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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

(Mark One)

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the fiscal year ended June 30, 2022

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the transition period from __________ to _______________

 

Commission File Number: 333-227526

 

SHENGDA NETWORK TECHNOLOGY, INC.

(Exact name of small Business Issuer as specified in its charter)

 

Nevada   35-2606208
(State or other jurisdiction   (IRS Employer
of incorporation or organization)   Identification No.)
     

Floor 4, Building 3A

LuGang WebMall Town, ChouJiang, YiWu

Jinhua City, Zhenjiang Province China

   322000
(Address of principal executive offices)   (Zip Code)

 

(778) 888-2886

Issuer’s telephone number, including area code:

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol   Name of Each Exchange on which registered
N/A   N/A   N/A

 

Securities registered pursuant to Section 12(g) of the Act: N/A

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No ☐

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☐
Non-Accelerated Filer ☒ Smaller Reporting Company ☒
  Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (December 31, 2021) $67,312,088.

 

As of October 28, 2022, there were 14,009,945 shares of the registrant’s Common Stock outstanding.

 

 

 

 

 

 

EXPLANATORY NOTE

 

Shengda Network Technology, Inc., a Nevada corporation (the “Company”), is filing this Amendment No. 1 (this “Amendment”) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on October 28, 2022, solely to furnish the Interactive Data File exhibits required by Item 601(b)(101) of Regulation S-K formatted ineXtensible Business Reporting Language (“XBRL files”), which were not included with the Form 10-K. No other changes have been made to the Form 10-K.

 

This Amendment speaks as of the original filing date of the Form 10-K. Except as it relates to the provision of such information, this Amendment does not reflect subsequent events occurring after the original filing date of the Form 10-K or modify or update in any way disclosures made in the Form 10-K.

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment also contains new certifications of the Company’s principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. and Section 906 of the Sarbanes-Oxley Act of 2002.

 

This Amendment consists solely of the cover page, this explanatory note, the signature page and the certifications and XBRL files required to be filed as exhibits hereto.

 

2
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

JUNE 30, 2022 AND 2021

 

INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Certified Public Accounting Firms F-1
   
Consolidated Balance Sheets as of June 30, 2022 and 2021 (Restated) F-5
   
Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended June 30, 2022 and 2021 (Restated) F-6
   
Consolidated Statements of Cash Flows for the Years Ended June 30, 2022 and 2021 F-7
   
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2022 and 2021 F-8
   
Notes to Consolidated Financial Statements for the years ended June 30, 2022 and 2021 F-9

 

3
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Opinion on the Financial Statements

 

 

To the Board of Directors and Stockholders of Shengda Network Technology, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Shengda Network Technology, Inc. (the “Company”) as of June 30, 2021, and 2020, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2021, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021, and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern. As described in Note 1 to the financial statements, the Company recorded a net loss for the year ended June 30, 2021, used net cash flows in operating activities, and has a net decrease in cash 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Restatement of 2021 Financial Statements

 

As discussed in Note 2 to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct a misstatement. 

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

F-1
 

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

/s/ SS Accounting & Auditing, Inc.

 

We have served as the Company’s auditor from 2020 to 2022.

 

Plano, Texas

 

September 28, 2021, except for Note 2, as to which the date is October 28, 2022.

 

PCAOB Firm ID : 6717

 

F-2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders

Shengda Network Technology, Inc.

 

Opinion on the Financial Statements

 

We audited the accompanying consolidated balance sheet of Shengda Network Technology, Inc. (the “Company”) as of June 30, 2022, and the related consolidated statements of operations and comprehensive (loss) income, changes in shareholders’ equity, cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the company as of June 30, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

As discussed in Note [1] to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note [1]. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

F-3
 

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Collectability of Advances to Supplier

 

As stated in Note 4 to the financial statements, on February 2, 2022, the Company entered into a purchase agreement with its major supplier and agreed to purchase $26,873,292 (RMB 180,000,000) inventory over the next three years. As of June 30, 2022, the Company made advance payment of $8,216,644 (RMB 55,035,906) to the supplier, of which $5,922,077 (RMB 39,666,667) is recorded as advance to supplier – non-current. Management expects no collectability issue with the advances to supplier and recorded $0 reserve to the advances.

 

We identified such advance as a significant risk during our audit. Our procedures related to management’s collectability of advances to the supplier include the following: (1) We inquired management of the business purpose of the advances to the supplier. (2) We reviewed management’s due diligence procedures performed on the supplier’s financial information. (3) We vouched the payments made to the supplier. (4) We examined subsequent inventory activities and estimated total inventory purchase from the supplier in the next three fiscal years. (5) We confirmed outstanding advance balance with the supplier. (6) We performed background check to the supplier and interviewed with supplier’s owner. (7) We performed economic analysis on products purchased from the supplier by the Company.

 

/s/ Paris, Kreit & Chiu CPA LLP

 

We have served as the Company’s auditor since 2022.

 

New York, New York

October 28, 2022

 

PCAOB Firm ID: 6651

 

F-4
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   June 30, 2022   June 30, 2021 
      

(Restated)

 
ASSETS          
           
Current Assets          
Cash and cash equivalents  $405,786   $143,933 
Account receivable, net   2,191,278    961,613 
Account receivable - related parties, net   

279,395

    

1,640,779

 
Inventories   98,831    - 
Advance to suppliers - current   3,725,143    - 
Other receivable from related party   209,014    - 
Loan receivable from related party, net   -    6,417,350 
Total Current Assets   6,909,447    9,163,675 
           
Advance to supplier - non-current   5,922,077    - 
Right of use asset - operating   3,359    2,813 
Equipment, net   51,405    68,508 
           
Total Assets  $12,886,288   $9,234,996 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
Current Liabilities          
Accounts payable  $137,418   $526,722 
Related party loans   -    19,974 
Accrued expenses and other payables   303,553    98,354 
Advance from customers - related party   20,371    - 
Advances and deposits   -    30,976 
Operating lease liabilities   -    4,746 
Total Current Liabilities   461,342    680,772 
           
Total Liabilities   461,342    680,772 
           
Commitments and Contingencies   -    - 
           
Stockholders’ Equity (Deficit)          
Preferred Stock, $0.001 par value, 20,000,000 shares authorized; 50,000 shares issued and outstanding   50    50 
Common Stock, $0.001 par value, 1,000,000,000 shares authorized; 14,009,945 issued and outstanding   14,010    14,010 
Additional paid-in capital   10,535,909    10,515,935 
Retained earnings (Accumulated deficit)   1,527,422    (2,796,477)
Accumulated other comprehensive income   346,846    820,706 
Total Shengda Stockholders’ Equity   12,424,237    8,554,224 
Non-controlling interests   709    - 
Total Stockholders’ Equity   12,424,946    8,554,224 
Total Liabilities and Stockholders’ Equity  $12,886,288   $9,234,996 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

 

   2022   2021 
   For the Years Ended June 30, 
   2022   2021 
      

(Restated)

 
Revenue  $3,037,673   $4,210,817 
Revenue - Related Party   919,610    5,278,370 
Total Revenue   3,957,283    9,489,187 
Cost of Revenue   3,578,995    7,828,750 
Gross Profit   378,288    1,660,437 
           
Operating Expenses           
Professional fees   236,822    125,989 
General and administrative   221,389    3,894,379 
Total Operating Expenses   458,211    4,020,368 
           
Loss from Operations   (79,923)   (2,359,931)
           
Other Income (Expense)          
Interest expense   (60)   (114)
Interest income   764,655    21,077 
Other income   23,783    (33)
Recovery of uncollectible accounts   3,833,540    - 
Bank charges   (765)   (881)
Total Other Income   4,621,153    20,049 
           
Income (Loss) before Income Taxes   4,541,230    (2,339,882)
           
Income Tax Expense   216,622    376,465 
           
Net Income (Loss) after Tax   4,324,608    (2,716,347)
           
Less: Net Income after Tax attributable to non-controlling interests   709    - 
Net Income (Loss) after Tax attributable to Shengda Network Technology, Inc   4,323,899    (2,716,347)
           
Other comprehensive income          
Foreign currency translation gain (loss)   (473,860)   860,222 
Comprehensive Income (loss)   3,850,748    (1,856,125)
Less: Comprehensive Income after Tax attributable to non-controlling interests   (26)   - 
Total Comprehensive Income (Loss) attributable to Shengda Network Technology, Inc  $3,850,774   $(1,856,125)
           
Basic and Diluted Net Income (Loss) per Common Share  $0.31   $(0.23)
           
Weighted-average Number of Common Shares Outstanding   14,009,945    11,595,580 

 

The accompanying notes are an integral part of consolidated financial statements.

 

F-6
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
   For the Years Ended June 30, 
   2022   2021 
       (Restated) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Income (Loss)  $4,324,608   $(2,716,347)
Adjustments to Reconcile Net Cash (Used in) Provided by Operating Activities          
Depreciation and amortization   19,165    12,871 
Recovery of uncollectible accounts   (3,833,540)   - 
Provision for uncollectible accounts   12,780    3,749,348 
Changes in Operating Assets and Liabilities:          
Account receivable   (18,914,211)   (1,019,617)
Account receivable - related parties   

20,623,495

    

(3,158,126

)
Inventories   (102,546)   - 
Advance to suppliers - current   (3,865,195)   - 
Advance to supplier – non-current   

(6,144,726

)   

-

 
Prepaid expenses   -    4,325 
Accounts payable   (389,562)   467,573 
Accrued expenses and other payables   213,551    68,577 
Advance from customers - related party   21,137    - 
Advances and deposits   (30,982)   30,202 
Other payable - related party   -    (1,330)
Net Cash Used in Operating Activities   (8,066,026)   (2,562,524)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from collection of loan receivable from related party   8,365,090    (8,365,926)
Acquisition of equipment   -    (77,896)
Net Cash Provided by (Used in) Investing Activities   8,365,090    (8,443,822)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from sale of preferred stock to a related party   -    2,000 
Proceeds from sale of common stock   -    6,230,225 
Net Cash Provided by Financing Activities   -    6,232,225 
           
Effect of Exchange Rate Fluctuation on Cash and Cash Equivalents   (37,211)   646,728 
           
Net Increase (Decrease) in Cash and Cash Equivalents   261,853    (4,127,393)
           
Cash - Beginning of Year   143,933    4,271,326 
           
Cash - End of Year  $405,786   $143,933 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
Cash paid during the year for:          
Income tax  $21,561   $376,465 
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES          
Forgiveness of debt  $19,974   $- 
Conversion of cash advances from related party into common stock  $-   $

302,000

 
Conversion of cash advances received into common stock  $-   $

3,972,500

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

                                         

Year Ended

  Preferred Stock   Common Stock  

Additional

Paid-in

  

Retained

Earnings

  

Accumulated

Other

Comprehensive

  

Total

Shengda

Stockholders’

   Non-controlling  

Total

Stockholders’

 
June 30, 2022  Shares   Amount   Shares   Amount   Capital   (Deficit)   Income   Equity   Interests   Equity 
                                         
Balance - June 30, 2021     50,000   $   50    14,009,945   $14,010   $  10,515,935   $  (2,796,477)  $820,706   $       8,554,224   $                  -   $       8,554,224 
                                                   
Forgiveness of debt   -    -    -    -    19,974    -    -    19,974    -    19,974 
Net income   -    -    -    -    -    4,323,899    -    4,323,899    709    4,324,608 
Foreign currency translation adjustment   -    -    -    -    -    -    (473,860)   (473,860)   -    (473,860)
                                                   
Balance - June 30, 2022   50,000   $50    14,009,945   $14,010   $10,535,909   $1,527,422   $346,846   $12,424,237   $709   $12,424,946 

 

Year Ended

  Preferred Stock   Common Stock  

Additional

Paid-in

  

Retained

Earnings

  

Accumulated

Other

Comprehensive

  

Total

Shengda

Stockholders’

Equity

   Non-controlling  

Total

Stockholders’

Equity

 
June 30, 2021  Shares   Amount   Shares   Amount   Capital   (Deficit)   Income (Loss)   (Deficit)   Interest   (Deficit) 
                                         
Balance -    June 30, 2020               -   $     -    6,960,000   $6,960   $16,310   $(80,130)  $(39,516)  $          (96,376)  $                  -   $          (96,376)
                                                   
Issuance of common shares for cash   -    -    3,165,112    3,165    6,227,060    -    -    6,230,225    -    6,230,225 
Issuance of common stock upon conversion of advances   -    -    3,551,500    3,552    3,968,948    -    -    3,972,500    -    3,972,500 
Issuance of common stock to related party   -    -    333,333    333    301,667    -    -    302,000    -    302,000 
Issuance of preferred shares for cash to a related party   50,000    50    -    -    1,950    -    -    2,000    -    2,000 
Net loss   -    -    -    -    -    (2,716,347)   -    (2,716,347)   -    (2,716,347)
Foreign currency translation adjustment   -    -    -    -    -    -    860,222    860,222    -    860,222 
                                                   
Balance - June 30, 2021   50,000   $50    14,009,945   $14,010   $  10,515,935   $  (2,796,477)  $820,706   $8,554,224   $-   $8,554,224 

 

The accompanying notes are an integral part of consolidated financial statements.

 

F-8
 

 

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEAR ENDED JUNE 30, 2022 AND 2021

 

Note 1 – Organization and Operations, and Going Concern

 

In these notes, the terms “us”, “we”, “it”, “its”, “Shengda”, the “Company” or “our” refer to Shengda Network Technology, Inc. and its 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 on October 16, 2020.

 

The Company’s principal business is to provide a 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 $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 called Zhejiang Jingmai Electronic Commerce Ltd., of which Peaker is the sole shareholder.

 

On August 28, 2020, Zhejiang Jingmai Electronic Commerce Ltd set up a 99% owned subsidiary Zhejiang Xiaojing e-commerce Co., Ltd. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Yiwu Tianqi Enterprise Management Co., Ltd which was incorporated on November 23, 2020 for no consideration. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer 99% ownership of Zhejiang Jingmai e-commerce Co., Ltd which was incorporated on November 25, 2020 for no consideration. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Zhejiang Jingtao Supply Chain Co., Ltd which was incorporated on November 24, 2020 for no consideration. These companies plan to develop business in the following fields: wholesale and retail of wide range of products, management, import and export, network integration and IT service, and more fields.

 

Risk and Uncertainty Concerning COVID-19 Pandemic

 

Since the occurrence of COVID-19 in January 2020, it has posed great impacts in China. However, the COVID-19 outbreak has limited impact on our businesses and operation. The Company mainly operates in Zhejiang Province China, that had few cases since January 2020. None of our staff was infected with COVID-19. Therefore, the Company did not encounter a shortage of labor. As of the date of this report, the Company’s is able to fulfill customers’ needs.

 

There might be outbreaks of COVID-19 in various cities in China in the future, and the Chinese government may take measures to keep COVID-19 in control. If there is not a material recovery in the COVID-19 situation, or the situation further deteriorates in China, our business, results of operations and financial condition could be materially and adversely affected. While the potential downturn brought by and the duration of the COVID-19 outbreak is difficult to assess or predict and the full impact of the virus on our operations will depend on many factors beyond our control. Our business, results of operations, financial condition and prospects could be materially adversely affected to the extent that COVID-19 persists in China or harms the Chinese and global economy in general.

 

Anhui Province found more local COVID-19 cases in 2021. Since Anhui Province has been successful on its efforts containing the spread of the virus, we haven’t observed significant impacts concerning the matters relating to logistics, suppliers, and price of raw materials.

 

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 income of $4,324,608 for the year ended June 30, 2022; excluding the recovery of bad debt from net income during the year ended June 30, 2022, the Company had a net income from operations of $491,068. The Company had cash flows from operating activities of negative $8,066,026 for the year ended June 30, 2022. 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 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.

 

F-9
 

 

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 to $253,803 that accounted for 100% of the total revenue for the year ended June 30, 2020. The Company also had an 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 a related party, which is also the Company’s major customer. The Company agreed to loan the related party $8,957,764  (RMB60,000,000) at an annual interest rate of 7.2%. The loan is guaranteed by a Company’s supplier which is also an important partner of the Company’s major customer 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 total loan receivable, net of allowance $0 and $6,417,350 as of June 30, 2022 and 2021, respectively. The principal and the relevant interest in full have been paid off in February 2022. As of June 30, 2021, the Company recognized $2,163,419 allowance of bad debt against the loan receivable from related party. During the year ended June 30, 2022, the Company reversed the $2,163,419 allowance and recognized the entire amount as other income in the accompany consolidated statement of operations and comprehensive income (loss). During the year ended June 30, 2022, the Company recognized the interest income of $764,421 and wrote off the interest income of $66,905. The management subsequently discovered that the customer is a related party within the definition ASC 850.

 

In the Company’s annual reports on Form 10-K for the years ended June 30, 2020 and June 30, 2021 and related quarterly reports (collectively, the “Affected Reports”), the Company is correcting the disclosure by reporting the above as related party transactions and balances.

 

The following is a comparison of restated financial statements to financial statements as previously reported:

 

   As Previously Reported   Restatement Adjustment   As Restated 
Consolidated Statement of Operations  Year ended June 30, 2020 
   As Previously Reported   Restatement Adjustment   As Restated 
             
Revenue  $253,803   $(253,803)  $- 
Revenue – Related Party   -    253,803    253,803 
Total Revenue   253,803    -    253,803 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Consolidated Balance Sheets  As of June 30, 2021 
   As Previously Reported   Restatement Adjustment   As Restated 
             
Current Assets:               
Account receivable, net  $2,602,392   $(1,640,779)  $961,613 
Account receivable - related party, net   -    1,640,779    1,640,779 
Loan receivable, net   6,417,350    (6,417,350)   - 
Loan receivable - related party, net   -    6,417,350    6,417,350 
Total Current Assets   9,163,675    -    9,163,675 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Consolidated Statement of Operations  Year ended June 30, 2021 
   As Previously Reported   Restatement Adjustment   As Restated 
             
Revenue  $9,489,187   $(5,278,370)  $4,210,817 
Revenue – Related Party   -    5,278,370    5,278,370 
Total Revenue   9,489,187    -    9,489,187 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Consolidated Statements of Cash Flows  Year ended June 30, 2021 
   As Previously Reported   Restatement Adjustment   As Restated 
             
(Increase) in account receivable  $(4,177,743)  $3,158,126   $(1,019,617)
(Increase) in account receivable - related party   -    (3,158,126)   (3,158,126)
Net Cash Used in Operating Activities   (2,562,524)   -    (2,562,524)
Loan receivable   8,365,926    (8,365,926)   - 
Loan receivable - related party   -    8,365,926    8,365,926 
Net Cash Used in Investing Activities   (8,443,822)   -    (8,443,822)
Net Cash Provided by Financing Activities   6,232,225    -    6,232,225 

 

F-10
 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Balance Sheets  As of March 31, 2021 
   As Previously Reported   Restatement Adjustment   As Restated 
             
Current Assets:               
Account receivable,  $3,537,706   $(3,192,013)  $345,693 
Account receivable - related party   -    3,192,013    3,192,013 
Loan receivable   8,242,010    (8,242,010)   - 
Loan receivable - related party   -    8,242,010    8,242,010 
Total Current Assets   12,731,834    -    12,731,834 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statement of Operations  Three Months ended March 31, 2021 
   As Previously Reported   Restatement Adjustment   As Restated 
             
Revenue  $765,616   $(145,293)  $620,323 
Revenue – Related Party   -    145,293    145,293 
Total Revenue   765,616    -    765,616 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statement of Operations   Nine Months ended March 31, 2021  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Revenue   $ 8,499,788     $ (5,233,559 )   $ 3,266,229  
Revenue – Related Party     -       5,233,559       5,233,559  
Total Revenue     8,499,788       -       8,499,788  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statements of Cash Flows   Nine Months ended March 31, 2021  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Account receivable   $ (3,470,436 )   $ 3,131,315     $ (339,121 )
Account receivable - related party     -       (3,131,315 )     (3,131,315 )
Net Cash Used in Operating Activities     (2,578,186 )     -       (2,578,186 )
Loan receivable     8,085,285       (8,085,285 )     -  
Loan receivable - related party     -       8,085,285       8,085,285  
Net Cash Used in Investing Activities     (8,162,519 )     -       (8,162,519 )
Net Cash Provided by Financing Activities     6,232,225       -       6,232,225  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Balance Sheets   As of December 31, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Current Assets:                        
Account receivable   $ 3,121,049     $ (3,121,049 )   $ -  
Account receivable - related party     -       3,121,049       3,121,049  
Loan receivable     8,275,862       (8,275,862 )     -  
Loan receivable - related party     -       8,275,862       8,275,862  
Total Current Assets     13,414,168       -       13,414,168  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statement of Operations   Three Months ended December 31, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Revenue   $ 2,590,594     $ (1,472,062 )   $ 1,118,532  
Revenue – Related Party     -       1,472,062       1,472,062  
Total Revenue     2,590,594       -       2,590,594  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statement of Operations   Six Months ended December 31, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Revenue   $ 7,734,172     $ (5,088,266 )   $ 2,645,906  
Revenue – Related Party     -       5,088,266       5,088,266  
Total Revenue     7,734,172       -       7,734,172  

 

F-11
 

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statements of Cash Flows   Six Months ended December 31, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Account receivable   $ (3,006,281 )   $ 3,006,281     $ -  
Account receivable - related party     -       (3,006,281 )     (3,006,281 )
Net Cash Used in Operating Activities     (2,151,847 )     -       (2,151,847 )
Loan receivable     7,971,539       (7,971,539 )     -  
Loan receivable - related party     -       7,971,539       7,971,539  
Net Cash Used in Investing Activities     (8,047,686 )     -       (8,047,686 )
Net Cash Provided by Financing Activities     6,232,225       -       6,232,225  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Balance Sheets   As of September 30, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Current Assets:                        
Account receivable   $ 1,439,494     $ (1,424,766 )   $ 14,728  
Account receivable - related party     -       1,424,766       1,424,766  
Total Current Assets     12,966,548       -       12,966,548  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statement of Operations   Three Months ended September 30, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Revenue   $ 5,143,578     $ (3,616,204 )   $ 1,527,374  
Revenue – Related Party     -       3,616,204       3,616,204  
Total Revenue     5,143,578       -       5,143,578  

 

   As Previously
Reported		   Restatement
Adjustment		   As Restated 
Unaudited Condensed Consolidated Statements of Cash Flows   Three Months ended September 30, 2020  
    As Previously Reported     Restatement Adjustment     As Restated  
                   
Account receivable   $ (1,413,328 )   $ 1,398,868     $ (14,460 )
Account receivable - related party     -       (1,398,868 )     (1,398,868 )
Net Cash Used in Operating Activities     (1,456,401 )     -       (1,456,401 )
Net Cash Used in Investing Activities     (74,593 )     -       (74,593 )
Net Cash Provided by Financing Activities     6,232,225       -       6,232,225  

 

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

 

Principles of Consolidation

 

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

 

Non-Controlling Interest

 

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

 

Use of Estimates

 

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

 

F-12
 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash and cash equivalents.

 

Accounts Receivable, net

 

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

 

The Company establishes a credit and collection policy based on age of receivables. 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 an allowance for doubtful accounts of $12,317 and $1,682,437 as of June 30, 2022 and 2021, respectively.

 

Inventories

 

Inventories are valued at the lower of cost or market. Inventories consist of finished goods. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary. As of June 30, 2022 and 2021, the Company had no reserve for obsolete goods.

 

Equipment

 

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

  

Items   Useful life
Vehicles   5 years

 

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

 

Long-lived Assets

 

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate 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 for the years ended June 30, 2022 and 2021, respectively.

 

F-13
 

 

Leases

 

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

 

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

 

Revenue Recognition

 

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

 

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

 

Fair Value Measurements

 

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

 

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

 

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

 

F-14
 

 

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

 

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

 

Concentration of Credit Risk

 

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

 

The Company’s bank account in the United States is protected by FDIC insurance. As of June 30, 2022 and 2021, 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 the People’s Bank of China Financial Stability Bureau (“FSD”) insurance. As of June 30, 2022 and 2021, the Company’s bank account in PRC had $247,930 and $140,277, balances exceeding FSD insurance of RMB 500,000.

 

Major Customers

 

The Company has five customers Company A – Related party, Company B, Company C, Company D, and Company E that accounted for 23%, 19%, 12%, 11% and 11% of revenues for the year ended June 30, 2022, respectively. The Company has one major customer Company F– Related party that accounted for 56% of revenues for the year ended June 30, 2021. The five major customers for the year ended June 30, 2022 does not include the major customer for the year ended June 30, 2021.

 

Major Vendors

 

The Company has four vendors Company A, Company B, Company C, and Company D that accounted for 36%, 30%, 14% and 11% of purchases for the year ended June 30, 2022. The Company has two vendors Company E and Company A that accounted for 71% and 29% of purchases for the year ended June 30, 2021.

 

Commitment and Contingencies

 

The Company agreed to purchase $26,873,292 (RMB 180 million) from a supplier over the next three years. As of June 30, 2022, the Company has made advance payment of $8,216,644 (RMB 55 million) to the supplier, of which $5,922,077 (RMB 39,666,667) are recorded as advance to supplier – non-current. The advance is interest free and without collateral. The reasons for making such advance are that the Company started to provide products to clients who are in the internet live broadcasting business. The Company carries minimal inventory, and the supplier directly delivers the goods to customers according to purchase orders with the supplier. The advances are fully refundable and there is no penalty for the Company if it does not purchase the entire RMB 180 million of inventory.

 

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

 

There are no legal proceedings and claims.

 

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

 

F-15
 

 

Value Added Tax (“VAT”)

 

The Company is subject to VAT, which is levied on a majority of the products, at a rate ranging from 9% to 13% on the invoiced value of sales depending on the type of products sold. The output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases.

 

The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. Further, when exporting goods, the exporter is entitled to some or all of the refund of the VAT paid or assessed.

 

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

 

Income Tax

 

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

 

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

 

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

 

Foreign Currency Translation

 

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

 

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

 

   June 30,
2022		   June 30,
2021		 
           
Period-end spot rate   US $1=RMB 6.6981    US $1=RMB 6.4566 

 

  

Year Ended

June 30,
2022

  

Year Ended

June 30,
2021

 
           
Average rate   US $1=RMB 6.4554    US $1=RMB 6.6221 

 

F-16
 

 

Earnings (Loss) Per Share

 

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

 

Recent Accounting Pronouncements

 

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

 

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

 

F-17
 

 

Note 4 - Advance to Suppliers

 

On February 2, 2022, the Company entered into a purchase agreement with an unrelated party, which is the Company’s major supplier. The Company agreed to purchase $26,873,292 (RMB 180 million) from this supplier over the next three years. As of June 30, 2022, the Company had made advance payment of $8,216,644 (RMB 55 million) to this supplier, of which $5,922,077 (RMB 39,666,667) is recorded as advance to suppliers – non-current. The payment is interest free and without collateral. The reasons for making such advance are that the Company started to provide products to clients which are in the internet live broadcasting business. The Company has no inventory, and the supplier directly delivers the goods to customers according to the order. The advances are fully refundable and there is no penalty for the Company if it does not purchase the entire RMB 180 million of inventory

 

With advances to all suppliers, advance to suppliers – current was $3,725,143 and $0 as of June 30, 2022 and 2021, respectively; and advance to supplier – non-current was $5,922,077 and $0 as of June 30, 2022 and 2021, respectively.

 

Note 5 - Loan Receivable from 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 related party $8,957,764 (RMB60,000,000) at an annual interest rate of 7.2%. The loan is guaranteed by a Company’s supplier which is also an important partner of the Company’s major customer 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 total loan receivable, net of allowance $0 and $6,417,350 as of June 30, 2022 and 2021, respectively. The principal and the relevant interest in full have been paid off in February 2022. As of June 30, 2021, the Company recognized $2,163,419 allowance of bad debt against the loan receivable from related party. During the year ended June 30, 2022, the Company reversed the $2,163,419 allowance and recognized the entire amount as other income in the accompany consolidated statement of operations and comprehensive income (loss). During the year ended June 30, 2022, the Company recognized the interest income of $764,421 and wrote off the interest income of $66,905.

 

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

 

Note 6 – Account Receivable, net and Account Receivable – Related Parties, net

 

The Company reviews the accounts receivable and accounts receivable from related parties on a periodic basis and based on its reviews, the Company recorded an allowance for doubtful accounts of $12,317 and $1,682,437 as of June 30, 2022 and 2021, respectively.

 

As of June 30, 2022 and 2021, accounts receivable and accounts receivable from related parties consisted of the following:

 

   June 30,
2022		   June 30,
2021		 
Accounts receivable and accounts receivable – related parties  $2,482,990   $4,284,829 
Less: Allowance for doubtful accounts   (12,317)   (1,682,437)
Accounts receivable, net and accounts receivable – related parties, net  $2,470,673   $2,602,392 

 

Note 7 – Transfer of Business Ownership

 

On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Yiwu Tianqi Enterprise Management Co., Ltd which was incorporated on November 23, 2020 for no consideration.

 

On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Zhejiang Jingmai e-commerce Co., Ltd which was incorporated on November 25, 2020 for no consideration.

 

On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Zhejiang Jingtao Supply Chain Co., Ltd which was incorporated on November 24, 2020 for no consideration.

 

F-18
 

 

These transferred entities had no operation or accounting record since its inception until the Company received the 99% ownership. These entities are used to develop business in the following fields: wholesale and retail of wide range of products, management, import and export, network integration and IT service, and more fields.

 

Note 8 – Equipment

 

Equipment consisted of a vehicle. As of June 30, 2022 and 2021, equipment was $77,012 and $79,892, and accumulated depreciation of $25,606 and $11,384, respectively. For the years ended June 30, 2022 and 2021, depreciation expense including amortization of right of use assets was to $19,127 and $12,871, respectively.

 

Note 9 – Right-Of-Use Assets And Operating Lease Liabilities

 

The Company has an operating lease for office space. Rent expense for the operating lease was to $0 and $3,398 for years ended June 30, 2022 and 2021, respectively. The lease term was from May 11, 2020 and expired on December 10, 2020.

 

On January 5, 2021, Jingmai Electronic leased an office in Zhejiang, China from January 5, 2021 to April 5, 2022. There is rent-free period from January 5, 2021 to April 5, 2021. The monthly rent is $388.

 

On March 20, 2022, Zhejiang Jingmai Electronic Commerce Ltd. leased an office in Zhejiang, China. The lease term of the office is from April 1, 2022 to March 30, 2023. The monthly rent is $373. As of June 30, 2022, the Company had paid rent up until March 30, 2023.

 

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 years ended June 30, 2022 and 2021, the Company recorded $3,983 and $1,885 in total lease operating costs, respectively.

 

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:

 

  

Year ended

June 30, 2022

 
Cash paid for operating lease liabilities  $9,480 
Weighted-average remaining lease term   0.75 
Weighted-average discount rate   5%
Minimum future lease payments  $- 

 

Note 10 – Other Receivable from Related Party

 

Other receivable from related party was $209,014 and $0 as of June 30, 2022 and 2021, respectively. Other receivable is money due from a related party which company was controlled by management or affiliate. The receivable is without collateral, interest free, and due on demand.

 

Note 11 – Advances and Deposits

 

Advances and deposits were to $0 and $30,976 as of June 30, 2022 and 2021, respectively. Advances are received from customers for the sale of products in the normal course of business and adjusted against the payments due from them.

 

F-19
 

 

Note 12 – Accrued Expenses and Other Payables

 

Accrued expense and other payables consists of the following:

 

           
   As of   As of 
   June 30,
2022		   June 30,
2021		 
Payroll payable  $8,085   $3,910 
Tax payable   198,992    12,780 
Other payable   96,476    81,664 
Total accrued expense and other payables  $303,553   $98,354 

 

As of June 30, 2022 and 2021, accrued expenses and other payables were $303,553 and $98,354, respectively. The accrued expenses and other payable are mainly payroll payable, taxes payable and money borrowed from unrelated parties for operating purpose. These payables are without collateral, interest free, and due on demand.

 

Note 13 – Stockholders’ Equity

 

Common Stock

 

On July 1, 2021, the former President and Director of the Company forgave the working capital advance of $19,974 given to the Company as a loan on March 20, 2020 (Note 10). The forgiveness of loan was credited to additional paid in capital as of June 30, 2022.

 

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 Company. 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.

 

F-20
 

 

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.

 

Note 14 – Related Party Transactions

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
HangJin Chen   President/CEO/CFO/Secretary/Director
Youcheng Chen   Father of CEO HangJin Chen
Li Weiwei   President/CEO/CFO/Secretary/Director (Former)
Shengda Network Technology Co., Ltd Company controlled by management or affiliate
Chengdu Tiantian Aixiu Culture Media Co., Ltd Company controlled by management or affiliate
Zhejiang Malai Electronic Commerce Co., Ltd Company controlled by management or affiliate

 

Related party loans represent working capital advances to the Company by former President and Director in the amount of $0 and $19,974 as of June 30, 2022 and 2021, 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, 2022 and 2021. On July 1, 2021, the former President and Director agreed to forgive the working capital advance of $19,974 given to the Company on March 20, 2020 (Note 12).

 

On October 25, 2020, the Company signed an agreement with Zhejiang Malai Electronic Commerce Co., Ltd., which is also the Company’s major customer. The Company agreed to loan the customer $8,957,764 (RMB60,000,000) at an annual interest rate of 7.2%. The loan was guaranteed by a Company’s supplier which is also an important partner of the Company’s major customer 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 total loan receivable, net of allowance was $0 and $6,417,350 as of June 30, 2022 and 2021, respectively. The principal and the relevant interest in full were paid off in February 2022. $2,163,419 allowance of bad debt of loan receivable is reversed and is recognized as other income during the year ended June 30, 2022.

 

Other receivable from Shengda Network Technology Co., Ltd. was $209,014 and $0 as of June 30, 2022 and 2021, respectively. The receivable was without collateral, interest free, and due on demand; the Company made vendor payments on behalf of Shengda Netwoek Technology Co., Ltd.

 

Purchases were $408,588 and $0 from Shengda Network Technology Co., Ltd for the years ended June 30, 2022 and 2021, respectively. Due from Shengda Network Technology Co., Ltd was $3,156 as of June 30, 2022.

 

Sales were $919,610 and $0 to Chengdu Tiantian Aixiu Culture Media Co., Ltd for the years ended June 30, 2022 and 2021, respectively. Due from Chengdu Tiantian Aixiu Culture Media Co., Ltd amounted $259,018 as of June 30, 2022.

 

F-21
 

 

Sales were $0 and $5,278,370 to Zhejiang Malai Electronic Commerce Co., Ltd for the years ended June 30, 2022 and 2021, respectively. Due from Zhejiang Malai Electronic Commerce Co., Ltd was $6 as of June 30, 2022.

 

Note 15 – Taxes Payable

 

Taxes payable consists of the following:

 

           
   As of   As of 
   June 30,
2022		   June 30,
2021		 
VAT  $843   $5,499 
Income tax payable   198,140    10,566 
Other taxes payable   9    (3,285)
Taxes Payable  $198,992   $12,780 

 

United States

 

The Company is incorporated in United States, and is subject to corporate income tax at 21%.

 

The People’s Republic of China (PRC)

 

Under the Provisional Regulations of the People’s Republic of China Concerning Income Tax on Enterprises promulgated by the PRC, which took effect on January 1, 2008, domestic and foreign companies pay a unified corporate income tax of 25%.

 

Hong Kong

 

Peaker is incorporated in the Hong Kong and subject to the Enterprise Income Tax Law (the “EIT Law”). Under the EIT Law, when the net income is less than $254,868 (HKD 2,000,000), the income tax is calculated at 8.25%. When the income exceeds $254,868 (HKD 2,000,000), the income tax is calculated at 16.5% for the excess.

 

For financial reporting purposes, net income (loss) showing domestic and foreign sources was as follows:

           
   Year Ended June 30, 
   2022   2021 
Domestic  $(236,892)  $(127,996)
Foreign   4,778,122    (2,211,886)
Net income (loss)  $4,541,230   $(2,339,882)

 

Provision for income taxes

 

The effective income tax rate was 4.8% and (16.1)% for the years ended June 30, 2022 and 2021, respectively. A reconciliation of the income tax (benefit) computed at federal statutory income tax rate and the effective income tax rate as a percentage of income (loss) before income taxes for the years ended June 30, 2022 and 2021 is as follows:

 

           
   June 30, 
   2022   2021 
Net income (loss) before income tax  $4,541,230   $(2,339,882)
Computed tax expense (benefit) at statutory rate   953,658    (491,375)
Taxes in foreign jurisdictions with rates different than US   191,125    (88,475)
Effect of income tax holiday of PRC entities   (16,366)   - 
Utilization of net operating loss of PRC entities   (961,542)   - 
Valuation allowance of PRC entities   -    929,436 
Valuation allowance of US parent company   49,747    26,879 
Income tax expense  $216,622   $376,465 

 

F-22
 

 

Deferred tax assets

 

Net deferred tax assets of continuing operations consisted of the following:

 

   June 30, 
   2022   2021 
Deferred tax assets:          
Accumulated net operating loss carry forward  $95,600   $45,859 
Bad debt allowance for loan receivable   -    527,202 
Bad debt allowance for accounts receivable   3,195    410,097 
Less: valuation allowance   (98,795)   (983,158)
Net deferred tax assets  $-   $- 

 

At June 30, 2022, the Company’s US parent company had approximately $0.46 million of U.S. federal net operating loss (“NOL”) carry forward for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely; However, the coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. No tax benefit was reported with respect to these NOL carry-forwards in the accompanying consolidated financial statements because the Company believes the realization of the Company’s net deferred tax assets for the NOL of approximately $0.10 million as of June 30, 2022, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.

 

At June 30, 2022, the Company’s PRC entities had $0 of China NOL carryforward. The China NOL carryforward have expiration dates through 2027.

 

Note 16 – Subsequent Events

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2022 to the date these consolidated financial statements were available to be issued and has determined that the following subsequent events or transactions that would require recognition or disclosure in the consolidated financial statements.

 

On August 15, 2022, the size of the Board was increased to five members. Mr. Yizhong Chen, Mr. Hanguo Li, Mr. Manu Ohri and Mr. Yanfeng Wang were appointed as independent directors of the Board, effective the same date. In addition, effective the same date, the Board created an Audit Committee, a Nominating Committee and a Compensation Committee and also adopted a Code of Business Conduct and Ethics. The Company also adopted amended and restated bylaws.

 

F-23
 

 

PART IV

 

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.

 

        Incorporated by Reference
Exhibit
Number		   Exhibit Description   Form   File No.   Exhibit   Filing Date   Filed
Herewith
31.1   Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   X
31.2   Certification of Principal Financial and accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   X
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   X
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   X
101.INS   Inline XBRL Instance Document                   X
101.SCH   Inline XBRL Taxonomy Extension Schema Document                   X
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                   X
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                   X
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document                   X
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document                   X
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)                    

 

4
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Shengda Network Technology, Inc.
  (Registrant)

 

  By /s/ HangJin Chen
    HangJin Chen
     
    Chief Executive Officer, President, and Chief Financial Officer
     
  Date: November 4, 2022

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.

 

  By /s/ HangJin Chen
    HangJin Chen
    Chairman of the Board of Directors, Chief Executive Officer, President, and Chief Financial Officer
     
  Date: November 4, 2022
     
  By /s/ Yizhong Chen
    Yizhong Chen
    Director
     
  Date: November 4, 2022
     
  By /s/ Hanguo Li
    Hanguo Li
    Director
     
  Date: November 4, 2022
     
  By /s/ Manu Ohri
    Manu Ohri
    Director
     
  Date: November 4, 2022
     
  By /s/ Yanfeng Wang
    Yanfeng Wang
    Director

 

5

 

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