SEC Form 10-Q filed by Singularity Future Technology Ltd.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from __________ to __________.
Commission
File Number
(Exact name of registrant as specified in its charter)
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| Incorporation or organization) | Identification No.) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of February 12, 2024, the
Company had
SINGULARITY FUTURE TECHNOLOGY LTD.
FORM 10-Q
TABLE OF CONTENTS
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | ii | |
| PART I. | FINANCIAL INFORMATION | 1 |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42 |
| Item 4. | Controls and Procedures | 43 |
| PART II. | OTHER INFORMATION | 45 |
| Item 1. | Legal Proceedings | 45 |
| Item 1A. | Risk Factors | 47 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 47 |
| Item 3. | Defaults Upon Senior Securities | 47 |
| Item 4. | Mine Safety Disclosures | 47 |
| Item 5. | Other Information | 47 |
| Item 6. | Exhibits | 47 |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements, including but not limited to statements regarding our projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond our control. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties we face that could cause our actual results to differ materially from those projected or anticipated, including but not limited to the following:
| ● | our ability to timely and properly deliver our services; |
| ● | our dependence on a limited number of major customers and suppliers; |
| ● | current and future political and economic factors in the United States and China and the relationship between the two countries; |
| ● | our ability to explore and enter into new business opportunities and the acceptance in the marketplace of our new lines of business; |
| ● | unanticipated changes in general market conditions or other factors which may result in cancellations or reductions in the need for our services; |
| ● | the demand for warehouse, shipping and logistics services; |
| ● | the foreign currency exchange rate fluctuations; |
| ● | possible disruptions in commercial activities caused by events such as natural disasters, health epidemics, terrorist activity and armed conflict; |
| ● | the impact of quotas, tariffs or safeguards on our customer products that we service; |
| ● | our ability to attract, retain and motivate qualified management team members and skilled personnel; |
| ● | relevant governmental policies and regulations relating to our businesses and industries; | |
| ● | developments in, or changes to, laws, regulations, governmental policies, incentives and taxation affecting our operations; | |
| ● | our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners; and | |
| ● | the outcome of litigation or investigations in which we are involved is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update the forward-looking statements. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
(UNAUDITED)
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Cryptocurrencies | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Advances to suppliers - third parties, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Due from related party, net | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Other long-term assets - deposits | ||||||||
| Total Assets | $ | $ | ||||||
| Current Liabilities | ||||||||
| Deferred revenue | $ | $ | ||||||
| Accounts payable | ||||||||
| Accounts payable - related party | ||||||||
| Lease liabilities - current | ||||||||
| Taxes payable | ||||||||
| Other payable - related party | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities - noncurrent | ||||||||
| Convertible notes | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Equity | ||||||||
| Preferred stock, | ||||||||
| Common stock, | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity attributable to shareholders of the Company | ||||||||
| Non-controlling Interest | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN U.S. DOLLARS)
(UNAUDITED)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment loss of cryptocurrencies | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for doubtful accounts, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock-based compensation | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from disposal of subsidiary | ||||||||||||||||
| Other expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to shareholders of the Company. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income – foreign currency | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive (loss) income attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to shareholders of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of common shares used in computation | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(IN U.S. DOLLARS)
(UNAUDITED)
Preferred Stock | Common Stock | Additional paid-in | Shares to | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | be cancelled | deficit | loss | interest | Total | |||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation to consultants | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2022 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Stock based compensation to consultants | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2022 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional paid-in | Shares to | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | be cancelled | deficit | loss | interest | Total | |||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Foreign currency translation | - | - | ||||||||||||||||||||||||||||||||||||||
| Cancellation of shares due to settlement | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | * | |||||||
| Provision for doubtful accounts, net | * | |||||||
| Impairment loss of cryptocurrencies | ||||||||
| (Gain) loss on disposal of fixed assets | ( | ) | ||||||
| Loss on disposal of subsidiaries | ( | ) | ||||||
| Investment loss from unconsolidated subsidiary | ||||||||
| Interest expenses related to convertible notes | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | )* | ||||
| Other receivables | * | |||||||
| Advances to suppliers - third parties | * | |||||||
| Advances to suppliers - related party | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other long-term assets – deposits | ( | ) | ( | )* | ||||
| Deferred revenue | ( | ) | ( | )* | ||||
| Refund payable | ( | ) | ||||||
| Accounts payable | * | |||||||
| Taxes payable | ( | ) | * | |||||
| Lease liabilities | ( | ) | ( | )* | ||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | )* | ||||
| Investing Activities | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Loan receivable-related parties | ||||||||
| Advance to related parties | ( | )* | ||||||
| Repayment from related parties | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | * | |||||
| Financing Activities | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Payment of accrued interest related to convertible notes | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net decrease in cash and restricted cash | ( | ) | ( | )* | ||||
| Cash at beginning of period | ||||||||
| Effect of exchange rate fluctuations on cash and restricted cash | ( | )* | ||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Representing: | ||||||||
| Cash, end of period | $ | $ | ||||||
| Restricted cash, end of period | $ | $ | ||||||
| Total cash and restricted cash, end of period | $ | $ | ||||||
| Non-cash transactions of operating and investing activities | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Six Months ended December 31, 2023
Note 1. ORGANIZATION AND NATURE OF BUSINESS
The Company is an integrated logistics solution provider that was founded in the United States in 2001. On September 18, 2007, the Company merged into a new corporation, Sino-Global Shipping America, Ltd. in Virginia. On January 3, 2022, the Company changed its corporate name from Sino-Global Shipping America, Ltd. to Singularity Future Technology Ltd. to reflect its then expanded operations into the digital assets business. Currently, we primarily focus on providing freight logistics services, which include shipping, warehouse services and other logistical support to steel companies .
In 2017, we began exploring new opportunities to expand our business and generate more revenue. These opportunities ranged from complementary businesses to other new services and product initiatives. Beginning in fiscal 2022, we expanded our services to include warehousing services provided by our U.S. subsidiary Brilliant Warehouse Service Inc.
We are currently engaged in providing freight logistics services including warehouse services, which are operated by our subsidiaries Trans Pacific Shipping Limited and Ningbo Saimeinuo Web Technology Ltd. in China and Gorgeous Trading Ltd. and Brilliant Warehouse Service Inc. in the United States. Our range of services include transportation, warehouse, collection, last-mile delivery, drop shipping, customs clearance, and overseas transit delivery.
| Name | Background | Ownership | |||
| Sino-Global Shipping New York Inc. (“SGS NY”) | ● | ||||
| ● | |||||
| ● | |||||
| Sino-Global Shipping HK Ltd. (“SGS HK”) | ● | ||||
| ● | |||||
| ● | |||||
| Thor Miner Inc. (“Thor Miner”) | ● | ||||
| ● | |||||
| ● | |||||
| ● | No material operations | ||||
| Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) | ● | ||||
| ● | |||||
| ● | |||||
5
| Name | Background | Ownership | |||
| Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”) | ● | ||||
| ● | |||||
| ● | |||||
| Blumargo IT Solution Ltd. (“Blumargo”) | ● | ||||
| ● | |||||
| ● | |||||
| Gorgeous Trading Ltd (“Gorgeous Trading”) | ● | ||||
| ● | |||||
| ● | |||||
| Brilliant Warehouse Service Inc. (“Brilliant Warehouse”) | ● | ||||
| ● | |||||
| ● | |||||
| Phi Electric Motor In. (“Phi”) | ● | ||||
| ● | |||||
| ● | |||||
| SG Shipping & Risk Solution Inc, (“SGSR”) | ● | ||||
| ● | |||||
| ● | |||||
| SG Link LLC (“SG Link”) | ● | ||||
| ● | |||||
| ● | |||||
| New Energy Tech Limited (“New Energy”) | ● | ||||
| ● | |||||
| ● | |||||
| Singularity(Shenzhen) Technology Ltd. (“SGS Shenzhen”) | ● | ||||
| ● | |||||
| ● | |||||
6
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to December 31, 2021, Sino-Global Shipping Agency Ltd. (“Sino-China”) was considered a Variable Interest Entity (“VIE”), with the Company as the primary beneficiary. On December 31, 2021, the Company entered into a series of agreements to terminate its VIE structure and deconsolidated its formerly controlled entity Sino-China.
(b) Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 — Unobservable inputs that reflect management’s assumptions based on the best available information.
The carrying value of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of the short-term nature of these instruments.
7
(c) Use of Estimates and Assumptions
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s unaudited condense consolidated financial statements include revenue recognition, fair value of stock-based compensation, cost of revenues, allowance for credit losses, impairment loss, deferred income taxes, income tax expense and the useful lives of property and equipment. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(d) Translation of Foreign Currency
The accounts of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Trans Pacific Beijing and Trans Pacific Shanghai report their financial positions and results of operations in Renminbi (“RMB”), its subsidiary Sino-Global Shipping (HK), Ltd. reports its financial positions and results of operations in Hong Kong dollars (“HKD”). The accompanying consolidated unaudited condensed financial statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations. The Company translates the foreign currency financial statements in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheets’ dates and revenues and expenses are translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive loss and accumulated other comprehensive loss as a separate component of equity of the Company, and also included in non-controlling interests.
| December
31, 2023 | June 30, 2023 | Three months ended December 31, | Six months ended December 31, | |||||||||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | 2023 Profit/Loss | 2022 Profit/Loss | 2023 Profit/Loss | 2022 Profit/Loss | ||||||||||||||||||
| RMB:1USD | ||||||||||||||||||||||||
| HKD:1USD | ||||||||||||||||||||||||
(e) Cash and Restricted Cash
Cash
Cash consists of cash on hand and cash in banks
which are unrestricted as to withdrawal or use. The Company maintains cash with various financial institutions mainly in the PRC, Australia,
Hong Kong and the U.S. As of December 31, 2023 and June 30, 2023, cash balances of $
Restricted Cash
As of December
31, 2023, our restricted balance was $
8
(f) Receivables and Allowance for Credit Losses
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, the customers’ historical payment history, their current credit-worthiness and current economic
trends. Receivables are generally considered past due after 180 days. The Company reserves
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.
(g) Property and Equipment, net
| Buildings | |
| Motor vehicles | |
| Computer and office equipment | |
| Furniture and fixtures | |
| System software | |
| Leasehold improvements | |
| Mining equipment |
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 six months ended December 31, 2023 and 2022, no impairments were recorded.
9
(h) 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
Investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investment is less than its carrying value. An impairment loss is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investment; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
On
January 10, 2020, the Company entered into a cooperation agreement with Mr. Shanming Liang, a shareholder of the Company, to set up
a joint venture in New York named LSM Trading Ltd., (“LSM”) in which the Company holds a
(i) 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.
(j) Revenue Recognition
The Company recognizes revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
The Company uses a five-step model to recognize revenue from customer contracts. The five-step model requires the Company to (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
For the Company’s freight logistic, the Company provides transportation services which include mainly shipping services. The Company derives transportation revenue from sales contracts with its customers with revenues being recognized upon performance of services. Sales price to the customer are fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. The Company’s revenues are recognized at a point in time after all performance obligations were satisfied
10
For the Company’s warehouse services, which are included in the freight logistic services, the Company’s contracts provide for an integrated service that includes two or more services, including but not limited to warehousing, collection, first-mile delivery, drop shipping, customs clearance packaging, etc.
Accordingly, the Company generally identifies one performance obligation in its contracts, which is a series of distinct services that remain substantially the same over time and possess the same pattern of transfer. Revenue is recognized over the period in which services are provided under the terms of the Company’s contractual relationships with its clients.
The transaction price is based on the amount specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration in a contract represents facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract. The variable consideration is comprised of cost reimbursement determined based on the costs incurred. Revenue relating to variable pricing is estimated and included in the consideration if it is probable that a significant revenue reversal will not occur in the future. The estimate of variable consideration is determined by the expected value or most likely amount method and factors in current, past and forecasted experience with the customer. Customers are billed based on terms specified in the revenue contract and they pay us according to approved payment terms.
Revenue for the above services is recognized on a gross basis when the Company controls the services as it has the obligation to (i) provide all services (ii) bear any inventory risk for warehouse services. In addition, the Company has control to set its selling price to ensure it would generate profit for the services.
On January 10, 2022, the Company’s joint venture, Thor Miner, entered into a Purchase and Sale Agreement with SOS Information Technology New York Inc. (the “Buyer”). Pursuant to the Purchase and Sale Agreement, Thor Miner agreed to sell and the Buyer agreed to purchase certain cryptocurrency mining equipment.
The Company’s performance obligation was to deliver products according to contract specifications. The Company recognizes product revenue at a point in time when the control of products or services are transferred to customers. To distinguish a promise to provide products from a promise to facilitate the sale from a third party, the Company considers the guidance of control in ASC 606-10-55-37A and the indicators in ASC 606-10-55-39. The Company considers this guidance in conjunction with the terms in the Company’s arrangements with both suppliers and customers.
In general, revenue was recognized on a gross basis when the Company controls the products as it has the obligation to (i) fulfill the products delivery and custom clearance (ii) bear any inventory risk as legal owners. In addition, when establishing the selling prices for delivery of the resale products, the Company has control to set its selling price to ensure it would generate profit for the products delivery arrangements. If the Company is not responsible for provision of product and does not bear inventory risk, the Company recorded revenue on a net basis.
For
the three months ended December 31, 2022 and 2023, the Company recognized the net sale of cryptocurrency mining equipment of $
For
the six months ended December 31, 2022 and 2023, the Company recognized the net sale of cryptocurrency mining equipment of $
11
Contract balances
The Company records receivables related to revenue when the Company has an unconditional right to invoice and receive payment.
Deferred
revenue consists primarily of customer billings made in advance of performance obligations being satisfied and revenue being recognized.
Contract balances amounted to $
| For
the Three Months Ended | For
the Six Months Ended | |||||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | |||||||||||||
| Sale of crypto mining machines | $ | $ | $ | $ | ||||||||||||
| Freight logistics services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| For
the Three Months Ended | For
the Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PRC | $ | $ | $ | $ | ||||||||||||
| U.S. | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
(k) Leases
The
Company adopted FASB ASU 2016-02, “Leases” (Topic 842) for the year ended June 30, 2020, and elected the practical expedients
that do not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for
any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer,
a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the
practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. Upon adoption,
the Company recognized right of use (“ROU”) assets and same amount of lease liabilities based on the present value of the
future minimum rental payments of leases, using an incremental borrowing rate of
Operating lease ROU assets and lease liabilities are recognized at the adoption date or the commencement date, whichever is earlier, based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company use its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
The Company reviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
12
(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 December 31, 2023 and June 30, 2023.
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
PRC Value Added Taxes and Surcharges
The
Company is subject to value added tax (“VAT”) in the PRC. Revenue from services provided by the Company’s PRC subsidiaries
are subject to VAT at rates ranging from
In
addition, under the PRC regulations, the Company’s PRC subsidiaries are required to pay city construction tax (
(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 six months ended December 31, 2023 and 2022, there was no dilutive effect of potential issuances of shares of common stock of the Company because the Company generated a 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.
13
(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.
(q) Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s condensed consolidated financial statements properly reflect the change.
On June 30, 2022, FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of account. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted.
On March 28, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-01, Leases (Topic 842): Common Control Arrangements. The amendments in ASU 2023-01 improve current GAAP by clarifying the accounting for leasehold improvements associated with common control leases, thereby reducing diversity in practice. Additionally, the amendments provide investors and other allocators of capital with financial information that better reflects the economics of those transactions. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted.
14
Note 3. CRYPTOCURRENCIES
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Impairment loss | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
The Company recorded and $
Note 4. ACCOUNTS RECEIVABLE, NET
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit losses, net of recovery | ||||||||
| Write-off/recovery | ||||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Note 5. OTHER RECEIVABLES, NET
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Advances to customers* | $ | $ | ||||||
| Employee business advances | ||||||||
| Total | ||||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
| * |
15
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Increase | ||||||||
| Recovery of doubtful accounts | ||||||||
| Less: write-off | ||||||||
| Exchange rate effect | ||||||||
| Ending balance | $ | $ | ||||||
Note 6. ADVANCES TO SUPPLIERS
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Freight fees (1) | $ | $ | ||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Advances to suppliers-third parties, net | $ | $ | ||||||
| (1) |
Note 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Prepaid income taxes | $ | $ | ||||||
| Other (including prepaid professional fees, rent) | ||||||||
| Total | $ | $ | ||||||
Note 8. OTHER LONG-TERM ASSETS – DEPOSITS, NET
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Rental and utilities deposits | $ | $ | ||||||
| Less: allowances for deposits | ( | ) | ( | ) | ||||
| Other long-term assets- deposits, net | $ | $ | ||||||
On
October 19, 2023, New Energy Tech Limited, a wholly owned subsidiary of the Company deposited $
16
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Allowance for deposits | ||||||||
| Less: Write-off | ||||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Note 9. PROPERTY AND EQUIPMENT, NET
| December 31 | June 30, | |||||||
| 2023 | 2023 | |||||||
| Motor vehicles | $ | $ | ||||||
| Computer equipment | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| System software | ||||||||
| Leasehold improvements | ||||||||
| Mining equipment | ||||||||
| Total | ||||||||
| Less: Impairment reserve | ( | ) | ( | ) | ||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
and amortization expenses for the three months ended December 31, 2023 and 2022 were $
Note 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Salary and reimbursement payable | $ | $ | ||||||
| Professional fees and other expense payable | ||||||||
| Interest payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
17
Note 11. CONVERTIBLE NOTES
On
December 19, 2021, the Company issued two Senior Convertible Notes (the “Convertible Notes”) to two non-U.S. investors for
an aggregate purchase price of $
The Convertible Notes carried interest of
On March 8, 2022, the
Company amended and restated the terms of the Convertible Notes and issued the 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 principal
amount of $
For
the three and six months ended December 31, 2023, interest expenses related to the aforementioned notes amounted to and $
On
August 8, 2023, upon the unanimous consent of the board of directors of the Company, the Company prepaid the total outstanding $
Note 12. LEASES
The Company determines if a contract contains a lease at inception which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s leases are classified as operating leases.
The Company has several lease agreements with
lease terms ranging from
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
For
the three months ended December 31, 2023 and 2022, rent expense amounted to approximately $
| Twelve Months Ending December 31, | Operating Lease Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: Interest | ||||
| Present value of lease liabilities | $ | |||
18
Note 13. 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 $
Stock issuances:
On September 17, 2020, the Company entered into
a 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
On November 2 and November 3, 2020, the Company
issued an aggregate of
On December 8, 2020, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors in a registered direct offering
an aggregate of
19
On January 27, 2021, the Company entered into
a securities purchase agreement with certain non-U.S. investors pursuant to which the Company sold to the investors an aggregate of
On February 6, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors from the Company in a registered
direct offering, an aggregate of
On February 9, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors in a registered direct offering,
an aggregate of
On December 14, 2021, the Company entered into
a securities purchase agreement with certain non-U.S. investors and accredited investors pursuant to which the Company sold to the investors
an aggregate of
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 the issuance of
common stock. On January 6, 2022, the Company entered into warrant purchase agreements with certain warrant holders pursuant to which
the Company agreed to buy back an aggregate of
On January 6, 2022, the
Company entered into warrant purchase agreements with certain warrant holders pursuant to which the Company agreed to buy back an aggregate
of
On November 15, 2023, the Company entered
into a Subscription Agreement with
20
| Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding, as of June 30, 2023 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Warrants outstanding, as of December 31, 2023 | $ | |||||||
| Warrants exercisable, as of December 31, 2023 | $ | |||||||
| Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||
| 2020 warrants, | $ | |||||||||
| 2021 warrants, | $ | |||||||||
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
On November 18, 2021, Mr. Jing Wang retired from
his positions as a member of the Board, the Chairperson of the Compensation Committee, a member of Nominating/Corporate Governance Committee,
and a member of the Audit Committee. In connection with Mr. Wang’s retirement, the Company granted Mr. Wang
On February 4, 2022, the Company approved a one-time
award of a total of
On February 16, 2022, the Company’s Board
approved a consulting agreement pursuant to which the Company agreed to pay the consultant a monthly fee of $
During the three months ended December 31, 2023 and 2022, and $
21
Note 14. NON-CONTROLLING INTEREST
| December 31 | June 30, | |||||||
| 2023 | 2023 | |||||||
| Trans Pacific Shanghai | $ | ( | ) | $ | ( | ) | ||
| Thor Miner | ||||||||
| Brilliant Warehouse | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ( | ) | ||
Note 15. COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity.
SOS Information Technology New York, Inc. (“SOSNY”),
a company incorporated under the laws of State of New York and a wholly owned subsidiary of SOS Ltd., filed a lawsuit in the New York
State Supreme Court on December 9, 2022 against the Company’s joint venture, Thor Miner, Inc. (“Thor Miner”), the Company,
Lei Cao, Yang Jie, John F. Levy, Tieliang Liu, Tuo Pan, Shi Qiu, Jing Shan, and Heng Wang (together, the “Descendants”). SOSNY
and Thor Miner entered into a Purchase and Sale Agreement on January 10, 2022 (the “PSA”) for the purchase of $
SOSNY and Defendants entered into a certain settlement
agreement and general mutual release with an effective date of December 28, 2022, pursuant to which, Thor Miner agreed to pay $
The
Company and Thor Miner further covenanted and agreed that if they receive additional funds from HighSharp (Shenzhen Gaorui) Electronic
Technology Co., Ltd. (“HighSharp”) related to the PSA, they will promptly transfer such funds to SOSNY in an amount not to
exceed $
On October 23, 2023, the Company filed
a complaint against its former CFO, Tuo Pan, accusing her of conversion due to her alleged involvement in two unauthorized transfers from
the Company amounting to $
22
On March 23, 2023, SG Shipping & Risk Solution
Inc., an indirect wholly owned subsidiary of our company, entered into an operating income right transfer contract with Goalowen, pursuant to which Goalowen agreed to transfer its rights to receive income from operating a tuna fishing vessel to SG Shipping for $
Lawsuits in connection with 2021 securities purchase agreement
On September 23, 2022, Hexin Global Limited and
Viner Total Investments Fund filed a lawsuit against the Company and other defendants in the United States District Court for the Southern
District of New York (the “Hexin lawsuit”). On December 5, 2022, St. Hudson Group LLC, Imperii Strategies LLC, Isyled Technology
Limited, and Hsqynm Family Inc. filed a lawsuit against the Company and other defendants in the United States District Court for the Southern
District of New York (the “St. Hudson lawsuit,” and together with the Hexin lawsuit, the “Investor Actions”).
The plaintiffs in the Investor Actions are investors that entered into a securities purchase agreement (“Securities Purchase Agreement”)
with the Company in late 2021. Each of these plaintiffs asserts causes of action for, among other things, violations of the federal securities
laws, breach of fiduciary duty, fraudulent inducement, breach of contract, conversion, and unjust enrichment, and seeks monetary damages
and specific performance to remove legends from certain securities sold pursuant to the Securities Purchase Agreement. The Hexin lawsuit
claims monetary damages of “at least $
Lawsuit in connection with the Financial Advisory Agreement
On October 6, 2022, Jinhe Capital Limited (“Jinhe”)
filed a lawsuit against the Company in the United States District Court for the Southern District of New York, asserting causes of actions
for, among other things, breach of contract, breach of the covenant of good faith and fair dealing, conversion, quantum meruit, and unjust
enrichment, in connection with a financial advisory agreement entered into by and between Jinhe and the Company on November 10, 2021.
Jinhe claims monetary damages of “at least $
On January 10, 2023, the Investor Actions were
consolidated with this lawsuit and on February 24, 2023, all three consolidated actions were dismissed without prejudice by the court,
in furtherance of the parties having reached an agreement in principle to settle their disputes. The Company, Yang Jie, Jing Shan, and
the plaintiffs in the above three actions entered into a certain settlement agreement and general mutual release with an effective date
of March 10, 2023, pursuant to which the Company agreed to pay the plaintiffs $
In addition, the plaintiffs agreed to irrevocably
forfeit
Putative Class Action
On December 9, 2022, Piero Crivellaro, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between February 2021 and November 2022, filed a putative class action against the Company and other defendants in the United States District Court for the Eastern District of New York, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. The plaintiff seeks unspecified damages, plus interest, costs, fees, and attorneys’ fees. As this action is still in the early stage, the Company cannot predict the outcome.
The Company is also subject to additional contractual litigation as to which it is unable to estimate the outcome.
23
Government Investigations
Following a publication issued by Hindenburg Research dated May 5, 2022, the Company received subpoenas from the United States Attorney’s Office for the Southern District of New York and the SEC. The Company is cooperating with the government regarding these matters. At this early stage, the Company is not able to estimate the outcome or duration of the government investigations.
Note 16. INCOME TAXES
| For the three months Ended December 31 | For the six months Ended December 31 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Current | ||||||||||||||||
| U.S. | $ | $ | $ | $ | ||||||||||||
| PRC | ||||||||||||||||
| Total income tax expenses | ||||||||||||||||
| December 31, 2023 | June 30, 2023 | |||||||
| Allowance for doubtful accounts | ||||||||
| U.S. | $ | $ | ||||||
| PRC | ||||||||
| Net operating loss | ||||||||
| U.S. | ||||||||
| PRC | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net - long-term | $ | $ | ||||||
The Company’s operations in the U.S. incurred
cumulative U.S. federal net operating losses (“NOL”) of approximately $
The Company’s operations in China incurred
a cumulative NOL of approximately $
24
The Company periodically evaluates the likelihood
of the realization of deferred tax assets and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent
it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s
future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry
forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is more likely than not
its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the Company’s reorganization
and venture into new businesses. The Company provided a
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| VAT tax payable | $ | $ | ||||||
| Corporate income tax payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
Note 17. CONCENTRATIONS
Major Customers
For the three months ended December 31, 2023,
one customer accounted for
For the three months ended December 31, 2022,
two customers accounted for approximately
For the six months ended December 31, 2023, one
customer accounted for
For the six months ended December 31, 2022, two
customers accounted for
Major Suppliers
For the three months ended December 31, 2023,
two suppliers accounted for approximately
For the three months ended December 31, 2022,
one supplier accounted for approximately
For the six months ended December 31, 2023, two
suppliers accounted for approximately
For the six months ended December 31, 2022, one
supplier accounted for approximately
25
Note 18. SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial statements for detailing the Company’s business segments.
The Company’s chief operating decision maker
is the Chief Operating Officer, who reviews the financial information of the separate operating segments when making decisions about allocating
resources and assessing the performance of the group. The Company ceased to sell crypto-mining equipment since January 1, 2023. For the
six months ended December 31, 2023, the Company operated in
| For the Three Months Ended December 31, 2023 | ||||||||||||
| Freight Logistics Services | Crypto- | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | ( | ) | $ | $ | ( | ) | |||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | ( | )% | ( | )% | ||||||||
| For the Three Months Ended December 31, 2022 | ||||||||||||
| Freight Logistics Services | Crypto- mining equipment sales | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | ( | )% | % | % | ||||||||
| For the Six Months Ended December 31, 2023 | ||||||||||||
| Freight Logistics Services | Crypto- mining equipment sales | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | ( | ) | $ | $ | ( | ) | |||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | ( | )% | ( | )% | ||||||||
26
| For the Six Months Ended December 31, 2022 | ||||||||||||
| Freight Logistics Services | Crypto-mining equipment sales | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | ( | )% | % | % | ||||||||
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Freight Logistic Services | $ | $ | ||||||
| Sale of crypto mining machines | ||||||||
| Total Assets | $ | $ | ||||||
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.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PRC | $ | $ | $ | $ | ||||||||||||
| U.S. | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Note 19. RELATED PARTY BALANCE AND TRANSACTIONS
Due from related party, net
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Zhejiang Jinbang Fuel Energy Co., Ltd (1 ) | $ | $ | ||||||
| Shanghai Baoyin Industrial Co., Ltd (2) | ||||||||
| LSM Trading Ltd (3) | ||||||||
| Rich Trading Co. Ltd (4) | ||||||||
| Lei Cao | ||||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| (1) |
27
| (2) |
| (3) |
| (4) |
Accounts payable- related parties
As of June 30, 2023, the Company had accounts
payable to Rich Trading Co. Ltd of $
Due to Related Party
As of December 31, 2023 and June 30, 2023, the
Company had accounts payable to Qinggang Wang, CEO and legal representative of Trans Pacific Shanghai, of $
Note 20. SUBSEQUENT EVENTS
On January 3, 2024, the Company received a Staff determination notice
from Nasdaq notifying the Company of the Staff’s determination to delist the Company’s securities from Nasdaq because of the
Company’s failure to regain compliance with the $
On November 15, 2023, the Company entered
into a Subscription Agreement with ten individual investors, under which the Company agreed to sell to the Investors an aggregate of
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors.
Overview
In 2017, we began exploring new opportunities to expand our business and generate more revenue. These opportunities ranged from complementary businesses to other new service and product initiatives. In the fiscal years 2021 and 2022, while we continued to operate our freight logistic business, we expanded our services to include warehousing services provided by our US subsidiary Brilliant Warehouse Service Inc. On January 3, 2022, we changed our corporate name to Singularity Future Technology Ltd. to align with our entry into the digital assets business through our U.S. subsidiaries. During 2022, we were engaged in purchases and sales of cryptocurrency mining machines through a U.S. subsidiary.
For the three months ended December 31, 2023, we were engaged in providing freight logistics services, which were operated by our subsidiaries in the United States and PRC. For the three months ended December 31, 2023, the Company did not sell crypto-mining machines.
Recent Developments
Since the publication of the Hindenburg Report (as reported below), we have devoted substantial resources and efforts in connection with the investigations conducted by a special committee of our Board of Directors and by U.S. governmental authorities and with respect to the defense of lawsuits and the settlement of lawsuits and claims, which are fully described below. As a result, our business operations have been materially and adversely impacted, including suspension of our business development in North America. We are currently exploring new business opportunities while continuing to provide shipping and warehouse services.
On October 19, 2023, New Energy Tech Limited (“New Energy”), a wholly-owned subsidiary of the Company, entered into a project service agreement (the “Service Agreement”) with Faith Group Company. (“Faith”), pursuant to which Faith agreed to provide solar engineering, procurement and construction consulting services and solar panel and associated equipment marketing services to New Energy. Faith guaranteed to source a minimum of 100 MW of solar engineering, procurement and construction consulting projects within the first 12 months with a minimum of 20 MW of solar engineering, procurement and construction consulting projects sourced within the first 45 days and to also source a minimum of $50 million of solar-related trading business within the 12-month period with a minimum of $8 million of sales contracts in the first 45 days. On October 25, 2023, the Company’s wholly owned subsidiary, Sino-Global Shipping HK Ltd, made a prepayment of $2.5 million on behalf of New Energy to Faith as a deposit. On December 15, 2023, New Energy agreed to amend a clause in the agreement, which stated that if within the first 45 days, Faith failed to cause New Energy to sign a minimum of $8 million of EPC projects or trading business, the full advanced amount of $2.5 million would be returned to New Energy within three business days. New Energy agreed to extend the 45 days period for an additional 90 days, beginning on December 15, 2023. Up to the filing date of this quarterly report, Faith has not fulfilled the target of $20 million of EPC projects or trading business.
On October 24, 2023, the Company dissolved its subsidiary, Ningbo Saimeinuo Web Technology Ltd.
On November 15, 2023, the Company entered into a subscription agreement with ten individual investors, under which the Company agreed to sell in a private placement to the investors an aggregate of 17,000,000 shares of common stock and 17,000,000 warrants, with each warrant initially exercisable to purchase one share of common stock at an exercise price of $0.607 per share, at an aggregate price of US$9,860,000. The issuance of the securities is subject to Nasdaq’s authorization as well as other approvals. On December 13, 2023, the Company issued an aggregate of 17,000,000 shares of its common stock to the investors. On January 26, 2024, the Company entered into an amendment to the subscription agreement. The amendment provides, among other things, that Nasdaq’s authorization shall have been obtained for the issuance of the securities under the Subscription Agreement and the Company stockholders’ approval shall have been obtained before the warrants are issued to the investors. As of the date of this report, the issuance of the warrants is still awaiting approval from the Company’s stockholders.
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Special Committee Investigation
On May 5, 2022, an entity named Hindenburg Research issued a report (the “Hindenburg Report”) 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 the Board (the “Special Committee”) to investigate claims of alleged fraud, misrepresentation, and inadequate disclosure related to the Company and certain of its management personnel that were 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 corroborated certain of the allegations made in the Hindenburg Report and the investigation resulted in the termination and resignation of certain executive officers and directors of the Company, including but not limited to, the following:
On August 9, 2022, Mr. Yang Jie tendered his resignation from his positions as Chief Executive Officer and director of the Company to the Board, following the Board’s decision on August 8, 2022, which adopted the Special Committee’s recommendation that Mr. Jie be suspended immediately, pending the Special Committee’s further investigation into allegations raised in the Hindenburg Report and other related matters.
On August 16, 2022, attorneys from Blank Rome LLP, counsel for the Special Committee, held a conference call with staff members of the Securities and Exchange Commission (the “SEC”), during which counsel represented that Yang Jie had provided documentation to the SEC that indicated that the charges against him in China had been dropped, but the Special Committee’s investigation raised questions regarding the authenticity of such documents. The Special Committee concluded at that time that Mr. Jie was in fact issued a “Red Notice” in China.
In December 2022, the Company entered into a cancellation agreement and a letter confirming the rescission of the grant of the shares with each of Yang Jie and Ms. Jing Shan, our former Chief Operating Officer, pursuant to which Mr. Jie and Ms. Shan agreed to return 300,000 shares and 100,000 shares of our common stock, respectively, to the Company for cancellation at no cost. Such shares were previously issued to each of them for their services as officers of the Company. The shares were cancelled as of March 31, 2023.
On February 10, 2023, in response to two, now-settled, lawsuits filed by private investors, Mr. Jie filed a motion to dismiss the private investors’ suits and provided a copy of a formal legal opinion issued by the Zhonglun W&D Law Firm, PRC. The Zhonglun W&D legal opinion concluded that Mr. Jie was not charged with a crime in China, the investigation and underlying case had been closed, and Mr. Jie was not formally treated as a criminal suspect in the PRC. In order to provide more clarity to the issues raised, the Company engaged Hebei Mei Dong Law Firm, of Shijiazhuang City, PRC to further investigate the authenticity of the documentation provided by Mr. Jie to the SEC and whether a “Red Notice” had been issued. On June 12, 2023, the Hebei Mei Dong Law Firm issued a report to the Company with respect to these issues. In their report, the Hebei Mei Dong Law Firm concluded after conferring with local officials, that the investigation of Mr. Jie conducted by the Baohe District Police Bureau of Hefei City, PRC was completed, that Mr. Jie was never prosecuted and there was no criminal judgment against Mr. Jie as of the date of such report. The Chinese counsel also confirmed that no “Red Notice” was issued for Mr. Jie in the PRC.
On February 23, 2023, the Board approved the dissolution of the Special Committee upon conclusion of the committee’s investigation.
On July 3, 2023, the Company entered into a Settlement and Release Agreement with Mr. Jie which fully resolved his claims against the Company.
Executive Changes
On June 16, 2022, Ms. Tuo Pan, Chief Financial Officer of the Company, without proper authorization by the Board, directed that funds be wired to satisfy an invoice for legal services that were rendered or to be rendered on her behalf. Ms. Pan was suspended by the Board for cause and without pay effective June 20, 2022. On August 31, 2022, Ms. Tuo Pan was terminated for cause as an employee of the Company and its subsidiaries and ceased to receive any salary or benefits from the Company since that date.
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, setting forth the terms and conditions related to 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. The Separation Agreement also provided for Mr. Cao’s resignation from the Board, effective as of January 9, 2023.
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Pursuant to the Separation Agreement, Mr. Cao submitted a letter of resignation to the Board on January 9, 2023. In addition, he agreed to forfeit and return to the Company the 600,000 shares of Common Stock of the Company granted to him in August 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 and other matters arising out of or related to his 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 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 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 January 17, 2023, Messrs. John Levy and Heng Wang were appointed as non-executive chairman and vice chairman of the Board, respectively.
On February 23, 2023, Mr. Levy resigned as a director and member of the Audit Committee, Compensation Committee and Nominating Committee of the Board, effective immediately. On March 30, 2023, Mr. Wang was appointed as non-executive Chairman of the Board to fill the vacancy created by Mr. Levy’s resignation.
On April 18, 2023, the Company entered into an employment agreement with Mr. Ziyuan Liu and appointed him as the chief executive officer of the Company, effective immediately, with a term of one year.
On May 1, 2023, the Company entered into an employment agreement with Mr. Dianjiang Wang and appointed him as the chief financial officer of the Company, effective immediately, with a term of one year.
On May 1, 2023, pursuant to the bylaws of the Company, our Board elected (i) Mr. Ziyuan Liu as a Class I director to serve until the annual meeting of stockholders for the fiscal year 2022, to fill the vacancy on the Board resulting from the resignation of Mr. Jie, (ii) Mr. Haotian Song as a Class II director to serve until the annual meeting of stockholders for the fiscal year 2023, to fill the vacancy on the Board resulting from the resignation of Mr. Cao, and (iii) Ms. Ling Jiang as a Class III independent director, Chairwoman of the Compensation Committee, a member of the Audit Committee, and a member of the Nominating and Corporate Governance Committee to serve until the annual meeting of stockholders for the fiscal year 2024, to fill the vacancy on the Board resulting from the resignation of Mr. Levy.
On May 2, 2023, the Board elected Mr. Ziyuan Liu as the new chairman of the Board.
On July 3, 2023, Mr. Tieliang Liu resigned as a director the Company and a member of the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee.
On July 10, 2023, Company terminated the employment of its Chief Operating Officer, Jing Shan, with cause. The termination was effective immediately.
On July 31, 2023, the Company elected Mr. Zhongliang Xie as a Class II independent director to serve until the annual meeting of stockholders for the fiscal year 2023, to fill the vacancy on the Board resulting from the resignation of Mr. Tieliang Liu. The Board appointed Mr. Xie to serve as Chair of the Audit Committee, a member of the Compensation Committee and a member of the Nominating and Corporate Governance Committee.
On August 15, 2023, Mr. Dianjiang Wang resigned as the Chief Financial Officer of the Company. Mr. Wang’s decision did not result from any disagreement with the Company relating to its operations, policies, or practices.
On August 21, 2023, the Company entered into an employment agreement with Mr. Ying Cao to serve as the Chief Financial Officer of the Company.
On September 21, 2023, Mr. Heng Wang resigned as a director of the Company and a member of the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee.
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On September 25, 2023, the Company elected Mr. Xu Zhao as a Class I independent director to serve until the annual meeting of stockholders for the fiscal year 2022, to fill the vacancy on the Board resulting from the resignation of Mr. Heng Wang. The Board appointed Mr. Zhao to serve as a member of the Audit Committee, a member of the Compensation Committee and Chair of the Nominating and Corporate Governance Committee.
On September 28, 2023, Ms. Ling Jiang resigned as a director of the Company and a member of the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee.
On October 6, 2023, the Company elected Ms. Yangyang Xu as a Class III independent director to serve until the annual meeting of stockholders for the fiscal year 2024, to fill the vacancy resulting from the resignation of Ms. Ling Jiang. The Board appointed Ms. Xu to serve as Chairwoman of the Compensation Committee and as a member of the Audit Committee and the Nominating and Corporate Governance Committee.
Nasdaq Listing Deficiencies
On January 5, 2023, the Company received a deficiency notice from Nasdaq informing the Company that its common stock, no par value, failed to comply with the $1 minimum bid price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) based upon the closing bid price of the common stock for the 30 consecutive business days prior to the date of the notice from Nasdaq. The Company was provided an initial compliance period of 180 calendar days, or until July 5, 2023, to regain compliance with the minimum bid price requirement.
On February 21, 2023, the Company received an additional staff determination notice from Nasdaq, advising that it had not received the Company’s Form 10-Q for the quarterly period ended December 31, 2022, which served as an additional basis for delisting the Company’s securities. The notice stated that the Nasdaq Hearings Panel will consider the additional deficiency in rendering a determination regarding the Company’s continued listing on Nasdaq. The Company submitted to the Panel a plan to regain compliance with the continued listing requirements and was granted a grace period to file all the delinquent reports, including the filing of the Form 10-Q for the quarterly period ended December 31, 2022, on or before February 28, 2023. On March 16, 2023, the Company received a formal notification from Nasdaq confirming that the Company had regained compliance with the Nasdaq Listing Rule 5250(c)(1), which requires the Company to timely file all required periodic financial reports with the SEC, and that the matter is now closed.
On March 8, 2023, the Company received a notice from Nasdaq stating that the Company no longer complied with Nasdaq’s audit committee requirement under Nasdaq’s Listing Rule 5605 following the resignation of John Levy from the Company’s board of directors and audit committee effective February 23, 2023. Nasdaq advised the Company that in accordance with Nasdaq’s Listing Rule 5605(c)(4), the Company has a cure period to regain compliance (i) until the earlier of the Company’s next annual shareholders’ meeting or February 23, 2024; or (ii) if the next annual shareholders’ meeting is held before August 22, 2023, then the Company must evidence compliance no later than August 22, 2023. On October 19, 2023, the Company received a formal notification from the Nasdaq Stock Market LLC confirming that the Company had regained compliance with Listing Rule 5620(a), which requires that the Company hold an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year, and that the matter is now closed.
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On July 7, 2023, the Company received a Notice of Noncompliance Letter from Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rules due to its failure to timely hold an annual meeting of shareholders for the fiscal year ended June 30, 2022, which is required to be held within twelve months of the Company’s fiscal year end under Nasdaq Listing Rule 5620(a) and 5810(c)(2)(G). The notice also states that the Company had 45 calendar days to submit a plan to regain compliance and if Nasdaq accepts the Plan, it can grant the Company an exception of up to 180 calendar days from the fiscal year end, or until December 27, 2023, to regain compliance. On August 30, 2023, the Company received a formal notification from Nasdaq stating that it has determined to grant the Company an extension until December 27, 2023, to regain compliance with Listing Rule 5620(a), which requires that the Company hold an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year end. On October 19, 2023, the Company received a formal notification from the Nasdaq Stock Market LLC confirming that the Company had regained compliance with Listing Rule 5620(a).
On July 13, 2023, the Company received a notice from Nasdaq stating that the Company no longer complies with Nasdaq’s independent director and audit committee requirements under Nasdaq’s Listing Rule 5605 following the resignation of Mr. Liu from the Company’s board of directors and audit committee effective July 3, 2023. Nasdaq advised the Company that in accordance with Nasdaq’s Listing Rule 5605(c)(4), the Company has a cure period to regain compliance until the earlier of the Company’s next annual shareholders’ meeting or July 3, 2024; or if the next annual shareholders’ meeting is held before January 2, 2024, then the Company must evidence compliance no later than January 2, 2024. In response to this notice, on July 31, 2023, the Company elected Mr. Zhongliang Xie as a Class II independent director to serve until the annual meeting of stockholders for the fiscal year 2023, to fill the vacancy on the Board resulting from the resignation of Mr. Liu. The Board appointed Mr. Xie to serve as Chair of the Audit Committee, a member of the Compensation Committee and a member of the Nominating and Corporate Governance Committee. On August 30, 2023, the Company received a formal notification from the Nasdaq Stock Market LLC (“Nasdaq”) confirming that the Company had regained compliance with the independent director and audit committee requirements for continued listing on The Nasdaq Capital Market set forth in Listing Rules 5605(b)(1) and 5605(c)(2) by appointing Mr. Zhongliang Xie to the Company’s board of directors and audit committee on July 31, 2023, and that the matter is now closed.
On July 13, 2023, the Company received a notice from Nasdaq stating that the Company failed to regain compliance with respect to the minimum $1 bid price per share requirement under Nasdaq Listing Rules during the 180 calendar days given by Nasdaq for the Company to regain compliance, which ended on July 5, 2023. However, Nasdaq determined that the Company was eligible for an additional 180 calendar day period, or until January 2, 2024, to regain compliance. Such determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On January 3, 2024, the Company received a Staff determination notice from Nasdaq notifying the Company of the Staff’s determination to delist the Company’s securities from Nasdaq because of the Company’s failure to regain compliance with the $1 per share minimum bid price requirement required for continued listing on the Nasdaq as set forth in Listing Rule 5550(a)(2). Pursuant to the Nasdaq letter, unless the Company requested an appeal of the determination notice, trading of the Company’s common stock would be suspended at the opening of business on January 12, 2024. The Company appealed the delisting determination to a Hearings Panel, and hearing is scheduled to be held on March 28, 2024. The Company’s common stock will continue to be listed for trading pending the Hearing Panel’s decision. The Company also effectuated a 1-for-10 reverse stock split of its common stock on February 9, 2024. Beginning on February 12, 2024, the Company's Common Stock trades on The Nasdaq Stock Market on a split adjusted basis.
COVID-19
The outbreak of the COVID-19 virus (“COVID-19”) starting from late January 2020 in the PRC spread rapidly to many parts of the world. In March 2020, the World Health Organization declared COVID-19 as a pandemic. Given the continually expanding nature of the COVID-19 pandemic in China and U.S., our business, results of operations, and financial condition are still adversely affected. The situation remains highly uncertain for any further outbreak or resurgence of COVID-19. It is therefore difficult for us to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19.
In early December 2022, the Chinese government eased its strict control measures for COVID-19, which led to a surge in increased infections and disruptions in our business operations. Any future impact of COVID-19 on the Company’s China operational 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.
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Although the impact of COVID-19 on our operations decreased in 2023, such impact still exists and may continue to exist for an unforeseeable period of time. The impact of any future spread of COVID-19 on the Company’s China operation will depend, to a large extent, on 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 is beyond our control.
Results of Operations
Comparison of the Three Months Ended December 31, 2023 and 2022
The following table sets forth the components of our costs and expenses for the periods indicated:
| For the Three Months Ended December 31, | ||||||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 961,240 | 100.0 | % | 1,490,931 | 100.0 | % | (529,691 | ) | (35.5 | )% | ||||||||||||||
| Cost of revenues | 976,876 | 101.6 | % | 1,311,137 | 87.9 | % | (334,261 | ) | (25.5 | )% | ||||||||||||||
| Gross margin | (1.6 | )% | N/A | 12.1 | % | N/A | (13.7 | )% | N/A | |||||||||||||||
| Selling expenses | 56,075 | 5.8 | % | 26,848 | 1.8 | % | 29,227 | 108.9 | % | |||||||||||||||
| General and administrative expenses | 1,145,730 | 119.2 | % | 3,743,458 | 251.1 | % | (2,597,728 | ) | (69.4 | )% | ||||||||||||||
| Impairment loss of Cryptocurrencies | - | - | % | 13,280 | 0.9 | % | (13,280 | ) | (100.0 | )% | ||||||||||||||
| Provision for doubtful accounts, net | 6,992 | 0.7 | % | - | - | 6,992 | 100.0 | % | ||||||||||||||||
| Stock-based compensation | - | - | % | 82,444 | 5.5 | % | (82,444 | ) | (100.0 | )% | ||||||||||||||
| Total costs and expenses | 2,185,673 | 227.4 | % | 5,177,167 | 347.2 | % | (2,991,494 | ) | (57.8 | )% | ||||||||||||||
Revenues
The following tables present summary information by segments for the three months ended December 31, 2023 and 2022:
| For the Three Months Ended December 31, 2023 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 961,240 | $ | - | $ | 961,240 | ||||||
| Cost of revenues | $ | 976,876 | $ | - | $ | 976,876 | ||||||
| Gross profit | $ | (15,636 | ) | $ | - | $ | (15,636 | ) | ||||
| Depreciation and amortization | $ | 37,567 | $ | 357 | $ | 37,924 | ||||||
| Total capital expenditures | $ | 589 | $ | - | $ | 589 | ||||||
| Gross margin | (1.6 | )% | - | (1.6 | )% | |||||||
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| For the Three Months Ended December 31, 2022 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 1,255,411 | $ | 235,520 | $ | 1,490,931 | ||||||
| Cost of revenues | $ | 1,311,137 | $ | - | $ | 1,311,137 | ||||||
| Gross profit | $ | (55,726 | ) | $ | 235,520 | $ | 179,794 | |||||
| Depreciation and amortization | $ | 76,704 | $ | - | $ | 76,704 | ||||||
| Total capital expenditures | $ | - | $ | - | $ | - | ||||||
| Gross margin | (4.4 | )% | 100.0 | % | 12.1 | % | ||||||
| % Changes For the Three Months Ended December 31, 2023 and 2022 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | (23.4 | )% | (100.0 | )% | (35.5 | )% | ||||||
| Cost of revenues | (25.5 | )% | - | (25.5 | )% | |||||||
| Gross profit | (71.9 | )% | (100.0 | )% | (108.7 | )% | ||||||
| Depreciation and amortization | (51.0 | )% | - | (50.6 | )% | |||||||
| Total capital expenditures | - | % | - | - | % | |||||||
| Gross margin | 2.8 | % | - | % | (13.7 | )% | ||||||
Disaggregated information of revenues by geographic locations are as follows:
| For the Three Months Ended | ||||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| PRC | $ | 837,763 | $ | 912,611 | ||||
| U.S. | 123,477 | 578,320 | ||||||
| Total revenues | $ | 961,240 | $ | 1,490,931 | ||||
Revenues decreased by $529,691, or approximately 35.5%, to $961,240 for the three months ended December 31, 2023 from $1,490,931 for the same period in 2022. The decrease was primarily due to decrease in revenues of our freight logistics services and sales of crypto mining machines. Revenues from our logistics services business decreased by $294,171, or approximately 23.4%, to $961,240 for the three months ended December 31, 2023 from $1,255,411 for the same period in 2022.The Company ceased to sell crypto-mining equipment since January 1, 2023.
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Cost of Revenues
Cost of revenues for our freight logistics services segment mainly consisted of freight costs to various freight carriers, cost of labor, warehouse rent and other overhead and sundry costs. Cost of revenues for our freight logistics services segment was $976,876 for the three months ended December 31, 2023, a decrease of $334,261, or approximately 25.5%, as compared to $1,311,137 for the same period in 2022 as a result of reduced activity in our truck dispatch business. We determined to restrict this business to large customers in order improve profitability.
Our gross margin was (1.6%) and 12.1% for the three months ended December 31, 2023 and 2022, respectively. This decrease in gross margin was mainly due to the cessation of sales of crypto mining equipment and decreased revenue from our freight logistics business. In 2022, we recognized revenue from the sale of crypto mining equipment on a net basis, thus increasing the overall margin of our operations.
Operating Costs and Expenses
Operating costs and expenses decreased by $2,991,494 or approximately 57.8% from $5,177,167 for three months ended December 31, 2022 compared to for the same period in 2023. This decrease was mainly due to the decrease in general and administrative expenses, stock-based compensation and impairment loss of cryptocurrencies as more fully discussed below.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for our administration department, office expenses, and regulatory filing and professional service fees for auditing, legal and IT consulting. For the three months ended December 31, 2023, we had $1,145,730 of general and administrative expenses, as compared to $3,743,458 for the same period in 2022, representing a decrease of $2,597,728, or approximately 69.4%. The decrease was mainly due to the decreased professional fees of approximately $1,808,370 which mainly related to legal fees relating to the Company’s special committee’s investigation of claims of alleged fraud, misrepresentation, and inadequate disclosure raised in the Hindenburg Report and other related matters.
Selling Expenses
Our selling expenses consisted primarily of salaries, meals and entertainment and travel expenses for our sales representatives. For the three months ended December 31, 2023, we had $56,075 of selling expenses as compared to $26,848 for the same period in 2022, which represents an increase of $29,227 or approximately 108.9%. The increase was mainly due to increased efforts to increase the revenues of our freight logistics segment in the PRC.
Provision for doubtful accounts, net
Our total bad debt expenses amounted to $6,992 and nil for the three months ended December 31, 2023 and 2022, mainly due to the provision for a few uncollectable accounts receivable.
Impairment Loss of Cryptocurrencies
We recorded impairments of nil and $13,280 for the three months ended December 31, 2023 and 2022, for the cryptocurrencies held by us as the ownership of the cryptocurrencies could not be verified.
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Stock-based Compensation
Stock-based compensation was nil for the three months ended December 31, 2023 as compared to $82,444 for the same period in fiscal 2022.
Loss from disposal of subsidiary
On October 24, 2023, the Company dissolved its Ningbo Saimeinuo Web Technology Ltd. subsidiary. Total loss from disposal was approximately $62,384. This disposal was not presented as discontinued operations because it did not represent any strategic change in the Company’s operations.
Other Expenses, Net
Other expenses, net was $6,494 for the three months ended December 31, 2023, a decrease of $54,137 or 89.29%, as compared to $60,631 for the same period in fiscal 2022. The decrease was mainly attributable to the decreased interest expense for the convertible debt. There was no interest expense incurred for the three month ended December 2023.
Taxes
We did not record any income tax expense for both the three month periods ended December 31, 2023 and 2022.
The Company’s operations in the U.S. incurred cumulative U.S. federal net operation losses (“NOL”) of approximately $41.7 million as of June 30, 2023, which may reduce future federal taxable income. During the three months ended December 31, 2023, approximately $1.2 million of NOL was generated and the tax benefit derived from such NOL was approximately $0.3 million. As of December 31, 2023, the Company’s cumulative NOL in the U.S. amounted to approximately $45 million.
The Company’s operations in China incurred a cumulative NOL of approximately $1.7 million as of June 30, 2023 which was mainly from net losses generated in the PRC. During the three months ended December 31, 2023, additional NOL of approximately $0.1 million was generated. As of December 31, 2023, the Company’s cumulative NOL in the PRC amounted to approximately $1.9 million. which may reduce future taxable income which will expire by 2026.
The Company periodically evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the Company’s reorganization and venture into new businesses. The Company provided a 100% allowance for its deferred tax assets as of December 31, 2023. The net increase in valuation for the three months ended December 31, 2023 amounted to approximately $0.3 million, based on management’s reassessment of the amount of the Company’s deferred tax assets that are more likely than not to be realized.
Net Loss
As a result of the foregoing, we had a net loss of $1,168,543 for the three months ended December 31, 2023 compared to a net loss of $3,746,867 for the same period in 2022. After the deduction of non-controlling interest, net loss attributable to us was $1,110,729 for the three months ended December 31, 2023 compared to $3,732,496 for the same period in 2022. Comprehensive loss attributable to us was $1,406,245 for the three months ended December 31, 2023 compared to $3,738,793 for the same period in 2022.
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Comparison of the Six Months Ended December 31, 2023 and 2022
The following table sets forth the components of our costs and expenses for the periods indicated:
| For the Six Months Ended December 31, | ||||||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 1,857,166 | 100.0 | % | 2,712,135 | 100.0 | % | (854,969 | ) | (31.5 | )% | ||||||||||||||
| Cost of revenues | 1,979,825 | 106.6 | % | 2,056,764 | 75.8 | % | (76,939 | ) | (3.7 | )% | ||||||||||||||
| Gross margin | (6.6 | )% | N/A | 24.2 | % | N/A | (30.8 | )% | N/A | |||||||||||||||
| Selling expenses | 111,928 | 6.0 | % | 54,223 | 2.0 | % | 57,705 | 106.4 | % | |||||||||||||||
| General and administrative expenses | 3,199,883 | 172.3 | % | 6,723,704 | 247.9 | % | (3,523,821 | ) | (52.4 | )% | ||||||||||||||
| Impairment loss of Cryptocurrencies | 72,179 | 3.9 | % | 14,801 | 0.5 | % | 57,378 | 387.7 | % | |||||||||||||||
| Provision for doubtful accounts, net | 55,610 | 3.0 | % | 7,153 | 0.3 | % | 48,457 | 677.4 | % | |||||||||||||||
| Stock-based compensation | - | - | % | 329,777 | 12.2 | % | (329,777 | ) | (100.0 | )% | ||||||||||||||
| Total costs and expenses | 5,419,425 | 291.8 | % | 9,186,422 | 338.7 | % | (3,766,997 | ) | (41.0 | )% | ||||||||||||||
Revenues
The following tables present summary information by segments for the six months ended December 31, 2023 and 2022:
| For the Six Months Ended December 31, 2023 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 1,857,166 | $ | - | $ | 1,857,166 | ||||||
| Cost of revenues | $ | 1,979,825 | $ | - | $ | 1,979,825 | ||||||
| Gross profit | $ | (122,659 | ) | $ | - | $ | (122,659 | ) | ||||
| Depreciation and amortization | $ | 75,338 | $ | 713 | $ | 76,051 | ||||||
| Total capital expenditures | $ | 589 | $ | - | $ | 589 | ||||||
| Gross margin | (6.6 | )% | - | (6.6 | )% | |||||||
| For the Six Months Ended December 31, 2022 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 1,979,570 | $ | 732,565 | $ | 2,712,135 | ||||||
| Cost of revenues | $ | 2,056,764 | $ | - | $ | 2,056,764 | ||||||
| Gross profit | $ | (77,194 | ) | $ | 732,565 | $ | 655,371 | |||||
| Depreciation and amortization | $ | 155,649 | $ | - | $ | 155,649 | ||||||
| Total capital expenditures | $ | 150,966 | $ | - | $ | 150,966 | ||||||
| Gross margin | (3.9 | )% | 100.0 | % | 24.2 | % | ||||||
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| % Changes For the Six Months Ended December 31, 2023 and 2022 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | (6.2 | )% | (100.0 | )% | (31.5 | )% | ||||||
| Cost of revenues | (3.7 | )% | - | (3.7 | )% | |||||||
| Gross profit | 58.9 | % | (100.0 | )% | (118.7 | )% | ||||||
| Depreciation and amortization | (51.6 | )% | - | (51.1 | )% | |||||||
| Total capital expenditures | (99.6 | )% | - | (99.6 | )% | |||||||
| Gross margin | (2.7 | )% | - | % | (30.8 | )% | ||||||
Disaggregated information of revenues by geographic locations are as follows:
| For the Six Months Ended | ||||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| PRC | $ | 1,538,419 | $ | 1,160,821 | ||||
| U.S. | 318,747 | 1,551,314 | ||||||
| Total revenues | $ | 1,857,166 | $ | 2,712,135 | ||||
Revenues decreased by $854,969, or approximately 31.5%, to $1,857,166 for the six months ended December 31, 2023 from $2,712,135 for the same period in 2022. The decrease was primarily due to decrease in sales of crypto mining machines and our freight logistics services. Revenues from our logistics services business decreased by $122,404, or approximately 6.2%, to $1,857,166 for the six months ended December 31, 2023 from $1,979,570 for the same period in 2022.The Company ceased to sell crypto-mining equipment since January 1, 2023.
Cost of Revenues
Cost of revenues for our freight logistics services segment mainly consisted of freight costs to various freight carriers, cost of labor, warehouse rent and other overhead and sundry costs. Cost of revenues for our freight logistics services segment was $1,979,825 for the six months ended December 31, 2023, a decrease of $76,939, or approximately 3.7%, as compared to $2,056,764 for the same period in 2022 as a result of the reduced scope of our truck dispatch business.
Our gross margin was (6.6%) and 24.2% for the six months ended December 31, 2023 and 2022, respectively. This decrease in gross margin was mainly due to decreased revenue from our sale of crypto mining equipment. We recognized this revenue on a net basis, thus increasing the overall margin of our operations.
Operating Costs and Expenses
Operating costs and expenses decreased by$3,766,997 to $5,419,425 in the six months ended December 31, 2023, or approximately 41.1% from $9,186,422 for six months ended December 31, 2022. This decrease was mainly due to the decrease in general and administrative expenses and stock-based compensation as more fully discussed below.
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General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for our administration department, office expenses, and regulatory filing and professional service fees for auditing, legal and IT consulting. For the six months ended December 31, 2023, we had $3,199,883 of general and administrative expenses, as compared to $6,723,704 for the same period in 2022, representing a decrease of $3,523,821, or approximately 52.4%. The decrease was mainly due to the decreased professional fees of approximately $3,198,149 which were mainly legal fees relating to the Company’s special committee’s investigation of claims of alleged fraud, misrepresentation, and inadequate disclosure raised in the Hindenburg Report and other related matters.
Selling Expenses
Our selling expenses consisted primarily of salaries, meals and entertainment and travel expenses for our sales representatives. For the six months ended December 31, 2023, we had $111,928 in selling expenses, as compared to $54,223 for the same period in 2022, which represents an increase of $57,705 or approximately 106.4%. The increase was mainly due to increased efforts to increase the revenues of our freight logistics segment in the PRC.
Provision for doubtful accounts, net
Our total bad debt expenses amounted to approximately $55,610, mainly due to the bad debt provision of $50,000 due the early termination of a lease agreement in Jericho, New York.
Impairment Loss of Cryptocurrencies
We recorded an impairment of $72,179 for the cryptocurrencies held by us as the ownership of the cryptocurrencies could not be verified.
Stock-based Compensation
Stock-based compensation was nil for the six months ended December 31, 2023 as compared to $329,777 for the same period in 2022. We made no stock grants in the 2023 period.
Loss from disposal of subsidiary
On October 24, 2023, the Company dissolved its Ningbo Saimeinuo Web Technology Ltd. subsidiary. Total loss from disposal was approximately $62,384. This disposal was not presented as discontinued operations because it did not represent any strategic change of the Company’s operations.
Other Expenses, Net
Other expenses, net was $83,664 for the six months ended December 31, 2023, which mainly consisted of approximately $21,917 of interest expense for our convertible debt, exchange gain or loss of $109,422 and interest income of $44,983, compared to $123,587 of interest expenses for our convertible debt and other operating revenue of $58,945 for the same period in fiscal 2022.
Taxes
We recorded income tax expenses of nil and $103,426 for the six months ended December 31, 2023 and 2022, respectively. See – Taxes above.
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Net Loss
As a result of the foregoing, we had a net loss of $3,583,539 for the six months ended December 31, 2023 compared to a net loss of $6,697,193 for the same period in 2022. After the deduction of non-controlling interest, net loss attributable to us was $3,400,914 for the six months ended December 31, 2023 compared to $6,816,848 for the same period in 2022. Comprehensive loss attributable to us was $3,573,448 for the six months ended December 31, 2023 compared to $6,669,146 for the same period in 2022.
Liquidity and Capital Resources
As of December 31, 2023, we had $6,154,436 in cash (including cash on hand and cash in bank) and $3,000,000 in restricted cash. The majority of our cash is in banks located in the HK and the restricted cash is in banks located in U.S.
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,887,757 | ) | $ | (19,762,675 | ) | ||
| Net cash provided by (used in) investing activities | $ | (25,951 | ) | $ | 52,356 | |||
| Net cash used in financing activities | $ | (5,403,424 | ) | $ | - | |||
| Net decrease in cash and restricted cash | $ | (14,317,132 | ) | $ | (19,710,319 | ) | ||
| Cash at the beginning of period | $ | 17,390,156 | $ | 55,833,282 | ||||
| Effect of exchange rate fluctuations on cash and restricted cash | $ | 81,412 | $ | (54,089 | ) | |||
| Cash and restricted cash at the end of period | $ | 6,154,436 | $ | 36,068,874 | ||||
The following table sets forth a summary of our working capital:
| December 31, | June 30, | |||||||||||||||
| 2023 | 2023 | Variation | % | |||||||||||||
| Total Current Assets | $ | 6,935,041 | $ | 18,192,716 | $ | (14,257,675 | ) | (78.4 | )% | |||||||
| Total Current Liabilities | $ | 4,615,484 | $ | 5,031,769 | $ | (416,285 | ) | (8.3 | )% | |||||||
| Working Capital | $ | 2,319,557 | $ | 13,160,947 | $ | (13,841,390 | ) | (105.2 | )% | |||||||
| Current Ratio | 1.5 | 3.62 | (2.77 | ) | (76.5 | )% | ||||||||||
In assessing the liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. As of December 31, 2023, our working capital was $2,319,557 and we had cash and restricted cash of approximately $6,154,436 (including $3,154,436 in cash and $3,000,000 in restricted cash). We believe our current working capital is sufficient to support our operations and debt obligations as they become due for the next twelve months.
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Operating Activities
Our net cash used in operating activities was $5,887,757 for the six months ended December 31, 2023. The operating cash outflow for the six months ended December 31, 2023 was primarily attributable to our net loss of $3,583,539 and our long-term assets deposits of $2,496,197.
Our net cash used in operating activities was $19,762,675 for the six months ended December 31, 2022. The operating cash outflow for the six months ended December 31, 2022 was primarily attributable to our net loss of $6,697,193, deferred revenue of $6,751,135 where we realized revenue from the sale of crypto mining equipment and made a payment of $13,000,000 as a result of the settlement payment to SOSNY, offset by cash inflow consisting of advances to a related party supplier of approximately $6,153,546 which we realized cost for sale of cryptocurrency equipment.
Investing Activities
Net cash provided by investing activities was $25,951 for the six months ended December 31, 2023 due to repayments from related parties from Zhejiang Jinbang, which is owned by Mr. Qinggang Wang.
Net cash provided by investing activities was $52,356 for the six months ended December 31, 2022 due to repayment of a loan receivable of $535,529 by Mr. Wang, a related party and cash inflow of $90,000 from the sale of property and equipment, which was offset in part by the purchase of equipment of $150,966 and advances to Zhejiang Jinbang of $422,207. Zhejiang Jinbang repaid the full amount of the advance in February 2023.
Financing Activities
Net cash used in financing activities for the six months ended December 31, 2023 was $5,403,424 due to the repayment of $5,000,000 of convertible notes and accrued interest of $403,424. We did not have any financing activities for the six months ended December 31, 2022.
Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources.
Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2023, the Company carried out an evaluation, under the supervision of and with the participation of its management, including the Company’s Chief Operating Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing evaluation, the Chief Operating Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms due to ineffective internal controls over financial reporting that stemmed from the following material weaknesses:
| ● | Lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries in some of the subsidiaries within the consolidation, lack of supervision, coordination and communication of financial information between different entities within the Group; |
| ● | Lack of a full time U.S. GAAP personnel in the accounting department to monitor and reconcile the recording of the transactions which led to error in revenue recognition in previously issued financial statements; |
| ● | Lack of resources with technical competency to address, review and record non-routine or complex transactions under U.S. GAAP; |
| ● | Lack of management control reviews of the budget against actual with analysis of the variance with a precision that can be explained through the analysis of the accounts; |
| ● | Lack of proper procedures in identifying and recording related party transactions which led to restatement of previously issued financial statements; |
| ● | Lack of proper procedures to maintain supporting documents for accounting records; and |
| ● | Lack of proper oversight for the Company’s cash disbursement process that led to misuse of the Company funds by its former executive. |
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In order to remediate the material weaknesses stated above, we have hired external financial advisors and updated certain of our internal controls. We intend to implement additional policies and procedures, which may include:
| ● | Hiring additional accounting staff to report the internal financial timely; |
| ● | Reporting other material and non-routine transactions to the Board and obtain proper approval; |
| ● | Recruiting additional qualified professionals with appropriate levels of U.S. GAAP knowledge and experience to assist in resolving accounting issues in non-routine or complex transactions; |
| ● | Developing and conducting U.S. GAAP knowledge, SEC reporting and internal control training to senior executives, management personnel, accounting departments and the IT staff, so that management and key personnel understand the requirements and elements of internal control over financial reporting mandated by the U.S. securities laws; |
| ● | Setting up budgets and developing expectations based on understanding of the business operations, compare the actual results with the expectations periodically and document the reasons of the fluctuations with further analysis. This should be done by CFO and reviewed by CEO, communicated with the Board; |
| ● | Strengthening corporate governance; |
| ● | Setting up policies and procedures for the Company’s related party identification to properly identify, record and disclose related party transactions; and |
| ● | Setting up proper procedures for the Company’s fund disbursement process to ensure that cash is disbursed only upon proper authorization, for valid business purposes, and that all disbursements are properly recorded. |
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 3, 2021, the Company entered into a Strategic Alliance Agreement with HighSharp (Shenzhen Gaorui) Electronic Technology Co., Ltd. (“HighSharp”) to establish a joint venture for collaborative engineering, technical development and commercialization of a bitcoin mining machine named Thor Miner Inc. (“Thor Minor”) , granting Thor Miner exclusive rights covering design production, intellectual property, branding, marketing and sales. On October 11, 2021, Thor Miner was formed in Delaware and is 51% owned by the Company and 49% owned by HighSharp.
SOS Information Technology New York, Inc. (“SOSNY”), a company incorporated under the laws of State of New York and a wholly owned subsidiary of SOS Ltd., filed a lawsuit in the New York State Supreme Court on December 9, 2022 against the Company’s joint venture, Thor Miner, Inc. (“Thor Miner”), the Company, Lei Cao, Yang Jie, John F. Levy, Tieliang Liu, Tuo Pan, Shi Qiu, Jing Shan, and Heng Wang (together, the “Descendants”). SOSNY and Thor Miner entered into a Purchase and Sale Agreement on January 10, 2022 (the “PSA”) for the purchase of $200,000,000 of crypto mining rigs, which agreement SOSNY claims was breached by the Defendants.
SOSNY and Defendants entered into a certain settlement agreement and general mutual release with an effective date of December 28, 2022, pursuant to which, Thor Miner agreed to pay $13,000,000 to SOSNY (the “Settlement Payment”) in exchange for SOSNY dismissing the lawsuit with prejudice as to the Defendants and without prejudice as to all others. SOSNY dismissed the lawsuit with prejudice against the Company and the individual Defendants upon receipt of the Settlement Payment on December 28, 2022.
The Company and Thor Miner further covenanted and agreed that if they receive additional funds from HighSharp (Shenzhen Gaorui) Electronic Technology Co., Ltd. (“HighSharp”) related to the PSA, they will promptly transfer such funds to SOSNY in an amount not to exceed $40,560,569.00 (which is the total amount paid by SOSNY pursuant to the PSA less the price of the machines actually received by SOSNY pursuant to the PSA). The Settlement Payment and any payments subsequently received by SOSNY from HighSharp will be deducted from the $40,560,569.00 previously paid by, and now due and owing to SOSNY. In further consideration of the Settlement Agreement, Thor Miner agreed to execute and provide to SOSNY an assignment of all claims it may have against HighSharp or otherwise to the proceeds of the PSA.
On September 23, 2022, Hexin Global Limited and Viner Total Investments Fund filed a lawsuit against the Company and other defendants in the United States District Court for the Southern District of New York (the “Hexin lawsuit”). On December 5, 2022, the St. Hudson Group LLC, Imperii Strategies LLC, Isyled Technology Limited, and Hsqynm Family Inc. filed a lawsuit against the Company and other defendants in the United States District Court for the Southern District of New York (the “St. Hudson lawsuit,” and together with the Hexin lawsuit, the “Investor Actions”). The plaintiffs in the Investor Actions were investors that entered into a securities purchase agreement with the Company in December 2021 as more fully described below. Each of these plaintiffs asserted causes of action for, among other things, violations of the federal securities laws, breach of fiduciary duty, fraudulent inducement, breach of contract, conversion, and unjust enrichment, and seeks monetary damages and specific performance to remove legends from certain securities sold pursuant to a securities purchase agreement. The Hexin lawsuit claimed monetary damages of “at least $6 million,” plus interest, costs, fees, and attorneys’ fees. The St. Hudson lawsuit claimed monetary damages of “at least $4.4 million,” plus interest, costs, fees, and attorneys’ fees.
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On October 6, 2022, Jinhe Capital Limited (“Jinhe”) filed a lawsuit against the Company in the United States District Court for the Southern District of New York, asserting causes of actions for, among other things, breach of contract, breach of the covenant of good faith and fair dealing, conversion, quantum meruit, and unjust enrichment, in connection with a financial advisory agreement entered into by and between Jinhe and the Company on November 10, 2021. Jinhe claimed monetary damages of “at least $575,000” and “potentially exceeding $1.8 million,” plus interest, costs, and attorneys’ fees.
On January 10, 2023, the St. Hudson lawsuit was consolidated with the Investor Actions and on February 24, 2023, all three consolidated actions were dismissed without prejudice by the court, in furtherance of the parties having reached an agreement in principle to settle their disputes. The Company, Yang Jie, Jing Shan, and the plaintiffs in the three actions entered into a certain settlement agreement and general mutual release with an effective date of March 10, 2023, pursuant to which the Company agreed to pay the plaintiffs $10,525,910.82. The plaintiffs agreed to discharge and forever release the defendants from all claims that were or could have been raised in those actions, as well as dismissal of each of the actions with prejudice. The Company has no role or knowledge as to how the settlement payment will be allocated between and among the plaintiffs. The Company made the settlement payment on March 14, 2023. The plaintiffs agreed to irrevocably forfeit 3,728,807 shares of Common Stock they hold. The cancellation of these shares has been completed. The fair value of the shares was $2,125,420 on March 10, 2023, the settlement amount over the fair value of the cancelled shares was recorded as an other expense in the Company’s consolidated statement of operations.
On December 9, 2022, Piero Crivellaro, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between February 2021 and November 2022, filed a putative class action against the Company and other defendants in the United States District Court for the Eastern District of New York, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. The plaintiff seeks unspecified damages, plus interest, costs, fees, and attorneys’ fees. On February 7, 2023, two additional plaintiffs moved to be appointed as the lead class plaintiff in this action; those motions remain under the Court’s consideration. As this action is still in the early stage, the Company cannot predict the outcome.
On March 23, 2023, SG Shipping & Risk Solution Inc., an indirect wholly owned subsidiary of our company, entered into an operating income right transfer contract with Goalowen pursuant to which Goalowen agreed to transfer its rights to receive income from operating a tuna fishing vessel to SG Shipping for $3 million. Such contract was signed by the Company’s former COO Jing Shan without the Board’s authorization. On May 5, 2023, Ms. Shan made a wire transfer of $3 million to Goalowen without the Board’s authorization,. The Company filed a complaint against Jing Shan accusing her of the unauthorized transfers in the United States District Court for the Eastern District of New York and has brought a lawsuit against Goalowen to recover the $3 million.
On October 23, 2023, the Company filed a complaint against its former CFO, Tuo Pan, accusing her of conversion due to her alleged involvement in two unauthorized transfers from the Company, amounting to $219,000 and $7,920, respectively.
In addition to the above matters, the Company is also subject to additional contractual litigations as to which it is unable to estimate the outcome.
Government Investigations
Following a publication of the Hindenburg Report, the Company received subpoenas from the United States Attorney’s Office for the Southern District of New York and the United States Securities and Exchange Commission. The Company is cooperating with these governmental authorities regarding these matters. The Company is not able to estimate the outcome or duration of the government investigations.
For a discussion of our legal proceedings, see the information in Part I, “Item 1. Business – Recent Developments” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. There have been no material changes to the legal proceedings disclosed in our 2023 Form 10-K.
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Item 1A. Risk Factors
As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC on September 29, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:
| * | Filed herewith. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SINGULARITY FUTURE TECHNOLOGY, LTD. | ||
| February 14, 2024 | By: | /s/ Ziyuan Liu |
| Ziyuan Liu | ||
| Chief Executive Officer | ||
| February 14, 2024 | By: | /s/ Ying Cao |
| Ying Cao | ||
| Chief Financial Officer | ||
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