for approximately
For the nine months ended March 31, 2022, three
suppliers accounted for approximately
For the nine months ended March 31, 2021, two
suppliers accounted for approximately
Note 19. SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial statements for detailing the Company’s business segments.
The Company’s chief operating decision maker is the Chief Operating Officer, who reviews the financial information of the separate operating segments when making decisions about allocating resources and assessing the performance of the group. As of March 31, 2022, the Company had two operating segments: (1) freight logistics services and (2) sales of crypto-mining machines. The Company also operated shipping agency and management services segment for the nine months ended March 31, 2021. The Company no longer operated shipping agency segment as the Company did not receive any new orders for its services due to the uncertainty of the shipping management market which was negatively impacted by the COVID-19 pandemic.
27
The following tables present summary information by segment for the three months ended March 31, 2022 and 2021, respectively:
For the Three Months Ended March 31, 2022 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | $ | $ | $ | $ | ||||||||||||
Gross profit | $ | $ | $ | $ | ||||||||||||
Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
Total capital expenditures | $ | $ | $ | $ | ||||||||||||
Gross margin% | % | % | % | % |
For the Three Months Ended March 31, 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | $ | $ | $ | $ | ||||||||||||
Gross profit | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
Total capital expenditures | $ | $ | $ | $ | ||||||||||||
Gross margin% | % | ( | )% | % | ( | )% |
For the Nine Months Ended March 31, 2022 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | $ | $ | $ | $ | ||||||||||||
Gross profit | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
Total capital expenditures | $ | $ | $ | $ | ||||||||||||
Gross margin% | % | ( | )% | % | ( | )% |
For the Nine Months Ended March 31, 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues | $ | $ | $ | $ | ||||||||||||
Gross profit | $ | $ | $ | $ | ||||||||||||
Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
Total capital expenditures | $ | $ | $ | $ | ||||||||||||
Gross margin% | % | % | % | % |
28
Total assets as of:
June 30, | ||||||||
March 31, 2022 | 2021 (Restated) | |||||||
Shipping Agency and Management Services | $ | $ | ||||||
Freight Logistic Services | ||||||||
Sale of crypto-mining machines | ||||||||
Total Assets | $ | $ |
The Company’s operations are primarily based in the PRC and U.S, where the Company derives all of its revenues. Management also reviews consolidated financial results by business locations.
Disaggregated information of revenues by geographic locations are as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
PRC | $ | $ | $ | $ | ||||||||||||
U.S. | ||||||||||||||||
Total revenues | $ | $ | $ | $ |
Note 20. RELATED PARTY BALANCE AND TRANSACTIONS
Advance to suppliers-related party
The Company’s advances to suppliers – related party are as follows:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Bitcoin mining hardware and other equipment (1) | $ | $ | ||||||
Total Advances to suppliers-related party | $ | $ |
(1) |
29
Due from related party, net
As of March 31, 2022 and June 30, 2021, the outstanding amounts due from related parties consist of the following:
March 31, | June 30, | |||||||
2022 | 2021 | |||||||
Tianjin Zhiyuan Investment Group Co., Ltd. (1) | $ | $ | ||||||
Zhejiang Jinbang Fuel Energy Co., Ltd (2) | ||||||||
Shanghai Baoyin Industrial Co., Ltd (3) | ||||||||
LSM Trading Ltd (4) | ||||||||
Rich Trading Co. Ltd (5) | ||||||||
Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
Total | $ | $ |
(1) |
(2) |
(3) |
(4) |
(5) |
30
Other payable - related party
As of March 31, 2022, the Company had
payable to its then Chief Financial Officer of $
Revenue - related parties
For the three and nine months ended March 31,
2022, revenue from related party Zhejiang Jinbang amounted to $
Note 21. SUBSEQUENT EVENTS
On December 23, 2022, the Company entered into
a settlement agreement with SOSNY pursuant to which the Company will repay $
On January 9, 2023, the Company entered into an Executive Separation Agreement and General Release (the “Separation Agreement”), with Lei Cao, an employee of the Company and a member of the Board of Directors of the Company (the “Board”), setting forth the terms and conditions related to (1) the termination of Mr. Cao’s employment with the Company and the termination of the employment agreement dated as of November 1, 2021 as well as cancellation and/or termination of certain other agreements relating to Mr. Cao’s employment with the Company; and (2) Mr. Cao’s resignation from the Board, effective as of January 9, 2023.
Pursuant to the Separation
Agreement, Mr. Cao submitted a letter of resignation from the Board on January 9, 2023. In addition, he agreed to forfeit and return to
the Company the
On February 4, 2022, the Company approved a one-time
award of a total of
On May 5, 2022, an entity named Hindenburg Research
issued a report (the “Hindenburg Report”) regarding the Company alleging, among other things, that the Company’s then
Chief Executive Officer, Yang Jie, was a fugitive on the run from Chinese authorities for running an alleged $
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors.
Overview
We previously focused on providing customized freight logistic services, but starting in 2017, we began exploring new opportunities to expand our business and generate more revenue. These opportunities ranged from complementary businesses to other new service and product initiatives. In the fiscal years 2021 and 2022, while we continued to engage in our freight logistics business, we expanded our services to include warehousing services provided by our U.S. subsidiary Brilliant Warehouse Service Inc. and Gorgeous Trading Ltd. On January 3, 2022, we changed our corporate name to Singularity Future Technology Ltd. to align with our entry into the sales of crypto mining equipment through our U.S. subsidiaries. As of March 31, 2022, we operated in two segments: (1) freight logistics services; and (2) purchase and sales of crypto mining machines.
Impact of COVID-19
The outbreak of the COVID-19 virus (“COVID-19”) starting from late January 2020 in the PRC has spread rapidly to many parts of the world. In March 2020, the World Health Organization declared COVID-19 as a pandemic. Given the continually expanding nature of the COVID-19 pandemic in China and the United States, our business, results of operations, and financial condition are still adversely affected.
In early December 2022, the Chinese government eased the strict control measure for COVID-19, which has led to surges in increased infections and disruptions in our business operations. Any future impact of COVID-19 on the Company’s China operation results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and resurgence of COVID-19 variants and the actions taken by government authorities to contain COVID-19 or treat its impact, almost all of which are beyond our control.
The impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:
● | Our customers have been negatively impacted by the pandemic, which reduced their demand for freight logistics services. As a result, our revenue decreased by $937,906, or 24.9%, from $3,767,588 for the nine months ended March 31, 2021 to $2,829,682 for the same period in 2022; there was no material impact for the three months ended March 31, 2022 compared to the same period in the prior year. |
● | Due to travel restrictions between U.S. and China, our new business development for existing segments or new ventures has been slowed down. |
32
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table sets forth the results of our operations for the periods indicated:
For the Three Months Ended March 31, | ||||||||||||||||||||||||
2022 | 2021 | Change | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
Revenues | 971,747 | 100.0 | % | 953,194 | 100.0 | % | 18,553 | 1.9 | % | |||||||||||||||
Cost of revenues | 901,275 | 92.7 | % | 1,098,922 | 115.3 | % | (197,647 | ) | (18.0 | )% | ||||||||||||||
Gross margin | 7.3 | % | N/A | (15.3 | )% | N/A | 22.6 | % | N/A | |||||||||||||||
Selling expenses | 131,404 | 13.6 | % | 78,117 | 8.2 | % | 53,287 | 68.2 | % | |||||||||||||||
General and administrative expenses | 2,140,749 | 220.3 | % | 1,523,745 | 159.9 | % | 617,004 | 40.5 | % | |||||||||||||||
Impairment loss of Cryptocurrencies | 3,052 | 0.3 | % | - | - | % | 3,052 | 100.0 | % | |||||||||||||||
Provision for doubtful accounts, net of recovery | 669,189 | 68.9 | % | 1,251,812 | 131.3 | % | (582,623 | ) | (46.5 | )% | ||||||||||||||
Stock-based compensation | 6,512,889 | 670.2 | % | - | - | % | 6,512,889 | 100.0 | % | |||||||||||||||
Total costs and expenses | 10,358,558 | 1065.9 | % | 3,952,596 | 414.7 | % | 6,405,962 | 162.1 | % |
Revenues
Revenues remained fairly consistent at approximately $953,194 and $971,747 for the three months ended March 31, 2021 and 2022, respectively.
The following tables present summary information by segments for the three months ended March 31, 2022 and 2021:
For the Three Months Ended March 31, 2022 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | - | $ | 971,747 | $ | - | $ | 971,747 | ||||||||
Cost of revenues | $ | - | $ | 901,275 | $ | - | $ | 901,275 | ||||||||
Gross profit | $ | - | $ | 70,472 | $ | - | $ | 70,472 | ||||||||
Depreciation and amortization | $ | - | $ | 150,118 | $ | - | $ | 150,118 | ||||||||
Total capital expenditures | $ | - | $ | 151,021 | $ | - | $ | 151,021 | ||||||||
Gross margin | - | % | 7.3 | % | - | % | 7.3 | % |
33
For the Three Months Ended March 31, 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Purchase of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | - | $ | 953,194 | $ | - | $ | 953,194 | ||||||||
Cost of revenues | $ | - | $ | 1,098,922 | $ | - | $ | 1,098,922 | ||||||||
Gross profit | $ | - | $ | (145,728 | ) | $ | - | $ | (145,728 | ) | ||||||
Depreciation and amortization | $ | 88,407 | $ | 4,641 | $ | - | $ | 93,048 | ||||||||
Total capital expenditures | $ | - | $ | - | $ | 922,438 | $ | 922,438 | ||||||||
Gross margin | - | % | (15.3 | )% | - | % | (15.3 | )% |
% Changes For the Three Months Ended March 31, 2022 and 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | - | % | 1.9 | % | - | 1.9 | % | |||||||||
Cost of revenues | - | % | (18.0 | )% | - | (18.0 | )% | |||||||||
Gross profit | - | % | (148.4 | )% | - | (148.4 | )% | |||||||||
Depreciation and amortization | (100.0 | )% | 3,134.6 | % | - | 61.3 | % | |||||||||
Total capital expenditures | - | % | 100.0 | % | (100.0 | )% | (83.6 | )% | ||||||||
Gross margin | - | % | 22.6 | % | - | 22.6 | % |
Disaggregated information of revenues by geographic locations are as follows:
For the Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
PRC | 648,964 | 953,194 | ||||||
U.S. | 322,783 | - | ||||||
Total revenues | $ | 971,747 | $ | 953,194 |
Revenues
Shipping Agency and Management Services
For the three months ended March 31, 2022 and 2021, we did not generate any revenue from shipping agency and management services as we did not receive any new orders for our services due to uncertainty of the shipping management market which has been negatively impacted by the COVID-19 pandemic.
34
Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage, warehouse and other freight services. During the three months ended March 31, 2022, revenues were consistent compared to the same period in 2021.
Cost of Revenues
Cost of revenues consisted primarily of freight costs to various freight carriers, cost of labor, warehouse rent and other overhead and sundry costs. Cost of revenues was $901,275 for the three months ended March 31, 2022, a decrease of $197,647, or approximately 18.0%, as compared to $1,098,922 for the same period in 2021. The decrease of cost of revenue was mainly due to different commodities that were shipped, such as iron ore or coal. We charge lower rates for shipping large amounts of products. Our gross margin was (15.3)% and 7.3% for the three months ended March 31, 2021 and 2022, respectively, as a result of shipping more products with higher rates.
Operating Costs and Expenses
Operating costs and expenses increased by $6,405,962 or approximately 162.1%, from $3,952,596 for the three months ended March 31, 2021 to $10,358,558 for the three months ended March 31, 2022. This increase was mainly due to the increase in selling expenses, stock-based compensation, and general and administrative expenses, as more fully discussed below.
Selling Expenses
Our selling expenses consisted primarily of salaries and travel expenses for our sales representatives. For the three months ended March 31, 2022, we had $131,404 of selling expenses, as compared to $78,117 for the same period in 2021, which represents an increase of $53,287 or approximately 68.2%. The increase was due to an increase of marketing expenses of approximately $49,000 to promote our freight logistics business.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for our administration department, office expenses, regulatory filing and professional service fees including auditing, legal and IT consulting. For the three months ended March 31, 2022, we had $2,140,749 of general and administrative expenses, as compared to $1,523,745 for the same period in 2021, representing an increase of $617,004, or approximately 40.5%. The increase was mainly due to the increase in salaries and wages and office related costs of approximately $554,000 as we hired more employees for our new subsidiaries such as Gorgeous Trading and Brilliant Warehouse.
Impairment Loss of Cryptocurrencies
We recorded $3,052 in impairment loss for the three months ended March 31, 2022 due to recent price drops in bitcoin which we deemed a triggering event for impairment testing.
Provision for Doubtful Accounts, Net of Recovery
We had $669,189 of provision for accounts receivable and other receivable related parties for the three months ended March 31, 2022, compared to $1,251,812 of provision for accounts receivable and other receivable for the same period in 2021.
Stock-based Compensation
Stock-based compensation was $6,512,889 for the three months ended March 31, 2022, an increase of $6,512,889 or 100.0%, as compared to nil for the same period in 2021 due to stock compensation grants to our directors and executives and third-party advisors.
35
Other Expenses, Net
Total other expenses, net was $35,709 for the three months ended March 31, 2022, a decrease of approximately $483,838 or 93.1%, as compared to $519,547 for the same period in 2021. This is mainly because for three months ended March 31, 2021, we incurred a settlement loss on a contract dispute of approximately $0.8 million and offset other income generated from cryptocurrencies mining of approximately $0.3 million.
Taxes
We did not incur any income tax expense for the three months ended March 31, 2022 and 2021 due to continuing operating losses.
We have incurred a cumulative U.S. federal net operating loss (“NOL”) of approximately $12,543,000 as of June 30, 2021, which may reduce future federal taxable income. The NOL generated prior to the year ended June 30, 2017 amounted to approximately $1,400,000 and will expire in 2037. The remaining balance will be carried forward indefinitely. During the three months ended March 31, 2022, approximately $2,925,000 of additional NOL was generated and the tax benefit derived from such NOL was approximately $614,000.
Our operations in China have incurred a cumulative NOL of approximately $6,026,000 as of June 30, 2021, which may reduce future taxable income. The NOL amounted to approximately $711,000 will start expiring in 2023, and the remaining balance will expire by 2026.
We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect our future realization of deferred tax assets including our recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. We determined that it is more likely than not our deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration of trade negotiation between the U.S. and China. We provided a 100% allowance for deferred tax assets as of March 31, 2022. The net decrease in valuation for the three months ended March 31, 2022 amounted to approximately $1,260,000 based on management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized.
Net Loss
As a result of the foregoing, we had a net loss of $9,422,520 for the three months ended March 31, 2022, compared to $3,518,949 for the same period in 2021. After the deduction of non-controlling interest, net loss attributable to us was $9,430,059 for the three months ended March 31, 2022, compared to $3,481,261 for the same period in 2021. Comprehensive loss attributable to us was $9,166,723 for the three months ended March 31, 2022, as compared to $3,557,594 for the same period in 2021.
Comparison of the Nine Months Ended March 31, 2022 and 2021
The following table sets forth our results of operations for the periods indicated:
For the Nine Months Ended March 31, | ||||||||||||||||||||||||
2022 | 2021 | Change | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
Revenues | 2,829,682 | 100.0 | % | 3,974,433 | 100.0 | % | (1,144,751 | ) | (28.8 | )% | ||||||||||||||
Cost of revenues | 2,973,034 | 105.1 | % | 3,882,612 | 97.7 | % | (909,578 | ) | (23.4 | )% | ||||||||||||||
Gross margin | (5.1 | )% | N/A | 2.3 | % | N/A | (7.4 | )% | N/A | |||||||||||||||
Selling expenses | 403,025 | 14.2 | % | 220,509 | 5.5 | % | 182,516 | 82.8 | % | |||||||||||||||
General and administrative expenses | 6,258,749 | 221.2 | % | 3,541,414 | 89.1 | % | 2,717,335 | 76.7 | % | |||||||||||||||
Impairment loss of cryptocurrencies | 53,179 | 1.9 | % | - | - | % | 53,179 | 100.0 | % | |||||||||||||||
Provision for doubtful accounts, net of recovery | 530,311 | 18.7 | % | 1,254,274 | 31.6 | % | (723,963 | ) | (58.0 | )% | ||||||||||||||
Stock-based compensation | 9,817,289 | 347.0 | % | - | - | % | 9,817,289 | 100.0 | % | |||||||||||||||
Total costs and expenses | 20,035,587 | 708.0 | % | 8,898,809 | 223.9 | % | 11,136,778 | 125.1 | % |
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Revenues
Revenues decreased by $1,144,751, or approximately 28.8%, from $3,974,433 for the nine months ended March 31, 2021 to $2,829,682 for the same period in 2022. The decrease was primarily due to the decrease in revenue from our shipping agency and management services during the nine months ended March 31, 2022 because we did not receive any new orders for our services resulting from uncertainty in the shipping management market, which has been negatively impacted by the COVID-19 pandemic.
The following tables present summary information by segments for the nine months ended March 31, 2022 and 2021:
For the Nine Months Ended March 31, 2022 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues* | $ | - | $ | 2,829,682 | $ | - | $ | 2,829,682 | ||||||||
Cost of revenues | $ | - | $ | 2,973,034 | $ | - | $ | 2,973,034 | ||||||||
Gross profit | $ | - | $ | (143,352 | ) | $ | - | $ | (143,352 | ) | ||||||
Depreciation and amortization | $ | - | $ | 428,635 | $ | - | $ | 428,635 | ||||||||
Total capital expenditures | $ | - | $ | 775,107 | $ | - | $ | 775,107 | ||||||||
Gross margin | 0.0 | % | (5.1 | )% | - | % | (5.1 | )% |
* | Including related party revenue from Zhejiang Jinbang Fuel Energy Co., Ltd of $224,690 for the nine months ended March 31, 2022. |
For the Nine Months Ended March 31, 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | $ | 206,845 | $ | 3,767,588 | $ | - | $ | 3,974,433 | ||||||||
Cost of revenues | $ | 176,968 | $ | 3,705,644 | $ | - | $ | 3,882,612 | ||||||||
Gross profit | $ | 29,877 | $ | 61,944 | $ | - | $ | 91,821 | ||||||||
Depreciation and amortization | $ | 246,485 | $ | 11,691 | $ | - | $ | 258,176 | ||||||||
Total capital expenditures | $ | - | $ | - | $ | 922,438 | $ | 922,438 | ||||||||
Gross margin | 14.4 | % | 1.6 | % | - | % | 2.3 | % |
% Changes For the Nine Months Ended March 31, 2022 to 2021 | ||||||||||||||||
Shipping Agency and Management Services | Freight Logistics Services | Sale of crypto-mining machines | Total | |||||||||||||
Net revenues | (100.0 | )% | (24.9 | )% | - | (28.8 | )% | |||||||||
Cost of revenues | (100.0 | )% | (19.8 | )% | - | (23.4 | )% | |||||||||
Gross profit | (100.0 | )% | (331.4 | )% | - | (256.1 | )% | |||||||||
Depreciation and amortization | (100.0 | )% | 3,566.4 | % | - | 66.0 | % | |||||||||
Total capital expenditures | - | % | 100 | % | (100.0 | )% | (16.0 | )% | ||||||||
Gross margin | (14.4 | )% | (6.7 | )% | - | (7.4 | )% |
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Disaggregated information of revenues by geographic locations are as follows:
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
PRC | $ | 2,242,296 | 3,767,588 | |||||
U.S. | 587,386 | 206,845 | ||||||
Total revenues | $ | 2,829,682 | $ | 3,974,433 |
Revenues
Shipping Agency and Management Services
For the nine months ended March 31, 2022 and 2021, shipping agency and management services generated revenues of nil and $206,845, respectively, representing an approximately 100% decrease in revenues. The decrease in this segment was because the shipping agency and management services agreements we entered in fiscal year 2020 have expired and were not renewed due to the uncertainty of the shipping management market which has been negatively impacted by the COVID-19 pandemic.
Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage and warehouse services. The revenues for our company decreased by $937,906, or 24.9%, from $3,767,588 for the nine months ended March 31, 2021 to $2,829,682 for the same period in 2022. The decrease was mainly due to a decrease in revenue from our major customer who reduced its demand for our services due to the impact of COVID-19 resurgence. Our major customer accounted for 59.4% and 87.3%, respectively, of our revenue for the nine months ended March 31, 2022 and 2021.
Cost of Revenues
Cost of revenues consisted primarily of freight costs of various freight carriers, cost of labor, and other overhead and sundry costs. Cost of revenues was $2,973,034 for the nine months ended March 31, 2022, a decrease of $909,578, or approximately 23.4%, as compared to $3,882,612 for the same period in 2021. The decrease in cost of revenues was mainly due to a decrease in revenue as we did not generate income from shipping agency and management service for the nine months ended March 31, 2022. Our gross profit margin decreased by approximately 7.4% from approximately 2.3% for the nine months ended March 31, 2021 to approximately (5.1)% for the same period in 2022 due to decrease in our revenue exceeds decrease in our freight cost.
Operating Costs and Expenses
Operating costs and expenses increased by $11,136,778 or 125.1%, from $8,898,809 for the nine months ended March 31, 2021 to $20,035,587 for the nine months ended March 31, 2022. This increase was mainly due to the increase in general and administrative expenses and stock-based compensation, partially offset by recovery for doubtful accounts as discussed below.
Selling Expenses
Our selling expenses consisted primarily of salaries, meals and entertainment and travel expenses for our sales representatives. For the nine months ended March 31, 2022, we had $403,025 of selling expenses, as compared to $220,509 for the same period in 2021, which represents an increase of $182,516 or approximately 82.8%. The increase was caused by an increase in marketing fees of approximately $169,000.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for our administration department, office expenses, regulatory filing and professional service fees including auditing, legal and IT consulting. For the nine months ended March 31, 2022, we had $6,258,749 of general and administrative expenses, as compared to $3,541,414 for the same period in 2021, representing an increase of $2,717,335, or approximately 76.7%. The increase was mainly due to the increase in employees, offices and other general and administrative expense approximately of $2,200,000 as we hired more employees and opened more office locations to expand our logistics services and new business for digital assets, along with an increase of $256,000 in travel and meeting expenses and $280,000 for business development to expand our business.
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Impairment Loss of Cryptocurrencies
We recorded $53,179 in impairment loss for the nine months ended March 31, 2022 due to recent price drops in bitcoin, which the Company deemed a triggering event for impairment testing.
Provision for Doubtful Accounts, Net of Recovery
We had a provision for doubtful accounts of other receivable of $530,311 for the nine months ended March 31, 2022 compared to $1,390,982 in provision for doubtful accounts and offset by the recoveries of accounts receivable of $2,492, the recoveries of other receivable of $124,216 and other receivable - related party of $10,000 for the same period in 2021.
Stock-based Compensation
Stock-based compensation was $9,817,289 for the nine months ended March 31, 2022, an increase of $9,817,289 or 100.0%, as compared to nil for the same period in 2021 as we issued stock compensation to executive officers and directors of $6,044,400 and $3,772,889 to consultants.
Loss from Disposal of Subsidiaries and VIE
On December 31, 2021, our wholly owned foreign subsidiary, Trans Pacific Beijing, entered into a series of agreements to terminate our VIE structure and terminate the existence of our formerly controlled entity Sino-China since Sino-China has no active operations. We controlled Sino-China through Trans Pacific Beijing. In addition, the Company dissolved its subsidiary Sino-Global Shipping LA, Inc. Total loss from disposal was approximately $6.1 million.
Other Expenses, Net
Total other expenses, net was $117,944 for the nine months ended March 31, 2022 which consisted of interest expense of our convertible debt of approximately $70,000, net of interest income and other finance expenses, a decrease of approximately $315,159 or 72.8%, as compared to $433,139 for the same period in 2021. The decrease was mainly because for the nine months ended March 31, 2021, we incurred a settlement loss on a contract dispute of approximately $0.8 million, offset by the PPP loan forgiveness which we recorded as a gain of approximately $0.1 million and income of approximately $0.3 million generated from cryptocurrency mining. We have no such losses for the same period in 2022.
Taxation
We recorded income tax expense of nil and $3,450 for the nine months ended March 31, 2022 and 2021, respectively.
We have incurred a cumulative U.S. federal NOL of approximately $12,543,000 as of June 30, 2021, which may reduce future federal taxable income. The NOL generated prior to the year ended June 30, 2017 amounted to approximately $1,400,000 will expire in 2037 and the remaining balance will be carried forward indefinitely. During the nine months ended March 31, 2022, we generated an additional NOL of approximately $7,511,000. The tax benefit derived from such NOL was approximately $1,577,000.
Our operations in China have incurred a cumulative a cumulative NOL of approximately $6,026,000 as of June 30, 2021, which may reduce future taxable income. The NOL amounted to approximately $711,000 and will start expiring in 2023. The remaining balance will expire by 2026.
We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect our future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. We determined that it is more likely than not our deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration of trade negotiation between the U.S. and China. We provided a 100% allowance for its deferred tax assets as of March 31, 2022. The net decrease in valuation for the nine months ended March 31, 2022 amounted to approximately $1,049,000 based on management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized.
Net Loss
As a result of the foregoing, we had a net loss of $23,455,465 for the nine months ended March 31, 2022, compared to $5,360,965 for the same period in 2021. After the deduction of non-controlling interest, net loss attributable to the Company was $23,151,814 for the nine months ended March 31, 2022, compared to $5,317,971 for the same period in 2021. Comprehensive loss attributable to the Company was $22,638,703 for the nine months ended March 31, 2022, compared to $4,967,188 for the same period in 2021.
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Liquidity and Capital Resources
Cash Flows and Working Capital
As of March 31, 2022, we had $60,346,406 in cash (including cash on hand and cash in bank). We held approximately 98.9% of our cash in banks located in the U.S., Australia and Hong Kong and held approximately 1.1% of our cash in banks located in the PRC.
On December 19, 2021, the Company issued two Convertible Notes to two non-U.S. investors for an aggregate purchase price of $10,000,000.
The Convertible Notes bear interest at 5% annually and may be converted into shares of the Company’s common stock, no par value per share at a conversion price of $3.76 per share. At the investors’ request, we prepaid $5,000,000 in the aggregate principal amount, without interest, of the Convertible Notes on March 8, 2022. Interest for the principal of $5,000,000 repaid was waived.
As of March 31, 2022, we had the following loans outstanding:
Loans | Maturities | Interest rate | March 31, 2022 | |||||||||
Convertible Notes | December 2023 | 5 | % | $ | 5,000,000 |
The following table sets forth a summary of our cash flows for the periods as indicated:
For the Nine Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net cash provided by (used in) operating activities | $ | 13,706,220 | $ | (6,155,077 | ) | |||
Net cash used in investing activities | $ | (6,054,445 | ) | $ | (922,438 | ) | ||
Net cash provided by financing activities | $ | 7,422,414 | $ | 54,200,577 | ||||
Effect of exchange rate fluctuations on cash | $ | 434,900 | $ | 530,033 | ||||
Net increase in cash | $ | 15,509,089 | $ | 47,653,095 | ||||
Cash at the beginning of period | $ | 44,837,317 | $ | 131,182 | ||||
Cash at the end of period | $ | 60,346,406 | $ | 47,784,277 |
The following table sets forth a summary of our working capital:
March 31, | June 30, | |||||||||||||||
2022 | 2021 | Variation | % | |||||||||||||
Total Current Assets | $ | 86,478,672 | $ | 46,867,349 | $ | 39,611,323 | 84.5 | % | ||||||||
Total Current Liabilities | $ | 45,502,319 | $ | 5,343,648 | $ | 40,158,671 | 751.5 | % | ||||||||
Working Capital | $ | 40,976,353 | $ | 41,523,701 | $ | (547,348 | ) | (1.3 | )% | |||||||
Current Ratio | 1.90 | 8.77 | (6.87 | ) | (78.3 | )% |
In assessing the liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. As of March 31, 2022, our working capital was approximately $41.0 million and we had cash of approximately $60.3 million. We believe our current working capital is sufficient to support our operations and debt obligations as they become due one year through the date of this report.
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Operating Activities
Our net cash provided by operating activities was approximately $13.7 million for the nine months ended March 31, 2022. The operating cash outflow for the nine months ended March 31, 2022 was primarily attributable to our net loss of approximately $23.5 million, adjusted by non-cash stock-based compensation of approximately $9.8 million, loss on disposal of subsidiaries and VIE of approximately $6.1 million, and approximately $0.5 million of provision for doubtful accounts. We had an increase in cash inflow from collection of other receivables of approximately $1.3 million and receipt of approximately 39.7 million for the purchase and sale agreement with SOSNY. As a result of the lawsuit settlement with SOSNY, we need to pay SOS $13.0 million in December 2022. As such our cash inflow was reflected as an increase in deferred revenue of approximately $26.7 million and refund payable of $13.0 million. Our main cash outflow is from deposit we made of approximately $21.4 million to our related party supplier HighSharp.
Our net cash used in operating activities was approximately $6.2 million for the nine months ended March 31, 2021. The operating cash outflow for the nine months ended March 31, 2021 was primarily attributable to our net loss of approximately $5.4 million, adjusted by non-cash items of approximately $1.3 million of provision for doubtful accounts, net of recovery. We had a decrease in operating cashflow as we paid of more liabilities of approximately $2.3 million because we had more cash on hand due to recent equity and debt financing.
Investing Activities
Net cash used in investing activities was $6,054,445 for the nine months ended March 31, 2022 due to the acquisition of property and equipment of approximately $0.8 million, investment of approximately $0.2 million to a joint venture named LSM Trading Ltd., in which we hold a 40% of equity interest. We also made related parties advances of approximately $5.1 million including $1.3 million to Shanghai Baoyin Industrial Co., Ltd.(“Baoyin”) which is 30% owned by Wang Qinggang, a related party, approximately $0.6 million advances to our equity investee, LSM trading Ltd, approximately $3.2 million advances to Rich Trading Co. Ltd., a related party. These advances are non-interest bearing and due on demand.
Net cash used in investing activities was $922,438 for the nine months ended March 31, 2021, mainly for the purchase of cryptocurrency mining equipment.
Financing Activities
Net cash provided by financing activities was approximately $7.4 million for the nine months ended March 31, 2022 due to the issuance of common stock in private placements of approximately $10.5 million and proceeds from convertible notes of $10 million, partially offset by repayment of convertible notes of $5.0 million and warrant repurchase of approximately $7.9 million.
Net cash provided by financing activities was approximately $54.2 million for the nine months ended March 31, 2021 due to cash proceeds received from issuance of common stock to private investors for approximately $52.8 million and cash proceeds received from issuance of preferred stock to a private investor for approximately $1.4 million.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, “Summary of Significant Accounting Policies” of the Notes to condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q and in the Notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 Form 10-K (the “2021 Form 10-K”) describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2021 Form 10-K.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This Item is not applicable because we are a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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As of March 31, 2022, the Company carried out an evaluation, under the supervision of and with the participation of its management, including the Company’s Chief Operating Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing evaluation, the Chief Operating Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms due to ineffective internal controls over financial reporting that stemmed from the following material weaknesses:
● | Lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries in some of the subsidiaries within the consolidation, lack of supervision, coordination and communication of financial information between different entities within the Group; |
● | Lack of a full time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions which led to error in revenue recognition in previously issued financial statements; |
● | Lack of resources with technical competency to address, review and record non-routine or complex transactions under U.S. GAAP; |
● | Lack of management control reviews of the budget against actual with analysis of the variance with a precision that can be explained through the analysis of the accounts; | |
● | Lack of proper procedures in identifying and recording related party transactions which led to restatement of previously issued financial statements (See Note 1 of the accompanying consolidated financial statement footnotes); |
● | Lack of proper procedures to maintain supporting documents for accounting record, and |
● | Lack of proper oversight for the Company’s cash disbursement process that led to misuse of the Company funds by its former executive. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In order to remediate the material weaknesses stated above, we intend to implement the following policies and procedures:
● | Hiring additional accounting staff to report the internal financial timely; |
● | Hiring a Chief Executive Officer and Chief Financial Officer to properly set up the Company’s internal control and oversight process; |
● | Reporting other material and non-routine transactions to the Board and obtain proper approval; |
● | Recruiting additional qualified professionals with appropriate levels of U.S. GAAP knowledge and experience to assist in resolving accounting issues in non-routine or complex transactions; |
● | Developing and conducting U.S. GAAP knowledge, SEC reporting and internal control training to senior executives, management personnel, accounting departments and the IT staff, so that management and key personnel understand the requirements and elements of internal control over financial reporting mandated by the U.S. securities laws; |
● | Setting up budgets and developing expectations based on understanding of the business operations, compare the actual results with the expectations periodically and document the reasons for the fluctuations with further analysis. This should be done by the Chief Financial Officer and reviewed by the Chief Executive Officer, upon their communications with the Board; | |
● | Strengthening our corporate governance; |
● | Setting up policies and procedures for the Company’s related party identification to properly identify, record and disclose related party transactions; and |
● | Setting up proper procedures for the Company’s fund disbursement process to ensure that cash is disbursed only upon proper authorization, for valid business purposes, and that all disbursements are properly recorded. |
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended March 31, 2022.
Item 1A. Risk Factors
This item is not applicable to a smaller reporting company such as us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Except as previously reported in our Current Reports on Form 8-K, we have not sold any equity securities during the quarter ended March 31, 2022 that were not registered under the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:
* | Filed herewith. |
** | Furnished herewith. |
(1) | Incorporated herein by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 5, 2022. |
(2) | Incorporated herein by reference to exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 5, 2022. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SINGULARITY FUTURE TECHNOLOGY, LTD. | ||
March 6, 2023 | By: | /s/ Jing Shan |
Jing Shan | ||
Chief Operating Officer (Principal Executive Officer and |
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