| Item 4.02. | Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed Interim
Review. |
On
February 28, 2023 , the audit committee of Singularity Future Technology Ltd. (the “Company”), after discussion with
the management of the Company, and in consultation with the Company’s independent registered public accounting firm, concluded
that the Company’s previously issued financial statements for the fiscal year ended June 30, 2021 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on November 29, 2021 (the “2021
Form 10-K”) should no longer be relied upon as a result of incorrect accounting treatment of approximately $4.6 million of related
party loan receivable.
From
March to June 2019, Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai”), a subsidiary of the Company, received
approximately $6.2 million (RMB 40 million) from a related party, Shanghai Baoyin Industrial Co., Ltd. (“Shanghai Baoyin”),
to pay for accounts receivable of six different customers totaling RMB 40 million. Shanghai Baoyin is 30% owned by Wang Qinggang, the
CEO and legal representative of Trans Pacific Shanghai. Trans Pacific Shanghai subsequently paid RMB 20 million and RMB 10 million to
Zhangjiakou Baoyu Trading Co. Ltd. (“Baoyu”), a third party, in April 2019 and July 2019, respectively, and it made an additional
payment of RMB 10 million to Hebei Baoxie Trading Co., Ltd. (“Hebei Baoxie”), a third party, in July 2019.
As
such, for the fiscal year ended June 30, 2019, accounts receivable was understated by RMB 40 million, advance to supplier was overstated
by RMB 20 million, and other payables from Shanghai Baoyin, a related party, were understated by RMB 20 million. There was an overstatement
of RMB 20 million in total assets and an understatement of total liabilities of RMB 20 million.
During
the fiscal year ended June 30, 2020, Baoxie repaid a total of RMB 10 million to Trans Pacific Shanghai, and Trans Pacific Shanghai advanced
the RMB 10 million to Shanghai Baoyin. The RMB 10 million paid to Shanghai Baoyin was recorded as other receivable, and the RMB 30 million
advance to Baoyu was reclassified from an advance to supplier to other receivable. The Company provided a full allowance of its receivables
totaling RMB 40 million. The Company evaluated this transaction and determined there is no cumulative effect on the Company’s total
assets, liabilities, or retained earnings as of June 30, 2020.
During
the fiscal year ended June 30, 2021, Baoyu repaid RMB 30 million to Trans Pacific Shanghai. The RMB 30 million received was recorded
as recovery of bad debt. Trans Pacific Shanghai then loaned the same amount to Shanghai Baoyin. Shanghai Baoyin subsequently repaid RMB
4 million to Trans Pacific Shanghai, and Trans Pacific Shanghai loaned the same amount to Wang Qinggang. The RMB 30 million received
was recorded as recovery of bad debt for other receivable and the RMB 30 million paid was recorded as a related party loan receivable.
The
Company analyzed the transactions and determined the RMB 30 million was originally from Shanghai Baoyin and eventually paid back to the
same related parties. Recovery of bad debt and related party loan receivable was overstated by RMB 30 million for the fiscal year 2021.
The
Company intends to amend its financial statements for the fiscal year 2021 to restate loans receivable – related parties and bad
debt recovery. The impact of the restatement on the Company’s consolidated statement of operations for the fiscal year ended June
30, 2021 is expected to include the following:
| |
☐ |
recovery
for doubtful accounts decreased by approximately $4.6 million from $321,168 to a provision for doubtful accounts of $4.2 million;
|
| |
☐ | net
loss increased by approximately $4.6 million from $6.7 million to $11.3 million; and |
| |
☐ |
related
party loans receivable decreased by $4.6 million from $4.6 million to nil. |
The
audit committee also concluded that the financial statements for the quarters ended September 30, 2021 and December 31, 2021 included
in the Company’s Quarterly Reports on Form 10-Q (the “2021 Form 10-Qs,” collectively with the 2021 Form 10-K, the “Affected
Reports”), filed with the SEC on November 12, 2021 and February 14, 2022, respectively, should no longer be relied upon as a result
of incorrect recognition of revenue from freight shipping services in the amount of $980,200 for the three months ended September 30,
2021 and six months ended December 31, 2021.
During
the audit for the fiscal year ended June 30, 2022, the Company discovered the error in revenue recognition by its subsidiary, SGS NY
Sino-Global Shipping New York Inc., that $980,200 of revenue recognized in freight logistics did not meet revenue recognition criteria
for the three months ended September 30, 2021 and six months ended December 31, 2021.
In
addition, due to a lack of proper procedures in identifying and recording related party transactions. there was an error in the accounting
treatment of the Company’s recovery (provision) for doubtful accounts, net related to its other receivables.
The
impact of the restatement of recovery (provision) for doubtful accounts includes the following:
| |
☐ | recovery
for doubtful accounts decreased by approximately $1.9 million from approximately $1.9 million to a provision for doubtful accounts
of approximately $34,000 for the three months ended September 30, 2021 and the six months ended December 31, 2021; |
| |
☐ | net
loss increased by approximately $2.2 million from approximately $3.0 million to approximately $5.2 million for the three months ended
September 30, 2021; and |
| |
☐ | net
loss increased by approximately $2.2 million from approximately $11.8 million to approximately $14.0 million for the six months ended
December 31, 2021. |
The
Company intends to correct the errors referenced above in an amendment to (1) the 2021 Form 10-K (the “Amended Form 10-K”)
and (2) each of the 2021 Form 10-Qs (the “Amended Form 10-Qs”). The Company’s management has concluded that in light
of the accounting errors described above, a material weakness exists in the Company’s internal control over financial reporting
and that the Company’s disclosure controls and procedures were not effective as of June 30, 2021, September 30, 2021, December
31, 2021, and June 30, 2022. The Company’s remediation plan with respect to such material weakness will be described in more detail
in the Amended Form 10-K and the Amended Form 10-Qs.
The
Company’s management and the audit committee have discussed the matters disclosed in this Current Report on Form 8-K pursuant to
this Item 4.02 with Audit Alliance LLP, the Company’s independent registered public accounting firm.