Shengda Network Technology, Inc. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from __________ to _______________

Commission File Number: 333-227526

SHENGDA NETWORK TECHNOLOGY, INC.

(Exact name of small Business Issuer as specified in its charter)

(778) 888-2886

Issuer’s telephone number, including area code:

Securities Registered Pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: N/A

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No ☐

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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). Yes ☒ No ☐

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (December 31, 2021) $67,312,088.

As of October 28, 2022, there were 14,009,945 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K (the “Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of Shengda Network Technology, Inc. and its consolidated subsidiaries (the “Company”) that are based on management’s current expectations, estimates, projections and assumptions about the Company’s business. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed in, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and elsewhere in this Report as well as those discussed from time to time in the Company’s other U.S. Securities and Exchange Commission (the “SEC”) filings and reports. In addition, such statements could be affected by general industry and market conditions. Such forward-looking statements speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.

PART I

Background

Shengda Network Technology, Inc. (the “Company”) was incorporated on March 14, 2018 in the State of Nevada under the name “Soltrest, Inc. On March 30, 2020, we filed an amendment to its Articles of Incorporation changing our name to “Shengda Network Technology, Inc.”

On April 20, 2020, we purchased 100% of the shares of Peaker International Trade Group Limited (Hong Kong) (“Peaker”) for a total purchase price of US$1,330. This purchase was made through our wholly owned subsidiary Jingmao Webmall, Inc., incorporated in the Cayman Islands on August 11, 2020. Peaker presently owns 100% of Zhejiang Jingmai Electronic Commerce Ltd., which is located in Zhejiang province, China. Thereafter, on May 15, 2020, Peaker incorporated in China a 100%-owned subsidiary, Zhejiang Jingmai Electronic Commerce Ltd. (China) (“Jingmai Electronic”) which is intended to serve as an operating company in China for our activities in China.

Jingmai Electronic has begun to supply goods to various social e-commerce platforms and merchants. Social e-commerce refers to the process of engaging customers at every point of their buying journey. Jingmai Electronic is designed to provide high-quality supply chain resources and is quicky moving into live broadcast management services in order to provide sustainable development for the Company. Jingmai Electronic, and its subsidiaries, also intend to provide comprehensive services, such as supply chain management and live broadcasting resources to TikTok and other social e-commerce platforms.

Recent Developments

On April 22, 2022, the Company obtained 99% ownership of the following subsidiaries:

The interest in all of these subsidiaries was acquired for no consideration.

On June 28, 2022, the board of directors (the “Board”) of the Company dismissed SS Accounting & Auditing, Inc., as the Company’s independent registered public accounting firm, and engaged Paris Kreit & Chiu CPA LLP, (“Paris Kreit”), as the Company’s new independent registered public accounting firm.

On August 15, 2022, the size of the 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 Committee, a Nominating Committee and a Compensation Committee and also adopted a Code of Business Conduct and Ethics. The Company also adopted amended and restated bylaws.

Covid-19 Pandemic

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The Company is currently monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread.

While the Company’s operations are principally located outside the United States, we utilize various consultants located in the United States, we participate in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

Description of Product or Services

We provide portals (similar to Amazon, Inc.) for the sale of products offered by reliable manufacturers and merchants at competitive prices. Products run the gamut from electronics to daily consumable products, food and clothing. We purchase goods according to market demand, directly from manufacturers that we have standing relationships with. The goods we source include, but are not limited to, electronic products, daily consumer goods such as shampoo and toothpaste, and various other items.

We then sell the goods we purchase, as well as products from other reliable merchants, to our various customers. Our Company is similar to a wholesaler in that our customers purchase goods from us bulk. We aim to effectively organize suppliers, manufacturers and distributors in order to minimize the costs of the whole supply chain system and offer competitive prices. Our Company does not warehouse or store any of the good we purchase. If the manufacturer we purchase from is not able to ship the goods directly to our customers, then our Company manages the logistics and arranges for a third-party shipping company.

Our Company actively cooperates with other listed or state-owned enterprises. On May 23, 2022, we entered into a commodity purchase contract, through Yiwu Tianqi Enterprise Management Co., Ltd., with Kunming Pharmaceutical Group, a state-owned enterprise. We also engage with companies whose products we feel are of good quality and that also need new channels, specifically social e-commerce. We cooperate with these companies so that they can expand their sales and supplies by offering our products and services on their sites

Target Market and Clients/Potential Clients

Our current target market is China, where we engage in e-commerce services. In recent years, with the rapid rise of social e-commerce, the Company began to diversify. Our sales channels have gradually changed from offline to online and from a single product sales business into a more comprehensive business of supply chain management.

The products supplied through our channels are high-quality and readily available products offered by a significant number of registered companies to members on our sales portals. At this date, we have over 500,000 registered and active members. We also do online market promotion through our online shopping malls and membership networks, word of mouth and social media such as WeChat. We also intend to offer products through offline stores and customer service centers. It is our goal to build the strongest Internet shopping channel in China.

During the initial phase of our development, our main target clients were individual users that browse internet on a daily basis. Beginning in January 2022, our second and current phase of business development is focusing on growth through providing services and products to small companies. If we succeed with these smaller companies, we intend to offer our products and services to medium sized corporations.

Sources of Revenue

Our revenue is generated in three main areas: traditional trade sales, which are sales to physical, offline stores; online wholesale sales, which are sales to online sellers; and sales of services which provide enterprises with marketing and promotion related services such as providing live broadcasting resources, technical services, and promotional services, among others.

We have identified three main marketing client groups associated with the various streams of revenue: individual users of personal computers and other internet enabled devices, and medium sized companies.

We are marketing to personal computing and other internet enabled device users with our WebMall sales and service. As of 2021, there were 340 million sales of personal computers and internet enabled devices, and several billion are expected over the next three to five years. Capturing a small sector of this user population could allow us to sell our products and services at a very attractive and affordable prices.

Growth Strategy

Within the next six months, we will provide services to a variety of locales in China. Zhejiang is the center of China, and we have estimated that 80% of our members are in Hubei, Jiangxi, Shanxi, Hebei, Anhui, Fujian and other provinces. Our members include users who register with us through email. The services we intend to provide are traditional trade sales, which are sales to physical, offline stores; online wholesale sales, which are sales to online sellers; and sales of services which provide enterprises with marketing and promotion related services such as providing live broadcasting resources, technical services, and promotional services, among others.

Once we have a core of business in China, we plan to expand to Southeast Asia, Europe and Latin America in over the next five to six years.

Competition

Currently, our competitive position within the industry is negligible in light of the fact that we have just recently started our operations. There are currently in the market larger and better-financed companies providing similar services.

The online sales industry is highly competitive. We compete with other numerous other firms, including larger regional, national and international firms that may have financial, operational, technical and marketing resources that exceed our own. Among these competitors are Amazon, Inc., Alibaba, Jingdong, and PinDuoDuo. Competitive factors include the level of technical expertise and experience, industry reputation, quality of work, price, geographic presence, dependability, availability of skilled personnel and financial stability. Our management believes that we can compete favorably with our competitors on the basis of these factors. There can be no assurance that our competitors will not develop the expertise, experience and resources to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position.

Competitive Advantages

We believe that our business model provides certain competitive advantages:

Employees

As of October 28, 2022, we had 50 employees, all of whom were full-time.

Uncertainties Facing the Company

As an early-stage company, the Company expects to experience losses in the near term. The Company needs to generate additional revenue or locate additional financing in order to continue its developmental plans. There is no guarantee that the Company will be able to identify sufficient numbers of customers to generate enough revenues to continue operations or proceed with developing its business in accordance with its business plan.

One of the biggest challenges facing the Company will be in securing adequate capital to fund to keep operation, including securing adequate capital to pay for operations and hiring service providers. Secondarily, a major challenge will be implementing effective sales and marketing strategies to reach the intended end customers. The Company has considered and devised its initial sales, marketing and advertising strategy; however, the Company will need to skillfully implement this strategy in order to achieve success in its business.

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19). On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Report, many states in the United States are still experiencing high rates of infection and many countries around the world, including the United States and China, have taken steps to restrict travel. The existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the markets in which we operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

As a “smaller reporting company,” we are not required to provide the information required by this Item.

None.

On January 5, 2021, Zhejiang Jingmai Electronic Commerce Ltd. leased an office on the 4^th floor of Block 3A, Lugang E-commerce Town, Yiwu City, in Zhejiang, China. The lease term of the office is from January 5, 2021 to April 5, 2022. There was a rent-free period January 5, 2021 to April 5, 2021. The monthly rent is $388. On March 20, 2022, Zhejian Jingmai Electronic Commerce Ltd. leased an office in Zhejiang, China. The lease term of the office is from April 1, 2022 to March 30, 2023. The monthly rent is $373.

We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Not applicable.

PART II

Market Information

Common Stock

Our common stock is quoted on the OTC Pink under the symbol “SDWL.” On October 12, 2022, the closing price of our stock was $7.70.

Our common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.

Preferred Stock

Series A Preferred Stock

On November 10, 2020, the Board designated 1,000,000 shares as “Series A Preferred Stock”. The original issue price of each share of Series A Preferred Stock was $1.00. The terms and rights of the Series A Preferred Stock as set forth below.

Liquidation Preference

In the event of any liquidation, dissolution, or winding up of the corporation, either voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of all other shares of stock but after distribution of such assets among, or payment thereof to holders of any preferred stock designated senior to the Series A Preferred Stock, an amount equal to $1.00, the Series A original issue price for each share of Series A Preferred Stock, plus an amount equal to all declared but unpaid dividends on Series A Preferred Stock (the “Series A Liquidation Preference”).

After the payment of the full Series A Liquidation Preference, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock in an amount equal to the Series A Liquidation Preference; after such distribution to the holders of the Common Stock, the remaining assets of the corporation legally available for distribution, if any, shall be distributed ratably among the Series A Preferred Stock and the Common Stock. If the assets and funds legally available for distribution among the holders of Series A Preferred Stock shall be insufficient to permit the payment to the holders of the full Series A Liquidation Preference, then the assets and funds shall be distributed ratably among holders of Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock owned by each holder.

Voting Rights

Except as otherwise provided in the Certificate of Designation or required by law, the holders of the Series A Preferred Stock shall be entitled to vote, in the same manner and with the same effect as the holders of Common Stock, voting together with the holders of Common Stock as a single class. As to any matter on which the holders of Series A Preferred Stock shall be entitled to vote, the holders of the outstanding Series A Preferred Stock shall have voting rights equal to an aggregate of seventy-five percent (75%) of the total shares entitled to vote by both (i) the holders of all of the then outstanding shares of Common Stock (whether or not such holders vote) and (ii) the holders of all of the then outstanding shares of voting shares of the Company.

Redemption

The Company shall have the right to redeem the Series A Preferred Stock, plus any accrued and unpaid dividends, in whole but not in part, at any time or from time to time, at a cash redemption price equal to the aggregate Series A original issue price the Series A Preferred Stock being redeemed (the “Redemption Amount”) plus an amount equal to the amount of the accrued and unpaid dividend thereon.

Holders

As of the close of business on October 12, 2022, we had approximately 450 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. Our transfer agent is Equity Stock Transfer LLC, 237 W 37th St Suite 602, New York, NY 10018, (212) 575-5757, www.equitystock.com. The transfer agent is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and operates under the regulatory authority of the SEC and FINRA. In addition, we have one holder of 50,000 shares of Preferred Stock as of the close of business on October 12, 2022.

Dividends

We have not paid any dividends to date and have no plans to do so in the immediate future.

Options and Warrants

We do not have any outstanding options or warrants.

Securities Authorized for Issuance under Equity Compensation Plans

As of June 30, 2022, we had no securities authorized for issuance under equity compensation plans either approved or not approved by our shareholders.

Recent Sales of Unregistered Securities

On July 15, 2020, the Company sold 723,500 shares of Common Stock to 72 investors for aggregate gross proceeds of $1,447,000.

On July 20, 2020, the Company sold 499,328 shares of Common Stock to 49 investors for aggregate gross proceeds of $998,656.

On July 28, 2020, the Company sold 606,928 shares of Common Stock to 52 investors for aggregate gross proceeds of $1,213,856.

On August 31, 2020, the Company sold 803,500 shares of Common Stock to 92 investors for aggregate gross proceeds of $1,607,000.

On October 15, 2020, the Company sold 531,856 shares of Common Stock to 98 investors for aggregate gross proceeds of $963,713. In addition, the Company issued 33,333 shares of common stock to a related party for a cash consideration of $2,000.

On November 2, 2020, the Company sold 3,551,500 shares of common stock to investors for $3,972,500.

On November 2, 2020, the Company sold 3,165,112 shares of common stock to 436 investors for a cash consideration of $6,230,225. at the sale price of $2.00 per share. In addition, the Company issued 333,333 shares of common stock to a related party for cash proceeds of $302,000.

On November 20, 2020, the Company issued 50,000 shares of Series A Preferred Stock in settlement of advances payable to an officer of $2,000.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D or Regulation S promulgated thereunder) as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.”

Cautionary Note Concerning Factors That May Affect Future Results

This Annual Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements.

Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “should,” “could,” “forecast” and other words and terms of similar meaning, typically identify such forward-looking statements. In particular, these include, among others, statements relating to:

Overview

We were incorporated on March 14, 2018, in the State of Nevada. On March 30, 2020, we filed an amendment to our Articles of Incorporation changing our name to “Shengda Network Technology, Inc.”

On April 20, 2020, we purchased 100% of the shares of Peaker International Trade Group Limited (Hong Kong) (“Peaker”) for a total purchase price of US$1,330. This purchase was made through our wholly owned subsidiary Jingmao Webmall, Inc., incorporated in the Cayman Islands on August 11, 2020. Peaker presently owns 100% of Zhejiang Jingmai Electronic Commerce Ltd., which is located in Zhejiang province, China. Thereafter, on May 15, 2020, Peaker incorporated in China a 100%-owned subsidiary, Zhejiang Jingmai Electronic Commerce Ltd. (China) (“Jingmai Electronic”) which is intended to serve as an operating company in China for our activities in China.

Jingmai Electronic has begun to supply goods to various social e-commerce platforms and merchants. Social e-commerce refers to the process of engaging customers at every point of their buying journey. Jingmai Electronic is designed to provide high-quality supply chain resources and is quicky moving into live broadcast management services in order to provide sustainable development for the Company. Jingmai Electronic, and its subsidiaries, also intend to provide comprehensive services, such as supply chain management and live broadcasting resources to TikTok and other social e-commerce platforms.

On April 22, 2022, the Company obtained 99% ownership of the following subsidiaries:

The interest in all of these subsidiaries was acquired for no consideration.

Description of Our Business

The Company’s principal business, through Jingmai Electronic, is providing an e-commerce portal (similar to Amazon or Wish) for the sale of products. We purchase goods according to market demand, directly from manufacturers that we have standing relationships with. The goods we source include, but are not limited to, electronic products, daily consumer goods such as shampoo and toothpaste, and various other items.

We then sell the goods we purchase, as well as products from other reliable merchants, to our various customers. Our Company is similar to a wholesaler in that our customers purchase goods from us bulk. We aim to effectively organize suppliers, manufacturers and distributors in order to minimize the costs of the whole supply chain system and offer competitive prices. Our Company does not warehouse or store any of the good we purchase. If the manufacturer we purchase from is not able to ship the goods directly to our customers, then our Company manages the logistics and arranges for a third-party shipping company.

Our Company actively cooperates with other listed or state-owned enterprises. We currently have a commodity purchase contract with Kunming Pharmaceutical Group. We also engage with companies whose products we feel are of good quality and that also need new channels, specifically social e-commerce. We cooperate with these companies so that they can expand their sales and supplies by offering our products and services on their sites.

Restatement of Correction of an Error

As of and for the years ended June 30, 2021, the Company had sales, accounts receivable and loan balances with a customer. In preparing the financial statements, management failed to identify and disclose the fact that the customer being a related party to the Company within the definition of ASC 850. The Company also failed to disclose this fact to the auditors of the Company.

 Management has identified a material weakness in understanding and knowledge of US GAAP.

This Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form 10-K/A amends the Annual Report on Form 10-K of Shengda Network Technology, Inc. for the fiscal year ended June 30, 2021, as filed with the Securities and Exchange Commission (“SEC”) on September 28, 2021 (the “Original Filing”). In the Original Filing, Management concluded that Statements for the periods beginning with the first quarter of 2021 through the third quarter of 2022 (collectively, the “Affected Periods”) should be restated due to the missing disclosure of the related party transactions.

Results of Operations

Fiscal Year Ended June 30, 2022 Compared to June 30, 2021

The following table summarizes the results of our operations during the fiscal years ended June 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or decrease from the current 12-month period to the prior 12-month period:

During the year ended June 30, 2022, we had revenues of $3,957,283, compared to revenues of $9,489,187 for the year ended June 30, 2021, a decrease of $5,531,904 (58.3%) due to the Company’s transformation and the continued impact of the global Covid-19 pandemic as well as the return of bad debt provisions.

Operating expenses totaled $458,211 for the year ended June 30, 2022, compared to $4,020,368 for the year ended June 30, 2021, a decrease of $3,562,157 (88.6%). This decrease was attributable to the Company’s profits from business activities and the receivable recovered. Other income, net totaled $4,324,608 for the year ended June 30, 2022, compared to $20,049 for the year ended June 30, 2021, an increase of $4,601,104, or 22949.3%. This increase was attributable to increased interest income and recovery of uncollectible accounts.

We recorded net income of $4,324,608 for the fiscal year ended June 30, 2022 as compared to a net loss of $2,716,347 for the fiscal year ended June 30, 2021. This increase was due to interest income and recovery of uncollectible accounts.

Liquidity and Capital Resources

Liquidity and Capital Resources for the year ended June 30, 2022 compared to the year ended June 30, 2021

To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences, and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

No assurance can be given that sources of financing will be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures or may be required to reduce the scope of our planned service development and marketing efforts, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:

Operating Activities

For the year ended June 30, 2022, net cash used in operating activities of $8,066,026 was primarily a result of income of $4,324,608, depreciation and amortization of $19,165, provision for uncollectible receivables of $12,780, and an increase in operating assets and liabilities of $2,444,313 due to a decrease in accounts receivable of $1,709,284, no increase or decrease in prepaid expenses, a decrease in accounts payable of $389,562, a decrease in advance to suppliers of approximately $10 million, an increase in accrued expenses and other payables of $213,551, and a decrease in advances and deposits of $30,982.

For the year ended June 30, 2021, net cash used in operating activities of $2,562,524 was primarily a result of a loss of $2,716,347, depreciation and amortization of $12,871, provision for uncollectible receivables of $3,749,348, and an increase in operating assets and liabilities of $3,608,396 due to an increase in accounts receivable of $4,177,743, a decrease in prepaid expense of $4,325, an increase in accounts payable of $467,573, an increase in accrued expenses and other payables of $68,577, an increase in advances and deposits of $30,202, and a decrease in other payables to a related party of $1,330.

Investing Activities

Net cash provided by investing activities for the year ended June 30, 2022, of $8,365,090, resulted from proceeds from collection of loan receivable from related party of $8,365,090.

Net cash used in investing activities for the year ended June 30, 2021, of $8,443,822, resulted from cash advanced to a customer as loan receivable of $8,365,926, and cash paid for purchase of a vehicle of $77,896.

Financing Activities

Net cash provided by financing activities for the year ended June 30, 2022, was $0.

Net cash provided by financing activities for the year ended June 30, 2021, was $6,232,225, which consisted of cash received of $2,000 from proceeds from the sale of preferred stock to a related party and 6,230,225 from proceeds from the sale of our common stock.

Future Capital Requirements

Our current available cash and equivalents are sufficient to satisfy our liquidity 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.

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.

Going Concern

The accompanying financial statements were prepared on a going concern basis. The Company recorded a net income of $4,324,608 for the year ended June 30, 2022; excluding the recovery of bad debt from net income during the year ended June 30, 2022, the Company had a net income from operations of $491,068. The Company had cash flows from operating activities of negative $8,066,026 for the year ended June 30, 2022. These matters raise substantial doubt about our ability to continue as a going concern for a period of one year from the date of this filing. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Our management plans to provide for our capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our business plan or generate positive operating results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management believes the Company’s cash on hand will be sufficient to fund all of our obligations and commitments for the next twelve months. Historically, we have depended on equity and debt capital raises to provide us with working capital as required. There is no guarantee, however, that such funding will be available in the future and there can be no assurance that our stockholders, or any of them, will continue making loans or advances to us in the future.

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.

Inflation

Our business and operating results as reported have not been affected in any material way by inflation. However, the Company is aware that global inflation is increasing, and it expects that inflation will affect the Company during fiscal year ending June 2023, though it cannot predict at this point in what ways.

Critical Accounting Policies

The SEC 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 SEC 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.

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.

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

JUNE 30, 2022 AND 2021

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Opinion on the Financial Statements

To the Board of Directors and Stockholders of Shengda Network Technology, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Shengda Network Technology, Inc. (the “Company”) as of June 30, 2021, and 2020, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2021, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021, and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern. As described in Note 1 to the financial statements, the Company recorded a net loss for the year ended June 30, 2021, used net cash flows in operating activities, and has a net decrease in cash for the year ended June 30, 2021. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Restatement of 2021 Financial Statements

As discussed in Note 2 to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct a misstatement. 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ SS Accounting & Auditing, Inc.

We have served as the Company’s auditor from 2020 to 2022.

Plano, Texas

September 28, 2021, except for Note 2, as to which the date is October 28, 2022.

PCAOB Firm ID : 6717

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Shengda Network Technology, Inc.

Opinion on the Financial Statements

We audited the accompanying consolidated balance sheet of Shengda Network Technology, Inc. (the “Company”) as of June 30, 2022, and the related consolidated statements of operations and comprehensive (loss) income, changes in shareholders’ equity, cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the company as of June 30, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Going Concern

As discussed in Note [1] to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note [1]. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Collectability of Advances to Supplier

As stated in Note 4 to the financial statements, on February 2, 2022, the Company entered into a purchase agreement with its major supplier and agreed to purchase $26,873,292 (RMB 180,000,000) inventory over the next three years. As of June 30, 2022, the Company made advance payment of $8,216,644 (RMB 55,035,906) to the supplier, of which $5,922,077 (RMB 39,666,667) is recorded as advance to supplier – non-current. Management expects no collectability issue with the advances to supplier and recorded $0 reserve to the advances.

We identified such advance as a significant risk during our audit. Our procedures related to management’s collectability of advances to the supplier include the following: (1) We inquired management of the business purpose of the advances to the supplier. (2) We reviewed management’s due diligence procedures performed on the supplier’s financial information. (3) We vouched the payments made to the supplier. (4) We examined subsequent inventory activities and estimated total inventory purchase from the supplier in the next three fiscal years. (5) We confirmed outstanding advance balance with the supplier. (6) We performed background check to the supplier and interviewed with supplier’s owner. (7) We performed economic analysis on products purchased from the supplier by the Company.

/s/ Paris, Kreit & Chiu CPA LLP

We have served as the Company’s auditor since 2022.

New York, New York

October 28, 2022

PCAOB Firm ID: 6651

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

The accompanying notes are an integral part of consolidated financial statements.

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

The accompanying notes are an integral part of consolidated financial statements.

SHENGDA NETWORK TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEAR ENDED JUNE 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 consumable products, food and clothing.

On April 20, 2020, the Company purchased 10,000 shares of common stock of Peaker International Trade Group Limited (“Peaker”) for $1,330. These shares comprised of 100% of the then issued and outstanding shares of common stock of Peaker. Peaker was formed in 2018 in Hong Kong. On May 15, 2020, Peaker formed a Company in China called Zhejiang Jingmai Electronic Commerce Ltd., of which Peaker is the sole shareholder.

On August 28, 2020, Zhejiang Jingmai Electronic Commerce Ltd set up a 99% owned subsidiary Zhejiang Xiaojing e-commerce Co., Ltd. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Yiwu Tianqi Enterprise Management Co., Ltd which was incorporated on November 23, 2020 for no consideration. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer 99% ownership of Zhejiang Jingmai e-commerce Co., Ltd which was incorporated on November 25, 2020 for no consideration. On April 22, 2022, Zhejiang Jingmai Electronic Commerce Ltd received transfer of 99% ownership of Zhejiang Jingtao Supply Chain Co., Ltd which was incorporated on November 24, 2020 for no consideration. These companies plan to develop business in the following fields: wholesale and retail of wide range of products, management, import and export, network integration and IT service, and more fields.

Risk and Uncertainty Concerning COVID-19 Pandemic

Since the occurrence of COVID-19 in January 2020, it has posed great impacts in China. However, the COVID-19 outbreak has limited impact on our businesses and operation. The Company mainly operates in Zhejiang Province China, that had few 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 in 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.

Anhui Province found more local COVID-19 cases in 2021. 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.

Going Concern

The Company demonstrates adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to sell its stock to the investing community and obtain necessary financing to continue operations, and the attainment of profitable operations. The Company recorded a net income of $4,324,608 for the year ended June 30, 2022; excluding the recovery of bad debt from net income during the year ended June 30, 2022, the Company had a net income from operations of $491,068. The Company had cash flows from operating activities of negative $8,066,026 for the year ended June 30, 2022. These factors, among others, raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The consolidated financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 2 - Restatement for Correction of an Error

During the year end June 30, 2021, the Company had sales amounting to $5,278,370 with a customer that accounted for 56% of the total revenue for the year ended June 30, 2021. For the year ended June 30, 2020, the Company had sales with that customer amounting to $253,803 that accounted for 100% of the total revenue for the year ended June 30, 2020. The Company also had an accounts receivable balance in the amount of $1,640,779 as of June 30, 2021, with that customer. The management subsequently discovered that the customer is a related party within the definition ASC 850.

On October 25, 2020, the Company signed an agreement with a related party, which is also the Company’s major customer. The Company agreed to loan the related party $8,957,764  (RMB60,000,000) at an annual interest rate of 7.2%. The loan is guaranteed by a Company’s supplier which is also an important partner of the Company’s major customer and due on October 25, 2021. The borrower is required to pay all the principal and the relevant interest in full amount on the due date. The total loan receivable, net of allowance $0 and $6,417,350 as of June 30, 2022 and 2021, respectively. The principal and the relevant interest in full have been paid off in February 2022. As of June 30, 2021, the Company recognized $2,163,419 allowance of bad debt against the loan receivable from related party. During the year ended June 30, 2022, the Company reversed the $2,163,419 allowance and recognized the entire amount as other income in the accompany consolidated statement of operations and comprehensive income (loss). During the year ended June 30, 2022, the Company recognized the interest income of $764,421 and wrote off the interest income of $66,905. The management subsequently discovered that the customer is a related party within the definition ASC 850.

In the Company’s annual reports on Form 10-K for the years ended June 30, 2020 and June 30, 2021 and related quarterly reports (collectively, the “Affected Reports”), the Company is correcting the disclosure by reporting the above as related party transactions and balances.

The following is a comparison of restated financial statements to financial statements as previously reported: