UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Mark One
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission
File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or Organization |
(IRS Employment Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| N/A |
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 fling 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 ☐
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date
| Class | Outstanding as of November 15, 2022 | |
| Common Stock: $0.001 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| 2 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
| F-1 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2022 | June 30, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Account receivable, net | ||||||||
| Account receivable - related parties, net | ||||||||
| Inventories | ||||||||
| Advances to suppliers - current | ||||||||
| Other receivable | ||||||||
| Other receivable from related party | ||||||||
| Total Current Assets | ||||||||
| Advance to supplier - non-current | ||||||||
| Right of use asset - operating | ||||||||
| Equipment, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Advance from customers | ||||||||
| Advance from customers - related party | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred
Stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common
Stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total Shengda Stockholders’ Equity | ||||||||
| Non-controlling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
| For the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue - Products Sales | $ | $ | ||||||
| Revenue - Service | ||||||||
| Total Revenue | ||||||||
| Cost of Revenue | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Professional fees | ||||||||
| General and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Income (Loss) from Operations | ( | ) | ||||||
| Other Income (Expense) | ( | ) | ( | ) | ||||
| Income (Loss) before Income Taxes | ( | ) | ||||||
| Income Tax Expense | ||||||||
| Net Income (loss) after Tax | ( | ) | ||||||
| Less: Net Income (Loss) after Tax attributable to non-controlling interests | ||||||||
| Net Income (Loss) after Tax attributable to Shengda Network Technology, Inc | ( | ) | ||||||
| Other Comprehensive Income | ||||||||
| Foreign currency translation gain (loss) | ( | ) | ||||||
| Comprehensive Loss | ( | ) | ( | ) | ||||
| Less: Comprehensive Income after Tax attributable to non-controlling interests | ||||||||
| Total Comprehensive Loss attributable to Shengda Network Technology, Inc | $ | ( | ) | $ | ( | ) | ||
| Basic and Diluted Net Income (Loss) per Common Share | $ | $ | ( | ) | ||||
| Weighted-average Number of Common Shares Outstanding | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2022 and 2021
| Three Months Ended | Preferred Stock | Common Stock | Additional Paid-in | Retained Earnings | Accumulated Other Comprehensive | Total Shengda Stockholders’ | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||
| September 30, 2022 | Shares | Amount | Shares | Amount | Capital | (Deficit) | Income | Equity | Interests | Equity | ||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||
| Three Months Ended | Preferred Stock | Common Stock | Additional Paid-in | Retained Earnings | Accumulated Other Comprehensive | Total Shengda Stockholders’ Equity | Non-controlling | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| September 30, 2021 | Shares | Amount | Shares | Amount | Capital | (Deficit) | Income (Loss) | (Deficit) | Interest | (Deficit) | ||||||||||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Forgiveness of debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Adjustments to Reconcile Net Cash (Used in) Provided by Operating Activities | ||||||||
| Depreciation and amortization | ||||||||
| Forgiveness of debt | ( | ) | ||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Account receivable | ( | ) | ( | ) | ||||
| Account receivable - related parties | ||||||||
| Inventories | ( | ) | ||||||
| Advance to suppliers - current | ||||||||
| Other receivable | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ( | ) | ||||
| Advance from customers | ||||||||
| Advance from customers - related party | ( | ) | ||||||
| Advances and deposits | ( | ) | ||||||
| Net Cash Provided by (Used in) Operating Activities | ( | ) | ||||||
| Effect of Exchange Rate Fluctuation on Cash | ( | ) | ||||||
| Net Increase (Decrease) in Cash | ( | ) | ||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Income tax | $ | $ | ||||||
| Interest | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022 and 2021
Note 1 – Organization and Operations, and Going Concern
In these notes, the terms “us”, “we”, “it”, “its”, “Shengda”, the “Company” or “our” refer to Shengda Network Technology, Inc. and its subsidiaries. Shengda was incorporated under the laws of the State of Nevada on March 14, 2018 under the name Soltrest, Inc. and changed its name to Shengda Network Technology Inc on October 16, 2020.
The Company’s principal business is to provide a portal for the sale of products offered by reliable manufacturers and merchants at competitive prices. Products run the gamut from electronics to daily consumables, food and clothing.
On
April 20, 2020, the Company purchased shares of common stock of Peaker International Trade Group Limited (“Peaker”)
for $
On
August 28, 2020, Zhejiang Jingmai Electronic Commerce Ltd set up a
On August 15, 2022, the Company’s Board was increased to five members. Mr. Yizhong Chen, Mr. Hanguo Li, Mr. Manu Ohri and Mr. Yanfeng Wang were appointed as independent directors of the Board, effective the same date. In addition, effective the same date, the Board created an Audit, Nominating, and Compensation Committees and also adopted a Code of Business Conduct and Ethics. The Company also adopted amended and restated bylaws.
Risk and Uncertainty Concerning COVID-19 Pandemic
COVID-19 in January 2020 posed great impact in China. However, the COVID-19 outbreak has had limited impact on our businesses and operation. The Company mainly operates in Zhejiang Province China, that had few COVID-19 cases since January 2020. None of our staff was infected with COVID-19. Therefore, the Company did not encounter a shortage of labor. As of the date of this report, the Company’s is able to fulfill customers’ needs.
There might be outbreaks of COVID-19 in various cities in China in the future, and the Chinese government may take measures to keep COVID-19 under control. If there is not a material recovery in the COVID-19 situation, or the situation further deteriorates in China, our business, results of operations and financial condition could be materially and adversely affected. While the potential downturn brought by and the duration of the COVID-19 outbreak is difficult to assess or predict and the full impact of the virus on our operations will depend on many factors beyond our control. Our business, results of operations, financial condition and prospects could be materially adversely affected to the extent that COVID-19 persists in China or harms the Chinese and global economy in general.
Since Anhui Province has been successful on its efforts containing the spread of the virus, we haven’t observed significant impacts concerning the matters relating to logistics, suppliers, and price of raw materials.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements included herein were prepared by Shengda Network Technology Inc. and Subsidiaries, including its consolidated subsidiaries, the “Company”, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) was condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. For purposes of comparability, certain prior period amounts were reclassified to conform to the current year presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the SEC on October 28, 2022.
| F-6 |
The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Peaker International Trade Group Limited or “Peaker”, Peaker’s wholly owned subsidiary Jiangxi Zansheng Information Industry Co., Ltd, Peaker’s wholly owned subsidiary Zhejiang Jingmai Electronic Commerce Ltd or “Jingmai Electronic”, and Jingmai Electronic’s five 99% owned subsidiaries Zhejiang Xiaojing e-commerce Co., Ltd, Yiwu Tianqi Enterprise Management Co., Ltd, Zhejiang Jingtao Supply Chain Co., Ltd, Zhejiang Jingmai e-commerce Co., Ltd, Zhejiang Mengxiang Enterprise Management Co., Ltd and Zhejiang Shubei Supply Chain Co., Ltd, in China. All significant inter-company accounts and transactions were eliminated in consolidation.
Non-Controlling Interest
Non-controlling interest represents the portion of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests is separately presented in the accompanying statements of operations and comprehensive income (loss). Losses attributable to non-controlling interests in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the consolidated financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
Cash consists of petty cash on hand and cash held in banks, which are highly liquid and are unrestricted as to withdrawal or use.
Accounts Receivable, net
Accounts receivable are generated primarily through sales to customers and are stated at invoiced amount, net of an allowance for doubtful accounts, and bear no interest. A provision for doubtful accounts is determined based on a specific review of outstanding customer balances and historical customer write-off amounts and is charged to operations at the time management determines these accounts may become uncollectible.
| F-7 |
The Company establishes a credit and collection policy based on collection history. The collection period usually ranges from three to twelve months. The Company grants extended payment terms only when the Company believes the payment will be collectible at the end of the term. The Company grants extended payment terms to customers based on the following factors: (a) whether or not the Company views a real need, from the customer’s perspective for the extension, and (b) the Company’s relationship with the customer, and the Company’s long-term business prospects.
The
Company reviews the accounts receivable on a periodic basis and based on its reviews, the Company recorded an allowance for doubtful
accounts of $
Inventories
Inventories
are valued at the lower of cost or market. Inventories consist of finished goods. The Company reviews its inventories regularly for
possible obsolete goods and establishes reserves when determined necessary. As of September 30, 2022 and June 30, 2022 (audited), the Company
had
Equipment
Equipment is stated at cost. Straight-line depreciation is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Items | Useful life | |
| Vehicles |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the statement of income in other income and expenses.
Long-lived Assets
The
Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate their carrying
amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the
market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly
in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses
combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that
the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability
is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from
the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess
of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. The
impairment loss is recorded as an expense and a direct write-down of the asset.
Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease right-of-use assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term. As the implicit rate is typically not readily determinable in the Company’s lease agreements, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of the lease payments. The incremental borrowing rate is based on the Company’s specific rate of interest to borrow on a collateralized basis, over a similar term and in a similar economic environment as the lease. Lease expense is recognized on a straight-line basis over the lease term. Additionally, the Company accounts for lease and non-lease components as a single lease component for its identified asset classes. As of September 30, 2022 and June 30, 2022, the Company did not have any finance lease.
| F-8 |
Similar to other long-lived assets, right-of-use assets are tested for impairment when events or conditions indicate that the carrying value of an asset may not be fully recoverable from future cash flows. See Note 8, “Leases,” for additional information.
Revenue Recognition
The Company recognizes revenues when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled for those goods or services. In that determination, under ASC 606, Revenue From Contracts With Customers, the Company follows a five-step model that includes: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company records the revenue once all the above steps are completed.
Online Marketing and Sales, and Technology Consulting Service
The Company generates revenue through providing consulting services to customers. The consulting services provided include online marketing and sales consulting services and technology services. The Company typically satisfies its performance obligations in contracts with customers upon render of the services. Service revenue is recognized when promised services are transferred to the customer in an amount that reflects the consideration expected in exchange for those services. Revenues for services are recognized on a straight line basis over the contract.
Online Networking Sales
The Company generates revenue through online networking sales. Shengda Network Technology is not involved in production. The Company mainly sells products through a significant number of registered companies to members of its sales portal. The Company offers products through offline stores and customer service centers. When the customer receives the product, the control of the products is transferred to the customer.
Fair Value Measurements
The Company has established a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 Fair Value Measurement, prioritizes the inputs into three levels that may be used to measure fair value:
| ● | Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. |
| ● | Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
| ● | Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. |
The Company’s other current financial assets and current financial liabilities have fair values that approximate their carrying values.
| F-9 |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash deposited with banks. Substantially all of the Company’s cash is held in bank accounts in the People’s Republic of China (“PRC”) and is not protected by Federal Deposit Insurance Corporation (“FDIC”) insurance or any other similar insurance in the U.S.
The
Company’s bank account in the United States is protected by FDIC insurance. As of September 30, 2022 and June 30, 2022 (audited), the
Company’s bank account in the United States had no balances exceeding FDIC insurance of $
The
Company’s bank account in the PRC is protected by the People’s Bank of China Financial Stability Bureau
(“FSD”) insurance. As of September 30, 2022 and June 30, 2022 (audited), the Company’s bank account in PRC had $
Major Customers
The
Company has two customers Company A and Company B that accounted for
Major Vendors
The
Company has four vendors Company A, Company B, Company C, and Company D that accounted for
Commitment and Contingencies
In April
2022, the Company agreed to purchase $
The
Company had fully paid for the operating lease and expects $
The Company has no legal proceedings and claims.
Events or operations that are uncertain may also result in a cash outflow or inflow for the Company are known as contingencies. Contingencies are not guaranteed, and they heavily rely on the occurrence or lack thereof, of uncertain future events.
Value Added Tax (“VAT”)
The Company is subject to VAT for
providing services and sales of goods, ranging from
| F-10 |
Revenue from providing services and sales of products is generally subject to VAT at applicable tax rates, and subsequently paid to PRC tax authorities after netting input VAT on purchases. The excess of output VAT over input VAT is reflected in accrued expenses and other payables. The Company reports revenue net of PRC’s VAT for all the periods presented in the Consolidated Statements of Operations and Comprehensive Income (loss).
VAT returns of the Company are subject to examination by the tax authorities for five years from the date of filing.
Income Tax
Income tax returns are filed in federal, state, local and foreign jurisdictions as applicable. Provisions for current income taxes are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions and provisions for uncertain tax positions.
Deferred income tax assets and liabilities are computed on differences between the consolidated financial statement bases and tax bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities associated with components of other comprehensive income are charged or credited directly to other comprehensive income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established for certain deferred tax assets when realization is less than more likely than not.
Liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in our judgment, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Additionally, liabilities may be established for uncertain tax positions when, in our judgment, the more-likely-than-not threshold is met, but the position does not rise to the level of certain based upon the technical merits of the position. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the three months ended September 30, 2022 and 2021, respectively, and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2022.
The
effective income tax rate (benefit) was
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net income (loss) before income tax | $ | $ | ( | ) | ||||
| Computed tax expense (benefit) at statutory rate | ( | ) | ||||||
| Taxes in foreign jurisdictions with rates different than US | ||||||||
| Effect of lower income tax rate of PRC entities | ( | ) | ||||||
| Valuation allowance of US parent company | ||||||||
| Income tax expense | $ | $ | ||||||
Two of the Company’s subsidiairies in China is subject to preferrential
income tax rate as being a small e-commerce company in China. The preferrential income tax rate is lower than the statutory income tax
of
Foreign Currency Translation
The assets and liabilities of the Company’s subsidiaries outside the U.S. are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates, primarily from RMB. Income and expense items are translated at the average exchange rates prevailing during the period. Gains and losses resulting from currency transactions are recognized currently in income and those resulting from translation of consolidated financial statements are included in accumulated other comprehensive income (loss).
The value of RMB against US$ fluctuates. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates used in creating the CFS in this report:
| September
30, 2022 | June
30, 2022 | |||||||
| (audited) | ||||||||
| Period-end spot rate | US
$1=RMB | US
$1=RMB |
Three Months Ended September
30, | Three Months Ended September
30, | |||||||
| Average rate | US
$1=RMB | US
$1=RMB |
| F-11 |
The Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions within ASC 740, “Income Taxes,” and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted ASU 2019-12, and it did not have any impact on its consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the re cognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. For public business entities, the amendments in this Update require that an entity disclose current-period gross write offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in Update 2016-13, the effective dates for the amendments in this Update are the same as the effective dates in Update 2016-13. The amendments in this Update should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption of the amendments in this Update is permitted if an entity has adopted the amendments in Update 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company evaluated the impact of the adoption of ASU 2022-02, and it did not have any impact on its consolidated financial statements. The Company will adopt ASU 2022-02 effective for fiscal years beginning after December 15, 2022.
Note 3 - Advance to Suppliers
On
February 2, 2022, the Company entered into a purchase agreement with an unrelated party, which is the Company’s major supplier.
The Company agreed to purchase $
With
advances to all suppliers, advance to suppliers – current was $
| F-12 |
Note 4 – Account Receivable, net and Account Receivable – Related Parties, net
As of September 30, 2022 and June 30, 2022, accounts receivable and accounts receivable from related parties consisted of the following:
As of September
30, | As of June
30, | |||||||
| Accounts receivable and accounts receivable – related parties | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net and accounts receivable – related parties, net | $ | $ | ||||||
Note 5 – Other Receivable and Other Receivable from Related Party
Other
receivable was $
Other
receivable from related party was $
Note 6 – Transfer of Business Ownership
On
August 25, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of
This
transferred entities had no operation or accounting record since its inception until the Company received the
Note 7 – Equipment
Equipment consists of the following:
| As of | As of | |||||||
| September
30, 2022 | June
30, 2022 | |||||||
| Vehicle | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
For
the three months ended September 30, 2022 and 2021, depreciation expense including amortization of right of use assets was to
$
| F-13 |
Note 8 – Right-Of-Use Assets And Operating Lease Liabilities
On
January 5, 2021, Jingmai Electronic leased an office in Zhejiang, China from
On
March 20, 2022, Zhejiang Jingmai Electronic Commerce Ltd. leased an office in Zhejiang, China.
The operating lease is listed as a separate line item on the Company’s consolidated financial statements. The operating lease represents the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as a separate line item on the Company’s consolidated financial statements.
Operating
lease right-of-use assets and liabilities are recognized at commencement date based on the present value
of lease payments over the lease term. For the three months ended September 30, 2022 and 2021, the Company recorded $
Information related to the Company’s operating right of use assets and related lease liabilities are as follows:
Three Months ended September 30, 2022 | Three Months ended September 30, 2021 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term | ||||||||
| Weighted-average discount rate | % | % | ||||||
| Minimum future lease payments | $ | $ | ||||||
Note 9 – Accrued Expenses and Other Payables
Accrued expense and other payables consists of the following:
| As of | As of | |||||||
| September
30, 2022 | June
30, 2022 | |||||||
| Payroll payable | $ | $ | ||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Total accrued expense and other payables | $ | $ | ||||||
The accrued expenses and other payable are mainly payroll payable, taxes payable and money borrowed from unrelated parties for operating purpose. These payables are without collateral, interest free, and due on demand.
Note 10 – Stockholders’ Equity
Common Stock
On
July 1, 2021, the former President and Director of the Company forgave a working capital advance of $
| F-14 |
Note 11 – Related Party Transactions
Related parties with whom the Company had transactions are:
| Related Parties | Relationship | |
| HangJin Chen | ||
| Youcheng Chen | ||
| Li Weiwei | ||
| Shengda Network Technology Co., Ltd | ||
| Chengdu Tiantian Aixiu Culture Media Co., Ltd | ||
| Zhejiang Malai Electronic Commerce Co., Ltd | ||
Other
receivable from Shengda Network Technology Co., Ltd. was $
Advances
from Chengdu Tiantian Aixiu Culture Media Co., Ltd was $
Sales
were $
Sales
were $
Note 12 – Segment Information
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 financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different products. Based on management’s assessment, the Company has determined that it has two operating segments: products sales and service.
The following tables present summary information by segment for the three months ended September 30, 2022 and 2021, respectively:
For the Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue - Products Sales | $ | $ | ||||||
| Revenue - Service | ||||||||
| Total Revenue | $ | $ | ||||||
| For the Three Months Ended September 30, 2022 | ||||||||||||
| Products Sales | Service | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
As of September
30, | As of June
30, | |||||||
| Total assets: | (audited) | |||||||
| Products Sales | $ | $ | ||||||
| Service | ||||||||
| Total Assets | $ | $ | ||||||
Note 13 – Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2022 to the date these consolidated financial statements were issued and has determined there were no significant subsequent events or transactions that would require recognition or disclosure in the consolidated financial statements.
| F-15 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Overview of the Business
The Company was incorporated on March 14, 2018, under the laws of the State of Nevada. The Company’s principal business is the development of internet and personal computer security software products. The Company is engaged in E-Commerce business.
Results of Operations
Three Months Ended September 30, 2022, Compared to the Three Months Ended September 30, 2021
The following table summarizes the results of our operations for the three months ended September 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the current three-month period to the prior three-month period:
| Line Item | Three months ended 9/30/22 | Three months ended 9/30/21 | Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||
| Revenues | $ | 2,903,014 | $ | 743,677 | $ | 2,159,337 | 290 | % | ||||||||
| Operating expenses | 81,857 | 67,325 | 14,532 | 22 | % | |||||||||||
| Net (loss) income | 418,835 | (29,373 | ) | 448,208 | 1,526 | % | ||||||||||
| Income (Loss) per share of common stock | 0.03 | (0.00 | ) | 0.03 | 1,526 | % | ||||||||||
During the three months ended September 30, 2022, we had revenues of $2,903,014, compared to revenues of $743,677 for the three months ended September 30, 2021, an increase of $2,159,337, or 290.4%, due to the increase in sales volume and increased service income.
Operating expenses totaled $81,857 for the three months ended September 30, 2022, compared to $67,325 for the three months ended September 30, 2021, an increase of $14,532, or 21.6%. This increase was attributable to the increase of audit-related expenses.
We recorded net income of $418,835 for the three months ended September 30, 2022, as compared to a net loss of $29,373 for the three months ended September 30, 2021. The increase in income resulted primarily due to the increase in revenue.
Liquidity and Capital Resources
As of September 30, 2022, we had cash of $608,550, total assets of $12,486,135, working capital of $6,478,073 and total stockholders’ equity of $12,101,393. Net cash provided by operating activities was $227,302 for the three months ended September 30, 2022. As of June 30 30, 2022, we had cash of $405,786, total assets of $12,886,288, working capital of $6,448,105 and stockholders’ equity of $12,424,946. Our net cash used in operating activities was $115,760 for the three months ended September 30, 2021. We recorded $2,903,014 in revenues for the three months ended September 30, 2022, while we reported $ $743,677 in revenues for the three months ended September 30, 2021.
Management believes that the Company’s cash on hand may not be sufficient to fund all Company obligations and commitments for the next twelve months; however, our income from operations will be sufficient to run the Company for the next twelve months from the date these consolidated financial statements were issued. Historically, we have depended on loans from our principal shareholders and their affiliated companies to augment our working capital as required. There is no guarantee that such funding will be available when required and there can be no assurance that our stockholders, or any of them, will continue making loans or advances to us in the future.
Our current available cash will be sufficient to satisfy our liquidity requirements with our income from operations. Our capital requirements for the next twelve months will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures and/or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts, and being a public company. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned activities and limit our operations which could have a material adverse effect on our business, financial condition and results of operations.
| 3 |
Operating Activities
Net cash provided by operating activities for the three months ended September 30, 2022 was $227,302, primarily as a result of net income increase of $418,835, including depreciation and amortization expenses of $4,670, an increase in advance from customers of $50,609 and a decrease in advance to suppliers - current of $1,089,233 offset by increase in accounts receivable of $677,278, increase in inventories of $483,977 and increase in other receivable of $61,018.
Net cash used in operating activities for the three months ended September 30, 2021 was $115,760 primarily as a result of net loss of $29,373, depreciation and amortization expense of $4,692, forgiveness of debt by an officer and director of $19,974, and due to net increase in operating assets of $71,105 due to increase in accounts receivable of $840,354, decrease in accounts receivable - related parties of $772,809, increase in accounts payable of $38,422, decrease in advances and deposits of $30,912, and decrease in accrued expenses and other payable of $11,070.
Future Capital Requirements
Our capital requirements for the fiscal year ending June 30, 2023, will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures and/or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts, and being a public company.
Our plans to finance our operations include seeking equity and debt financing, alliances or other partnership agreements, or other business transactions, that would generate sufficient resources to ensure continuation of our operations. Management believes that the Company’s cash on hand will be sufficient to fund all Company obligations and commitments for the next twelve months. Historically, we have depended on loans from our principal shareholders and their affiliated companies to augment our working capital as required
The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned activities and limit our operations which could have a material adverse effect on our business, financial condition and results of operations.
Inflation
The amounts presented in our financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results are not affected by seasonality.
Critical Accounting Policies
The Securities and Exchange Commission issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The nature of our business generally does not call for the preparation or use of estimates.
| 4 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of September 30, 2022. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure and controls are not 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 officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) ineffective controls over period end financial disclosure and reporting processes and (4) lack of timely communications with vendors and proper accrual of expenses.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors’ results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Changes in Internal Control Over Financial Reporting
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 5 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
No report required.
Item 3. Default Upon Senior Securities
No report required.
Item 4. Mine Safety Disclosures
No report required.
Item 5. Other Information
No report required.
Item 6. Exhibits
(a) Exhibits.
| Exhibit | Item | |
| 31.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101 PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101) |
| * | Filed with this Report |
| ** | Furnished with this Report |
| 6 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Beijing, China on November 21, 2022.
| SHENGDA NETWORK TECHNOLOGY, INC. | ||
| By: | /s/ HangJin Chen | |
| Name: | HangJin Chen | |
| Title: | President, Secretary and Director | |
| (Principal Executive, Financial and Accounting Officer) | ||
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
| Signature | Title | Date | ||
| /s/ HangJin Chen | ||||
| HangJin Chen | President, Secretary and Director (Principal Executive, Financial and Accounting Officer) |
November 21, 2022 |
| 7 |