U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period endedDecember 31, 20172019
☐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 001-34024
Sino-Global Shipping America, Ltd.
(Exact name of registrant as specified in its charter)
Virginia | 11-3588546 | |
(State or other jurisdiction of | (I.R.S. employer | |
Incorporation or organization) | identification number) |
1044 Northern Boulevard, Suite 305
Roslyn, New York | 11576-1514 | |
(Address of principal executive offices) | (Zip Code) |
(718) 888-1814
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | SINO | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer | Smaller reporting company ☒ |
Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
IndicateAs of February 18, 2020, the number ofCompany has 18,239,037 shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. As of February 12, 2018, the Company has 10,435,535 issued and outstanding shares of common stock.outstanding.
SINO-GLOBAL SHIPPING AMERICA, LTD.
FORM 10-Q
INDEX
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to projected growth, trends and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,”“look”, “may”, “will”, “should”, “might”, “believe”, “plan”, “expect”, “anticipate”, “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to the following:
● | Our ability to timely and properly deliver our services; |
● | Our dependence on a limited number of major customers and related parties; |
● | Political and economic factors in the |
● | Our ability to expand and grow our lines of business; |
● | Unanticipated changes in general market conditions or other factors, which may result in cancellations or reductions in the need for our services; |
● | Economic conditions which would reduce demand for services provided by the Company and could adversely affect profitability; |
● | The effect of terrorist acts, or the threat thereof, on the demand for the shipping and logistic industry which could, adversely affect the Company’s operations and financial performance; |
● | The acceptance in the marketplace of our new lines of business; |
● | Foreign currency exchange rate fluctuations; |
● | Hurricanes, outbreak of contagious diseases or other natural disasters; and |
● | Our ability to attract, retain and motivate skilled personnel. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update this forward-looking information unless required by applicable law or regulations.
ii
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATESItem 1.Financial Statements
INDEX TO FINANCIAL STATEMENTS
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 7,219,848 | $ | 8,733,742 | ||||
Accounts receivable, less allowance for doubtful accounts of $763,984 and $185,821 as of December 31, 2017 and June 30, 2017, respectively | 4,248,363 | 2,569,141 | ||||||
Other receivables, less allowance for doubtful accounts of $145,279 and $145,244 as of December 31, 2017 and June 30, 2017, respectively | 318,827 | 37,811 | ||||||
Advances to suppliers-third parties | 14,611 | 54,890 | ||||||
Advances to suppliers-related party | 3,473,717 | 3,333,038 | ||||||
Prepaid expenses and other current assets | 230,721 | 311,136 | ||||||
Due from related parties, net | 2,372,996 | 1,715,130 | ||||||
Total Current Assets | 17,879,083 | 16,754,888 | ||||||
Property and equipment, net | 217,335 | 187,373 | ||||||
Intangible assets, net | 184,722 | - | ||||||
Prepaid expenses | - | 6,882 | ||||||
Other long-term assets | 119,059 | 117,478 | ||||||
Deferred tax assets | 1,823,100 | 749,400 | ||||||
Total Assets | $ | 20,223,299 | $ | 17,816,021 | ||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Advances from customers | $ | 360,744 | $ | 369,717 | ||||
Accounts payable | 506,989 | 206,211 | ||||||
Taxes payable | 2,258,737 | 1,886,216 | ||||||
Due to related parties | - | 206,323 | ||||||
Accrued expenses and other current liabilities | 359,748 | 418,029 | ||||||
Total Current Liabilities | 3,486,218 | 3,086,496 | ||||||
Income tax payable - noncurrent portion | 440,219 | - | ||||||
Total Liabilities | 3,926,437 | 3,086,496 | ||||||
Commitments and Contingencies | ||||||||
Equity | ||||||||
Preferred stock, 2,000,000 shares authorized, no par value, none issued. | - | - | ||||||
Common stock, 50,000,000 shares authorized, no par value; 10,611,032 and 10,281,032 shares issued as of December 31, 2017 and June 30, 2017, respectively; 10,435,535 and 10,105,535 outstanding as of December 31, 2017 and June 30, 2017, respectively | 20,535,379 | 20,535,379 | ||||||
Additional paid-in capital | 1,032,016 | 688,934 | ||||||
Treasury stock, at cost, 175,497 shares as of December 31, 2017 and June 30, 2017 | (417,538 | ) | (417,538 | ) | ||||
Retained earnings (accumulated deficit) | 20,985 | (893,907 | ) | |||||
Accumulated other comprehensive loss | (134,637 | ) | (414,564 | ) | ||||
Total Sino-Global Shipping America Ltd. Stockholders' Equity | 21,036,205 | 19,498,304 | ||||||
Non-controlling Interest | (4,739,343 | ) | (4,768,779 | ) | ||||
Total Equity | 16,296,862 | 14,729,525 | ||||||
Total Liabilities and Equity | $ | 20,223,299 | $ | 17,816,021 |
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 119,667 | $ | 3,142,650 | ||||
Notes receivable | - | 383,792 | ||||||
Accounts receivable, net | 4,330,551 | 7,045,846 | ||||||
Other receivables | 10,316,228 | 4,335,715 | ||||||
Advances to suppliers - third parties | 193,450 | 124,140 | ||||||
Prepaid expenses and other current assets | 94,912 | 105,054 | ||||||
Due from related party, net | 435,898 | 807,965 | ||||||
Total Current Assets | 15,490,706 | 15,945,162 | ||||||
Property and equipment, net | 666,280 | 989,910 | ||||||
Right-of-use assets | 384,794 | - | ||||||
Intangible assets, net | 58,056 | 89,722 | ||||||
Prepaid expenses | 150,412 | 519,503 | ||||||
Other long-term assets - deposits | 3,005,589 | 3,054,706 | ||||||
Total Assets | $ | 19,755,837 | $ | 20,599,003 | ||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Advances from customers | $ | 74,912 | $ | 68,590 | ||||
Accounts payable | 510,667 | 567,619 | ||||||
Lease liabilities - current | 155,820 | - | ||||||
Taxes payable | 3,157,711 | 3,184,895 | ||||||
Accrued expenses and other current liabilities | 1,190,518 | 1,418,129 | ||||||
Total current liabilities | 5,089,628 | 5,239,233 | ||||||
Lease liabilities - noncurrent | 230,262 | - | ||||||
Total liabilities | 5,319,890 | 5,239,233 | ||||||
Commitments and Contingencies | ||||||||
Equity | ||||||||
Preferred stock, 2,000,000 shares authorized, no par value, none issued | - | - | ||||||
Common stock, 50,000,000 shares authorized, no par value; 17,289,537 and 16,054,534 shares issued as of December 31, 2019 and June 30, 2019, respectively; 17,289,537 and 15,879,037 shares outstanding as of December 31, 2019 and June 30, 2019, respectively | 27,308,992 | 26,523,830 | ||||||
Additional paid-in capital | 2,299,823 | 2,066,906 | ||||||
Treasury stock, at cost, 0 and 175,497 shares as of December 31, 2019 and June 30, 2019, respectively | - | (417,538 | ) | |||||
Accumulated deficit | (9,003,386 | ) | (6,968,700 | ) | ||||
Accumulated other comprehensive loss | (967,302 | ) | (671,106 | ) | ||||
Total Sino-Global Shipping America Ltd. Stockholders’ Equity | 19,638,127 | 20,533,392 | ||||||
Non-controlling Interest | (5,202,180 | ) | (5,173,622 | ) | ||||
Total Equity | 14,435,947 | 15,359,770 | ||||||
Total Liabilities and Equity | $ | 19,755,837 | $ | 20,599,003 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net revenues - third parties | $ | 2,021,124 | $ | 10,440,287 | $ | 3,807,350 | $ | 16,617,820 | ||||||||
Net revenues - related party | - | 75,000 | - | 397,000 | ||||||||||||
Total revenues | 2,021,124 | 10,515,287 | 3,807,350 | 17,014,820 | ||||||||||||
Cost of revenues | (755,645 | ) | (8,556,597 | ) | (1,439,049 | ) | (13,640,429 | ) | ||||||||
Gross profit | 1,265,479 | 1,958,690 | 2,368,301 | 3,374,391 | ||||||||||||
Selling expenses | (126,125 | ) | (258,229 | ) | (256,154 | ) | (366,598 | ) | ||||||||
General and administrative expenses | (702,064 | ) | (1,415,040 | ) | (1,793,519 | ) | (2,388,792 | ) | ||||||||
Impairment loss of fixed assets and intangible asset | - | - | (327,632 | ) | - | |||||||||||
Provision for doubtful accounts | (278,676 | ) | (416,706 | ) | (1,167,754 | ) | (1,287,787 | ) | ||||||||
Stock-based compensation | (491,609 | ) | (1,047,376 | ) | (906,317 | ) | (1,864,584 | ) | ||||||||
Total operating expenses | (1,598,474 | ) | (3,137,351 | ) | (4,451,376 | ) | (5,907,761 | ) | ||||||||
Operating loss | (332,995 | ) | (1,178,661 | ) | (2,083,075 | ) | (2,533,370 | ) | ||||||||
Other (expenses) income, net | (15,613 | ) | 782 | (14,157 | ) | 1,494 | ||||||||||
Net loss before provision for income taxes | (348,608 | ) | (1,177,879 | ) | (2,097,232 | ) | (2,531,876 | ) | ||||||||
Income tax expense | (14,747 | ) | (244,979 | ) | (14,747 | ) | (178,513 | ) | ||||||||
Net loss | (363,355 | ) | (1,422,858 | ) | (2,111,979 | ) | (2,710,389 | ) | ||||||||
Net income (loss) attributable to non-controlling interest | 43,978 | 51,114 | (77,293 | ) | 80,345 | |||||||||||
Net loss attributable to Sino-Global Shipping America, Ltd. | $ | (407,333 | ) | $ | (1,473,972 | ) | $ | (2,034,686 | ) | $ | (2,790,734 | ) | ||||
Comprehensive income (loss) | ||||||||||||||||
Net loss | $ | (363,355 | ) | $ | (1,422,858 | ) | $ | (2,111,979 | ) | $ | (2,710,389 | ) | ||||
Other comprehensive income (loss) - foreign currency | 256,206 | (106,762 | ) | (247,461 | ) | (568,924 | ) | |||||||||
Comprehensive loss | (107,149 | ) | (1,529,620 | ) | (2,359,440 | ) | (3,279,313 | ) | ||||||||
Less: Comprehensive (loss) income attributable to non-controlling interest | (49,831 | ) | 26,930 | (28,558 | ) | 133,655 | ||||||||||
Comprehensive loss attributable to Sino-Global Shipping America, Ltd. | $ | (57,318 | ) | $ | (1,556,550 | ) | $ | (2,330,882 | ) | $ | (3,412,968 | ) | ||||
Loss per share | ||||||||||||||||
Basic and diluted | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.12 | ) | $ | (0.21 | ) | ||||
Weighted average number of common shares used in computation | ||||||||||||||||
Basic and diluted | 16,819,010 | 13,769,918 | 16,448,371 | 13,457,726 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
Preferred Stock | Common Stock | Additional paid-in | Treasury Stock | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Shares | Amount | deficit | loss | interest | Total | ||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2018 | - | $ | - | 13,271,032 | $ | 23,717,330 | $ | 1,755,573 | (175,497 | ) | $ | (417,538 | ) | $ | (434,856 | ) | $ | (272,407 | ) | $ | (4,812,828 | ) | $ | 19,535,274 | ||||||||||||||||||||
Stock based compensation to employee | - | - | 430,000 | 473,000 | - | - | - | - | - | - | 473,000 | |||||||||||||||||||||||||||||||||
Stock based compensation to consultants | - | - | 50,000 | 63,500 | - | - | - | - | - | - | 63,500 | |||||||||||||||||||||||||||||||||
Amortization of shares to management and employees | - | - | - | - | 91,000 | - | - | - | - | - | 91,000 | |||||||||||||||||||||||||||||||||
Amortization of shares issued to consultants | - | - | - | - | 189,708 | - | - | - | - | - | 189,708 | |||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | - | (539,656 | ) | 77,494 | (462,162 | ) | |||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | (1,316,762 | ) | - | 29,231 | (1,287,531 | ) | |||||||||||||||||||||||||||||||
BALANCE, September 30, 2018 | - | - | 13,751,032 | 24,253,830 | 2,036,281 | (175,497 | ) | (417,538 | ) | (1,751,618 | ) | (812,063 | ) | (4,706,103 | ) | 18,602,789 | ||||||||||||||||||||||||||||
Stock based compensation to employee | - | - | 1,150,000 | 909,500 | - | - | - | - | - | - | 909,500 | |||||||||||||||||||||||||||||||||
Stock based compensation to consultants | - | - | 100,000 | 128,500 | (43,333 | ) | - | - | - | - | - | 85,167 | ||||||||||||||||||||||||||||||||
Issuance of common stock to private investor | - | - | 420,168 | 500,000 | - | - | - | - | - | - | 500,000 | |||||||||||||||||||||||||||||||||
Amortization of shares issued to consultants | - | - | - | - | 52,709 | - | - | - | - | - | 52,709 | |||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | - | (82,578 | ) | (24,184 | ) | (106,762 | ) | ||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | (1,473,972 | ) | - | 51,114 | (1,422,858 | ) | |||||||||||||||||||||||||||||||
BALANCE, December 31, 2018 | - | $ | - | 15,421,200 | $ | 25,791,830 | $ | 2,045,657 | (175,497 | ) | $ | (417,538 | ) | $ | (3,225,590 | ) | $ | (894,641 | ) | $ | (4,679,173 | ) | $ | 18,620,545 |
Preferred Stock | Common Stock | Additional paid-in | Treasury Stock | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Shares | Amount | deficit | loss | interest | Total | ||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2019 | - | $ | - | 16,054,534 | $ | 26,523,830 | $ | 2,066,906 | (175,497 | ) | $ | (417,538 | ) | $ | (6,968,700 | ) | $ | (671,106 | ) | $ | (5,173,622 | ) | $ | 15,359,770 | ||||||||||||||||||||
Stock based compensation to employees | - | - | 90,000 | 63,000 | - | - | - | - | - | - | 63,000 | |||||||||||||||||||||||||||||||||
Stock based compensation to consultants | - | - | 240,000 | 200,300 | - | - | - | - | - | - | 200,300 | |||||||||||||||||||||||||||||||||
Amortization of shares issued to consultants | - | - | - | - | 180,209 | - | - | - | - | - | 180,209 | |||||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | - | (646,211 | ) | 142,544 | (503,667 | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (1,627,353 | ) | - | (121,271 | ) | (1,748,624 | ) | ||||||||||||||||||||||||||||||
BALANCE, September 30, 2019 | - | - | 16,384,534 | 26,787,130 | 2,247,115 | (175,497 | ) | (417,538 | ) | (8,596,053 | ) | (1,317,317 | ) | (5,152,349 | ) | 13,550,988 | ||||||||||||||||||||||||||||
Stock based compensation to employees | - | - | 230,000 | 156,400 | - | - | - | - | - | - | 156,400 | |||||||||||||||||||||||||||||||||
Stock based compensation to consultants | - | - | 350,000 | 282,500 | - | - | - | - | - | - | 282,500 | |||||||||||||||||||||||||||||||||
Amortization of shares issued to consultants | - | - | - | - | 52,708 | - | - | - | - | - | 52,708 | |||||||||||||||||||||||||||||||||
Issuance of common stock to private investor | - | - | 500,500 | 500,500 | - | - | - | - | - | - | 500,500 | |||||||||||||||||||||||||||||||||
Cancellation of treasury stock | - | - | (175,497 | ) | (417,538 | ) | - | 175,497 | 417,538 | - | - | - | - | |||||||||||||||||||||||||||||||
Foreign currency translation | - | - | - | - | - | - | - | - | 350,015 | (93,809 | ) | 256,206 | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (407,333 | ) | - | 43,978 | (363,355 | ) | |||||||||||||||||||||||||||||||
BALANCE, December 31, 2019 | - | $ | - | 17,289,537 | $ | 27,308,992 | $ | 2,299,823 | - | $ | - | $ | (9,003,386 | ) | $ | (967,302 | ) | $ | (5,202,180 | ) | $ | 14,435,947 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMECASH FLOWS
(UNAUDITED)
For the Three Months Ended December 31, | For the Six Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net revenues - third parties | $ | 4,665,235 | $ | 1,511,624 | $ | 9,480,086 | $ | 2,606,547 | ||||||||
Net revenues - related party | 555,246 | 616,924 | 1,120,406 | 1,466,403 | ||||||||||||
Total revenues | 5,220,481 | 2,128,548 | 10,600,492 | 4,072,950 | ||||||||||||
Cost of revenues | (3,375,878 | ) | (350,796 | ) | (7,041,796 | ) | (657,135 | ) | ||||||||
Gross profit | 1,844,603 | 1,777,752 | 3,558,696 | 3,415,815 | ||||||||||||
General and administrative expenses | (1,827,014 | ) | (776,284 | ) | (2,590,371 | ) | (1,636,198 | ) | ||||||||
Selling expenses | (335,261 | ) | (46,875 | ) | (357,727 | ) | (112,184 | ) | ||||||||
Total operating expenses | (2,162,275 | ) | (823,159 | ) | (2,948,098 | ) | (1,748,382 | ) | ||||||||
Operating income (loss) | (317,672 | ) | 954,593 | 610,598 | 1,667,433 | |||||||||||
Other income (expense) | ||||||||||||||||
Financial income (expense), net | 137,799 | (88,470 | ) | 222,595 | (91,904 | ) | ||||||||||
Total other income (expense) | 137,799 | (88,470 | ) | 222,595 | (91,904 | ) | ||||||||||
Net income (loss) before provision for income taxes | (179,873 | ) | 866,123 | 833,193 | 1,575,529 | |||||||||||
Income tax benefit (expense) | 571,121 | (73,391 | ) | 274,692 | (145,012 | ) | ||||||||||
Net income | 391,248 | 792,732 | 1,107,885 | 1,430,517 | ||||||||||||
Net income (loss) attributable to non-controlling interest | 93,545 | (100,169 | ) | 192,993 | (108,104 | ) | ||||||||||
Net income attributable to Sino-Global Shipping America, Ltd. | $ | 297,703 | $ | 892,901 | $ | 914,892 | $ | 1,538,621 | ||||||||
Comprehensive income | ||||||||||||||||
Net income | $ | 391,248 | $ | 792,732 | $ | 1,107,885 | $ | 1,430,517 | ||||||||
Foreign currency translation income (loss) | 97,600 | (104,312 | ) | 145,317 | (118,882 | ) | ||||||||||
Comprehensive income | 488,848 | 688,420 | 1,253,202 | 1,311,635 | ||||||||||||
Less: Comprehensive income attributable to non-controlling interest | 20,618 | 21,512 | 61,365 | 24,121 | ||||||||||||
Comprehensive income attributable to Sino-Global Shipping America Ltd. | $ | 468,230 | $ | 666,908 | $ | 1,191,837 | $ | 1,287,514 | ||||||||
Earnings per share | ||||||||||||||||
-Basic | $ | 0.03 | $ | 0.11 | $ | 0.09 | $ | 0.19 | ||||||||
-Diluted | $ | 0.03 | $ | 0.11 | $ | 0.09 | $ | 0.18 | ||||||||
Weighted average number of common shares used in computation | ||||||||||||||||
-Basic | 10,367,492 | 8,280,535 | 10,236,513 | 8,280,535 | ||||||||||||
-Diluted | 10,415,503 | 8,342,870 | 10,286,683 | 8,318,541 |
For the Six Months Ended | ||||||||
December 31, | ||||||||
2019 | 2018 | |||||||
Operating Activities | ||||||||
Net loss | $ | (2,111,979 | ) | $ | (2,710,389 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | 906,317 | 1,864,584 | ||||||
Depreciation and amortization | 237,011 | 51,280 | ||||||
Non-cash lease expense | 78,405 | - | ||||||
Provision for doubtful accounts | 1,167,754 | 1,287,787 | ||||||
Impairment loss of fixed assets and intangible asset | 327,632 | - | ||||||
Deferred tax benefit | - | (120,500 | ) | |||||
Changes in assets and liabilities | ||||||||
Notes receivable | 386,233 | - | ||||||
Accounts receivable | 1,629,174 | (5,044,123 | ) | |||||
Other receivables | (5,855,492 | ) | 79,773 | |||||
Advances to suppliers - third parties | (66,691 | ) | (220,166 | ) | ||||
Advances to suppliers - related party | - | 3,294,701 | ||||||
Prepaid expenses and other current assets | 160,497 | 408,642 | ||||||
Other long-term assets - deposits | 96,281 | (2,489,067 | ) | |||||
Due from related parties | 413,408 | 1,091,355 | ||||||
Advances from customers | 5,580 | (295,619 | ) | |||||
Accounts payable | (63,131 | ) | (2,508,225 | ) | ||||
Taxes payable | (76,110 | ) | 305,603 | |||||
Lease liabilities | (77,118 | ) | - | |||||
Accrued expenses and other current liabilities | (233,414 | ) | 286,613 | |||||
Net cash used in operating activities | (3,075,643 | ) | (4,717,751 | ) | ||||
Investing Activities | ||||||||
Acquisition of property and equipment | (7,020 | ) | (9,357 | ) | ||||
Net cash used in investing activities | (7,020 | ) | (9,357 | ) | ||||
Financing Activities | ||||||||
Proceeds from issuance of common stock | 500,500 | 500,000 | ||||||
Net cash provided by financing activities | 500,500 | 500,000 | ||||||
Effect of exchange rate fluctuations on cash | (440,820 | ) | (416,925 | ) | ||||
Net decrease in cash | (3,022,983 | ) | (4,644,033 | ) | ||||
Cash at beginning of period | 3,142,650 | 7,098,259 | ||||||
Cash at end of period | $ | 119,667 | $ | 2,454,226 | ||||
Supplemental information | ||||||||
Income taxes paid | $ | 38,498 | $ | 16,536 | ||||
Non-cash transactions of operating and investing activities | ||||||||
Transfer of prepayment to intangible asset | $ | 218,678 | $ | - | ||||
Initial recognition of right-of-use assets and lease liabilities | $ | 462,361 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATEAFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended December 31, | ||||||||
2017 | 2016 | |||||||
US$ | US$ | |||||||
Cash flows from operating Activities | ||||||||
Net income | $ | 1,107,885 | $ | 1,430,517 | ||||
Adjustment to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Stock - based compensation expense | 9,665 | 92,472 | ||||||
Amortization of stock - based compensation to consultants | 333,417 | 529,569 | ||||||
Depreciation and amortization | 31,742 | 25,407 | ||||||
Provision for (recovery of) doubtful accounts | 837,431 | (108,344 | ) | |||||
Deferred tax benefit | (1,073,700 | ) | - | |||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (2,210,485 | ) | 615,324 | |||||
Other receivables | (234,751 | ) | 219,860 | |||||
Advances to suppliers - third parties | 50,465 | (1,417,731 | ) | |||||
Prepaid expense and other current assets | 80,952 | 42,906 | ||||||
Other long-term assets | - | 5,693 | ||||||
Due from related parties | (921,532 | ) | (133,713 | ) | ||||
Advances from customers | (23,001 | ) | 369,626 | |||||
Accounts payable | 288,283 | (309,941 | ) | |||||
Taxes payable | 731,456 | 174,432 | ||||||
Due to related parties | (206,323 | ) | - | |||||
Accrued expenses and other current liabilities | (61,218 | ) | 386,381 | |||||
Net cash provided by (used in) operating activities | (1,259,714 | ) | 1,922,458 | |||||
Cash flows from investing Activities | ||||||||
Acquisition of property and equipment | (50,278 | ) | - | |||||
Acquisition of intangible assets | (190,000 | ) | - | |||||
Prepayment for acquisition of intangible assets | (10,000 | ) | - | |||||
Net cash used in investing activities | (250,278 | ) | - | |||||
Effect of exchange rate fluctuations on cash and cash equivalents | (3,902 | ) | (14,999 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (1,513,894 | ) | 1,907,459 | |||||
Cash and cash equivalents at beginning of period | 8,733,742 | 1,385,994 | ||||||
Cash and cash equivalents at end of period | $ | 7,219,848 | $ | 3,293,453 | ||||
Supplemental information | ||||||||
Income taxes paid | $ | 60,162 | $ | 6,446 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States (the “U.S.”) in 2001, Sino-Global Shipping America, Ltd., a Virginia corporation (“Sino-Global” or the “Company”), is a non-asset based global shipping and freight logistics integrated solutionssolution provider. The Company provides tailored solutions and value-added services forto its customers to drive effectivenessefficiency and control in related linkssteps throughout the entire shipping and freight logistics chain. The Company conducts its business primarily through its wholly-owned subsidiaries in the U.S., the People’s Republic of China including Hong Kong (the “PRC”), Australia (including Hong Kong) and Canada. Currently,the U.S. where a significant portionmajority of the Company’s business is generated from clients located in the PRC.are located.
The Company’s Chinese subsidiary, Trans Pacific Shipping Limited, a wholly-owned foreign enterprise (“Trans Pacific Beijing”), is the 90% owner of Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”). Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as “Trans Pacific”.
Prior to fiscal year 2016, the Company’sCompany operates in four operating segments including (1) shipping agency business was operated by its subsidiaries in the PRC. The Company’s shippingand management services, werewhich are operated by its subsidiary in Hong Kong. The Company’s shippingKong and chartering services were operated by its subsidiaries in the U.S. and subsidiary in Hong Kong. Currently, the Company’s; (2) inland transportation management services, which are operated by its subsidiaries in the PRC, Hong Kong and the U.S. The Company’s; (3) freight logistics services, which are operated by its subsidiaries in the PRC and the U.S. The Company’s; (4) container trucking services, which are currently operated by its subsidiaries in the PRC and throughthe U.S.
The Company developed a joint venturemobile application which provides a full-service logistics platform for shipping operations between the U.S. and the PRC for short-haul trucking in the U.S. The Company’s newly added bulk cargo container trucking services are currently operated by its subsidiaryand in the U.S.December, 2016, it signed a significant agreement with Sino-Trans Guangxi Logistics Co. Ltd. with a service period from July 1, 2017 to December 31, 2020. The Company has increased its business in the U.S. since the launch of the short haul container truck services web-based platform in December 2016.
In January 2016,platform. The board of the directors (the “Board”) of the Company formed a subsidiary, Sino-Global Shipping LA Inc., a California corporation (“Sino LA”), for the purpose of expanding its business to provide freight logistics services to importers who ship goods into the U.S. The Company expects to generate a majority of its revenues from providing inland transportation services and bulk cargo container services in the coming fiscal year.
In fiscal year 2016, affected by worsening market conditions in the shipping industry, the Company’s shipping agency business sector suffered a significant decrease in revenue due to a reduced number of ships served. As a result,subsequently authorized the Company has suspendedto upgrade its shipping agency services business. Also as a result of these market condition changes, the Company has suspendedenterprise resource planning system (“ERP”) in order to manage its shipping management services business. In addition,operations in December 2015, the Company suspendedreal time throughout its shippingmultiple locations and chartering services business, primarily as a result of the termination of a previously-contemplated vessel acquisition. As of December 31, 2017, the Company’s business segments consist of inland transportation management services, freight logistics services, container trucking services and bulk cargo container services.
In August 2016, the Company’s Board of Directors (the “Board”) authorized management to move forwardintegrate with the development of a mobile application that will provide a full-service logistics platform between the U.S. and the PRC for short-haul trucking in the U.S.
Sino-Global completed development of a full-service logistics platform as of December 2016. Upon the completion of the platform, the Company signed two significant agreements with COSCO Beijing International Freight Co., Ltd. (“COSFRE Beijing”) and Sino-Trans Guangxi in December 2016. Pursuant to the agreement with COSFRE Beijing, the Company will receive a percentage of the total amount of each transportation fee for the arrangement of inland transportation services for COSFRE Beijing’s container shipments into U.S. ports. For the strategic cooperation framework agreement with Sino-Trans Guangxi, which is a subsidiary of Sino-Trans Limited, the Company expects to utilize both parties’ existing resources and establish an integrated logistics plan to provide an end-to-end supply chain solution for customers shipping soybeans and sulfur products from the U.S. to southern PRC via container.
On January 5, 2017, the Company entered into a joint venture agreement and formed a new joint venture company named ACH Trucking Center Corp. (“ACH Center”) with Jetta Global Logistics Inc. (“Jetta Global”). Along with the establishment of ACH Center, the Company began providing short haul trucking transportation and logistics services to customers located in the New York and New Jersey areas. The Company holds a 51% ownership stake in ACH Center. Although the establishment of ACH Center brought benefit for the Company and Jetta Global, it could not satisfy long term development for both the Company and Jetta Global. The Company signed a termination agreement with Jetta Global to terminate the joint venture agreement on December 4, 2017. As ACH center’s operating revenue was less than 1% of the Company’s consolidated revenue and the termination did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations for ACH Center was not reported as discontinued operations under the guidance of Accounting Standards Codification 205.
On January 9, 2017, the Company entered into a strategic cooperation agreement with China Ocean Shipping Agency Qingdao Co. Ltd. (“COSCO Qingdao”). COSCO Qingdao will utilize the Company’s full-service logistics platform to arrange the transportation of its container shipments into U.S. ports. Sino-Global will receive a percentage of the total amount of each transportation fee in exchange for the arrangement of inland transportation services for COSCO Qingdao’s container shipments into U.S. ports.
On February 18, 2017, the Company entered into a cooperative transportation agreement with a related party, Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Zhiyuan Hong Kong, jointly with China Minmetals Corporation and China Metallurgical Group Corporation, acts as the general designer, general equipment provider and general service contractor in the upgrade and renovation project of Perwaja Steel, located in Malaysia (the “Project”). The Company agreed to provide high-quality services, including the design of a detailed transportation plan as well as execution and necessary supervision of the plan at Zhiyuan Hong Kong’s demand, in consideration for which the Company will receive a 1% to 1.25% transportation fee incurred in the Project as a commission for its services rendered (see Note 3 and Note 15). On July 7, 2017, the Company signed a supplemental agreement with the Buyer, pursuant to which the Company will cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs. Pursuant to the supplemental agreement, the Company agrees to make prepayments to Zhiyuan Hong Kong for its share of packaging and transporting costs related to the Project; in return, the Company will receive 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee. The Project is expected to be completed in one to two years and the Company will collect its service fee in accordance with Project completion.web applications.
On September 11, 2017, the Company set up a new wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd. (“Sino Ningbo”), via theits wholly-owned entity, Sino-Global Shipping New York Inc. This subsidiary primarily engages in supply chaintransportation management and freight logistics services.
Starting with fiscal year 2019, current trade dynamics make it more expensive for shipping carrier clients to cost-effectively move cargo into U.S. ports, and as a result, the Company realized a lower shipping volumes and less utilization of its online platform, which has caused the Company to shift its focus back to shipping agency business. The shipping agency industry in China has improved and the number of shipping agencies in overall in the country has decreased, due to both price and the inability of competitors to embrace technology as a resource in serving client needs.
On September 3, 2018, the Company entered into a cooperation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd. to set up a joint venture in Hong Kong named Bright Far East International Shipping Agency Co., Ltd., to engage in worldwide shipping agency operations. The Company has a 51% equity interest in the joint venture. On May 23, 2019, Bright Far East International Shipping Agency Co., Ltd. incorporated in New York and terminated its registration in Hong Kong. There has been no major operation of the joint venture for the three and six months ended December 31, 2019. Currently the Company is conducting the shipping agency business through its wholly-owned Hong Kong subsidiary.
On April 10, 2019, the Company entered into a cooperation agreement with Mr. Weijun Qin, the Chief Executive Officer of a shipping management company in China, to set up a joint venture in New York named State Priests Management Ltd. (“State Priests”), in which the Company will hold a 20% equity interest. On July 26, 2019, the Company signed a revised cooperation agreement with Mr. Weijun Qin which changed the Company’s equity interest in State Priests from 20% to 90%. The Company has not provided any cash contribution to the joint venture and there has been no operation of the joint venture pending the International Ship Safety Management Certificate from the China Classification Society (the “Certificate”). Sino-Global Shipping New York Inc. started providing shipping management related services that do not require certification which includes arranging and coordinating for ship maintenance and inspection this quarter.
On November 6, 2019, the Company signed a revised cooperation agreement with Mr. Weijun Qin to restructure their equity interest in State Priests. Due to State Priests failed to timely obtain the necessary approval from related authorities, Mr. Weijun Qin agreed to exchange 80% equity interest in Sea Continent Management Ltd. (“Sea Continent”), another entity Mr. Qin owns for the Company’s 90% equity interest in State Priests. The equity transfer has been consummated. Sea Continent already has the Certificate but has no operations as of December 31, 2019. There has been no capital injection nor operations of State Priests and Sea Continent as of November 6, 2019, therefore no gain or loss will be recognized in the transaction.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On January 10, 2020, the Company entered into a cooperation agreement with Mr. Shanming Liang, a shareholder of the Company, to set up a joint venture in New York named LSM Trading Ltd., in which the Company will hold a 40% equity interest. No investment has been made by the Company as of the date of this report. The new joint venture will facilitate the purchase agricultural related commodities in U.S. for customers in China and the Company will provide comprehensive supply chain and logistics solutions.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
In The unaudited condensed consolidated financial statements include the opinionaccounts of management, all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair presentationdirectly, indirectly owned subsidiaries and variable interest entity. All intercompany transactions and balances have been included.eliminated in consolidation. Interim results are not necessarily indicative of results of ato be expected for the full year. The information included in this Form 10-Q should be read in conjunction with the information included in the annual report on Form 10-K for the fiscal year ended June 30, 2017 on Form 10-K2019 filed with the SEC on September 27, 2017.30, 2019.
(b) Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany transactions and balances are eliminated in consolidation. A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to: govern the financial and operating policies; appoint or remove the majority of the members of the board of directors; cast a majority of votes at the meeting of the board of directors.
U.S. GAAP provides guidance on the identification of variable interest entity (“VIE”) and financial reporting for entities over which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affects the economic performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE. Sino-Global Shipping Agency Ltd., a PRC corporation (“Sino-China”), is considered a VIE,variable interest entity (“VIE”), with the Company as the primary beneficiary. The Company, through Trans Pacific Beijing,Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s net income. The Company does not receive any payments from Sino-China unless Sino-China recognizes net income during its fiscal year.
As a VIE, Sino-China’s revenues are included in the Company’s total revenues, and any income/loss from operations is consolidated with that of the Company. Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China that requires consolidation of the financial statements of the Company and Sino-China.
The Company has consolidated Sino-China’s operating results because the entities are under common control in accordance with ASCAccounting Standards Codification (“ASC”) 805-10, “Business Combinations”. The agency relationship between the Company and Sino-China and its branches is governed by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China. Management makes ongoing reassessments of whether the Company remains the primary beneficiary of Sino-China. As mentioned elsewhere in this report, due to the worsening market conditions in the shipping industry, Sino-China’s shipping agency business suffered a significant decrease in revenue due to a reduced number of ships served. As a result, the Company has temporarily suspended this business. Sino-China is also providing services in other related business segments of the Company.
The carrying amount and classification of Sino-China’s assets and liabilities included in the Company’s unaudited condensed consolidated balance sheets were as follows:
December 31, | June 30, | December 31, | June 30, | |||||||||||||
2017 | 2017 | 2019 | 2019 | |||||||||||||
Current assets | $ | 38,518 | $ | 16,474 | ||||||||||||
Deposits | 1,631 | 1,655 | ||||||||||||||
Property and equipment, net | 48,632 | 95,765 | ||||||||||||||
Total assets | $ | 88,781 | $ | 113,894 | ||||||||||||
Total current assets | $ | 9,736,634 | $ | 9,327,990 | ||||||||||||
Total assets | 9,877,880 | 9,472,651 | ||||||||||||||
Total current liabilities | 6,279 | 4,517 | ||||||||||||||
Current liabilities: | ||||||||||||||||
Other payables and accrued liabilities | $ | 43,034 | $ | 30,175 | ||||||||||||
Total liabilities | 6,279 | 4,517 | $ | 43,034 | $ | 30,175 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(c) Fair Value of Financial Instruments
We followThe Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 — Unobservable inputs that reflect management’s assumptions based on the best available information.
The carrying value of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of the short-term nature of these instruments.
(d) Use of Estimates and Assumptions
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S.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 Company’s unaudited condensed 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. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(e) Translation of Foreign Currency
The accounts of the Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Sino-China, report their financial positions and results of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the unaudited condensed consolidated statements of operations. The Company translates the foreign currency financial statements of Sino-China, Sino-Global Shipping AustraliaPty Ltd., Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada, Inc., Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) and Trans Pacific Logistic Shanghai Ltd. (“Trans Pacific Shanghai,” collectively with Trans Pacific Beijing, Trans Pacific Shanghai and Sino Ningbo“Trans Pacific”) in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheetsheets’ dates and revenues and expenses are translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive income (loss)loss and accumulated other comprehensive loss as a separate component of equity of the Company, and also included in non-controlling interests.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The exchange rates as of December 31, 20172019 and June 30, 20172019 and for the three and six months ended December 31, 20172019 and 20162018 are as follows:
December 31, | June 30, | Three months ended December 31, | Six months ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
2017 | 2017 | 2017 | 2016 | 2017 | 2016 | December 31, | June 30, | Three months ended December 31, | Six months ended December 31, | |||||||||||||||||||||||||||||||||||||||
Foreign currency | Balance Sheet | Balance Sheet | Profits/Loss | Profits/Loss | Profits/Loss | Profits/Loss | 2019 | 2019 Balance Sheet | 2019 Profits/Loss | 2018 Profits/Loss | 2019 Profits/Loss | 2018 Profits/Loss | ||||||||||||||||||||||||||||||||||||
RMB:1USD | 6.5060 | 6.7806 | 6.6153 | 6.8328 | 6.6428 | 6.7498 | 6.9630 | 6.8657 | 7.0446 | 6.9162 | 7.0296 | 6.8595 | ||||||||||||||||||||||||||||||||||||
AUD:1USD | 1.2797 | 1.3028 | 1.3007 | 1.3357 | 1.2838 | 1.3275 | 1.4226 | 1.4238 | 1.4630 | 1.3945 | 1.4611 | 1.3812 | ||||||||||||||||||||||||||||||||||||
HKD:1USD | 7.8118 | 7.8059 | 7.8076 | 7.7576 | 7.8112 | 7.7571 | 7.7890 | 7.8130 | 7.8256 | 7.8294 | 7.8278 | 7.8373 | ||||||||||||||||||||||||||||||||||||
CAD:1USD | 1.2573 | 1.2982 | 1.2702 | 1.3351 | 1.2620 | 1.3198 | 1.2962 | 1.3092 | 1.3200 | 1.3215 | 1.3200 | 1.3142 |
(f) Cash and Cash Equivalents
Cash and cash equivalents consistconsists of cash on hand and other highly liquid investments which are unrestricted as to withdrawal or use, and which have an original maturity of three months or less when purchased. The Company maintains cash and cash equivalents with various financial institutions mainly in the PRC, Australia, Hong Kong, Canada and the U.S. As of December 31, 20172019 and June 30, 2017,2019, cash balances of $6,812,501$34,910 and $6,246,337,$2,993,913, respectively, were maintained at financial institutions in the PRC, which werePRC. Nil and $2,923,972 of these balances are not covered by insurance as the deposit insurance system in China only insured by anyeach depositor at one bank for a maximum of the Chinese authorities.approximately $70,000 (RMB 500,000). As of December 31, 20172019 and June 30, 2017,2019, cash balancebalances of $364,722$79,203 and $2,462,792,$122,017, respectively, were maintained at U.S. financial institutions, and were insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations. The Hong Kong Deposit Protection Board pays compensation up to a limit of HKD $500,000 (approximately $64,000) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2019 and June 30, 2019, cash balances of $3,140 and $4,386, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong Deposit Protection Board. As of December 31, 2019 and June 30, 2019, amount of deposits the Company had covered by insurance amounted to $118,711 and $198,165, respectively.
(g) Accounts ReceivableNotes receivable
Notes receivable represents trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment. The notes are non-interest bearing and normally paid within three to six months. The Company has the ability to submit request for payment to the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee.
(h) Receivables and Allowance for Doubtful Accounts
Accounts receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current economic trends. Receivables are generally considered past due after 180 days. The Company reserves 25%-50% of the customers balance aged between 181 days to 1 year, 50%-100% of the customers balance over 1 year and 100% of the customers balance over 2 years. Accounts Receivablereceivable are written off against the allowances only after exhaustive collection efforts. The Company recovered $22,869 of accounts receivable for the three and six months ended December 31, 2019 and nil of accounts receivable for the three and six months ended December 31, 2018, respectively. There was no write off for the three months ended December 31, 2019 and 2018. For the six months ended December 31, 2019 and 2018, the Company wrote off $99,366 and nil of accounts receivable, respectively.
Other receivables represent mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, guarantee deposits on behalf of ship owners as well as office lease deposits. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts. For the three and six months ended December 31, 2019, nil and $1,763 was written off of against other receivables, respectively. There was no write off for the three and six months ended December 31, 2018.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(h)(i) Property and Equipment, net
Net propertyProperty and equipment are stated at historical cost less accumulated depreciation. Historical cost comprises the asset’sits purchase price and any directly attributable costs of bringing the assetassets to its working condition and location for its intended use. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
Buildings | 20 years | |
Motor vehicles | 3-10 years | |
Computer and office equipment | ||
Furniture and | fixtures | 3-5 years |
System software | 5 years | |
Leasehold improvements | Shorter of lease term or useful |
The carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset areis less than the asset’sits carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals. Management has determined that thereThere was no impairment for the three months ended December 31, 2019 and 2018. For the six months ended December 31, 2019 and 2018, an impairment of $127,177 and nil were no impairments as of the balance sheet dates.recorded, respectively.
(i)(j) Intangible Assets, net
Intangible assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following estimated useful lives:
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. There was no such impairment as offor the three months ended December 31, 2017.2019 and 2018. For the six months ended December 31, 2019 and 2018, an impairment of $200,455 and nil were recorded, respectively.
(j)(k) Revenue Recognition
RevenueThe Company recognizes revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines 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. The Company’s revenue streams are recognized at a point in time.
The Company uses a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (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) the Company satisfies the performance obligation.
The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized when allupon performance of the following have occurred: (i) persuasiveservices. Persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii)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 determinable, and (iv) the ability to collect is reasonably assuredother incentive. The Company’s revenues are recognized at a point in time after all performance obligations are satisfied.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of December 31, 2019, the Company had outstanding contracts amounting to approximately $1.9 million, all of which is expected to be completed within 6 months from December 31, 2019.
Revenues by segments:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Shipping and management agency services | $ | 500,000 | $ | 889,070 | $ | 1,000,000 | $ | 889,070 | ||||||||
Inland transportation management services | - | 420,000 | - | 1,340,000 | ||||||||||||
Freight logistics services | 1,503,500 | 8,978,923 | 2,745,641 | 14,466,476 | ||||||||||||
Container trucking services | 17,624 | 227,294 | 61,709 | 319,274 | ||||||||||||
Total | $ | 2,021,124 | $ | 10,515,287 | $ | 3,807,350 | $ | 17,014,820 |
● | Revenues from shipping and management agency services are recognized upon completion of services, which coincides with the date of departure of the relevant vessel from port. Advance payments and deposits received from customers prior to the provision of services and recognition of the related revenues are presented as advances from customers. | |
● | Revenues from inland transportation management services are recognized when commodities are being released from the customers’ warehouse. | |
● | Revenues from freight logistics services are recognized when the related contractual services are rendered. For certain freight logistics contracts that the Company entered into with customers starting in the first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, revenues related to this contracts are presented net of related costs. For the three months ended December 31, 2019, gross revenue and gross cost of revenue related to these contracts not presented in the table above amounted to approximately $12.9 million and $12.0 million, respectively. For the six months ended December 31, 2019, gross revenue and gross cost of revenue not presented in the table above related to these contracts amounted to approximately $22.0 million and $20.5 million, respectively. | |
● | Revenues from container trucking services are recognized when the related contractual services are rendered. | |
Bulk cargo container services included shipping of products, arranging cargo container shipping from U.S. to China port, then from China port to end user. Revenue is recognized upon completion of shipping arrangements agreed with customers, either at customer’s designated port or final destination.
(k)(l) Taxation
Because the Company and its subsidiaries and Sino-China arewere incorporated in different jurisdictions, they file separate income tax returns. The Company uses the asset and liability method of accounting for income taxes in accordance with U.S.US 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 unaudited condensed 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.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company recognizes 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. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of December 31, 2019 and June 30, 2019, respectively.
Income tax returns for the years prior to 20142015 are no longer subject to examination by U.S.US tax authorities.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of The Act, the U.S. corporate tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, the U.S. statutory federal blended rate will be approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the Company to re-measure all U.S. deferred income tax assets and liabilities for temporary differences using the blended rate. Net operating loss (“NOL”) carryforwards are limited to 80% of taxable income and can be carried forward indefinitely.
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 Business Tax and Surcharges
Revenues from services provided by the Company’s PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to the PRC business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs of services which are paid on behalf of the customers.
Enterprises or individuals who sell commodities, engage in services or selling of goods in the PRC are subject to a value added tax (“VAT”) in accordance with PRC laws. All of the Company’s revenue generated in the PRC are subject to a VAT on the gross sales price. The VAT rates are 6% and 11%, depending on the type of services provided. The Company is entitled to a deduction or offset for VAT paid on the services rendered by the vendors against the VAT when the Company engage in services.
In addition, under the PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay the city construction taxestax (7%) and education surcharges (3%) based on the calculated business tax payments.
The Company’s PRC subsidiaries and affiliates report revenues net of PRC’s VAT, business tax and surcharges for all the periods presented in the accompanying condensed consolidated statements of operations.
(l)(m) Earnings (loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted average number of common shares of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common shares of the Company were exercised or converted into common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
For the three and six months ended December 31, 2017, the basic average shares outstanding2019 and diluted average shares of the Company outstanding were not the same because the2018, there was no dilutive effect of potential shares of common stock of the Company was dilutive sincebecause the exercise prices for options were lower than the average market price for the related periods. For the three and six months ended December 31, 2017,Company generated a total of 48,011 and 50,170 unexercised options were dilutive, respectively, and were included in the computation of diluted earnings per share. For the three and six months ended December 31, 2016, a total of 62,335 and 38,006 unexercised options were dilutive, respectively, and were included in the computation of diluted EPS. net loss.
(m)(n) Comprehensive Income (loss)(Loss)
The Company reports comprehensive income (loss) in accordance with the authoritative guidance issued by Financial Accounting Standards Board (“FASB”(the “FASB”) issued authoritative guidance which establishes standards for reporting comprehensive income (loss) and its component in financial statements. ComprehensiveOther comprehensive income (loss), refers to revenue, expenses, gains and losses that under US GAAP are recorded as defined, includes all changes inan element of Stockholders’ equity duringbut are excluded from net income. Other comprehensive income (loss) consists of a periodforeign currency translation adjustment resulting from non-owner sources.the Company not using the U.S. dollar as its functional currencies.
(n)(o) Stock-based Compensation
Stock-basedThe Company accounts for stock-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that stock-based payment transactions with employees arebe measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company records stock-based compensation expense at fair value on the grant date and recognizes the expense over the employee’s requisite service period.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 718 amended by ASU 2018-07. Under FASB ASC Topic 718, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received.
Valuations of stock based compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
(o)(p) Risks and Uncertainties
The Company’s business, financial position and results of operations may be influenced by the political, economic, health and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, health and legal environmentenvironments and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Moreover,
(q) Liquidity and Going concern
In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of December 31, 2019, the Company’s working capital was approximately $10.4 million and the Company had cash of approximately $0.1 million. The Company plans to fund continuing operations through identifying new prospective joint venture partners and strategic alliance opportunities for new revenue sources, and by reducing costs to improve profitability and replenish working capital. The Company’s ability to growfulfill its businesscurrent obligations will depend on the future realization of its current assets and maintainthe future revenues generated from its profitabilityoperations.
The Company expects to realize the balance of its current assets within the normal operating cycle of a twelve month period. If the Company is unable to realize its current assets within the normal operating cycle of a twelve month period, the Company may have to consider supplementing its available sources of funds through the following sources:
● | the Company will continuously seek equity financing to support its working capital; On November 13, 2019, the Company entered into a cooperation agreement with Shanming Liang, a director of Guangxi Jinqiao Industrial Group Co., Ltd., to cooperate and expand the bulk cargo container services business. Shanming Liang agreed to purchase 1,000,000 shares of the Company’s common stock at a purchase price of $1.00 per share for aggregate proceeds of $1.0 million pursuant to a stock purchase agreement dated November 14, 2019. The company received a gross proceeds of $500,500 in second quarter of fiscal year 2020. The rest of the payment is expected to be received by the end of the third quarter of fiscal year 2020. | |
● | other available sources of financing from PRC banks and other financial institutions; and | |
● | financial support and credit guarantee commitments from the Company’s shareholders and directors. |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Based on the above considerations, the Company’s management is of the opinion that it may not have sufficient funds to meet the Company’s working capital requirements and current liabilities as they become due one year from issuance of these financial statements. There is no assurance that management will be successful in their plans. There are a number of factors that could potentially arise that could undermine the Company’s plans, such as changes in the PRC government policy, economic conditions, and competitive pricing in the industries that the Company operates in. In addition, the recent outbreak of new coronavirus pandemic in China posed disruption and restrictions on our operations and those of our customers which not only negatively impact our financial conditions but also slowed down the macro-economic development in China. If management is unable to execute this plan, there would likely be negatively affected bya material adverse effect on the natureCompany’s business.
The management has considered whether there is substantial doubt about its ability to continue as a going concern due to 1) the Company’s recurring losses from operations, including approximately $2.0 million net loss attributable to the Company’s stockholders for the six months ended December 31, 2019, 2) accumulated deficit of approximately $9.0 million as of December 31, 2019 and extent3) has negative operating cash flows of services providedapproximately $3.0 million for the six months ended December 31, 2019. All of these factors raise substantial doubt about the ability of the Company to its major customers, Tianjin Zhiyuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) and Tengda Northwest Ferroalloy Co., Ltd. (“Tengda Northwest”).continue as a going concern.
(p) Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation, including reclassification of $125,755 amortization of stock-based compensation to consultants as prepaid expense and other current assets, and reclassification of $504,815 revenue and $390,719 cost of revenue from freight logistics service segment to bulk cargo container service segment. These reclassifications have no effect on the results of operations and cash flows.
(q)(r) Recent Accounting Pronouncements
Revenue Recognition: Pronouncements adopted
In May 2014,February 2016, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company in the first quarter of fiscal year 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional unaudited condensed as defined per ASU 2014-09 (modified retrospective method). The Company is currently assessing the impact to its unaudited condensed financial statements, and has not yet selected a transition approach.
Leases: In February 2016, the FASB issued ASU(“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease amendments to increase the FASB Accounting Standard Codification. This ASU will be effective for us beginning in December 15, 2018.transparency and comparability about leases among entities. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-2 on unaudited condensed financial statements.
Statement of Cash Flows: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s unaudited condensed financial statements and related disclosures.
Business Combination: In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating whenrequires lessees to recognize a set of transferred assetslease liability and activities is a business. This guidance will be effective in the fiscal year beginning after December 15, 2017 and interim periods within those periods on a prospective basis, and early adoption is permitted. The Company does not expect the standard to have a material impact on its consolidated financial statements.
Stock-based Compensation: In May 2017, the FASB issuedcorresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment awards, ASU 2017-092016-02 is effective for interim and annual reporting periods beginning after December 15, 2017. The2018, and requires a modified retrospective approach to adoption assuming the Company is currently assessing the impact of ASU 2017-09 on its unaudited condensed financial statements.
Stock-based Compensation: In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260)”, Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed towill remain an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480emerging growth company at that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal year and interim periods within those fiscal years, beginning after December 15, 2018.date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect that the adoption of this guidance will have a material impact on its unaudited condensed financial statements.
Revenue Recognition and Leases:permitted. In September 2017, the FASB issued ASU No. 2017-13, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). The main objective of this pronouncement iswhich to clarify the effective date of the adoption of ASC Topic 606 and ASC Topic 842 and the definition ofdates that public business entity as stipulated in ASU 2014-09entities and ASU 2016-02. ASU 2014-09 provides that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2016-12 requires that “a public business entity and certain other specified entities adopt ASC Topic 842 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. All other entities arewere required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020”. ASU 2017-13 clarifies that the SEC would not object to certainannual reporting. A public business entities electing to use the non-public business entities effective dates for applying ASC 606 and ASC 842. ASU 2017-13, however, limits such election to certain public business entitiesentity that “otherwiseotherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filingsfiling with the SEC”SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended that all components of a leveraged lease be recalculated from inception of the lease based on the revised after tax cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded and the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company adopted this ASU in the first quarter of fiscal year 2020 using modified retrospective transition approach at the beginning of the period of adoption. The Company recognized lease labilities of approximately $0.4 million, with corresponding right-of use (“ROU”) assets of approximately the same amount based on the present value of the future minimum rental payments of leases, using a weighted average discount rate of approximately 9.01%. Management does not expect
On July 1, 2019, the Company adopted ASU 2018-07 where awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards which superseded ASU 505-50. The ASU is required to be applied on a prospective basis to all new awards granted after the date of adoption. The Company adopted this ASU on July 1, 2019 and the adoption of ASU 2017-13has no significant impact to have any material impact on its financial positions and results of operations or cash flows.
Except for the ASU’s described above, no ASU’s are expected to have a material impact on theCompany’s unaudited condensed consolidated financial statements upon adoption.as a whole.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 13, 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II does not have accounting impact. The ASU is effective for the Company for annual and interim reporting periods beginning July 1, 2019. The Company adopted this ASU on July 1, 2019 and determined the adoption of this ASU did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
Pronouncements not yet 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. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company does not believe the adoption of this ASU will have a material effect on the Company’s unaudited condensed consolidated financial statements.
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. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company is currently evaluating the impact of this new standard on its unaudited condensed 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. The Company is currently evaluating the impact of this new standard on Company’s unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(t) Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation mainly reclassifying advances to suppliers to other receivables (see Note 4 and 5). These reclassifications have no effect on the reported revenues, net loss or total assets.
Note 3. ADVANCES TO SUPPLIERSACCOUNTS RECEIVABLE, NET
The Company’s advances to third - party suppliersnet accounts receivable are as follows:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Intelligent logistics system deposit | $ | 10,000 | $ | - | ||||
Freight fees | - | 29,960 | ||||||
Other | 4,611 | 24,930 | ||||||
Total advances to suppliers - third parties | $ | 14,611 | $ | 54,890 |
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Trade accounts receivable | $ | 11,192,245 | $ | 12,716,120 | ||||
Less: allowances for doubtful accounts | (6,861,694 | ) | (5,670,274 | ) | ||||
Accounts receivable, net | $ | 4,330,551 | $ | 7,045,846 |
On December 27, 2017, with the approvalMovement of the Board of Directors, the Company signed a contract with Tianjin Anboweiye Technology Ltd Co. (“Tianjin Anboweiye”), to develop a more complete and intelligent logistics system based on the Company’s current container trucking platform. The purposeallowance for doubtful accounts is to help the Company make better connections with the system used by state-owned companies in China, and to satisfy such state-owned companies’ demand for container trucks in the United States.
As of December 31, 2017, advances to third-party suppliers were primarily related to freight logistics services.
The Company’s advances to related-party suppliers are as follows:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Freight fees | $ | 3,473,717 | $ | 3,333,038 | ||||
Total advances to suppliers - related party | $ | 3,473,717 | $ | 3,333,038 |
December 31, 2019 | June 30, 2019 | |||||||
Beginning balance | $ | 5,670,274 | $ | 1,682,228 | ||||
Provision for doubtful accounts | 1,282,492 | 4,091,056 | ||||||
Less: write-off/recovery | (76,497 | ) | (88,882 | ) | ||||
Exchange rate effect | (14,575 | ) | (14,128 | ) | ||||
Ending balance | $ | 6,861,694 | $ | 5,670,274 |
As discussed in Note 1, on February 18, 2017,For the Company entered into a cooperative transportation agreement with Zhiyuan Hong Kong. Zhiyuan Hong Kong is owned by the Company’s largest shareholder. On July 7, 2017, the Company signed a supplemental agreement, pursuant to which the Company will cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs. Pursuant to the supplemental agreement, the Company agrees to make prepayments to Zhiyuan Hong Kong for its share of packaging and transporting costs related to the Project; in return the Company will receive 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee. The Project is expected to be completed in one to two years, and the Company will collect its service fee in accordance with Project completion. As ofthree months ended December 31, 2017, no cost2019 and 2018, the provision for doubtful accounts was recognized under this Project. No additional freight fees were advanced during$258,561 and $445,119, respectively. For the three and six months ended December 31, 2017.2019 and 2018, the provision for doubtful accounts was $1,282,492 and $1,396,951, respectively.
Note 4. OTHER RECEIVABLES
The Company’s other receivables are as follows:
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Advances to customers* | $ | 10,216,897 | $ | 4,237,270 | ||||
Cash advances | 99,331 | 54,953 | ||||||
Security deposit | - | 43,492 | ||||||
Other receivables | $ | 10,316,228 | $ | 4,335,715 |
* | As of December 31, 2019, the Company entered into certain contracts with customers (state-owned entities) where the Company’s services included freight costs and cost of commodities to be shipped to customers’ designated locations. The Company prepaid the costs of commodities and recognized as advance payments on behalf of its customers. These advance payments on behalf of the customers will be repaid to the Company when either the contract terms are expired or the contracts are terminated by the Company. The Company is expected to deliver its services under all such contracts by December 31, 2020. |
Note 4. ACCOUNTS RECEIVABLE, NET5. ADVANCES TO SUPPLIERS
The Company’s net accounts receivable isadvances to suppliers – third parties are as follows:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Trade accounts receivable | $ | 5,012,347 | $ | 2,754,962 | ||||
Less: allowances for doubtful accounts | (763,984 | ) | (185,821 | ) | ||||
Accounts receivables, net | $ | 4,248,363 | $ | 2,569,141 |
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Freight fees (1) | $ | 193,450 | $ | 123,767 | ||||
Port fees | - | 373 | ||||||
Total advances to suppliers-third parties | $ | 193,450 | $ | 124,140 |
(1) | The advanced freight fee is the Company’s prepayment made for various shipping costs for shipments from January to March 2020. |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
Movement of allowance for doubtful accounts is as follows:NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six months ended December 31, 2017 | Year ended June 30, | |||||||
Beginning balance | $ | 185,821 | $ | 207,028 | ||||
Provision for doubtful accounts | 598,403 | - | ||||||
Less: write-off/recovery | (24,638 | ) | (18,912 | ) | ||||
Exchange rate effect | 4,398 | (2,295 | ) | |||||
Ending balance | $ | 763,984 | $ | 185,821 |
Note 5.6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company’s prepaid expenses and other current assets are as follows:
December 31, | June 30, | December 31, | June 30, | |||||||||||||
2017 | 2017 | 2019 | 2019 | |||||||||||||
Consultant fees (1) | $ | 79,075 | $ | 158,150 | ||||||||||||
Advance to employees | 57,859 | 64,160 | ||||||||||||||
Other | 93,787 | 95,708 | ||||||||||||||
Prepaid income taxes | $ | 48,924 | $ | 35,129 | ||||||||||||
Other (including prepaid insurance, rent, listing fees) | 45,988 | 69,925 | ||||||||||||||
Deposit for ERP (1) | - | 218,678 | ||||||||||||||
Prepaid leasing and service fees (2) | 150,412 | 300,825 | ||||||||||||||
Total | 230,721 | 318,018 | 245,324 | 624,557 | ||||||||||||
Less: current portion | 230,721 | 311,136 | (94,912 | ) | (105,054 | ) | ||||||||||
Total noncurrent portion | $ | - | $ | 6,882 | $ | 150,412 | $ | 519,503 |
(1) | On December 27, 2017, with the approval of the Board, the Company signed a contract with Tianjin Anboweiye Technology Ltd Co. (“Tianjin Anboweiye”), to develop a more complete ERP system based on the Company’s existing operations and projected future growth. In March 2018, the Company paid a deposit to start phase one of the development which includes upgraded accounting and human resources modules, new order processing and customer relationship management system. The Company paid a $437,357 deposit to Tianjin Anboweiye. The total contract price for phase one amounted to RMB 4,000,000, approximately $583,000. For the year ended June 30, 2019, the Company prepaid $218,679 of software development costs incurred during the preliminary project stage, which included planning and determining the functionality of the software. The Company integrated the shipping agencies business with the current ERP platform and the first phase of the ERP system was placed in use in July 2019 and to be amortized over three years (See Note 9). |
(2) | On June 22, 2018, the Company entered into a contract to improve its IT infrastructure. The total contract consideration for the services is $1.2 million and the Company paid a deposit of approximately $1.0 million. The consideration is allocated as follows: $420,000 for operating hardware leasing of twelve months; $480,000 for onsite services and IT consulting for a two-year period; $60,000 for operating system set up and $240,000 for continuing integration with the ERP system and data management for two years. For the three months ended December 31, 2019, the Company incurred $50,137 in IT for consulting costs, and $25,069 for continuing integration of the ERP system and data management costs. For the six months ended December 31, 2019, the Company incurred $100,275 in IT for consulting costs, and $50,138 for continuing integration of the ERP system and data management costs. |
(1) The Company entered into a management consulting services agreement with a consulting company on November 12, 2015, pursuant to which the consulting company shall assist the Company with its regulatory filings during the period from July 1, 2016 to June 30, 2018. In return for its services, as approved by the Board, a total of RMB 2,100,000 ($316,298) was paid to the consulting company. The above-mentioned consulting fees have been and will be ratably charged to expense over the terms of the above-mentioned agreement.Note 7. OTHER LONG-TERM ASSETS - DEPOSITS
The Company’s other long-term assets – deposits are as follows:
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Rental and utilities deposits | $ | 52,880 | $ | 60,435 | ||||
Freight logistics deposits (1) | 2,952,709 | 2,994,271 | ||||||
Total other long-term assets - deposits | $ | 3,005,589 | $ | 3,054,706 |
Certain customers require the Company to pay certain deposits for the security of shipments and merchandise. These deposits are refundable at the end of their respective contract term. Approximately $2.8 million (RMB 20 million) of the balance was paid to BaoSteel Resources Co., Ltd. according to the agreement entered in March 2018. This refundable deposit is to cover any possible loss of merchandise, as well as any non-performance on the part of the Company and its vendors. The deposit is expected be repaid to the Company when either the contract terms are expired or the contract is terminated by the Company. |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6.8. PROPERTY AND EQUIPMENT, NET
The Company’s net property and equipment as follows:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Buildings | $ | 206,891 | $ | 198,512 | ||||
Motor vehicles | 608,862 | 542,471 | ||||||
Computer equipment | 156,826 | 155,141 | ||||||
Office equipment | 78,273 | 66,097 | ||||||
Furniture and fixtures | 166,372 | 163,219 | ||||||
System software | 122,479 | 117,733 | ||||||
Leasehold improvements | 65,511 | 62,857 | ||||||
Total | 1,405,214 | 1,306,030 | ||||||
Less: Accumulated depreciation | 1,187,879 | 1,118,657 | ||||||
Property and equipment, net | $ | 217,335 | $ | 187,373 |
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Buildings | $ | 193,312 | $ | 196,050 | ||||
Motor vehicles* | 524,932 | 700,724 | ||||||
Computer equipment* | 98,464 | 162,865 | ||||||
Office equipment* | 44,226 | 69,278 | ||||||
Furniture and fixtures* | 72,749 | 167,143 | ||||||
System software* | 109,493 | 116,339 | ||||||
Leasehold improvements | 798,282 | 807,078 | ||||||
Total | 1,841,458 | 2,219,477 | ||||||
Less: Accumulated depreciation and amortization | (1,175,178 | ) | (1,229,567 | ) | ||||
Property and equipment, net | $ | 666,280 | $ | 989,910 |
Depreciation expenseand amortization expenses for the three months ended December 31, 20172019 and 20162018 were $13,261$66,601 and $12,065,$9,731, respectively.
Depreciation expenseand amortization expenses for the six months ended December 31, 20172019 and 20162018 were $26,464$187,121 and $25,407,$19,613, respectively.
* | For the three months ended December 31, 2019 and 2018, no impairment of fixed assets were recorded. For the six months ended December 31, 2019 and 2018, an impairment of $127,177 and nil were recorded, respectively due to continued decrease in revenues from the inland transportation management segment. |
Note 7.9. INTANGIBLE ASSETS, NET
IntangibleNet intangible assets consisted of the following:
December 31, | June 30, | |||||||||||||||
2017 | 2017 | December 31, | June 30, | |||||||||||||
2019 | 2019 | |||||||||||||||
Full service logistics platforms | $ | 190,000 | $ | - | $ | 190,000 | $ | 190,000 | ||||||||
Less: Accumulated amortization | 5,278 | - | (131,944 | ) | (100,278 | ) | ||||||||||
Intangible asset, net | $ | 184,722 | $ | - | ||||||||||||
Intangible assets, net | $ | 58,056 | $ | 89,722 |
As a part of the above-mentioned intelligent logistics systemplatform (see Note 3)6), four information platformsapplications were completed by the Tianjin Anboweiye research team in NovemberDecember 2017 and placed into service.service, including route planning and route execution for customers in China. The platforms are being amortized over fivethree years. Amortization expenses amounted to $15,833 and $15,834 for the three months ended December 31, 2019 and 2018, respectively. Amortization expenses amounted to $49,890 and $31,667 for the six months ended December 31, 2019 and 2018, respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
Amortization expenseNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition, first phase of intangible assets amountedthe ERP system was placed in use in July 2019 and is being amortized over three years. However, due to $5,278the continued decrease in revenues from the inland transportation management segment, the Company recorded an impairment of nil and $nil$200,455 for the three and six months ended December 31, 2017 and 2016, respectively.2019.
Note 8. STOCK-BASED COMPENSATION10 – LEASES
The issuanceCompany determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s options is exempted from registration under of the Securities Act of 1933,real estate leases are classified as amended (the “Act”). The Common Stock underlying the Company’s options granted may be sold in compliance with Rule 144 under the Act. Each option may be exercised to purchase one share of the common stock of the Company, no par value per share (the “Common Stock”). Payment for the options may be made in cash or by exchanging shares of Common Stock at their fair market value. The fair market value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date of exercise.operating leases.
The termCompany has several vehicle lease agreements and office lease agreements with lease terms ranging from two to three years. Upon adoption of ASU 2016-02, the options granted in 2009 is for 10 years andCompany recognized lease labilities of approximately $0.4 million, with corresponding ROU assets of approximately the exercise price ofsame amount based on the 56,000 options is $7.75 which vested over 5 years and were fully vested as of December 31, 2017. The fairpresent value of the stock options was estimatedfuture minimum rental payments of leases, using the Black-Scholes option-pricing model.
The term of the 10,000 options granted in 2013 is 10 years and the exercise is $2.01. The fair value of the 10,000 stock options was calculated at the grant date using the Black-Scholes option-pricing model with the following assumptions: volatility of 452.04%, risk free interesta weighted average discount rate of 0.88% and expected life of 10 years. The total fair value of the options was $19,400. In accordance with the vesting periods, the Company recorded no stock-based compensation expense for the three and six months ended December 31, 2017 and 2016.approximately 9.01%. As of December 31, 2017, 8,000 options were vested.2019, ROU assets and lease labilities amounted to $384,794 and $386,082, respectively.
Pursuant to theThe Company’s 2014 Stock Incentive Plan, effective on July 26, 2016, the Company grantedlease agreements do not contain any material residual value guarantees or material restrictive covenants. The leases generally do not contain options to purchase a totalextend at the time of 150,000 shares of the Company’s Common Stock to two employees with a one-year vesting period, one half of which vested on October 26, 2016,expiration and the other half vested on July 26, 2017. The exercise price of the options is $1.10, which was equal to the share price of the Company’s Common Stock on July 26, 2016. The grant date fair value of such options was $0.77 per share. The fair value of the options was calculated using the Black-Scholes options pricing model with the following assumptions: volatility of 99.68%, risk free interest rate of 1.15%, and expected life of 5weighted average remaining lease terms are 2.41 years. The total fair value of the options was $115,979. In accordance with the vesting periods, $nil and $28,995 were expensed related to these options for
For the three months ended December 31, 20172019 and 2016,2018, rent expense amounted to approximately $80,000 and $57,000, respectively. $9,665 and $48,325 were expensed related to these options forFor the six months ended December 31, 20172019 and 2016,2018, rent expense amounted to approximately $160,000 and $113,000, respectively. In February 2017, 75,000 of these options were exercised by the two employees
The three-year maturity of the Company.Company’s lease obligations is presented below:
Twelve Months Ending December 31, | Operating Lease Amount | |||
2020 | $ | 184,902 | ||
2021 | 166,175 | |||
2022 | 82,447 | |||
Total lease payments | 433,524 | |||
Less: Interest | (47,442 | ) | ||
Present value of lease liabilities | $ | 386,082 |
Note 11. EQUITY
A summaryStock issuance:
The Company’s outstanding warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own stock and require net share settlement. The fair value of the optionswarrants of $1,074,140 is presented invalued based on the table below:Black-Scholes-Merton model and is recorded as additional paid-in capital from common stock based on the relative fair value of proceeds received using the following assumptions:
Shares | Weighted Average Exercise Price | |||||||
Options outstanding, as of June 30, 2017 | 141,000 | $ | 3.81 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Cancelled | - | - | ||||||
Options outstanding, as of December 31, 2017 | 141,000 | $ | 3.81 | |||||
Options exercisable, as of December 31, 2017 | 139,000 | $ | 3.83 |
Series A | ||||
Annual dividend yield | - | |||
Expected life (years) | 5.5 | |||
Risk-free interest rate | 2.72 | % | ||
Expected volatility | 110.31 | % |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
Following is a summary of the status of options outstanding and exercisable as of December 31, 2017NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Outstanding Options | Exercisable Options | |||||||||||||||||
Exercise Price | Number | Average Remaining Contractual Life | Average Exercise Price | Number | Average Remaining Contractual Life | |||||||||||||
$ | 7.75 | 56,000 | 0.38 years | $ | 7.75 | 56,000 | 0.38 years | |||||||||||
$ | 2.01 | 10,000 | 5.08 years | $ | 2.01 | 8,000 | 5.08 years | |||||||||||
$ | 1.10 | 75,000 | 3.57 years | $ | 1.10 | 75,000 | 3.57 years | |||||||||||
141,000 | 139,000 |
Following is a summary of the status of warrants outstanding and exercisable as of December 31, 2017: 2019:
Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||||
139,032 | 139,032 | $ | 9.30 | 0.38 years |
Shares | Weighted Average Exercise Price | |||||||
Warrants outstanding, as of June 30, 2019 | 2,000,000 | $ | 1.75 | |||||
Issued | - | - | ||||||
Exercised | - | - | ||||||
Expired | - | - | ||||||
Warrants outstanding, as of December 31, 2019 | 2,000,000 | $ | 1.75 | |||||
Warrants exercisable, as of December 31, 2019 | 2,000,000 | $ | 1.75 |
Total expenses for options and warrants amounted to $Nil and $9,665 for three and six months ended December 31, 2017, respectively. Total expenses for options and warrants amounted to $28,995 and $92,472 for three and six months ended December 31, 2016, respectively.
Note 9. EQUITY TRANSACTIONS
Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||||
2018 Series A, 2,000,000 | 2,000,000 | $ | 1.75 | 3.70 years |
On June 6, 2014,November 13, 2019, the Company entered into management consultinga cooperation agreement with Shanming Liang, a director of Guangxi Jinqiao Industrial Group Co., Ltd., to cooperate and advisoryexpand the bulk cargo container services agreements with two consultants, pursuantbusiness. Shanming Liang agreed to which the consultants assisted the Company in, among other things, financial and tax due diligence, business evaluation and integration, and development of pro forma financial statements. In return for their services, as approved by the Company’s Board of Directors, a total of 600,000purchase 1,000,000 shares of the Company’s common stock wereat a purchase price of $1.00 per share for aggregate proceeds of $1 million. The Company and Mr. Liang further entered into a Share Purchase Agreement on November 14, 2019 to be issuedmemorialize the transaction aforementioned. Pursuant to these two consultants. In June 2014, 200,000 sharesthe aforementioned agreement, the Company received proceeds of $500,500 in the second quarter of fiscal year 2020. The rest of the Company’s common stock were issuedpayment is expected to receive by the consultants as a prepayment for their services. The value of their consulting services was determined using the fair valueend of the Company’s common stockthird quarter of $2.34 per share when the shares were issued to the consultants. Their service agreements were for the period July 1, 2014 to December 31, 2016. The remaining 400,000 shares of the Company’s common stock were then issued to the consultants on September 30, 2014 at $1.68 per share, and the service terms are from September 2014 to November 2016. These shares were valued at $1,140,000 and the related consulting fees have been ratably charged to expense over the term of the agreements. Consulting expenses for the above services were $nil and $96,578 for the three months ended December 31, 2017 and 2016, respectively. Consulting expenses for the above services were $nil and $218,045 for the six months ended December 31, 2017 and 2016, respectively.
On May 5, 2015, the Company entered into management consulting and advisory services agreements with three consultants, pursuant to which the consultants assisted the Company in, among other things, review of time charter agreements; crew management advisory; development of permanent and preventive maintenance standards related to dry dockings and ship repairs; development of regular technical and marine vessel inspections and quality control procedures; and development and implementation of alternative remedial actions to address technical problems that may arise. In return for their services, as approved by the Company’s Board of Directors, a total of 500,000 shares of the Company’s common stock were to be issued to these three consultants at $1.50 per share. Their service agreements are for a period of 18 months, effective May 2015. These shares were valued at $750,000 and the related consulting fees have been ratably charged to expense over the term of the agreements. Consulting expenses for the above services were $nil and $48,478 for the three months ended December 31, 2017 and 2016, respectively. Consulting expenses for the above services were $nil and $173,137 for the six months ended December 31, 2017 and 2016, respectivelyfiscal year 2020.
On December 9, 2015,2019, the Company entered into a consulting and advisory services agreement with a consultant, pursuant to whichauthorized the consultant will assistcancellation of the Company with corporate restructuring, business evaluation and capitalization during the period from November 20, 2015 to November 19, 2016. In return for such services, the Company issued 250,000 shares175,497 of the Company’s common stock to this consultant for services to be rendered during the first half of the service period. Suchtreasury shares. The shares were issuedcancelled as restricted shares at $1.02 per share on December 9, 2015. On May 23, 2016, the Company issued an additional 250,000 shares of common stock to this consultant at $0.72 per share to cover the services from the seventh month to November 19, 2016. These shares were valued at $435,000. Consulting expenses were $nil and $48,387 for the three months ended December 31, 20172019. The cancellation has no effect on the Company’s total shareholders’ equity and 2016, respectively. Consulting expenses were $nil and $138,387 for the six months ended December 31, 2017 and 2016, respectively.earnings per share.
Stock based compensation:
In March 2017, the Company entered into a consulting and advisory services agreement with Jianwei Li, who will providea consulting entity, which provides management consulting services that include marketing program designingdesign and implementation and cooperative partner selection and management. The service period is frombegan in March 2017 toand will end in February 2020. The Company issued 250,000 shares of common stock as the remuneration for the services, which were issued as restricted shares at $2.53 per share on March 22, 2017 to the consultant. These shares were valued at $632,500. Consulting expenses were $52,709$632,500 and $nilthe consulting expense was $52,708 and $105,417 for the three months ended December 31, 2017 and 2016, respectively. Consulting expenses were $105,417 and $nil for the six months ended December 31, 20172019 and 2016,2018, respectively.
On October 23, 2017, the Company issued 130,000 shares to its employees 130,000 shares of its restricted common stock valued at $2.80 per share. One fourthquarter of the total number of common shares issued shall becomebecame vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and August 16, 2018. These shares$0 and $91,000 were valued at $364,000. $91,000 and $nil are recorded in the Company’s G&A expensesas compensation expense for the three and six months ended December 31, 2017 and 2016,2018, respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On October 27, 2017, the Company issued 200,000 shares of restricted common stock on the grant date with aan aggregated fair value of $548,000 to a consulting company pursuant to a consulting agreement. The scope of services primarily coverscovered advising on business development, strategic planning and compliance during the one-year service period from October 17, 2017 to October 16, 2018. Consulting expenses$0 and $137,000 were $137,000 and $nilrecorded as compensation expense for the three and six months ended December 31, 2017 and 2016,2018, respectively.
TotalOn June 7, 2018, the Company issued 400,000 shares of common stock with a fair value of $508,000 to a consulting expensesentity pursuant to a service agreement. The scope of services primarily covers legal consultation in PRC during the two-year service period from July 2018 to June 2020. The consulting entity is entitled to be granted the common stock on a quarterly basis in eight equal instalments. The Company recorded legal expense of $63,500 and $127,000 for the three and six months ended December 31, 2019 and 2018, respectively.
On September 21, 2018, the Company issued 430,000 shares of common stock valued at $1.10 per share on the grant date with an aggregated fair value of $473,000 under the 2014 Stock Incentive Plan (the “Plan”) to three employees, vesting immediately. The Company recorded compensation expense of $0 and $473,000 for the three and six months ended December 31, 2018, respectively.
On December 11, 2018, the Company issued 200,000 shares of common stock valued at $0.89 per share on the grant date with a fair value of $178,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately. The Company recorded compensation expense of $178,000 for both the three and six months ended December 31, 2018.
On November 7, 2018, the Board of the Company approved the issuance of 50,000 shares of restricted common stock to a consultant pursuant to an existing consulting agreement. The scope of services primarily covers advising on business development, strategic planning and corporate finance. The grant’s fair value of approximately $65,000 was amortized during the remaining service period from November 3, 2018 to May 2, 2019. The Company recorded compensation expense of $21,667 for the three and six months ended December 31, 2018.
On December 31, 2018, the Board of the Company and the Compensation Committee of the Board (the “Committee”) approved (i) an increase in the annual salaries of Lei Cao, Chief Executive Officer, Tuo Pan, acting Chief Financial Officer, and Zhikang Huang, Chief Operating Officer (the “C-Level Executives”), effective January 1, 2019, and (ii) a one-time award of a total of 950,000 of the common stock from the shares reserved under the Company’s 2014 Stock Incentive Plan (the “Plan”) to the C-Level Executives, Chief Technology Officer, Yafei Li and the following members of the Board, effective December 31, 2018, for their valuable contributions to the Company in fiscal 2018: Jing Wang, Tieliang Liu and Bradley A. Haneberg. The Committee recommended and the Board determined to make the following stock grants under the Plan: (i) Chief Executive Officer, Lei Cao, is entitled to a one-time stock award grant of 400,000 shares, (ii) acting Chief Financial Officer, Tuo Pan, is entitled to a one-time stock award grant of 140,000 shares, (iii) Chief Operating Officer, Zhikang Huang, is entitled to a one-time stock award grant of 180,000 shares, (iv) Chief Technology Officer, Yafei Li is entitled to a one-time stock award grant of 80,000 shares, (v) Board member Jing Wang is entitled to a one-time stock award grant of 50,000 shares, (vi) Board member Tieliang Liu is entitled to a one-time stock award grant of 50,000 shares and (vii) Board member Bradley A. Haneberg is entitled to a one-time stock award grant of 50,000 shares. The Company recorded compensation expense of $731,500 for the three and six months ended December 31, 2018.
On April 8, 2019, the Company entered into a consulting services agreement with a consulting entity, which provides management consulting and advisory services. The scope of services primarily covered advising on business development, strategic planning and compliance during the six months service period from April 8, 2019 to October 7, 2019. The Company issued 300,000 shares of common stock as remuneration for the services, which were $280,709issued as restricted shares at $0.85 per share on April 16, 2019 to the consulting entity. These shares were valued at $255,000. The Company recorded compensation expense of $0 and $193,443$127,500 for the three and six months ended December 31, 2019, respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 1, 2019, the Company issued 600,000 restricted shares of common stock with a fair value of $432,000 to a China-based company that specializes in the port agency business and/or its designees pursuant to a consulting service agreement. The scope of services primarily covers business consultation for one year from July 1, 2019 to June 30, 2020. The Company can terminate the agreement if they are not satisfy with the performance of the consulting firm and the consulting firm should return all the issued shares. The Company recorded compensation expense of $108,000 and $216,000 for the three and six months ended December 31, 2019, respectively.
Included in a Board resolution dated January 30, 2016, the Company’s CEO is authorized to grant to the employees up to one million shares under the Plan. On July 22, 2019, the Company granted 90,000 shares of restricted common stock valued at $0.70 per share on the grant date with an aggregated fair value of $63,000 under the Plan to one employee, vesting immediately. The Company recorded compensation expense of $0 and $63,000 for the three and six months ended December 31, 2019, respectively.
On October 3, 2019, the Company issued 230,000 shares of common stock valued at $0.68 per share on the grant date with an aggregated fair value of $156,400 under the Plan to one employee, vesting immediately. The Company recorded compensation expense of $156,400 for the three and six months ended December 31, 2019.
On October 14, 2019, the Company entered into a consulting services agreement with a consulting entity, which provides management consulting and advisory services. The scope of services primarily covered advising on business development, strategic planning and compliance during the six months service period from October 14, 2019 to April 13, 2020. The Company issued 300,000 shares of common stock valued at $222,000 as remuneration for the services. The shares bear a standard restrictive legend under the Securities Act of 1933, as amended. The Company recorded compensation expense of $111,000 for the three and six months ended December 31, 2019.
During the three months ended December 31, 20172019 and 2016,2018, $491,609 and $333,417 and $529,569 for$1,047,376 were recorded as stock-based compensation expense, respectively. During the six months ended December 31, 20172019 and 2016,2018, $906,317 and $1,864,584 were recorded as stock-based compensation expense, respectively.
Stock Options:
A summary of the outstanding options is presented in the table below:
Options | Weighted Average Exercise Price | |||||||
Options outstanding, as of June 30, 2019 | 85,000 | $ | 1.21 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Cancelled, forfeited or expired | - | - | ||||||
Options outstanding, as of December 31, 2019 | 85,000 | $ | 1.21 | |||||
Options exercisable, as of December 31, 2019 | 85,000 | $ | 1.21 |
Following is a summary of the status of options outstanding and exercisable at December 31, 2019:
Outstanding Options | Exercisable Options | |||||||||||||||||
Exercise Price | Number | Average Remaining Contractual Life | Average Exercise Price | Number | Average Remaining Contractual Life | |||||||||||||
$ | 2.01 | 10,000 | 3.08 years | $ | 2.01 | 10,000 | 3.08 years | |||||||||||
$ | 1.10 | 75,000 | 1.57 years | $ | 1.10 | 75,000 | 1.57 years | |||||||||||
85,000 | 85,000 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 10.12. NON-CONTROLLING INTEREST
The Company’s non-controlling interest consists of the following:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Sino-China: | ||||||||
Original paid-in capital | $ | 356,400 | $ | 356,400 | ||||
Additional paid-in capital | 1,044 | 1,044 | ||||||
Accumulated other comprehensive income | 82,769 | 217,379 | ||||||
Accumulated deficit | (5,277,982 | ) | (5,421,578 | ) | ||||
(4,837,769 | ) | (4,846,755 | ) | |||||
Trans Pacific Logistics Shanghai Ltd. | 98,426 | 46,047 | ||||||
ACH Trucking Center Corp. (A) | - | 31,929 | ||||||
Total | $ | (4,739,343 | ) | $ | (4,768,779 | ) |
(A) The Company has terminated the joint venture agreement with Jetta Global on ACH Trucking Center Corp. on December 4, 2017
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Sino-China: | ||||||||
Original paid-in capital | $ | 356,400 | $ | 356,400 | ||||
Additional paid-in capital | 1,044 | 1,044 | ||||||
Accumulated other comprehensive income | 320,622 | 268,297 | ||||||
Accumulated deficit | (6,157,826 | ) | (6,066,145 | ) | ||||
(5,479,760 | ) | (5,440,404 | ) | |||||
Trans Pacific Logistics Shanghai Ltd. | 277,580 | 266,782 | ||||||
Total | $ | (5,202,180 | ) | $ | (5,173,622 | ) |
Note 11.13. COMMITMENTS AND CONTINGENCYCONTINGENCIES
Lease ObligationsContractual Obligations:
The Company leases certain office premises and apartments for employees under operating lease agreements with various terms through April 16, 2020. Future minimum lease payments underentered into a contract to upgrade its ERP system on December 27, 2017. The total contract costs amounted to RMB 4,000,000, or approximately $560,000, of which the operating lease agreements are as follows:Company made a deposit of $437,357 during the year ended June 30, 2018. The remaining balance will be settled upon the completion of services during fiscal year 2021.
Amount | ||||
Twelve months ending December 31, | ||||
2018 | $ | 175,651 | ||
2019 | 104,222 | |||
2020 | 15,053 | |||
$ | 294,926 |
Rental expenseOn June 22, 2018, the Company entered into a contract to improve its IT infrastructure. The total contract price for the three monthsservices is $1.2 million and the Company paid a deposit of $1.0 million during the year ended December 31, 2017 and 2016 were $54,445 and $65,555, respectively. Rental expense for the six months ended December 31, 2017 and 2016 were $119,307 and $127,890, respectively.June 30, 2018. The remaining $0.2 million will be paid upon completion of services during fiscal year 2020.
Amount | ||||
Twelve Months Ending December 31, | ||||
2020 | $ | 200,000 | ||
2021 | 132,643 | |||
Total | $ | 332,643 |
Contingencies
The Labor Contract Law of the PRC requires employers to insure the liability of the severance payments for terminated employees that have worked for the employers for at least two years prior to January 1, 2008. Employers areThe employers will be liable for one month offor severance pay perfor each year of the service provided by the employees. As of December 31, 20172019 and June 30, 2017,2019, the Company has estimated its severance payments to beof approximately $54,313$96,000 and $48,713, respectively. Such payments$94,000, respectively, which have not been reflected in its unaudited condensed consolidated financial statements, because management cannot predict what the actual payment, if any, will be in the future.
Sino-Global has employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for five-year terms that extend automatically in the absence of termination notice provided at least 60 days prior to the anniversary date of the agreement. If the Company fails to provide this notice or if the Company wishes to terminate an employment agreement in the absence of cause, then the Company is obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement, the Company would need to pay such executive (i) the remaining salary through the date of December 31, 2023, (ii) two times of the then applicable annual salary if there has been no Change in Control, as defined in the employment agreements or three-and-half times of the then applicable annual salary if there is a Change in Control.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named as a defendant in a breach of service contract lawsuit in the amount of $225,000 filed with the California Superior Court on January 19, 2018. The Company filed a motion with the court to force the plaintiff into arbitration rather than to litigate the dispute in court based on the arbitration provision in the contract. The California Superior Court approved its motion to stay the case pending the resolution of the arbitration. In Indianapolis, this matter was settled in exchange for 40,000 restrictive shares of common stock of the Company to the plaintiff, by the execution of a settlement agreement by both parties on August 23, 2019 and the issuance of 40,000 restricted shares on August 26, 2019. As a result, the arbitration in Indianapolis and the litigation in California has been dismissed respectively.
On January 21, 2020, the Company received a notification letter from the Nasdaq Listing Qualifications department stating that Company has not regained compliance with Nasdaq Continued Listing Rule, which requires the Company’s listed securities to maintain a minimum bid price of $1.00 per share for a second 180-day grace period. Accordingly, the Company’s securities will be delisted from the Nasdaq Capital Market. The Company made the request to appeal Nasdaq’s determination by requesting a hearing before the Hearing Panel to seek continued listing. The hearing will be held on February 27, 2020. Accordingly, the delisting action has been stayed, pending a final written decision by the Hearing Panel.
Note 12.14. INCOME TAXES
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory federal rate of approximately 28% for the fiscal year ending June 30, 2018 is applied to the provision forCompany’s income tax and a 21% for subsequent fiscal years.
The Company re-measured certain deferred tax assets based on blended rate of 28% at which these deferred tax amounts are expected to reverse in the future and the re-measurement resulted in a tax expense of $120,400 being recognized during the three and six months ended December 31, 2017.
In addition, the Company recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting in an increase in income tax expense of $478,499benefit (expenses) for the three and six months ended December 31, 2017. The one-time transition tax was calculated using the Company’s total post-1986 overseas net earnings2019 and profits which amounted to approximately $5.7 million. The one-time transition tax is taxed at the rate of 15.5% for the Company’s cash and cash equivalents and 8% for the other assets to be paid over 8 years.
The Company’s income tax benefit (expense) for the three and six months ended December 31, 2017 and 2016 is2018 are as follows:
For the three months ended December 31, | For the six months ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Current | ||||||||||||||||
USA | $ | - | $ | - | $ | (60,162 | ) | $ | - | |||||||
Hong Kong | (5,113 | ) | (27,576 | ) | (9,422 | ) | (34,101 | ) | ||||||||
China | (118,867 | ) | (45,815 | ) | (250,925 | ) | (110,911 | ) | ||||||||
One-time transition tax on accumulated foreign earnings | (478,499 | ) | - | (478,499 | ) | - | ||||||||||
(602,479 | ) | (73,391 | ) | (799,008 | ) | (145,012 | ) | |||||||||
Deferred | ||||||||||||||||
USA | 1,173,600 | - | 1,073,700 | - | ||||||||||||
Total income tax benefit (expense) | $ | 571,121 | $ | (73,391 | ) | $ | 274,692 | $ | (145,012 | ) |
The Company recorded income tax benefit of $571,121 in the three months ended December 31, 2017, compared to income tax expense of $73,391 in the three months ended December 31, 2016. The Company recorded income tax benefit of $274,692 in the six months ended December 31, 2017, compared to income tax expense of $145,012 in the six months ended December 31, 2016.
For the three months Ended December 31 | For the six months Ended December 31 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Current | ||||||||||||||||
U.S. | $ | - | $ | 282 | $ | - | $ | (30,315 | ) | |||||||
Hong Kong | - | (881 | ) | - | (881 | ) | ||||||||||
PRC | (14,747 | ) | (170,380 | ) | (14,747 | ) | (267,817 | ) | ||||||||
(14,747 | ) | (170,979 | ) | (14,747 | ) | (299,013 | ) | |||||||||
Deferred | ||||||||||||||||
U.S. | - | (74,000 | ) | - | 120,500 | |||||||||||
Total income tax benefit (expense) | $ | (14,747 | ) | $ | (244,979 | ) | $ | (14,747 | ) | $ | (178,513 | ) |
The Company’s deferred tax assets are comprised of the following:
December 31, | June 30, | |||||||||||||||
2017 | 2017 | |||||||||||||||
December 31, 2019 | June 30, 2019 | |||||||||||||||
Allowance for doubtful accounts | $ | 333,000 | $ | 106,000 | $ | 1,177,000 | $ | 1,121,000 | ||||||||
Stock-based compensation | 687,000 | 790,000 | ||||||||||||||
Net operating loss | 1,316,000 | 1,464,000 | 1,424,000 | 1,024,000 | ||||||||||||
Total deferred tax assets | 2,336,000 | 2,360,000 | 2,601,000 | 2,145,000 | ||||||||||||
Valuation allowance | (512,900 | ) | (1,610,600 | ) | (2,601,000 | ) | (2,145,000 | ) | ||||||||
Deferred tax assets, net - long-term | $ | 1,823,100 | $ | 749,400 | $ | - | $ | - |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company’s operations in the U.S. for federal tax purposes have incurred a cumulative net operating loss (“NOL”)NOL of approximately $5,567,000$3,781,000 as of December 31, 2017,June 30, 2019 which may reduce future federal future taxable income. ForThe NOL will expire in 2037 for the net operating losses generated prior to the year ended June 30, 2019. During the three and six months ended December 31, 2017,2019, approximately $241,000$480,000 and 637,000$1,465,000 of additional NOL was utilized,generated and the tax benefit derived from such NOL was approximately $101,000 and $308,000, respectively. As of December 31, 2019, the Company’s cumulative NOL amounted to approximately $5,246,000 which may reduce future federal taxable income, of which approximately $3,781,000 will expire in 2037 and the remaining balance carried forward indefinitely.
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The CompanyManagement considers many factors when assessingnew evidence, both positive and negative, that could affect the likelihood ofCompany’s future realization of the 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. Management has provided an allowance against theThe Company determined that it is more likely than not its deferred tax assets balancecould not be realized due to uncertainty on future earnings as a result of the deterioration of trade negotiation between the U.S. and China in 2019. The Company provided a 100% allowance for its DTA as of December 31, 2017.2019. The net decreaseincrease in the valuation allowance for the three and six months ended December 31, 20172019 amounted to $1,038,600approximately $181,000 and $1,097,700,$455,000, respectively based on the basis of management’s reassessment of the amount of itsthe Company’s deferred tax assets that are more likely than not to be realized. Management considers new evidence, both positive and negative, that could affect its future realization of deferred tax assets. Due to enactment of the Act, NOL could be carried forward indefinitely and the Company has pretax income resulting in utilization of the NOL in the current period, management determined that there is sufficient positive evidence to conclude that it is more likely than not that all of its NOL are realizable.
The Company’s taxes payable consists of the following:
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
VAT tax payable | $ | 552,144 | $ | 520,436 | ||||
Corporate income tax payable | 2,079,776 | 1,290,832 | ||||||
Others | 67,036 | 74,948 | ||||||
Total | 2,698,956 | 1,886,216 | ||||||
Less: current portion | 2,258,737 | 1,886,216 | ||||||
Income tax payable - noncurrent portion | $ | 440,219 | $ | - |
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
VAT tax payable | $ | 1,055,448 | $ | 1,045,513 | ||||
Corporate income tax payable | 2,038,129 | 2,075,248 | ||||||
Others | 64,134 | 64,134 | ||||||
Total | $ | 3,157,711 | $ | 3,184,895 |
Note 13.15. CONCENTRATIONS
Major Customers
For the three months ended December 31, 2017,2019, three customers accounted for 60%approximately 39.0%, 16%33.6% and 11%24.7% of the Company’s revenues, respectively. As of December 31, 2017, one of these2019, three customers accounted for 100%approximately 93.1% of the Company’s accounts due from related parties and the remaining two customers accounted for approximately 74% of the Company’sgross accounts receivable.
For the three months ended December 31, 2016, four customers2018, one customer accounted for 39%, 29%, 11% and 10%62.9% of the Company’s revenues, respectively. Atrevenues. As of December 31, 2016, one of these four customers accounted for 100% of the Company’s accounts due from related parties and the remaining three2018, this customers accounted for approximately 86%10.4% of the Company’s accounts receivable.
For the six months ended December 31, 2017, three customers accounted for 54%, 16% and 11% of the Company’s revenues, respectively. As of December 31, 2017, one of these three customers accounted for 100% of the Company’s accounts due from related parties and the remaining two customers accounted for approximately 74% of the Company’sgross accounts receivable.
For the six months ended December 31, 2016,2019, three customers accounted for 36%approximately 38.3%, 36%32.0% and 12%26.2% of the Company’s revenues, respectively. AtAs of December 31, 2016, one2019, three customers accounted for approximately 93.1% of the Company’s gross accounts receivable.
For the six months ended December 31, 2018, three customers accounted for 38.9%, 15.6% and 10.6% of the Company’s revenues, respectively. As of December 31, 2018, these three customers accounted for 100%approximately 25.3% of the Company’s accounts due from related parties and the remaining two customers accounted for approximately 79% of the Company’sgross accounts receivable.
Major Suppliers
For the three months ended December 31, 2017,2019, four suppliers accounted for approximately 27.0%, 23.0%, 15.8% and 13.0% of the total cost of revenues, respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months ended December 31, 2018, two suppliers accounted for 82%41.2% and 15%19.9% of the total costs of revenue, respectively. For the three months ended December 31, 2016, one supplier accounted for 47% of the total costs of revenue.
For the six months ended December 31, 2017, one supplier2019, five suppliers accounted for 71%approximately 39.9%, 14.2%, 12.1%, 11.3% and 11.1% of the total costscost of revenue. revenues, respectively
For the six months ended December 31, 2016, two2018, four suppliers accounted for 28%25.8%, 16.9%, 12.5% and 10%10.4% of the total costs of revenue, respectively.
Note 14.16. SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial statements for detailing the Company’s business segments.
The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial information of the separate operating segments when making decisions about allocating resources and assessing the performance of the group. The Company has determined that it has sixfour operating segments: (1) shipping agency and shipping management services; (2) shipping and chartering services; (3) inland transportation management services; (4) freight logistics services; (5) container trucking services; (6) bulk cargo container services. However, due to the downturn in the shipping industry, the Company has decided to suspend to its shipping agency and shipping management services and shipping and chartering services.
As stated in Note 1, ACH Center’s operating revenue was less than 1% of the Company’s consolidated revenue and the results of operations for ACH Center was not reported as discontinued operations and was included in the container trucking services segment and(3) freight logistics services segment below. For the three and six months ended December 31, 2017, revenue from ACH Center for(4) container trucking services amounted to $nil and $42,968 respectively, representing 0% and 8% of the segment’s revenue. For the three and six months ended December 31, 2017, gross profit from ACH Center for container trucking services amounted to $nil and $4,297 respectively, representing 0% and 2% of the segment’ gross profit. For the three and six months ended December 31, 2017, revenue from ACH Center for freight logistics services amounted to $nil and $46,937 respectively, representing 0% and 1% of the segment’s revenue. For the three and six months ended December 31, 2017, gross profit from ACH Center for freight logistics services amounted to $nil and $13,989 respectively, representing 0% and 2% of the segment’ gross profit.
Prior to second quarter of fiscal 2018, bulk cargo container services were included in our freight logistics services segment and were operated by our New York subsidiary. Due to the growth of this business line and to enable our CODM to better assess the financial performance of the Company, we separated bulk cargo container services as a separate segment starting from this quarter. We have reclassified $504,815 of revenue from freight logistics services to bulk cargo container services for the six months ended December 31, 2017 for better comparison.services.
The following tables present summary information by segment for the three and six months ended December 31, 20172019 and 2016,2018, respectively:
For the Three Months Ended December 31, 2019 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
- Third parties | $ | 500,000 | $ | - | $ | 1,503,500 | * | $ | 17,624 | $ | 2,021,124 | |||||||||
Total revenues | $ | 500,000 | $ | - | $ | 1,503,500 | $ | 17,624 | $ | 2,021,124 | ||||||||||
Cost of revenues | $ | 66,584 | $ | - | $ | 673,646 | * | $ | 15,415 | $ | 755,645 | |||||||||
Gross profit | $ | 433,416 | $ | - | $ | 829,854 | $ | 2,209 | $ | 1,265,479 | ||||||||||
Depreciation and amortization | $ | 79,144 | $ | - | $ | - | $ | 3,389 | $ | 82,533 | ||||||||||
Total capital expenditures | $ | 2,482 | $ | - | $ | - | $ | - | $ | 2,482 | ||||||||||
Gross margin% | 86.7 | % | - | % | 55.2 | % | 12.5 | % | 62.6 | % |
* | For certain freight logistics contracts that the Company entered into with customers starting from first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, revenues related to these contracts are presented net of related costs. For the three months ended December 31, 2019, gross revenues and gross cost of revenues related to these contracts amounted to approximately $12.9 million and $12.0 million, respectively. |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 31, 2017 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 555,246 | $ | - | $ | - | $ | - | $ | 555,246 | ||||||||||
- Third parties | $ | 838,595 | $ | 3,596,323 | $ | 126,865 | $ | 103,452 | $ | 4,665,235 | ||||||||||
Total revenues | $ | 1,393,841 | $ | 3,596,323 | $ | 126,865 | $ | 103,452 | $ | 5,220,481 | ||||||||||
Cost of revenues | $ | 174,025 | $ | 3,108,195 | $ | 49,848 | $ | 43,810 | $ | 3,375,878 | ||||||||||
Gross profit | $ | 1,219,816 | $ | 488,128 | $ | 77,017 | $ | 59,642 | $ | 1,844,603 | ||||||||||
Depreciation and amortization | $ | 12,736 | $ | 476 | $ | 5,327 | $ | - | $ | 18,539 | ||||||||||
Total capital expenditures | $ | - | $ | 2,721 | $ | 42,480 | $ | - | $ | 45,201 |
(UNAUDITED)
For the Three Months Ended December 31, 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | 75,000 | $ | - | $ | - | $ | 75,000 | ||||||||||
- Third parties | $ | 889,070 | $ | 345,000 | $ | 8,978,923 | $ | 227,294 | $ | 10,440,287 | ||||||||||
Total revenues | $ | 889,070 | $ | 420,000 | $ | 8,978,923 | $ | 227,294 | $ | 10,515,287 | ||||||||||
Cost of revenues | $ | 809,040 | $ | 20,000 | $ | 7,497,666 | $ | 229,891 | $ | 8,556,597 | ||||||||||
Gross profit | $ | 80,030 | $ | 400,000 | $ | 1,481,257 | $ | (2,597 | ) | $ | 1,958,690 | |||||||||
Depreciation and amortization | $ | - | $ | 20,339 | $ | 475 | $ | 4,751 | $ | 25,565 | ||||||||||
Total capital expenditures | $ | - | $ | - | $ | - | $ | 8,534 | $ | 8,534 | ||||||||||
Gross margin% | 9.0 | % | 95.2 | % | 16.5 | % | (1.1 | )% | 18.6 | % |
For the Six Months Ended December 31, 2019 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
- Third parties | $ | 1,000,000 | $ | - | $ | 2,745,641 | * | $ | 61,709 | $ | 3,807,350 | |||||||||
Total revenues | $ | 1,000,000 | $ | - | $ | 2,745,641 | $ | 61,709 | $ | 3,807,350 | ||||||||||
Cost of revenues | $ | 162,406 | $ | - | $ | 1,221,329 | * | $ | 55,314 | $ | 1,439,049 | |||||||||
Gross profit | $ | 837,594 | $ | - | $ | 1,524,312 | $ | 6,395 | $ | 2,368,301 | ||||||||||
Depreciation and amortization | $ | 181,918 | $ | - | $ | 7,686 | $ | 47,407 | $ | 237,011 | ||||||||||
Total capital expenditures | $ | 7,020 | $ | - | $ | - | $ | - | $ | 7,020 | ||||||||||
Gross margin% | 83.8 | % | - | % | 55.5 | % | 10.4 | % | 62.2 | % |
* | For certain freight logistics contracts that the Company entered into with customers starting from first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, revenues related to these contracts are presented net of related costs. For the six months ended December 31, 2019, gross revenues and gross cost of revenues related to these contracts amounted to approximately $22.0 million and $20.5 million, respectively. |
For the Six Months Ended December 31, 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | 397,000 | $ | - | $ | - | $ | 397,000 | ||||||||||
- Third parties | $ | 889,070 | $ | 943,000 | $ | 14,466,476 | $ | 319,274 | $ | 16,617,820 | ||||||||||
Total revenues | $ | 889,070 | $ | 1,340,000 | $ | 14,466,476 | $ | 319,274 | $ | 17,014,820 | ||||||||||
Cost of revenues | $ | 809,040 | $ | 79,874 | $ | 12,463,658 | $ | 287,857 | $ | 13,640,429 | ||||||||||
Gross profit | $ | 80,030 | $ | 1,260,126 | $ | 2,002,818 | $ | 31,417 | $ | 3,374,391 | ||||||||||
Depreciation and amortization | $ | - | $ | 40,826 | $ | 951 | $ | 9,503 | $ | 51,280 | ||||||||||
Total capital expenditures | $ | - | $ | - | $ | - | $ | 9,357 | $ | 9,357 | ||||||||||
Gross margin% | 9.0 | % | 94.0 | % | 13.8 | % | 9.8 | % | 19.8 | % |
Total assets as of:
December 31, | June 30, | |||||||
2019 | 2019 | |||||||
Shipping Agency and Management Services | $ | 3,184,159 | $ | 3,549,093 | ||||
Freight Logistic Services | 16,546,296 | 17,017,696 | ||||||
Container Trucking Services | 25,382 | 32,215 | ||||||
Total Assets | $ | 19,755,837 | $ | 20,599,003 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
For the three months ended December 31, 2016 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistic Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
-Related party | $ | 616,924 | $ | - | $ | - | $ | - | $ | 616,924 | ||||||||||
-Third parties | $ | 834,679 | $ | 517,066 | $ | 159,879 | $ | - | $ | 1,511,624 | ||||||||||
Total revenues | $ | 1,451,603 | $ | 517,066 | $ | 159,879 | $ | - | $ | 2,128,548 | ||||||||||
Cost of revenues | $ | 87,800 | $ | 167,035 | $ | 95,961 | $ | - | $ | 350,796 | ||||||||||
Gross profit | $ | 1,363,803 | $ | 350,031 | $ | 63,918 | $ | - | $ | 1,777,752 | ||||||||||
Depreciation and amortization | $ | 6,695 | $ | 5,370 | $ | - | $ | - | $ | 12,065 | ||||||||||
Total capital expenditures | $ | 45,466 | $ | - | $ | - | $ | - | $ | 45,466 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the six months ended December 31, 2017 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 1,120,406 | $ | - | $ | - | $ | - | $ | 1,120,406 | ||||||||||
- Third parties | $ | 1,691,901 | $ | 6,600,212 | $ | 579,706 | $ | 608,267 | $ | 9,480,086 | ||||||||||
Total revenues | $ | 2,812,307 | $ | 6,600,212 | $ | 579,706 | $ | 608,267 | $ | 10,600,492 | ||||||||||
Cost of revenues | $ | 356,175 | $ | 5,828,108 | $ | 393,024 | $ | 464,489 | $ | 7,041,796 | ||||||||||
Gross profit | $ | 2,456,132 | $ | 772,104 | $ | 186,682 | $ | 143,778 | $ | 3,558,696 | ||||||||||
Depreciation and amortization | $ | 20,397 | $ | 951 | $ | 10,394 | $ | - | $ | 31,742 | ||||||||||
Total capital expenditures | $ | - | $ | 7,798 | $ | 42,480 | $ | - | $ | 50,278 |
For the six months ended December 31, 2016 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistic Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 1,466,403 | $ | - | $ | - | $ | - | $ | 1,466,403 | ||||||||||
- Third parties | $ | 1,470,935 | $ | 975,733 | $ | 159,879 | $ | - | $ | 2,606,547 | ||||||||||
Total revenues | $ | 2,937,338 | $ | 975,733 | $ | 159,879 | $ | - | $ | 4,072,950 | ||||||||||
Cost of revenues | $ | 191,801 | $ | 369,373 | $ | 95,961 | $ | - | $ | 657,135 | ||||||||||
Gross profit | $ | 2,745,537 | $ | 606,360 | $ | 63,918 | $ | - | $ | 3,415,815 | ||||||||||
Depreciation and amortization | $ | 14,667 | $ | 10,740 | $ | - | $ | - | $ | 25,407 | ||||||||||
Total capital expenditures | $ | 45,466 | $ | - | $ | - | $ | - | $ | 45,466 |
Total assets: | December 31, | June 30, | ||||||
2017 | 2017 | |||||||
Inland Transportation Management Services | $ | 18,219,884 | $ | 15,552,593 | ||||
Freight Logistic Services | 206,190 | 1,704,946 | ||||||
Container Trucking Services | 1,100,081 | 558,482 | ||||||
Bulk Cargo Container Services | 697,144 | - | ||||||
Total Assets | $ | 20,223,299 | $ | 17,816,021 |
Note 15. OTHER17. RELATED PARTY TRANSACTIONS
As of December 31, 20172019 and June 30, 2017,2019, the outstanding amounts due from a related party consist of the following:
December 31, | June 30, | |||||||||||||||
2017 | 2017 | December 31, | June 30, | |||||||||||||
2019 | 2019 | |||||||||||||||
Tianjin Zhiyuan Investment Group Co., Ltd. | $ | 2,636,662 | $ | 1,715,130 | $ | 484,331 | $ | 897,739 | ||||||||
Less: allowance for doubtful accounts | (263,666 | ) | - | (48,433 | ) | (89,774 | ) | |||||||||
Total | $ | 2,372,996 | $ | 1,715,130 | $ | 435,898 | $ | 807,965 |
In June 2013, the Company signed a five-year global logisticslogistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”). Zhiyuan Investment Group is owned by Mr. Zhang, the largest shareholder of the Company. In September 2013, the Company executed an inland transportation management service contract with the Zhiyuan Investment Group whereby it would provide certain advisory services and help control potential commodities loss during the transportation process. As a result of the inland transportation management services provided to Zhiyuan, the Company generated revenue of $555,246 (11% of the Company’s total revenue) and $616,924 (29% of the Company’s total revenue) for the three months ended December 31, 2017 and 2016, respectively. The Company generated revenue of $1,120,406 (11% of the Company’s total revenue) and $1,466,403 (36% of the Company’s total revenue) for the six months ended December 31, 2017 and 2016, respectively. The amount due from Zhiyuan Investment Group at June 30, 2017 was $1,715,130. During the six months ended December 31, 2017, the Company continued to provide inland transportation management services to Zhiyuan and collected nil from Zhiyuan to increase outstanding accounts receivable. Asas of December 31, 2017,2019 was $484,331and the Company provided a 10% allowance for doubtful accounts of the amount due from Zhiyuan. For the three months ended December 31, 2019, the Company recovered $4,091 of allowance for doubtful accounts of the amount due from Zhiyuan. For the six months ended December 31, 2019, the Company recovered $41,341 of allowance for doubtful accounts of the amount due from Zhiyuan.
As of December 31, 2017 and June 30, 2017, the outstanding amounts of advance to suppliers-related party consist of the following: Note 18. SUBSEQUENT EVENTS
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd. | $ | 3,473,717 | $ | 3,333,038 | ||||
Total | $ | 3,473,717 | $ | 3,333,038 |
On February 18, 2017, Trans Pacific Beijing (subsidiary) and Sino China (VIE) (collectively, the “Seller”), a subsidiary and VIE ofJanuary 10, 2020, the Company entered into a Cooperative Transportation Agreement (the “Agreement”)cooperation agreement with Zhiyuan International Investment & HoldingMr. Shanming Liang, a director of Guangxi Jinqiao Industrial Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Mr. Zhang, to set up a joint venture in New York named LSM Trading Ltd., in which the Company will hold a 40% equity interest. No investment has also investedbeen made by the Company as of the date of this report. The new joint venture will facilitate the purchase agricultural related commodities in the BuyerU.S. for customers in China and is the largest shareholderCompany will provide comprehensive supply chain and logistics solutions.
On January 21, 2020, the Company received a notification letter from the Nasdaq Listing Qualifications department stating that Company has not regained compliance with Nasdaq Continued Listing Rule, which requires the Company’s listed securities to maintain a minimum bid price of $1.00 per share for a second 180-day grace period. Accordingly, the Company’s securities will be delisted from the Nasdaq Capital Market. The Company made the request to appeal Nasdaq’s determination by requesting a hearing before the Hearing Panel to seek continued listing. The hearing will be held on February 27, 2020. Accordingly, the delisting action has been stayed, pending a final written decision by the Hearing Panel.
On January 29, 2020, the Company issued an aggregate of 1,000,000 shares of the Company. Pursuantcommon stock to Mr. Shanming Liang at a purchase price of $1.00 per share. The Company received a gross proceeds of $500,500 in second quarter of fiscal year 2020. The rest of the Agreement, the Buyer, jointly with China Minmetals Corporation and China Metallurgical Group Corporation, acts as the general designer, general equipment provider and general service contractor in the upgrade and renovation project of Perwaja Steel Indonesia, whichpayment is located in Malaysia (the “Project”). The Seller shallexpected to be appointed as general agent to handle all related logistics and transportation occurring in the Project, ranging from equipment manufacturing, assembling, processing to instalment as referenced in the Agreement. The Seller agrees to make certain advance transportation payments during the Project on the basis of current practice in China’s transportation agency industry. The Buyer agrees to repay the advances to the Seller at any time as requested and, as instructedreceived by the Seller, to satisfy the security repayment test in lightend of the Seller’s listed company profile. The Seller is contracted to provide high-quality services including the designthird quarter of a detailed transportation plan as well as execution and necessary supervision of the transportation plan at the Buyer’s demand, and shall receive from the Buyer 1% - 1.25% of the total transportation expense incurred in the Project as commission for its professional design and execution of transportation plan as the general agent. No additional freight fees were advanced during the three and six months ended December 31, 2017.fiscal year 2020.
Item 2. 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 unaudited condensed consolidated financial statements and the related notes included elsewhere in thisthe 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 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.
OverviewWith the hope of bringing us back to the shipping management business, on April 10, 2019, the Company entered into a cooperation agreement with Mr. Weijun Qin, CEO of a shipping management company in China, to set up a joint venture in New York named State Priests Management Ltd. (“State Priests”), of which we hold 90% equity interest. We have not provided any cash contribution to the joint venture and there has been no operation of the joint venture pending the International Ship Safety Management certificate from the China Classification Society (the “Certificate”). We started providing shipping management related services that do not require Certificate which includes arranging and coordination for ship maintenance and inspection this quarter.
Second Quarter 2018 Highlights On November 6, 2019, we signed a revised cooperation agreement with Mr. Qin to restructure our equity interest in State Priests. Due to State Priests’ failure to timely obtain the necessary approval from related authorities, Mr. Qin agreed to exchange 80% equity interest in Sea Continent Management Ltd. (“Sea Continent”), another entity he owns, for our 90% equity interest in State Priests. Sea Continent already has the Certificate for its operations although it has no operations as of December 31, 2019.
Revenue in
To adapt to the three months ended December 31, 2017 increased by $3,091,933, or 145.3%, over the comparable period in 2016. The increase was primarily due to:
|
The fiscal Year 2018 Trends
In fiscal year 2018, we will continue to focus on developing business to increase revenuechanging China market, which has a high demand for agricultural products and cash flow in the United States and continue to use bulk cargos containerized business between container shipping linesagricultural by-products, one of the U.S.Company’s business strategies is to provide services in connection with the purchase of the U.S agricultural products and the shipment of these products to China asusing its overall supply chain logistics. On January 10, 2020, the major partCompany entered into a cooperation agreement with Mr. Shanming Liang, a director of our growth.
We will continue our cooperation with CoscoGuangxi Jinqiao Industrial Group Co., Ltd., to promote bulk cargo container shipping. Our goal isset up a joint venture in New York named LSM Trading Ltd. (“LSM Trading”) to promote shippingengage in trading business, of not only sulfur products but also others that are in high demand in China, such as petroleum coke, alfalfa and DDGS. We expect to ship these bulk container products to reach 400-500 containers per month. Through the implementation of bulk cargo container transport business, more smaller truck companies can be attracted to join our short-haul container truck online service platform, so that the online service platform can be improved and further upgraded and eventually become a peer-to peer online platform that connects truckers and customers.
Due to our new business in bulk cargo containers and the integrated freight business segment, our overall gross margin rate was affected. We expect aswhich we gradually grow our business in these segments, our overall gross margin will improve.
Company Structure
The following diagram represents the corporate structure ofhold 40% equity interest. No investment has been made by the Company as of the date of this report: report. LSM Trading will facilitate the purchase of the agricultural commodities and agricultural by-products in the U.S. for customers in China and the Company will provide comprehensive supply chain and logistics solutions.
Company Structure
The Company, founded in 2001, is 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”) (including Hong Kong) and the U.S., where a majority of our clients are located.
We operate in four operating segments, including (1) shipping agency and management services, operated by our subsidiary in Hong Kong and the U.S.; (2) inland transportation management services, operated by our subsidiaries in the U.S.; (3) freight logistics services, operated by our subsidiaries in the PRC and the U.S.; and (4) container trucking services, operated by our subsidiaries in the PRC and the U.S.
Our corporate structure diagram as of the date of this report is as below:
Results of Operations
The Three Months Ended December 31, 2017 Compared toComparison of the Three Months Ended December 31, 20162019 and 2018
Revenues
Revenues increaseddecreased by $3,091,933,$8,494,163 or 145.3%80.8%, from $2,128,548$10,515,287 for the three months ended December 31, 20162018 to $5,220,481$2,021,124 for the comparablesame period in 2017. This increase2019. The decrease was primarily due to the Company’s efforts to diversify its businessfact that in certain freight logistics services.contracts that we entered into with customers starting from the first quarter of fiscal year 2020, we only acted as an agent and did not control the services rendered to the customers in order to reduce possible risks as a result of the uncertainties in current trade environments. As such our revenues on these contracts are accounted for on a net basis. The decrease was also due to the decrease in revenues generated from freight logisticsinland transportation management services increased by $3,079,257, or 595.5%, from $517,066as our service contracts with customers have expired and there have been no new customers for the three months ended December 31, 2016 to $3,596,323 for the comparable period in 2017.
This quarter we ended our joint venture with Jetta Global on ACH Trucking Center and created a new segment for bulk cargo container services; see more discussion in the related segments below.this business segment.
The following tables present summary information by segmentsegments mainly regarding the top-line financial results for the three months ended December 31, 20172019 and 2016:2018:
For the Three Months Ended December 31, 2019 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
- Third parties | $ | 500,000 | $ | - | $ | 1,503,500 | * | $ | 17,624 | $ | 2,021,124 | |||||||||
Total revenues | $ | 500,000 | $ | - | $ | 1,503,500 | $ | 17,624 | $ | 2,021,124 | ||||||||||
Cost of revenues | $ | 66,584 | $ | - | $ | 673,646 | * | $ | 15,415 | $ | 755,645 | |||||||||
Gross profit | $ | 433,416 | $ | - | $ | 829,854 | $ | 2,209 | $ | 1,265,479 | ||||||||||
Depreciation and amortization | $ | 79,144 | $ | - | $ | - | $ | 3,389 | $ | 82,533 | ||||||||||
Total capital expenditures | $ | 2,482 | $ | - | $ | - | $ | - | $ | 2,482 | ||||||||||
Gross margin% | 86.7 | % | - | 55.2 | % | 12.5 | % | 62.6 | % |
* | For the three months ended December 31, 2019, gross revenue and gross cost of revenue related to the contracts where we acted as agents amounted to approximately $12.9 million and $12.0 million, respectively. |
For the Three Months Ended December 31, 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | 75,000 | $ | - | $ | - | $ | 75,000 | ||||||||||
- Third parties | $ | 889,070 | $ | 345,000 | $ | 8,978,923 | $ | 227,294 | $ | 10,440,287 | ||||||||||
Total revenues | $ | 889,070 | $ | 420,000 | $ | 8,978,923 | $ | 227,294 | $ | 10,515,287 | ||||||||||
Cost of revenues | $ | 809,040 | $ | 20,000 | $ | 7,497,666 | $ | 229,891 | $ | 8,556,597 | ||||||||||
Gross profit | $ | 80,030 | $ | 400,000 | $ | 1,481,257 | $ | (2,597 | ) | $ | 1,958,690 | |||||||||
Depreciation and amortization | $ | - | $ | 20,339 | $ | 475 | $ | 4,751 | $ | 25,565 | ||||||||||
Total capital expenditures | $ | - | $ | - | $ | - | $ | 8,534 | $ | 8,534 | ||||||||||
Gross margin% | 9.0 | % | 95.2 | % | 16.5 | % | (1.1 | )% | 18.6 | % |
% Changes For the Three Months Ended December 31, 2019 to 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | - | (100.0 | )% | - | - | (100.0 | )% | |||||||||||||
- Third parties | (43.8 | )% | (100.0 | )% | (83.3 | )% | (92.2 | )% | (80.6 | )% | ||||||||||
Total revenues | (43.8 | )% | (100.0 | )% | (83.3 | )% | (92.2 | )% | (80.8 | )% | ||||||||||
Cost of revenues | (91.8 | )% | (100.0 | )% | (91.0 | )% | (93.3 | )% | (91.2 | )% | ||||||||||
Gross profit | 441.6 | % | (100.0 | )% | (44.0 | )% | (185.1 | )% | (35.4 | )% | ||||||||||
Depreciation and amortization | 100.0 | % | (100.0 | )% | (100.0 | )% | (28.7 | )% | 222.8 | % | ||||||||||
Total capital expenditures | 100.0 | % | - | - | (100.0 | )% | (70.9 | )% | ||||||||||||
Gross margin% | 77.7 | % | (95.2 | )% | 38.7 | % | 13.6 | % | 44.0 | % |
Revenues
For the three months ended December 31, 2017 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 555,246 | $ | - | $ | - | $ | - | $ | 555,246 | ||||||||||
- Third parties | $ | 838,595 | $ | 3,596,323 | $ | 126,865 | $ | 103,452 | $ | 4,665,235 | ||||||||||
Total revenues | $ | 1,393,841 | $ | 3,596,323 | $ | 126,865 | $ | 103,452 | $ | 5,220,481 | ||||||||||
Cost of revenues | $ | 174,025 | $ | 3,108,195 | $ | 49,848 | $ | 43,810 | $ | 3,375,878 | ||||||||||
Gross profit | $ | 1,219,816 | $ | 488,128 | $ | 77,017 | $ | 59,642 | $ | 1,844,603 | ||||||||||
GM% | 87.5 | % | 13.6 | % | 60.7 | % | 57.7 | % | 35.3 | % |
For the three months ended December 31, 2016 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistic Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 616,924 | $ | - | $ | - | $ | - | $ | 616,924 | ||||||||||
- Third parties | $ | 834,679 | $ | 517,066 | $ | 159,879 | $ | - | $ | 1,511,624 | ||||||||||
Total revenues | $ | 1,451,603 | $ | 517,066 | $ | 159,879 | $ | - | $ | 2,128,548 | ||||||||||
Cost of revenues | $ | 87,800 | $ | 167,035 | $ | 95,961 | $ | - | $ | 350,796 | ||||||||||
Gross profit | $ | 1,363,803 | $ | 350,031 | $ | 63,918 | $ | - | $ | 1,777,752 | ||||||||||
GM% | 94.0 | % | 67.7 | % | 40.0 | % | - | 83.5 | % |
(1) Revenues from Inland TransportationShipping Agency and Management Services
In September 2013, the Company executed an inland transportation management service contract with Zhiyuan Investment Group, a related party, whereby the Company agreed to provide certain solutions to help control the potential loss of commodities during the transportation process. The Company also began providing inland transportation management services to a third-party customer, Tengda Northwest, following the quarter ended September 2014. The fluctuation in revenue from this segment is due to the change in the quantities of commodities transported by both Zhiyuan Investment Group and Tengda Northwest.
For Tengda Northwest, the service fee charge was RMB 32 per ton. For Zhiyuan Investment Group, the service fee charge was RMB 38 per ton.
Revenue from the inland transportation management services segment decreased $57,762 from $1,451,603 for the three months ended December 31, 2016 to $1,393,841 for the three months ended December 31, 2017. Revenue from related party customers decreased $61,678 from $616,924 for the three months ended December 31, 2016 to $555,246 for the three months ended December 31, 2017 since the transported quantities decreased from 112,000 tons to 97,489 tons. Revenue from third party customers increased $3,916 from $834,679 for the three months ended December 31, 2016 to $838,595 for the three months ended December 31, 2017. The increase was primarily due to the depreciation of USD against RMB from 6.8328 for the three months ended December 31, 2016 to 6.6153 for the corresponding period in 2017.
For the three months ended December 31, 20172019 and 2016, gross profit from inland transportation2018, shipping agency and management services amounted to $1,219,816generated revenues of $500,000 and $1,363,803, respectively.
Overall gross margins for$889,070, respectively, representing a 43.8% decrease in revenues. The decrease in this segment decreasedwas due to 87.5%the decrease in the shipping agency services provided, where we focused more on shipping management services for the three months ended December 31, 2017 from 94.0% for2019. Our integrated shipping management services included arranging and coordinating ship maintenance and inspection, repairs, and other services. With the three months ended December 31, 2016. The decrease of gross margins in the current quarter was duerequired certification obtained by our 90% owned joint venture, Sea Continent, we expect to the change of product mix with different service fees per ton.perform more services such as ship insurance, crew recruitment, training and supply and ship spare parts sales.
(2) Revenues from Freight LogisticsInland Transportation Management Services
Since we formed our new subsidiary, Sino-Global Shipping LA, Inc., in January 2016, we began to provide freight logistics services, including cargo forwarding and truck transportation services. Since the revenue increased significantly for providing such services from period to period, the Company has presented the related revenue as a separated business segment since the first quarter of 2017 fiscal year.
During the three months ended December 31, 2017, the portion of revenues generated from freight logistics services has increased significantly. The increase was primarily due to increased orders from one of our clients, BAO-NYK Shipping PTE. Ltd. (“BAO-NYK”), during the current period, as compared to $nil in the corresponding period in 2016. The gross margin decreased to 13.6% from 67.7%, primarily due to the changing variety of services provided between the current period and the corresponding period in 2016. Every single business of freight logistics services has a unique gross margin according to a different service scope. Usually, a business in full-scale scope has a higher gross margin, and business with fragmented scope has a lower gross margin. Our fragmented scope business increased significantly, such as revenue from BAO-NYK, and contributed a much higher portion of revenue in this sector than full-scale businesses, as compared to the prior period.
The revenue generated from freight logistics services was $3,596,323, and the related gross profit was $488,128 for the three months ended December 31, 2017. For the three months ended December 31, 2016, the revenue generated from freight logistics services was $517,066, and the related gross profit was $350,031.
(3) Revenues from Container Trucking Services
Since we completed our web-based short-haul container truck service platform in December 2016, we began generating revenue from short-haul trucking and containers services through the service platform and introduced this Container Trucking Services as a new segment in the second quarter of 2017. Since the second quarter of the fiscal year 2017, the Company has provided container trucking services in the PRC regions and, as of the third quarter of the fiscal year 2017, has begun to provide related services in certain U.S. regions. This new business segment is based on a modified and improved version of our freight logistics services business segment.
On January 5, 2017, we entered into a joint venture agreement and formed a new joint venture company named ACH Trucking Center Corp. (“ACH Center”) with Jetta Global Logistics Inc. (“Jetta Global”). Along with the establishment of ACH Center, we began providing short haul trucking transportation and logistics services to customers located in the New York and New Jersey areas. We hold a 51% ownership stake in ACH Center. Although the establishment of ACH Center brought benefits for us and Jetta Global, it could not satisfy long term development for both us and Jetta Global. We signed a termination agreement with Jetta Global to terminate the joint venture agreement on December 4, 2017. As ACH center’s operating revenue was less than 1% of our consolidated revenue and the termination did not constitute a strategic shift that will have a major effect on our operations and financial results, the results of operations for ACH Center were not reported as discontinued operations. For the three months ended December 31, 2017, revenue from container trucking services decreased by $33,014 from $159,879 for the three months ended December 31, 2016, to $126,865. The decrease was primarily due to the termination of our joint venture agreement with Jetta Global.
(4) Revenues from Bulk Cargo Container Services
For the three months ended December 31, 2017,2019 and 2018, inland transportation management services generated related-party revenue of $0 and $75,000, respectively. Revenue generated from Tengda Northwest for the three months ended December 31, 2019 and 2018 amounted to $0 and $345,000, respectively. The overall decrease in revenues generated from this segment amounted to $420,000 or 100.0% due to the expiration of our inland transportation management service contracts with the aforementioned customers. We are not actively developing business in this segment and will only provide such services on an as needed basis on short term contracts.
(3) Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage and other freight services. During the three months ended December 31, 2019, revenues decreased by $7,475,423 or approximately 83.3%. The decrease was primarily due to the fact that in certain freight logistics contracts that we shipped 120 containersentered into with 18 tons per containercustomers starting from the first quarter of sulfur from Long Beach, CAfiscal year 2020, we acted as an agent in arranging the U.S. to our customers in China. The arrangement included coordinatingrelationship between the customer and the third-party service provider and did not control the services rendered to sign the purchase contract with sulfur suppliers incustomer as we are not the United States, organizingprimary responsible party to fulfill the container shipping, custom clearance; all have been fulfilled when we shipped the product to our customer’s designated port, Qingdao PRC.services. For the three months ended December 31, 2017,2019, gross revenue generated from bulk cargo container services was $103,452 and gross cost of revenue related to these contracts amounted to approximately $12.9 million and $12.0 million, respectively. However, due to the related cost was $43,810 with gross profit of $59,642 or 57.7%. Weaforementioned reason, our revenues on these contracts were the agent in this transaction as we did not take any inventory risk; we reported revenueonly accounted for on a net basis lessbasis.
Our gross profit margin increased by approximately 38.7% from approximately 16.5% for three months ended December 31, 2018 to approximately 55.2% for the cost of sulfur. Duesame period in 2019. The increase in gross margin was due to the integrated and value addedfollowing factors: 1) the aforementioned freight logistics contracts where we acted as agents; 2) change in the mix of services provided. Even with the same customer, every transaction has a unique gross margin due to different service scopes. Generally, an engagement where we provide a broader set of services generates a higher gross margin, and an engagement of a more limited scope of services has a lower gross margin.
(4) Revenues from Container Trucking Services
For the three months ended December 31, 2019 and 2018, revenues generated from container trucking services were $17,624 and $227,294, respectively. Overall revenues from this segment decreased by $209,670 or approximately 92.2%. The decrease in revenues from this segment was primarily due to our customers,current trade dynamic between the averageU.S. and China, which resulted in the decreased container shipments from China to the U.S. The related gross profit was higher than freight logistics.
Operating Costs and Expenses
Operating costs and expenses increased by $4,364,198 or 371.8%,$4,806 from $1,173,955gross loss of $2,597 for the three months ended December 31, 20162018 to $5,538,153gross profit of $2,209 for the same period in 2019 and gross profit margin increased by approximately 13.6% period over period.
Operating Costs and Expenses
Operating costs and expenses decreased by $9,339,829 or approximately 79.9%, from $11,693,948 for the three months ended December 31, 2017.2018 to $2,354,119 for the three months ended December 31, 2019. This increasedecrease was primarilymainly due to the increasedecrease in the cost of revenue, selling expenses, general and administrative expenseexpenses, provision for doubtful accounts and selling expenses,stock-based compensation as discussed below.
The following table sets forth the components of the Company’s costs and expenses for the periods indicated:
For the three months ended December 31, | For the Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Change | 2019 | 2018 | Change | |||||||||||||||||||||||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | US$ | % | US$ | % | US$ | % | |||||||||||||||||||||||||||||||||||||
Revenues | 5,220,481 | 100.0 | % | 2,128,548 | 100.0 | % | 3,091,933 | 145.3 | % | 2,021,124 | 100.0 | % | 10,515,287 | 100.0 | % | (8,494,163 | ) | (80.8 | )% | |||||||||||||||||||||||||||||
Cost of revenues | 3,375,878 | 64.7 | % | 350,796 | 16.5 | % | 3,025,082 | 862.3 | % | 755,645 | 37.4 | % | 8,556,597 | 81.4 | % | (7,800,952 | ) | (91.2 | )% | |||||||||||||||||||||||||||||
Gross margin | 35.3 | % | 83.5 | % | (48.2 | )% | 62.6 | % | N/A | 18.6 | % | N/A | 44.0 | % | N/A | |||||||||||||||||||||||||||||||||
Selling expenses | 126,125 | 6.2 | % | 258,229 | 2.5 | % | (132,104 | ) | (51.2 | )% | ||||||||||||||||||||||||||||||||||||||
General and administrative expenses | 1,827,014 | 35.0 | % | 776,284 | 36.5 | % | 1,050,730 | 135.4 | % | 702,064 | 34.7 | % | 1,415,040 | 13.5 | % | (712,976 | ) | (50.4 | )% | |||||||||||||||||||||||||||||
Selling expenses | 335,261 | 6.4 | % | 46,875 | 2.2 | % | 288,386 | 615.2 | % | |||||||||||||||||||||||||||||||||||||||
Provision for doubtful accounts | 278,676 | 13.8 | % | 416,706 | 4.0 | % | (138,030 | ) | (33.1 | )% | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 491,609 | 24.3 | % | 1,047,376 | 10.0 | % | (555,767 | ) | (53.1 | )% | ||||||||||||||||||||||||||||||||||||||
Total Costs and Expenses | 5,538,153 | 106.1 | % | 1,173,955 | 55.2 | % | 4,364,198 | 371.8 | % | 2,354,119 | 116.4 | % | 11,693,948 | 111.4 | % | (9,339,829 | ) | (79.9 | )% |
CostsCost 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 $3,375,878$755,645 for the three months ended December 31, 2017, an increase2019, a decrease of $3,025,082,$7,800,952, or 862.3%approximately 91.2%, as compared to $350,796$8,556,597 for the three months ended December 31, 2016.same period in 2018. The overall cost of revenues as a percentage of our revenues increaseddecreased from 16.5%approximately 81.4% for the three months ended December 31, 2016,2018, to 64.7%approximately 37.4% for the same period in 2019. Cost of revenues for freight logistics and container trucking services consists primarily of freight costs to various freight carriers. The decrease of costs was mainly due to the aforementioned certain freight logistic contracts in which we only acted as an agent and did not control the services rendered to the customers for the three months ended December 31, 2017. The increase stemmed from2019.
Selling Expenses
Our selling expenses consisted primarily of business promotion, salaries and commissions for our operating staff at the majority of the revenues duringports at which we provide services. For the three months ended December 31, 2017,2019, we had $126,125 of selling expenses, as compared to $258,229 for the same period in 2018, which comes from the less profitable freight logistic services segment discussed above.
During the three months ended December 31, 2017, 69%represents a decrease of total revenue was from the freight logistics services segment with a gross profit margin of 14% and 27% of total revenue was from the inland transportation management services segment with a gross profit margin of 88%. During the three months ended December 31, 2016, 24% of total revenue was from the freight logistics services segment with a gross profit margin of 68%, and 68% of total revenue was from the inland transportation management service segment with a gross profit margin of 94%$132,104 or approximately 51.2%. The significant decrease of gross profit margin of the freight logistics services segment iswas mainly due to a changedecrease in our variety of services that caused revenue from the fragmented scopebusiness development expenses and salaries as an effort to contribute a much larger portion of total revenue under the freight logistics services segmentreduce expenses due to decrease in the current period in comparison with the prior period.revenues.
General and Administrative Expenses
GeneralThe Company’s general and administrative expenses consist primarily of salaries and benefits, office rent,travel expenses, meals and entertainment, development expenses, office expenses, regulatory filing and listing fees, amortization of stock-based compensation, legal, accounting and other professional service fees.fees, IT consulting and software development costs. For the three months ended December 31, 2017,2019, we had $1,827,014$702,064 of general and administrative expenses, as compared to $776,284$1,415,040 for the same period in 2018, representing a decrease of $712,976, or approximately 50.4%. The decrease was consistent with the decrease in revenue and was mainly due to approximately $610,000 decrease in IT consulting and software development cost and approximately $180,000 decrease in travel, meals and entertainment expenses.
Provision for Doubtful Accounts
The Company’s provision for doubtful accounts was $278,676 for the three months ended December 31, 2016, an increase2019 compared to $416,706 for the same period in 2018, a decrease of $1,050,730,$138,030, or 135.4%approximately 33.1%. The increase was primarily due to increases in labor expenseThis decrease of $277,981, provision for doubtful accounts was mainly due to the decrease in revenue and collections of $598,403, consulting fees of $37,500, and legal fees of $27,258, partially offset by the complaint settlement payments made to a former vice president of the Company. As a result of the increase in general and administrative expenses of 135.4% and the increase in revenues of 145.3%, our general and administrative expenses, as a percentage of revenue, decreased from 36.5%prior outstanding account receivables.
Stock-based Compensation
Stock-based compensation was $491,609 for the three months ended December 31, 20162019, a decrease of $555,767 or approximately 53.1%, as compared to 35.0%$1,047,376 for the correspondingsame period in 2017.
Selling Expenses
Selling expenses consist primarily of business development costs, such as traveling expenses for sales purposes, and salaries and benefits for our sales staff. For2018. Stock-based compensation decreased significantly from the three months ended December 31, 2017, we had $335,2612018 to the same period in 2019 due to less stock award was granted as a result of selling expensesthe decline in revenue as well as lower average stock prices in the quarter ended December 31, 2019 compared to $46,875the same quarter of the prior year.
Operating Loss
We had an operating loss of $332,995 for the three months ended December 31, 2016,2019, compared to an increaseoperating loss of $288,386,$1,178,661 for the same period in 2018. Such change was the result of the combination of the changes discussed above.
Taxation
We recorded an income tax expense of $14,747 for the three months ended December 31, 2019, compared to income tax expense of $244,979 for the same period in 2018, decreased by $230,232 or 615.2%approximately 94.0%. Current income tax decreased by 91.4% as a result of the decrease in taxable income.
We have incurred a cumulative net operating loss (“NOL”) of approximately $4,766,000 as of September 30, 2019 which may reduce future federal taxable income. The NOL will expire in 2037 for the net operating losses generated prior to the year ended June 30, 2019. During the three months ended December 31, 2017, we increased our business development efforts to explore new business opportunities while maintaining our current customer relationships. Rising labor costs also increased our overall selling expenses as compared to the same period2019, approximately $480,000 of 2016. As a percentage of revenue, our selling expenses increased from 2.2% for the three months ended December 31, 2016, to 6.4% for the corresponding period in 2017.
Operating Income (loss)
The Company had an operating loss of $317,672 for the three months ended December 31, 2017, compared to an operating income of $954,593 for the comparable period ended December 31, 2016. The decreaseadditional NOL was primarily due to the significant increase in the cost of revenues and general and administrative expenses, partially offset by increased revenue generated from freight logistics services as discussed above.
Financial Income (Expense), Net
The Company’s net financial income was $137,799 for the three months ended December 31, 2017, compared to the net financial expense of $88,470 for the same period of 2016. We have operations in the U.S., Canada, Australia, Hong Kong and the PRC, and our financial income (expenses) for the three months ended December 31, 2017 and 2016 primarily reflects the foreign currency transaction income or loss expressed in U.S. Dollars.
Taxation
The Company’s income tax benefit was $571,121 for the three months ended December 31, 2017, compared to an income tax expense of $73,391 for the three months ended December 31, 2016. The increase in income tax benefit was due to the increased allowance for doubtful accounts of approximately $598,403 and partly offset by an increased current income tax expense.
During the three months ended December 31, 2017, the Company recognized a total deferred income tax benefit of $1,173,600, which derived from the utilization of net operating loss (“NOL”) and the decrease in the valuation allowance against the deferred tax assets, based on the Company’s latest projected taxable income.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”)such NOL was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to re-measure all U.S. deferred income tax assets and liabilities for temporary differences and NOL carryforwards, and record a deferred income tax expense of $120,400.
Meanwhile, we accrued a one-time transition tax on accumulated foreign earnings in the amount of $478,499, which will be paid over 8 years. The increase in current income tax expenses was also attributable to the increase in the taxable income of Trans Pacific during the three and six months ended December 31, 2017 in comparison to the same period in 2016.$101,000.
We periodically evaluateevaluates the likelihood of the realization of deferred tax assets, and reducereduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. We consider many factors when assessing the likelihood ofManagement considers new evidence, both positive and negative, that could affect our future realization of the deferred tax assets including ourits recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. We havedetermined 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 current trade dynamic between the U.S. and China in 2019. We provided ana 100% allowance againstfor the deferred tax assets balance as of December 31, 2017.2019. The net decreaseincrease in the valuation allowance for the three months ended December 31, 20172019 amounted to $1,038,600approximately $181,000 based on the basis of ourmanagement’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized. We considered new evidence, both positive and negative, that could affect the future realization of deferred tax assets. Due to enactment of the Act, NOL could be carried forward indefinitely and we had pretax income resulting in utilization of NOL in the current period, we believe that there is sufficient positive evidence to conclude that it is more likely than not that all of our NOL are realizable.
Net IncomeLoss
As a result of the foregoing, the Companywe had a net incomeloss of $391,248$363,355 for the three months ended December 31, 2017,2019, compared $1,422,858 for the same period in 2018. After the deduction of non-controlling interest, net loss attributable to a net income of $792,732the Company was $407,333 for the three months ended December 31, 2016. After2019, compared to $1,473,972 for the deduction of non-controlling interest, net incomesame period in 2018. Comprehensive loss attributable to Sino-Globalthe Company was $297,703$57,318 for the three months ended December 31, 2017;2019, compared to $1,556,550 for the three months ended December 31, 2016,same period in 2018.
Comparison of the Company had a net income of $892,901. Comprehensive income attributable to the Company was $468,230 for the three months ended December 31, 2017, compared to a comprehensive income of $666,908 for the three months ended December 31, 2016.
Six Months Ended December 31, 2017 Compared to Six Months Ended December 31, 20162019 and 2018
Revenues
Revenues increaseddecreased by $6,527,542,$13,207,470 or 160.3%77.6%, from $4,072,950$17,014,820 for the six months ended December 31, 20162018 to $10,600,492$3,807,350 for the comparablesame period in 2017. This increase2019. The decrease was primarily due to the Company’s efforts to diversify its businessfact that in thecertain freight logistics contracts that we entered into with customers starting from the first quarter of fiscal year 2020, we only acted as an agent and did not control the services and bulk cargo container services.rendered to the customers as we are not the primary responsible party to fulfill the services in order to reduce possible risks as a result of the uncertainties in current trade environments. As such our revenues on these contracts are accounted for on a net basis. The Company separately presents bulk cargo containerdecrease was also due to the decrease in revenues from inland transportation management services as aour service contracts with customers have expired and there was no new segment duringbusiness for this segment.
The following tables present summary information by segments mainly regarding the three months ended December 31, 2017, total $608,267 bulk cargo container service revenue, of which $474,855 was reclassified from freight logistics servicestop-line financial results for the six months ended December 31, 2017. The revenues generated from freight logistics services increased by $5,624,479, or 576.4%, from $975,733 for the six months ended December 31, 2016 to $6,600,212 for the comparable period in 2017. The revenues generated from bulk cargo services for the six months ended December 31, 2017 were $608,267, as compared to $nil for the comparable period in 2016.2019 and 2018:
For the Six Months Ended December 31, 2019 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
- Third parties | $ | 1,000,000 | $ | - | $ | 2,745,641 | * | $ | 61,709 | $ | 3,807,350 | |||||||||
Total revenues | $ | 1,000,000 | $ | - | $ | 2,745,641 | $ | 61,709 | $ | 3,807,350 | ||||||||||
Cost of revenues | $ | 162,406 | $ | - | $ | 1,221,329 | * | $ | 55,314 | $ | 1,439,049 | |||||||||
Gross profit | $ | 837,594 | $ | - | $ | 1,524,312 | $ | 6,395 | $ | 2,368,301 | ||||||||||
Depreciation and amortization | $ | 181,918 | $ | - | $ | 7,686 | $ | 47,407 | $ | 237,011 | ||||||||||
Total capital expenditures | $ | 7,020 | $ | - | $ | - | $ | - | $ | 7,020 | ||||||||||
Gross margin% | 83.8 | % | - | 55.5 | % | 10.4 | % | 62.2 | % |
* | For the six months ended December 31, 2019, gross revenue and gross cost of revenue related to the contracts where we acted as agents amounted to approximately $22.0 million and $20.5 million, respectively. |
For the Six Months Ended December 31, 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | - | $ | 397,000 | $ | - | $ | - | $ | 397,000 | ||||||||||
- Third parties | $ | 889,070 | $ | 943,000 | $ | 14,466,476 | $ | 319,274 | $ | 16,617,820 | ||||||||||
Total revenues | $ | 889,070 | $ | 1,340,000 | $ | 14,466,476 | $ | 319,274 | $ | 17,014,820 | ||||||||||
Cost of revenues | $ | 809,040 | $ | 79,874 | $ | 12,463,658 | $ | 287,857 | $ | 13,640,429 | ||||||||||
Gross profit | $ | 80,030 | $ | 1,260,126 | $ | 2,002,818 | $ | 31,417 | $ | 3,374,391 | ||||||||||
Depreciation and amortization | $ | - | $ | 40,826 | $ | 951 | $ | 9,503 | $ | 51,280 | ||||||||||
Total capital expenditures | $ | - | $ | - | $ | - | $ | 9,357 | $ | 9,357 | ||||||||||
Gross margin% | 9.0 | % | 94.0 | % | 13.8 | % | 9.8 | % | 19.8 | % |
% Changes For the Six Months Ended December 31, 2019 to 2018 | ||||||||||||||||||||
Shipping Agency and Management Services | Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | - | (100.0 | )% | - | - | (100.0 | )% | |||||||||||||
- Third parties | 12.5 | % | (100.0 | )% | (81.0 | )% | (80.7 | )% | (77.1 | )% | ||||||||||
Total revenues | 12.5 | % | (100.0 | )% | (81.0 | )% | (80.7 | )% | (77.6 | )% | ||||||||||
Cost of revenues | (79.9 | )% | (100.0 | )% | (90.2 | )% | (80.8 | )% | (89.5 | )% | ||||||||||
Gross profit | 946.6 | % | (100.0 | )% | (23.9 | )% | (79.6 | )% | (29.8 | )% | ||||||||||
Depreciation and amortization | 100.0 | % | (100.0 | )% | 708.2 | % | 398.9 | % | 362.2 | % | ||||||||||
Total capital expenditures | 100.0 | % | - | - | (100.0 | )% | (25.0 | )% | ||||||||||||
Gross margin% | 74.8 | % | (94.0 | )% | 41.7 | % | 0.6 | % | 42.4 | % |
Revenues
The following tables present summary information by segment for the six months ended December 31, 2017 and 2016:
For the six months ended December 31, 2017 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistics Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 1,120,406 | $ | - | $ | - | $ | - | $ | 1,120,406 | ||||||||||
- Third parties | $ | 1,691,901 | $ | 6,600,212 | $ | 579,706 | $ | 608,267 | $ | 9,480,086 | ||||||||||
Total revenues | $ | 2,812,307 | $ | 6,600,212 | $ | 579,706 | $ | 608,267 | $ | 10,600,492 | ||||||||||
Cost of revenues | $ | 356,175 | $ | 5,828,108 | $ | 393,024 | $ | 464,489 | $ | 7,041,796 | ||||||||||
Gross profit | $ | 2,456,132 | $ | 772,104 | $ | 186,682 | $ | 143,778 | $ | 3,558,696 | ||||||||||
GM% | 87.3 | % | 11.7 | % | 32.2 | % | 23.6 | % | 33.6 | % |
For the six months ended December 31, 2016 | ||||||||||||||||||||
Inland Transportation Management Services | Freight Logistic Services | Container Trucking Services | Bulk Cargo Container Services | Total | ||||||||||||||||
Revenues | ||||||||||||||||||||
- Related party | $ | 1,466,403 | $ | - | $ | - | $ | - | $ | 1,466,403 | ||||||||||
- Third parties | $ | 1,470,935 | $ | 975,733 | $ | 159,879 | $ | - | $ | 2,606,547 | ||||||||||
Total revenues | $ | 2,937,338 | $ | 975,733 | $ | 159,879 | $ | - | $ | 4,072,950 | ||||||||||
Cost of revenues | $ | 191,801 | $ | 369,373 | $ | 95,961 | $ | - | $ | 657,135 | ||||||||||
Gross profit | $ | 2,745,537 | $ | 606,360 | $ | 63,918 | $ | - | $ | 3,415,815 | ||||||||||
Depreciation and amortization | $ | 14,667 | $ | 10,740 | $ | - | $ | - | $ | 25,407 | ||||||||||
Total capital expenditures | $ | 45,466 | $ | - | $ | - | $ | - | $ | 45,466 | ||||||||||
GM% | 93.5 | % | 62.1 | % | 40.0 | % | - | 83.9 | % |
(1) Revenues from Inland TransportationShipping Agency and Management Services
In September 2013, the Company executed an inland transportation management service contract with Zhiyuan Investment Group, a related party, whereby the Company agreed to provide certain solutions to help control the potential loss of commodities during the transportation process. The Company also began providing inland transportation management services to a third-party customer, Tengda Northwest, following the quarter ended September 2014. The fluctuation in revenue from this segment is due to the change in the quantities of commodities transported by both Zhiyuan Investment Group and Tengda Northwest.
For Tengda Northwest, the service fee charge was RMB 32 per ton. For Zhiyuan Investment Group, the service fee charge was RMB 38 per ton.
Revenue from the inland transportation management services segment decreased $125,031 from $2,937,338 for the six months ended December 31, 2016 to $2,812,307 for the six months ended December 31, 2017. Revenue from related-party customers decreased $345,997 from $1,466,403 for the six months ended December 31, 2016 to $1,120,406 for the six months ended December 31, 2017 since the transported quantities decreased from 262,465 tons to 197,545 tons. Revenue from third-party customers increased $220,966 from $1,470,935 for the six months ended December 31, 2016 to $1,691,901 for the six months ended December 31, 2017 since the transported quantities increased from 313,773 tons to 350,834 tons for the period indicated.
For the six months ended December 31, 20172019 and 2016, gross profit from inland transportation2018, shipping agency and management services amounted to $2,456,132generated revenues of $1,000,000 and $2,745,537, respectively.
Overall gross margins for$889,070, respectively, representing an approximately 12.5% increase in revenues. The increase in this segment decreased to 87.3% for the six months ended December 31, 2017 from 93.5% for the six months ended December 31, 2016. The decrease of gross margins in the current isrevenue was due to the change of product mix with different service fee per ton.increase in revenues generated from providing shipping management services. Our integrated services included arranging and coordinating ship maintenance and inspection, repairs, and other services. With Sea Continent, our 90% owned joint venture, obtained required certification, we expect to perform more services such as ship insurance, crew recruitment, training and supply; ship spare parts sales, etc.
(2) Revenues from Freight LogisticsInland Transportation Management Services
Since we formed our new subsidiary, Sino-Global Shipping LA, Inc., in January 2016, we began to provide freight logistics services, including cargo forwarding and truck transportation services. Since the revenue increased significantly for providing such services from period to period, the Company has presented the related revenue as a separated business segment since the first quarter of 2017 fiscal year.
During the six months ended December 31, 2017, the portion of revenues generated from freight logistics services has increased significantly. The increase was primarily due to orders from one of our clients: approximately $5.7 million of revenue was generated from BAO-NYK Shipping PTE. Ltd. (“BAO-NYK”) during the current period, as compared to less than $2,000 in the corresponding period in 2016. The gross margin decreased to 11.7% from 62.1% primarily due to the change in the variety of services currently provided in comparison with those services provided in the corresponding period of 2016. Every single business of freight logistics services has a unique gross margin according to different service scope. Usually, a business in full-scale scope has a higher gross margin, and the business with fragmented scope has a lower gross margin. Our fragmented scope business increased significantly, such as revenue from BAO-NYK, and contributed a much higher portion of revenue in this sector than full-scale business compared to prior period.
The revenue generated from freight logistics services was $6,600,212 and the related gross profit was $772,104 for the six months ended December 31, 2017. For the six months ended December 31, 2016, the revenue generated from freight logistics services was $975,733, and the related gross profit was $606,360.
Revenue from ACH Center amounted to $46,937 or 0.7% of the segment’s revenue for the six months ended December 31, 2017 and gross profit from ACH Center amounted to $13,989 representing 1.8% of the segment’ gross profit.
(3) Revenues from Container Trucking Services
Since we completed our web-based short-haul container truck service platform in December 2016, we began generating revenue from short-haul trucking and containers services through the service platform and presented this as a new segment, "Container Trucking Services," from in the second quarter of 2017. Since the second quarter of the fiscal year 2017, the Company has provided container trucking services in PRC regions and, as of the third quarter of the fiscal year 2017, has begun to provide related services in certain U.S. regions. This new business segment is based on a modified and improved version of our freight logistics services business segment.
On January 5, 2017, we entered into a joint venture agreement and formed a new joint venture company named ACH Trucking Center Corp. (“ACH Center”) with Jetta Global Logistics Inc. (“Jetta Global”). Along with the establishment of ACH Center, we began providing short haul trucking transportation and logistics services to customers located in the New York and New Jersey areas. We hold a 51% ownership stake in ACH Center. Although the establishment of ACH Center brought benefit for us and Jetta Global, it could not satisfy long term development for both us and Jetta Global. We signed a termination agreement with Jetta Global to terminate the joint venture agreement on December 4, 2017. As ACH center’s operating revenue was less than 1% of our consolidated revenue and the termination did not constitute a strategic shift that will have a major effect on our operations and financial results, the results of operations for ACH Center were not reported as discontinued operation.
For the six months ended December 31, 2017,2019 and 2018, inland transportation management services generated related-party revenue of $0 and $397,000, respectively. Revenue generated from container trucking services was $579,706 and the related gross profit was $186,682. Revenue from ACH Center amounted to $42,968 or 7.8% of the segment’s revenueTengda Northwest for the six months ended December 31, 20172019 and 2018 amounted to $0 and $943,000, respectively. The overall decrease in revenues generated from this segment amounted to $1,340,000 or 100.0% due to the expiration of our inland transportation management service contracts with the aforementioned customers. We expect revenue from this segment will continue to decrease in the coming years due to the current trade dynamics. However, we will continue to provide services on an as needed basis on short term contracts.
(3) Revenues from Freight Logistics Services
Freight logistics services primarily consist of cargo forwarding, brokerage and other freight services. During the six months ended December 31, 2019, revenues decreased by $11,720,835 or approximately 81.0%. The decrease was primarily due to the fact that in certain freight logistic contracts that we entered into with customers starting from the first quarter of fiscal year 2020, we acted as an agent in arranging the relationship between the customer and the third-party service provider and did not control the services rendered to the customer. For the six months ended December 31, 2019, gross revenue and gross profit from ACH Centercost of revenue related to these contracts amounted to $4,297 representing 2.3% of the segment’s gross profit.approximately $22.0 million and $20.5 million, respectively. However, as we only acted as an agent, our revenues on these contacts were accounted for on a net basis.
Our gross profit margin increased by approximately 41.7% from approximately 13.8% for six months ended December 31, 2018 to approximately 55.5% for the same period in 2019. The increase in gross margin was due to the following factors: 1) the aforementioned freight logistic contracts where we acted as agents; 2) change in the mix of services provided. Even with the same customer, every transaction has a unique gross margin due to differing service scopes. Generally, an engagement where we provide a broader set of services generates a higher gross margin, and an engagement of a more limited scope of services has a lower gross margin.
(4) Revenues from Bulk Cargo Container Trucking Services
For the six months ended December 31, 2017, we shipped 140 containers with 18 tons per2019 and 2018, revenues generated from container of sulfurtrucking services were $61,709 and $319,274, respectively. Overall revenues from Long Beach, CAthis segment decreased by $257,565 or approximately 80.7%. The decrease in revenues from this segment was primarily due to the pending trade negotiations between the U.S. and China, which decreased container shipments from China to our customers in China.the U.S. The arrangement included coordinating the customer to sign the purchase contract with sulfur suppliers in the United States, organizing the container shipping, custom clearance; all have been fulfilled when we shipped the product to our customer’s designated port, Qingdao PRC. For the six months ended December 31, 2017, gross revenue generated from bulk cargo container services was $608,267 and the related cost was $464,489 with gross profit of $143,778 or 23.6%. We were the agent in this transaction as we did not take any inventory risk; we reported revenue on a net basis less the cost of sulfur. Due to the integrated and value added services we provide to our customers, the average gross profit was higher than freight logistics.
Operating Costs and Expenses
Operating costs and expenses increaseddecreased by $7,584,377 or 315.3%,$25,022 from $2,405,517$31,417 for the six months ended December 31, 20162018 to $9,989,894$6,395 for the same period in 2019. Gross profit margin for both periods remained relatively consistent.
Operating Costs and Expenses
Operating costs and expenses decreased by $13,657,765 or approximately 69.9%, from $19,548,190 for the six months ended December 31, 2017.2018 to $5,890,425 for the six months ended December 31, 2019. This increasedecrease was primarilymainly due to the increasedecrease in the cost of revenues andrevenue, selling expenses, general and administrative expenses and stock-based compensation as discussed below.
The following table sets forth the components of the Company’s costs and expenses for the periods indicated:.
For the six months ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | Change | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
Revenues | 10,600,492 | 100.0 | % | 4,072,950 | 100.0 | % | 6,527,542 | 160.3 | % | |||||||||||||||
Cost of revenues | 7,041,796 | 66.4 | % | 657,135 | 16.1 | % | 6,384,661 | 971.6 | % | |||||||||||||||
Gross margin | 33.6 | % | 83.9 | % | (50.3 | )% | ||||||||||||||||||
General and administrative expenses | 2,590,371 | 24.4 | % | 1,636,198 | 40.2 | % | 954,173 | 58.3 | % | |||||||||||||||
Selling expenses | 357,727 | 3.4 | % | 112,184 | 2.8 | % | 245,543 | 218.9 | % | |||||||||||||||
Total Costs and Expenses | 9,989,894 | 94.2 | % | 2,405,517 | 59.1 | % | 7,584,377 | 315.3 | % |
For the Six Months Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | Change | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
Revenues | 3,807,350 | 100.0 | % | 17,014,820 | 100.0 | % | (13,207,470 | ) | (77.6 | )% | ||||||||||||||
Cost of revenues | 1,439,049 | 37.8 | % | 13,640,429 | 80.2 | % | (12,201,380 | ) | (89.5 | )% | ||||||||||||||
Gross margin | 62.2 | % | 19.8 | % | 42.4 | % | ||||||||||||||||||
Selling expenses | 256,154 | 6.7 | % | 366,598 | 2.2 | % | (110,444 | ) | (30.1 | )% | ||||||||||||||
General and administrative expenses | 1,793,519 | 47.1 | % | 2,388,792 | 14.0 | % | (595,273 | ) | (24.9 | )% | ||||||||||||||
Impairment loss of fixed assets and intangible asset | 327,632 | 8.6 | % | - | - | 327,632 | 100.0 | % | ||||||||||||||||
Provision for doubtful accounts | 1,167,754 | 30.7 | % | 1,287,787 | 7.6 | % | (120,033 | ) | (9.3 | )% | ||||||||||||||
Stock-based compensation | 906,317 | 23.8 | % | 1,864,584 | 11.0 | % | (958,267 | ) | (51.4 | )% | ||||||||||||||
Total Costs and Expenses | 5,890,425 | 154.7 | % | 19,548,190 | 115.0 | % | (13,657,765 | ) | (69.9 | )% |
CostsCost 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 $7,041,796$1,439,049 for the six months ended December 31, 2017, an increase2019, a decrease of $6,384,661,$12,201,380, or 971.6%approximately 89.5%, as compared to $657,135$13,640,429 for the six months ended December 31, 2016.same period in 2018. The overall cost of revenues as a percentage of our revenues increaseddecreased from 16.1%approximately 80.2% for the six months ended December 31, 2016,2018, to 66.4%approximately 37.8% for the same period in 2019. Cost of revenues for freight logistics and container trucking services consists primarily of freight costs to various freight carriers. The decrease of costs was mainly due to the aforementioned certain freight logistic contracts in which only acted as an agent and did not control the services rendered to the customers for the six months ended December 31, 2017. The increase in2019.
Selling Expenses
Our selling expenses consisted primarily of business promotion, salaries and commissions for our operating staff at the overall costs of revenues in percentage terms forports at which we provide services. For the six months ended December 31, 2017 stemmed from the majority2019, we had $256,154 of the revenues during the six months ended December 31, 2017 coming from the less profitable freight logistics services segment, rather than the more profitable inland transportation management services segment.
During the six months ended December 31, 2017, 63% of total revenue was from the freight logistics services segment, with a gross profit margin of 12%, and 27% of total revenue was from the inland transportation management services segment with a gross profit margin of 87%. During the six months ended December 31, 2016, 24% of total revenue was from the freight logistics services segment with a gross profit margin of 62% and 72% of total revenue was from the inland transportation management service segment with a gross profit margin of 94%. The significant decrease of gross profit margin of the freight logistics services segment is due to a change in the variety of services provided, which caused revenue from the fragmented scope to contribute a much larger portion of total revenue under the freight logistics services segment in the current periodselling expenses, as compared to $366,598 for the prior period.same period in 2018, which represents a decrease of $110,444 or approximately 30.1%. The decrease was mainly due to approximately $170,000 decrease in business development expenses offset by the approximately $70,000 increase in travel expenses for selling personnel.
General and Administrative Expenses
GeneralThe Company’s general and administrative expenses consist primarily of salaries and benefits, office rent,travel expenses for administration department, meals and entertainment, development expenses, office expenses, regulatory filing and listing fees, amortization of stock-based compensation, legal, accounting and other professional service fees.fees, IT consulting and software development costs. For the six months ended December 31, 2017,2019, we had $2,590,371$1,793,519 of general and administrative expenses, as compared to $1,636,198$2,388,792 for the same period in 2018, representing a decrease of $595,273, or approximately 24.9%. The decrease was mainly due to the decrease in IT expenses and business trips and meals and entertainment expenses
Impairment loss of fixed assets and intangible asset
For the six months ended December 31, 2019, the Company 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.
Provision for Doubtful Accounts
The Company’s provision for doubtful accounts was $1,167,754 for the six months ended December 31, 2016, an increase2019 compared to $1,287,787 for the same period in 2018, a decrease of $954,173,$120,033, or 58.3%approximately 9.3%. The increase was primarily due to increases in labor expense of $232,367, provisionProvision for doubtful accounts of $598,403, consulting fees of $79,074, and legal fees of $54,952. As a percentage of revenue, our general and administrative expenses decreased from 40.2%for both periods remained relatively consistent.
Stock-based Compensation
Stock-based compensation was $906,317 for the six months ended December 31, 20162019, a decrease of $958,267 or approximately 51.4%, as compared to 24.4%$1,864,584 for the correspondingsame period in 2017.2018. Stock-based compensation decreased significantly from the six months ended December 31, 2018 to the same period in 2019 due to less stock award was granted as a result of the decline in revenue as well as lower average stock prices in the six months ended December 31, 2019 compared to the same period of the prior year.
Selling ExpensesOperating Loss
We had an operating loss of $2,083,075 for the six months ended December 31, 2019, compared to an operating loss of $2,533,370 for the same period in 2018. Such change was the result of the combination of the changes discussed above.
Taxation
Selling expenses consist primarily
We have incurred a cumulative NOL of business development costs,approximately $3,781,000 as of June 30, 2019 which may reduce future federal taxable income. The NOL will expire in 2037 for the net operating losses generated prior to the year ended June 30, 2019. During the six months ended December 31, 2019, approximately $1,465,000 of additional NOL was generated and the tax benefit derived from such as traveling expensesNOL was approximately $308,000. We recorded an income tax expense of $14,747 for sales purposes, and salaries and benefitsthe six months ended December 31, 2019, compared to income tax expense of $178,513 for our sales staff.the same period in 2018. For the six months ended December 31, 2017, we had $357,727 of sales expenses as compared to $112,184 for the six months ended December 31, 2016, an increase of $245,543,2019, current income tax decreased by $163,766 or 218.9%. During the six months ended December 31, 2017, we increased our business development efforts to explore new business opportunities while maintaining our current customer relationships. Rising labor costs also increased our overall selling expenses91.7%, as compared to the same period of 2016. As a percentage of revenue, our selling expenses increased from 2.8% for the six months ended December 31, 2016, to 3.4% for the corresponding period in 2017.
Operating Income
The Company had an operating income of $610,598 for the six months ended December 31, 2017, compared to an operating income of $1,667,433 for the comparable period ended December 31, 2016. The decrease was primarily due to the increase in general and administrative expenses, partially offset by the increased gross profit generated from freight logistics services and bulk cargo container services as discussed above.
Financial Income (Expense), Net
The Company’s net financial income was $222,595 for the six months ended December 31, 2017, compared to the net financial expense of $91,904 for the same period of 2016. We have operations in the U.S., Canada, Australia, Hong Kong and the PRC, and our financial income (expenses) for the six months ended December 31, 2017 and 2016 primarily reflects the foreign currency transaction income or loss expressed in U.S. Dollars.
Taxation
The Company’s income tax benefit was $274,692 for the six months ended December 31, 2017, compared to an income tax expense of $145,012 for the six months ended December 31, 2016. The increase in income tax benefit was due to the change in valuation allowance and partly offset by an increased current income tax expense.
During the six months ended December 31, 2017, the Company recognized a total deferred income tax benefit of $1,073,700, which derived from the utilization of NOL and the decrease in the valuation allowance against the deferred tax assets, based on the Company’s latest projected taxable income.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to remeasure all U.S. deferred income tax assets and liabilities for temporary differences and NOL carryforwards and record a deferred income tax expense of $120,400.
Meanwhile, we accrued a one-time transition tax on accumulated foreign earnings in the amount of $478,499 which will be paid over eight years. The increase in current income tax expense was also attributable to the increase in the taxable income of Trans Pacific during the six months ended December 31, 2017 in comparison to the same period in 2016.2018.
We periodically evaluateevaluates the likelihood of the realization of deferred tax assets, and reducereduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. We consider many factors when assessing the likelihood ofManagement considers new evidence, both positive and negative, that could affect our future realization of the deferred tax assets including ourits recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. We havedetermined 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 in 2019. We provided ana 100% allowance againstfor the deferred tax assets balance as of December 31, 2017.2019. The net decreaseincrease in the valuation allowance for the six months ended December 31, 20172019 amounted to $1,097,700approximately $456,000 based on the basis of ourmanagement’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized. We considered new evidence, both positive and negative, that could affect the future realization of deferred tax assets. Due to enactment of the Act, NOL could be carried forward indefinitely and we had pretax income resulting in utilization of NOL in the current period, we believe that there is sufficient positive evidence to conclude that it is more likely than not that all of our NOL are realizable.
Net IncomeLoss
As a result of the foregoing, the Companywe had a net incomeloss of $1,107,885$2,111,979 for the six months ended December 31, 2017,2019, compared to a$2,710,389 for the same period in 2018. After the deduction of non-controlling interest, net income of $1,430,517loss attributable to the Company was $2,034,686 for the six months ended December 31, 2016. After2019, compared to $2,790,734 for the deduction of non-controlling interest, net incomesame period in 2018. Comprehensive loss attributable to Sino-Globalthe Company was $914,892$2,330,882 for the six months ended December 31, 2017;2019, compared to $3,412,968 for the six months ended December 31, 2016, the Company had a net income of $1,538,621. Comprehensive income attributable to the Company was $1,191,837 for the six months ended December 31, 2017, compared to a comprehensive income of $1,287,514 for the six months ended December 31, 2016.same period in 2018.
Liquidity and Capital Resources
Cash Flows and Working Capital
As of December 31, 2017, the Company2019, we had $7,219,848$119,667 in cash and cash equivalents.cash. We held approximately 5.1%29.4% of our cash in banks located in New York, Los Angeles, Canada, Australia and Hong Kong and held approximately 94.9%70.6% of our cash in banks located in the PRC.
The following table sets forth a summary of our cash flows for the periods as indicated:
For the six months ended December 31, | ||||||||
2017 | 2016 | |||||||
Net cash provided by (used in) operating activities | $ | (1,259,714 | ) | $ | 1,922,458 | |||
Net cash used in investing activities | $ | (250,278 | ) | $ | - | |||
Net (decrease) increase in cash and cash equivalents | $ | (1,513,894 | ) | $ | 1,907,459 | |||
Cash and cash equivalents at the beginning of period | $ | 8,733,742 | $ | 1,385,994 | ||||
Cash and cash equivalents at the end of period | $ | 7,219,848 | $ | 3,293,453 |
For the Six Months Ended December 31, | ||||||||
2019 | 2018 | |||||||
Net cash used in operating activities | $ | (3,075,643 | ) | $ | (4,717,751 | ) | ||
Net cash used in investing activities | $ | (7,020 | ) | $ | (9,357 | ) | ||
Net cash provided by financing activities | $ | 500,500 | $ | 500,000 | ||||
Effect of exchange rate fluctuations on cash | $ | (440,820 | ) | $ | (416,925 | ) | ||
Net decrease in cash | $ | (3,022,983 | ) | $ | (4,644,033 | ) | ||
Cash at the beginning of period | $ | 3,142,650 | $ | 7,098,259 | ||||
Cash at the end of period | $ | 119,667 | $ | 2,454,226 |
The following table sets forth a summary of our working capital:
December 31, | June 30, | |||||||||||||||||||||||||||||||
December 31, 2017 | June 30, 2017 | Variation | % | 2019 | 2019 | Variation | % | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Total Current Assets | $ | 17,879,083 | $ | 16,754,888 | $ | 1,124,195 | 6.7 | % | $ | 15,490,706 | $ | 15,945,162 | $ | (454,456 | ) | (2.9 | )% | |||||||||||||||
Total Current Liabilities | $ | 3,486,218 | $ | 3,086,496 | $ | 399,722 | 13.0 | % | $ | 5,089,628 | $ | 5,239,233 | $ | (149,605 | ) | (2.9 | )% | |||||||||||||||
Working Capital | $ | 14,392,865 | $ | 13,668,392 | $ | 724,473 | 5.3 | % | $ | 10,401,078 | $ | 10,705,929 | $ | (304,851 | ) | (2.8 | )% | |||||||||||||||
Current Ratio | 5.13 | 5.43 | (0.30 | ) | (5.5 | )% | 3.04 | 3.04 | 0.00 | 0.0 | % |
We finance our ongoing operating activities primarily by using funds from our operations. We routinely monitor current and expected operational requirements to evaluate the use of available funding sources. In assessing the liquidity, management monitorswe monitor and analyzes the Company’sanalyze our cash on-hand its ability to generate sufficient revenue sources in the future and the Company’sour operating and capital expenditure commitments. The Company plansOur liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. As of December 31, 2019, our working capital was approximately $10.4 million and we had cash of approximately $0.1 million. We plan to fund continuing operations through identifying new prospective joint venturesventure partners and strategic alliance opportunities for new revenue sources, and by reducing costs to improve profitability and replenish working capital. Considering our existing working capital position andWe believe our ability to access other fundingrepay our current obligations will depend on the future realization of our current assets and the future operating revenues generated from our operations.
We expect to realize the balance of our current assets within the normal operating cycle of a twelve month period. If we are unable to realize our current assets within the normal operating cycle of a twelve month period, we may have to consider supplementing our available sources management believesof funds through the following sources:
● | we will continuously seek equity financing to support its working capital. On November 13, 2019, the Company entered into a cooperation agreement with Shanming Liang, director of Guangxi Jinqiao Industrial Group Co., Ltd., to cooperate and expand the bulk cargo container services business. The Company and Mr. Liang further entered into a Share Purchase Agreement on November 14, 2019, pursuant to which Shanming Liang agreed to purchase 1,000,000 shares of the Company’s common stock at a purchase price of $1.00 per share for aggregate proceeds of $1 million. The Company received a gross proceeds of $500,500 in the second quarter of fiscal year 2020. The rest of the payment is expected to be received by the end of the third quarter of fiscal year 2020. | |
● | other available sources of financing from PRC banks and other financial institutions; and | |
● | financial support and credit guarantee commitments from our shareholders and directors. |
Based on the above considerations, we are of the opinion that the foregoing measures will providewe may not have sufficient liquidity for the Companyfunds to meet its future liquidityour working capital requirements and capital obligations.current liabilities as they become due one year from the date of this report. There is no assurance we will be successful in our plans. There are a number of factors that could potentially arise that could undermine our plans, such as changes in PRC government policy, economic conditions, and competitive pricing in the industries that we operate in.
Operating Activities
Net cash used in operating activities was $1,259,714The Company’s management has considered whether there is substantial doubt about its ability to continue as a going concern due to 1) the Company’s recurring losses from operations, including approximately $2.0 million net loss attributable to the Company’s stockholders for the six months ended December 31, 2017, including net income2019, 2) accumulated deficit of $1.11 million from increased revenue generated from freight logistics services, deferred tax benefit of $1.07 million, provision for doubtful accounts of $0.84 million and amortization of stock-based compensation to consultants of $0.33approximately $9.0 million as reconciled. In the current period, accounts receivable increased by $2.21of December 31, 2019 and 3) has negative operating cash flows of approximately $3.0 million and the amount due from related parties increased $0.92 million because of increased revenue for the period. On the other hand, taxes payable increased by $0.73 million primarily due to the one-time transition tax on accumulated foreign earnings. Cash outflows from operating activities for the six months ended December 31, 2017 reflect2019. All of these factors raised substantial doubt about the above mentioned major factors.ability of the Company to continue as a going concern.
Operating Activities
NetOur net cash derived fromused in operating activities was $1,922,458approximately $3.1 million for the six months ended December 31, 2016, including2019 compared to net incomecash used in operating activities of $1.43approximately $4.7 million from increased revenue generated from inland transportation management services and freight logistics services with strong margin contributions and decreased general and administrative expenses. In addition, a significant decreasefor the same period in provisions for doubtful accounts during the current period and accounts receivable decreased by $0.62 million, as a result of our strengthened2018. The operating cash collection efforts and payments received from Tengda Northwest, our major third-party customer for inland transportation management services, as well as other customers. However, advances to suppliers increased by $1.42 million because we prepaid certain freight fees pursuant to our Memorandum of Understanding with Singapore Metals & Minerals Pte Ltd. and Galasi Jernsih Sdn BHD. Cash inflows from operating activitiesoutflow for the six months ended December 31, 2016 reflect2019 was primarily attributable to our net loss of approximately $2.1 million, of which approximately $0.9 million of stock compensation expense, approximately $0.3 million of impairment loss of fixed assets and intangible asset and approximately $1.2 million for provision of doubtful accounts were non-cash expenses. We had an increase in other receivables of approximately $5.9 million as we prepaid certain costs of commodities on behalf of our customers offset by a decrease of approximately $1.6 million in accounts receivable as a result of collections made during the above mentioned factors.six months.
Investing Activities
The Company’sOur net cash used in investingoperating activities was $250,278approximately $4.7 million for the six months ended December 31, 2017 compared2018. The increase in operating cash outflow is primarily attributable to our net loss of approximately $2.7 million, in which approximately $1.9 million was non-cash stock compensation expense. We had an increase of approximately $5.0 million in accounts receivable offset by approximately $1.3 million of provision for doubtful accounts, an increase in advances to third party suppliers of approximately $0.2 million, a decrease in advances to related party supplier as we collected a reimbursement of approximately $3.3 million from Zhiyuan Hong Kong, an increase in prepaid expenses and other current assets of approximately $0.4 million, which mainly consisted of software development costs for ERP system, various fees, including fees for leasing system hardware and other related consulting fees, incurred during the three months ended December 31, 2018, an increase of approximately $2.5 million in deposits offset by a decrease of approximately $1.1 million due from related parties and a decrease of approximately $2.5 million in accounts payable.
Investing Activities
Net cash provided byused in investing activities of $nilwas $7,020 for the same period of 2016. For the six months ended December 31, 2017, we developed four information platforms, purchased a motor vehicle2019, mainly for the purchase of computer equipment and making office equipment.leasehold improvement.
Net cash used in investing activities was $9,357 for the six months ended December 31, 2018, related to making office leasehold improvement.
Financing Activities
Net cash provided by financing activities was $500,500 for the six months ended December 31, 2019 due to cash proceeds received from issuance of common stock to a private investor.
Net cash provided by financing activities was $500,000 for the six months ended December 31, 2018 due to cash proceeds received from issuance of common stock to a private investor.
Off-balance Sheet Arrangements
We do not have any outstanding financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
39
Critical Accounting Policies
We prepare our unaudited condensed 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.
Effective July 1, 2019, we adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. We also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. We recognized lease labilities of approximately $0.4 million, with corresponding ROU assets of approximately the same amount based on the present value of the future minimum rental payments of leases, using a weighted average discount rate of 9.01%.
There have been no other material changes during the six months ended December 31, 20172019 in our significant accounting policies from those previously disclosed in the Company’s annual report for the fiscal year ended June 30, 2017.
2019. The selectiondiscussion of our critical accounting policies the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported resultsare contained in Note 2 to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements.
Revenue Recognition
Revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
Basis of Consolidation
The Company’s unaudited condensed consolidated financial statements include the accounts of the parent, its subsidiaries and its affiliates. All inter-company transactions and balances are eliminated in consolidation. Sino-Global Shipping Agency Ltd. (“Sino-China”) is considered to be a Variable Interest Entity (VIE), and the Company is the primary beneficiary. Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of our and Sino-China's financial statements. The accounts of Sino-China are consolidated in the accompanying unaudited condensed consolidated financial statements pursuant to Accounting Standard Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s revenues are included in our total revenues, its net loss from operations is consolidated with our net income before non-controlling interest. Our non-controlling interest in its net loss is then subtracted to calculate the net income attributable to the Company. The Company temporarily suspended its business with Sino-China in June 2014. Therefore, there is no net income generated by Sino-China in the present.
Use of Estimates and Assumptions
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amountsthis report, “Summary 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.our Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of revenues, allowance for doubtful accounts, deferred income taxes, and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current economic trends. Receivables are considered past due after 180 days. Accounts Receivable are written off against the allowances only after exhaustive collection efforts.
Stock-based Compensation
Stock-based payment transactions with employees are measured on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. Valuations are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
Taxation
Because the Company and its subsidiaries and Sino-China are incorporated in different jurisdictions, they file separate income tax returns. The Company uses 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 unaudited condensed 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.
The Company recognizes 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. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense.
Income tax returns for the years prior to 2014 are no longer subject to examination by U.S. tax authorities.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21%Accounting Policies”. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to re-measure all U.S. deferred income tax assets and liabilities for temporary differences and NOL carryforwards and recorded one time income tax payable relating to “deemed repatriated tax” to be paid over 8 years.
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 Business Tax and Surcharges
Revenues from services provided by the Company’s PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to the PRC business tax of 5%. Business tax and surcharges are paid on gross revenues generated minus the costs of services which are paid on behalf of the customers.
Enterprises or individuals who sell commodities engage in services or selling of goods in the PRC are subject to a value-added tax (“VAT”) in accordance with PRC laws. All of the Company’s revenue generated in the PRC are subject to a VAT on the gross sales price. The VAT rates are 6% and 11%, depending on the type of services provided. The Company is entitled to a deduction or offset for VAT paid on the services rendered by the vendors against the VAT when the Company engages in services.
In addition, under PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay city construction taxes (7%) and education surcharges (3%) based on calculated business tax payments.
The Company’s PRC subsidiaries and affiliates report revenues net of PRC’s VAT, business tax and surcharges for all the periods presented in the consolidated statements of operations.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our unaudited condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
This Item is not applicable because we are a smaller reporting company.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2017,2019, the Company carried out an evaluation, under the supervision of and with the participation of its management, including the Company’s Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing evaluation, Chief Executive Officer and Acting Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective and adequately designed to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that such information was accumulated and communicated to the management, including Chief Executive Officer and Acting Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure. The assessment stemmed from the following material weaknesses –
● | Lack of segregation of duties for accounting personnel who prepared and reviewed the journal entries; | |
● | Lack of resources with technical competency to review and record non-routine or complex transactions; and | |
● | Lack of a full time U.S. GAAP personnel in the accounting department to monitor the recording of the transactions. |
Changes in Internal Control over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We face risks related to health epidemics that could impact our sales and operating results.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, and other adverse public health developments, particularly in China, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to resume the general shipping agency services, as well as temporary closures of our facilities and ports or the facilities of our customers and third-party service providers. Any disruption or delay of our customers or third-party service providers would likely impact our operating results and the ability of the Company to continue as a going concern. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of China and many other countries, resulting in an economic downturn that could affect demand for our services and significantly impact our operating results.
The following exhibits are filed herewith:
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SINO-GLOBAL SHIPPING AMERICA, LTD. | ||
February | By: | /s/ Lei Cao |
Lei Cao | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
February | By: | /s/ Tuo Pan |
Tuo Pan | ||
Acting Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
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