Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements included herein were prepared by Shengda Network Technology Inc. and Subsidiaries, including its consolidated subsidiaries, the “Company”, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) was condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. For purposes of comparability, certain prior period amounts were reclassified to conform to the current year presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the SEC on October 28, 2022.

The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Peaker International Trade Group Limited or “Peaker”, Peaker’s wholly owned subsidiary Jiangxi Zansheng Information Industry Co., Ltd, Peaker’s wholly owned subsidiary Zhejiang Jingmai Electronic Commerce Ltd or “Jingmai Electronic”, and Jingmai Electronic’s five 99% owned subsidiaries Zhejiang Xiaojing e-commerce Co., Ltd, Yiwu Tianqi Enterprise Management Co., Ltd, Zhejiang Jingtao Supply Chain Co., Ltd, Zhejiang Jingmai e-commerce Co., Ltd, Zhejiang Mengxiang Enterprise Management Co., Ltd and Zhejiang Shubei Supply Chain Co., Ltd, in China. All significant inter-company accounts and transactions were eliminated in consolidation.

Non-Controlling Interest

Non-controlling interest represents the portion of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests is separately presented in the accompanying statements of operations and comprehensive income (loss). Losses attributable to non-controlling interests in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance.

Use of Estimates

The preparation of consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the consolidated financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash

Cash consists of petty cash on hand and cash held in banks, which are highly liquid and are unrestricted as to withdrawal or use.

Accounts Receivable, net

Accounts receivable are generated primarily through sales to customers and are stated at invoiced amount, net of an allowance for doubtful accounts, and bear no interest. A provision for doubtful accounts is determined based on a specific review of outstanding customer balances and historical customer write-off amounts and is charged to operations at the time management determines these accounts may become uncollectible.

The Company establishes a credit and collection policy based on collection history. The collection period usually ranges from three to twelve months. The Company grants extended payment terms only when the Company believes the payment will be collectible at the end of the term. The Company grants extended payment terms to customers based on the following factors: (a) whether or not the Company views a real need, from the customer’s perspective for the extension, and (b) the Company’s relationship with the customer, and the Company’s long-term business prospects.

The Company reviews the accounts receivable on a periodic basis and based on its reviews, the Company recorded an allowance for doubtful accounts of $11,598 and $12,317 as of September 30, 2022 and June 30, 2022, respectively.

Inventories

Inventories are valued at the lower of cost or market. Inventories consist of finished goods. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary. As of September 30, 2022 and June 30, 2022 (audited), the Company had no reserve for obsolete goods.

Equipment

Equipment is stated at cost. Straight-line depreciation is used to compute depreciation over the estimated useful lives of the assets, as follows:

Items	Useful life
Vehicles	5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the statement of income in other income and expenses.

Long-lived Assets

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The impairment loss is recorded as an expense and a direct write-down of the asset. No impairment loss was recorded for the three months ended September 30, 2022 or 2021.

Leases

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease right-of-use assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term. As the implicit rate is typically not readily determinable in the Company’s lease agreements, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of the lease payments. The incremental borrowing rate is based on the Company’s specific rate of interest to borrow on a collateralized basis, over a similar term and in a similar economic environment as the lease. Lease expense is recognized on a straight-line basis over the lease term. Additionally, the Company accounts for lease and non-lease components as a single lease component for its identified asset classes. As of September 30, 2022 and June 30, 2022, the Company did not have any finance lease.

Similar to other long-lived assets, right-of-use assets are tested for impairment when events or conditions indicate that the carrying value of an asset may not be fully recoverable from future cash flows. See Note 8, “Leases,” for additional information.

Revenue Recognition

The Company recognizes revenues when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled for those goods or services. In that determination, under ASC 606, Revenue From Contracts With Customers, the Company follows a five-step model that includes: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company records the revenue once all the above steps are completed.

Online Marketing and Sales, and Technology Consulting Service

The Company generates revenue through providing consulting services to customers. The consulting services provided include online marketing and sales consulting services and technology services. The Company typically satisfies its performance obligations in contracts with customers upon render of the services. Service revenue is recognized when promised services are transferred to the customer in an amount that reflects the consideration expected in exchange for those services. Revenues for services are recognized on a straight line basis over the contract.

Online Networking Sales

The Company generates revenue through online networking sales. Shengda Network Technology is not involved in production. The Company mainly sells products through a significant number of registered companies to members of its sales portal. The Company offers products through offline stores and customer service centers. When the customer receives the product, the control of the products is transferred to the customer.

Fair Value Measurements

The Company has established a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 Fair Value Measurement, prioritizes the inputs into three levels that may be used to measure fair value:

● Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets.

● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

● Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company’s other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash deposited with banks. Substantially all of the Company’s cash is held in bank accounts in the People’s Republic of China (“PRC”) and is not protected by Federal Deposit Insurance Corporation (“FDIC”) insurance or any other similar insurance in the U.S.

The Company’s bank account in the United States is protected by FDIC insurance. As of September 30, 2022 and June 30, 2022 (audited), the Company’s bank account in the United States had no balances exceeding FDIC insurance of $250,000.

The Company’s bank account in the PRC is protected by the People’s Bank of China Financial Stability Bureau (“FSD”) insurance. As of September 30, 2022 and June 30, 2022 (audited), the Company’s bank account in PRC had $390,615 and $247,930, balances exceeding FSD insurance of RMB 500,000.

Major Customers

The Company has two customers Company A and Company B that accounted for 72% and 10% of revenues for the three months ended September 30, 2022, respectively. The Company has three major customers Company C, Company D and Company E that accounted for 19%, 19% and 17% of revenues for the three months ended September 30, 2021, respectively. The two major customers for the three months ended September 30, 2022 does not include the three major customers for the three months ended September 30, 2021.

Major Vendors

The Company has four vendors Company A, Company B, Company C, and Company D that accounted for 18%, 15%, 12% and 11% of purchases for the three months ended September 30, 2022. The Company has one vendor Company A that accounted for 100% of purchases for the three months ended September 30, 2021.

Commitment and Contingencies

In April 2022, the Company agreed to purchase $25,303,999 (RMB 180 million) from a supplier over the next three years. As of September 30, 2022, the Company had advance payment of $7,011,558 (RMB 50 million) to the supplier, of which $5,576,252 (RMB 39,666,667) is recorded as advance to supplier – non-current. The advance is interest free and without collateral. The reasons for making such advance are that the Company started to provide products to clients which are in the internet live broadcasting business. The Company carries minimal inventory, and the supplier directly delivers goods to customers according to purchase orders with the supplier. The advances are refundable and there is no penalty for the Company if it does not purchase the entire RMB 180 million of inventory.

The Company had fully paid for the operating lease and expects $0 lease payment during the next 12 months.

The Company has no legal proceedings and claims.

Events or operations that are uncertain may also result in a cash outflow or inflow for the Company are known as contingencies. Contingencies are not guaranteed, and they heavily rely on the occurrence or lack thereof, of uncertain future events.

Value Added Tax (“VAT”)

The Company is subject to VAT for providing services and sales of goods, ranging from 9% to 13%.  

Revenue from providing services and sales of products is generally subject to VAT at applicable tax rates, and subsequently paid to PRC tax authorities after netting input VAT on purchases. The excess of output VAT over input VAT is reflected in accrued expenses and other payables. The Company reports revenue net of PRC’s VAT for all the periods presented in the Consolidated Statements of Operations and Comprehensive Income (loss).

VAT returns of the Company are subject to examination by the tax authorities for five years from the date of filing.

Income Tax

Income tax returns are filed in federal, state, local and foreign jurisdictions as applicable. Provisions for current income taxes are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions and provisions for uncertain tax positions.

Deferred income tax assets and liabilities are computed on differences between the consolidated financial statement bases and tax bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities associated with components of other comprehensive income are charged or credited directly to other comprehensive income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established for certain deferred tax assets when realization is less than more likely than not.

Liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in our judgment, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Additionally, liabilities may be established for uncertain tax positions when, in our judgment, the more-likely-than-not threshold is met, but the position does not rise to the level of certain based upon the technical merits of the position. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the three months ended September 30, 2022 and 2021, respectively, and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2022.

The effective income tax rate (benefit) was 5.3% and (10.4)% for the three months ended September 30, 2022 and 2021, respectively. A reconciliation of the income tax (benefit) computed at federal statutory income tax rate and the effective income tax rate as a percentage of income (loss) before income taxes for the three months ended September 30, 2022 and 2021 is as follows:

	Three Months Ended September 30,
	2022			2021
Net income (loss) before income tax	$	442,301		$	(26,599	)
Computed tax expense (benefit) at statutory rate		92,883			(5,586	)
Taxes in foreign jurisdictions with rates different than US		19,451			363
Effect of lower income tax rate of PRC entities		(98,104	)		503
Valuation allowance of US parent company		9,236			7,494
Income tax expense	$	23,466		$	2,774

Two of the Company’s subsidiairies in China is subject to preferrential income tax rate as being a small e-commerce company in China. The preferrential income tax rate is lower than the statutory income tax of 25%.

Foreign Currency Translation

The assets and liabilities of the Company’s subsidiaries outside the U.S. are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates, primarily from RMB. Income and expense items are translated at the average exchange rates prevailing during the period. Gains and losses resulting from currency transactions are recognized currently in income and those resulting from translation of consolidated financial statements are included in accumulated other comprehensive income (loss).

The value of RMB against US$ fluctuates. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates used in creating the CFS in this report:

	September 30, 2022	June 30, 2022
		(audited)
Period-end spot rate	US $1=RMB 7.1135	US $1=RMB 6.6981

	Three Months Ended September 30, 2022	Three Months Ended September 30, 2021
Average rate	US $1=RMB 6.8520	US $1=RMB 6.4699

Earnings (Loss) Per Share

The Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions within ASC 740, “Income Taxes,” and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted ASU 2019-12, and it did not have any impact on its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the re cognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. For public business entities, the amendments in this Update require that an entity disclose current-period gross write offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in Update 2016-13, the effective dates for the amendments in this Update are the same as the effective dates in Update 2016-13. The amendments in this Update should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption of the amendments in this Update is permitted if an entity has adopted the amendments in Update 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company evaluated the impact of the adoption of ASU 2022-02, and it did not have any impact on its consolidated financial statements. The Company will adopt ASU 2022-02 effective for fiscal years beginning after December 15, 2022.