Singularity Future Technology Ltd. - SGLY

New Idea

Newly christened Chinese crypto-currency hardware provider Singularity Future Technology Ltd. will be added to the next interest list.  Until recently Singularity (SGLY) was better known as Sino-Global Shipping America Ltd. (SINO), a money-losing Chinese provider of “logistics” services to the global shipping industry.  The discovery of COVID appears to have hastened a decline in their business which in turn brought about a change in corporate focus.  Whatever the hot buzz word or business idea of the day was, these folks were willing to give it a shot: first they attempted to set up an NFT exchange with Hong Kong-based company CyberMiles, and then they figured maybe Tesla was onto something and decided to incorporate subsidiary “Phi Electric Motor,” and they even purchased some bitcoin mining machines and made an investment for some miners in Mongolia.  But apparently what they always really wanted to do was to be involved in the cryptocurrency market, and that discovery finally led to a “strategic partnership” with Shenzhen Highsharp Electronic Ltd. In the production of their “Thor Miner” cryptocurrency bitcoin mining machines.  With development now complete and their first contract under their belts, the company recently wrote off and terminated their VIE agreement with Sino-Global Shipping at the end of 2021 and transformation from logistics provider to a full-scale cryptocurrency hardware provider to the mining industry is now complete.

Singularity Future Technology Ltd. (SGLY - $12.75)

Shares Outstanding: 17.5M shares + 13.5M warrants

So you now purport to have an ASIC certified bitcoin mining setup (their “good miner”, “better miner”, and “fancy miner” – is it just me, or do all those pictures look the same?), you find yourself in need of some customers and, maybe just as importantly, that customer needs a good data warehouse located next to a stable and cheap power source in order to stack up all of their newly purchased equipment.  Maybe, just maybe, they can go for a two-fer and do the proverbial two birds with one stone and find a client who has both already set up.

Enter fellow money-losing Chinese company and data warehouse play SOS Ltd. (SOS).  Like SGLY, SOS Ltd. is newly christened to the data warehousing industry; until recently, they were better known as a money-losing Chinese peer-to-peer lending operation that was winding down their business due to Chinese regulatory oversight, when they decided to completely shift business plans too.  Last year SOS set up a subsidiary called SOS Information Technology New York Inc. which promptly ordered $200M worth of the SGLY Thor Miner machines to set up in their brand new Wisconsin facility. 

“On January 10, 2022, the Company’s joint venture, Thor Miner Inc (“Thor”), entered into a Purchase and Sale Agreement with SOS Information Technology New York Inc. (the “Buyer”). Pursuant to the Purchase and Sale Agreement, Thor agreed to sell and the Buyer agreed to purchase certain cryptocurrency mining hardware and other equipment. The total amount of the Purchase and Sale Agreement is $200,000,000. Thor and the Buyer agreed that the Buyer shall make payment equal to 50% of the total purchase price within 5 days after the execution of the Purchase and Sale Agreement, and the remaining 50% for each order shall be paid at least seven (7) calendar days before the shipment.”

Now, coughing up $100M up front sounds like quite a bit of money, but SOS supposedly had $185M in cash at the end of June and then in November they pulled off a 51.5M share ADS secondary at $1.75 and raised around $83M in additional funds. But upfront?  Within 5 days?  Hmm.

“Subsequently, Thor and the Buyer agreed that the Buyer shall make payment equal to 50% of the total purchase price of each order within 5 days, and the remaining 50% for each order shall be paid at least seven (7) calendar days before the shipment. The first order under the Purchase and Sale Agreement Thor received was a $80,000,000 order placed on January 10, 2022. As of the date of this report, Thor has already received the $40,000,000 for the first order.”

So on January 14th, less than a week after signing this agreement, the folks at SGLY supposedly had $40M in their bank accounts and were well on their way towards completing their first order for Thor Miner machines.  SOS, likewise, was putting to use some of the cash on their balance sheet, and was well on their way to proving the skeptics wrong (Hindenburg Research apparently tweeted about them in early 2021).  Unfortunately for them, one of their skeptics is the SEC, as highlighted in a recent 6K:

“On February 16, 2022, the Company received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting the production of certain documents related to an investigation by the SEC (the “Investigation”). The SEC’s subpoena, like the Lawsuit, refers to a February 26, 2021, derogatory report about the Company published by Hindenburg Research LLC, to which the Company responded in a press release dated March 1, 2021. Among the documents the SEC seeks are those pertaining to the matters discussed in the report and to the Company’s assertions in the press release that the report contained false information. Because the Investigation is at an early stage, the Company cannot predict its outcome, duration, or any potential consequences at this time. The SEC has not advised the Company that it has concluded any legal violation has occurred, but any Investigation potentially could result in government enforcement actions and, to civil and/or criminal sanctions under relevant laws. The Company intends to cooperate with the SEC with respect to the Investigation.”

So SOS pays them $40M on January 14th, and then on February 25th SOS announces that the SEC opened an investigation on February 16th which is supposedly based only on a series of Hindenburg Research tweets (perhaps one exists, but I can’t find an actual SOS research report from last February on the Hindenburg web site) sent out more than a year ago?  BTW, the initial response out of SOS was slightly less than underwhelming and I don’t believe they ever put out anything more detailed than that.  Anyways, I’m not doubting that the SEC can be extremely slow to catch up on things, and all of this was apparently happening at the same time Hindenburg was helping the SEC to expose that wonderful J&J Purchasing ponzi scheme.  While it is possible that perhaps the SEC thought that they may take a look under the hood of some of the other Hindenburg Research targets, but the timing makes it sound like a bit of a stretch.  Either way, SGLY finds itself with a contract from a company that is under an SEC investigation, which is unlikely to be a positive.

Now oddly enough (though perhaps it makes perfect sense), SGLY apparently isn’t the first crappy Chinese money-losing company to come up with this business plan, nor are they the first to team up with Shenzhen Highsharp Electronic Ltd. as their partner.  Back on September 27th, 2021, bitcoin mining rival AGM Group Holdings (AGMH) entered into a “strategic partnership” with Highsharp in the production of bitcoin mining machines, which they promptly named the Koi Miner C16 and started to sell.  Now, if you look really closely, the older KOI MINER C16 series bitcoin miner and the THOR MINER machines not only look extremely similar, they also have all of the same specs, including the same hash rates, power consumption, and power efficiency as each other.  What are the chances of that?  They both team together with the same partner, and they get the same product.  If that wasn’t by design, then you would think these folks would be trying to protect the integrity of their “strategic partnership,” but of course they’re not.  How many other money-losing Chinese outfits do you think are out there selling a rebranded ASIC bitcoin mining setup developed by the folks over at Highsharp?  Probably tons.

At the end of June 2020 the old SINO had less than $1M of cash on their balance sheet and less than $6M worth of assets, the majority of which were receivables due from related parties.  A 1 for 5 reverse split soon followed, as did a 9M share offering of stock that raised $48M, so that by the end of June 2021 the company had $44M in their coffers.  Additional offerings and warrants would follow, bringing the share count back up to the 17.5M level along with around 17.5M or so outstanding warrants and their cash at the end of December was in the $54M range.  Revenues have continued to decline, while outstanding receivables to insiders have continued to increase, but of course none of that is going to matter if they can make good on their new-found business venture of selling rebranded bitcoin mining machines to US-based miners.  Will the SEC investigation into their only announced customer to date make a difference?  Can they avoid getting tangled up in that investigation?  Can SGLY prosper where SOS and AGMH have seen their share prices significantly reduced?  Stay tuned.