Notes to the Condensed Consolidated Financial
Statements
For the Nine Months ended March 31, 2023
Note 1. ORGANIZATION AND NATURE OF BUSINESS
The Company is a global logistics integrated
solution provider that was incorporated in the United States in 2001. On September 18, 2007, the Company amended its Articles of Incorporation
and Bylaws to merge into a new corporation, Sino-Global Shipping America, Ltd. in Virginia. The Company primarily focuses on providing
logistics and support to businesses in the Peoples’ Republic of China (“PRC”) and the United States. On January 3,
2022, the Company changed its corporate name from Sino-Global Shipping America, Ltd. to Singularity Future Technology Ltd. to reflect
its expanded operations into the digital assets business.
The Company conducts its business primarily through
its wholly-owned subsidiaries in the PRC (including Hong Kong) and the United States, where the majority of its clients are located. For
the nine months ended March 31, 2023, the Company operated in two segments: (1) freight logistics services, which were operated by its
subsidiaries in both the United States and PRC, and (2) the sale of crypto-mining machines, which were operated by its subsidiaries in
the United States. For the three months ended March 31, 2023, the Company did not sell crypto-mining machines. On Feb 27, 2023, Ningbo
Saimeinuo Supply Chain Management Ltd. changed its name to Ningbo Saimeinuo Web Technology Ltd. On March 30, 2023, the board of directors
of the Company authorized the Company to conduct an e-commerce business in China.
The outbreak of the novel coronavirus (COVID-19)
starting in late January 2020 in the PRC 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. In early December 2022, Chinese government eased the strict control measures for COVID-19,
which led to a surge in increased infections and disruption in our business operations. Any future impact of COVID-19 on our operating
results in China will depend on, to a large extent, future developments and new information that may emerge regarding the duration and
resurgence of COVID-19 variants and the actions taken by government authorities to contain COVID-19 or treat its impact, almost all of
which are beyond our control.
As of March 31, 2023, the Company’s subsidiaries
included the following:
Name |
|
Background |
|
Ownership |
Sino-Global Shipping New York Inc. (“SGS NY”) |
|
● |
A New York corporation |
|
100% owned by the Company |
|
● |
Incorporated on May 03, 2013 |
|
|
|
● |
Primarily engaged in freight logistics services |
|
|
|
|
|
|
|
|
Sino-Global Shipping HK Ltd. (“SGS HK”) |
|
● |
Incorporated on September 22, 2008 |
|
100% owned by the Company |
|
● |
No material operations |
|
|
|
● |
A Hong Kong corporation |
|
|
Name |
|
Background |
|
Ownership |
Thor Miner Inc. (“Thor Miner”) |
|
● |
A Delaware corporation |
|
51% owned by the Company |
|
● |
Incorporated on October 13, 2021 |
|
|
|
● |
Primarily engaged in sales of crypto mining machines |
|
|
|
|
|
|
|
|
Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) |
|
● |
A PRC limited liability company |
|
100% owned by the Company |
|
● |
Incorporated on November 13, 2007. |
|
|
|
● |
Primarily engaged in freight logistics services |
|
|
|
|
|
|
|
|
Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”) |
|
● |
A PRC limited liability company |
|
90% owned by Trans Pacific Beijing |
|
● |
Incorporated on May 31, 2009 |
|
|
|
● |
Primarily engaged in freight logistics services |
|
|
|
|
|
|
|
|
Ningbo Saimeinuo Web Technology Ltd. (“SGS Ningbo”) |
|
● |
A PRC limited liability company |
|
100% owned by SGS NY |
|
● |
Incorporated on September 11,2017 |
|
|
|
● |
Primarily engaged in freight logistics services |
|
|
|
|
|
|
|
|
Blumargo IT Solution Ltd. (“Blumargo”) |
|
● |
A New York corporation |
|
100% owned by SGS NY |
|
● |
Incorporated on December 14, 2020 |
|
|
|
● |
No material operations |
|
|
|
|
|
|
|
|
Gorgeous Trading Ltd (“Gorgeous Trading”) |
|
● |
A Texas corporation |
|
100% owned by SGS NY |
|
● |
Incorporated on July 01, 2021 |
|
|
|
● |
Primarily engaged in warehouse related services |
|
|
|
|
|
|
|
|
Brilliant Warehouse Service Inc. (“Brilliant Warehouse”) |
|
● |
A Texas corporation |
|
51% owned by SGS NY |
|
● |
Incorporated on April 19,2021 |
|
|
|
● |
Primarily engaged in warehouse house related services |
|
|
|
|
|
|
|
|
Phi Electric Motor In. (“Phi”) |
|
● |
A New York corporation |
|
51% owned by SGS NY |
|
● |
Incorporated on August 30, 2021 |
|
|
|
● |
No operations |
|
|
|
|
|
|
|
SG Shipping & Risk Solution Inc, (“SGSR”) |
|
● |
A New York corporation |
|
100% owned the Company |
|
● |
Incorporated on September 29, 2021 |
|
|
|
● |
No material operations |
|
|
|
|
|
|
|
|
SG Link LLC (“SG Link”) |
|
● |
A New York corporation |
|
100% owned by SG Shipping & Risk Solution Inc on January 25, 2022 |
|
● |
Incorporated on December 23, 2021 |
|
|
● |
No material operations |
|
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed
consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of its
subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to December 31, 2021, Sino-Global Shipping
Agency Ltd. (“Sino-China”) was considered a Variable Interest Entity (“VIE”), with the Company as the primary
beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China, pursuant to which the Company
received 90% of Sino-China’s net income.
As a VIE, Sino-China’s revenues were included
in the Company’s total revenues, and any income/loss from operations was consolidated with that of the Company. Because of contractual
arrangements between the Company and Sino-China, the Company had a pecuniary interest in Sino-China that required consolidation of the
financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s
operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”.
The agency relationship between the Company and Sino-China and its branches was governed by a series of contractual arrangements
pursuant to which the Company had substantial control over Sino-China. On December 31, 2021, the Company entered into a series of agreements
to terminate its VIE structure and deconsolidated its formerly controlled entity Sino-China.
(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 condense consolidated financial statements include
revenue recognition, fair value of stock-based compensation, cost of revenues, allowance for credit losses, impairment loss, deferred
income taxes, income tax expense and the useful lives of property and equipment. The inputs into the Company’s judgments and estimates
consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Since the use of
estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(d) Translation of Foreign Currency
The accounts of the Company and its subsidiaries
are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).
The Company’s functional currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Trans Pacific
Beijing and Trans Pacific Shanghai report their financial positions and results of operations in Renminbi (“RMB”), its subsidiary
Sino-Global Shipping (HK), Ltd. reports its financial positions and results of operations in Hong Kong dollars (“HKD”). The
accompanying consolidated unaudited condensed financial statements are presented in USD. Foreign currency transactions are translated
into USD using the fixed exchange rates in effect at the time of the transaction. Generally, foreign exchange gains and losses resulting
from the settlement of such transactions are recognized in the consolidated statements of operations. The Company translates the foreign
currency financial statements in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated
at current exchange rates quoted by the People’s Bank of China at the balance sheets’ dates and revenues and expenses are
translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive
loss and accumulated other comprehensive loss as a separate component of equity of the Company, and also included in non-controlling
interests.
The exchange rates as of March 31, 2023 and June
30, 2022 and for the three and nine months ended March 31, 2023 and 2022 are as follows:
| |
March 31,
2023 | | |
June 30, 2022 | | |
Three months ended March 31, | | |
Nine months ended March 31, | |
Foreign currency | |
Balance Sheet | | |
Balance Sheet | | |
2023 Profit/Loss | | |
2022 Profit/Loss | | |
2023 Profit/Loss | | |
2022 Profit/Loss | |
RMB:1USD | |
| 6.8689 | | |
| 6.6994 | | |
| 6.8423 | | |
| 6.3483 | | |
| 6.9321 | | |
| 6.4048 | |
HKD:1USD | |
| 7.8500 | | |
| 7.8474 | | |
| 7.8386 | | |
| 7.8044 | | |
| 7.8369 | | |
| 7.7906 | |
(e) Cash
Cash consists of cash on hand and cash in banks
which are unrestricted as to withdrawal or use. The Company maintains cash with various financial institutions mainly in the PRC, Australia,
Hong Kong and the U.S. As of March 31, 2023 and June 30, 2022, cash balances of $96,790 and $143,044, respectively, were maintained at
financial institutions in the PRC. $10,212 and nil of these balances are not covered by insurance as the deposit insurance system in
China only insured each depositor at one bank for a maximum of approximately $70,000 (RMB 500,000). As of, March 31, 2023 and June 30,
2022, cash balances of $21,503,288 and $55,636,636, respectively, were maintained at U.S. financial institutions. $20,173,927 and $53,869,575
of these balances are not covered by insurance, as each U.S. account was insured by the Federal Deposit Insurance Corporation or other
programs subject to $250,000 limitations. The Hong Kong Deposit Protection Board pays compensation up to a limit of HKD 500,000 (approximately
$64,000) if the bank with which an individual/a company holds its eligible deposit fails. As of March 31, 2023 and June 30, 2022, cash
balances of $7,605 and $51,701, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong
Deposit Protection Board. As of March 31, 2023 and June 30, 2022, cash balances of nil and $192, respectively, were maintained at Australia
financial institutions, and were insured as the Australian government guarantees deposits up to AUD 250,000 (approximately $172,000).
As of March 31, 2023 and June 30, 2022, amount of deposits the Company had covered by insurance amounted to $1,423,544 and $1,961,997,
respectively.
(f) Cryptocurrencies
Cryptocurrencies, mainly bitcoin, are included
in current assets in the accompanying consolidated balance sheets. Cryptocurrencies purchased are recorded at cost. Fair value of the
cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
Cryptocurrencies are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment
annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the
cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a
qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not
more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise,
it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new
cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
(g) Receivables and Allowance for Credit Losses
Accounts receivable are presented at net realizable
value. The Company maintains allowances for credit losses. The Company reviews the accounts receivable on a periodic basis and makes
general and specific allowances when there is doubt as to the collectability of individual receivable balances. In evaluating the collectability
of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical
payment history, their current credit-worthiness and current economic trends. The estimate of expected credit losses is based on information
about past events, current economic conditions, and forecasts of future economic conditions that affect collectability. Receivables are
generally considered past due after 180 days. The Company reserves 25%-50% of the customers balance aged between 181 days to 1 year,
50%-100% of the customers balance over 1 year and 100% of the customers balance over 2 years. Accounts receivable are written off against
the allowances only after exhaustive collection efforts.
Other receivables represent mainly customer advances,
prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, project advances as well
as office lease deposits. Management reviews its receivables on a regular basis to determine if the credit loss is adequate, and adjusts
the allowance when necessary. The estimate of expected credit losses is based on information about past events, current economic conditions,
and forecasts of future economic conditions that affect collectability. Delinquent account balances are written-off against allowance
for credit losses 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 |
20 years |
Motor vehicles |
3-10 years |
Computer and office equipment |
1-5 years |
Furniture and fixtures |
3-5 years |
System software |
5 years |
Leasehold improvements |
Shorter of lease term or useful lives |
Mining equipment |
3 years |
The carrying value of a long-lived asset is considered
impaired by the Company when the anticipated undiscounted cash flows from such asset is less than its carrying value. If impairment is
identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent
appraisals. For the three and nine months ended March 31, 2023 and 2022, no impairments were recorded.
(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 20% to 50%, and other factors, such as representation
on the board of directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity
method of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings
or losses of equity method investees and a corresponding increase or decrease to the investment balances. Dividends received from the
equity method investments are recorded as reductions in the cost of such investments. The Company generally considers an ownership interest
of 20% or higher to represent significant influence. The Company accounts for the investments in entities over which it has neither control
nor significant influence, and no readily determinable fair value is available, using the investment cost minus any impairment, if necessary.
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. (“LSM”) in which the Company holds a 40% equity interest. Mr. Shanming Liang subsequently
transferred his shares to Guanxi Golden Bridge Industry Group Co., Ltd in October 2021. For the year ended June 30, 2022, the Company
invested $210,000 and recorded $47,181 investment loss. The joint venture has not started its operations due to COVID-19. Due to continuing
loss of the investee, we determined the loss is other than temporary and provided full impairment of our equity investment. The Company
recorded nil and $34,458 investment loss and $128,370 impairment loss for the three and nine months ended March 31, 2023.
(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 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.
For the Company’s freight logistic,
the Company provides transportation services which include mainly shipping services. The Company derives transportation revenue from
sales contracts with its customers with revenues being recognized upon performance of services. Sales price to the customer are
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 were satisfied
For the Company’s warehouse services, which
are included in the freight logistic services, the Company’s contracts provide the customer an integrated service that includes
two or more services, including but not limited to warehousing, collection, first-mile delivery, drop shipping, customs clearance packaging,
etc. Accordingly, the Company generally identifies one performance obligation in its contracts, which is a series of distinct services
that remain substantially the same over time and possess the same pattern of transfer. Revenue is recognized over the period in which
services are provided under the terms of the Company’s contractual relationships with its clients.
Accordingly, the Company generally identifies
one performance obligation in its contracts, which is a series of distinct services that remain substantially the same over time and
possess the same pattern of transfer. Revenue is recognized over the period in which services are provided under the terms of the Company’s
contractual relationships with its clients.
The transaction price is based on the amount
specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration in a contract
represents facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over
the term of the contract. The variable consideration is comprised of cost reimbursement determined based on the costs incurred. Revenue
relating to variable pricing is estimated and included in the consideration if it is probable that a significant revenue reversal will
not occur in the future. The estimate of variable consideration is determined by the expected value or most likely amount method and
factors in current, past and forecasted experience with the customer. Customers are billed based on terms specified in the revenue contract
and they pay us according to approved payment terms.
Revenue for the above services is recognized
on a gross basis when the Company controls the services as it has the obligation to (i) provide all services (ii) bear any inventory
risk for warehouse services. In addition, the Company has control to set its selling price to ensure it would generate profit for the
services.
For the nine months ended March 31, 2023, the
Company engaged in resale of cryptocurrency mining equipment. For the three months ended March 31, 2023, the Company did not sell crypto-mining
machines.
On January 10, 2022, the Company’s joint
venture, Thor Miner, entered into a Purchase and Sale Agreement with SOS Information Technology New York Inc. (the “Buyer”).
Pursuant to the Purchase and Sale Agreement, Thor Miner agreed to sell and the Buyer agreed to purchase certain cryptocurrency mining
equipment.
The Company’s performance obligation was
to deliver products according to contract specifications. The Company recognizes product revenue at a point in time when the control
of products or services are transferred to customers. To distinguish a promise to provide products from a promise to facilitate the sale
from a third party, the Company considers the guidance of control in ASC 606-10-55-37A and the indicators in ASC 606-10-55-39.
In general, revenue was recognized on a gross
basis when the Company controls the products as it has the obligation to (i) fulfill the products delivery and custom clearance (ii)
bear any inventory risk as legal owners. In addition, when establishing the selling prices for delivery of the resale products, the Company
has control to set its selling price to ensure it would generate profit for the products delivery arrangements. If the Company is not
responsible for provision of product and does not bear inventory risk, the Company recorded revenue on a net basis.
For the nine months ended March 31, 2023, the
Company recognized the sale of cryptocurrency mining equipment based on net basis as the manufacturer of the products was responsible
for shipping and custom clearing for the products. For the three months ended March 31, 2023, the Company did not recognize any sale
of cryptocurrency mining equipment.
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. Contract balance amounted to $205,477
and $6,955,577 as of March 31, 2023 and June 30, 2022, respectively.
The Company’s disaggregated revenue streams
are described as follows:
| |
For
the Three Months
Ended | | |
For
the Nine Months
Ended | |
| |
March 31,
2023 | | |
March 31,
2022 | | |
March 31,
2023 | | |
March 31,
2022 | |
| |
| | |
| | |
| | |
| |
Sale of crypto
mining machines | |
$ | - | | |
$ | - | | |
$ | 732,565 | | |
$ | - | |
Freight
logistics services | |
| 759,905 | | |
| 971,747 | | |
| 2,739,475 | | |
| 2,829,682 | |
Total | |
$ | 759,905 | | |
$ | 971,747 | | |
$ | 3,472,040 | | |
$ | 2,829,682 | |
Disaggregated information of revenues by geographic locations are
as follows:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31, | | |
March 31, | | |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
PRC | |
$ | 535,037 | | |
$ | 648,964 | | |
$ | 1,695,858 | | |
$ | 2,242,296 | |
U.S. | |
| 224,868 | | |
| 322,783 | | |
| 1,776,182 | | |
| 587,386 | |
Total revenues | |
$ | 759,905 | | |
$ | 971,747 | | |
$ | 3,472,040 | | |
$ | 2,829,682 | |
(l) Leases
The Company adopted FASB ASU 2016-02, “Leases”
(Topic 842) for the year ended June 30, 2020, and elected the practical expedients that does not require us to reassess: (1) whether
any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial
direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting
policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to
treat the lease and non-lease components of a lease as a single lease component. Upon adoption, the Company recognized right of use (“ROU”)
assets and same amount of lease liabilities based on the present value of the future minimum rental payments of leases, using an incremental
borrowing rate of 7% based on the duration of lease terms.
Operating lease ROU assets and lease liabilities
are recognized at the adoption date or the commencement date, whichever is earlier, based on the present value of lease payments over
the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company use its incremental borrowing
rate based on the information available at the commencement date in determining the present value of lease payments. The incremental
borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the
lease payments, in a similar economic environment and over a similar term.
Lease terms used to calculate the present value
of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable
certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating
lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception,
therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally
do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line
basis over the lease term.
The Company reviews the impairment of its ROU
assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived
assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment
of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax
cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested
asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
(m) Taxation
Because the Company and its subsidiaries and
Sino-China were incorporated in different jurisdictions, they file separate income tax returns. The Company uses the asset and liability
method of accounting for income taxes in accordance with U.S. GAAP. Deferred taxes, if any, are recognized for the future tax consequences
of temporary differences between the tax basis of assets and liabilities and their reported amounts in the unaudited condensed consolidated
financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will
not be utilized in the future.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits
as income tax expense. The Company had no uncertain tax positions as of March 31, 2023 and June 30, 2022.
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 25%. Sino-China and Trans
Pacific Beijing were incorporated in the PRC and are subject to the Enterprise Income Tax Laws of the PRC.
PRC Value Added Taxes and Surcharges
The Company is subject to value added tax (“VAT”).
Revenue from services provided by the Company’s PRC subsidiaries are subject to VAT at rates ranging from 9% to 13%. Entities that
are VAT general taxpayers are allowed to offset qualified VAT paid to suppliers against their VAT liability. Net VAT liability is recorded
in taxes payable on the consolidated balance sheets.
In addition, under the PRC regulations, the Company’s
PRC subsidiaries are required to pay city construction tax (7%) and education surcharges (3%) based on the net VAT payments.
(n) Earnings (loss) per Share
Basic earnings (loss) per share is computed by
dividing net income (loss) attributable to holders of common stock of the Company by the weighted average number of shares of common
stock of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the potential dilution that
could occur if securities or other contracts to issue common stock of the Company were exercised or converted into common stock of the
Company. Common stock equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the three and nine months ended March
31, 2023 and 2022, there was no dilutive effect of potential shares of common stock of the Company because the Company generated a
net loss.
(o) 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.
(p) 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.
(q) Risks and Uncertainties
The Company’s business, financial position
and results of operations may be influenced by the political, economic, health and legal environments in the PRC, as well as by the general
state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically
associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic,
health and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in the
political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws
and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other
things.
In March 2020, the World Health Organization
declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the
Company’s business operations and the workforce are concentrated in China and United States, the Company’s business, results
of operations, and financial condition have been adversely affected for the three and nine months ended March 31, 2023. 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.
(r) Disposal of subsidiaries and VIE
On December 31, 2021, the Company entered into
a series of agreements to terminate its VIE structure and deconsolidated its formerly controlled entity Sino-Global Shipping Agency Ltd.
(“Sino-China”). The Company controlled Sino-China through its wholly owned subsidiary Trans Pacific Beijing. The Company
made the decision to dissolve the VIE structure and Sino-China because Sino-China has no active operations and the Company wanted to
remove any potential risks associated with any VIE structures. In addition, the Company dissolved its subsidiary Sino-Global Shipping
LA, Inc. On March 14, 2022, the Company discontinued its subsidiary Sino-Global Shipping Canada, Inc., no gain or loss was recognized
in the deconsolidation. In November 2022, the Company dissolved its subsidiary Sino-Global Shipping Australia Pty Ltd., no material gain
or loss was recognized.
Since the disposal did not represent any strategic
change of the Company’s operation, the disposal was not presented as a discontinued operation.
Net assets of the entities disposed and loss
on disposal was as follows:
| |
For the three and nine months ended | |
| |
March 31, 2022 | |
| |
VIE | | |
Subsidiaries | | |
Total | |
Total current assets | |
$ | 83,573 | | |
$ | 20,898 | | |
$ | 104,471 | |
| |
| | | |
| | | |
| | |
Total other assets | |
| 8,723 | | |
| - | | |
| 8,723 | |
| |
| | | |
| | | |
| | |
Total assets | |
| 92,296 | | |
| 20,898 | | |
| 113,194 | |
| |
| | | |
| | | |
| | |
Total current liabilities | |
| 41,608 | | |
| 1,100 | | |
| 42,708 | |
Total net assets | |
| 50,688 | | |
| 19,798 | | |
| 70,486 | |
Noncontrolling interests | |
| 5,919,050 | | |
| - | | |
| 5,919,050 | |
Exchange rate effect | |
| 142,080 | | |
| - | | |
| 142,080 | |
Total loss on disposal | |
$ | 6,111,818 | | |
$ | 19,798 | | |
$ | 6,131,616 | |
(s) 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 adoption did not have material impact
on the Company’s unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe other recently issued
but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
consolidated financial statements.
Note 3. CRYPTOCURRENCIES
The following table presents additional information
about cryptocurrencies:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | 90,458 | | |
$ | 261,338 | |
Receipt of cryptocurrencies from mining services | |
| - | | |
| - | |
Impairment loss | |
| (14,801 | ) | |
| (170,880 | ) |
Ending balance | |
$ | 75,657 | | |
$ | 90,458 | |
The Company recorded nil and a $14,801 impairment
loss for the three and nine months ended March 31, 2023, respectively. The Company recorded $3,052 and $53,179 impairment losses for the
three and nine months ended March 31, 2022, respectively.
Note 4. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable are
as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Trade accounts receivable | |
$ | 3,591,664 | | |
$ | 3,521,491 | |
Less: allowances for credit losses | |
| (3,365,374 | ) | |
| (3,413,110 | ) |
Accounts receivable, net | |
$ | 226,290 | | |
$ | 108,381 | |
Movement of allowance for credit losses are as
follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | 3,413,110 | | |
$ | 3,475,769 | |
Provision for credit losses, net of recovery | |
| (7,357 | ) | |
| 257 | |
Exchange rate effect | |
| (40,379 | ) | |
| (62,916 | ) |
Ending balance | |
$ | 3,365,374 | | |
$ | 3,413,110 | |
Note 5. OTHER RECEIVABLES, NET
The Company’s other receivables are as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Advances to customers* | |
$ | 4,186,368 | | |
$ | 3,943,547 | |
Employee business advances | |
| 19,014 | | |
| 23,768 | |
Total | |
| 4,205,382 | | |
| 3,967,315 | |
Less: allowances for credit losses | |
| (4,186,034 | ) | |
| (3,942,258 | ) |
Other receivables, net | |
$ | 19,348 | | |
$ | 25,057 | |
| * | In
fiscal year 2019 and 2020, the Company entered into contracts with several customers where the Company’s services included both
freight charge and cost of commodities to be shipped to customers’ designated locations. The terms of the contracts required the
Company to prepay the commodities. The Company prepaid for the commodities and reclassified the payment as other receivables as
the payments were paid on behalf of the customers. These payments will be repaid to the Company when either the contract is executed
or the contracts are terminated by either party. The customers were negatively impacted by the pandemic and required additional time
to execute the contracts, due to significant uncertainty on whether the delayed contracts will be executed timely, the Company had provided
full allowance due to contract delay during the fiscal year ended June 30, 2020. The Company subsequently recovered $1,934,619 in fiscal
year 2022. |
Movement of allowance for doubtful accounts are
as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | 3,942,258 | | |
$ | 6,024,266 | |
Recovery of doubtful accounts | |
| - | | |
| (1,934,619 | ) |
Exchange rate effect | |
| 243,776 | | |
| (147,389 | ) |
Ending balance | |
$ | 4,186,034 | | |
$ | 3,942,258 | |
Note 6. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are
as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Freight fees (1) | |
$ | 402,403 | | |
$ | 336,540 | |
Less: allowances for credit losses | |
| (300,000 | ) | |
| (300,000 | ) |
Advances to suppliers-third parties, net | |
$ | 102,403 | | |
$ | 36,540 | |
| (1) | The
advanced freight fee is the Company’s prepayment made for various shipping costs for shipments from January 1, 2023 to March
31, 2023. As of March 31, 2023 and June 30, 2022, the Company provided an allowance of $300,000. |
Note 7. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s prepaid expenses and other
assets are as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Prepaid income taxes | |
$ | 11,929 | | |
$ | 11,929 | |
Other (including prepaid professional fees, rent, listing fees) | |
| 443,096 | | |
| 353,984 | |
Total | |
$ | 455,025 | | |
$ | 365,913 | |
Note 8. OTHER LONG-TERM ASSETS – DEPOSITS,
NET
The Company’s other long-term assets –
deposits are as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Rental and utilities deposits | |
$ | 247,420 | | |
$ | 246,581 | |
Less: allowances for deposits | |
| (8,614 | ) | |
| (8,832 | ) |
Other long-term assets- deposits, net | |
$ | 238,806 | | |
$ | 237,749 | |
Movements of allowance for deposits are as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | 8,832 | | |
$ | 3,177,127 | |
Less: Write-off | |
| - | | |
| (3,173,408 | ) |
Exchange rate effect | |
| (218 | ) | |
| 5,113 | |
Ending balance | |
$ | 8,614 | | |
$ | 8,832 | |
Note 9. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment
as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Motor vehicles | |
$ | 585,961 | | |
$ | 715,571 | |
Computer equipment | |
| 121,016 | | |
| 117,397 | |
Office equipment | |
| 69,356 | | |
| 67,139 | |
Furniture and fixtures | |
| 536,227 | | |
| 390,093 | |
System software | |
| 108,809 | | |
| 111,562 | |
Leasehold improvements | |
| 809,218 | | |
| 829,687 | |
Mining equipment | |
| 922,438 | | |
| 922,438 | |
| |
| | | |
| | |
Total | |
| 3,153,025 | | |
| 3,153,887 | |
| |
| | | |
| | |
Less: Impairment reserve | |
| (1,200,994 | ) | |
| (1,236,282 | ) |
Less: Accumulated depreciation and amortization | |
| (1,456,702 | ) | |
| (1,368,649 | ) |
Property and equipment, net | |
$ | 495,329 | | |
$ | 548,956 | |
Depreciation and amortization expenses for the
three months ended March 31, 2023 and 2022 were $42,569 and $150,118, respectively. Depreciation and amortization expenses for the
nine months ended March 31, 2023 and 2022 were $122,699 and $428,635, respectively. No impairment loss was recorded for the three and
nine months ended March 31, 2023 and 2022. For the three and nine months of March 31, 2023, the Company disposed of vehicles having a
net cost of $83,519, resulting in a gain on disposal of fixed assets of $6,481.
Note 10. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Salary and reimbursement payable | |
$ | 186,066 | | |
$ | 305,423 | |
Professional fees and other expense payable | |
| 125,544 | | |
| 305,264 | |
Interest payable | |
| 321,310 | | |
| 136,379 | |
Others | |
| 21,451 | | |
| 9,206 | |
Total | |
$ | 654,371 | | |
$ | 756,272 | |
Note 11. 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 $10,000,000.
The Convertible Notes carried interest of 5% annually
and could be converted into shares of the Company’s common stock, no par value per share at a conversion price of $3.76 per share,
the closing price of the common stock on December 17, 2021. The Convertible Notes are unsecured senior obligations of the Company, and
the maturity date of the Convertible Notes is December 18, 2023. The Company may repay any portion of the outstanding principal, accrued
and unpaid interest, without penalty for early repayment. The Company may make any repayment of principal and interest in (a) cash, (b)
common stock at the conversion price or (c) a combination of cash or common stock at the conversion price.
The Company evaluated the convertible notes agreement
under ASC 815 Derivatives and Hedging (“ASC 815”) amended by ASU 2020-06. ASC 815 generally requires the analysis embedded
terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where
their economic risks and characteristics are not clearly and closely related to the risks of the host contract. Based on terms of the
convertible notes agreements, the Company’s notes are convertible for a fixed number of shares and do not require the Company to
net settle. None of the embedded terms required bifurcation and liability classification.
On March 8, 2022, the Company amended and
restated the terms of the Convertible Note and issued the Amended and Restated Senior Convertible Notes (the “Amended and
Restated Convertible Notes”) to the investors to change the principal amount of such notes to an aggregate
principal amount of $5,000,000.
The terms of the Amended and Restated Convertible
Notes are the same as that of the original Convertible Notes, except for the reduced principal amount and the waiver of interest for
the $5,000,000 payment made on March 8, 2022.
For the three and nine months ended March 31,
2023, interest expenses related to the aforementioned notes amounted to $61,345 and $184,932, respectively. For the three
and nine months ended March 31, 2022, interest expenses related to the aforementioned notes amounted to $60,959 and $69,178,
respectively.
Note 12. LEASES
The Company determines if a contract contains
a lease at inception which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights
and obligations. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial
reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes
the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when
the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All
of the Company’s leases are classified as operating leases.
The Company has several lease agreements with
lease terms ranging from two to five years. As of March 31, 2023, ROU assets and lease liabilities amounted to $473,513 and $698,143
(including $341,922 from lease liabilities current portion and $356,221 from lease liabilities non-current portion), respectively and
weighted average discount rate was approximately 10.63%.
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 2.40 years.
For the three months ended March 31, 2023 and
2022, rent expense amounted to approximately $264,000 and $102,000, respectively. For the nine months ended March 31, 2023 and 2022,
rent expense amounted to approximately $411,000 and $358,000, respectively.
The five-year maturity of the Company’s
lease obligations is presented below:
Twelve Months Ending March 31, | |
Operating Lease Amount | |
| |
| |
2024 | |
$ | 405,395 | |
2025 | |
| 238,752 | |
2026 | |
| 113,687 | |
2027 | |
| 38,267 | |
Total lease payments | |
| 796,101 | |
Less: Interest | |
| (97,958 | ) |
Present value of lease liabilities | |
$ | 698,143 | |
Note 13. EQUITY
Stock issuances:
On December 14, 2021, the Company entered
into a securities purchase agreement (the “Purchase Agreement”) with non-U.S. accredited investors pursuant to which the
Company sold an aggregate of 3,228,807 shares of common stock, no par value, and warrants to purchase 4,843,210 shares. The purchase
price for each share of common stock and one and a half warrants was $3.26, and the exercise price per warrant is $4.00. The Company
received net proceed of $10,525,819 and issued 3,228,807 shares of common stock and 4,843,210 warrants. In connection with the
issuance, the Company issued 500,000 shares to a consultant that assisted the Company in finding potential investors.
The warrants will be exercisable at any time during
the Exercise Window. The “Exercise Window” means the period beginning on or after June 14, 2022 and ending on or prior to
5:00 p.m. (New York City time) on December 13, 2026 but not thereafter; subject to that the total number of the Company’s issued
and outstanding shares of common stock, multiplied by the NASDAQ official closing bid price of the common stock shall equal or exceed
$150,000,000 for a three consecutive month period prior to an exercise.
The Company’s outstanding warrants are
classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s
own stock and require net share settlement. The fair value of the warrants was recorded as additional paid-in capital from common stock
On January 6, 2022, the Company entered into
Warrant Purchase Agreements with certain warrant holders (the “Sellers”) pursuant to which the Company agreed to buy back
an aggregate of 3,870,800 warrants (the “Warrants”) from the Sellers, and the Sellers agreed to sell the Warrants back to
the Company. These Warrants were sold to these Sellers in three previous transactions that closed on February 11, 2021, February 10,
2021, and March 14, 2018. The purchase price for each Warrant is $2.00. Following announcement of the Warrant Purchase Agreements on
January 6, 2022, the Company agreed to repurchase an additional 103,200 warrants from other Sellers on the same terms as the previously
announced Warrant Purchase Agreements. The aggregate number of warrants repurchased under the Warrant Purchase Agreements was 3,974,000.
On January 7, 2022, the Company wired the
purchase price to each Seller. The Warrants were deemed cancelled upon the receipt by the Sellers of the purchase price.
On January 9, 2023, the Company entered into
an Executive Separation Agreement and General Release (the “Separation Agreement”), with Lei Cao, an employee and a member
of the Board of Directors of the Company (the “Board”), setting forth the terms and conditions related to (1) the termination
of Mr. Cao’s employment with the Company and the termination of the employment agreement dated as of November 1, 2021 as well as
cancellation and/or termination of certain other agreements relating to Mr. Cao’s employment with the Company; and (2) Mr. Cao’s
resignation from the Board, effective as of January 9, 2023.
Pursuant to the Separation Agreement, Mr. Cao
submitted a letter of resignation to the Board on January 9, 2023. In addition, he agreed to forfeit and return to the Company the
600,000 shares of Common Stock granted to him on August 13, 2021 under the terms of the 2014 Equity Incentive Plan of the Company (the
“2021 Shares”). Mr. Cao also agreed to cooperate with the Company regarding certain investigations and proceedings set forth
in the Separation Agreement, and/or any other matters arising out of or related to Mr. Cao’s relationship with or service to the
Company. In consideration, the Company agreed to provide the following benefits to which Mr. Cao was not otherwise entitled: (1) payment
of reasonable attorneys’ fees and costs incurred by Mr. Cao up through January 9, 2023 associated with Mr. Cao’s personal
legal representation in matters relating to Mr. Cao’s tenure with the Company, the investigations and proceedings set forth in
the Separation Agreement, and the negotiation and drafting of the Separation Agreement; (2) the release of claims in Mr. Cao’s
favor contained in the Separation Agreement; and (3) payment of Mr. Cao’s reasonable and necessary legal fees to the extent incurred
by Mr. Cao as a result of his cooperation as required by the Company under the terms of the Separation Agreement. Additionally, the Separation
Agreement contains mutual general releases and waiver of claims from Mr. Cao and the Company.
On December 19, 2022, and December 27, 2022,
the Company entered into a cancellation agreement and a letter confirming the rescission of the grant of the shares to Yang Jie and Jing
Shan, respectively, pursuant to which Yang Jie and Jing Shan returned 300,000 shares and 100,000 shares of Common Stock, respectively,
to the Company at no cost. Such shares were previously issued to each of them for his/her services as an officer of the Company. The
cancellation of such shares has been completed.
Following is a summary of the status of warrants
outstanding and exercisable as of March 31, 2023:
| |
Warrants | | |
Weighted Average Exercise Price | |
| |
| | |
| |
Warrants outstanding, as of June 30, 2022 | |
| 12,191,824 | | |
$ | 4.37 | |
Issued | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Repurchased | |
| - | | |
| - | |
Warrants outstanding, as of March, 31, 2023 | |
| 12,191,824 | | |
$ | 4.37 | |
Warrants exercisable, as of March, 31, 2023 | |
| 12,191,824 | | |
$ | 4.37 | |
Warrants Outstanding | |
Warrants Exercisable | | |
Weighted Average Exercise Price | | |
Average Remaining Contractual Life |
2018 Series A, 400,000 | |
| 103,334 | | |
$ | 8.75 | | |
0.45 years |
2020 warrants, 2,922,000 | |
| 181,000 | | |
$ | 1.83 | | |
2.42 years |
2021 warrants, 11,088,280 | |
| 11,907,490 | | |
$ | 4.94 | | |
3.31 years |
Stock-based compensation:
By action taken as of August 13, 2021, the Board
of Directors (the “Board”) of the Company and the Compensation Committee of the Board (the “Committee”) approved
a one-time award of a total of 1,020,000 shares of common stock under the Company’s 2014 Stock Incentive Plan (the “Plan”)
to, including (i) a one-time stock award grant of 600,000 shares to Chief Executive Officer, Lei Cao, (ii) a one-time stock award grant
of 200,000 shares to acting Chief Financial Officer, Tuo Pan, (iii) a one-time stock award grant of 160,000 shares to Board member, Zhikang
Huang, (iv) a one-time stock award grant of 20,000 shares to Board member, Jing Wang, (v) a one-time stock award grant of 20,000 shares
to Board member, Xiaohuan Huang, and (vi) a one-time stock award grant of 20,000 shares to Board member, Tieliang Liu. The shares were
valued at an aggregate of $2,927,400 based on the grant date fair value of such shares.
On November 18, 2021, Mr. Jing Wang retired from his position as a
member of the Board, 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 Company granted Mr. Wang 100,000 shares of common
stock under the Company’s 2021 stock incentive plan, which shares were valued at $377,000 based on the grant date fair value.
On February 4, 2022, the Company approved a one-time
award of a total of 500,000 shares of common stock under the Company’s 2021 Stock Incentive Plan to certain executive
officers of the Company, including Chief Executive Officer, Yang Jie (300,000 shares), Chief Operating Officer, Jing Shan (100,000 shares),
and Chief Technology Officer, Shi Qiu (100,000 shares). The total fair value of the grants amounted to $2,740,000 based on the grant
date share price of $5.48. On December 27, 2022 and December 19, 2022, Jing Shan and Yang Jie each signed a cancellation agreement to
return 100,000 and 300,000 share, respectively, to the Company for cancellation for no consideration. The cancellation agreements and
the cancellation of shares underlying thereunder were ratified and approved by the Board on January 19, 2023. As of March 31, 2023, the
300,000 shares issued to Mr. Jie and the 100,000 shares issued to Ms. Shan were cancelled.
On February 16, 2022, the Company’s Board
approved a consulting agreement pursuant to which the Company will issue to the consultant 100,000 shares of the Company’s common
stock and pay a monthly fee of $10,000. The shares were valued at $7.42 at grant date with a grant date fair value of $742,000 to be amortized
through October 31, 2022. Stock compensation expenses for this contract was nil and $329,777 for the three and nine months ended March
31, 2023.
On January 9, 2023, the Company entered into
an Executive Separation Agreement and General Release (the “Separation Agreement”), with Lei Cao, an employee of the Company
and a member of the Board of Directors of the Company (the “Board”), setting forth the terms and conditions related to (1)
the termination of Mr. Cao’s employment with the Company and the termination of the employment agreement dated as of November 1,
2021 as well as cancellation and/or termination of certain other agreements relating to Mr. Cao’s employment with the Company;
and (2) Mr. Cao’s resignation from the Board, effective as of January 9, 2023.
Pursuant to the Separation Agreement, Mr. Cao
submitted a letter of resignation to the Board on January 9, 2023. In addition, he agreed to forfeit and return to the Company the
600,000 shares of common stock of the Company granted to him on August 13, 2021 under the terms of the 2014 Equity Incentive Plan of
the Company (the “2021 Shares”). Mr. Cao also agreed to cooperate with the Company regarding certain investigations and proceedings
set forth in the Separation Agreement, and/or any other matters arising out of or related to Mr. Cao’s relationship with or service
to the Company. In consideration, the Company agreed to provide the following benefits to which Mr. Cao was not otherwise entitled: (1)
payment of reasonable attorneys’ fees and costs incurred by Mr. Cao up through January 9, 2023 associated with Mr. Cao’s
personal legal representation in matters relating to Mr. Cao’s tenure with the Company, the investigations and proceedings set
forth in the Separation Agreement, and the negotiation and drafting of the Separation Agreement; (2) the release of claims in Mr. Cao’s
favor contained in the Separation Agreement; and (3) payment of Mr. Cao’s reasonable and necessary legal fees to the extent incurred
by Mr. Cao as a result of his cooperation as required by the Company under the terms of the Separation Agreement. Additionally, the Separation
Agreement contains mutual general releases and waiver of claims from Mr. Cao and the Company. The 600,000 shares were cancelled as of
March 31, 2023.
During the three months ended March 31, 2023
and 2022, nil and $6,512,889 were recorded as stock-based compensation expense, respectively. During the nine months ended March 31,
2023 and 2022, $329,777 and $9,817,289 were recorded as stock-based compensation expense, respectively.
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, 2022 | |
| 2,000 | | |
$ | 10.05 | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Cancelled, forfeited or expired | |
| (2,000 | ) | |
| 10.05 | |
Options outstanding, as of March 31, 2023 | |
| - | | |
$ | - | |
Options exercisable, as of March 31, 2023 | |
| - | | |
$ | - | |
Note 14. NON-CONTROLLING INTEREST
The Company’s non-controlling interest
consists of the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Trans Pacific Shanghai | |
$ | (1,595,689 | ) | |
$ | (1,521,645 | ) |
Thor Miner | |
| (729,890 | ) | |
| (486,942 | ) |
Brilliant Warehouse | |
| 139,621 | | |
| (132,303 | ) |
Total | |
$ | (2,185,958 | ) | |
$ | (2,140,890 | ) |
Note 15. 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.
SOS Information Technology New York, Inc.
(“SOSNY”), a company incorporated under the laws of State of New York and a wholly owned subsidiary of SOS Ltd., filed
lawsuit in the New York State Supreme Court on December 9, 2022 against Thor Miner, Inc., which is Singularity’s joint venture
(“Thor Miner”), the Company, and,
together with Thor Miner, referred to as the “Corporate Defendants”), Lei Cao, Yang Jie, John F. Levy, Tieliang Liu, Tuo
Pan, Shi Qiu, Jing Shan, and Heng Wang (jointly referred to as the “Individual Defendants”) (collectively, the
Individual Defendants and the Corporate Defendants are the “Defendants”). SOSNY and Thor Miner entered into a January
10, 2022 Purchase and Sale Agreement (the “PSA”) for the purchase of $200,000,000 in crypto mining rigs, which SOSNY
claims was breached by the Defendants.
SOSNY and Defendants entered into a certain settlement
agreement and general mutual release with an Effective Date of December 28, 2022 (“Settlement Agreement”). Pursuant to the
Settlement Agreement, Thor Miner agreed to pay a sum of thirteen million in U.S. dollars ($13,000,000) (the “Settlement Payment”)
to SOSNY in exchange for SOSNY dismissing the lawsuit with prejudice as to the settling Defendants and without prejudice as to all others.
The full Settlement Payment was received by SOSNY on December 28, 2022. SOSNY dismissed the lawsuit with prejudice against the
Company (and other Defendants) on December 28, 2022.
The Company and Thor Miner further
covenanted and agreed that if they receive additional funds from HighSharp (Shenzhen Gaorui) Electronic Technology Co., Ltd.
(“HighSharp”) related to the PSA, they will promptly transfer such funds to SOSNY in an amount not to exceed forty
million, five hundred sixty thousand, five hundred sixty-nine dollars ($40,560,569.00) (which is the total amount paid by SOSNY
pursuant to the PSA less the price of the machines actually received by SOSNY pursuant to the PSA). The Settlement Payment and any
payments subsequently received by SOSNY from HighSharp shall be deducted from the total amount of forty million, five hundred sixty
thousand, five hundred sixty-nine dollars ($40,560,569.00) previously paid by, and now due and owing to SOSNY. In further
consideration of the Settlement Agreement, Thor Miner agreed to execute and provide to SOSNY, within seven (7) business days after
SOSNY’s receipt of the Settlement Payment, an assignment of all claims it may have against HighSharp or otherwise to the
proceeds of the PSA. See Note 19 for further details.
Lawsuits in connection with the Securities Purchase
Agreement
On September 23, 2022, Hexin Global Limited and
Viner Total Investments Fund filed a lawsuit against the Company and other defendants in the United States District Court for the Southern
District of New York (the “Hexin lawsuit”). On December 5, 2022, St. Hudson Group LLC, Imperii Strategies LLC, Isyled Technology
Limited, and Hsqynm Family Inc. filed a lawsuit against the Company and other defendants in the United States District Court for the
Southern District of New York (the “St. Hudson lawsuit,” and together with the Hexin lawsuit, the “Investor Actions”).
The plaintiffs in the Investor Actions are investors that entered into a securities purchase agreement (“Securities Purchase Agreement”)
with the Company in late 2021. Each of these plaintiffs asserts causes of action for, among other things, violations of federal securities
laws, breach of fiduciary duty, fraudulent inducement, breach of contract, conversion, and unjust enrichment, and seeks monetary damages
and specific performance to remove legends from certain securities sold pursuant to the Securities Purchase Agreement. The Hexin lawsuit
claims monetary damages of “at least $6 million,” plus interest, costs, fees, and attorneys’ fees. The St. Hudson lawsuit
claims monetary damages of “at least $4.4 million,” plus interest, costs, fees, and attorneys’ fees.
Lawsuit in connection with the Financial Advisory
Agreement
On October 6, 2022, Jinhe Capital Limited (“Jinhe”)
filed a lawsuit against the Company in the United States District Court for the Southern District of New York, asserting causes of actions
for, among other things, breach of contract, breach of the covenant of good faith and fair dealing, conversion, quantum meruit, and unjust
enrichment, in connection with a financial advisory agreement entered into by and between Jinhe and the Company on November 10, 2021.
Jinhe claims monetary damages of “at least $575,000” and “potentially exceeding $1.8 million,” plus interest,
costs, and attorneys’ fees.
On January 10, 2023, St. Hudson lawsuit was consolidated
with this lawsuit and Hexin lawsuit and on February 24, 2023, all three consolidated actions were dismissed without prejudice by the
court, in furtherance of the parties having reached an agreement in principle to settle their disputes. The Company, Yang Jie, Jing Shan,
and the plaintiffs of the above three actions entered into a certain settlement agreement and general mutual release with an effective
date of March 10, 2023, pursuant to which the Company agreed to pay the sum of $10,525,910.82. Plaintiffs in the actions agreed to discharge
and forever release the defendants in the actions from all claims that were or could have been raised in those actions, as well as dismissal
of each of the actions with prejudice. The Company has no role or knowledge as to how the settlement payment will be allocated between
and among the plaintiffs. The Company paid the settlement payment on March 14, 2023.
In addition, the plaintiffs agreed to irrevocably
forfeit 3,728,807 shares of Common Stock they hold. The cancellation of 2,400,000 shares has been completed, while the cancellation of
the remaining 1,328,807 shares is still in processing. The fair value of the shares was $2,125,420 at March 10, 2023, the settlement amount over the fair value of the
shares to be cancelled is recorded as other expenses in the Company’s consolidated statement of operations.
Putative Class Action
On December 9, 2022, Piero Crivellaro, purportedly
on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between February 2021 and November
2022, filed a putative class action against the Company and other defendants in the United States District Court for the Eastern District
of New York, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in
its public filings. The plaintiff seeks unspecified damages, plus interest, costs, fees, and attorneys’ fees. As this action is
still in the early stage, the Company cannot predict the outcome.
In addition to the above litigations, the Company
is also subject to additional contractual litigations as to which it is unable to estimate the outcome.
Government Investigations
Following a publication issued by Hindenburg
Research dated May 5, 2022, the Company received subpoenas from the United States Attorney’s Office for the Southern District of
New York and the United States Securities and Exchange Commission. The Company is cooperating with the government regarding these matters.
At this early stage, the Company is not able to estimate the outcome or duration of the government investigations.
Note 16. 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 three
and nine months ended March 31, 2023 and 2022 are as follows:
| |
For the three months Ended March
31 | | |
For the nine months Ended March
31 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Current | |
| | |
| | |
| | |
| |
U.S. | |
$ | - | | |
$ | - | | |
$ | 103,426 | | |
$ | - | |
PRC | |
| - | | |
| - | | |
| - | | |
| - | |
Total income tax expenses | |
| - | | |
| - | | |
| 103,426 | | |
| - | |
The Company’s deferred tax assets are comprised
of the following:
| |
March 31, 2023 | | |
June 30, 2022 | |
Allowance for doubtful accounts | |
| | |
| |
U.S. | |
$ | 608,000 | | |
$ | 617,000 | |
PRC | |
| 1,783,000 | | |
| 1,830,000 | |
| |
| | | |
| | |
Net operating loss | |
| | | |
| | |
U.S. | |
| 8,943,000 | | |
| 4,628,000 | |
PRC | |
| 1,409,000 | | |
| 1,283,000 | |
Total deferred tax assets | |
| 12,743,000 | | |
| 8,358,000 | |
Valuation allowance | |
| (12,743,000 | ) | |
| (8,358,000 | ) |
Deferred tax assets, net - long-term | |
$ | - | | |
$ | - | |
The Company’s operations in the U.S. incurred cumulative U.S. federal net operation losses (“NOL”) of approximately $22,000,000 as of June 30, 2022, which may reduce
future federal taxable income. During the three and nine months ended March 31, 2023, approximately $13,300,000 and $20,500,000 of NOL
was generated and the tax benefit derived from such NOL was approximately $2,793,000 and $4,300,000. As of March 31, 2023, the Company’s
cumulative NOL amounted to approximately $42,600,000, which may reduce future federal taxable income, of which approximately $1,400,000
will expire in 2037 and the remaining balance carried forward indefinitely.
The Company’s operations in China incurred
a cumulative NOL of approximately $1,333,000 as of June 30, 2022 which was mainly from net loss. During the three and nine months ended
March 31, 2023, additional NOL of approximately nil and $303,000 was generated. As of March 31, 2023, the Company’s cumulative
NOL amounted to approximately $5,634,000 which may reduce future taxable income which will expire by 2026.
The Company periodically evaluates the likelihood
of the realization of deferred tax assets (“DTA”) and reduces the carrying amount of the deferred tax assets by a valuation
allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that
could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation
of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that
it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the Company’s
reorganization and venture into new businesses. The Company provided a 100% allowance for its DTA as of March 31, 2023. The net increase
in valuation for the three months and nine months ended March 31, 2023 amounted to approximately $2,921,000 and $4,385,000, based on management’s
reassessment of the amount of the Company’s deferred tax assets that are more likely than not to be realized.
The Company’s taxes payable consists of
the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
VAT tax payable | |
$ | 1,138,951 | | |
$ | 1,098,862 | |
Corporate income tax payable | |
| 2,338,908 | | |
| 2,295,803 | |
Others | |
| 58,069 | | |
| 62,512 | |
Total | |
$ | 3,535,928 | | |
$ | 3,457,177 | |
Note 17. CONCENTRATIONS
Major Customers
For the three months ended March 31, 2023, one
customer accounted for approximately 70.5% of the Company’s gross revenues, respectively.
For the three months ended March 31, 2022, two
customers accounted for approximately 66.5% and 33.2% of the Company’s revenues.
For the nine months ended March 31, 2023, two
customers accounted for 17.3% and 71.5% of the Company’s gross revenues. As of March 31, 2023, three customers accounted
for 10.8%, 15.6% and 40.4% of the Company’s accounts receivable, net.
For the nine months ended March 31, 2022, three
customers accounted for approximately 59.4%, 20.8% and 11.9% of the Company’s revenues, respectively. As of March 31, 2022, three
customers accounted for approximately 41.2%, 18.3% and 12.9% of the Company’s accounts receivable, net.
Major Suppliers
For the three months ended March 31, 2023, three
suppliers accounted for approximately 55.1%, 21.1% and 18.7% of the total gross purchases.
For the three months ended March 31, 2022, three
suppliers accounted for approximately 41.8%, 27.2% and 11.7% of the total costs of revenue.
For the nine months ended March 31, 2023, one
supplier accounted for approximately 67.6% of the gross purchases.
For the nine months ended March 31, 2022, three
suppliers accounted for approximately 37.9%, 18.9% and 14.7% of the total cost of revenues.
Note 18. SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial
statements for detailing the Company’s business segments.
The Company’s chief operating decision maker
is the Chief Operating Officer, who reviews the financial information of the separate operating segments when making decisions about allocating
resources and assessing the performance of the group. For the nine months ended March 31, 2023, the Company operated in two segments:
(1) freight logistics services, which were operated by its subsidiaries in both the United States and PRC, and (2) the sale of crypto-mining
machines, which were operated by its subsidiaries in the United States. The Company ceased to sell crypto-mining equipment since January
1, 2023. For the three months ended March 31, 2023, the Company did not sell crypto-mining machines. On March 30, 2023, the board of directors
of the Company authorized the Company to conduct an e-commerce business in China, including but not limited to the marketing approach
of media redirecting.
The following tables present summary information
by segment for the three and nine months ended March 31, 2023 and 2022, respectively:
| |
For the Three Months Ended March 31, 2023 | |
| |
Freight Logistics Services | | |
Total | |
Net revenues | |
$ | 759,905 | | |
$ | 759,905 | |
Cost of revenues | |
$ | 888,040 | | |
$ | 888,040 | |
Gross profit | |
$ | (128,135 | ) | |
$ | (128,135 | ) |
Depreciation and amortization | |
$ | 42,569 | | |
$ | 42,569 | |
Total capital expenditures | |
$ | 3,534 | | |
$ | 3,534 | |
Gross margin% | |
| (16.9 | )% | |
| (16.9 | )% |
| |
For the Three Months Ended March 31, 2022 | |
| |
Freight Logistics Services | | |
Total | |
Net revenues | |
$ | 971,747 | | |
$ | 971,747 | |
Cost of revenues | |
$ | 901,275 | | |
$ | 901,275 | |
Gross profit | |
$ | 70,472 | | |
$ | 70,472 | |
Depreciation and amortization | |
$ | 150,118 | | |
$ | 150,118 | |
Total capital expenditures | |
$ | 151,021 | | |
$ | 151,021 | |
Gross margin% | |
| 7.3 | % | |
| 7.3 | % |
| |
For Nine Months Ended March 31, 2023 | |
| |
Freight Logistics Services | | |
Crypto-mining equipment sales | | |
Total | |
Net revenues | |
$ | 2,739,475 | | |
$ | 732,565 | | |
$ | 3,472,040 | |
Cost of revenues | |
$ | 2,944,804 | | |
$ | - | | |
$ | 2,944,804 | |
Gross profit | |
$ | (205,329 | ) | |
$ | 732,565 | | |
$ | 527,236 | |
Depreciation and amortization | |
$ | 101,970 | | |
$ | 20,729 | | |
$ | 122,699 | |
Total capital expenditures | |
$ | 154,500 | | |
$ | - | | |
$ | 154,500 | |
Gross margin% | |
| (7.5 | )% | |
| 100.0 | % | |
| 15.2 | % |
| |
For the Nine Months Ended March
31, 2022 | |
| |
Freight Logistics
Services | | |
Crypto-mining equipment
sales | | |
Total | |
Net revenues | |
$ | 2,829,682 | | |
$ | - | | |
$ | 2,829,682 | |
Cost of revenues | |
$ | 2,973,034 | | |
$ | - | | |
$ | 2,973,034 | |
Gross profit | |
$ | (143,352 | ) | |
$ | - | | |
$ | (143,352 | ) |
Depreciation and amortization | |
$ | 428,635 | | |
$ | - | | |
$ | 428,635 | |
Total capital expenditures | |
$ | 775,107 | | |
$ | - | | |
$ | 775,107 | |
Gross margin% | |
| (5.1 | )% | |
| - | % | |
| (5.1 | )% |
Total assets as of:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Freight Logistic Services | |
$ | 21,406,702 | | |
$ | 44,058,444 | |
Sale of crypto mining machines | |
| 2,581,565 | | |
| 20,789,296 | |
Total Assets | |
$ | 23,988,267 | | |
$ | 64,847,740 | |
The Company’s operations are primarily
based in the PRC and U.S, where the Company derives all of its revenues. Management also reviews consolidated financial results by business
locations.
Disaggregated information of revenues by geographic
locations are as follows:
| |
For the Three Months Ended | | |
For
the Nine Months Ended | |
| |
March 31, | | |
March 31, | | |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
PRC | |
$ | 535,037 | | |
$ | 648,964 | | |
$ | 1,695,858 | | |
$ | 2,242,296 | |
U.S. | |
| 224,868 | | |
| 322,783 | | |
| 1,776,182 | | |
| 587,386 | |
Total revenues | |
$ | 759,905 | | |
$ | 971,747 | | |
$ | 3,472,040 | | |
$ | 2,829,682 | |
Note 19. RELATED PARTY BALANCE AND TRANSACTIONS
Advance to suppliers-related party
The Company’s advances to suppliers – related party are
as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Bitcoin mining hardware and other equipment (1) | |
$ | - | | |
$ | 6,153,546 | |
Total advances to suppliers-related party | |
$ | - | | |
$ | 6,153,546 | |
(1) | On January 10, 2022, the Company’s joint venture, Thor Miner, entered into a Purchase and Sales Agreement (“PSA”) with HighSharp. Pursuant to the Purchase Agreement, Thor Miner agreed to purchase certain cryptocurrency mining equipment. In January and April 2022, Thor Miner made total prepayment of $35,406,649 for the order and no prepayment as of March 31, 2023. |
| The Company shipped $1,325,520 of products of for the year ended June 2022 and $6,153,546 from July 2022 to March 31, 2023. |
|
Due to production issues
from HighSharp, Thor Miner was not able to timely deliver the full quantity of cryptocurrency mining machines to SOSNY under the
PSA and was sued by SOSNY for breach of contract on December 9, 2022. |
| The Company entered into a settlement agreement with SOSNY effective on December 28, 2022, under which the Company will repay $13.0 million to SOSNY and terminate the previous agreements and balance of the deposits. The Company also assigned to SOSNY the right for the deposit that Thor Miner has paid to HighSharp. |
| As of December 22, 2022, the balance of advances to HighSharp and deposits from SOSNY amounted to $27,927,583 and $40,560,569, respectively. Thor Miner paid $13.0 million on December 23, 2022 to SOSNY which was received by SOSNY on December 28, 2022. Thor Miner wrote off the balance of the deposit it received from SOSNY and the balance of its payment to HighSharp resulted in net bad debt expenses of $367,014. |
Due from related party, net
As of March 31, 2023 and June 30, 2022, the outstanding
amounts due from related parties consist of the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Zhejiang Jinbang Fuel Energy Co., Ltd (1) | |
$ | 659,507 | | |
$ | 415,412 | |
Shanghai Baoyin Industrial Co., Ltd (2) | |
| 1,311,637 | | |
| 1,306,004 | |
LSM Trading Ltd (3) | |
| 570,000 | | |
| 570,000 | |
Rich Trading Co. Ltd (4) | |
| 103,424 | | |
| 103,424 | |
Lei Cao (5) | |
| 13,902 | | |
| 54,860 | |
Less: allowance for doubtful accounts | |
| (2,366,275 | ) | |
| (2,449,700 | ) |
Total | |
$ | 292,195 | | |
$ | - | |
(1) | As of March 31, 2023 and June 30, 2022, the Company advanced approximately $0.7 million to Zhejiang Jinbang Fuel Energy Co., Ltd (“Zhejiang Jinbang”) which is owned by Mr. Qinggang Wang, CEO and legal representative of Trans Pacific Logistic Shanghai Ltd. The advance is non-interest bearing and due on demand. There has been no change in the balance other than changes as a result of changes in exchange rates. In December 2022, the Company further advanced approximately $0.4 million to Zhejiang Jinbang. During three months ended March 31, 2023, the Company further advanced approximately $0.4 million to Zhejiang Jinbang and Zhejiang Jinbang repaid approximately $0.5 million. |
(2) | As of March 31, 2023, the Company advanced approximately $1.3 million to Shanghai Baoyin Industrial Co., Ltd. which is 30% owned by Qinggang Wang, CEO and legal representative of Trans Pacific Logistic Shanghai Ltd. The advance is non-interest bearing and due on demand. The Company provided full credit losses for the balance of the receivable. During three months ended March 31, 2023, the Company further advance approximately $38,000 to Shanghai Baoyin. |
(3) | As of March 31, 2023, the Company advanced $570,000 to LSM Trading Ltd, which is 40% owned by the Company. The advance is non-interest bearing and due on demand. The Company provided full credit losses for the balance of the receivable. |
(4) | On November 16, 2021, the Company entered into a project cooperation
agreement with Rich Trading Co. Ltd USA (“Rich Trading”) for the trading of computer equipment. Rich Trading’s bank
account was controlled by now-terminated members of the Company’s management and was, at the time, an undisclosed related party.
According to the agreement, the Company was to invest $4.5 million in the trading business operated by Rich Trading and the Company would
be entitled to 90% of profits generated by the trading business. The Company advanced $3,303,424 for this project, of which $3,200,000 has
been returned to the Company. The Company provided allowance of $103,424 for the year ended June 30, 2022. |
(5) | The amount represents business advance to Mr. Lei Cao, the former Chairman of the Board. During the three months ended March 31, 2023, Lei Cao repaid approximately $54,000, of which approximately $13,000 additional payment was recognized as nonoperating income. The Company provided full credit losses for the remaining balance of the receivable. |
Loan receivable- related parties
As of March 31, 2023 and June 30, 2022, the outstanding
loan receivable from related parties consists of the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Qinggang Wang (1) | |
$ | - | | |
$ | 552,285 | |
(1) | On June 10, 2021, the Company entered into a loan agreement with Qinggang Wang, CEO and legal representative of Trans Pacific Logistic Shanghai Ltd. The loan is non-interest bearing for loan amounts up to $630,805 (RMB 4 million). In February 2022, Qinggang Wang, borrowed and repaid $232,340 of the loan amount. In June 2022, additional $552,285 (RMB 3,700,000) was loaned to Qinggang Wang with due date of June 7, 2024. $70,265 (RMB 0.5 million) was returned in September 2022 and approximately $0.4 million (RMB 3.2 million) was returned in December 2022. |
Accounts payable- related parties
As of March 31, 2023 and June 30, 2022, the Company
had accounts payable to Rich Trading Co. Ltd of $63,434.
Other payable- related parties
As of March 31, 2023, the Company had accounts
payable to Qinggang Wang, CEO and legal representative of Trans Pacific Shanghai, of $110,842. These payments were made on behalf
of the Company for the daily business operational activities.
Note 20. SUBSEQUENT EVENTS
On April 18, 2023, the Company entered into an
employment agreement with Mr. Ziyuan Liu and appointed him as the chief executive officer (the “CEO”) of the Company, effective
immediately, with a term of one year. Under the employment agreement, Mr. Liu’s compensation shall consist of an annual base salary
of $240,000 in cash, and a discretionary annual bonus. Before joining the Company, Mr. Liu served as the manager of the North American
market development department in Fulongma Group Co., Ltd., a comprehensive environmental sanitation solutions provider in China, from
July 2022 to April 2023. Prior to that, he worked for Ningbo Shunxiang Group Co., Ltd., a polyester film manufacturer in China, as the
chief operating officer from July 2019 to July 2022. From July 2018 to June 2019, he served as the project manager for Shouhang New Energy,
a solar photovoltaics and energy storage solutions supplier in China. Prior to that, he worked for Hongkun Group, a real estate developer
based in China, as the general manger for the Shenzhen area from July 2015 to June 2018. Mr. Liu graduated from Wuhan Institute of Technology
with a major in project management.
On May 1, 2023, Singularity Future Technology Ltd. (the “Company”) entered into an employment agreement with Mr. Dianjiang
Wang and appointed him as the chief financial officer of the Company, effective immediately, with a term of one year. Under the employment
agreement, Mr. Wang’s compensation shall consist of an annual base salary of $60,000, and a discretionary annual bonus. The employment
agreement is filed herewith as Exhibit 10.1.
On May 1, 2023, pursuant to the bylaws of the Company, our board of directors (the “Board”) elected (i) Mr. Ziyuan Liu as
a Class I director to serve until the annual meeting of stockholders for the fiscal year 2022, to fill the vacancy on the Board resulting
from the resignation of Mr. Yang Jie, (ii) Mr. Haotian Song as a Class II director to serve until the annual meeting of stockholders for
the fiscal year 2023, to fill the vacancy on the Board resulting from the resignation of Mr. Lei Cao, and (iii) Ms. Ling Jiang as a Class
III independent director, Chairwoman of the Compensation Committee, a member of the Audit Committee, and a member of the Nominating and Corporate Governance Committee to serve until the annual meeting of stockholders for the fiscal year 2024,
to fill the vacancy on the Board resulting from the resignation of Mr. John F. Levy. Ms. Ling Jiang’s compensation shall consist
of an annual base salary of $50,000 for her services as a director and committee member. Mr. Ziyuan Liu and Mr. Haotian Song will not
receive any compensation for their services as directors of the Company.
On May 2, 2023, the Board elected Mr. Ziyuan Liu as the new chairman of the Board.