SDWL Shengda Network Technology Inc (CE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations and Going Concern

Nature of Operations

 In these notes, the terms “us”, “we”, “it”, “its”, “Shengda”, the “Company” or “our” refer to Shengda Network Technology, Inc. and Subsidiaries. Shengda was incorporated under the laws of the State of Nevada on March 14, 2018 under the name Soltrest, Inc. and changed its name to Shengda Network Technology Inc.

The Company’s principal business is to provide portal for the sale of products offered by reliable manufacturers and merchants at competitive prices. Products run the gamut from electronics to daily consumable products, food and clothing.

On April 20, 2020, the Company purchased 10,000 shares of common stock of Peaker International Trade Group Limited (“Peaker”) for a total consideration of $1,330. These shares comprised of 100% of the then issued and outstanding shares of common stock of Peaker. Peaker was formed in 2018 in Hong Kong. On May 15, 2020, Peaker formed a Company in China Zhejiang Jingmai Electronic Commerce Ltd., of which Peaker is the sole shareholder.

Risk and Uncertainty Concerning COVID-19 Pandemic

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19). On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The Company is currently monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread. While the Company’s operations are principally located outside the United States, we utilize various consultants located in the United States, we participate in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

Going Concern

The Company demonstrates adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to sell its stock to the investing community and obtain necessary financing to continue operations, and the attainment of profitable operations. The Company recorded a net loss of $2,716,347 for the year ended June 30, 2021, used net cash flows in operating activities of $2,562,524, and has a net decrease in cash of $4,127,393 for the year ended June 30, 2021. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The interim condensed consolidated financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 2 - Restatement for Correction of an Error

During the year end June 30, 2021, the Company had sales amounting to $5,278,370 with a customer that accounted for 56% of the total revenue for the year ended June 30, 2021. For the year ended June 30, 2020, the Company had sales with that customer amounting $253,803 that accounted for 100% of the total revenue for the year ended June 30, 2020. The Company also had a net accounts receivable balance in the amount of $1,640,779 as of June 30, 2021, with that customer. The management subsequently discovered that the customer is a Related Party within the definition ASC 850

On October 25, 2020, the Company signed an agreement with that Company’s major customer. The Company agreed to loan the related party $9,292,817 (RMB60,000,000) at an annual interest rate of 7.2%. The actual loan amount shall prevail within the total amount. The loan is guaranteed by a Company’s major supplier and due on October 25, 2021. The Company has recorded an allowance for uncollectible amount of $2,108,959 as of June 30, 2021. The total loan receivable, net of allowance amounted $6,417,350 and $0 as of June 30, 2021 and 2020, respectively. The management subsequently discovered that the customer is a Related Party within the definition ASC 850-

In the Affected Reports, the Company corrected the disclosure by reporting the above as related party transactions and balances.

Consequently, Management has identified a material weakness in understanding and knowledge of US GAAP.

Comparison of restated financial statements to financial statements as previously reported :

As a result of the restatement in 2020 and 2021, there is no change in the total balances of assets, liabilities, net loss or loss per share

Note 3 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

Reclassifications

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Peaker International Trade Group Limited and Peaker’s wholly-owned subsidiary Zhejiang Jingmai Electronic Commerce Ltd., in China. All significant inter-company accounts and transactions have been eliminated in consolidation.

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

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company did not have any cash equivalents at June 30, 2021 and 2020, respectively.

Accounts Receivable

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 an individualized credit and collection policy based on each individual customer’s credit history. The Company does not have a uniform policy that applies equally to all customers. The collection period usually ranges from three months to twelve months. The Company grants extended payment terms only when the Company believes that 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 allowance for doubtful accounts of $1,640,389 and $0 as of June 30, 2021 and 2020, respectively.

Property and Equipment

Property and equipment are stated at cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:

SCHEDULE OF ESTIMATED USEFUL LIVES OF ASSETS 

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to 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 that their carrying amount 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 during the years ended June 30, 2021 and 2020, respectively.

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. Leases with an initial term of 12 months or less are not recognized on the balance sheet; the Company recognizes lease expense for these leases 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 June 30, 2021, 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 5, “Leases,” for additional information.

Revenue Recognition

The Company is engaged in generating revenue through online networking sales. Shengda Network Technology is neither involved in production nor holding any inventory. The Company mainly sells products through a significant number of registered companies to members of its sales portal. The Company intends to offer products through offline stores and customer service centers.

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 to in exchange 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.

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:

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 PRC and is not protected by FDIC insurance or any other similar insurance.

The Company’s bank account in the United States is protected by FDIC insurance. As of June 30, 2021 and 2020, the Company’s bank account in the United States had no balances exceeding FDIC insurance of $250,000.

The Company’s bank account in People’s Republic of China (“PRC”) is protected by FSD insurance. As of June 30, 2021 and 2020, the Company’s bank account in PRC had $140,277 and $4,269,349, respectively, exceeding FSD insurance of RMB 500,000 as of June 30, 2021.

Major Customer

The Company has one major customer that accounted for 56% of revenues totaling $5,278,370 for the year ended June 30, 2021. The Company has one major customer that accounted for 100% of revenues totaling $253,803 for the year ended June 30, 2020.

Major Vendor

The Company has two major vendors that accounted for 71% and 29% of purchase amount totaling $7,828,750 for the year ended June 30, 2021, respectively. The Company has one major vendor that accounted for 100% of purchase amount totaling $213,617 for the year ended June 30, 2020.

Commitment and Contingencies

The Company is committed to pay operating lease costs of $4,832 during the next twelve months.

Income Taxes

Income tax returns are filed in federal, state, local and foreign jurisdictions as applicable. Provisions for current income tax liabilities 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 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 highly certain based upon the technical merits of the position. Estimated interest and penalties related to uncertain tax positions are included as a component of income tax expense.

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).

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 evaluated the impact that with the adoption of ASU 2019-12, and it did not have any impact on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.

Note 4 - Loan Receivable – Related Party

On October 25, 2020, the Company signed an agreement with a related party, which is also the Company’s major customer. The Company agreed to loan the customer the $9,292,817 (RMB60,000,000) at an annual interest rate of 7.2%. The actual loan amount shall prevail within the total amount. The loan is guaranteed by a Company’s supplier and due on October 25, 2021. The borrower is required to pay all the principal and the relevant interest in full amount on the due date. The Company has recorded an allowance for uncollectible amount of $2,108,959 as of June 30, 2021. The total loan receivable – related party, net of allowance amounted $6,417,350 and $0 as of June 30, 2021 and 2020, respectively.

The Company assessed the implication on ASC 606, Revenue From Contracts With Customers, and determined that the terms of the loan are at the fair market value and does not impact the revenue recognition of the Company.

Note 5 – Property and Equipment

Property and equipment consisted of the cost of a vehicle. As of June 30, 2021 and 2020, property and equipment costs were $79,892 and $0, and accumulated depreciation of $11,384 and $0, respectively. For the years ended June 30, 2021 and 2020, depreciation expense including amortization of right of use assets amounted to $ 12,871 and $0, respectively.

Note 6 – Leases

The Company has an operating lease for the rental of office space. Rent expense for the operating lease amounted to $3,398 and $0 for years ended June 30, 2021 and 2020, respectively. The lease term was from May 11, 2020 and expired on December 10, 2020. The Company had paid rent up until December 10, 2020.

On January 5, 2021, Zhejiang Jingmai Electronic Commerce Ltd. leased an office in Zhejiang, China. The lease term of the office is from January 5, 2021 to April 5, 2022. There is rent-free period which is from January 5, 2021 to April 5, 2021. The monthly rent is approximately $403.

The operating lease is listed as a separate line item on the Company’s consolidated financial statements. The operating lease represents the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as a separate line item on the Company’s consolidated financial statements.

Operating lease right-of-use assets and liabilities commencing after January 1, 2021 are recognized at commencement date based on the present value of lease payments over the lease term. For the year ended June 30, 2021, the Company recorded $1,885 in total operating lease costs.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Information related to the Company’s operating right of use assets and related lease liabilities are as follows:

The following table presents the amortization of the Company’s lease liabilities under ASC 842 for each of the following years ending June 30:

Note 7 – Advances and Deposits

Advances and deposits amounted to $30,976 and $3,972,500 as of June 30, 2021 and 2020, respectively. Advances are received from the customers for the sale of products in the normal course of business and adjusted against the payments due to them. The Company received advances from related party totaling $0 and $302,000 as of June 30, 2021 and 2020, respectively, for its working capital requirements (See Note 9). The June 30, 2020 balance for advances and deposits represent the proceeds from the sale of 13,899,000 common stock at the sale price range from $0.0002 to $2 per share, to 72 unrelated and 2 related parties. As these common shares were cancelled soon after issuance in the month of June 2020 due to legal non-compliance, the proceeds are reported as advances and deposits under current liabilities.

Note 8 – Accrued Expenses and Other Payables

As of June 30, 2021 and 2020, accrued expenses and other payables amounted to $98,354 and $28,942, respectively. Other payables include $1,330 payable to a related party (See Note 10) as of June 30, 2020. In September 2020, other payable to a related party totaling $1,330 were paid in full.

Note 9 – Stockholders’ Equity

The Company’s capitalization at June 30, 2021 was 1,000,000,000 authorized common shares with a par value of $0.001 per share, and 20,000,000 authorized preferred shares with a par value of $0.001 per share.

Common Stock

On March 14, 2018, the Company exchanged 5,000,000 shares of its common stock to the former President in return of her services valued at $5,000.

In June 2020, the Company sold 1,960,000 shares of Common Stock, par value of $0.001 per share, for the total aggregate proceeds of $19,600.

On November 2, 2020, the Company issued 3,551,500 shares of common stock to investors for $3,972,500.

On November 2, 2020, the Company issued 3,165,112  shares of common stock to 436 investors for a cash consideration of $6,230,225. at the sale price of $2.00 per share. In addition, the Company issued 333,333 shares of common stock to a related party for cash proceeds of $302,000 (Note 10).

As a result of all common stock issuances, the total issued and outstanding shares of common stock were 14,009,945 shares and 6,960,000 shares as of June 30, 2021 and 2020, respectively.

Preferred Stock

On November 10, 2020, the Company adopted a resolution to designate 1,000,000 shares as Series A Preferred Stock. The original issue price of each share of Series A preferred Stock shall be $1.00.

Right to Receive Dividends

The holders of Series A Preferred Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors of the corporation. The right to dividends on shares of Series A Preferred Stock shall be non-cumulative and no right shall accrue to holders of Series A Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior period.

Liquidation Preference

In the event of any liquidation, dissolution, or winding up of the corporation, either voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities but after distribution of such assets among, or payment thereof to holders of any Senior Preferred Stock, an amount equal to the Series A original issue price for each share of Series A Preferred Stock plus an amount equal to all declared but unpaid dividends on Series A Preferred Stock (the “Series A Liquidation Preference”).

After the payment of the full Series A Liquidation Preference, the remaining assets of the corporation legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock in an amount equal to the Series A Liquidation Preference; after such distribution to the holders of the Common Stock, the remaining assets of the corporation legally available for distribution, if any, shall be distributed ratably among the Series A Preferred Stock and the Common Stock. If the assets and funds legally available for distribution among the holders of Series A Preferred Stock shall be insufficient to permit the payment to the holders of the full Series A Liquidation Preference, then the assets and funds shall be distributed ratably among holders of Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock owned by each holder.

Voting Rights

Except as otherwise provided in the Certificate of Designation or required by law, the holders of the Series A Preferred Stock shall be entitled to vote, in the same manner and with the same effect as the holders of Common Stock, voting together with the holders of Common Stock as a single class. For this purpose, the holders of Series A Preferred Stock shall be given notice of any meeting of stockholders as to which the holders of Common Stock are given notice in accordance with the bylaws of the Corporation. As to any matter on which the holders of Series A Preferred Stock shall be entitled to vote, the holders of the outstanding Series A Preferred Stock shall have voting rights equal to an aggregate of seventy-five percent (75%) of the total shares entitled to vote by both (i) the holders of all of the then outstanding shares of Common Stock (whether or not such holders vote) and (ii) the holders of all of the then outstanding shares of voting shares of the Company.

Redemption

The Company shall have the right to redeem the Series A Preferred Stock, plus any accrued and unpaid dividends, in whole but not in part, at any time or from time to time (the “Redemption”), at a cash redemption price equal to the aggregate Series A original issue price the Series A Preferred Stock being redeemed (the “Redemption Amount”) plus an amount equal to the amount of the accrued and unpaid dividend thereon.

On November 20, 2020, the Company issued 50,000 shares of Series A Preferred Stock in settlement of cash advances payable to an officer of $2,000 (Note 10).

The total issued and outstanding shares of Preferred Stock were 50,000 shares and 0 shares, at June 30, 2021 and 2020, respectively.

Note 10 – Related Party Transactions

Related parties with whom the Company had transactions are:

On June 16, 2020, the Company issued 300,000 shares of common stock to a related party (the Company’s CEO’s father) at $1.00 per share, that was subsequently cancelled on June 30, 2020. The consideration of $300,000 is recorded as advances and deposits under current liabilities in the consolidated balance sheets. On November 2, 2020, 300,000 shares of common stock were issued to the related party (Note 7).

On June 20, 2020, the Company issued 10,000,000 shares of common stock to HangJin Chen, the Company’s CEO at $0.0002 per share which were subsequently cancelled on June 30, 2020. The consideration of $2,000 is recorded as advances and deposits under current liabilities in the consolidated balance sheets.

On July 1, 2020, the Company received a deposit of $2,000 from a related party Youcheng Chen. This deposit is recorded as advances and deposits under current liabilities. On November 2, 2020, the Company issued 33,333 shares of common stock in settlement of $2,000 deposit received from the related party Youcheng Chen (Note 7, 9).

On November 20, 2020, the Company issued 50,000 shares of Series A Preferred Stock in settlement of cash advances payable to an officer of $2,000 (Note 9).

On October 25, 2020, the Company signed an agreement with a related party, which is also the Company’s major customer. The Company agreed to loan the customer the $9,292,817 (RMB60,000,000) at an annual interest rate of 7.2%. The actual loan amount shall prevail within the total amount. The loan is guaranteed by a Company’s supplier and due on October 25, 2021. The borrower is required to pay all the principal and the relevant interest in full amount on the due date. The Company has recorded an allowance for uncollectible amount of $2,108,959 as of June 30, 2021. The total loan receivable – related party, net of allowance amounted $6,417,350 and $0 as of June 30, 2021 and 2020, respectively(Note 4).

Sales were $5,278,370 and $253,803 to Zhejiang Malai Electronic Commerce Co., Ltd for the years ended June 30, 2021 and 2020, respectively.

Related party loans represent working capital advances to the Company by former President and Director in the amount of $19,974 as of June 30, 2021 and 2020, respectively. The loan is unsecured, non-interest bearing and due on demand. The Company has not recorded any imputed interest expense for the years ended June 30, 2021 and 2020, respectively (Note 13).

Note 11 – Income Taxes

Income tax expense for the years ended June 30, 2021 and 2020, is summarized as follows:

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at June 30, 2021 and 2020, are as follows:

Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.

At June 30, 2021 and 2020, the Company had accumulated net operating losses of $2,796,477 and $80,130, respectively, for U.S. federal income tax purposes available to offset future taxable incomes. Management determined that it was unlikely that the Company’s deferred tax assets would be realized and have provided for a full valuation allowance associated with the net deferred tax assets.

At June 30, 2021 and 2020, the Company’s deferred income tax assets and valuation allowance were $456,346 and $9,577, respectively.

In the ordinary course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2021, tax years 2019, 2018, and 2017 remain open for examination by the Internal Revenue Service. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.

Note 12 – Acquisitions

On April 20, 2020, the Company purchased 10,000 shares of common stock of Peaker for a total consideration of $1,330. These shares comprised of 100% of the then issued and outstanding shares of common stock of Peaker.

Under ASC 805-50-30-5, there is no change in basis for the net assets received because there is no change in control over the net asset or equity interests from the parent’s perspective. A difference between any proceeds transferred and the carrying amounts of the net assets received is recognized in additional paid-in capital in the receiving entity’s separate financial statements.

The following table summarizes the consideration paid for Peaker and the amounts of assets acquired and liabilities assumed recognized at the acquisition date:

HangJin Chen is the CEO and shareholder of the Company. Youcheng Chen is the CEO and shareholder of Peaker and the Company’s CEO’s father. As a result, the acquisition is deemed to be under common control and the excess amount paid over the total assets and total liabilities is recorded as a reduction of Additional paid in Capital.

Peaker was formed in 2018. No unaudited pro-forma combined statements of operations are presented to illustrate the estimated effects of the merger of Peaker by the Company.

On May 15, 2020, Peaker set up a Company Zhejiang Jingmai Electronic Commerce Ltd., in China of which, Peaker is the sole shareholder.