NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
The
Company is a global logistics integrated solution provider that was founded in the United States in 2001. On September 18, 2007, the Company
amended its Articles of Incorporation and Bylaws to merge into a new corporation, Sino-Global Shipping America, Ltd. in Virginia. The
Company primarily focuses on providing logistics and support to businesses in the Peoples’ Republic of China (“PRC”)
and the United States. On January 3, 2022, the Company changed
its corporate name from Sino-Global Shipping America, Ltd. to Singularity Future Technology Ltd. to reflect its expanded operations into
the digital assets business.
The
Company conducted its business primarily through its wholly-owned subsidiaries in the PRC (including
Hong Kong) and the United States, where the majority of its clients are located. As of March 31, 2022, the Company operated in two segments:
(1) freight logistics services which include shipping and warehouse services, were operated by its subsidiaries in both the United States
and PRC, and (2) the sale of crypto-mining machines, which were operated by its subsidiaries in the United States. For the nine months
ended September 30, 2021, the Company also engaged in shipping agency and management services, which were carried out by its subsidiary
in the U.S. The Company no longer operates in the shipping agency segment because it did not receive any new orders for its services
due to the uncertainty of the shipping management market which was negatively impacted by the COVID-19 pandemic.
On March
2, 2021, the Company entered into a purchase agreement (the “Agreement”) with Hebei Yanghuai Technology Co., Ltd. (“Yanghuai”)
for the purchase of 2,783 digital currency mining servers. The Company acquired approximately $0.9 million of crypto equipment from Yanghuai.
Over the last two months of the Company’s 2021 fiscal year, national and local governments in China have gradually restricted and
banned cryptocurrency mining operations, causing owners of servers to cease operations. Based on an amended agreement signed by the Company
and Yanghuai on September 17, 2021, the Company is not liable for the remainder of the contract price and has title to half of the crypto
mining equipment. The Company recorded impairment for the mining equipment in the last quarter of 2021 in the amount of approximately
$0.9 million.
On
December 31, 2021, the Company entered into a series of agreements to terminate its variable interest entity (“VIE”) structure
and deconsolidated its formerly controlled entity Sino-Global Shipping Agency Ltd. (“Sino-China”). The Company controlled
Sino-China through its wholly owned subsidiary Trans Pacific Shipping Limited (“Trans Pacific Beijing”). The Company made
the decision to dissolve both the VIE structure and Sino-China because Sino-China had no active operations and the Company wanted to remove
any potential risks associated with any VIE structures. In addition, the Company dissolved its subsidiary Sino-Global Shipping LA on December
26, 2021 as this subsidiary had no material operation, Inc. On March 14, 2022, the Company dissolved
its subsidiary Sino-Global Shipping Canada, Inc..
The outbreak of the novel coronavirus (COVID-19)
beginning in late January 2020 in the PRC has spread rapidly to many parts of the world. In March 2020, the World Health Organization
declared the COVID-19 as a pandemic. This has resulted in quarantines, travel restrictions, and the temporary closure of stores and business
facilities in China and the U.S. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s
freights logistic segments and its workforce are concentrated in China., the Company’s business, results of operations, and financial
condition have been adversely affected. In early December 2022, the Chinese government eased the strict control measure for COVID-19,
which has led to a surge in increased infections and a disruption in our business operations. Any future impact of COVID-19 on the Company’s
operation results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and
resurgence of COVID-19 variants and the actions taken by government authorities to contain COVID-19 or treat its impact, almost all of
which are beyond our control.
On March 14, 2022, the company dissolved its
subsidiary Sino-Global Shipping Canada, Inc. which resulted no gain and loss on it.
As
of March 31, 2022, the Company’s subsidiaries included the following:
Name |
|
|
Background |
|
Ownership |
|
|
|
|
|
|
Sino-Global Shipping New York Inc. (“SGS NY”) |
|
●
●
● |
A New York Corporation Incorporated on May 03, 2013 Primarily engaged in freight logistics services |
|
100% owned by the Company |
|
|
|
|
|
|
Sino-Global Shipping Australia Pty Ltd. (“SGS AUS”) |
|
●
●
● |
An Australian Corporation Incorporated on July 03, 2008 No material operations |
|
100% owned by the Company Dissolved in November 2022 |
|
|
|
|
|
|
Sino-Global Shipping HK Ltd. (“SGS HK”) |
|
●
●
● |
A Hong Kong Corporation Incorporated on September 22, 2008 No material operations |
|
100% owned by the Company |
|
|
|
|
|
|
Thor Miner Inc. (“Thor Miner”) |
|
●
●
● |
A Delaware Corporation Incorporated on October 13, 2021 Primarily engaged in sales of crypto mining machines |
|
51% owned by the Company |
|
|
|
|
|
|
Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) |
|
●
●
● |
A PRC limited liability company Incorporated on November 13, 2007. Primarily engaged in freight logistics services |
|
100% owned by the Company |
|
|
|
|
|
|
Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”) |
|
●
●
● |
A PRC limited liability company Incorporated on May 31, 2009 Primarily engaged in freight logistics services |
|
90% owned by Trans Pacific Beijing BJ |
|
|
|
|
|
|
Ningbo Saimeinuo Supply Chain Management Ltd. (“SGS Ningbo”) |
|
●
●
● |
A PRC limited liability company Incorporated on September 11,2017 Primarily engaged in freight logistics services |
|
100% owned by SGS NY |
|
|
|
|
|
|
Blumargo IT Solution Ltd. (“Blumargo”) |
|
●
●
● |
A New York Corporation Incorporated on December 14, 2020 No material operations |
|
100% owned by SGS NY |
|
|
|
|
|
|
Gorgeous Trading Ltd (“Gorgeous Trading”) |
|
●
●
● |
A Texas Corporation Incorporated on July 01, 2021 Primarily engaged in warehouse related services |
|
100% owned by SGS NY |
|
|
|
|
|
|
Brilliant Warehouse Service Inc. (“Brilliant Warehouse” ) |
|
●
●
● |
A Texas Corporation Incorporated on April 19,2021 Primarily engaged in warehouse house related services |
|
51% owned by SGS NY |
|
|
|
|
|
|
Phi Electric Motor In. (“Phi”) |
|
●
●
● |
A New York Corporation Incorporated on August 30, 2021 No operations |
|
51% owned by SGS NY |
|
|
|
|
|
|
SG Shipping &Risk Solution Inc, (“SGSR”) |
|
●
●
● |
A New York Corporation Incorporated on September 29, 2021 No material operations |
|
100% owned the Company |
|
|
|
|
|
|
SG Link LLC (“SG Link”) |
|
●
●
● |
A New York Corporation Incorporated on December 23, 2021 No operations |
|
100% owned by SG Shipping & Risk Solution Inc on January 25, 2022 |
Restatement of previously issued financial
statements
From
March to June 2019, Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”), a subsidiary of the Company, received
approximately $6.2 million (RMB 40 million) from a related party, Shanghai Baoyin Industrial Co., Ltd. (“Shanghai Baoyin”),
to pay for accounts receivable of six different customers totaling RMB 40 million. Shanghai Baoyin is 30% owned by Wang Qinggang, the
CEO and legal representative of Trans Pacific Shanghai. Trans Pacific Shanghai subsequently paid RMB 20 million and RMB 10 million to
Zhangjiakou Baoyu Trading Co. Ltd. (“Baoyu”), a third party, in April 2019 and July 2019, respectively, and it made an additional
payment of RMB 10 million to Hebei Baoxie Trading Co., Ltd. (“Hebei Baoxie”), a third party, in
July 2019.
As such, for the fiscal year ended June 30, 2019,
accounts receivable was understated by RMB 40 million, advance to supplier was overstated by RMB 20 million, and other payables from Shanghai
Baoyin, a related party, were understated by RMB 20 million. There was an overstatement of RMB 20 million in total assets and an understatement
of total liabilities of RMB 20 million.
During the fiscal year ended June 30, 2020, Baoxie
repaid a total of RMB 10 million to Trans Pacific Shanghai, and Trans Pacific Shanghai advanced the RMB 10 million to Shanghai Baoyin.
The RMB 10 million paid to Shanghai Baoyin was recorded as other receivable, and the RMB 30 million advance to Baoyu was reclassified
from an advance to supplier to other receivable. The Company provided a full allowance of its receivables totaling RMB 40 million. The
Company evaluated this transaction and determined there is no cumulative effect on the Company’s total assets, liabilities, or retained
earnings as of June 30, 2020.
During
the fiscal year ended June 30, 2021, Baoyu repaid RMB 30 million to Trans Pacific Shanghai. The RMB 30 million received was recorded
as recovery of bad debt. Trans Pacific Shanghai then loaned the same amount to Shanghai Baoyin. Shanghai Baoyin subsequently repaid RMB
4 million to Trans Pacific Shanghai, and Trans Pacific Shanghai loaned the same amount to Wang Qinggang. The RMB 30 million received
was recorded as recovery of bad debt for other receivable and the RMB 30 million paid was recorded as a related party loan receivable.
The Company analyzed the transactions and determined the RMB
30 million was originally from Shanghai Baoyin and eventually paid back to the same related parties. Recovery of bad debt and related
party loan receivable was overstated by RMB 30 million for the fiscal year 2021.
Effects of the restatements are as follows:
| |
As Previously Reported | | |
Adjustments | | |
As
Restated | |
Consolidate balance sheet as of June 30, 2021 | |
| | |
| | |
| |
Current assets | |
| | |
| | |
| |
Loan receivable - related parties | |
$ | 4,644,969 | | |
$ | (4,644,969 | ) | |
$ | - | |
Total assets | |
$ | 52,803,117 | | |
$ | (4,644,969 | ) | |
$ | 48,158,148 | |
Total equity | |
$ | 47,069,142 | | |
$ | (4,644,969 | ) | |
$ | 42,424,173 | |
| |
As | | |
| | |
| |
| |
Previously | | |
| | |
As | |
| |
Reported | | |
Adjustments | | |
Restated | |
Consolidate Statement of Stockholder's Equity as of June 30, 2021 | |
| | |
| | |
| |
| |
| | |
| | |
| |
Accumulated deficit | |
$ | (30,244,937 | ) | |
$ | (4,076,825 | ) | |
$ | (34,321,762 | ) |
Accumulated other comprehensive income (loss) | |
| (625,449 | ) | |
| (103,647 | ) | |
| (729,096 | ) |
Non-controlling Interest | |
| (6,951,134 | ) | |
| (464,497 | ) | |
| (7,415,631 | ) |
Total equity | |
$ | 47,069,142 | | |
$ | (4,644,969 | ) | |
$ | 42,424,173 | |
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed
consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of its
subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to December 31, 2021, Sino-China was considered
a VIE, with the Company as the primary beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China,
pursuant to which the Company received 90% of Sino-China’s net income.
As a VIE, Sino-China’s revenues were included
in the Company’s total revenues, and any income/loss from operations was consolidated with that of the Company. Because of contractual
arrangements between the Company and Sino-China, the Company had a pecuniary interest in Sino-China that required consolidation of the
financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s
operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. The
agency relationship between the Company and Sino-China and its branches was governed by a series of contractual arrangements pursuant
to which the Company had substantial control over Sino-China. Management makes ongoing reassessments of whether the Company remains the
primary beneficiary of Sino-China. On December 31, 2021, the Company entered into a series of agreements to terminate its VIE structure
and deconsolidated its formerly controlled entity Sino-China.
Loss from disposal of Sino-China amounted to
approximately $6.1 million. Since Sino-China did not have any active operation prior to disposal, the disposal did not represent a
strategic change in the Company’s business, as such the disposal was not presented as discontinued operations.
The carrying amount and classification of Sino-China’s
assets and liabilities included in the Company’s consolidated balance sheets were as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Current assets: | |
| | |
| |
Cash | |
$ | | | |
$ | 113,779 | |
Total current assets | |
| - | | |
| 113,779 | |
| |
| | | |
| | |
Deposits | |
| - | | |
| 56 | |
Total assets | |
$ | - | | |
$ | 113,835 | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Other payables and accrued liabilities | |
$ | - | | |
$ | 32,939 | |
Total liabilities | |
$ | - | | |
$ | 32,939 | |
(b) Fair Value of Financial Instruments
The Company follows the provisions of ASC 820,
Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods for measuring fair value, and
establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs other than quoted prices
that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market
data.
Level 3 — Unobservable inputs that reflect
management’s assumptions based on the best available information.
The carrying value of accounts receivable, other
receivables, other current assets, and current liabilities approximate their fair values because of the short-term nature of these instruments.
(c) Use of Estimates and Assumptions
The preparation of the Company’s unaudited
condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when
necessary. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include
revenue recognition, fair value of stock-based compensation, cost of revenues, allowance for doubtful accounts, impairment loss, deferred
income taxes, income tax expense and the useful lives of property and equipment. The inputs into the Company’s judgments and estimates
consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Since the use of
estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(d) Translation of Foreign Currency
The accounts of the Company and its subsidiaries
are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).
The Company’s functional currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Trans Pacific
Beijing and Trans Pacific Logistic Shanghai Ltd. report their financial positions and results of operations in Renminbi (“RMB”),
its subsidiary Sino-Global Shipping Australia Pty Ltd., reports its financial positions and results of operations in Australian dollar
(“AUD”), its subsidiary Sino-Global Shipping (HK), Ltd. reports its financial positions and results of operations in Hong
Kong dollar (“HKD”) and its subsidiary Sino-Global Shipping Canada, Inc. reports its financial positions and results of operations
in Canadian Dollar (“CAD”). The accompanying unaudited condensed consolidated financial statements are presented in USD. Foreign
currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction. Generally, foreign
exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations.
The Company translates the foreign currency financial statements in accordance with ASC 830-10, “Foreign Currency Matters”.
Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheets’
dates and revenues and expenses are translated at average exchange rates in effect during the year. The resulting translation adjustments
are recorded as other comprehensive loss and accumulated other comprehensive loss as a separate component of equity of the Company, and
also included in non-controlling interests.
The exchange rates as of March 31, 2022 and June
30, 2021 and for the three and nine months ended March 31, 2022 and 2021 are as follows:
| |
March 31, 2022 | | |
June 30, 2021 | | |
Three months ended March 31, | | |
Nine months ended March 31, | |
Foreign currency | |
Balance Sheet | | |
Balance Sheet | | |
2022 Profits/Loss | | |
2021 Profits/Loss | | |
2022 Profits/Loss | | |
2021 Profits/Loss | |
1USD: RMB | |
| 6.3411 | | |
| 6.4586 | | |
| 6.3483 | | |
| 6.4834 | | |
| 6.4048 | | |
| 6.6769 | |
1USD: AUD | |
| 1.3338 | | |
| 1.3342 | | |
| 1.3822 | | |
| 1.2943 | | |
| 1.3720 | | |
| 1.3541 | |
1USD: HKD | |
| 7.8325 | | |
| 7.7661 | | |
| 7.8044 | | |
| 7.7573 | | |
| 7.7906 | | |
| 7.7533 | |
1USD: CAD | |
| 1.2483 | | |
| 1.2404 | | |
| 1.2671 | | |
| 1.2667 | | |
| 1.2623 | | |
| 1.3010 | |
(e) Cash
Cash consists of cash on hand and cash in bank which are unrestricted
as to withdrawal or use. The Company maintains cash with various financial institutions mainly in the PRC, Australia, Hong Kong, Canada
and the U.S. As of March 31, 2022 and June 30, 2021, cash balances of $683,191 and $629,731, respectively, were maintained at financial
institutions in the PRC. $491,575 and $201,990 of these balances are not covered by insurance as the deposit insurance system in China
only insured each depositor at one bank for a maximum of approximately $70,000 (RMB 500,000). As of March 31, 2022 and June 30, 2021,
cash balances of $59,626,433 and $44,203,436, respectively, were maintained at U.S. financial institutions. $58,017,993 and $43,507,335
of these balances are not covered by insurance, as each U.S. account was insured by the Federal Deposit Insurance Corporation or other
programs subject to $250,000 limitations. The Hong Kong Deposit Protection Board pays compensation up to a limit of HKD 500,000 (approximately
$64,000) if the bank with which an individual/a company holds its eligible deposit fails. As of March 31, 2022 and June 30, 2021, cash
balances of $36,574 and $3,457, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong
Deposit Protection Board. As of March 31, 2022 and June 30, 2021, cash balances of $208 and $693, respectively, were maintained at Australia
financial institutions, and were insured as the Australian government guarantees deposits up to AUD 250,000 (approximately $172,000).
As of March 31, 2022 and June 30, 2021, amount of deposits the Company had covered by insurance amounted to $1,836,837 and $1,125,838,
respectively.
(f) Cryptocurrencies
Cryptocurrencies, mainly bitcoin, are included
in current assets in the accompanying consolidated balance sheets. Cryptocurrencies purchased are recorded at cost. Fair value of the
cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
Cryptocurrencies held are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually,
or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the
cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a
qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more
likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is
required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost
basis of the asset. Subsequent reversal of impairment losses is not permitted.
(g) Receivables and Allowance for Doubtful
Accounts
Accounts receivable are presented at net realizable
value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company reviews the accounts receivable on
a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual receivable balances.
In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances,
customers’ historical payment history, their current credit-worthiness and current economic trends. Receivables are generally considered
past due after 180 days. The Company reserves 25%-50% of the customers balance aged between 181 days to 1 year, 50%-100% of the customers
balance over 1 year and 100% of the customers balance over 2 years. Accounts receivable are written off against the allowances only after
exhaustive collection efforts.
Other receivables represent mainly customer advances,
prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, project advances as well
as office lease deposits. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and
adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management
has determined that the likelihood of collection is not probable. Other receivables are written off against the allowances only after
exhaustive collection efforts.
(h) Property and Equipment, net
Property and equipment are stated at historical
cost less accumulated depreciation. Historical cost comprises its purchase price and any directly attributable costs of bringing the assets
to its working condition and location for its intended use. Depreciation is calculated on a straight-line basis over the following estimated
useful lives:
Buildings | |
20 years |
Motor vehicles | |
3-10 years |
Computer and office equipment | |
1-5 years |
Furniture and fixtures | |
3-5 years |
System software | |
5 years |
Leasehold improvements | |
Shorter of lease term or useful lives |
Mining equipment | |
3 years |
The carrying value of a long-lived asset is considered
impaired by the Company when the anticipated undiscounted cash flows from such asset is less than its carrying value. If impairment is
identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent
appraisals. For the three and nine months ended March 31, 2022 and 2021, no impairment were recorded, respectively.
(i) Investments in unconsolidated entity
Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence
is generally considered to exist when the Company has voting shares representing 20% to 50%, and other factors, such as representation
on the board of directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method
of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings or losses
of equity method investees and a corresponding increase or decrease to the investment balances. Dividends received from the equity method
investments are recorded as reductions in the cost of such investments. The Company generally considers an ownership interest of 20% or
higher to represent significant influence. The Company accounts for the investments in entities over which it has neither control nor
significant influence, and no readily determinable fair value is available, using the investment cost minus any impairment, if necessary.
Investments are evaluated for impairment when
facts or circumstances indicate that the fair value of the long-term investment is less than its carrying value. An impairment loss is
recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether
a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration
of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investment;
and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. On January 10,
2020, the Company entered into a cooperation agreement with Mr. Shanming Liang, a shareholder of the Company, to set up a joint venture
in New York named LSM Trading Ltd., in which the Company holds a 40% equity interest. The joint venture hasn’t commenced any operations
due to the impact of COVID-19. Shanming Liang subsequently transferred his interest
to Guangxi Golden Bridge Industry Group Co., Ltd on October 11, 2021. For
the three and nine months ended March 31, 2022, the Company recorded $210,010 investment in unconsolidated entity and no events have occurred
that indicated other-than-temporary impairment existed for the three and nine months ended March 31, 2022.
(j) Convertible notes
The Company evaluates its convertible notes to
determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment
is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the
event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income
or expense.
(k) Revenue Recognition
The Company recognizes revenue which represents
the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled
in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a
point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are
recognized at a point in time.
The Company uses a five-step model to recognize
revenue from customer contracts. The five-step model requires the Company to (i) identify the contract with the customer, (ii) identify
the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that
it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations
in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company continues to derive its revenues from
sales contracts with its customers with revenues being recognized upon performance of services. Persuasive evidence of an arrangement
is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and
there is no separate sales rebate, discount, or other incentive. The Company’s revenues are recognized at a point in time after
all performance obligations are satisfied.
Contract balances
The Company records receivables related to revenue
when the Company has an unconditional right to invoice and receive payment.
Deferred revenue consists primarily of customer
billings made in advance of performance obligations being satisfied and revenue being recognized. On January 10, 2022, the Company’s
joint venture, Thor Miner, entered into a purchase and sale agreement with SOS Information Technology New York Inc. (“SOSNY”).
Pursuant to the purchase and sale agreement, Thor Miner agreed to sell and SOSNY agreed to purchase certain cryptocurrency mining hardware
and other equipment. Thor Miner and SOSNY agreed that SOSNY shall make payment equal to 50% of the total purchase price within 5 days
after the execution of the purchase and sale agreement, and the remaining 50% for each order shall be paid at least seven (7) calendar
days before the shipment. On January 14, 2022, Thor Miner received an advance payment of $40,000,000 for the first order. In connection
with the order, the Company issued 800,000 restricted shares to a consultant as costs for obtaining the contract. The shares were valued
at approximately $3.6 million and was recorded as stock compensation expenses for the three and nine months ended March 31, 2022.
The Company’s disaggregated revenue streams
are described as follows:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31, | | |
March 31, | | |
March 31, | | |
March 31 | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Shipping agency and management services | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 206,845 | |
Freight logistics services | |
| 971,747 | | |
| 953,194 | | |
| 2,829,682 | | |
| 3,767,588 | |
Total | |
$ | 971,747 | | |
$ | 953,194 | | |
$ | 2,829,682 | | |
$ | 3,974,433 | |
|
● |
Revenues from shipping
agency and management services are recognized upon completion of services, which coincides with the date of departure of the
relevant vessel from port. Advance payments and deposits received from customers prior to the provision of services and recognition
of the related revenues are presented as deferred revenue. |
|
● |
Revenues from freight logistics services are recognized when the related contractual services are rendered. |
Disaggregated information of revenues by geographic locations are as
follows:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31,
| | |
March 31,
| | |
March 31,
| | |
March 31,
| |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
PRC | |
$ | 648,964 | | |
$ | 953,194 | | |
$ | 2,242,296 | | |
$ | 3,767,588 | |
U.S. | |
| 322,783 | | |
| - | | |
| 587,386 | | |
| 206,845 | |
Total revenues | |
$ | 971,747 | | |
$ | 953,194 | | |
$ | 2,829,682 | | |
$ | 3,974,433 | |
(l) Taxation
Because the Company and its subsidiaries and Sino-China
were incorporated in different jurisdictions, they file separate income tax returns. The Company uses the asset and liability method of
accounting for income taxes in accordance with U.S. GAAP. Deferred taxes, if any, are recognized for the future tax consequences of temporary
differences between the tax basis of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial
statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized
in the future.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits
as income tax expense. The Company had no uncertain tax positions as of March 31, 2022 and 2021.
Income tax returns for the years prior to 2018
are no longer subject to examination by U.S. tax authorities.
PRC Enterprise Income Tax
PRC enterprise income tax is calculated based
on taxable income determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”) at 25%. Sino-China and Trans
Pacific Beijing were incorporated in the PRC and are subject to the Enterprise Income Tax Laws of the PRC.
PRC Value Added Taxes and Surcharges
The Company is subject to value added tax (“VAT”).
Revenue from services provided by the Company’s PRC subsidiaries, including Trans Pacific, and the VIE, and Sino-China, are subject
to VAT at rates ranging from 9% to 13%. Entities that are VAT general taxpayers are allowed to offset qualified VAT paid to suppliers
against their VAT liability. Net VAT liability is recorded in taxes payable on the consolidated balance sheets.
In addition, under the PRC regulations, the Company’s
PRC subsidiaries and VIE are required to pay city construction tax (7%) and education surcharges (3%) based on the net VAT payments.
(m) Earnings (loss) per Share
Basic earnings (loss) per share is computed by
dividing net income (loss) attributable to holders of common stock of the Company by the weighted average number of shares of common stock
of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the potential dilution that could occur
if securities or other contracts to issue common stock of the Company were exercised or converted into common stock of the Company. Common
stock equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the three and nine months ended March 31,
2022 and 2021, there was no dilutive effect of potential shares of common stock of the Company because the Company generated net loss.
(n) Comprehensive Income (Loss)
The Company reports comprehensive income (loss)
in accordance with the authoritative guidance issued by Financial Accounting Standards Board (the “FASB”) which establishes
standards for reporting comprehensive income (loss) and its component in financial statements. Other comprehensive income (loss) refers
to revenue, expenses, gains and losses that under US GAAP are recorded as an element of stockholders’ equity but are excluded from
net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using
the U.S. dollar as its functional currencies.
(o) Stock-based Compensation
The Company accounts for stock-based compensation
awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that
stock-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized
as compensation expense over the requisite service period. The Company records stock-based compensation expense at fair value on the grant
date and recognizes the expense over the employee’s requisite service period.
The Company accounts for stock-based compensation
awards to non-employees in accordance with FASB ASC Topic 718 amended by ASU 2018-07. Under FASB ASC Topic 718, stock compensation granted
to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever
is more reliably measured and is recognized as an expense as the goods or services are received.
Valuations of stock-based compensation are based
upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based
payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility
of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term
of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within
the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
(p) Risks and Uncertainties
The Company’s business, financial position
and results of operations may be influenced by the political, economic, health and legal environments in the PRC, as well as by the general
state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically
associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic,
health and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in the political,
regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
In March 2020, the World Health Organization declared
the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s
business operations and the workforce are concentrated in China and United States, the Company’s business, results of operations,
and financial condition have been adversely affected for the three and nine months ended March 31, 2022. The situation remains highly
uncertain for any further outbreak or resurgence of the COVID-19. It is therefore difficult for the Company to estimate the impact on
the business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19.
(q) Recent Accounting Pronouncements
In May 2019, the FASB issued ASU 2019-05, which
is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured
at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial
Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting
for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized
cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The
amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for
certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase
comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets.
Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13
while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which
to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies
applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after July 1, 2023, including
interim periods within those fiscal years. The Company has not early adopted this update and it will become effective on July 1, 2023
assuming the Company will remain eligible to be smaller reporting company. The Company is currently evaluating the impact of this new
standard on the Company’s unaudited condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update simplify the accounting
for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application
of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company
for annual and interim reporting periods beginning July 1, 2021. Early adoption of the amendments is permitted, including adoption in
any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects
to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes
that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The adoption
of this new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related
disclosures.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The amendments in this Update to
address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain
financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for the Company for annual and interim
reporting periods beginning July 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after July 1, 2021,
including interim periods within those fiscal years. The Company adopted this new standard on July 1, 2021 on its accounting for the convertible
notes issued in December 2021.
In October 2020, the FASB issued ASU 2020-08,
“Codification Improvements to Subtopic 310-20, Receivables—Non-refundable Fees and Other Costs”. The amendments in this
Update represent changes to clarify the Codification. The amendments make the Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. ASU 2020-08 is effective for the Company for annual and interim reporting periods
beginning July 1, 2021. Early application is not permitted. All entities should apply the amendments in this Update on a prospective basis
as of the beginning of the period of adoption for existing or newly purchased callable debt securities. These amendments do not change
the effective dates for Update 2017-08. The adoption of this new standard did not have a material impact on the Company’s unaudited
condensed consolidated financial statements and related disclosures.
In October 2020, the FASB issued ASU 2020-10,
“Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended
application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative
cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities
within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after July 1, 2021 for public
business entities. Early application is permitted. The amendments in this Update should be applied retrospectively. The adoption of this
new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe other recently issued
but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
consolidated financial statements.
Note 3. CRYPTOCURRENCIES
The following table presents additional information
about cryptocurrencies:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 261,338 | | |
$ | - | |
Receipt of cryptocurrencies from mining services | |
| - | | |
| 261,338 | |
Impairment loss | |
| (53,179 | ) | |
| - | |
Ending balance | |
$ | 208,159 | | |
$ | 261,338 | |
Impairment loss amounted to $3,052 and $53,179
for the three and nine months ended March 31, 2022. There is no impairment loss for the three and nine months ended March 31, 2021.
Note 4. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable are
as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Trade accounts receivable | |
$ | 3,629,657 | | |
$ | 3,589,011 | |
Less: allowances for doubtful accounts | |
| (3,505,419 | ) | |
| (3,475,769 | ) |
Accounts receivable, net | |
$ | 124,238 | | |
$ | 113,242 | |
Movement of allowance for doubtful accounts are
as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 3,475,769 | | |
$ | 2,297,491 | |
Provision for doubtful accounts, net of recovery | |
| - | | |
| 1,030,895 | |
Exchange rate effect | |
| 29,650 | | |
| 147,383 | |
Ending balance | |
$ | 3,505,419 | | |
$ | 3,475,769 | |
For the three months ended March 31, 2022 and
2021, the provision for doubtful accounts was nil and $999,960, respectively. For the nine months ended March 31, 2022 and 2021, the provision
for doubtful accounts was nil and $1,033,414, respectively. The Company recovered nil and $2,492 of accounts receivable for the nine months
ended March 31, 2022 and 2021, respectively.
Note 5. OTHER RECEIVABLES, NET
The Company’s other receivables are as follows:
| |
| | |
June 30, | |
| |
March 31, 2022 | | |
2021 (Restated) | |
Advances to customers* | |
$ | 4,351,073 | | |
$ | 6,022,680 | |
Employee business advances | |
| 338,559 | | |
| 4,144 | |
Total | |
| 4,606,934 | | |
| 6,026,824 | |
Less: allowances for doubtful accounts | |
| (4,166,375 | ) | |
| (6,024,266 | ) |
Other receivables, net | |
$ | 338,559 | | |
$ | 2,558 | |
* | In fiscal year 2019 and 2020, the Company entered into certain contracts with customers where the Company’s services included freight costs and cost of commodities to be shipped to customers’ designated locations. The Company prepaid the costs of commodities and recognized as advance payments on behalf of its customers. These advance payments on behalf of the customers will be repaid to the Company when either the contract terms expire or the contracts are terminated by either party. As aforementioned customers were negatively impacted by the pandemic and required additional time to execute existing contracts, they required additional time to pay. Due to significant uncertainty on whether the delayed contracts will be executed timely, the Company had provided full allowance due to contract delay and recorded allowances of approximately $6.0 million as of June 30, 2021. For the three months ended March 31, 2022 and 2021, the Company recovered nil and nil, respectively. For the nine months ended March 31, 2022 and 2021, the Company recovered $1,940,111 and nil, respectively. |
Movement of allowance for doubtful accounts are as follows:
| |
| | |
June 30, | |
| |
March 31,
2022 | | |
2021
(Restated) | |
Beginning balance | |
$ | 6,024,266 | | |
$ | 5,787,421 | |
Recovery for doubtful accounts | |
| (1,940,111 | ) | |
| - | |
Exchange rate effect | |
| 82,220 | | |
| 236,845 | |
Ending balance | |
$ | 4,166,375 | | |
$ | 6,024,266 | |
Note 6. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are
as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Freight fees (1) | |
$ | 444,619 | | |
$ | 880,000 | |
Total Advances to suppliers-third parties | |
$ | 444,619 | | |
$ | 880,000 | |
(1) | The advanced freight fee is the Company’s prepayment made for
various shipping costs for shipments from April 1, 2022 to June 30, 2022. On December 1, 2020, the Company entered into a freight logistics
services and import contract with a third party for equipment import. Pursuant to the contract, the Company acted as their freight carriers
and was in charge of the import matters of such equipment. The Company agreed to pay a deposit of $880,000 which is based on 20% of the
total carrying value of equipment on behalf of customer to secure the equipment. For the three and nine months ended March 31, 2022, the
Company completed the freight logistics services and the deposit was used for its cost of revenue. |
Note 7. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s prepaid expenses and other
assets are as follows:
|
|
March 31, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
Prepaid income taxes |
|
$ |
11,929 |
|
|
$ |
11,929 |
|
Other (including prepaid professional fees, rent, listing fees) |
|
|
358,113 |
|
|
|
330,063 |
|
Total |
|
$ |
370,042 |
|
|
$ |
341,992 |
|
Note 8. OTHER LONG-TERM ASSETS – DEPOSITS,
NET
The Company’s other long-term assets –
deposits are as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Rental and utilities deposits | |
$ | 93,544 | | |
$ | 111,352 | |
Freight logistics deposits (1) | |
| 50,000 | | |
| 3,181,746 | |
Total other long-term assets - deposits | |
$ | 143,544 | | |
$ | 3,293,098 | |
Less: allowances for deposits | |
| (9,331 | ) | |
| (3,177,127 | ) |
Other long-term assets- deposits, net | |
$ | 134,213 | | |
$ | 115,971 | |
(1) | On March 8, 2018, the Company entered into contract with BaoSteel Resources Co., Ltd (“BaoSteel”) to provide supply chain services for BaoSteel. The contract required the Company to pay approximately $3.1 million (RMB 20 million) of deposit. This refundable deposit is to cover any possible loss of merchandise, as well as any non-performance on the part of the Company and its vendors. The restricted deposit is expected be repaid to the Company when either the contract term expires by March 2023 or the contract is terminated by either party. Due to impact of COVID-19 and recent rising freight costs, the Company has not been able to fulfill the contract to BaoSteel and expect it may not be able to collect the full deposit, as such the Company provided full allowance for the $3.1 million deposit with BaoSteel in fiscal year 2019. The Company wrote off the $3.1 million deposit during the nine months ended March 31, 2022. |
Movements of allowance for deposits are as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 3,177,127 | | |
$ | - | |
Allowance for deposits | |
| - | | |
| 3,098,852 | |
Less: Write-off | |
| (3,173,408 | ) | |
| - | |
Exchange rate effect | |
| 5,612 | | |
| 78,275 | |
Ending balance | |
$ | 9,331 | | |
$ | 3,177,127 | |
Note 9. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment
as follows:
| |
March 31, 2022 | | |
June 30,
2021 | |
Motor vehicles | |
| 722,446 | | |
| 332,124 | |
Computer equipment | |
| 106,892 | | |
| 86,831 | |
Office equipment | |
| 70,495 | | |
| 34,747 | |
Furniture and fixtures | |
| 390,880 | | |
| 205,303 | |
System software | |
| 117,866 | | |
| 115,722 | |
Leasehold improvements | |
| 876,573 | | |
| 860,626 | |
Mining equipment | |
| 922,438 | | |
| 922,438 | |
| |
| | | |
| | |
Total | |
| 3,207,590 | | |
| 2,557,791 | |
| |
| | | |
| | |
Less: Impairment reserve | |
| (825,731 | ) | |
| (825,731 | ) |
Less: Accumulated depreciation and amortization | |
| (1,325,533 | ) | |
| (974,803 | ) |
| |
| | | |
| | |
Property and equipment, net | |
$ | 1,056,326 | | |
$ | 757,257 | |
Depreciation and amortization expenses for the
three months ended March 31, 2022 and 2021 were $150,118 and $93,048, respectively. Depreciation expenses for the nine months ended March
31, 2022 and 2021 were $428,635 and $258,176, respectively. For the three and nine months ended March 31, 2022, the Company exchanged
vehicles for net cost of $367,587, resulting in loss on disposal of fixed assets $56,827.
Note 10. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Salary and reimbursement payable | |
$ | 433,382 | | |
$ | 407,118 | |
Professional fees and other expense payable | |
| 98,363 | | |
| 83,575 | |
Interest payable | |
| 74,050 | | |
| - | |
Others | |
| 7,594 | | |
| 39,084 | |
Total | |
$ | 613,389 | | |
$ | 529,777 | |
Note 11. LOANS PAYABLE
On May 11, 2020, the Company received loan proceeds
in the amount of approximately $124,570 under the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”).
The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), provides for loans
to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and
accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The loan forgiveness amount
will be reduced for any Economic Injury Disaster Loan (“EIDL”) advance that the Company receives. The amount of loan forgiveness
will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period. On February 24, 2021, the
full amount of PPP loan was forgiven and no principle or interest need to be repaid, so the Company record such as a gain for the year
ended June 30, 2021. As of June 30, 2021, none of the PPP loan payable remains outstanding.
On May 26, 2020, the Company received an advance
in the amount of $155,900 under the SBA EIDL program administered by the SBA pursuant to the CARES Act. Such advance amount will reduce
the Company’s PPP loan forgiveness amount described above. In accordance with the requirements of the CARES Act, the Company will
use proceeds from the SBA loans primarily for working capital to alleviate economic injury caused by disaster occurring in the month of
January 31, 2020 and continuing thereafter. The SBA loans are scheduled to mature on May 22, 2050 and have a 3.75% interest rate and are
subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The monthly payable of $731, including
principal and interest, commenced on May 22, 2021. The balance of principal and interest will be payable 30 years from the date of May
22, 2020. $5,900 of the loan will be forgiven. As of December 31, 2021, the Company has paid off the balance of the EIDL loan. Interest
expense for the three and nine months ended March 31, 2022 for this loan was nil and $2,404, respectively.
Note 12. CONVERTIBLE NOTES:
On December 19, 2021,
the Company issued two Senior Convertible Notes (the “Convertible Notes”) to two non-U.S. investors for an aggregate purchase
price of $10,000,000.
The Convertible Notes
bear an interest at 5% annually and may be converted into shares of the Company’s common stock, no par value per share at a conversion
price of $3.76 per share, the closing price of the common stock on December 17, 2021. The Convertible Notes are unsecured senior obligations
of the Company, and the maturity date of the Convertible Notes is December 18, 2023. The Company may repay any portion of the outstanding
principal, accrued and unpaid interest, without penalty for early repayment. The Company may make any repayment of principal and interest
in (a) cash, (b) common stock at the conversion price or (c) a combination of cash or common stock at the conversion price.
The investors may convert
any conversion amount into common stock on any date beginning on June 19, 2022.
The Company evaluated the convertible notes agreement
under ASC 815 Derivatives and Hedging (“ASC 815”) amended by ASU 2020-06. ASC 815 generally requires the analysis embedded
terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where
their economic risks and characteristics are not clearly and closely related to the risks of the host contract. Based on terms of the
convertible notes agreements, the Company’s notes are convertible for a fixed number of shares and do not require the Company to
net settle. None of the embedded terms required bifurcation and liability classification.
On March 8, 2022, the
Company issued two Amended and Restated Senior Convertible Notes (the “Amended and Restated Convertible Notes”) to the investors to
change the principal amount of the Convertible Notes to an aggregate purchase price of $5,000,000.
The terms of the Amended
and Restated Convertible Notes are the same as that of the original Convertible Notes, except for the reduced principal amount and the
waiver of interest for the $5,000,000 payment made on March 8, 2022.
For the three and nine
months ended March 31, 2022, interest expenses related to the aforementioned convertible notes amounted to $60,959 and $69,178, respectively.
Note 13. LEASES
The Company determines if a contract contains
a lease at inception which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and
obligations. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial
reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the
non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the
exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the
Company’s leases are classified as operating leases.
The Company has several vehicle lease agreements
and office lease agreements with lease terms ranging from two to three years. Upon adoption of ASU 2016-02, the Company recognized lease
liabilities of approximately $1.2 million, with corresponding ROU assets of approximately the same amount based on the present value of
the future minimum rental payments of leases, using a weighted average discount rate of approximately 10.69%. As of March 31, 2022, ROU
assets and lease liabilities amounted to $1,443,837 and $1,468,854 (including $512,359 from lease liabilities current portion and $956,495
from lease liabilities non-current portion), respectively and weighted average discount rate was approximately 10.94%.
The Company’s lease agreements do not contain
any material residual value guarantees or material restrictive covenants. The leases generally do not contain options to extend at the
time of expiration and the weighted average remaining lease terms are 3.96 years.
For the three months ended March 31, 2022 and
2021, rent expense amounted to approximately $102,000 and $67,000, respectively. For the nine months ended March 31, 2022 and 2021, rent
expense amounted to approximately $358,000 and $224,000, respectively.
The five-year maturity of the Company’s
lease obligations is presented below:
Twelve Months Ending March 31, | |
Operating Lease Amount | |
2023 | |
$ | 645,791 | |
2024 | |
| 572,672 | |
2025 | |
| 300,771 | |
2026 | |
| 167,771 | |
2027 | |
| 42,898 | |
Thereafter | |
| - | |
Total lease payments | |
| 1,729,903 | |
Less: Interest | |
| (261,049 | ) |
Present value of lease liabilities | |
$ | 1,468,854 | |
Note 14. EQUITY
After the close of the stock market on July 7,
2020, the Company effected a l-for-5 reverse stock split of its common stock in order to satisfy continued listing requirements of its
common stock on the NASDAQ Capital Market. The reverse stock split was approved by the Company’s board of directors and stockholders
and was intended to allow the Company to meet the minimum share price requirement of $1.00 per share for continued listing on the NASDAQ
Capital Market. As a result, all common stock share amounts included in this filing have been retroactively reduced by a factor of five,
and all common stock per share amounts have been increased by a factor of five. Amounts affected include common stock outstanding, including
those that have resulted from the stock options, and warrants exercisable for common stock.
Stock issuances:
On September 17, 2020, the Company entered into
certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act of
1933, as amended, pursuant to which the Company sold an aggregate of 720,000 shares of the Company’s common stock, no par value,
and warrants to purchase 720,000 shares at a per share purchase price of $1.46. The net proceeds to the Company from such offering were
approximately $1.05 million. The warrants became exercisable on March 16, 2021 at an exercise price of $1.825 per share. The warrants may
also be exercised cashlessly if at any time after March 16, 2021, there is no effective registration statement registering, or no current
prospectus available for, the resale of the warrant shares. The warrants will expire on March 16, 2026. The warrants are subject to anti-dilution
provisions to reflect stock dividends and splits or other similar transactions. The warrants contain a mandatory exercise right for the
Company to force exercise of the warrants if the Company’s common stock trades at or above $4.38 for 20 consecutive trading days,
provided, among other things, that the shares issuable upon exercise of the warrants are registered or may be sold pursuant to Rule 144
and the daily trading volume exceeds 60,000 shares of common stock per trading day on each trading day in a period of 20 consecutive trading
days prior to the applicable date.
On November 2 and November 3, 2020, the Company
issued an aggregate of 860,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), each convertible
into one share of common stock, no par value, of Company, upon the terms and subject to the limitations and considerations set forth in
the Certificate of Designation of the Series A Preferred Stock, and warrants to purchase up to 1,032,000 shares of common stock. The purchase
price for each share of Series A Preferred Stock and accompanying warrants is $1.66. The net proceeds to the Company from this offering
was approximately $1.43 million, not including any proceeds that may be received upon cash exercise of the warrants. The warrants became
exercisable six (6) months following the date of issuance at an exercise price of $1.99 per share. The warrants may also be exercised cashlessly
if at any time after the six-month anniversary of the issuance date, there is no effective registration statement registering, or no current
prospectus available for, the resale of the warrant Shares. The warrants will expire five and a half (5.5) years from the date of issuance.
The warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions. The warrants
contain a mandatory exercise right for the Company to force exercise of the warrants if the closing price of the common stock equals or
exceeds $5.97 for twenty (20) consecutive trading days, provided, among other things, that the shares issuable upon exercise of the warrants
are registered or may be sold pursuant to Rule 144 and the daily trading volume exceeds 60,000 shares of common stock per trading day
on each trading day in a period of 20 consecutive trading days prior to the applicable date. In February 2021, the shareholders approved
the preferred shareholders’ right to convert 860,000 shares of Series A Preferred Stock into 860,000 shares of common stock
in the Company’s annual meeting of shareholders. As of June 30, 2021, the Series A Preferred Stock have been fully converted to
common stock on a one-for-one basis.
On December 8, 2020, the Company entered into
a securities purchase agreement with certain investors thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, in a registered direct offering, an aggregate of 1,560,000 shares of the common stock of the Company, no par
value per share, at a purchase price of $3.10 per share, for aggregate gross proceeds to the Company of $4,836,000. The Company also sold
to the investors warrants to purchase up to an aggregate of 1,170,000 shares of common stock at an exercise price of $3.10 per share.
The warrants are initially exercisable beginning on December 11, 2020 and will expire three and a half (3.5) years from the date of issuance.
The exercise price and the number of shares of common stock issuable upon exercise of the warrants are subject to adjustment in the event
of stock splits or dividends, or other similar transactions, but not as a result of future securities offerings at lower prices.
On January 27, 2021, the Company entered into
a securities purchase agreement with certain non-U.S. investors thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, an aggregate of 1,086,956 shares of common stock, no par value, and warrants to purchase 5,434,780 shares.
The net proceeds to the Company from this offering were approximately $4.0 million. The purchase price for each share of common stock
and five warrants is $3.68, and the exercise price per warrant is $5.00. The warrants became exercisable at any time during the period
beginning on or after July 27, 2021 and ending on or prior on January 27, 2026 but not thereafter; provided, however, that the total number
of the Company’s issued and outstanding shares of common stock, multiplied by the NASDAQ official closing bid price of the common
stock shall equal or exceed $0.3 billion for a three consecutive month period prior to an exercise.
On February 6, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of 1,998,500 shares of the common stock of the Company, no par value per
share, at a purchase price of $6.805 per share. Net proceeds to the Company from the sale of the shares and the warrants, after deducting
estimated offering expenses and placement agent fees, were approximately $12.4 million. The Company also sold to the investors warrants
to purchase up to an aggregate of 1,998,500 shares of common stock at an exercise price of $6.805 per share. The warrants are exercisable
upon issuance and expire five and a half (5.5) years from the date of issuance. The exercise price and the number of shares of common
stock issuable upon exercise of the warrants are subject to adjustment in the event of stock splits or dividends, or other similar transactions,
but not as a result of future securities offerings at lower prices.
On February 9, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of 3,655,000 shares of the common stock of the Company, no par value per
share, at a purchase price of $7.80 per share. Net proceeds to the Company from the sale of the shares and the warrants, after deducting
estimated offering expenses and placement agent fees, were approximately $26.1 million. The Company also sold to the investors warrants
to purchase up to an aggregate of 3,655,000 shares of common stock at an exercise price of $7.80 per share. The warrants are exercisable
upon issuance and expire five and a half (5.5) years from the date of issuance. The exercise price and the number of shares of common
stock issuable upon exercise of the warrants are subject to adjustment in the event of stock splits or dividends, or other similar transactions,
but not as a result of future securities offerings at lower prices.
On December 14, 2021,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with non-U.S. investors and accredited
investors pursuant to which the Company sold to the investors, and the investors agreed to purchase from the Company, an aggregate of
3,228,807 shares of common stock, no par value, and warrants to purchase 4,843,210 shares. The purchase price for each share of common
stock and one and a half warrants is $3.26, and the exercise price per warrant is $4.00. As of March 31, 2022, the Company received net
proceed of $10,525,819 and issued 3,228,807 shares and 4,843,210 warrants. In connection with the issuance, the Company issued 500,000
shares to a consultant in assisting the Company in finding potential investors.
The warrants will be
exercisable at any time during the Exercise Window. The “Exercise Window” means the period beginning on or after June 14,
2022 and ending on or prior to 5:00 p.m. (New York City time) on December 13, 2026 but not thereafter; provided, however, that the total
number of the Company’s issued and outstanding shares of common stock, multiplied by the NASDAQ official closing bid price of the
common stock shall equal or exceed $150,000,000 for a three consecutive month period prior to an exercise.
The Company’s outstanding warrants are classified
as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own
stock and require net share settlement. The fair value of the warrants was recorded as additional paid-in capital from common stock
On January 6, 2022, the
Company entered into Warrant Purchase Agreements with certain warrant holders (the “Sellers”) pursuant to which the Company
agreed to buy back an aggregate of 3,870,800 warrants (the “Warrants”) from the Sellers, and the Sellers agreed to sell the
Warrants back to the Company. These Warrants were sold to these Sellers in three previous transactions that closed on February 11, 2021,
February 10, 2021, and March 14, 2018. The purchase price for each Warrant is $2.00. Following announcement of the Warrant Purchase Agreements
on January 6, 2022, the Company agreed to repurchase an additional 103,200 warrants from other Sellers on the same terms as the previously
announced Warrant Purchase Agreements. The aggregate number of warrants repurchased under the Warrant Purchase Agreements was 3,974,000.
On January 7, 2022, the Company wired the purchase
price to each Seller. Each Seller has agreed to deliver the Warrant to the Company for cancellation as soon as practicable following the
closing date, but in no event later than January 13, 2022. The Warrants are deemed cancelled upon the receipt by the Sellers of the purchase
price.
Following is a summary of the status of warrants
outstanding and exercisable as of March 31, 2022:
| |
Warrants | | |
Weighted Average Exercise Price | |
| |
| | |
| |
Warrants outstanding, as of June 30, 2021 | |
| 12,618,614 | | |
$ | 5.30 | |
Issued | |
| 4,843,210 | | |
| 4.00 | |
Exercised | |
| (1,032,000 | ) | |
| 1.99 | |
Repurchased | |
| (3,974,000 | ) | |
| 1.83 | |
| |
| | | |
| | |
Warrants outstanding, as of March 31, 2022 | |
| 12,455,824 | | |
$ | 6.18 | |
| |
| | | |
| | |
Warrants exercisable, as of March 31, 2022 | |
| 7,612,614 | | |
$ | 5.46 | |
Warrants Outstanding | |
Warrants Exercisable | | |
Weighted Average Exercise Price | | |
Average Remaining Contractual Life |
2018 Series A, 400,000 | |
| 103,334 | | |
$ | 8.75 | | |
1.45 years |
2020 warrants, 2,922,000 | |
| 415,000 | | |
$ | 2.55 | | |
3.42 years |
2021 warrants, 11,088,280 | |
| 7,094,280 | | |
$ | 5.58 | | |
4.18 years |
Stock-based compensation:
By action taken as of August 13, 2021, the Board
of Directors (the “Board”) of the Company and the Compensation Committee of the Board (the “Committee”) approved
a one-time award of a total of 1,020,000 shares of the common stock under the Company’s 2014 Stock Incentive Plan (the “Plan”)
to, including (i) a one-time stock award grant of 600,000 shares to Chief Executive Officer, Lei Cao, (ii) a one-time stock award grant
of 200,000 shares to acting Chief Financial Officer, Tuo Pan, (iii) a one-time stock award grant of 160,000 shares to Board member, Zhikang
Huang, (iv) a one-time stock award grant of 20,000 shares to Board member, Jing Wang, (v) a one-time stock award grant of 20,000 shares
to Board member, Xiaohuan Huang, and (vi) a one-time stock award grant of 20,000 shares to Board member, Tieliang Liu. The shares were
valued at an aggregate of $2,927,400 based on the grant date fair value of such shares.
On November 18, 2021, Mr. Jing Wang retired from
his position as a member of the Board, the Chairperson of the Committee, a member of Nominating/Corporate Governance Committee, and a
member of the Audit Committee. In connection with Mr. Wang’s retirement, the Company granted Mr. Wang 100,000 shares of common stock
under the Company’s 2021 stock incentive plan, which shares were valued at $377,000 based on the grant date fair value.
On February 4, 2022, the Company approved a one-time
award of a total of 500,000 shares of common stock under the Company’s 2021 Stock Incentive Plan to certain executive
officers of the Company, including Chief Executive Officer, Yang Jie (300,000 shares), Chief Operating Officer, Jing Shan (100,000 shares),
and Chief Technology Officer, Shi Qiu (100,000 shares). The total fair value of the grants amounts to $2,740,000 based on the grant
date share price of $5.48.
On February 16, 2022, the Company’s Board
approved a consulting agreement pursuant to which the Company will pay the consultant a monthly fee of $10,000 and 100,000 shares of the
Company’s common stock. The shares were valued at $7.42 at grant date with a grant date fair value of $742,000 to be amortized through
October 31, 2022. Stock compensation expenses for this contract was $164,889 for the three and nine months ended March 31, 2022.
In connection with the purchase order between
SOSNY and Thor Miner, the Company issued 800,000 restricted shares to Future Tech Business Consulting (“Future Tech”) pursuant
to an Advisory Agreement under which Future Tech was to assist to the Company to find suitable buyers for cryptocurrency mining machines
sold by Thor Miner. The shares were valued at $ 3,608,000 and the Company recorded the full amount as stock compensation expense for the
for the three and nine months ended March 31, 2022.
During the three months ended March 31, 2022 and 2021, $6,512,889 and
nil were recorded as stock-based compensation expense, respectively, based on grant date fair value. During the nine months ended
March 31, 2022 and 2021, $9,817,289 and nil were recorded as stock-based compensation expense, respectively.
Stock Options:
A summary of the outstanding options is presented
in the table below:
| |
Options | | |
Weighted Average Exercise Price | |
| |
| | |
| |
Options outstanding, as of June 30, 2021 | |
| 17,000 | | |
$ | 6.05 | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Cancelled, forfeited or expired | |
| (15,000 | ) | |
| (5.50 | ) |
| |
| | | |
| | |
Options outstanding, as of March 31, 2022 | |
| 2,000 | | |
$ | 10.05 | |
| |
| | | |
| | |
Options exercisable, as of March 31, 2022 | |
| 2,000 | | |
$ | 10.05 | |
Following is a summary of the status of options
outstanding and exercisable as of March 31, 2022:
Outstanding Options | | |
| |
Exercisable Options | | |
|
Exercise Price | | |
Number | | |
Average Remaining Contractual Life | |
Average Exercise Price | | |
Number | | |
Average Remaining Contractual Life |
$ | 10.05 | | |
| 2,000 | | |
0.84 years | |
$ | 10.05 | | |
| 2,000 | | |
0.84 years |
Note 15. NON-CONTROLLING INTEREST
The Company’s non-controlling interest consists
of the following:
| |
| | |
June 30, | |
| |
March 31,
2022 | | |
2021
(Restated) | |
Sino-China: | |
| | |
| |
Original paid-in capital | |
$ | - | | |
$ | 356,400 | |
Additional paid-in capital | |
| - | | |
| 1,043 | |
Accumulated other comprehensive income | |
| - | | |
| 14,790 | |
Accumulated deficit | |
| - | | |
| (6,266,336 | ) |
| |
| - | | |
| (5,894,103 | ) |
Trans Pacific Logistics Shanghai Ltd. | |
| (1,375,259 | ) | |
| (1,494,303 | ) |
Brilliant Warehouse Service, Inc. | |
| (254,706 | ) | |
| (27,225 | ) |
Total | |
$ | (1,629,965 | ) | |
$ | (7,415,631 | ) |
Note 16. COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be subject
to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal
proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on
its financial position, results of operations or liquidity. As of March 31, 2022, the Company was not aware of any litigations or lawsuits
against them.
The Company had employment agreements with each
of Mr. Lei Cao, Ms. Tuo Pan and Mr. Yang Jie. Employment agreement of Mr. Lei Cao provided for a ten-year term that extended automatically
in the absence of termination notice provided at least 30 days prior to the fifth anniversary date of the agreement. Employment agreements
of Mr. Tuo Pan and Mr. Yang Jie provided for five-year terms that extended automatically in the absence of termination notice provided
at least 30 days prior to the fifth anniversary date of the agreement. If the Company fails to provide this notice or if the Company
wishes to terminate an employment agreement in the absence of cause, then the Company is obligated to provide at least 30 days’
prior notice. In such case during the initial term of the agreement, the Company would need to pay such executive (i) the remaining salary
through the date of October 31, 2026. In addition, to pay Mr. Lei Cao and Ms. Tuo Pan (ii) two times of the then applicable annual salary
if there has been no change in control, as defined in the employment agreements or three-and-half times of the then applicable annual
salary if there is a change in control.
Note 17. INCOME TAXES
On March 27, 2020, the CARES Act was enacted and
signed into law and includes, among other things, refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods and alternative minimum tax credit refunds. The Company does not at present expect the provisions
of the CARES Act to have a material impact on its tax provision given the amount of net operating losses currently available.
The Company’s income tax expenses for the
three and nine months ended March 31, 2022 and 2021 are as follows:
| |
For the three months Ended March 31 | | |
For the nine months Ended March 31 | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Current | |
| | |
| | |
| | |
| |
U.S. | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (3,450 | ) |
PRC | |
| - | | |
| - | | |
| - | | |
| - | |
Total income tax expenses | |
| - | | |
| - | | |
| - | | |
| (3,450 | ) |
The Company’s deferred tax assets are comprised
of the following:
| |
March 31, 2022 | | |
June 30, 2021 | |
Allowance for doubtful accounts | |
| | |
| |
U.S. | |
$ | 1,490,000 | | |
$ | 1,706,000 | |
PRC | |
| 1,929,000 | | |
| 2,718,000 | |
| |
| | | |
| | |
Net operating loss | |
| | | |
| | |
U.S. | |
| 5,476,000 | | |
| 3,422,000 | |
PRC | |
| 1,507,000 | | |
| 1,507,000 | |
Total deferred tax assets | |
| 10,402,000 | | |
| 9,353,000 | |
Valuation allowance | |
| (10,402,000 | ) | |
| (9,353,000 | ) |
Deferred tax assets, net - long-term | |
$ | - | | |
$ | - | |
The Company’s operations in the U.S. incurred
a cumulative U.S. federal net operation losses (“NOL”) of approximately $12,543,000 as of June 30, 2021, which may reduce
future federal taxable income. During the three and nine months ended March 31, 2022, approximately $2,925,000 and $7,511,000 of NOL was
generated and the tax benefit derived from such NOL was approximately $614,000 and $1,577,000, respectively. As of March 31, 2022, the
Company’s cumulative NOL amounted to approximately $20,054,000, which may reduce future federal taxable income, of which approximately
$1,400,000 will expire in 2037 and the remaining balance carried forward indefinitely.
The Company’s operations in China incurred
a cumulative NOL of approximately $6,026,000 as of June 30, 2021 which may reduce future taxable income. During the three and nine months
ended March 31, 2022, no additional NOL was generated and no tax benefit derived from such NOL. As of March 31, 2022, the Company’s
cumulative NOL amounted to approximately $6,026,000 which may reduce future taxable income, of which approximately $711,000 start expiring
from 2023 and the remaining balance of NOL will expire by 2026.
The Company periodically evaluates the likelihood
of the realization of deferred tax assets (“DTA”), and reduces the carrying amount of the deferred tax assets by a valuation
allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that
could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation
of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that
it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration
of trade negotiation between US and China and the outbreak of COVID-19 in 2021. The Company provided a 100% allowance for its DTA as
of March 31, 2022. The net decrease in valuation for the three and nine months ended March 31, 2022 amounted to approximately $1,260,000
and $1,049,000, respectively, based on management’s reassessment of the amount of the Company’s deferred tax assets that are
more likely than not to be realized.
The Company’s taxes payable consists of
the following:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
VAT tax payable | |
$ | 1,166,060 | | |
$ | 1,126,489 | |
Corporate income tax payable | |
| 2,429,253 | | |
| 2,377,589 | |
Others | |
| 64,275 | | |
| 68,341 | |
Total | |
$ | 3,659,588 | | |
$ | 3,572,419 | |
Note 18. CONCENTRATIONS
Major Customers
For the three months ended March 31, 2022, two
customers accounted for approximately 66.5% and 33.2% of the Company’s revenues. As of March 31, 2022, three customers accounted
for 41.2%, 18.3% and 12.9% of the Company’s accounts receivable, net.
For the three months ended March 31, 2021, two
customers accounted for approximately 69.6% and 25.8% of the Company’s revenues, respectively. As of March 31, 2021, one customer
accounted for approximately 96.2% of the Company’s accounts receivable, net.
For the nine months ended March 31, 2022, three
customers accounted for approximately 59.4%, 20.8% and 11.9% and of the Company’s revenues, respectively.
For nine months ended March 31, 2021, one customer
accounted for approximately 87.3% of the Company’s revenues. As of March 31, 2021, one customer accounted for approximately
96.2% of the Company’s accounts receivable, net.
Major Suppliers
For the three months ended March 31, 2022, three
suppliers accounted for approximately 41.8%, 27.2% and 11.7% of the total costs of revenue, respectively.
For the three months ended March 31, 2021, two
suppliers accounted for approximately 57.4% and 24.7% of the total costs of revenue, respectively.
For the nine months ended March 31, 2022, three
suppliers accounted for approximately 37.9%, 18.9% and 14.7% of the total cost of revenues, respectively.
For the nine months ended March 31, 2021, two
suppliers accounted for approximately 49.4% and 33.8% of the total cost of revenues, respectively.
Note 19. SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial statements
for detailing the Company’s business segments.
The Company’s chief operating decision maker
is the Chief Operating Officer, who reviews the financial information of the separate operating segments when making decisions about allocating
resources and assessing the performance of the group. As of March 31, 2022, the Company had two operating segments: (1) freight logistics
services and (2) sales of crypto-mining machines. The Company also operated shipping agency and management services segment for the nine
months ended March 31, 2021. The Company no longer operated shipping agency segment as the Company did not receive any new orders for
its services due to the uncertainty of the shipping management market which was negatively impacted by the COVID-19 pandemic.
The following tables present summary information
by segment for the three months ended March 31, 2022 and 2021, respectively:
| |
For the Three Months Ended March 31, 2022 | |
| |
Shipping Agency and Management Services | | |
Freight Logistics Services | | |
Sale of crypto-mining
machines | | |
Total | |
Net revenues | |
$ | - | | |
$ | 971,747 | | |
$ | - | | |
$ | 971,747 | |
Cost of revenues | |
$ | - | | |
$ | 901,275 | | |
$ | - | | |
$ | 901,275 | |
Gross profit | |
$ | - | | |
$ | 70,472 | | |
$ | - | | |
$ | 70,472 | |
Depreciation and amortization | |
$ | - | | |
$ | 150,118 | | |
$ | - | | |
$ | 150,118 | |
Total capital expenditures | |
$ | - | | |
$ | 151,021 | | |
$ | - | | |
$ | 151,021 | |
Gross margin% | |
| - | % | |
| 7.3 | % | |
| - | % | |
| 7.3 | % |
| |
For the Three Months Ended March 31, 2021 | |
| |
Shipping Agency and Management Services | | |
Freight Logistics Services | | |
Sale of crypto-mining
machines | | |
Total | |
Net revenues | |
$ | - | | |
$ | 953,194 | | |
$ | - | | |
$ | 953,194 | |
Cost of revenues | |
$ | - | | |
$ | 1,098,922 | | |
$ | - | | |
$ | 1,098,922 | |
Gross profit | |
$ | - | | |
$ | (145,728 | ) | |
$ | - | | |
$ | (145,728 | ) |
Depreciation and amortization | |
$ | 88,407 | | |
$ | 4,641 | | |
$ | - | | |
$ | 93,048 | |
Total capital expenditures | |
$ | - | | |
$ | - | | |
$ | 922,438 | | |
$ | 922,438 | |
Gross margin% | |
| - | % | |
| (15.3 | )% | |
| - | % | |
| (15.3 | )% |
| |
For the Nine Months Ended March 31, 2022 | |
| |
Shipping Agency and Management Services | | |
Freight Logistics Services | | |
Sale of
crypto-mining
machines | | |
Total | |
Net revenues | |
$ | - | | |
$ | 2,829,682 | | |
$ | - | | |
$ | 2,829,682 | |
Cost of revenues | |
$ | - | | |
$ | 2,973,034 | | |
$ | - | | |
$ | 2,973,034 | |
Gross profit | |
$ | - | | |
$ | (143,352 | ) | |
$ | - | | |
$ | (143,352 | ) |
Depreciation and amortization | |
$ | - | | |
$ | 428,635 | | |
$ | - | | |
$ | 428,635 | |
Total capital expenditures | |
$ | - | | |
$ | 775,107 | | |
$ | - | | |
$ | 775,107 | |
Gross margin% | |
| 0.0 | % | |
| (5.1 | )% | |
| - | % | |
| (5.1 | )% |
| |
For the Nine Months Ended March 31, 2021 | |
| |
Shipping Agency and Management Services | | |
Freight Logistics Services | | |
Sale of
crypto-mining
machines | | |
Total | |
Net revenues | |
$ | 206,845 | | |
$ | 3,767,588 | | |
$ | - | | |
$ | 3,974,433 | |
Cost of revenues | |
$ | 176,968 | | |
$ | 3,705,644 | | |
$ | - | | |
$ | 3,882,612 | |
Gross profit | |
$ | 29,877 | | |
$ | 61,944 | | |
$ | - | | |
$ | 91,821 | |
Depreciation and amortization | |
$ | 246,485 | | |
$ | 11,691 | | |
$ | - | | |
$ | 258,176 | |
Total capital expenditures | |
$ | - | | |
$ | - | | |
$ | 922,438 | | |
$ | 922,438 | |
Gross margin% | |
| 14.4 | % | |
| 1.6 | % | |
| - | % | |
| 2.3 | % |
Total assets as of:
| |
| | |
June 30, | |
| |
March 31, 2022 | | |
2021 (Restated) | |
Shipping Agency and Management Services | |
$ | 33,242,889 | | |
$ | 42,210,912 | |
Freight Logistic Services | |
| 16,199,858 | | |
| 5,947,235 | |
Sale of crypto-mining machines | |
| 39,982,311 | | |
| - | |
Total Assets | |
$ | 89,425,058 | | |
$ | 48,158,147 | |
The Company’s operations are primarily based
in the PRC and U.S, where the Company derives all of its revenues. Management also reviews consolidated financial results by business
locations.
Disaggregated information of revenues by geographic
locations are as follows:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31, | | |
March 31, | | |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
PRC | |
$ | 648,964 | | |
$ | 953,194 | | |
$ | 2,242,296 | | |
$ | 3,767,588 | |
U.S. | |
| 322,783 | | |
| - | | |
| 587,386 | | |
| 206,845 | |
Total revenues | |
$ | 971,747 | | |
$ | 953,194 | | |
$ | 2,829,682 | | |
$ | 3,974,433 | |
Note 20. RELATED PARTY BALANCE AND TRANSACTIONS
Advance to suppliers-related party
The Company’s advances to suppliers – related party are
as follows:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Bitcoin mining hardware and other equipment (1) | |
$ | 21,446,649 | | |
$ | - | |
Total Advances to suppliers-related party | |
$ | 21,446,649 | | |
$ | - | |
(1) | On January 10, 2022, the Company’s joint venture, Thor Miner, entered
into a Purchase Agreement with HighSharp. Pursuant to the Purchase Agreement, Thor Miner agreed to purchase certain cryptocurrency mining
hardware and other equipment. Thor Miner and HighSharp agreed that Thor Miner shall make payment equal to 30% of the total purchase price
within 10 days after the execution of the Purchase Agreement, and the remaining 70% for each order shall be paid before the shipment.
On January 12, 2022, Thor Miner made a prepayment of $21,446,649 for the first order. |
Due from related party, net
As of March 31, 2022 and June 30, 2021, the outstanding
amounts due from related parties consist of the following:
| |
March 31, | | |
June 30, | |
| |
2022 | | |
2021 | |
Tianjin Zhiyuan Investment Group Co., Ltd. (1) | |
$ | - | | |
$ | 384,331 | |
Zhejiang Jinbang Fuel Energy Co., Ltd (2) | |
| 438,886 | | |
| 430,902 | |
Shanghai Baoyin Industrial Co., Ltd (3) | |
| 1,379,808 | | |
| - | |
LSM Trading Ltd (4) | |
| 570,000 | | |
| - | |
Rich Trading Co. Ltd (5) | |
| 3,299,815 | | |
| - | |
Less: allowance for doubtful accounts | |
| (2,488,509 | ) | |
| (384,331 | ) |
Total | |
$ | 3,200,000 | | |
$ | 430,902 | |
(1) | In June 2013, the Company signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (“Zhiyuan Investment Group”) and TEWOO Chemical& Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”). Zhiyuan Investment Group is owned by Mr. Zhong Zhang, a former shareholder of the Company. In September 2013, the Company executed an inland transportation management service contract with the Zhiyuan Investment Group whereby it would provide certain advisory services and help control potential commodities loss during the transportation process. Starting in late 2020, Mr. Zhang started selling off his shares of the Company and does not own shares of the Company as of June 30, 2021 and no longer a related party. Management’s reassessed the collectability and decided to provide full allowance for doubtful accounts as of June 30, 2021. The Company wrote off the balance for the three and nine months ended March 31, 2022. |
| (2) | The
Company advanced $477,278 to Zhejiang Jinbang Fuel Energy Co., Ltd (“Zhejiang Jinbang”) which is owned by Mr. Wang Qinggang,
CEO and legal representative of Trans Pacific Shanghai Ltd. and Zhejiang Jinbang returned $39,356 for the year ended June 30, 2021. The advance
is non-interest bearing and due on demand. There has been no change in the balance other than changes as a result of changes in exchange
rates. Management’s reassessed the collectability and decided to provide full allowance for doubtful accounts as of March 31, 2022. |
| (3) | The
Company advanced $1,619119 to Shanghai Baoyin Industrial Co., Ltd. which is 30% owned by Wang Qinggang, CEO and legal representative
of Trans Pacific Shanghai for the nine months end March 31, 2022. Shanghai Baoyin Industrial Co., Ltd repaid $239,311. The advance is non-interest
bearing and due on demand. Management’s reassessed the collectability and decided to provide full allowance for doubtful accounts
as of March 31, 2022. |
(4) | The Company advanced $570,000 to LSM Trading Ltd, which is 40% owned by the Company for the nine months ended March 31, 2022. The advance is non-interest bearing and due on demand. Management’s reassessed the collectability and decided to provide full allowance for doubtful accounts as of March 31, 2022. |
(5) | As of March 31, 2022, the Company entered into a project cooperation agreement with Rich Trading Co. Ltd USA (“Rich Trading”) for the trading of computer equipment. Rich Trading’s bank account was controlled by now-terminated members of the Company’s management and was, at the time, an undisclosed related party. According to the agreement, the Company was to invest $4.5 million in the trading business operated by Rich Trading and the Company would be entitled to 90% of profit generated by the trading business. As of March 31, 2022, the Company has advanced $3,299,815 for this project. As of the date of the report, $3,200,000 has been returned to the Company and the Company expects the remaining amount to be uncollectible and decided to provide allowance for doubtful accounts as of March 31, 2022. |
Other payable - related party
As of March 31, 2022, the Company had
payable to its then Chief Financial Officer of $2,000 which were included in other payable. As
of June 30, 2021, the Company had payable to former Chief Executive Officer of $11,303 and to its
former Chief Financial Officer of $2,516 which were included in other current liabilities. These payments were
made on behalf of the Company for the daily business operational activities.
Revenue - related parties
For the three and nine months ended March 31,
2022, revenue from related party Zhejiang Jinbang amounted to $224,690 and nil, respectively. There is no related party revenue for the
three and nine months ended March 31, 2021.
Note 21. SUBSEQUENT EVENTS
On December 23, 2022, the Company entered into
a settlement agreement with SOSNY pursuant to which the Company will repay $13.0 million to SOSNY and terminate the previous agreements
and balance of the deferred revenue. The Company paid $13.0 million in December 2022 and the settlement was effective on December 28,
2022.
On January 9, 2023, the Company entered into an Executive Separation Agreement and General Release (the “Separation
Agreement”), with Lei Cao, an employee of the Company and a member of the Board of Directors of the Company (the “Board”),
setting forth the terms and conditions related to (1) the termination of Mr. Cao’s employment with the Company and the termination
of the employment agreement dated as of November 1, 2021 as well as cancellation and/or termination of certain other agreements relating
to Mr. Cao’s employment with the Company; and (2) Mr. Cao’s resignation from the Board, effective as of January 9, 2023.
Pursuant to the Separation
Agreement, Mr. Cao submitted a letter of resignation from the Board on January 9, 2023. In addition, he agreed to forfeit and return to
the Company the 600,000 shares of common stock of the Company granted to him on August 13, 2021 under the terms of the 2014 Equity Incentive
Plan of the Company (the “2021 Shares”). Mr. Cao also agreed to cooperate with the Company regarding certain investigations
and proceedings set forth in the Separation Agreement, and/or any other matters arising out of or related to Mr. Cao’s relationship
with or service to the Company. In consideration, the Company agreed to provide the following benefits to which Mr. Cao was not otherwise
entitled: (1) payment of reasonable attorneys’ fees and costs incurred by Mr. Cao up through January 9, 2023 associated with Mr.
Cao’s personal legal representation in matters relating to Mr. Cao’s tenure with the Company, the investigations and proceedings
set forth in the Separation Agreement, and the negotiation and drafting of the Separation Agreement; (2) the release of claims in Mr.
Cao’s favor contained in the Separation Agreement; and (3) payment of Mr. Cao’s reasonable and necessary legal fees to the
extent incurred by Mr. Cao as a result of his cooperation as required by the Company under the terms of the Separation Agreement. Additionally,
the Separation Agreement contains mutual general releases and waiver of claims from Mr. Cao and the Company.
On February 4, 2022, the Company approved a one-time
award of a total of 500,000 shares of common stock under the Company’s 2021 Stock Incentive Plan to certain executive
officers of the Company, including Chief Executive Officer, Yang Jie (300,000 shares), Chief Operating Officer, Jing Shan (100,000 shares),
and Chief Technology Officer, Shi Qiu (100,000 shares). On December 27, 2022 and December 19, 2022, Jing Shan and Yang Jie
each signed an cancellation agreement to return 100,000 and 300,000 share, respectively, to the Company for cancellation for no consideration.
The cancellation agreements and the cancellation of shares underlying thereunder were ratified and approved by the Board on January 19,
2023. As of the date of this Report, the 300,000 shares issued to Mr. Jie were cancelled and the 100,000 shares were in the process of
being cancelled.
On May 5, 2022, an entity named Hindenburg Research
issued a report (the “Hindenburg Report”) regarding the Company alleging, among other things, that the Company’s then
Chief Executive Officer, Yang Jie, was a fugitive on the run from Chinese authorities for running an alleged $300 million Ponzi scheme
that lured in over 20,000 victims. The report also raised questions regarding the Company’s joint venture to produce crypto mining
equipment announced in October 2021, as well as a $200 million order purportedly received by the joint venture in January 2022. Further,
the report was critical of the Company’s April 2022 announcement of a $250 million partnership with an entity named Golden Mainland
Inc. On May 6, 2022, the Board of Directors of the Company (the “Board”) formed a special committee of its Board of Directors
(the “Special Committee”) to investigate claims of alleged fraud, misrepresentation, and inadequate disclosure related to
the Company and certain of its management personnel raised in the Hindenburg Report and other related matters. The Special Committee then
retained Blank Rome LLP to serve as independent legal counsel and advise the Committee on the investigation. The Special Committee completed
the fact-finding portion of its investigation prior to December 31, 2022. The Special Committee’s preliminary findings corroborate
certain of the allegations made in the Hindenburg Report and the investigation has resulted in the terminations and resignations of certain
executive officers and directors of the Company. On February 23, 2023, the Board approved the dissolution of the Special Committee upon
conclusion of the committee’s investigation.