Singularity Future Technology Ltd. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our 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 Sino-Global has focused on providing customers with customized shipping agency and freight logistic services but has since begun looking aggressively at diversifying its revenue and service mix by seeking new growth opportunities to expand its business due to increased margin compression. These opportunities have ranged from complementary businesses to other service and product initiatives. In fiscal year 2021, while we continue to provide our current traditional logistics business, we will integrate the traditional business with modern technology to develop new business model. On December 14, 2020, we incorporated a new entity named “Blumargo IT Solution Ltd.” with 80% ownership in partnership with Tianjin Anboweiye Technology Co. to build up hi-tech and information-based logistic services to meet the higher and complicate demand of customers. On June 30, 2021, we increased the ownership to 100%. On April 13, 2021, we formed a joint venture in which the Company owned 99% equity interest of Hainan Saimeinuo Trading Co., Ltd., in the free tax zone in Hainan Province, China, with a register capital of approximately $1.5 million. This subsidiary primarily engages in freight logistics services. On April 21, 2021, we entered into a cooperation agreement with Mr. Bangpin Yu to set up a 51% owned joint venture in U.S. named “Brilliant Warehouse Service Inc” to support our freight logistics services in the U.S. Starting from March 2021, we are pursuing the development of blockchain technology to leverage information technology and other innovative technologies in our business platform. These types of technology may be helpful in expanding our traditional logistics service expertise. Over the last two months, national and local governments in China have gradually restricted and banned cryptocurrency mining operations, causing owners of servers like the Products to cease operations. The Company has been advised that the operation of the mining has been paused by Yanghuai, which had continued to operate the products on behalf of us. Based on amended agreement signed by the Company and Yanghuai on September 17, 2021, the Company is not liable for rest of the contract price and has title to half of the products. The Company recorded impairment for the mining equipment in the last quarter of 2021 in the amount of approximately $0.9 million. The outbreak of the novel coronavirus (“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 the COVID-19 as a pandemic. Given the continually expanding of COVID-19 pandemic in China and United States, 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. The impacts of COVID-19 on our business, financial condition, and results of operations include but are not limited to, the following: ● Our customers have been negatively impacted by the pandemic, which continue to reduce demand for the shipping agency and management as well as freight logistics services in fiscal year 2021. As a result, our revenue, gross profit and net income have been continually impacted in fiscal year 2021. Our revenue and gross profit for the year ended June 30, 2021 were down by approximately $1.4 million, or 21.2%, and $2.7 million, or 93.8%, respectively. ● Our suppliers have been and could continue to be negatively impacted by the COVID-19 outbreak, which may continually impact our cost of freight, or result in higher cost of revenue, which may in turn materially adversely affect our financial condition and operating results in coming months. 12 Recent developments: In July 2021, we registered a new company Gorgeous Trading Ltd. which is 100% owned by Sino-Global Shipping New York Inc. This company will be mainly responsible for our smart warehouse and related business in Texas. On August 31, 2021, the company formed a joint venture, Phi Electric Motor, Inc in New York, which is 51% owned by Sino-Global Shipping New York Inc. Company Structure We, founded in 2001, are a non-asset based global shipping and freight logistics integrated solutions provider. We provide tailored solutions and value-added services for our customers to drive efficiency and control in related steps throughout the entire shipping and freight logistics chain. We conduct our business primarily through our wholly-owned subsidiaries in the People’s Republic of China (the “PRC” or “China”) (including Hong Kong) and the U.S., where a majority of our clients are located. We operate in three operating segments, including (1) shipping agency and management services, operated by our subsidiaries in the U.S.; (2) freight logistics services, operated by our subsidiaries in the PRC; and (3) container trucking services, operated by our subsidiaries in the U.S. Our corporate structure diagram as of the date of this report is as below: Results of Operations Comparison of the Years ended June 30, 2021 and 2020 Revenues Revenues decreased by $1,384,924, or approximately 21.2%, from $6,535,956 for the year ended June 30, 2020 to $5,151,032 for the same period in 2021. The decrease was primarily due to the loss of revenue from several customer contracts for our shipping management services and no revenue generated from our container trucking services during the period. One of our shipping management services contracts we entered into with customers starting in the first quarter of fiscal year 2020 expired during the year. The decrease was also due to the decrease in revenues from container trucking services as our service contracts with customers had expired and there was no new business for this segment partly because of the stalled trade negotiations between the U.S. and China. As some of our existing freight logistics services contacts has been executed during the year ended June 30, 2021, this segment was our main revenue source for the year ended June 30, 2021. 13 The following tables present summary information by segments mainly regarding the top-line financial results for the years ended June 30, 2021 and 2020: For the Year ended June 30, 2021 Shipping Agency and Management Services Freight Logistics Services Container Trucking Services Total Net revenues $ 206,845 $ 4,944,187 $ - $ 5,151,032 Cost of revenues $ 176,968 $ 4,797,427 $ - $ 4,974,394 Gross profit $ 29,878 $ 146,760 $ - $ 176,638 Depreciation and amortization $ 299,934 $ 36,300 $ - $ 336,234 Total capital expenditures $ 130,076 $ 407,954 $ - $ 554,030 Gross margin % 14.4 % 3.0 % - % 3.4 % For the Year ended June 30, 2020 Shipping Agency and Management Services Freight Logistics Services Container Trucking Services Total Net revenues $ 2,105,651 $ 4,368,596 * $ 61,709 $ 6,535,956 Cost of revenues $ 827,690 $ 2,795,859 * $ 55,314 $ 3,678,863 Gross profit $ 1,277,961 $ 1,572,737 $ 6,395 $ 2,857,093 Depreciation and amortization $ 340,421 $ 7,684 $ 54,189 $ 402,294 Total capital expenditures $ 6,984 $ - $ - $ 6,984 Gross margin% 60.7 % 36.0 % 10.4 % 43.7 % * For the year ended June 30, 2020, gross revenues and gross cost of revenues related to these contracts amounted to approximately $25.8 million and $24.3 million, respectively. There was no such transaction for the year ended June 30, 2021. % Changes For the Year ended June 30, 2021 to 2020 Shipping Agency and Management Services Freight Logistics Services Container Trucking Services Others Total Net revenues (90.2 )% 13.2 % (100.0 )% 0.0 % (21.2 )% Cost of revenues (78.6 )% 71.6 % (100.0 )% 0.0 % 35.2 % Gross profit (97.7 )% (90.7 )% (100.0 )% 0.0 % (93.8 )% Depreciation and amortization (11.9 )% (372.4 )% (100.0 )% 0.0 % (16.4 )% Total capital expenditures 1,848.3 % 100.0 % 0.0 % 0.0 % 7,689.4 % Gross margin% (46.2 )% (33.0 )% (10.4 )% 0.0 % (40.3 )% Disaggregated information of revenues by geographic locations are as follows: For the Years Ended June 30, June 30, 2021 2020 PRC 4,921,022 4,368,596 U.S. 230,010 2,167,360 Total revenues $ 5,151,032 $ 6,535,956 14 Revenues (1) Shipping Agency and Management Services For the years ended June 30, 2021 and 2020, shipping agency and management services generated revenues of $206,845 and $2,105,651, respectively, representing an approximately 90.2% decrease in revenues. The decrease in this segment was because the shipping agency and management services agreements we entered in fiscal year 2020 have expired and were not renewed due to the uncertainty of the shipping management market which has been negatively impacted by the COVID-19 pandemic. (2) Revenues from Freight Logistics Services Freight logistics services primarily consist of cargo forwarding, brokerage and other freight services. During the year ended June 30, 2021, revenues increased by approximately 13.2% compared to the same period in 2020. The increase was due to increase from our major customer due to its shipping demand in China. In addition, we established a wholly owned entity in March 2021 and formed two joint ventures in April 2021 to support our freight logistics services. We believe our revenues from freight logistics services will continue to grow with the operations of these three entities. For the year ended June 30, 2020, we acted as an agent in arranging the relationship between the customers and the third-party service providers and did not control the services rendered to the customers and our revenues on freight logistics contacts were accounted for on a net basis. For all the freight logistics services that we provided to our clients for the year ended June 30, 2021, we acted as the principal and controlled the freight logistics services which we can recognize our revenue much faster in comparison with the same period in 2020. (3) Revenues from Container Trucking Services For the years ended June 30, 2021 and 2020, revenues generated from container trucking services were nil and $61,709, respectively. Overall revenues from this segment decreased by $61,709 or 100.0%. The decrease in revenues from this segment was primarily due to expiration of container trucking services contracts with our customers as the pending trade negotiations between the U.S. and China. The related gross profit decreased by $6,395 from $6,395 gross profit for the year ended June 30, 2020 to nil for the same period in 2021. We do not expect an increase in revenue from this segment in the foreseeable future due to the current U.S. and China trade dynamics. However, we plan to continue to provide services on an as needed basis on short-term contracts. Operating Costs and Expenses Operating costs and expenses decreased by $12,863,192 or approximately 53.0%, from $24,274,060 for the year ended June 30, 2020 to $11,410,868 for the year ended June 30, 2021. This decrease was mainly due to the decrease in selling expenses, impairment loss of fixed assets and intangible asset, provision for doubtful accounts and stock-based compensation, offset by cost of revenues and general and administrative expenses as discussed below. The following table sets forth the components of our costs and expenses for the periods indicated: For the Years Ended June 30, 2021 2020 Change US$ % US$ % US$ % Revenues 5,151,032 100.0 % 6,535,956 100.0 % (1,384,924 ) (21.2 )% Cost of revenues 4,974,394 96.6 % 3,678,863 56.3 % 1,295,531 35.2 % Gross margin 3.4 % N/A 43.7 % N/A (40.3 )% N/A Selling expenses 297,906 5.8 % 393,617 6.0 % (95,711 ) (24.3 )% General and administrative expenses 5,605,670 108.8 % 3,386,690 51.8 % 2,218,980 65.5 % Impairment loss of fixed assets and intangible asset 855,230 16.6 % 327,632 5.0 % 527,598 161.0 % Provision for doubtful accounts, net of recovery (321,168 ) (6.2 )% 14,910,502 228.1 % (15,231,670 ) (102.2 )% Stock-based compensation - - 1,576,756 24.1 % (1,576,756 ) (100.0 )% Total costs and expenses 11,412,032 221.6 % 24,274,060 371.3 % (12,862,028 ) (53.0 )% 15 Cost of Revenues Cost of revenues consisted primarily of freight costs to various freight carriers, cost of labor, other overhead and sundry costs. Cost of revenues was $4,974,394 for the year ended June 30, 2021, an increase of $1,295,531, or approximately 35.2%, as compared to $3,678,863 for the same period in 2020. The overall cost of revenues as a percentage of our revenues increased from approximately 56.3% for the year ended June 30, 2020, to approximately 96.6% for the same period in 2021. The increase of costs was mainly due to the fact that the costs of our PRC domestic and export services to our freight carriers were higher for the year ended June 30, 2021 compared to the same period in 2020 due to the overall increase in freight costs by shipping carriers since the pandemic while we are not able to transfer all the costs to our customers. In addition, our gross margin further decreased due to decrease in shipping management segment where we have incurred certain fixed cost. As a result, our gross profit margin decreased by approximately 40.3% from approximately 43.7% for the year ended June 30, 2020 to approximately 3.4% for the same period in 2021. Selling Expenses Our selling expenses consisted primarily of salaries and travel expenses for our sales representatives. For the year ended June 30, 2021, we had $297,906 of selling expenses, as compared to $393,617 for the same period in 2020, which represents a decrease of $95,711 or approximately 24.3%. The decrease was mainly due to approximately $96,000 decrease in salaries and travel expenses as we have fewer employees and limited activities for our selling team under COVID-19 comparing to the same period of 2020. General and Administrative Expenses Our general and administrative expenses consist primarily of salaries and benefits, travel expenses for administration department, office expenses, regulatory filing and professional service fees including audit, legal and IT consulting. For the year ended June 30, 2021, we had $5,605,670 of general and administrative expenses, as compared to $3,386,690 for the same period in 2020, representing an increase of $2,218,980, or approximately 65.5%. The increase was mainly due to the increase in professional expenses of approximately $1,415,000 as we spend more resources on business development to expand our business, with expenses including due diligence and professional fees for seeking potential acquisition target, and consulting expenses for new business development, the increase in employees, offices and other general and administrative expenses of approximately $1,150,000 as we hired more employees and opened more office locations to expand our freight logistics services, offset by the decrease in IT expense of approximately $324,000. Impairment loss of fixed assets and intangible asset For the year ended June 30, 2020, we recorded $327,632 of impairment loss of fixed assets and intangible asset due to the continued decrease in revenues generated from the inland transportation management segment. Impairment loss of $855,230 was recorded for the year ended June 30, 2021 mainly for our mining equipment as a result of regulation change in China to ban cryptocurrency mining. Provision for Doubtful Accounts, net of recovery We made $1,378,459 provision for doubtful accounts for accounts receivable and $3,098,852 for long term deposits offset by the recoveries of other receivable of $4,798,479 for the year ended June 30, 2021 compared to $15,051,209 provision for doubtful accounts and offset by the recoveries of accounts receivable of $99,366 and other receivable - related party of $41,341 for the same period in 2020, a decrease of $15,231,670, or approximately 102.2%. This change is mainly due to collection of other receivables. Stock-based Compensation Stock-based compensation was nil for the year ended June 30, 2021, a decrease of $1,576,756 or 100.0%, as compared to $1,576,756 for the same period in 2020. Stock-based compensation decreased significantly from the year ended June 30, 2020 to the same period in 2021 because no stock award was granted. Operating loss We had an operating loss of $6,261,000 for the year ended June 30, 2021, compared to $17,738,104 for the same period in 2020. Such change was the result of the combination of the changes discussed above. 16 Other expenses, net Total other expenses, net was $508,597 for the year ended June 30, 2021, an increase of approximately $504,075 or 11,147%, as compared to $4,522 for the same period in 2020. The change was caused by increase in other expenses due to the increase in a settlement payment of a dispute on cooperative profit sharing of approximately $0.8 million. The increase was offset by the PPP loan forgiveness which we recorded as a gain of approximately $0.1 million and the income generated from cryptocurrencies mining of approximately $0.3 million. Taxation We recorded income tax expense $3,450 and $186,021 for the years ended June 30, 2021 and 2020, respectively. We have incurred a cumulative U.S. federal NOL of approximately $6,456,000 as of June 30, 2020, which may reduce future federal taxable income. The NOL generated prior to the year ended June 30, 2017 amounted to approximately $1,400,000 will expire in 2037 and the remaining balance carried forward indefinitely. During the year ended June 30, 2021, approximately $6,087,000 of additional NOL was generated and the tax benefit derived from such NOL was approximately $1,278,000. Our operations in China have incurred a cumulative a cumulative NOL of approximately $5,961,000 as of June 30, 2020, which may reduce future taxable income. The NOL amounted to approximately $700,000 start expiring from 2023 and the remaining balance of NOL will be expired by 2026. During the year ended June 30, 2021, approximately $65,000 of additional NOL was generated and the tax benefit derived from such NOL was approximately $16,000. We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of the deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. Management considers new evidence, both positive and negative, that could affect our 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. We determined that it is more likely than not our deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration of trade negotiation between the U.S. and China. We provided a 100% allowance for its deferred tax assets as of June 30, 2021. The net increase in valuation for the year ended June 30, 2021 amounted to approximately $1,890,000 based on management’s reassessment of the amount of our 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 $6,773,047 for the year ended June 30, 2021, compared to $17,928,647 for the same period in 2020. After the deduction of non-controlling interest, net loss attributable to us was $6,823,343 for the year ended June 30, 2021, compared to $16,452,894 for the same period in 2020. Comprehensive loss attributable to us was $6,364,762 for the year ended June 30, 2021, compared to $16,943,111 for the same period in 2020. Liquidity and Capital Resources Cash Flows and Working Capital As of June 30, 2021, we had $44,837,317 in cash (cash on hand and cash in bank). We held approximately 98.6% of our cash in banks located in the U.S., Australia and Hong Kong and held approximately 1.4% of our cash in banks located in the PRC. As of June 30, 2021, we had the following loans outstanding: Loans Maturities Interest rate June 30, 2021 Small business administration loan May 2050 3.75 % $ 155,405 17 The following table sets forth a summary of our cash flows for the periods as indicated: For the Years Ended June 30, 2021 2020 Net cash used in operating activities $ (4,150,112 ) $ (3,896,534 ) Net cash used in investing activities $ (6,040,185 ) $ (1,358 ) Net cash provided by financing activities $ 54,200,082 $ 1,220,601 Effect of exchange rate fluctuations on cash $ 696,350 $ (334,177 ) Net increase (decrease) in cash $ 44,706,135 $ (3,011,468 ) Cash at the beginning of year $ 131,182 $ 3,142,650 Cash at the end of year $ 44,837,317 $ 131,182 The following table sets forth a summary of our working capital: June 30, June 30, 2021 2020 Variation % Total Current Assets $ 46,867,349 $ 1,913,319 $ 44,954,030 2,349.5 % Total Current Liabilities $ 5,343,648 $ 5,808,865 $ (465,217 ) (8.0 )% Working Capital (Deficit) $ 41,523,701 $ (3,895,546 ) $ 45,419,247 (1,165.9 )% Current Ratio 8.77 0.33 8.44 2,562.5 8 % 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 June 30, 2021, our working capital was approximately $41.5 million and we had cash of approximately $44.8 million. We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations as they become due for at least the next twelve months. Operating Activities Our net cash used in operating activities was approximately $4.1 million for the year ended June 30, 2021. The operating cash outflow for the year ended June 30, 2021 was primarily attributable to our net loss of $6.8 million, non-cash items of approximately $1.0 million such as depreciation and amortization and impairment. We had an increase in advances to suppliers - third parties as we made advances to our suppliers of approximately $1.3 million, and a decrease in accrued expenses and other current liabilities of approximately $1.1 million offset by a decrease in other receivables of approximately $4.2 million as we collected our outstanding balances. Our net cash used in operating activities was approximately $3.9 million for the year ended June 30, 2020 compared to net cash used in operating activities of approximately $4.3 million for the same period in 2019. The operating cash outflow for the year ended June 30, 2020 was primarily attributable to our net loss of approximately $17.9 million, of which approximately $1.6 million of stock compensation expense, approximately $0.3 million of impairment loss of fixed assets, approximately $0.4 million of depreciation and amortization expenses of fixed assets and intangible asset and approximately $14.9 million for provision of doubtful accounts were non-cash expenses. We had an increase in other receivables of approximately $5.8 million as we prepaid certain costs of commodities on behalf of our customers offset by a decrease of approximately $1.1 million in accounts receivable, approximately $0.4 million of notes receivable and approximately $0.4 million of due from related parties as a result of collections made during the year. Investing Activities Net cash used in investing activities was $6,040,185 for the year ended June 30, 2021 due to the acquisition of property and equipment of approximately $1.5 million, loan receivable of approximately $3.9 million and loan to related party of approximately $0.6 million. Net cash used in investing activities was $1,358 for the year ended June 30, 2020, mainly for the purchase of computer equipment and making office leasehold improvement of $6,984. The cash outflow was offset by proceeds from disposal of vehicle of $5,626. 18 Financing Activities Net cash provided by financing activities was approximately $54.2 million for the year ended June 30, 2021 due to cash proceeds received from issuance of common stock to private investors for approximately $52.8 million and cash proceeds received from issuance of preferred stock to a private investor for approximately $1.4 million. Net cash provided by financing activities was approximately $1.2 million for the year ended June 30, 2020, due to cash proceeds received from issuance of common stock to a private investor for approximately $0.9 million and approximately $0.3 million from SBA and PPP loans. Critical Accounting Policies 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 us and include the assets, liabilities, revenues and expenses of the subsidiaries and VIEs. All intercompany transactions and balances have been eliminated in consolidation. Consolidation of VIE Sino-Global Shipping Agency Ltd., a PRC corporation (“Sino-China”), is considered a variable interest entity (“VIE”), with us as the primary beneficiary. We, through Trans Pacific Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which we receive 90% of Sino-China’s net income. As a VIE, Sino-China’s revenues are included in our total revenues, and any income/loss from operations is consolidated with that of us. Because of contractual arrangements between us and Sino-China, we have a pecuniary interest in Sino-China that requires consolidation of the financial statements of us and Sino-China. We have consolidated Sino-China’s operating results in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”. The agency relationship between us and Sino-China and its branches is governed by a series of contractual arrangements pursuant to which we have substantial control over Sino-China. Management makes ongoing reassessments of whether we remain the primary beneficiary of Sino-China. Use of Estimates and Assumptions The preparation of 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 our consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of revenues, allowance for doubtful accounts, impairment loss, deferred income taxes, income tax expense and the useful lives of property and equipment. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our 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. Revenue Recognition We recognize revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange. We identified contractual performance obligations and determine 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. Our revenue streams are recognized at a point in time. We use a five-step model to recognize revenue from customer contracts. The five-step model requires that we (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) we satisfy the performance obligation. 19 We continue to derive revenues from sales contracts with customers with revenues being recognized upon performance of services. Persuasive evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. Our revenues are recognized at a point in time after all performance obligations are satisfied. Contract balances We record receivables related to revenue when we have 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. Taxation Because we and our subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. We use 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 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. We recognize 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. We recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense. We had no uncertain tax positions as of June 30, 2021 and 2020. Income tax returns for the years prior to 2016 are no longer subject to examination by U.S. tax authorities. PRC Enterprise Income Tax PRC enterprise income tax is calculated based on taxable income determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”) at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC. PRC Value Added Taxes and Surcharges We are subject to value added tax (“VAT”). Revenue from services provided by the our PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to VAT at rates ranging from 9% to 13%. Entities that are VAT general taxpayers are allowed to offset qualified VAT paid to suppliers against their VAT liability. Net VAT liability is recorded in taxes payable on the consolidated balance sheets. In addition, under the PRC regulations, our PRC subsidiaries and affiliates are required to pay the city construction tax (7%) and education surcharges (3%) based on the net VAT payments. We prepare our consolidated financial statements in accordance with U.S. GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable. Recent Accounting Pronouncements Pronouncements adopted In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. We adopted this ASU on July 1, 2020 and the adoption has no significant impact to our consolidated financial statements as a whole. 20 Pronouncements not yet adopted In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after July 1, 2023, including interim periods within those fiscal years. We have not early adopted this update and it will become effective on July 1, 2023 assuming we will remain eligible to be smaller reporting company. We are currently evaluating the impact of this new standard on our consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. We believe the adoption of this new standard will not have material impact on our consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The amendments in this Update to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for the Company for annual and interim reporting periods beginning July 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after July 1, 2021, including interim periods within those fiscal years. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. We believe the adoption of this new standard will not have material impact on our consolidated financial statements and related disclosures. In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs”. The amendments in this Update represent changes to clarify the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. ASU 2020-08 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. Early application is not permitted. All entities should apply the amendments in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. These amendments do not change the effective dates for Update 2017-08. We believe the adoption of this new standard will not have material impact on our consolidated financial statements and related disclosures. In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after July 1, 2021 for public business entities. Early application is permitted. The amendments in this Update should be applied retrospectively. We are currently evaluating the impact of this new standard on our consolidated financial statements and related disclosures. We believe the adoption of this new standard will not have material impact on our consolidated financial statements. 21 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data. The Company’s financial statements and the related notes, together with the report of Audit Alliance LLP, are set forth following the signature pages of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.