U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the period ended
For the transition period from __________ to __________.
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. employer | |
| Incorporation or organization) | identification number) |
| | ||
| (Address of principal executive offices) | (Zip Code) |
(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 filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of February 14, 2022, the Company had
SINGULARITY FUTURE TECHNOLOGY LTD.
FORM 10-Q
INDEX
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to 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 that could cause 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 related parties; |
| ● | Political and economic factors in the People’s Republic of China (“PRC”); |
| ● | Our ability to expand and grow our 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; |
| ● | Economic conditions which would reduce demand for services provided by us and could adversely affect profitability; |
| ● | The effect of terrorist acts, or the threat thereof, on the demand for the shipping and logistic industry which could, adversely affect our operations and financial performance; |
| ● | The acceptance in the marketplace of our new lines of business; |
| ● | Foreign currency exchange rate fluctuations; |
| ● | Hurricanes, outbreak of contagious diseases or other natural disasters; and |
| ● | Our ability to attract, retain and motivate skilled personnel. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update this forward-looking information unless required by applicable law or regulations.
ii
PART I. FINANCIAL INFORMATION
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Cryptocurrencies | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Advances to suppliers - third parties | ||||||||
| 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 | ||||||||
| Loan receivable-related parties | ||||||||
| Investment in unconsolidated entity | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Deferred revenue | $ | $ | ||||||
| Accounts payable | ||||||||
| Lease liabilities - current | ||||||||
| Taxes payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Loan payable - current | - | |||||||
| Total current liabilities | ||||||||
| Lease liabilities - noncurrent | ||||||||
| Loan payable-noncurrent | - | |||||||
| 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 LOSS
(UNAUDITED)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues (including related party revenue of $ | $ | $ | ||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment loss of cryptocurrencies | ( | ) | - | ( | ) | - | ||||||||||
| Recovery (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 - foreign currency | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive gain/(loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to controlling shareholders of the Company | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Loss per share | ||||||||||||||||
| Basic and diluted* | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of common shares used in computation | ||||||||||||||||
| Basic and diluted* | ||||||||||||||||
| * |
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
(UNAUDITED)
| Preferred Stock | Common Stock |
Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares* | Amount | capital | receivable | deficit | loss | interest | Total | |||||||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock compensation issue to employee | - | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2021 | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| * |
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
CONDENSED
| For the Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating Activities | - | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| (Recovery) provision for doubtful accounts, net | ( | ) | ||||||
| Loss on disposal of fixed assets | ||||||||
| Loss on disposal of subsidiaries and VIE | ||||||||
| Impairment loss of cryptocurrencies | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Advances to suppliers - third parties | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Other long-term assets - deposits | ( | ) | ( | ) | ||||
| Due from related parties | ||||||||
| Deferred revenue | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Taxes payable | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Loan to related party | ( | ) | ||||||
| Investment in unconsolidated entity | ( | ) | - | |||||
| Advance to related parties | ( | ) | ||||||
| Repayment from 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 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 | ||||||||
| Income taxes paid | $ | $ | ||||||
| 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 SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States (the “U.S.”) in 2001, Sino-Global Shipping America, Ltd., a Virginia corporation (“Sino-Global” or the “Company”), is a global shipping and freight logistics integrated solution provider. The Company provides tailored solutions and value-added services to its customers to drive efficiency and control in related steps throughout the entire shipping and freight logistics chain. The Company conducts its business primarily through its wholly-owned subsidiaries in the People’s Republic of China (the “PRC” or “China”) (including Hong Kong) and the U.S. where a majority of the Company’s clients are located. The Company operates in two operating segments including (1) shipping agency and management services, which are operated by its subsidiaries in the U.S.; (2) freight logistics services, which are operated by its subsidiaries in the PRC.
On January 3, 2022, the Company filed Articles of Amendment with the Virginia State Corporation Commission to change its corporate name from Sino-Global Shipping America, Ltd. to Singularity Future Technology Ltd. The Company plans to leverage its core expertise in logistics and shipping to accelerate its diversification and growth in cryptocurrency and other new markets. The Company plans to enter into digital assets business through its US subsidiaries.
On December 14, 2020, the Company incorporated
a new entity named “Blumargo IT Solution Ltd.” with
On April 13, 2021, the Company formed a joint
venture in which the Company owned
On April 21, 2021, the Company entered into a
cooperation agreement with Mr. Bangpin Yu to set up a joint venture in U.S. named “Brilliant Warehouse Service Inc.”
to support its freight logistics services in the U.S. The Company has a
In July 2021, the company registered a new company Gorgeous Trading
Ltd., which is
On August 31, 2021, the Company formed a
joint venture, Phi Electric Motor, Inc. in New York, which is
On September 29, 2021, the Company formed
a
On October 3, 2021, the Company entered into a
Strategic Alliance Agreement (the “Agreement”) with Shenzhen Highsharp Electronic Ltd. (“Highsharp”) to establish
a joint venture for collaborative engineering, technical development and commercialization of a proprietary cryptocurrency mining machine
under the brand name Thor, with exclusive rights covering design production, intellectual property, branding, marketing and sales. On
October 11, 2021, the Company formed a joint venture, Thor Miner Inc. in Delaware, which is
On December 31, 2021, the Company entered into a series of agreements to terminate its variable interest entity (“VIE”) structure and terminate the existence of 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 its decision because Sino-China has no active operations and potential risks on VIE structures. In addition, the Company dissolved its subsidiary Sino-Global Shipping LA, Inc.
5
The outbreak of the novel coronavirus (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 the COVID-19 as a pandemic and 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 business operations and its workforce are concentrated in China and the U.S., the Company’s business, results of operations, and financial condition have been adversely affected for the year ended June 30, 2021. 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.
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 the subsidiaries and VIEs. All intercompany transactions and balances have been eliminated in consolidation.
Sino-Global Shipping Agency Ltd., a PRC corporation
(“Sino-China”), is considered a variable interest entity (“VIE”), with the Company as the primary beneficiary.
The Company, through Trans Pacific Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which the Company receives
As a VIE, Sino-China’s revenues are included in the Company’s total revenues, and any income/loss from operations is consolidated with that of the Company. Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China that requires 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 is governed by a series of contractual arrangements pursuant to which the Company has 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 Variable Interest Entity (“VIE”) structure and terminate the existence of 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:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Deposits | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Other payables and accrued liabilities | $ | $ | ||||||
| Total liabilities | $ | $ | ||||||
6
As of December 31 2021, the Company also dissolved its subsidiary Sino-Global Shipping LA, Inc. The net assets of disposed VIE and subsidiaries are as follows:
| December 31, 2021 | ||||||||||||
| VIE | Subsidiary | Total | ||||||||||
| Total current assets | $ | $ | $ | |||||||||
| Total other assets | ||||||||||||
| Total assets | ||||||||||||
| Total current liabilities | ||||||||||||
| Total net assets | ||||||||||||
| Due from noncontrolling interests | ||||||||||||
| Exchange rate effect | ||||||||||||
| Total loss on disposal | $ | $ | $ | |||||||||
(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 Sino-China, Trans Pacific Shipping Ltd. 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 Hong Kong 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.
7
The exchange rates as of December 31, 2021 and June 30, 2021 and for the three and six months ended December 31, 2021 and 2020 are as follows:
| December 31, 2021 | June 30, 2021 | Three months ended December 31, | Six months ended December 31, | |||||||||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | 2021 Profit/Loss | 2020 Profit/Loss | 2021 Profit/Loss | 2020 Profit/Loss | ||||||||||||||||||
| RMB:1USD | ||||||||||||||||||||||||
| AUD:1USD | ||||||||||||||||||||||||
| HKD:1USD | ||||||||||||||||||||||||
| CAD:1USD | ||||||||||||||||||||||||
(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 December 31, 2021 and June 30, 2021, cash balances of $
(f) Cryptocurrencies
Cryptocurrencies, mainly bitcoin, are included in current assets in the accompanying consolidated balance sheets. Cryptocurrencies purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for as other revenue of the Company for the three and six months ended December 31, 2021. Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt. Cryptocurrencies awarded to the Company through its mining activities are recorded as other income and as operating activities in the Company’s unaudited condensed consolidated financial statements.
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. The company recorded $
8
(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 creditworthiness and current economic trends.
Other receivables represent mainly customer advances, prepaid employee insurance and welfare benefits. 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.
(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 six months ended December 31, 2021 and 2020, 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
9
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
(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.
10
The Company’s disaggregated revenue streams are described as follows:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Shipping and management agency services | $ | $ | $ | $ | ||||||||||||
| Freight logistics services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| ● | Revenues from shipping and management agency 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 Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 December 31, 2021 and June 30, 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
11
In addition, under the PRC regulations, the Company’s PRC subsidiaries
and affiliates are required to pay the city construction tax (
(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 six months ended December 31, 2021 and 2020, 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.
12
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 six months ended December 31, 2021. 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.
(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—Nonrefundable 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.
13
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:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Receipt of cryptocurrencies from mining services | ||||||||
| Impairment loss | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The company recorded $
Note 4. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowances for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Movement of allowance for doubtful accounts are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for doubtful accounts, net of recovery | ||||||||
| Exchange rate effect | ||||||||
| Ending balance | $ | $ | ||||||
For the three months ended December 31, 2021 and 2020, the provision
for doubtful accounts was and $
14
Note 5. OTHER RECEIVABLES, NET
The Company’s other receivables are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Advances to customers* | $ | $ | ||||||
| Project advance** | ||||||||
| Employee business advances | ||||||||
| Total | ||||||||
| Less: allowances for doubtful accounts | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
| * | As of December 31, 2021 and June 30, 2021, the Company entered into certain
contracts with customers (state-owned entities) where the Company’s services included freight costs and cost of commodities to be
shipped to customers’ designated locations. The Company prepaid the costs of commodities and recognized as advance payments on behalf
of its customers. These advance payments on behalf of the customers will be repaid to the Company when either the contract terms are expired
or the contracts are terminated by the Company. As aforementioned customers were negatively impacted by the pandemic and required additional
time to execute existing contracts, they required additional time to pay. Due to significant uncertainty on whether the delayed contracts
will be executed timely, the Company had provided an allowance due to contract delay and recorded allowances of approximately $ |
| ** | As of December 31, 2021, the Company entered into a project cooperation
agreement with Rich Trading Co. Ltd USA (“Rich Trading”) for trading of computer equipment. According to the agreement, the
Company is to invest $ |
Movement of allowance for doubtful accounts are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Recovery for doubtful accounts | ( | ) | ( | ) | ||||
| Less: write-off | - | ( | ) | |||||
| Exchange rate effect | ||||||||
| Ending balance | $ | $ | ||||||
Note 6. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Freight fees (1) | $ | $ | ||||||
| (1) | The advanced freight fee is the Company’s prepayment made for various shipping costs for shipments from July to December 2021. On December 1, 2020, the Company entered into a freight logistics services and import contract with a third party for equipment import. Per contract term, the Company will act as their freight carriers and in charge the import matter of such equipment. The Company agreed to pay a deposit of $ |
15
Note 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other assets are as follows:
| December 31, | June 30, | |||||||
| 2021 | 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:
| December 31, | June 30, | |||||||
| 2021 | 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) | Certain customers require the Company to pay certain deposits for the
security of shipments and merchandise. These deposits are refundable at the end of their respective contract term. Approximately $ |
Movement of allowance for deposits are as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Allowance for deposits | ||||||||
| Less: Write-off | ( | ) | ||||||
| Exchange rate effect | ||||||||
| Ending balance | $ | $ | ||||||
16
Note 9. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment as follows:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Motor vehicles | ||||||||
| Computer equipment | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| System software | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation and amortization expenses for the
three months ended December 31, 2021 and 2020 were $
Note 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Salary and reimbursement payable | $ | $ | ||||||
| Professional fees payable | ||||||||
| Credit card payable | ||||||||
| Interest payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
Note 11. LOANS PAYABLE
On May 11, 2020, the Company received loan proceeds
in the amount of approximately $
17
On May 26, 2020, the Company received an advance
in the amount of $
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 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 is converted on fixed number of shares and does not require the Company to net settle. None of the embedded terms required bifurcation and liability classification.
For the three and six
months ended December 31, 2021, interest expenses related to the aforementioned convertible notes amounted to $
Note 13. LEASES
The Company determines if a contract contains a lease at inception. 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
18
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 December 31, 2021 and
2020, rent expense amounted to approximately $
The five-year maturity of the Company’s lease obligations is presented below:
| Twelve Months Ending December 31, | Operating Lease Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 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 issuance:
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
19
On December 8, 2020, the Company entered into
a securities purchase agreement with the 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 the 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 the 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 the 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
20
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 agreed to sell to the Investors, and the Investors agreed to purchase from the Company, an aggregate
of
As of December 31, 2021, the Company received net proceeds of $
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 were recorded as additional paid-in capital from common stock.
Following is a summary of the status of warrants outstanding and exercisable as of December 31, 2021:
| Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding, as of June 30, 2021 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Warrants outstanding, as of December 31, 2021 | $ | |||||||
| Warrants exercisable, as of December 31, 2021 | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||
| 2018 Series A, | $ | |||||||||
| 2020 warrants, | $ | |||||||||
| 2021 warrants, | $ | |||||||||
Stock based compensation:
By action taken as of August 13, 2021, the Board of Directors (the “Board”)
of Sino-Global Shipping America, Ltd.
21
On November 18, 2021, Mr. Jing Wang retired
from his position as a member of the Board of Directors of the Company, the Chairperson of the Compensation Committee, a member of
Nominating/Corporate Governance Committee, and a member of the Audit Committee. In connection with Mr. Wang’s retirement, the
Registrant granted Mr. Wang
During the three months ended December 31, 2021
and 2020, $
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 December 31, 2021 | $ | |||||||
| Options exercisable, as of December 31, 2021 | $ | |||||||
Following is a summary of the status of options outstanding and exercisable at December 31, 2021:
| Outstanding Options | Exercisable Options | |||||||||||||||||
| Exercise Price | Number | Average Remaining Contractual Life | Average Exercise Price | Number | Average Remaining Contractual Life | |||||||||||||
| $ | $ | |||||||||||||||||
Note 15. NON-CONTROLLING INTEREST
The Company’s non-controlling interest consists of the following:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
22
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 December 31, 2021, the Company was not aware of any litigation or lawsuits against them.
The Company has employment agreements with each of Mr. Yang Jie, Ms. Tuo Pan, Mr. Lei Cao, Ms. Shan Jing and Mr. Shi Qiu. Mr. Lei Cao’s agreement provides ten-year term, and Mr. Shi Qiu’s agreement provides three-year term. All other above employment agreements provide for five-year terms that extend automatically in the absence of termination notice provided at least 60 days prior to the 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.
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 six months ended December 31, 2021 and 2020 are as follows:
| For the three months Ended December 31 | For the six months Ended December 31 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Current | ||||||||||||||||
| U.S. | $ | $ | ( | ) | $ | - | $ | ( | ) | |||||||
| PRC | - | - | ||||||||||||||
| Total income tax expenses | ( | ) | - | ( | ) | |||||||||||
The Company’s deferred tax assets are comprised of the following:
| December 31, 2021 | 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 | $ | $ | ||||||
23
The Company’s operations in the U.S. incurred
a cumulative U.S. federal 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, 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:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| VAT tax payable | $ | $ | ||||||
| Corporate income tax payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
Note 18. CONCENTRATIONS
Major Customers
For the three months ended December 31, 2021, four customers accounted
for approximately
For the three months ended December 31, 2020, one customer accounted
for approximately
For the six months ended December 31, 2021, three
customers accounted for approximately
For six months ended December 31, 2020, one customer accounted for
approximately
24
Major Suppliers
For the three months ended December 31, 2021,
three suppliers accounted for approximately
For the three months ended December 31, 2020,
two suppliers accounted for approximately
For the six months ended December 31, 2021, three
suppliers accounted for approximately
For the six months ended December 31, 2020, 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 Executive Officer, who reviews the financial information of the separate operating segments when making decisions about allocating resources and assessing the performance of the group. The Company has determined that it has three operating segments: (1) shipping agency and management services; (2) freight logistics services.
The following tables present summary information by segment for the three months ended December 31, 2021 and 2020, respectively:
| For the
Three Months Ended December 31, 2021 | ||||||||||||
| Shipping
Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | % | % | % | |||||||||
| For the Three Months Ended December 31, 2020 | ||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | - | % | % | % | ||||||||
25
| For the Six Months Ended December 31, 2021 | ||||||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Container Trucking Services | Total | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | $ | $ | $ | $ | ||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Total capital expenditures | $ | $ | $ | $ | ||||||||||||
| Gross margin% | % | % | - | % | % | |||||||||||
| For the Six Months Ended December 31, 2020 | ||||||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Container Trucking Services | Total | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | $ | $ | $ | $ | ||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Total capital expenditures | $ | $ | $ | $ | ||||||||||||
| Gross margin% | % | % | % | % | ||||||||||||
Total assets as of:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Shipping Agency and Management Services | $ | $ | ||||||
| Freight Logistic Services | ||||||||
| Total Assets | $ | $ | ||||||
The Company’s operations are primarily based in the PRC and U.S, where the Company derives all of their 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 Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| PRC | $ | |||||||||||||||
| U.S. | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
26
Note 20. RELATED PARTY BALANCE AND TRANSACTIONS
Due from related party, net
As of December 31, 2021 and June 30, 2020, the outstanding amounts due from related parties consist of the following:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Tianjin Zhiyuan Investment Group Co., Ltd. (1) | $ | $ | ||||||
| Zhejiang Jinbang Fuel Energy Co., Ltd (2) | ||||||||
| Shanghai Baoyin Industrial Co., Ltd (3) | ||||||||
| Less: allowance for doubtful accounts | ( | ) | ||||||
| Total | $ | $ | ||||||
| (1) | In June 2013, the Company signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (“Zhiyuan Investment Group”) and TEWOO Chemical& Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”). Zhiyuan Investment Group is owned by Mr. Zhong Zhang. In September 2013, the Company executed an inland transportation management service contract with the Zhiyuan Investment Group whereby it would provide certain advisory services and help control potential commodities loss during the transportation process. To the Company’s knowledge, Mr. Zhang does not own shares of the Company as of June 30, 2021 and is no longer a related party. Management reassessed the collectability and decided to provide full allowance for doubtful accounts as of June 30, 2021. The Company wrote off the balance for the three and six months ended December 31, 2021. |
| (2) | The Company advanced Zhejiang Jinbang Fuel Energy Co., Ltd (“Zhejiang
Jinbang”), which is owned by Mr. Wang Qinggang, CEO and legal representative of Trans Pacific Logistic Shanghai Ltd., $ |
| (3) | The Company advanced Shanghai
Baoyin Industrial Co., Ltd. which is |
Loan receivable- related parties
As of December 31, 2021 and June 30, 2021, the outstanding amounts loan receivable from related parties consist of the following:
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Wang, Qinggang (1) | $ | $ | ||||||
| Shanghai Baoyin Industrial Co., Ltd (2) | ||||||||
| Total | $ | $ | ||||||
| (1) | On June 10, 2021, the Company entered a loan agreement with Wang
Qinggang, CEO and legal representative of Trans Pacific Logistic Shanghai Ltd. The loan is non-interest bearing and amounted to $ |
| (2) | On April 10, 2021, the Company entered into a loan agreement with Shanghai Baoyin Industrial Co., Ltd. which is |
27
Other payable related party
As of December 31, 2021, the Company had payable
to CFO of $ which were included in other payable. As of June 30, 2021, the Company had payable
to former CEO of $
Revenue - related parties
For the three and six months ended December 31,
2021 and 2020, revenue from related party Zhejiang Jinbang amounted to $
Note 21. SUBSEQUENT EVENTS
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
The Company’s joint venture, Thor Miner Inc (“Thor”), entered into a Purchase and Sale Agreement with SOS Information Technology New York Inc. (the “Buyer”). Pursuant to the Purchase and Sale Agreement, Thor agreed to sell and the Buyer agreed to purchase certain cryptocurrency mining hardware and other equipment. The aggregate amount of the Purchase and Sale Agreement is $200,000,000, which is expected to be completed under separate purchase orders. Thor and the Buyer agreed that the Buyer 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 February 4, 2022, the Company approved a one-time
award of a total of
On January 19, 2022, the Board of the Company
approved the issuance of
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our 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 have focused on providing customers with customized freight logistic services but have since begun looking aggressively at diversifying our revenue and service mix by seeking new growth opportunities to expand our business due to increased margin compression. These opportunities have ranged from complementary businesses to other service and product initiatives. In fiscal year 2022, while we continue to provide our current traditional logistics business, we will integrate the traditional business with modern technology to develop new business models. On January 3, 2022, we changed our corporate name to Singularity Future Technology Ltd to enter into digital assets business through our US subsidiaries.
In July 2021, we registered a new company Gorgeous Trading Ltd. which is 100% owned by our subsidiary Sino-Global Shipping New York Inc. (“Sino-NY”) which mainly engaged in our smart warehouse and related business in Texas.
On August 31, 2021, we formed a joint venture, Phi Electric Motor, Inc. in New York, which is 51% owned by Sino-NY. There have been no operations as of December 31, 2021.
In October 2021, we registered SG Shipping & Risk Solution Inc, which is 100% owned by Sino-NY. On December 23, 2021, SG Shipping & Risk Solution Inc. formed SG Link LLC. There have been no material operations as of December 31, 2021.
On October 3, 2021, we entered into a Strategic Alliance Agreement (the “Agreement”) with Shenzhen Highsharp Electronic Ltd. (“Highsharp”) to establish a joint venture (“JV”) for collaborative engineering, technical development and commercialization of a proprietary bitcoin mining machine under the name Thor Miner Inc. (“Thor”), with exclusive rights covering design production, intellectual property, branding, marketing and sales. Thor is 51% owned by Sino-NY.
Recent developments
Thor entered into a Purchase and Sale Agreement with SOS Information Technology New York Inc. (the “Buyer”). Pursuant to the Purchase and Sale Agreement, Thor agreed to sell and the Buyer agreed to purchase certain cryptocurrency mining hardware and other equipment. The aggregate amount of the Purchase and Sale Agreement is $200,000,000, which is expected to be completed under separate purchase orders. Thor and the Buyer agreed that the Buyer 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.
Subsequently, Thor and the Buyer agreed that the Buyer shall make payment equal to 50% of the total purchase price of each order within 5 days, and the remaining 50% for each order shall be paid at least seven (7) calendar days before the shipment. The first order under the Purchase and Sale Agreement Thor received was a $80,000,000 order placed on January 10, 2022. As of the date of this report, Thor has already received $40,000,000 for the first order. The completion of the order will depend on the supply of chips and timely delivery by the supplier. The Company estimates the orders will have gross margin of approximately 10%.
COVID-19
The outbreak of the novel coronavirus (“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 the COVID-19 as a pandemic. Given the continually expanding of COVID-19 pandemic in China and United States, our business, results of operations, and financial condition are still adversely affected. The situation remains highly uncertain for any further outbreak or resurgence of COVID-19. It is therefore difficult for us to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19.
29
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 decreased demand for freight logistics services. As a result, our revenue and gross profit for the three months ended December 31, 2021 decreased by approximately $0.8 million, or 44.7%, and $0.2 million, or 91.3%, respectively. For the six months ended December 31, 2021, revenue and gross profit were down by approximately $0.2 million, or 6.1% and $0.05 million, or 21.5%, respectively. |
| ● | We have been and could continue to be negatively impacted by the COVID-19 outbreak, which may continually impact our cost of freight, or result in higher cost of revenue, which may in turn materially adversely affect our financial condition and operating results in coming months. |
Company Structure
We are a non-asset based global shipping and freight logistics integrated solutions provider. We provide tailored solutions and value-added services for our customers to drive efficiency and control in related steps throughout the entire shipping and freight logistics chain. We conduct our business primarily through our wholly-owned subsidiaries in the People’s Republic of China (the “PRC” or “China”) (including Hong Kong) and the U.S., where a majority of our clients are located.
We operate in two operating segments, including (1) shipping agency and management services, operated by our subsidiaries in the U.S.; (2) freight logistics services, operated by our subsidiaries in the PRC.
On December 31, 2021, we entered into a series of agreements to terminate our Variable Interest Entity (“VIE”) structure and terminate the existence of its formerly controlled entity Sino-Global Shipping Agency Ltd. (“Sino-China”). We controlled Sino-China through our wholly owned subsidiary Trans Pacific Shipping Limited (“Trans Pacific Beijing”) as Sino-China has no active operations. In addition, the Company dissolved its subsidiary Sino-Global Shipping LA, Inc.
Our corporate structure diagram as of the date of this report is as below:
Results of Operations
Comparison of the Three Months ended December 31, 2021 and 2020
Revenues
Revenues decreased by $842,151, or approximately 44.7%, from $1,884,440 for the three months ended December 31, 2020 to $1,041,925 for the same period in 2021. The decrease was primarily due to decrease in freight logistic services.
30
The following tables present summary information by segments mainly regarding the top-line financial results for the three months ended December 31, 2021 and 2020:
| For
the Three Months Ended December 31, 2021 | ||||||||||||
| Shipping
Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues* | $ | - | $ | 1,041,925 | $ | 1,041,925 | ||||||
| Cost of revenues | $ | - | $ | 1,024,891 | $ | 1,024,891 | ||||||
| Gross profit | $ | - | $ | 17,034 | $ | 17,034 | ||||||
| Depreciation and amortization | $ | $ | 133,088 | $ | 133,088 | |||||||
| Total capital expenditures | $ | - | $ | 24,793 | $ | 24,793 | ||||||
| Gross margin% | - | % | 1.6 | % | 1.6 | % | ||||||
| ● | Including related party revenue from Zhejiang Jinbang Fuel Energy Co., Ltd of $223,705 for the three months ended December 31, 2021. |
| For the Three Months Ended December 31, 2020 | ||||||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Container Trucking Services | Total | |||||||||||||
| Net revenues | $ | - | $ | 1,884,440 | $ | - | $ | 1,884,440 | ||||||||
| Cost of revenues | $ | - | $ | 1,688,464 | $ | - | $ | 1,688,464 | ||||||||
| Gross profit | $ | - | $ | 195,976 | $ | - | $ | 195,976 | ||||||||
| Depreciation and amortization | $ | 77,809 | $ | 3,600 | $ | - | $ | 81,409 | ||||||||
| Total capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
| Gross margin% | - | % | 10.4 | % | - | % | 10.4 | % | ||||||||
| %
Changes For the Three Months Ended December 31, 2021 | ||||||||||||
| Shipping
Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | 0.0 | % | (44.7 | )% | (44.7 | )% | ||||||
| Cost of revenues | 0.0 | % | (39.3 | )% | (39.3 | )% | ||||||
| Gross profit | 0.0 | % | (91.3 | )% | (91.3 | )% | ||||||
| Depreciation and amortization | (100 | )% | 3,596.9 | % | 63.5 | % | ||||||
| Total capital expenditures | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
| Gross margin% | 0.0 | % | (8.8 | )% | (8.8 | )% | ||||||
Disaggregated information of revenues by geographic locations are as follows:
| For the Three Months Ended | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| PRC | 868,255 | 1,884,440 | ||||||
| U.S. | 173,670 | - | ||||||
| Total revenues | $ | 1,041,925 | $ | 1,884,440 | ||||
31
Revenues
(1) Shipping Agency and Management Services
For the three months ended December 31, 2021 and 2020, we did not generate any revenue from shipping agency and management services. The decrease in this segment was due to the uncertainty of the shipping management market which has been negatively impacted by the COVID-19 pandemic.
(2) Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage, warehouse and other freight services. During the three months ended December 31, 2021, revenues decreased by approximately 44.7% compared to the same period in 2020. The decrease mainly due to decrease revenue from our major customer due to resurgence of COVID-19 in PRC which reduced their demand. Our major customer accounted for 29.6% and 99.9%, respectively, of our revenue for the three months ended December 31, 2021 and 2020.
Operating Costs and Expenses
Operating costs and expenses increased by $738,528 or approximately 24.1%, from $3,060,270 for the three months ended December 31, 2020 to $3,798,798 for the three months ended December 31, 2021. This increase was mainly due to the increase in selling expenses, stock-based compensation, and general and administrative expenses, which offset by decrease of cost of revenue as discussed below.
The following table sets forth the components of our costs and expenses for the periods indicated:
| For the Three Months Ended December 31, | ||||||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 1,041,925 | 100.0 | % | 1,884,440 | 100.0 | % | (842,515 | ) | (44.7 | )% | ||||||||||||||
| Cost of revenues | 1,024,891 | 98.4 | % | 1,688,464 | 89.6 | % | (663,573 | ) | (39.3 | )% | ||||||||||||||
| Gross margin | 1.6 | % | N/A | 10.4 | % | N/A | (8.8 | )% | N/A | |||||||||||||||
| Selling expenses | 197,225 | 18.9 | % | 73,462 | 3.9 | % | 123,763 | 168.5 | % | |||||||||||||||
| General and administrative expenses | 2,151,431 | 206.5 | % | 1,314,235 | 69.7 | % | 837,196 | 63.7 | % | |||||||||||||||
| Impairment loss of Cryptocurrencies | 50,127 | 4.8 | % | - | 0.0 | % | 50,127 | 100 | % | |||||||||||||||
| Provision for doubtful accounts, net of recovery | (1,876 | ) | (0.2 | )% | (15,891 | ) | (0.8 | )% | 14,015 | (88.2 | )% | |||||||||||||
| Stock-based compensation | 377,000 | 36.2 | % | - | - | % | 377,000 | 100.0 | % | |||||||||||||||
| Total costs and expenses | 3,798,798 | 364.6 | % | 3,060,270 | 162.4 | % | 738,528 | 24.1 | % | |||||||||||||||
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 $1,024,891 for the three months ended December 31, 2021, a decrease of $663,573, or approximately 39.3%, as compared to $1,688,464 for the same period in 2020. The decrease of cost of revenue mainly due to decrease of revenue of our freight logistics services. Our decrease in margin was mainly due to rising freight costs as a result of impact from COVID-19 pandemic.
32
Selling Expenses
Our selling expenses consisted primarily of salaries and travel expenses for our sales representatives. For the three months ended December 31, 2021, we had $197,225 of selling expenses, as compared to $73,462 for the same period in 2020, which represents an increase of $123,763 or approximately 168.5%. The increase was due to increasing of marketing fee of approximately $120,000.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for administration department, office expenses, regulatory filing and professional service fees including audit, legal and IT consulting. For the three months ended December 31, 2021, we had $2,151,431 of general and administrative expenses, as compared to $1,314,235 for the same period in 2020, representing an increase of $837,196, or approximately 63.7%. The increase was mainly due to the increase in salaries & wages and employees related cost approximately $720,000 as we hired more employees to our new companies and increase of travel expenses of approximately $160,000.
Impairment Loss of Cryptocurrencies
The company recorded $50,127 impairment loss for the three months ended December 31, 2021 due to recent price drop in bitcoin which the Company deemed a triggering event for impairment testing.
Provision for Doubtful Accounts, net of recovery
We had recovery of other receivable of $1,876 for the three months ended December 31, 2021 compared to $15,891 of provision for accounts receivable and other receivable for same period of 2020.
Stock-based Compensation
Stock-based compensation was $377,000 for the three months ended December 31, 2021, an increase of $377,000 or 100.0%, as compared to nil for the same period in 2020 for stock compensation grant to our former director.
Loss from disposal of Subsidiaries and VIE
On December 31, 2021, our wholly owned foreign subsidiary Trans Pacific Shipping Limited (“Trans Pacific Beijing”) entered into a series of agreements to terminate our Variable Interest Entity (“VIE”) structure and terminate the existence of our formerly controlled entity Sino-Global Shipping Agency Ltd. (“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 mainly from write off of due from non-controlling interest of Sino-China.
Other expenses, net
Total other expenses, net was $29,881 for the three months ended December 31, 2021, a decrease of approximately $115,601 or 134.9%, as compared to $85,720 for the same period in 2020 mainly due to loss of disposal of fixed assets of $52,489.
Taxation
We recorded income tax expense nil and $3,450 for the three months ended December 31, 2021 and 2020, 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 carried forward indefinitely. During the three months ended December 31, 2021, approximately $3,189,000 of additional NOL was generated and the tax benefit derived from such NOL was approximately $670, 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 start expiring from 2023 and the remaining balance of NOL will be expired by 2026.
33
We periodically evaluate the likelihood of the realization of deferred tax assets, 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 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 deferred tax assets as of December 31, 2021. The net decrease in valuation for the three months ended December 31, 2021 amounted to approximately $785,000 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 $8,918,370 for the three months ended December 31, 2021, compared to $1,093,560 for the same period in 2020. After the deduction of non-controlling interest, net loss attributable to us was $8,853,102 for the three months ended December 31, 2021, compared to $1,102,919 for the same period in 2020. Comprehensive loss attributable to us was $9,328,245 for the three months ended December 31, 2021, compared to $867,054 for the same period in 2020.
Comparison of the Six Months ended December 31, 2021 and 2020
Revenues
Revenues decreased by $183,104, or approximately 6.1%, from $3,021,239 for the six months ended December 31, 2020 to $2,838,135 for the same period in 2021. The decrease was primarily due to decreased revenue from our shipping management services during the period 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 mainly regarding the top-line financial results for the six months ended December 31, 2021 and 2020:
| For the Six Months Ended December 31, 2021 | ||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | $ | - | $ | 2,838,135 | $ | 2,838,135 | ||||||
| Cost of revenues | $ | - | $ | 2,651,759 | $ | 2,651,759 | ||||||
| Gross profit | $ | - | $ | 186,376 | $ | 186,376 | ||||||
| Depreciation and amortization | $ | - | $ | 255,358 | $ | 255,358 | ||||||
| Total capital expenditures | $ | - | $ | 658,999 | $ | 658,999 | ||||||
| Gross margin% | - | % | 6.6 | % | 6.6 | % | ||||||
| ● | Including related party revenue from Zhejiang Jinbang Fuel Energy Co., Ltd of $223,705 for the six months ended December 31, 2021. |
| For the Six Months Ended December 31, 2020 | ||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | $ | 206,845 | $ | 2,814,394 | $ | 3,021,239 | ||||||
| Cost of revenues | $ | 176,968 | $ | 2,606,722 | $ | 2,783,690 | ||||||
| Gross profit | $ | 29,877 | $ | 207,672 | $ | 237,549 | ||||||
| Depreciation and amortization | $ | 158,078 | $ | 7,050 | $ | 165,128 | ||||||
| Total capital expenditures | $ | - | $ | - | $ | - | ||||||
| Gross margin% | 14.4 | % | 7.4 | % | 7.9 | % | ||||||
34
| % Changes For the Six Months Ended December 31, 2021 to 2020 | ||||||||||||
| Shipping Agency and Management Services | Freight Logistics Services | Total | ||||||||||
| Net revenues | (100 | )% | 0.8 | % | (6.1 | )% | ||||||
| Cost of revenues | (100 | )% | 1.7 | % | (4.7 | )% | ||||||
| Gross profit | (100 | )% | (10.3 | )% | (21.5 | )% | ||||||
| Depreciation and amortization | (100 | )% | 3,522.1 | % | 54.6 | % | ||||||
| Total capital expenditures | 0.0 | % | 100 | % | 100.0 | % | ||||||
| Gross margin% | (100 | )% | (0.8 | )% | (1.3 | )% | ||||||
Disaggregated information of revenues by geographic locations are as follows:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| PRC | $ | 1,593,332 | $ | 2,814,394 | ||||
| U.S. | 1,224,803 | 206,845 | ||||||
| Total revenues | $ | 2,838,135 | $ | 3,021,239 | ||||
Revenues
(1) Shipping Agency and Management Services
For the six months ended December 31, 2021 and 2020, 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.
(2) Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage and other freight services. The revenues for our PRC companies decreased by $1,221,062, or 43.4%, from $ 2,814,394 for the six months ended December 31, 2020 to $1,593,332 for the same period in 2021. The decrease was mainly due to decrease of 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 36.4% and 92.9%, respectively, of our revenue for the six months ended December 31, 2021 and 2020. Revenues for our U.S companies increased because we provided one-time service with a third party for equipment import. We recognized revenue of approximately $980,000 from this import contract with a third party for equipment import, and we did not have such revenue for the same period last year. We act as their freight carriers and in charge the import matter of such equipment.
Operating Costs and Expenses
Operating costs and expenses increased by $3,518,103 or 71.1%, from $4,946,213 for the six months ended December 31, 2020 to $8,464,316 for the six months ended December 31, 2021. This increase was mainly due to the increase general and administrative expenses and stock-based compensation, offset by recovery for doubtful accounts as discussed below.
35
The following table sets forth the components of the Company’s costs and expenses for the periods indicated:
| For the Six Months Ended December 31, | ||||||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 2,838,135 | 100.0 | % | 3,021,239 | 100.0 | % | (183,104 | ) | (6.1 | )% | ||||||||||||||
| Cost of revenues | 2,651,759 | 93.4 | % | 2,783,690 | 92.1 | % | (131,931 | ) | (4.7 | )% | ||||||||||||||
| Gross margin | 6.6 | % | N/A | 7.9 | % | N/A | (1.3 | )% | N/A | |||||||||||||||
| Selling expenses | 271,621 | 9.6 | % | 142,392 | 4.7 | % | 129,229 | 90.8 | % | |||||||||||||||
| General and administrative expenses | 4,118,000 | 145.1 | % | 2,017,669 | 66.8 | % | 2,100,331 | 104.1 | % | |||||||||||||||
| Impairment loss of cryptocurrencies | 50,127 | 1.8 | % | - | - | % | 50,127 | 100 | % | |||||||||||||||
| Provision for doubtful accounts, net of recovery | (1,931,591 | ) | (68.1 | )% | 2,462 | 0.1 | % | (1,934,053 | ) | (78,556.2 | )% | |||||||||||||
| Stock-based compensation | 3,304,400 | 116.4 | - | - | % | 3,304,400 | 100.0 | % | ||||||||||||||||
| Total costs and expenses | 8,464,316 | 298.2 | % | 4,946,213 | 163.7 | % | 3,518,103 | 71.1 | % | |||||||||||||||
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 $2,651,759 for the six months ended December 31, 2021, a decrease of $131,931, or approximately 4.7%, as compared to $2,783,690 for the same period in 2020. The decrease of costs was mainly due to decrease in revenue as we did not generate income from shipping agency and management service for the six months ended December 31, 2021. Our gross profit margin decreased by approximately 1.3% from approximately 7.9% for the six months ended December 31, 2020 to approximately 6.6% for the same period in 2021 due to decrease in revenue shipping agency which has higher gross margin.
Selling Expenses
Our selling expenses consisted primarily of salaries, meals and entertainment and travel expenses for our sales representatives. For the six months ended December 31, 2020, we had $142,392 of selling expenses, as compared to $271,621 for the same period in 2021, which represents an increase of $129,229 or approximately 90.8%. The increase was caused by increasing of marketing fee approximately $120,000.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for administration department, office expenses, regulatory filing and professional service fees including audit, legal and IT consulting. For the six months ended December 31, 2021, we had $4,118,000 of general and administrative expenses, as compared to $2,017,669 for the same period in 2020, representing an increase of $2,100,331, or approximately 104.1%. The increase was mainly due to the increase in employees, offices and other general and administrative expense approximately of $1,400,000 we hired more employees and opened more office locations to expand our warehouse service and new business for digital assets, along with an increase of $235,000 of travel and meeting expenses and $350,000 for business development to expand our business.
Impairment Loss of Cryptocurrencies
The company recorded $50,127 impairment loss for the six months ended December 31, 2021 due to recent price drop in bitcoin which the Company deemed a triggering event for impairment testing.
Provision for Doubtful Accounts, net of recovery
We had a recovery of other receivable of $1,931,591 for the six months ended December 31, 2021 compared to $45,091 provision for doubtful accounts and offset by the recoveries of accounts receivable of $2,456, the recoveries of other receivable $30,173 and other receivable - related party of $10,000 for the same period in 2020.
Stock-based Compensation
Stock-based compensation was $3,304,400 for the six months ended December 31, 2021, an increase of $3,304,400 or 100.0%, as compared to nil for the same period in 2020 as we issued stock compensation to employees of $2,927,400 and $377,000 to a former director.
36
Loss from disposal of Subsidiaries and VIE
On December 31, 2021, our wholly owned foreign subsidiary Trans Pacific Shipping Limited (“Trans Pacific Beijing”) entered into a series of agreements to terminate our Variable Interest Entity (“VIE”) structure and terminate the existence of our formerly controlled entity Sino-Global Shipping Agency Ltd. (“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.
Taxation
We recorded income tax expense nil and $3,450 for the six months ended December 31, 2021 and 2020, respectively.
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 will expire in 2037 and the remaining balance carried forward indefinitely. During the six months ended December 31, 2021, approximately $4,586,000 of additional NOL was generated and the tax benefit derived from such NOL was approximately $963,000.
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 $677,000 start expiring from 2023 and the remaining balance of NOL will be expired by 2026.
We periodically evaluate the likelihood of the realization of deferred tax assets, 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 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 December 31, 2021. The net decrease in valuation for the six months ended December 31, 2021 amounted to approximately $211,000 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 $11,840,032 for the six months ended December 31, 2021, compared to $1,842,016 for the same period in 2020. After the deduction of non-controlling interest, net loss attributable to the Company was $11,708,114 for the six months ended December 31, 2021, compared to $1,836,710 for the same period in 2020. Comprehensive loss attributable to the Company was $12,120,533 for the six months ended December 31, 2021, compared to $1,409,594 for the same period in 2020.
Liquidity and Capital Resources
Cash Flows and Working Capital
As of December 31, 2021, we had $51,401,410 in cash (cash on hand and cash in bank). We held approximately 98.7% of our cash in banks located in the U.S., Australia and Hong Kong and held approximately 1.3% of our cash in banks located in the PRC.
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 $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 (“Common Stock”) at a conversion price of $3.76 per share.
37
As of December 31, 2021, we had the following loans outstanding:
| Loans | Maturities | Interest rate | December 31, 2021 | |||||||
| Convertible notes | December 2023 | 5 | % | $ | 10,000,000 | |||||
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Six Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (5,239,803 | ) | $ | (2,967,985 | ) | ||
| Net cash used in investing activities | $ | (2,210,346 | ) | $ | - | |||
| Net cash provided by financing activities | $ | 14,408,503 | $ | 6,860,999 | ||||
| Effect of exchange rate fluctuations on cash | $ | (394,261 | ) | $ | 448,804 | |||
| Net increase (decrease) in cash | $ | 6,564,093 | $ | 4,341,818 | ||||
| Cash at the beginning of period | $ | 44,837,317 | $ | 131,182 | ||||
| Cash at the end of period | $ | 51,401,410 | $ | 4,473,000 | ||||
The following table sets forth a summary of our working capital:
| December 31, | June 30, | |||||||||||||||
| 2021 | 2021 | Variation | % | |||||||||||||
| Total Current Assets | $ | 57,543,237 | $ | 46,867,349 | $ | 10,675,888 | 22.8 | % | ||||||||
| Total Current Liabilities | $ | 5,411,259 | $ | 5,343,648 | $ | 67,611 | 1.3 | % | ||||||||
| Working Capital (Deficit) | $ | 52,131,978 | $ | 41,523,701 | $ | 10,608,277 | 25.5 | % | ||||||||
| Current Ratio | 10.63 | 8.77 | 1.86 | 21.2 | % | |||||||||||
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 December 31, 2021, our working capital was approximately $52.2 million and we had cash of approximately $51.4 million. We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations as they become due one year through report date.
Operating Activities
Our net cash used in operating activities was approximately $5.2 million for six months ended December 31, 2021. The operating cash outflow for the six months ended December 31, 2021 was primarily attributable to our net loss of $11.8 million, adjusted by non cash stock-based compensation of approximately $3.3 million, loss on disposal of subsidiaries of approximately $6.1 million and approximately $1.9 million including recovery for doubtful accounts. We had an increase in cash outflow of other receivables of approximately $1.7 million as we advance to a third party of approximately $3.3 million, which offset with recovery for doubtful account approximately $1.9 million. We had a decrease in advances to suppliers - third parties as we made advances to our suppliers of approximately $0.4 million, which will offset by a decrease in deferred revenue of approximately $0.4 million.
38
Our net cash used in operating activities was approximately $3.0 million for the six months ended December 31, 2020. The operating cash outflow for the six months ended December 31, 2020 was primarily attributable to our net loss of $1.8 million, adjusted by non-cash items of approximately $0.2 million of depreciation and amortization expenses of fixed assets and intangible asset. We had an increase in accounts receivables of approximately $0.2 million, an increase in other receivables of approximately $0.9 million, an increase in other long-term assets – deposits of approximately $0.1 million, and a decrease in accrued expenses and other current liabilities of approximately $0.8 million offset by an increase of approximately $0.4 million in deferred revenues as we signed an agreement with a new client, an increase in taxes payable of approximately $0.1 million and a decrease of approximately $0.1 million due from related parties as a result of collections made during the year.
Investing Activities
Net cash used in investing activities was $2,210,346 for the six months ended December 31, 2021 due to the acquisition of property and equipment of approximately $0.6 million, investment of approximately $0.2 million to a joint venture named LSM Trading Ltd., which we hold a 40% of equity interest. On April 10, 2021, we entered into a loan agreement with Shanghai Baoyin Industrial Co., Ltd. and made advance of approximately $1.5 million. The loan is unsecured and non-interest bearing.
We did not have any investing activities for the six months ended December 31, 2020.
Financing Activities
Net cash provided by financing activities was approximately $14.4 million for the six months ended December 31, 2021 due to issue of common stock to private investor approximately $4.6 million and proceeds from convertible notes of $10 million and repayment of EIDL loan of $0,2 million.
Net cash provided by financing activities was approximately $6.9 million for the six months ended December 31, 2020 due to cash proceeds received from issuance of common stock to private investors for approximately $5.5 million and cash proceeds received from issuance of preferred stock to a private investor for approximately $1.4 million.
Critical Accounting Policies
Basis of Presentation
We prepared our unaudited condensed consolidated financial statements 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 the subsidiaries and VIEs. All intercompany transactions and balances have been eliminated in consolidation.
Sino-Global Shipping Agency Ltd., a PRC corporation (“Sino-China”), is considered a variable interest entity (“VIE”), with us as the primary beneficiary. We, through Trans Pacific Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which we receive 90% of Sino-China’s net income.
As a VIE, Sino-China’s revenues are included in our total revenues, and any income/loss from operations is consolidated with that of us. Because of contractual arrangements between us and Sino-China, we have a pecuniary interest in Sino-China that requires consolidation of the financial statements of us and Sino-China.
We have consolidated Sino-China’s operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. The agency relationship between us and Sino-China and its branches is governed by a series of contractual arrangements pursuant to which we have substantial control over Sino-China. Management makes ongoing reassessments of whether we remain the primary beneficiary of Sino-China. On December 31, 2021, we entered into a series of agreements to terminate its Variable Interest Entity (“VIE”) structure and terminate the existence of its formerly controlled entity Sino-China. Loss from disposal of Sino-China amounted to $6,131,616. Since Sino-China did not have material operations prior to disposal, the disposal did not represent a strategic change in the Company’s business, as such the disposal was not presented as discontinued operations.
39
Use of Estimates and Assumptions
The preparation of 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 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 our judgments and estimates consider the economic implications of COVID-19 on our 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.
Revenue Recognition
We recognize revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange. We identified contractual performance obligations and determine 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. Our revenue streams are recognized at a point in time.
We use a five-step model to recognize revenue from customer contracts. The five-step model requires that we (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) we satisfy the performance obligation.
We continue to derive revenues from sales contracts with 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. Our revenues are recognized at a point in time after all performance obligations are satisfied.
Contract balances
We record receivables related to revenue when we have 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.
Cryptocurrencies
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. Due to recent price drop in bitcoin which we deemed a triggering event for impairment testing. We recorded $50,127 impairment loss for the three and six months ended December 31, 2021. The loss establishes the new cost basis for our bitcoin and we are not allowed to mark up to fair value if the price of bitcoin increases in subsequent period.
Taxation
Because we and our subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. We use 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 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.
We recognize 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. We recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense. We had no uncertain tax positions as of December 31, 2021 and June 30, 2021.
Income tax returns for the years prior to 2016 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 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC.
40
PRC Value Added Taxes and Surcharges
We are subject to value added tax (“VAT”). Revenue from services provided by PRC subsidiaries and affiliates, including Sino-China and Trans Pacific 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, our PRC subsidiaries and affiliates are required to pay the city construction tax (7%) and education surcharges (3%) based on the net VAT payments.
We prepare our consolidated financial statements in accordance with U.S. GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable.
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. We have not early adopted this update and it will become effective on July 1, 2023 assuming we will remain eligible to be smaller reporting company. We are currently evaluating the impact of this new standard on our 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 our 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. We adopted this new standard on July 1, 2021 on our accounting for the convertible notes issued in December 2021.
41
In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable 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 our unaudited condensed consolidated financial statements and related disclosures.
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 our unaudited condensed consolidated financial statements and related disclosures.
Need company update
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 the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) 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 an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2021, we carried out an evaluation, under the supervision of and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective and adequately designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that such information was accumulated and communicated to the management, including Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure. The assessment stemmed from the following material weaknesses –
| ● | Lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries; and |
| ● | Lack of a full time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions. |
We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA firm with U.S. GAAP knowledge and SEC reporting experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.
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 three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
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 December 31, 2021 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 herewith:
43
44
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. | ||
| February 14, 2022 | By: | /s/ Yang Jie |
| Yang Jie | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| February 14, 2022 | By: | /s/ Tuo Pan |
| Tuo Pan | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
45