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)
| (State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization) | Identification No.) |
| | ||
| (Address of principal executive offices) | (Zip Code) |
(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. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐
No
As of November 13, 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 | 28 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II. | OTHER INFORMATION | 38 |
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 39 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39 |
| Item 3. | Defaults Upon Senior Securities | 39 |
| Item 4. | Mine Safety Disclosures | 39 |
| Item 5. | Other Information | 39 |
| Item 6. | Exhibits | 39 |
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)
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Cryptocurrencies | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Advances to suppliers - third parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other long-term assets – deposits | ||||||||
| Total Assets | $ | $ | ||||||
| Current Liabilities | ||||||||
| Deferred revenue | $ | $ | ||||||
| Accounts payable | ||||||||
| Accounts payable – related party | ||||||||
| Lease liabilities – current | ||||||||
| Taxes payable | ||||||||
| Due to related party | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities - noncurrent | ||||||||
| 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 controlling 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 | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenues | $ | $ | ||||||
| Cost of revenues | ( | ) | ( | ) | ||||
| Gross loss | ( | ) | ( | ) | ||||
| Selling expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Impairment loss of cryptocurrencies | ( | ) | ||||||
| Provision for expected credit losses | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expenses), net | ( | ) | ||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Net loss attributable to controlling shareholders of the Company | $ | ( | ) | $ | ( | ) | ||
| Comprehensive loss | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive (loss) income - foreign currency | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Less: Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to controlling shareholders of the Company | $ | ( | ) | $ | ( | ) | ||
| Loss per share | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares used in computation | ||||||||
| Basic and diluted | ||||||||
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, 2023 | - | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ||||||||||||||||||||||||||||||||||||||
| Cancellation of shares due to settlement | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| 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, 2024 | - | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
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 Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| Provision for doubtful accounts, net | ||||||||
| Impairment loss of cryptocurrencies | ||||||||
| Interest expenses related to convertible note | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Advances to suppliers - third parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other long-term assets - deposits | ||||||||
| Deferred revenue | ( | ) | ||||||
| Accounts payable | ||||||||
| Taxes payable | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Repayment from related parties | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing Activities | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Repayment of interest expenses related to convertible notes | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Effect of exchange rate fluctuations on cash | ||||||||
| Cash at end of period | $ | $ | ||||||
| Non-cash transactions of operating and investing activities | ||||||||
| Initial recognition of right-of-use assets and lease liabilities | $ | $ | ||||||
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 Three Months ended September 30, 2024
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 14, 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 operating through our subsidiary Trans Pacific Shipping Limited. As of July 31, 2024, we have terminated the operations of our subsidiaries Gorgeous Trading Ltd. and Brilliant Warehouse Service Inc. Our range of services are mainly transportation.
To date we have not generated any revenues from our entry into the solar panel production and distribution business.
| Name | Background | Ownership | |||
| Sino-Global Shipping New York Inc. (“SGS NY”) | ● | | |||
| ● | | ||||
| ● | | ||||
| Sino-Global Shipping HK Ltd. (“SGS HK”) | ● | | |||
| ● | | ||||
| ● | | ||||
| Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) | ● | | |||
| ● | | ||||
| ● | | ||||
| Trans Pacific Logistic Shanghai Ltd. | ● | | |||
| (“Trans Pacific Shanghai”) | ● | | |||
| ● | | ||||
| 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”) | ● | | |||
| ● | | ||||
5
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying 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 consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to December 31, 2021, Sino-Global Shipping
Agency Ltd. (“Sino-China”) was considered a Variable Interest Entity (“VIE”), with the Company as the primary
beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China, pursuant to which the Company
received
As a VIE, Sino-China’s revenues were included in the Company’s total revenues, and any income/loss from operations was consolidated with that of the Company. Because of contractual arrangements between the Company and Sino-China, the Company had a pecuniary interest in Sino-China that required consolidation of the financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. The agency relationship between the Company and Sino-China and its branches was governed by a series of contractual arrangements pursuant to which the Company had substantial control over Sino-China. On December 31, 2021, the Company entered into a series of agreements to terminate its VIE structure and deconsolidated its formerly controlled entity Sino-China.
(b) Fair Value of Financial Instruments
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
| Level 1 — | Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| Level 2 — | Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| Level 3 — | Unobservable inputs that reflect management’s assumptions based on the best available information. |
The carrying value of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of the short-term nature of these instruments.
(c) Use of Estimates and Assumptions
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s unaudited condense consolidated financial statements include revenue recognition, fair value of stock-based compensation, cost of revenues, allowance for credit losses, impairment loss, deferred income taxes, income tax expense and the useful lives of property and equipment. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
6
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
(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.
| September 30, 2024 | June 30, 2024 | Three months ended September 30, | ||||||||||||||
| Foreign currency | Balance Sheet | Balance Sheet | 2024 Profit/Loss | 2023 Profit/Loss | ||||||||||||
| RMB:1USD | ||||||||||||||||
| HKD:1USD | ||||||||||||||||
(e) Cash
Cash consists of cash on hand and cash in banks
which are unrestricted as to withdrawal or use. The Company maintains cash with various financial institutions mainly in the PRC, Australia,
Hong Kong and the U.S. As of September 30, 2024 and June 30, 2024, cash balances of $
Restricted Cash
As of September 30, 2024 and June 30, 2024, our
restricted balance was $
7
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
(f) Receivables and Allowance for Credit Losses
The carrying value of accounts receivable is reduced by an allowance for credit losses that reflects the Company’s best estimate of the amounts that will not be collected. The Company makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing a customer credit analysis, and analyzing historical bad debt records and current and future economic trends. Accounts receivable represent historical balances recorded less related cash applications, less allowance for credit losses and any write-offs of any receivables not previously provided for.
(g) Credit losses
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The ASU introduced a new credit loss methodology, the current expected credit losses (“CECL”) methodology, which requires earlier recognition of credit losses while also providing additional disclosure about credit risk. The Company adopted the ASU as of January 1, 2023.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, receivables, contract assets and other financial assets measured at amortized cost at the time the financial asset is originated or acquired. The CECL is adjusted each period for changes in expected lifetime credit losses. The CECL methodology represents a significant change from prior U.S. GAAP and replaced the prior multiple existing impairment methods, which generally required that a loss be incurred before it was recognized. Within the life cycle of a loan or other financial asset, the methodology generally results in the earlier recognition of the provision for credit losses and the related ACL than prior U.S. GAAP.
The CECL methodology’s impact on expected credit losses, among other things, reflects the Company’s view of the current state of the economy, forecasted macroeconomic conditions.
Under the CECL methodology, the allowance for credit losses is model based and utilizes a forward-looking macroeconomic forecast in estimating expected credit losses. The model of the allowance for credit losses would be considers the uncertainty of forward-looking scenarios based on the likelihood and severity of a possible recession as another possible scenario.
Other receivables represent mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, project advances as well as office lease deposits. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts.
(h) Property and Equipment, net
Property and equipment are stated at historical
cost less accumulated depreciation. Historical cost comprises its purchase price and any directly attributable costs of bringing the assets
to its working condition and location for its intended use.
| Buildings | |
| Motor vehicles | |
| Computer and office equipment | |
| Furniture and fixtures | 3– |
| 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 months ended September 30, 2024 and 2023, no impairments were recorded.
(i) Investments in unconsolidated entity
Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence
is generally considered to exist when the Company has voting shares representing
8
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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
(j) Convertible notes
The Company evaluates its convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives. The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense.
(k) Revenue Recognition
The Company recognizes revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
The Company uses a five-step model to recognize revenue from customer contracts. The five-step model requires the Company to (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
For the Company’s freight logistic, the Company provides transportation services which include mainly shipping services. The Company derives transportation revenue from sales contracts with its customers with revenues being recognized upon performance of services. Sales price to the customer are fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. The Company’s revenues are recognized at a point in time after all performance obligations were satisfied
For the Company’s warehouse services, which are included in the freight logistic services, the Company’s contracts provide 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.
9
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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.
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 | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Freight logistics services | ||||||||
| Total | $ | $ | ||||||
10
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| For the Three Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| PRC | $ | $ | ||||||
| U.S. | ||||||||
| Total revenues | $ | $ | ||||||
(l) Leases
The Company adopted FASB ASU 2016-02, “Leases”
(Topic 842) for the year ended June 30, 2020, and elected the practical expedients that 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.
(m) Taxation
Because the Company and its subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. The Company uses the asset and liability method of accounting for income taxes in accordance with U.S. GAAP. Deferred taxes, if any, are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the future.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of September 30, 2024 and June 30, 2024.
Income tax returns for the years prior to 2018 are no longer subject to examination by U.S. tax authorities.
11
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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”).
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 (
(n) Earnings (loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common stock of the Company by the weighted average number of shares of common stock of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock of the Company were exercised or converted into common stock of the Company. Common stock equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the three months ended September 30, 2024 and 2023, there was no dilutive effect of potential shares of common stock of the Company because the Company generated a net loss.
(o) Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with the authoritative guidance issued by Financial Accounting Standards Board (the “FASB”) which establishes standards for reporting comprehensive income (loss) and its component in financial statements. Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of stockholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
(p) Stock-based Compensation
The Company accounts for stock-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that stock-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company records stock-based compensation expense at fair value on the grant date and recognizes the expense over the employee’s requisite service period.
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 718 amended by ASU 2018-07. Under FASB ASC Topic 718, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received.
Valuations of stock-based compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
12
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
(q) Risks and Uncertainties
The Company’s business, financial position and results of operations may be influenced by the political, economic, health and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, health and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
(r) 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.
Note 3. CRYPTOCURRENCIES
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Impairment loss | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The Company recorded impairment loss for the
three months ended September 30, 2024. There was $
Note 4. ACCOUNTS RECEIVABLE, NET
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
13
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit losses, net of recovery | ||||||||
| Write-off/recovery | ( | ) | ||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
For the years ended June 30, 2024, the provision
for doubtful accounts and write-off was $
Note 5. OTHER RECEIVABLES, NET
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Advances to customers* | $ | $ | ||||||
| Employee business advances | ||||||||
| Total | ||||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
| * |
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Increase | ||||||||
| Less: write-off | ( | ) | ||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Note 6. ADVANCES TO SUPPLIERS
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Freight fees (1) | $ | $ | ||||||
| Less: allowances for credit losses | ( | ) | ( | ) | ||||
| Advances to suppliers-third parties, net | $ | $ | ||||||
| (1) |
14
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Note 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Prepaid income taxes | $ | $ | ||||||
| Other (including prepaid professional fees, rent) | ||||||||
| Total | $ | $ | ||||||
Note 8. OTHER LONG-TERM ASSETS – DEPOSITS, NET
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Rental and utilities deposits | $ | $ | ||||||
| Less: allowances for deposits | ( | ) | ( | ) | ||||
| Other long-term assets- deposits, net | $ | $ | ||||||
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for expected credit losses, net of recovery | ||||||||
| Less: Write-off | ( | ) | ||||||
| Exchange rate effect | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Note 9. PROPERTY AND EQUIPMENT, NET
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| 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 September 30, 2024 and 2023 were $
A batch of fixed assets were disposed of in this
period, the original value of this batch of fixed assets is $
15
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Note 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Salary and reimbursement payable | $ | $ | ||||||
| Professional fees and other expense payable | ||||||||
| Interest payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
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
bear an interest at
On March 8, 2022, the
Company issued amended and restated the terms of the 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 months ended September 30, 2024
and 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.
16
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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 September 30, 2024
and 2023, rent expense amounted to approximately $
| Twelve Months Ending September 30, | Operating Lease Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| Total lease payments | ||||
| Less: Interest | ||||
| Present value of lease liabilities | $ | |||
Note 13. EQUITY
After the close of the stock market on July 7,
2020, the Company effected a
Stock issuances:
On September 17, 2020, the Company entered into
certain securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities Act of
1933, as amended, pursuant to which the Company sold an aggregate of
17
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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 thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, in a registered direct offering, an aggregate of
On January 27, 2021, the Company entered into
a securities purchase agreement with certain non-U.S. investors thereto pursuant to which the Company sold to the investors, and the investors
purchased from the Company, an aggregate of
On February 6, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of
18
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
On February 9, 2021, the Company entered into
a securities purchase agreement with certain investors pursuant to which the Company sold to the investors, and the investors purchased
from the Company, in a registered direct offering, an aggregate of
On December 14, 2021,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with non-U.S. investors and accredited
investors pursuant to which the Company sold to the investors, and the investors agreed to purchase from the Company, an aggregate of
The Company’s outstanding warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own stock and require net share settlement. The fair value of the warrants was recorded as additional paid-in capital from common stock.
On January 6, 2022, the
Company entered into Warrant Purchase Agreements with certain warrant holders (the “Sellers”) pursuant to which the Company
agreed to buy back an aggregate of
On January 7, 2022, the Company wired the purchase price to each Seller. Each Seller has agreed to deliver the Warrant to the Company for cancellation as soon as practicable following the closing date, but in no event later than January 13, 2022. The Warrants are deemed cancelled upon the receipt by the Sellers of the purchase price.
On November 15, 2023, the Company entered into
a subscription agreement with ten individual investors, under which the Company agreed to sell an aggregate of
| Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding, as of June 30, 2024 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Warrants outstanding, as of September 30, 2024 | $ | |||||||
| Warrants exercisable, as of September 30, 2024 | $ | |||||||
19
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||
| 2020 warrants - | $ | |||||||||
| 2021 warrants - | $ | |||||||||
Stock-based compensation:
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,
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 September 30, 2024 and 2023, There was stock-based compensation expense recorded.
20
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Note 14. NON-CONTROLLING INTEREST
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Trans Pacific Shanghai | $ | ( | ) | $ | ( | ) | ||
| 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 lawsuit in the New York State
Supreme Court on December 9, 2022 against Thor Miner, Inc., which is Singularity’s joint venture (“Thor Miner”), the
Company, and, together with Thor Miner, referred to as the “Corporate Defendants”), Lei Cao, Yang Jie, John F. Levy, Tieliang
Liu, Tuo Pan, Shi Qiu, Jing Shan, and Heng Wang (jointly referred to as the “Individual Defendants”) (collectively, the Individual
Defendants and the Corporate Defendants are the “Defendants”). SOSNY and Thor Miner entered into a January 10, 2022 Purchase
and Sale Agreement (the “PSA”) for the purchase of $
SOSNY and Defendants entered into a certain settlement
agreement and general mutual release with an Effective Date of December 28, 2022 (“Settlement Agreement”). Pursuant to the
Settlement Agreement, Thor Miner agreed to pay a sum of thirteen million in U.S. dollars ($
The Company and Thor Miner further covenanted
and agreed that if they receive additional funds from HighSharp (Shenzhen Gaorui) Electronic Technology Co., Ltd. (“HighSharp”)
related to the PSA, they will promptly transfer such funds to SOSNY in an amount not to exceed forty million, five hundred sixty thousand,
five hundred sixty-nine dollars ($
21
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
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 $
On March 23, 2023, SG Shipping & Risk Solution
Inc. an indirect wholly owned subsidiary of SGLY 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 the Securities Purchase Agreement
On September 23, 2022, Hexin Global Limited and
Viner Total Investments Fund filed a lawsuit against the Company and other defendants in the United States District Court for the Southern
District of New York (the “Hexin lawsuit”). On December 5, 2022, St. Hudson Group LLC, Imperii Strategies LLC, Isyled Technology
Limited, and Hsqynm Family Inc. filed a lawsuit against the Company and other defendants in the United States District Court for the Southern
District of New York (the “St. Hudson lawsuit,” and together with the Hexin lawsuit, the “Investor Actions”).
The plaintiffs in the Investor Actions are investors that entered into a securities purchase agreement (“Securities Purchase Agreement”)
with the Company in late 2021. Each of these plaintiffs asserts causes of action for, among other things, violations of federal securities
laws, breach of fiduciary duty, fraudulent inducement, breach of contract, conversion, and unjust enrichment, and seeks monetary damages
and specific performance to remove legends from certain securities sold pursuant to the Securities Purchase Agreement. The Hexin lawsuit
claims monetary damages of “at least $
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, St. Hudson lawsuit was consolidated
with this lawsuit and Hexin lawsuit and on February 24, 2023, all three consolidated actions were dismissed without prejudice by the court,
in furtherance of the parties having reached an agreement in principle to settle their disputes. The Company, Yang Jie, Jing Shan, and
the plaintiffs of the above three actions entered into a certain settlement agreement and general mutual release with an effective date
of March 10, 2023, pursuant to which the Company agreed to pay the sum of $
In addition, the plaintiffs agreed to irrevocably
forfeit
22
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Putative Class Action
On December 9, 2022, Piero Crivellaro, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between February 2021 and November 2022, filed a putative class action against the Company and other defendants in the United States District Court for the Eastern District of New York, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. The plaintiff seeks unspecified damages, plus interest, costs, fees, and attorneys’ fees. As this action is still in the early stage, the Company cannot predict the outcome.
In addition to the above litigations, the Company is also subject to additional contractual litigations as to which it is unable to estimate the outcome.
Government Investigations
Following a publication issued by Hindenburg Research dated May 5, 2022, the Company received subpoenas from the United States Attorney’s Office for the Southern District of New York and the United States Securities and Exchange Commission. The Company is cooperating with the government regarding these matters. The Company is not able to estimate the outcome or duration of the government investigations.
Employee Agreement
For the year ended June 30, 2023, the Company had employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Yang Jie. Employment agreement of Mr. Lei Cao provided for a ten-year term that extended automatically in the absence of termination notice provided at least 30 days prior to the fifth anniversary date of the agreement. Employment agreements of Mr. Tuo Pan and Mr. Yang Jie provided for five-year terms that extended automatically in the absence of termination notice provided at least 30 days prior to the fifth anniversary date of the agreement. If the Company failed to provide this notice or if the Company wished to terminate an employment agreement in the absence of cause, then the Company was obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement, the Company would need to pay such executive (i) the remaining salary through the date of October 31, 2026. In addition, to pay Mr. Lei Cao and Ms. Tuo Pan (ii) two times of the then applicable annual salary if there had been no change in control, as defined in the employment agreements or three-and-half times of the then applicable annual salary if there was a change in control. The employment agreements for Ms. Tuo Pan and Mr. Yang Jie were terminated in 2022, the Company has no remaining obligation under such agreements.
In February 2024, Zhikang Huang, a former employee
of the Company filed a lawsuit against the Company in the Richmond City Circuit Court of Virgunia. In the complaint, Zhikang Huang alleges
claims that the Company failed to compensate him for the severance payment of $
Note 16. INCOME TAXES
| For the three months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| Current | ||||||||
| U.S. | $ | $ | ||||||
| PRC | ||||||||
| Total income tax expenses | ||||||||
23
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| September 30, 2024 | June 30, 2024 | |||||||
| Allowance for credit losses | ||||||||
| 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 operation losses (“NOL”) of approximately $
The Company’s operations in China incurred
a cumulative NOL of approximately $
The Company periodically evaluates the likelihood
of the realization of deferred tax assets (“DTA”) and reduces the carrying amount of the deferred tax assets by a valuation
allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that
could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation
of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that
it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the Company’s
reorganization and venture into new businesses. The Company provided a
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| VAT tax payable | $ | $ | ||||||
| Corporate income tax payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
24
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
Note 17. CONCENTRATIONS
Major Customers
For the three months ended September 30, 2024,
one customer accounted for
For the three months ended September 30, 2023,
one customer accounted for
Major Suppliers
For the three months ended September 30, 2024,
three suppliers accounted for approximately
For the three months ended September 30, 2023,
two suppliers accounted for approximately
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 three months ended September 30, 2024, the Company operated in
| For the Three Months Ended September 30, 2024 | ||||||||||||
| 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 Three Months Ended September 30, 2023 | ||||||||||||
| Freight Logistics Services | Crypto-mining equipment sales | Total | ||||||||||
| Net revenues | $ | $ | $ | |||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Gross profit | $ | ( | ) | $ | $ | ( | ) | |||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Total capital expenditures | $ | $ | $ | |||||||||
| Gross margin% | ( | )% | % | ( | )% | |||||||
25
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Freight Logistic Services | $ | $ | ||||||
| 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 | ||||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| PRC | $ | $ | ||||||
| U.S. | ||||||||
| Total revenues | $ | $ | ||||||
Note 19. RELATED PARTY BALANCE AND TRANSACTIONS
Due from related party, net
| September 30, | June 30, | |||||||
| 2024 | 2024 | |||||||
| Zhejiang Jinbang Fuel Energy Co., Ltd (1) | $ | $ | ||||||
| Shanghai Baoyin Industrial Co., Ltd (2) | ||||||||
| LSM Trading Ltd (3) | ||||||||
| Rich Trading Co. Ltd (4) | ||||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| (1) |
26
SINGULARITY FUTURE TECHNOLOGY LTD. AND SUBSIDIAIRES
Notes to the Condensed Consolidated Financial Statements
For the Three Months ended September 30, 2024
| (2) |
| (3) |
| (4) |
Accounts payable- related parties
As of June 30, 2024, the Company had accounts
payable to Rich Trading Co. Ltd of $
Other payable - related party
As of September 30, 2024 and June 30, 2024, the
Company had accounts payable to Qinggang Wang, CEO and legal representative of Trans Pacific Shanghai, of $
As of September 30, 2024 and June 30, 2024,
the Company had accounts payable to $
Note 20. SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date on which the consolidated financial statements were issued, the Company did not identify any subsequent events that require recognition and disclosure in the consolidated financial statements.
27
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
We are a global logistics integrated 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 to Singularity Future Technology Ltd. to reflect its expanded operations into the digital assets business. Currently, we primarily focus on providing freight logistics services, which mainly 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 service and product initiatives. In the fiscal year 2022, while we continued to provide our traditional freight logistics business, we expanded our services to include warehousing services provided by our U.S. subsidiary Brilliant Warehouse Service Inc.
We are currently operating through our subsidiary Trans Pacific Shipping Limited. As of July 31, 2024, we have terminated the operations of our subsidiaries Gorgeous Trading Ltd. and Brilliant Warehouse Service Inc. Our range of services are mainly transportation.
As a holding company with no material operations, conduct substantially all of our operations through subsidiaries established in the United States, the People’s Republic of China (the “PRC” or “China”) and Hong Kong. However, neither the holding company nor any of the Company’s Chinese subsidiaries conduct any operations through contractual arrangements with a variable interest entity based in China. Investors in our common stock should be aware that they may never directly hold equity interests in the PRC operating entities, but rather equity interests solely in Singularity, our Virginia holding company. Furthermore, shareholders may face difficulties enforcing their legal rights under United States securities laws against our directors and officers who are located outside of the United States.
Recent Developments
We are currently exploring new business opportunities while continuing to provide freight logistics services. On September 19, 2023, the Company formed a 100% owned subsidiary, New Energy Tech Limited. (“New Energy”) in New York for to engage in the solar panel commodity trading business (the “Solar Panel Business”). In August 2024, New Energy entered into a joint venture development agreement with Market One Services Corp., a Wyoming corporation, to establish a joint venture to carry out the Solar Panel Business.
The Company decided to develop the Solar Panel Business based on its insight into the broad prospects of new energy. In the decision-making process, the needs of environmental protection and market potential were fully considered. This new Solar Panel Business complements our existing businesses and will expand the company’s sustainable development.
28
Special Committee Investigation
As previously disclosed, on May 6, 2022, the Board of Directors of the Company (the “Board”) formed a special committee (the “Special Committee”) to investigate claims of alleged fraud, misrepresentation, and inadequate disclosure related to the Company and certain of its management personnel raised in a report, published by Hindenburg Research on May 4, 2022 (the “Hindenburg Report”). 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 settlement and release agreement with Mr. Yang Jie, the Company’s former CEO, which fully resolved his claims against the Company.
Executive Changes
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 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.
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.
On July 31, 2024, Mr. Haotian Song resigned from his position as a vice president of the Company and as a director of the Board.
On August 6, 2024, the Company appointed Ms. Jia Yang as a vice president of the Company and as a director of the Board to fill the vacancy resulting from Mr. Haotian Song’s resignation.
29
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, fails 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 has been provided an initial compliance period of 180 calendar days, or until July 5, 2023, to regain compliance with the minimum bid price requirement.
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 has determined that the Company is eligible for an additional 180 calendar day period, or until January 2, 2024, to regain compliance. Such determination is 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. The Company intends to regain compliance with Nasdaq’s bid price requirement prior to the end of the second bid price extension.
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 complies 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 July 7, 2023, the Company received a Notice of Noncompliance Letter (the “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 Letter also states that the Company has 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), 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.
30
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 (1) until the earlier of the Company’s next annual shareholders’ meeting or July 3, 2024; or (2) 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.
COVID-19
The outbreak of the COVID-19 virus (“COVID-19”) starting from late January 2020 in the PRC has 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.
The impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:
| ● | Due to travel restrictions between US and China, our joint ventures were unable to start operation as planned which has slowed down our new business development. |
| ● | Our sales of crypto mining machines were materially adversely affected by COVID-19. Specifically, Crypto mining machine manufacturers have been impacted by the constrained supply of the semiconductors used in the production of the highly specialized crypto mining machines; COVID-related issues have exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in delayed shipments and additional expenses to expedite delivery; as a result, we were unable to fulfil our customer orders on a timely basis, resulting cancellation of orders and partial refund of purchase price, as evident from the settlement in SOSNY. |
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.
31
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table sets forth the components of our costs and expenses for the periods indicated:
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 501,402 | 100.0 | % | 895,926 | 100.0 | % | (394,524 | ) | (44.0 | )% | ||||||||||||||
| Cost of revenues | 773,317 | 154.2 | % | 1,002,949 | 111.9 | % | (229,632 | ) | (22.9 | )% | ||||||||||||||
| Gross margin | (54.2 | )% | N/A | (11.9 | )% | N/A | (42.3 | )% | N/A | |||||||||||||||
| Selling expenses | 62,981 | 12.6 | % | 55,853 | 6.2 | % | 7,128 | 12.8 | % | |||||||||||||||
| General and administrative expenses | 690,556 | 137.7 | % | 2,054,153 | 229.3 | % | (1,363,597 | ) | (66.4 | )% | ||||||||||||||
| Impairment loss of Cryptocurrencies | - | - | 72,179 | 8.1 | % | (72,179 | ) | (100.0 | )% | |||||||||||||||
| Provision for credit losses, net | - | - | 48,618 | 5.4 | % | (48,618 | ) | (100.0 | )% | |||||||||||||||
| Total costs and expenses | 1,526,854 | 304.5 | % | 3,233,752 | 360.9 | % | (1,706,898 | ) | (52.8 | )% | ||||||||||||||
Revenues
The following tables present summary information by segments for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 501,402 | $ | - | $ | 501,402 | ||||||
| Cost of revenues | $ | 773,317 | $ | - | $ | 773,317 | ||||||
| Gross loss | $ | (271,915 | ) | $ | - | $ | (271,915 | ) | ||||
| Depreciation and amortization | $ | 17,919 | $ | - | $ | 17,919 | ||||||
| Total capital expenditures | $ | - | $ | - | $ | - | ||||||
| Gross margin | (54.2 | )% | - | (54.2 | )% | |||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | $ | 895,926 | $ | - | $ | 895,926 | ||||||
| Cost of revenues | $ | 1,002,949 | $ | - | $ | 1,002,949 | ||||||
| Gross loss | $ | (107,023 | ) | $ | - | $ | (107,023 | ) | ||||
| Depreciation and amortization | $ | 37,770 | $ | 357 | $ | 38,127 | ||||||
| Total capital expenditures | $ | - | $ | - | $ | - | ||||||
| Gross margin | (11.9 | )% | - | (11.9 | )% | |||||||
32
| % Changes For the Three Months Ended September 30, 2024 and 2023 | ||||||||||||
| Freight Logistics Services | Sales of Crypto Mining Machines | Total | ||||||||||
| Net revenues | (44.0 | )% | - | (44.0 | )% | |||||||
| Cost of revenues | (22.9 | )% | - | (22.9 | )% | |||||||
| Gross profit | 154.1 | % | - | 154.1 | % | |||||||
| Depreciation and amortization | (52.6 | )% | (100.0 | )% | (53.0 | )% | ||||||
| Total capital expenditures | - | - | - | % | ||||||||
| Gross margin | (42.3 | )% | - | (42.3 | )% | |||||||
Disaggregated information of revenues by geographic locations are as follows:
| For the Three Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| PRC | $ | 501,402 | $ | 700,656 | ||||
| U.S. | - | 195,270 | ||||||
| Total revenues | $ | 501,402 | $ | 895,926 | ||||
Revenues decreased by $394,524, or approximately 44.0%, to $501,402 for the three months ended September 30, 2024 from $895,926 for the same period in 2023. The decrease was mainly caused by shipping revenue decline from our U.S. subsidiary, Brilliant Warehouse, in $195,270 and from our PRC subsidiaries in $199,254 due to the business volume reduce.
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 $773,317 for the three months ended September 30, 2024, a decrease of $229,632, or approximately 22.9%, as compared to $1,002,949 for the same period in 2023. The decrease was in line with the decline in revenue.
Our gross margin was (54.2%) and (11.9%) for the three months ended September 30, 2024 and 2023, respectively. This decrease in gross margin was mainly due to decreased revenue from our freight logistics business.
Operating Costs and Expenses
Operating costs and expenses decreased by $1,706,898 or approximately 52.8% from $ 1,526,854 for three months ended September 30, 2024 compared to $3,233,752 for the same period in 2023. This decrease was mainly due to the decrease in general and administrative expenses, impairment loss of Cryptocurrencies and provision for doubtful accounts as more fully discussed below.
Selling Expenses
Our selling expenses consisted primarily of salaries, meals and entertainment and travel expenses for our sales representatives. For the three months ended September 30, 2024, we had $62,981 in selling expenses, as compared to $55,853 for the same period in 2023, which represents an increase of $7,128 or approximately 12.8%. The increase was mainly due to an increase in salaries as we added to employees and incurred increased marketing expenses for the freight logistics segment for our sales team.
33
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 September 30, 2024, we had $690,556 of general and administrative expenses, as compared to $2,054,153 for the same period in 2023, representing a decrease of $1,363,597, or approximately 66.4%. The decrease was mainly due to the decreased professional fees of approximately $647,039 which are mainly included auditor fee, lawyer fee and consulting fee. On the other hand, other employee expense was reduced by $541,343 due to the labor compensation of $500,000 was paid in the same period of last year.
Provision for doubtful accounts, net
Our total bad debt expenses amounted to nil and $48,618 for the three months ended September 30, 2024 and 2023, which was mainly due to the bad debt provision in $50,000 for the deposit of the early termination of the lease agreement in, Jericho, New York for the same period in 2023.
Impairment Loss of Cryptocurrencies
We recorded an impairment of nil and $72,179 for the three months ended September 30, 2024 and 2023, for the cryptocurrencies held by us as the ownership of the cryptocurrencies could not be verified.
Other Income(Expenses), Net
Other income, net was $21,117 for the three months ended September 30, 2024, which mainly consisted of interest income of $38,484, compared to $21,917 of interest expenses and $56,042 of exchange loss for the same period in 2023.
Taxes
We did not record any income tax expense for both the three months ended September 30, 2024 and 2023.
The Company’s operations in the U.S. incurred cumulative U.S. federal net operation losses (“NOL”) of approximately $47,200,000 as of June 30, 2024, which may reduce future federal taxable income. During the three months ended September 30, 2024, approximately $1,000,000 of NOL was generated and the tax benefit derived from such NOL was approximately $210,000. As of September 30, 2024, the Company’s cumulative NOL amounted to approximately $48,200,000, which may reduce future federal taxable income.
The Company’s operations in China incurred a cumulative NOL of approximately $2,062,000 as of June 30, 2024 which was mainly from net loss. During the three months ended September 30, 2024, additional NOL of approximately $55,000 was generated. As of September 30, 2024, the Company’s cumulative NOL amounted to approximately $* which may reduce future taxable income which will expire by 2026.
The Company periodically evaluates the likelihood of the realization of deferred tax assets (“DTA”) and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the Company’s reorganization and venture into new businesses. The Company provided a 100% allowance for its DTA as of September 30, 2024. The net decrease in valuation for the three months ended September 30, 2024 amounted to approximately $960,000, based on management’s reassessment of the amount of the Company’s deferred tax assets that are more likely than not to be realized.
Net Loss
As a result of the foregoing, we had a net loss of $1,004,335 for the three months ended September 30, 2024 compared to a net loss of $2,414,996 for the same period in 2023. After the deduction of non-controlling interest, net loss attributable to us was $961,789 for the three months ended September 30, 2024 compared to $2,290,185 for the same period in 2023. Comprehensive loss attributable to us was $1,072,055 for the three months ended September 30, 2024 compared to $2,167,204 for the same period in 2023.
34
Liquidity and Capital Resources
As of September 30, 2024, we had $17,740,908 in cash (including cash on hand and cash in bank). The majority of our cash is in banks located in the USA.
The following table sets forth a summary of our cash flows for the periods as indicated:
| For the Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (9,145 | ) | $ | (1,999,968 | ) | ||
| Net cash provided by investing activities | $ | - | $ | 49,969 | ||||
| Net cash used in financing activities | $ | - | $ | (5,403,424 | ) | |||
| Net decrease in cash | $ | (9,145 | ) | $ | (7,353,423 | ) | ||
| Cash at the beginning of period | $ | 17,736,059 | $ | 17,390,156 | ||||
| Effect of exchange rate fluctuations on cash | $ | 13,994 | $ | 17,919 | ||||
| Cash at the end of period | $ | 17,740,908 | $ | 10,054,652 | ||||
The following table sets forth a summary of our working capital:
| September 30, | June 30, | |||||||||||||||
| 2024 | 2024 | Variation | % | |||||||||||||
| Total Current Assets | $ | 18,606,621 | $ | 18,247,523 | $ | 359,098 | 2.0 | % | ||||||||
| Total Current Liabilities | $ | 6,715,146 | $ | 5,343,001 | $ | 1,372,145 | 25.7 | % | ||||||||
| Working Capital | $ | 11,891,475 | $ | 12,904,522 | $ | (1,013,047 | ) | (7.9 | )% | |||||||
| Current Ratio | 2.77 | 3.42 | (0.65 | ) | (19.0 | )% | ||||||||||
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 September 30, 2024, our working capital was approximately $11,891,475 and we had cash of approximately $17,740,908 in cash (including cash on hand and cash in bank). We believe our current working capital is sufficient to support our operations and debt obligations as they become due for the next twelve months.
Operating Activities
Our net cash used in operating activities was approximately $9,145 for the three months ended September 30, 2024. The operating cash outflow for the three months ended September 30, 2024 was primarily attributable to our net loss of approximately $1.0 million. We had an increase in accounts payable of approximately $585,260, and an increase in accrued expenses and other current liabilities of approximately $666,166 offset by an increase in accounts receivable of approximately $355,203.
Our net cash used in operating activities was approximately $2.0 million for the three months ended September 30, 2023. The operating cash outflow for the three months ended September 30, 2023 was primarily attributable to our net loss of approximately $2.4 million adjusted by non-cash lease expense of $0.1 million and impairment loss of cryptocurrencies of $0.1 million.
Investing Activities
We did not have any investing activities for the three months ended September 30, 2024.
Net cash provided by investing activities was approximately $0.05 million for the three months ended September 30, 2023 due to repayments from related parties from Zhejiang Jinbang Fuel Energy Co., Ltd (“Zhejiang Jinbang”) which is owned by Mr. Qinggang Wang.
Financing Activities
We did not have any financing activities for the three months ended September 30, 2024.
Net cash used in financing activities for the three months ended September 30, 2023 was $5.4 million due to the repayment of $5 million of convertible notes and the accrued interest of $403,424.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, “Summary of Significant Accounting Policies” of the Notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024 (describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.
Off-Balance Sheet Arrangements
None.
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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.
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 September 30, 2024, 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 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 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 September 30, 2024 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
Litigations
On August 23, 2023, Jing Shan commenced a lawsuit against the Company in the Richmond City Circuit Court of Virginia for unpaid salaries and indemnification of her litigation costs defending herself in the SGLY Securities Class Action and the Conversion Lawsuit. The court entered an order on May 3, 2024, granted Jing Shan’s request for payment of withheld wages through the time of her termination, plus liquidated damages, and litigation costs in prosecuting the withheld wages. The court denied Jing Shan’s motion for expenses incurred in other ligation, deferring those issues to resolution by trial. The Company has paid the past due wages and statutory liquidated damages. Jing Shan filed a motion for rule to show cause on July 29, 2024, demanding payment of attorney’s fees of $36,523.21, plus sanctions by the court for the Company’s failure to comply with the court’s order of payment.
On January 18, 2024, John Levy, a former board member of the Company, filed a claim in the EDNY for reimbursement and advancement of reasonable legal fees, costs, and expenses incurred in connection with defending the action Crivellaro v. Singularity Future Technology Ltd., 22-cv-7499-BMC, in which John Levy was named as an individual defendant. On a letter dated August 6, 2024, John Levy notified the court that it would move for default judgement. The Company does not intend to defend its position.
In February 2024, Zhikang Huang, a former employee of the Company filed a lawsuit against the Company in the Richmond City Circuit Court of Virginia. In the complaint, Zhikang Huang alleges claims that the Company failed to compensate him for the severance payment of $300,000 contemplated in Section 6.3 of the Employee Agreement, his two months’ salary of $25,000 for the months of November and December 2023 and the incentive-based bonus to which he is entitled pursuant to paragraph 4.2 of the Employee Agreement. A hearing on plaintiff’s motion to compel discovery was scheduled on August 26, 2024. The Company intends to defend its position.
Government Investigations
On February 28, 2023 , the audit committee of the Company, after discussion with the management of the Company, and in consultation with the Company’s independent registered public accounting firm, concluded that the Company’s previously issued financial statements for the fiscal year ended June 30, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2021 (the “2021 Form 10-K”) should no longer be relied upon as a result of incorrect accounting treatment of approximately $4.6 million of related party loan receivable. The audit committee also concluded that the financial statements for the quarters ended September 30, 2021 and December 31, 2021 included in the Company’s Quarterly Reports on Form 10-Q (the “2021 Form 10-Qs,” collectively with the 2021 Form 10-K, the “Affected Reports”), filed with the SEC on November 12, 2021 and February 14, 2022, respectively, should no longer be relied upon as a result of incorrect recognition of revenue from freight shipping services in the amount of $980,200 for the three months ended September 30, 2021 and six months ended December 31, 2021. The Company corrected the errors referenced above in an amendment to (1) the 2021 Form 10-K (the “Amended Form 10-K”) and (2) each of the 2021 Form 10-Qs (the “Amended Form 10-Qs,” collectively with the Amended Form 10-K, the “Restatements”).
On June 17, 2024, the Company received a subpoena from the SEC requesting the production of certain documents related to an investigation by the SEC regarding the Restatements (the “Investigation”). Because the Investigation is at an early stage, the Company cannot predict its outcome, duration, or any potential consequences at this time. The SEC has not advised the Company that it has concluded any legal violation has occurred, but any Investigation potentially could result in government enforcement actions and civil and/or criminal sanctions under relevant laws. The Company intends to cooperate with the SEC with respect to the Investigation.
Except as set forth above, there have been no other material development in the legal proceedings that the Company is a party. For a discussion of all 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, 2024. There have been no material changes to the legal proceedings disclosed in our 2024 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, 2024, as filed with the SEC on October 15, 2024. 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
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. | ||
| November 14, 2024 | By: | /s/ Ziyuan Liu |
| Ziyuan Liu | ||
| Chief Executive Officer | ||
| November 14, 2024 | By: | /s/ Ying Cao |
| Ying Cao | ||
| Chief Financial Officer | ||
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