UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SINO-GLOBAL SHIPPING AMERICA, LTD.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
Virginia | 4731 | 11-3588546 | ||
(State or Incorporation or | (Primary Standard Industrial Classification Code Number) | ( Identification No.) |
1044 Northern Boulevard
Roslyn, New York 11354
(718) 888-1814
(Address, including zip code, and telephone number,
Lei Cao
Chief Executive Officer
1044 Northern Boulevard
Roslyn, New York 11576-1514
(718) 888-1814
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Lawrence G. Nusbaum, Esq. Bryan Dixon, Esq. Gusrae Kaplan Nusbaum PLLC 120 Wall Street, New York, New York 10005 Tel: (212) 269-1400 Fax: | Darrick M. Mix, Esq. David A. Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103-4196 Tel: (215) 979-1000 Fax: |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statementRegistration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:¨x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. offering:o¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smallersmall reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer¨ | Accelerated filer¨ |
| Non-accelerated filer¨ | Smaller reporting companyx |
Title of Each Class of Securities to be Registered | Amount to be Registered(1) | Proposed Maximum Offering Price per Share | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | |||||||||
| Common Stock | [______] | (2) | $ | [______] | (2) | $ | 8,750,000.00 | (2) | $ | 343.88 | |||
Common Stock(3) | [______] | (4) | $ | [______] | (4) | $ | 1,865,671.64 | (4) | $ | 73.32 | |||
Underwriter Warrants(5) | [______] | (6) | $ | 0.001 | $ | 150.00 | (6) | $ | 0.01 | ||||
Common Stock Issuable Upon Exercise of Underwriter Warrants(5) | [______] | (7) | $ | [______] | (7) | $ | 1,273,880.60 | (7) | $ | 50.06 | |||
Total Registration Fee | $ | 11,889,702.24 | $ | 467.27 | (8) | ||||||||
Calculation of Registration Fee
| Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share | Proposed maximum aggregate offering price(1)(2) | Amount of Fee (3) (4) | ||||||||||||
| Common stock, without par value per share | $ | 8,400,000 | $ | 976 | ||||||||||||
| Estimated solely for the purpose of calculating the registration fee under Rule 457(o) under the Securities Act. |
| (2) | Includes the offering price of shares of common stock that may be sold if the over-allotment option granted by us to the underwriter is exercised. |
| (3) | Calculated pursuant to Rule |
| (4) | Previously |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statement shall thereafterhereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. WeThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED __________ ___, 2008
SINO-GLOBAL SHIPPING AMERICA, LTD.
__________ Shares of Common Stock
We are offering a minimum of [______] shares and a maximum of [______] [__________]shares of our common stock. Our officers and directors may, but have made no commitment, nor indicated they intend to, purchase shares in the offering. Purchases by our officers and directors may be made in order to reach the minimum offering amount. We have not placedstock, at a limit on the number of shares our officers and directors may purchase in this offering.
For a more detailed description of the shares of common stock, see the section entitled “Description of Securities” beginning on page 49.
Our common stock is listed on the NASDAQ Capital Market under the symbol “SINO” for. On November 10, 2014, the reported closing price of our common stock was $2.06 per share.
We have agreed to issue at the election of the underwriter, up to [________] additional shares of our common stock, we are offering. We believe that uponat the completionpublic offering price of the offering contemplated by this prospectus, we will meet the standards for listing on the NASDAQ Capital Market.
Investing in our common stock involves significant risks.a high degree of risk. You should purchase shares of our common stock only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 6
| Per Common Share | Total | |||||||
| Public Offering Price | $ | $ | ||||||
| Underwriting discount(1) | $ | $ | ||||||
| Proceeds, before expenses, to us | $ | $ | ||||||
(1) In addition, we have agreed to pay or reimburse the underwriter for certain expenses. See “Underwriting” in this prospectus.
Per Share | Maximum Offering | Minimum Offering | ||||||||
| Public Offering Price | $ | [______ | ] | $ | 8,750,000 | $ | 6,750,000 | |||
| Underwriting Commission | $ | [______ | ] | $ | 612,500 | $ | 472,500 | |||
| Proceeds to us, before expenses | $ | [______ | ] | $ | 8,137,500 | $ | 6,277,500 | |||
The underwriter must sellexpects to deliver the minimum number of securities offered ([______] shares of common stock) if any are sold. The underwriter is requiredstock to use only its best efforts to sell the securities offered. The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our underwriter after which the minimum offering is soldpurchasers on or (ii) June 1, 2008. Until we sell at least [______] shares, all investor funds will be held in an escrow account at SunTrust Bank, Richmond, Virginia. If we do not sell at least [______] shares by June 1, 2008, all funds will be promptly returned to investors (within one business day) without interest or deduction.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of thethis prospectus. Any representation to the contrary is a criminal offense.
National Securities Corporation
The date of this prospectus is _________, 2014.
TABLE OF CONTENTS
You should rely only on the terms:
Neither we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the People’s Republicoffering of China;the sales of common stock and
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ROSPECTUSPROSPECTUS SUMMARY
The following summary highlights selected information that we present more fullycontained in the rest ofgreater detail elsewhere in this prospectus. This summary does not contain all of the information you shouldconsider before buying sharesinvesting in this offering. This summary contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases,common stock. Before making an investmentdecision, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “will,” “should,” “could,” and similar expressions. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. You should read the entire prospectus carefully, including the sections titled “Risk Factors” section and the“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes to those statements.
In this prospectus, unless otherwise indicated, the terms (i) “Sino-Global Shipping America, Ltd.”, “Sino-Global,” “SINO”, the “Company”, “we”, “us”, and “our” refer and relate to Sino-Global Shipping America, Ltd. and its consolidated subsidiaries, (ii) “Trans Pacific” refers and relates collectively to (a) Trans Pacific Shipping Limited (“Trans Pacific”)Ltd., our wholly-owned subsidiary located in Beijing.China, and (b) Trans Pacific operatesLogistics Shanghai Ltd., 90% of whose equity is owned by Trans Pacific Shipping Ltd., and (iii) “Sino-China” refers and relates to Sino-Global Shipping Agency Ltd. (previously Sino-Global Shipping Consulting Ltd.), our Chinesevariable interest entity (“VIE”), in China. References to “China” or the “PRC” mean the People’s Republic of China.
Overview
We are a shipping agency, (“Sino-China”), by contract. Prior to the completionlogistics and ship management services company. Our current service offerings consist of this offering, we and Sino-China are under common control, by virtue of our Chief Executive Officer’s ownership of more than 70% of both companies. We provide shipping agency services, in Chinashipping and have offices in China located in Beijing, Ningbo, Qingdao, Tianjin, Qinhuangdaochartering services, inland transportation management services and Fangchenggang and in the United States in Flushing, New York to coordinateship management services. Substantially all of our clients’ shipping needs, including preparing documents, husbanding vessels, processing customs issues, coordinating matters with port authorities, overseeing and settling cargo claims, tracking shipments, and recommending trucking, warehousing and complementary services.
Since our inception in 20032001 and the New Round Chinese and European Union Marine Transportation Agreement (中国与欧盟海瀰协定) in 2002 allowed shipping transportation enterprises that were wholly owned by American and European Union businesses, respectively, to provide shipping agency service for their parent companies.
Restructuring
Commencing in the latter part of fiscal year 2013 and continuing through our fiscal year ended June 30, 2014, we took various actions to restructure our business in China through Sino-China, a PRC limited liability company wholly owned by Cao Lei,with the goal of achieving profitability. These actions included lowering our Chief Executive Officer,operating costs and Zhang Mingwei,expenses, reducing our Chief Financial Officer, both of whom are PRC citizens. Sino-China holds the licenses and approvals necessary to operatedependency on our shipping agency business and hiring a new executive vice president and other consultants to assist us in China. We have contractual arrangements with Sino-Chinaimplementing our business restructuring efforts.
Also, during the first and itssecond quarters of fiscal year 2014, we expanded our service platform by adding two new services: shipping and chartering services and inland transportation management services. These two new services were added to service certain business needs of Tianjin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”). The Zhiyuan Investment Group is controlled by Mr. Zhong Zhang (“Mr. Zhang”), who in April 2013, as approved by our Board of Directors and shareholders, pursuant to which we provide managementpurchased from us 1,800,000 shares of our common stock for approximately $3 million, resulting in Mr. Zhang becoming our largest shareholder.
Fiscal Year 2014 and technical consulting services to Sino-China through Trans Pacific,1st Quarter 2015 Profitability
As a result of our wholly-owned subsidiary in China. Through these contractual arrangements, which enable us to control Sino-China, we are considered the primary beneficiary of Sino-China. Accordingly, we consolidate Sino-China’s results, assets and liabilities in our financial statements. Because of Mr. Cao’s common control of Sino-China and our company, we have consolidated these results from the inception of Sino-China. For a description of these contractual arrangements, see “Our Corporate Structure - Contractual Arrangements with Sino-China and its Shareholders.”
Complementary Acquisition in Fiscal Year 2015
As part of our strategy to expand our service platform, in September 2014, as approved by our Board of Directors, we acquired Longhe Ship Management (Hong Kong) Co., Limited (“LSM”), a ship management company based in Hong Kong from Mr. Deming Wang (“Mr. Wang”), who in June 2014, as approved by our Board of Directors, purchased from us 200,000 shares of our common stock for $444,000, resulting in Mr. Wang, as of the date of this prospectus.
acquisition of LSM will result in the issuance of between 20,000 and 200,000 shares of our common stock to Mr. Wang, depending on whether LSM reaches certain net income targets for the period July 4, 2014 through December 31, 2014.
Our Strategy
Our strategy is to:
| · | Develop and implement a business model that drives sustainable earnings and profitability; |
| · | Diversify our service lines organically and/or through acquisitions; |
| · | Continue to streamline our operations and improve our operating efficiency through effective planning, budgeting and cost control; |
| · | Continue to reduce our dependency on our shipping agency services business; |
| · | Add additional clients to reduce our dependency on a few key customers; and |
| · | Continue to monetize our relationship with strategic partners. |
Our Management Team
We believe we have a strong and experienced management team including our chief executive officer and chairman Mr. Lei Cao, our acting chief financial officer Mr. Anthony S. Chan, and our chief operating officer Mr. Zhikang Huang, who, together as a team, have many years of experience and a significant network of business contacts in the shipping industry in China and substantial experience in SEC reporting and compliance, business reorganization, mergers and acquisitions, accounting, risk management and operating both public and private companies.
Risks Associated with Our Business
We are aware that moving forward, we are subject to various risks and uncertainties including:
| · | Our reliance on a limited number of customers; |
| · | Our ability to continue to generate net revenues and operating profits from our two new service lines that we added during fiscal year 2014; |
| · | Our continued ability to keep our operating expenses at manageable levels; and |
| · | Certain other risks and uncertainties set forth elsewhere in this prospectus under the section titled “Risk Factors”. |
Certain Company Information
We are a Virginia corporation and our principal executive offices are located at 1044 Northern Boulevard, Roslyn, New York 11576-1514. Our telephone number at this address is (718) 888-1814. Our common stock is listed on the NASDAQ Capital Market under the symbol “SINO”.
Our internet website, www.sino-global.com, provides a variety of information about our company. We do not incorporate by reference into this prospectus the information on, or accessible through, our website, and you should not consider it as part of this prospectus. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”) are available, as soon as practicable after filing, at the investors’ page on our corporate website, or by a direct link to its filings on the SEC’s website.
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| Issuer: | ||
Common stock offered by us (assuming no exercise of the underwriter’s over allotment option): | 3,398,058 shares | |
Common stock to be outstanding | 9,598,899 shares | |
Underwriter’s option to purchase additional shares: | 509,708 shares | |
We estimate that the net proceeds received by us from this offering will be approximately $6 Million, or approximately $6.96 Million if the underwriters exercise their option to purchase additional shares | ||
| Risk factors: | Investing in | |
| Our common stock |
Unless expressly otherwise indicated herein, this prospectus assumes a per share public offering price of $2.06, the last reported closing price of a share of our common stock on the NASDAQ Capital Market on November 10, 2014, and an offering of $7,000,000 gross proceeds (assuming no exercise of the underwriter’s over-allotment option), and an offering of $8,050,000 gross proceeds (assuming the underwriter’s over-allotment option is fully exercised), this and all calculations based upon an assumed offering per share and the gross proceeds from the offering are based upon the above $2.06 per share offering price and a $7,000,000 offering and an $8,050,000 offering (assuming the underwriter’s over-allotment option is fully exercised).
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SELECTED SUMMARY CONDENSED CONSOLIDATED FINANCIAL DATA
The underwriter has not made a firm commitment in this offering and thus has no obligation or commitment to purchase anyselected condensed summary of our shares. Although they have not formally committed to do so, our affiliates may opt to purchase shares in connection with this offering. To the extent such individuals invest, they will purchase our shares with investment intent and without the intent to resell. Any shares purchased by our affiliates shall contribute to the calculation of whether we achieved our minimum offering. We have not placed limits on the number of shares eligible to be purchased by our affiliates.
For the year ended June 30, | For the six months ended December 31, (Unaudited) | |||||||||
2007 | 2006 | 2007 | ||||||||
| Total Sales | $ | 10,090,879 | $ | 8,924,786 | $ | 8,144,189 | ||||
| Income from Operations | 1,260,918 | 616,111 | 606,743 | |||||||
Net income from continuing operations before non-controlling interest in income(1) | 1,144,752 | 556,481 | 618,576 | |||||||
Non-controlling Interest in Income(1) | (104,237 | ) | (26,643 | ) | (60,037 | ) | ||||
| Net Income | 1,040,516 | 529,838 | 558,539 | |||||||
| Basic Earnings per Share | 0.58 | 0.29 | 0.31 | |||||||
| Diluted Earnings per Share | 0.58 | 0.29 | 0.31 | |||||||
June 30, | December 31, (Unaudited) | |||||||||
2007 | 2006 | 2007 | ||||||||
| Total Assets | $ | 3,752,561 | $ | 1,805,673 | $ | 4,378,809 | ||||
| Total Current Liabilities | 1,788,748 | 1,257,348 | 1,851,384 | |||||||
| Long-term Liabilities | - | - | - | |||||||
| Non-controlling Interest | 308,610 | (66,362 | ) | 313,683 | ||||||
| Mandatorily Redeemable Stock | - | - | 1,250,000 | |||||||
| Net Assets | 1,655,203 | 614,687 | 963,742 | |||||||
| Capital Stock | 1,880 | 1,880 | 1,625(2 | ) | ||||||
We derived the primary beneficiary. On November 14, 2007, our company entered into agreements with Sino-China, pursuant to which we receive 90%following statement of Sino-China’s net income. We do not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. These agreements do not entitle us to any consideration if Sino-China incurs a net loss during its fiscal year. In accordance with these agreements, Sino-China pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to our new wholly owned foreign subsidiary, Trans Pacific, and Trans Pacific supplies the technology and personnel needed to service Sino-China. Sino-China was designed to operate in Chinaoperations data for the benefitfiscal years ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 from our Company.
Statement of Variable Interest Entities - an Interpretation of ARB No. 51”. As a VIE, Sino-China’s sales are includedOperations Data:
| Unaudited | Audited | |||||||||||||||
| Three Months Ended September 30, | Year Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net revenues | $ | 2,605,925 | $ | 3,317,661 | $ | 11,644,392 | $ | 17,331,759 | ||||||||
| Cost of revenues | 1,409,153 | 2,387,803 | 7,613,459 | 15,402,743 | ||||||||||||
| Gross profit | 1,196,772 | 929,858 | 4,030,933 | 1,929,016 | ||||||||||||
| Operating income (loss) | 200,628 | (17,394) | 300,130 | (2,203,540) | ||||||||||||
| Net income (loss) | 165,501 | 28,973 | 434,486 | (2,576,896) | ||||||||||||
| Net loss attributable to non-controlling interest | (166,958) | (246,421) | (1,151,867) | (777,141) | ||||||||||||
| Net income (loss) attributable to Sino-Global | 332,459 | 275,394 | 1,586,353 | (1,799,755) | ||||||||||||
| Comprehensive income (loss) | 232,035 | 3,336 | 435,979 | (2,592,830) | ||||||||||||
| Comprehensive income (loss) attributable to Sino-Global | 367,259 | 263,510 | 1,556,180 | (1,761,673) | ||||||||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic | 0.06 | 0.06 | 0.34 | (0.38) | ||||||||||||
| Diluted | 0.06 | 0.06 | 0.34 | (0.38) | ||||||||||||
Balance Sheet Data:
| September 30, 2014 (Unaudited) | June 30, 2014 (Audited) | |||||||
| Cash and cash equivalents | $ | 3,533,187 | $ | 902,531 | ||||
| Total assets | 7,591,374 | 5,713,954 | ||||||
| Total liabilities | 1,152,860 | 1,230,795 | ||||||
| Total equity | 6,438,514 | 4,483,159 | ||||||
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An investment in our company’s total sales, its income from operations is consolidated with our company’s, and our net income from continuing operations before non-controlling interest in income includes all of Sino-China’s net income. Our non-controlling interest in its income is then subtracted in calculating the net income attributable to our company. Because of the contractual arrangements, we had a pecuniary interest in Sino-China that requires consolidation of our company’s and Sino-China’s financial statements.
Our business operations are primarily conducted in this offering unless you can afford to lose your entire investment.
Risks Related to Our Business
Despite generating net income attributable to Sino-Global in our fiscal year 2014 and the three months ended September 30, 2014, we have a very competitive industryhistory of operating losses and may need to raise additional funds to continue our operations and to execute our business plan. We may not be able to obtain additional debt or equity funding under commercially reasonable terms or issue additional securities.
We reported net income attributable to Sino-Global of $1,586,353 for fiscal year 2014 and of $332,459 for the three months ended September 30, 2014, as compared to net loss attributable to Sino-Global of $1,799,755 for fiscal year 2013 and net income attributable to Sino-Global of $275,394 for the three months ended September 30, 2013. As of September 30, 2014, we had an accumulated deficit of $2,937,801 and cash and cash equivalents of $3,553,187 as compared to an accumulated deficit and cash and cash equivalents of $3,270,260 and $902,531 as of June 30, 2014, respectively. If we are not able to generate sufficient income and cash flows from operations to fund our operations and strategic growth plans, we may be required to seek additional funding through the issuance of equity or debt securities. Additional funding may not be available on terms favorable to us, or at all. If we raise additional funds by issuing equity securities, our shareholders may experience dilution. Debt financing, if available, may involve restrictive covenants or security interests in our assets. If we are unable to raise adequate funds or generate them from operations, we may have to delay, reduce the scope of, or eliminate some or all of our growth plans and/or liquidate some or all of our assets.
We have historically relied on a limited number of customers for a substantial portion of our business and no longer provide shipping agency services to our former largest customer.
In fiscal year 2014, we commenced providing shipping and chartering services and inland transportation management services to a single customer, the Zhiyuan Investment Group, an entity controlled by Mr. Zhang, our largest shareholder. During fiscal year 2014, $4,120,409 (or 35.4%), of our net revenues and $2,517,008 (or 62.4%), of our gross profits came from providing shipping and chartering services and inland transportation management services to the Zhiyuan Investment Group. For the three months ended September 30, 2014, we have not provided shipping and chartering services to the Zhiyuan Investment Group. The nature of our business is driven by the needs of our clients, and we cannot predict when, or if ever, we will receive another order for shipping and chartering services from the Zhiyuan Investment Group. For the three months ended September 30, 2014, $361,394 (or 13.9%) of our net revenues and $313,769 (or 26.2%) of our gross profits came from providing inland transportation management services to the Zhiyuan Investment Group. If we do not provide shipping and chartering services to the Zhiyuan Investment Group in the future, our business and results of operations would be materially adversely affected. Further, we cannot guarantee that we would be able to replace this customer with one or more new customers of similar size. Prior to fiscal year 2014, we relied heavily on Beijing Shourong Forwarding Service, Co., Ltd. (“Shourong”), an affiliate of Capital Steel, a steel company in China, for a substantial percentage of our shipping agency business. As part of the restructuring of our business, we exited our non-performing service arrangements including our shipping agency service with Shourong, who in fiscal year 2013, accounted for approximately 63% of our total net revenues. We did not provide any shipping agency services to Shourong in fiscal year 2014 or during the three months ended September 30, 2014 and cannot determine the extent of services, if any, we will deliver to Shourong in the future.
We have recently entered shipping and chartering services and inland transportation management services businesses and cannot guarantee that we will be able to compete effectively in these business areas.
Prior to fiscal year 2014, our sole line of business was providing shipping agency services. We expanded our services to include shipping and chartering services in the quarter ended September 30, 2013 and inland transportation management services in the quarter ended December 31, 2013. As we are a new entrant into these two business lines, we do not have a significant market presence. Further, we currently only provide shipping and chartering services and inland transportation services to one customer, the Zhiyuan Investment Group, who is controlled by Mr. Zhang, our largest shareholder. We may not have been able to enter into these business lines without our relationship with Mr. Zhang, and we cannot guarantee that we will be successful in securing and providing shipping and chartering services and inland transportation management services contracts for other customers on acceptable terms, if at all.
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The fees that we received from the Zhiyuan Investment Group for our shipping and chartering services and inland transportation management services may not be indicative of the fees that we may receive for the same services provided to unaffiliated customers and may be materially lower, which would have an adverse effect on our results of operations.
Our shipping and chartering services and inland transportation management services to date have been provided primarily to a single customer, the Zhiyuan Investment Group. Therefore, we cannot provide any assurances that the fees we have received for these services from this customer are indicative of the fees that we may receive if we are able to obtain non-affiliated customers for these services. The fees that we may receive from non-affiliated customers may be less than what we have received from our affiliated customer, and could possibly be so low as to make these lines of business unprofitable, which would have a material adverse effect on our results of operations and could require us to terminate such service lines.
We have entered into a number of business arrangements that are significant to us with two of our shareholders including Mr. Zhang, our largest shareholder, and through Mr. Zhang, the Zhiyuan Investment Group, who is controlled by Mr. Zhang. The failure to maintain our business relationship with either or both of such shareholders would have a material adverse effect on our business and results of operations.
In April 2013, as approved by our Board of Directors and shareholders, Mr. Zhang purchased 1,800,000 shares of our common stock for approximately $3 million, which as of the date of this prospectus represents approximately 29% of our issued and outstanding common stock, resulting in Mr. Zhang becoming our largest shareholder. As a result of Mr. Zhang’s desire to find business opportunities that would mutually benefit us and the Zhiyuan Investment Group, a company controlled by Mr. Zhang, which owns a number of businesses in China, in June 2013, we signed a 5-year Global Logistic Service Agreement with two parties, one of which was the Zhiyuan Investment Group and the other was TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (“Tewoo”). Thereafter, during the quarter ended September 30, 2013, we executed a shipping and chartering services agreement with the Zhiyuan Investment Group, pursuant to which we assisted the Zhiyuan Investment Group in the transportation of approximately 51,000 tons of chromite ore from South Africa to China; and in September 2013, we executed an inland transportation management service contract with the Zhiyuan Investment Group pursuant to which we agreed to provide certain advisory services and assist the Zhiyuan Investment Group in attempting to control its potential commodities loss during the transportation process. On a one time basis, we executed a one year short-term loan agreement with the Zhiyuan Investment Group, effective January 1, 2014, to facilitate the working capital needs of the Zhiyuan Investment Group. As of June 30, 2014, the net amount due to us from the Zhiyuan Investment Group was $2,920,950 consisting of funds borrowed from us pursuant to the short-term loan agreement and trade receivables due us from the Zhiyuan Investment Group. In September 2014, we collected approximately $2.7 million from the Zhiyuan Investment Group, representing full repayment of all funds borrowed by the Zhiyuan Investment Group from us pursuant to the short-term loan agreement and the payment to us of approximately $1.6 million of outstanding trade receivables. During the three months ended September 30, 2014, we continued to provide inland transportation management services to the Zhiyuan Investment Group. The net amount due to us from the Zhiyuan Investment Group at September 30, 2014 was $627,951. In October 2014, we collected approximately $384,000 from the Zhiyuan Investment Group which reduced the outstanding trade receivables due to us from the Zhiyuan Investment Group.
In May 2014, we signed a strategic agreement with Qingdao Zhenghe Shipping Group Limited (“Zhenghe”), to jointly explore mutually beneficial business development opportunities. Zhenghe is a PRC company to which Mr. Wang is the majority shareholder. To demonstrate the commitment by Zhenghe to its business relationship with us, in June 2014, as approved by our Board of Directors, Mr. Wang, through a company owned by him, purchased 200,000 shares of our common stock for $444,000, resulting in Mr. Wang owning as of the date of this prospectus, approximately 3.2% of our outstanding common stock. Subsequently, and as part of our strategy to expand our service platform, in September 2014, as approved by our Board of Directors, we acquired LSM, a ship management company based in Hong Kong from Mr. Wang. While to date the net revenues generated from such business have been immaterial, we believe that ship management is a good complement to our existing service platform. The acquisition of LSM will result in the issuance of between 20,000 and 200,000 shares of our common stock to Mr. Wang, depending on whether LSM reaches certain net income targets for the period July 4, 2014 through December 31, 2014. LSM outsources its ship management services to Qingdao Longhe Ship Management Services Co., Ltd., a company controlled by Mr. Wang.
As a result of our business relationship with Mr. Zhang and Mr. Wang, since April 2013, we have received approximately $3.5 million from the sale of 2,000,000 shares of our common stock to such two persons and added shipping and chartering, inland transportation management and ship management services to our service platform, which shipping and chartering services and inland transportation management services generated 35.4% and 62.4% of our net revenues and profitability.
Based upon the above, the failure by us to maintain our existing business relationship with Mr. Zhang and/or Mr. Wang would have a material adverse effect on our business and results of operations.
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The shipping agencies. agency business is very competitive in nature and many of our competitors have greater financial, marketing and other resources than we have.
Our potential competitors in the shipping agency business include twothree major shipping agencies, which together account for approximately 85% of China’s shipping agency revenues.China Ocean Shipping Agency Co., Ltd. (“Penavico”), China Shipping (Group) Company (“China Shipping”) and China Marine Shipping Agency Co., Ltd. (“Sinoagent”). These competitors have significantly greater financial, marketing and marketingother resources and name recognition than we have.
Our Challenges.”
The Chinese government’s ownership of our two largest competitors disadvantages our companyinterests in Penavico, China Shipping and Sinoagent, place us at a number of ways.
We believe that our competitors in the shipping and chartering services and inland transportation management services business, have greater name recognition, significantly more experience, financial, marketing and other resources than we are unablehave and we expect to expandface intense competition in these business segments.
We have recently launched the shipping and chartering services and inland transportation management services business and so we expect that our competitors in these segments will have greater experience and name recognition than we do, which is a competitive disadvantage to us. Further, we expect that these competitors will be larger than us and have greater financial and marketing resources than we have, which also puts us at a comparable rate with thesesignificant competitive disadvantage. Since larger competitors may be able to offer the same services we offer at lower rates than what we would need to charge to operate profitably, this would have a material adverse effect on our business and results of operation.
The barriers to enter into the business segments in which we operate are low and we may loseface competition from new entrants into these business segments.
The number of competitors offering the same services that we do may increase in the future since the barriers to entry are low. Increases in competition could lead to revenue reductions, reduced profit margins, or a loss of market share, or be unable to generate profits. See “Our Business - Competition.”
Our customers are companies engaged in the shipping industry, and, consequently, our financial performance is dependent upon the economic conditions of that industry.
We have derived most ofderive our revenues to date from providing shipping agency services to Chinese and internationalcustomers in the business of shipping companies that seek to ship materials to China and from China.our success is dependent upon our customer’s shipping needs. Our customers’ success isshipping needs are intrinsically linked to economic conditions in the shipping industry in general and trade with China in particular. The shipping industry, in turn, is subject to intense competitive pressures and is affected by overall economic conditions. Although we believe our services can assist shipping companies in a competitive environment,Accordingly, demand for our services could be harmed by instability or downturns in the shipping industry, reductions in trade between China and other countries or a combination of both which maycould materially lower demand or cause our customers to forego the shipping agency services we provide by attempting to provide such services in-house. There can be no assurance that we will be able to continueIf any of the foregoing occurs, it would have a material adverse effect on our historical revenue growth or sustain our profitability on a quarterly or annual basis or thatbusiness and our results of operations will not be adversely affected by continuing or future downturns in the shipping industry. See “Our Business - Market Background.”operations.
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We may be required to assume liabilities for our clients in the future.
An increasing number of companies that require shipping agency services have pressured shipping agents to guarantee their principals’clients’ liabilities. Some companies have required shipping agents, as a condition of doing business, to pay directly for tariffs, port charges, and other fees, or to be reimbursedpay these fees with the promise of reimbursement at a later date by the companies.date. Other companies have sought to include shipping agents as parties in voyage charter agreements, leading to potential liability for shipping agents in the event of a breach by another party. We expect that these pressures on shipping agents to accept more liability will increase as competition among shipping agencies intensifies. While we do not currently pay these liabilities and have no present intention to begin doing so in the future, the assumption of any of these or other new liabilities could have a material adverse effect on our operations. See “Management’s Discussionbusiness and Analysisresults of Financial Condition and Results of Operations - Account Receivable.”
We are heavily dependent upon the services of experienced personnel who possess skills that are valuable in our industry, and we may have to actively compete for their services.
We are a small company is much smaller than Penavico and Sinoagent, our two main competitors,with limited resources, and we compete in large part on the basis of the quality of services we are able to provide our clients. As a result, we are heavily dependent upon our ability to attract, retain and motivate skilled personnel to serve our clients. Many of our personnel possess skills that would be valuable to allother companies engaged in the shipping agency industry.one or more of our business lines. Consequently, we expect that we will have to actively compete with other Chinese shipping agencies forto retain these employees. Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate is substantially dependent upon our ability to locate, hire, train and retain our personnel. Although we have not experienced difficulty locating, hiring, training or retaining our employees to date, there can be no assurance that we will be able to retain our current personnel, or that we will be able to attract and assimilate other qualified personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the quality of ourthe shipping agency services that we provide could be materially impaired. See “Our Business - Employees.”
We are substantially dependent upon our key personnel, particularly Cao Lei, our Chief Executive Officer.
Our performance is substantially dependent on the performance of our executive officers and key employees. In particular, the services of:
·Mr. Lei Cao, Chief Executive Officer;
·Mr. Anthony S. Chan, Acting Chief Financial Officer; and
· Mr. Zhikang Huang, Chief Operating Officer
would be difficult for us to replace. WeWhile we have employment contracts with each of our executive officers, such contracts may be terminated in certain circumstances by the executive officers. Moreover, we do not have in placeany “key person” life insurance policies on any of our employees. The loss of the services of any of our executive officers or other key employees could substantially impair our ability to successfully implementeffectively execute our business and expand our service platform, which would have a material adverse effect on our business and results of operations.
We need to maintain our relationships with local agents.
Our shipping agency business is dependent upon our relationships with local agents operating in the ports where our customers ship their products. As a general agent, substantially all of our shipping agency revenues have been derived from services delivered by the local agents and we believe local agent relationships will remain critical to our success in the future. We have a number of local agents that account for a significant portion of our business, the loss of one or more of which could materially and negatively impact our ability to retain and service our customers. We cannot be certain that we will be able to maintain and expand our existing supply chain management softwarelocal agent relationships or enter into new local agent relationships, or that new or renewed local agent relationships will be available on commercially reasonable terms. If we are unable to maintain and developexpand our existing local agent relationships, renew existing local agent relationships, or enter into new programslocal agent relationships, we may lose customers, customer introductions and enhancements. See “Our Business - Employees”co-marketing benefits, and “Management.”our business and results of operations may suffer significantly.
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We mayare dependent on third party carriers and inland transportation companies to transport our client’s cargo.
We rely on commercial ocean freight carriers and inland transportation companies, for the movement of our client’s cargo. Consequently, our ability to provide services for our clients could be adversely impacted by: shortages in available cargo capacity; changes by carriers and transportation companies in policies and practices such as scheduling, pricing, payment terms and frequency of service or increases in the cost of fuel, taxes and labor; and other factors not pay dividends.
Our profitability depends on our ability to effectively manage our cost structure as we grow the business.
As we continue to attempt to increase our revenues through the expansion of our service offerings, we must maintain an appropriate cost structure to maintain and increase our profitability. While we intend to increase our revenues by increasing the number and quality of the shipping services we provide by strategic acquisitions, and by maintaining and expanding our gross profit margins by reducing costs, our profitability will be driven in large part by our ability to manage our agent commissions, personnel and general and administrative costs as a function of our net revenues. There can be no assurances that we will be able to effectively control our costs and failure to do so would result in lack of profitability, which would have a material adverse effect our business and results of operations.
Comparisons of our operating results from period to period are not necessarily meaningful and should not be relied upon as an indicator of future performance.
Our operating results have fluctuated in the past and likely will continue to fluctuate in the future because of a variety of factors, many of which are beyond our control. In fiscal year 2014, a substantial portion of our revenues was derived from the Zhiyuan Investment Group whose business needs we believe are tied closely to economic trends and consumer demand that can be difficult to predict. There can be no assurance that our historic operating performance will continue in future periods as we cannot assume or provide any assurance that the Zhiyuan Investment Group will continue to utilize our services, or have the same level of demand for our services that it had in fiscal year 2014. Because our quarterly revenues and operating results vary significantly, comparisons of our period-to-period results are not necessarily meaningful and should not be relied upon as an indicator of future performance.
We have not previously paid any cash dividends and we do not anticipateforesee paying dividends in the future.
We have never declared or paid any cash dividends on our common stock. We cannot assure you thatdo not anticipate paying any cash dividends on our operationscommon stock in the foreseeable future, if ever. Any future determination to pay cash dividends will continue to result in sufficient revenues to enable us to operatebe at profitable levels or to generate positive cash flows. Furthermore, there is no assurance our Board of Directors will declare dividends even if we are profitable. Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things,upon our earnings, financial condition, operating results, capital requirements, Virginia and PRC laws, and other factors. If we determine to pay dividends on any offactors that our common stock in the future, we will be dependent, in large part, on receipt of funds from Trans Pacific and Sino-China. See “Dividend Policy.”
Foreign Operational Risks
We do not have business interruption, litigationliability, disruption, or natural disasterdirector and officer liability insurance.
We do not have any business liability or disruption insurance coverage for our operations in China, or any director and officer liability insurance coverage for our directors and officers in the United States or China. Any business interruption, litigation or natural disaster and/or any claim against any of our directors or officers resulting from any of their actions in such capacities, may result in our business incurring substantial costs and the diversion of resources. See “Our Business - Our Challenges.”
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Trans Pacific’s contractual arrangements with Sino-China may result in adverse tax consequences to us.
As a result of our corporate structure and contractual arrangements between Trans Pacific and Sino-China, any revenues generated by Sino-China’s operations in China and/or any revenues derived from Trans Pacific‘s contractual arrangements with Sino-China are subject to PRC tax. Moreover, we could face material and adverse tax consequences if the PRC tax authorities determine that Trans Pacific’s contractual arrangements with Sino-China were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, of adjustments recorded by Sino-China, which could adversely affect us by increasing Sino-China’s tax liability without reducing Trans Pacific’s tax liability, which could further result in late payment fees and other penalties to Sino-China for underpaid taxes. See “Our Corporate Structure - Contractual Arrangements with Sino-China and its Shareholders.”
Trans Pacific’s contractual arrangements with Sino-China may not be as effective in providing control over Sino-China as direct ownership of Sino-China.
Until fiscal year 2014, we conducted a significant portion of our operations, and generate substantially all of our revenues,shipping agency business through contractual arrangements with Sino-China that provideprovided us, through our ownership of Trans Pacific, with effective control over Sino-China. We depend on Sino-China to hold and maintain contracts for shipping agency services with our customers. Sino-China also owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither our company nor Trans Pacific has any ownership interest in Sino-China. Although we have been advised by Kang Da, our PRC legal counsel, that each contract under Trans Pacific’s contractual arrangements with Sino-China is valid, binding and enforceable under current PRC laws and regulations, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations governing the enforcement and performance of such contractual control over Sino-China. If the PRC government determines that these contractual arrangements as a whole do not comply with applicable regulations, our business could be substantially adversely affected. In addition, these contractual arrangements may not be as effective in providing us with control over Sino-China as direct ownership of Sino-China. In addition,Sino-China would. Furthermore, Sino-China may breach the contractual arrangements. For example, Sino-China may decide not to pay consulting or marketing fees to Trans Pacific, and consequently to our company, in accordance with the existing contractual arrangements. In event of any such breach, we would have to rely on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. See “Our Corporate Structure - Contractual ArrangementsIn light of rising operating costs and expenses associated with doing business in China, consecutive years of operating losses reported by Sino-China, concerns raised by the US regulators over the last few years about VIE’s and its Shareholders.”
Uncertainties with respect to the PRC legal system could adversely affect us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with Sino-China and its shareholders.
We conduct a substantial portion of our business primarily through Trans Pacific and Sino-China. These entitiesSino-Global Shipping (HK) Ltd. Sino-Global Shipping (HK) Ltd., Trans Pacific and our company are generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. WeTrans Pacific, Sino-Global Shipping (HK) Ltd. and Trans Pacificour company are considered foreign persons or foreign invested enterprises under PRC law. As a result, weTrans Pacific, Sino-Global Shipping (HK) Ltd. and Trans Pacific
In addition, we depend on Sino-China to honor its agreements with Trans Pacific. Almost all of these agreements are governed by PRC law. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
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The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations. See “Our Business - Market Background.”
The shareholders of Sino-China have potential conflicts of interest with us, which may adversely affect our business.
Neither we nor Trans Pacific owns any portion of the equity interests of Sino-China. Instead, we and Trans Pacific rely on contractual obligations to enforce our interest in receiving payments from Sino-China. Conflicts of interest may arise between Sino-China’s shareholders and our company if, for example, their interests in receiving dividends from Sino-China were to conflict with our interest requiring Sino-China to make contractually-obligated payments to Trans Pacific. As a result, we have required Sino-China and each of its shareholders to execute irrevocable powers of attorney to appoint the individual designated by us to be his attorney-in-fact to vote on their behalf on all matters requiring shareholder approval by Sino-China and to require Sino-China’s compliance with the terms of its contractual obligations. We cannot assure you, however, that when conflicts of interest arise, Sino-China’s shareholders will act completely in our interests or that conflicts of interests will be resolved in our favor. In addition, Sino-China’s shareholders could violate their agreements with us by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and Sino-China’s shareholders, we would have to rely on legal proceedings, which could result in the disruption of our business. In addition, these contractual relationships are governed by PRC law, which may result in uncertainty as to application and enforcement. “Our Corporate Structure.”
We rely on dividends paid by our subsidiary for our cash needs.
We rely primarily on dividends paid by Trans Pacific for our cash needs, including the funds necessary to pay dividends and other cash distributions, if any, to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
Governmental control of currency conversion may affect the value of your investment.
In the course of providing services for international shipments, we occasionally require currencies from other countries to conduct our business. While we believe that we have complied with applicable currency control laws and regulations in all material aspects, we cannot guarantee you that our efforts will be free from challenge or that, if challenged, we will be successful in our defense of our current practices. Under our current corporate structure, our income is paid in different currencies, depending on our agreements with individual customers. We then pay in local currencies the expenses associated with operating a company in several countries. Shortages in the availability of foreign currency may restrict our ability to pay such expenses unless and until we convert currencies that we have into those that we require.
One of the currencies we often convert among is the RMB. The PRC government imposes controls on the convertibility of the RenminbiRMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive the majority of our revenues in Renminbi. Under our current corporate structure, our income is derived from dividend payments from Trans Pacific and income from our activities in the United States. Shortages in the availability of foreign currency may restrict the ability of Trans Pacific to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RenminbiRMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends, if any, in foreign currencies to our shareholders. See “Our Business - Regulations on Foreign Exchange.”
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Fluctuation in the value of the RenminbiRMB may have a material adverse effect on your investment.
The value of the RenminbiRMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RenminbiRMB to the U.S. dollar. Under the new policy, the RenminbiRMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an appreciation of the RenminbiRMB against the U.S. dollar. While the international reaction to the RenminbiRMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RenminbiRMB against the U.S. dollar. We rely largely on payments from Trans Pacific and Sino-China. While we charge our fees in U.S. dollars, Sino-China and Trans Pacific nevertheless operate within China and will rely heavily on RenminbiRMB in their operations. Any significant revaluation of RenminbiRMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation of RenminbiRMB against the U.S. dollar would make any new RenminbiRMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RenminbiRMB for such purposes. See “Exchange Rate Information.”
Changes in China’s political and economic policies could harm our business.
China’s economy has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic development of China, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include:
·economic structure;
·level of government involvement in the economy;
·level of development;
·level of capital reinvestment;
·control of foreign exchange;
·methods of allocating resources; and
·balance of payments position.
As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries. See “Our Business - Market Background.”
Since 1979, the Chinese government has promulgated many new laws and regulations covering general economic matters. Despite this activity to develop a legal system, China’s system of laws is not yet complete. Even where adequate law exists in China, enforcement of existing laws or contracts based on existing law may be uncertain or sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary, in many cases, creates additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Our activities in China will also be subject to administration review and approval by various national and local agencies of China’s government. Because of the changes occurring in China’s legal and regulatory structure, we may not be able to secure the requisite governmental approval for our activities. Although we have obtained all required governmental approval to operate our business as currently conducted, to the extent we are unable to obtain or maintain required governmental approvals, the Chinese government may, in its sole discretion, prohibit us from conducting our business. See “Our Business - Market Background.”
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The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in that country.
Our business is subject to significant political and economic uncertainties and may be adversely affected by political, economic and social developments in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice.
Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to shareholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment in us. See “Our Business - Market Background.”
As most of our officers, directors and assets are outside the United States, it will be extremely difficult to acquire jurisdiction and enforce liabilities against us and our officers, directors and assets based in China.
Most of our directors and officers reside outside the United States. In addition, manythe majority of our assets will beare located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon most, if not all, of our directors or officers and our subsidiaries, or enforce against any of them court judgments obtained in United States courts, including judgments relating to United States federal securities laws. Furthermore, because the majority of our assets are located in China and PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts, it would also be extremely difficult to access those assets to satisfy an award entered against us in United States court. See “Management - Executive Officers and Directors.”
Our international operations require us to comply with a number of U.S. regulations.
In addition to the Chinese laws and regulations with which we must comply, we must also comply with the United States Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. Any failure by us to adopt appropriate compliance procedures and ensure that our employees and agents comply with the FCPA and applicable laws and regulations in foreign jurisdictions could result in substantial penalties and/or restrictions in our ability to conduct business in certain foreign jurisdictions. The U.S. Department of the Treasury’s Office of Foreign Asset Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries, entities and individuals based on U.S. foreign policy and national security goals. As a result, we are restricted from entering into transactions with certain targeted foreign countries, entities, and individuals except as permitted by OFAC, which maycould reduce our future growth.
Risks Related to This Offering
Our management will have broad discretion in how we use the proceeds from this offering, we may use the proceeds in ways with which you disagree.
Our management will have broad discretion in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be used by us in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business financial condition, operating results and cash flow.
You will experience immediate dilution in the book value per share of the common stock you purchase.
Because the price per share of our common stock being offered is substantially higher than the book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. After giving effect to the sale by us of an assumed 3,398,058 shares of common stock in this offering, and based upon an assumed public offering price of $2.06 per share, which is the last reported closing price of a share of our common stock on the NASDAQ Capital Market on November 10, 2014, and a net tangible book value per share of our common stock of $1.04 as of September 30, 2014, if you purchase shares of our common stock in this offering, you will suffer immediate and substantial dilution of $0.76 per share in the net tangible book value of each share of our common stock purchased by you. See “Our Business - Market Background.”
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We currently have a sporadic, illiquid and volatile market for our common stock.
We currently have a sporadic, illiquid and volatile market for our common stock, which market is anticipated to remain sporadic, illiquid and volatile in the future. Factors that could affect our stock price or result in fluctuations in the market price or trading volume of our common stock include:
| · | quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and cash flows, or those of companies that are perceived to be similar to us; |
| · | speculation in the press or investment community; |
| · | public reaction to our press releases, announcements and filings with the SEC; |
| · | sales of our equity or debt securities by us or our shareholders, or the perception that such sales may occur; |
| · | the realization of any of the risk factors presented in this prospectus; |
| · | the recruitment or departure of key personnel; |
| · | commencement of, or involvement in, litigation; |
| · | changes in market valuations of companies similar to ours; and |
| · | domestic and international economic, legal and regulatory factors unrelated to our performance. |
Our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance or our actual value. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Additionally, general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Due to the limited volume of our shares which trade, we believe that our stock prices (bid, ask and closing prices) may not be related to our actual value, and not reflect the actual value of our common stock. Shareholders and potential investors in our common stock should exercise caution before making an investment in us.
An active liquid trading market for our common stock may not develop in the future.
Our common stock currently trades on the NASDAQ Capital Market, although our common stock’s trading volume is low. Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. However, our common stock may continue to have limited trading volume, and many investors may not be interested in owning our common stock because of the inability to acquire or be sustained following this offering. Yousell a substantial block of our common stock at one time. Such illiquidity could have an adverse effect on the market price of our common stock. In addition, a shareholder may not be able to sell your shares atborrow funds using our common stock as collateral because lenders may be unwilling to accept the market price, if at all, if trading in our stock is not active. The initial public offering price was determined by negotiations between us and the underwriter based uponpledge of securities having such a number of factors. The initial public offering price may not be indicative of prices that will prevail in the tradinglimited market.
Because we are a “best efforts, minimum-maximum basis.” We have no firm commitment from anyone,small company, the requirements of being a public company, including our affiliates, to purchase all or anycompliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company with listed equity securities, we must comply with the federal securities laws, rules and regulations, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Act, related rules and regulations of the SEC and the NASDAQ Capital Market, with which a private company is not required to comply. Complying with these laws, rules and regulations occupies a significant amount of time of our Board of Directors and management and will significantly increase our costs and expenses. Among other things, we must:
| · | maintain a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; |
| · | comply with rules and regulations promulgated by the NASDAQ Capital Market; |
| · | prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws; |
| · | maintain various internal compliance and disclosures policies, such as those relating to disclosure controls and procedures and insider trading in our common stock; |
| · | involve and retain to a greater degree outside counsel and accountants in the above activities; |
| · | maintain a comprehensive internal audit function; and | |
| · | maintain an investor relations function. |
| 14 |
Future sales of our common stock could cause our stock price to decline.
If we sell, or the public market perceives we may sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly. Pursuant to our Registration Statement on Form S-3 (Registration Statement No. 333-194211, which the SEC declared effective on April 15, 2014), we have the right to sell, subject to certain limitations, in one or more offerings to the public, up to $8,860,000 of a variety of our securities, including shares offered. If subscriptionsof our common stock. Additionally, if our existing shareholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. A decline in the price of shares of our common stock might significantly impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
Securities analysts may not cover our common stock and this may have a negative impact on our common stock’s market price.
The trading market for a minimum of [______] shares are not receivedour common stock will depend, in part, on the research and reports that securities or before June 1, 2008, escrow provisions require that all funds received be promptly refunded. If refunded, investors will receive no interest on their funds. During the offering period, investors willindustry analysts publish about us or our business. We do not have any usecontrol over independent analysts. We do not currently have and may never obtain research coverage by independent securities and industry analysts. If no independent securities or right to returnindustry analysts commence coverage of us, the funds. Our executive officers and directors may, but have made no commitment, nor indicated they intend to, purchase shares in the offering. We have not placed a limit on the number of shares such executive officers or directors may purchase in this offering. Any purchases by such individuals will be made for investment purposes only and not for resale, but may be made in order to reach the minimum offering amount.
The shares of particular companies. As a result, to the extent shareholders sell our shares in negative market fluctuation, they may not receive a price per share that is based solely upon our business performance. We cannot guarantee that shareholders will not lose some of their entire investment in our common stock.
The remaining shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. In addition, we have agreed to register the resale of a total of [______] shares of our common stock held byare listed on the NASDAQ Capital Market and we are required to meet the continued listing requirements of the NASDAQ Capital Market and other NASDAQ rules, including those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price and certain selling shareholders in connection withother corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share and a minimum of $2.5 million of shareholders’ equity. If we do not meet these continued listing requirements, our common stock could be delisted. Delisting from the offering. Upon registration, such shares will be freely transferable and will not be subjectNASDAQ Capital Market would cause us to any form of lock-up. See “Shares Eligiblepursue eligibility for Future Sale.”
You may experience future dilution as a result of future equity offerings or other equity issuances.
We may in the future issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering or other transactions at a price per share fromthat is equal to or greater than the price per share that you pay for the common stock. Assuming the completion of the minimum offering, if you purchase sharespaid by investors in this offering, you will incur immediate dilution of approximately $[______]or approximately [______]% in the pro forma net tangible book valueoffering. The price per share fromat which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share that you pay for the shares. Accordingly, if you purchase shares in this offering, you will incur immediateoffering.
| 15 |
We are obligated to develop and substantial dilution of your investment. See “Dilution.”
Each year we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting and, if we cease to be a “smaller reporting company,” a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock. Thesestock to decline. To comply with the requirements of being a public company, we may need to undertake various actions, may be taken even if they are opposed by our other shareholders, including those who purchase sharessuch as implementing new internal controls and procedures and hiring accounting or internal audit staff.
Statements in this offering. See “Principal Shareholders.”
The statements contained in this offering). During the term of the warrants, the holders thereof will be given the opportunity to profit from a riseprospectus concerning future events or developments or our future activities, such as concerning strategic business plans and other statements concerning our future operations and activities, are forward-looking statements that in the market price of our common stock, with a resulting dilution in the interest of our other shareholders. The term on which we could obtain additional capital during the life of these warrants may be adversely affected because the holders of these warrants might be expected to exercise them wheneach instance assume that we are able to obtain any needed additional capitalsufficient funding in the near term and thereafter to support such activities and continue our operations and planned activities in a new offeringtimely manner. There can be no assurance that this will be the case. Also, such statements assume that there are no significant unexpected developments or events that delay or prevent such activities from occurring. Failure to timely obtain sufficient funding, or unexpected development or events, could delay the occurrence of securities at a price greater thansuch events or prevent the exercise priceevents described in any such statements from occurring which could adversely affect our business, financial condition and results of the warrants. See “Underwriting.”
-LOOKINGSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including underthe sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,Operations” and “Our Company,” “Our Business” and elsewherecontains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements.statements, including but not limited to statements regarding our 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 our control. Forward-looking statements involve risks and uncertainties,typically are identified by the use of terms such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,“look,” “may,” “will,” “should,” “could”“might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar expressions. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
| · | Our ability to timely and properly deliver shipping agency, shipping and chartering, inland transportation management and ship management services; |
| · | Our dependence on a limited number of major customers and related parties; |
| · | Political and economic factors in China; |
| · | 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; |
| · | The effect of terrorist acts, or the threat thereof, on consumer confidence and spending or the production and distribution of product and raw materials which could, as a result, adversely affect our services, operations and financial performance; |
| · | The acceptance in the marketplace of our new lines of services; |
| · | Foreign currency exchange rate fluctuations; |
| · | Hurricanes or other natural disasters; |
| · | Our ability to identify and successfully execute cost control initiatives; |
| · | The impact of quotas, tariffs or safeguards on our customer products that we service; and |
| · | Our ability to attract, retain and motivate skilled personnel. |
| 16 |
These forward-looking statements speak only asare based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions are not guarantees of the date on which theyfuture performance or development and are made,subject to a number of known and except as required by law,unknown risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we undertake no obligationoperate in a very competitive and rapidly changing environment. New risks emerge from time to update any forward-looking statementtime. It is not possible for our management to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and subsequently changed its namecircumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to “Sino-Global Shipping Agency, Ltd.” As organized priorupdate publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
MARKET INDUSTRY AND OTHER DATA
We obtained the industry, market and similar data set forth in this prospectus from our own internal estimates and research, and from industry publications and research, surveys and studies conducted by third party consultants, which were commissioned by us. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates.
Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
We estimate that the net proceeds we will receive from this offering Sino-China had five divisions,will be approximately $6 million after deducting the underwriting discount and our estimated expenses of the offering, and based upon an assumed public offering price of $2.06 per share, which corresponded tois the five portsreported closing price of a share of common stock on the NASDAQ Capital Market on November 10, 2014. If the underwriter’s over-allotment option is exercised in which Sino-China has branch offices: Ningbo, Qingdao, Tianjin, Qinhuangdao and Fangchenggang. Sino-China currently holds four local licenses in China to serve as a local shipping agent in Ningbo, Qingdao, Tianjin, and Fangchenggang. Sino-China has applied for a local shipping agent license in Qinhuangdao and expects tofull, we estimate that the net proceeds we receive from this license in the next few months. Sino-China provides general shipping agency services in 76 ports in China.
The principal purpose of this offering we have re-organizedis to raise additional capital to assist us in our company.
Our expected use of the net proceeds we receive from this offering represents our New York corporation was as follows:
Pending our use of approximately $[______]the net proceeds we receive from this offering, if the minimum offering is sold and $[______] if the maximum offering is sold.
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expectanticipate paying any cash dividends on our common stock in the foreseeable future, if ever. Any future determination to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings,upon our financial condition, operating results, capital requirements, financial conditionsVirginia and future prospectsPRC laws, and other factors thethat our Board of Directors may deemdeems relevant. Payments of dividends by Trans Pacific to our company are subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents.
Noon Buying Rate (RMB per US Dollar) | |||||||||||||
Period | Period-End | Average(1) | Low | High | |||||||||
| 2002 | 8.2800 | 8.2770 | 8.2800 | 8.2669 | |||||||||
| 2003 | 8.2767 | 8.2772 | 8.2800 | 8.2765 | |||||||||
| 2004 | 8.2765 | 8.2768 | 8.2771 | 8.2765 | |||||||||
| 2005 | 8.0702 | 8.1940 | 8.0702 | 8.2765 | |||||||||
| 2006 | 7.8041 | 7.9723 | 7.8041 | 8.0702 | |||||||||
| 2007 | 7.2946 | 7.5806 | 7.2946 | 7.8127 | |||||||||
2008(2) | 7.0008 | 7.1458 | 7.0008 | 7.2946 | |||||||||
For the year ended June 30, | For the six months ended December 31, (Unaudited) | |||||||||
2007 | 2006 | 2007 | ||||||||
| Total Sales | $ | 10,090,879 | $ | 8,924,786 | $ | 8,144,189 | ||||
| Income from Operations | 1,260,918 | 616,111 | 606,743 | |||||||
Net income from continuing operations before non-controlling interest in income(1) | 1,144,752 | 556,481 | 618,576 | |||||||
Non-controlling Interest in Income(1) | (104,237 | ) | (26,643 | ) | (60,037 | ) | ||||
| Net Income | 1,040,516 | 529,838 | 558,539 | |||||||
| Basic Earnings per Share | 0.58 | 0.29 | 0.31 | |||||||
| Diluted Earnings per Share | 0.58 | 0.29 | 0.31 | |||||||
June 30, | December 31, (Unaudited) | |||||||||
2007 | 2006 | 2007 | ||||||||
| Total Assets | $ | 3,752,561 | $ | 1,805,673 | $ | 4,378,809 | ||||
| Total Current Liabilities | 1,788,748 | 1,257,348 | 1,851,384 | |||||||
| Long-term Liabilities | - | - | - | |||||||
| Non-controlling Interest | 308,610 | (66,362 | ) | 313,683 | ||||||
| Mandatorily Redeemable Stock | - | - | 1,250,000 | |||||||
| Net Assets | 1,655,203 | 614,687 | 963,742 | |||||||
| Capital Stock | 1,880 | 1,880 | 1,625(2 | ) | ||||||
For the years ended June 30, | For the six months ended December 31, | ||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||
| $000 | % | $000 | % | $000 | % | $000 | % | ||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||
Revenues | 10,091 | 100.00 | 8,925 | 100.00 | 8,144 | 100.00 | 5,045 | 100.00 | |||||||||||||||||
Costs and expenses | |||||||||||||||||||||||||
| Costs of services | 7,510 | 74.42 | 6,391 | 71.61 | 6,534 | 80.23 | 3,720 | 73.74 | |||||||||||||||||
| General and administrative expenses | 1,165 | 11.55 | 1,715 | 19.22 | 909 | 11.16 | 555 | 11.00 | |||||||||||||||||
| Selling expense | 154 | 1.52 | 193 | 2.16 | 94 | 1.15 | 75 | 1.49 | |||||||||||||||||
| Other costs | 1 | 0.01 | 10 | 0.11 | 1 | 0.01 | 1 | 0.02 | |||||||||||||||||
Total costs and expenses | 8,830 | 87.50 | 8,309 | 93.10 | 7,538 | 92.56 | 4,351 | 86.25 | |||||||||||||||||
For the years ended June 30, | For the six months ended December 31, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Revenues | 10,090,879 | 8,924,786 | 8,144,189 | 5,044,732 | |||||||||
Costs and expenses | |||||||||||||
| Costs of service | (7,509,669 | ) | (6,391,123 | ) | (6,534,171 | ) | (3,719,890 | ) | |||||
| General and administrative expenses | (1,165,332 | ) | (1,714,617 | ) | (908,511 | ) | (554,668 | ) | |||||
| Selling expense | (153,797 | ) | (192,825 | ) | (94,242 | ) | (74,728 | ) | |||||
| Other operating costs | (1,163 | ) | (10,110 | ) | (522 | ) | (759 | ) | |||||
| (8,829,961 | ) | (8,308,675 | ) | (7,537,446 | ) | (4,350,045 | ) | ||||||
Operating Income | 1,260,918 | 616,111 | 606,743 | 694,687 | |||||||||
Loss on disposal of investment | -- | (2,491 | ) | -- | -- | ||||||||
Other Income (expense), net | 22,125 | (35,912 | ) | (42,574 | ) | (33,123 | ) | ||||||
| 22,125 | (38,403 | ) | (42,574 | ) | (33,123 | ) | |||||||
Net income before taxes | 1,283,043 | 577,708 | 649,317 | 661,564 | |||||||||
Income taxes | (138,291 | ) | (21,227 | ) | (30,741 | ) | (63,134 | ) | |||||
Net income from continuing operations before non-controlling interest in income | 1,144,752 | 556,481 | 618,576 | 598,430 | |||||||||
Non-controlling interest in income | (104,237 | ) | (26,643 | ) | (60,037 | ) | (55,400 | ) | |||||
Net income | 1,040,516 | 529,838 | 558,539 | 543,030 | |||||||||
For the years ended June 30, | For the six months ended December 31, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
| Net cash provided by operating activities | 868,059 | 719,087 | 753,886 | 884,516 | |||||||||
| Net cash used in investing activities | (911,520 | ) | (649,955 | ) | (197,980 | ) | (689,197 | ) | |||||
| Net cash provided by (used in) financing activities | 172,719 | -- | (45,791 | ) | 226,928 | ||||||||
| Net increase in cash and cash equivalents | 170,065 | 70,446 | 455,151 | 435,163 | |||||||||
| Cash and cash equivalents at beginning of period | 356,026 | 285,580 | 526,091 | 356,026 | |||||||||
| Cash and cash equivalents at end of period | 526,091 | 356,026 | 981,242 | 791,189 | |||||||||
Amount | ||||
$ | ||||
| Year ending June 30, | ||||
| 2008 | 82,000 | |||
| 2009 | 33,000 | |||
| 2010 | 6,000 | |||
Total | 121,000 | |||
We conduct our operations primarily through our wholly-owned subsidiary,subsidiaries, Trans Pacific, Sino-Global Shipping Australia Pty Ltd., Sino-Global Shipping (HK) Ltd. and our variable interest entity,VIE, Sino-China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by Trans Pacificour subsidiaries and management fees paid by Sino-China. If Trans Pacific incursour subsidiaries incur debt on itstheir own behalf in the future, the instruments governing itstheir debt may restrict itstheir ability to pay dividends to us. In addition, Trans Pacific is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, wholly owned foreignforeign-owned enterprises like Trans Pacific are required to set aside at least 10% of their after-tax profit each year to fund a statutory reserve until the amount of the reserve reaches 50% of such entity’s registered capital. Trans Pacific’s registered capital is $100,000.
To the extent Trans Pacific does not generate sufficient after-tax profits to fund this statutory reserve, its ability to pay dividends to us may be limited. Although these statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, these reserve funds are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Other than as described in the previous sentences, China’s State Administration of Foreign Exchange (“SAFE”) has approved the company structure between our company and Trans Pacific, and Trans Pacific is permitted to pay dividends to our company. See “Risk Factor
You should read this table together with the sections in this prospectus titled “Selected Condensed Summary Consolidated Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes appearing elsewhere in this prospectus.
The following table sets forth our capitalization as of September 30, 2014 on:
| · | an actual basis; |
| · | an as-adjusted basis to reflect the sale of an estimated 3,398,058 shares of our common stock in this offering, at an assumed public offering price of $2.06 per share, which is the reported closing price of a share of our common stock on the NASDAQ Capital Market on November 10, 2014, less underwriter discount estimated and estimated offering expenses payable by us. |
| September 30, 2014 | ||||||||
| Actual | As Adjusted (1) | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 3,553,187 | $ | 9,550,660 | ||||
| Liabilities | ||||||||
| Total current liabilities | 1,152,860 | 1,152,860 | ||||||
| Equity | ||||||||
| Preferred stock, without par value per share, 2,000,000 shares authorized, none issued | - | - | ||||||
| Common stock, without par value per share, 50,000,000 shares authorized, 6,326,032 shares issued and 6,200,841 shares outstanding actual and 9,598,899 shares issued and outstanding, as adjusted (2) | 13,385,477 | 19,382,950 | ||||||
| Additional paid-in capital | 1,144,842 | 1,144,842 | ||||||
| Accumulated deficit | (2,937,801 | ) | (2,372,527 | ) | ||||
| Non-controlling interest | (4,829,255 | ) | (4,829,255 | ) | ||||
| Total equity | $ | 6,438,514 | $ | 12,435,987 | ||||
(1) Assumes the underwriter’s over-allotment option has not been exercised.
(2) Based upon 6,200,841 shares of our common stock outstanding as of September 30, 2014, excluding (i) 205,032 shares of our common stock issuable upon exercise of our outstanding stock options and warrants with weighted average exercise prices ranging from $6.88 to $9.30 per share outstanding as of the date of this prospectus, (ii) 9,400,000 shares of our common stock available for issuance as of the date of this prospectus under our 2014 Stock Incentive Plan, and (iii) 236,903 shares of our common stock available for issuance as of the date of this prospectus under our 2008 Stock Incentive Plan.
| 18 |
Purchasers of shares of our common stock offered in this offering will experience an immediate dilution in the net tangible book value of their shares of our common stock from the offering price of the shares of our common stock in this offering. Our net tangible book value as of September 30, 2014 was $6,438,514, or approximately $1.04 per share. Net tangible book value per share of shares of our common stock is equal to our net tangible assets (tangible assets less total liabilities), as of September 30, 2014, divided by the number of shares of common stock issued and outstanding as of September 30, 2014.
Dilution per share represents the difference between the public offering price per share of our common stock and the adjusted net tangible book value per share of our common stock after giving effect to this offering. After reflecting the sale of an assumed 3,398,058 shares of our common stock offered by us at the public offering price of $2.06 per share, which is the reported closing price of a share of our common stock on the NASDAQ Capital Market on November 10, 2014, less underwriter discount and estimated offering expenses, our adjusted net tangible book value and our adjusted net tangible book value per share of our common stock as of September 30, 2014 would have been $12,435,987, or $1.30 per share. The change represents an immediate increase in net tangible book value per share of our common stock of $0.26 per share to existing shareholders and an immediate dilution of $0.76 per share to new investors purchasing the shares of common stock in this offering. The following table illustrates this per share dilution:
| Public offering price per share of our common stock | $ | 2.06 | ||
| Net tangible book value per share as of September 30, 2014 (1) | 1.04 | |||
| Increase per share attributable to this offering (2) | 0.26 | |||
| As adjusted net tangible book value per share after this offering (2) | $ | 1.30 | ||
| Dilution per share to new investors in this offering (2) | $ | 0.76 |
(1) Based upon 6,200,841 shares of our common stock outstanding as of September 30, 2014, excluding (i) 205,032 shares of our common stock issuable upon exercise of our outstanding stock options and warrants with weighted average exercise prices ranging from $6.88 to $9.30 per share outstanding as of the date of this prospectus, (ii) 9,400,000 shares of our common stock available for issuance as of the date of this prospectus under our 2014 Share Incentive Plan, and (iii) 236,903 shares of our common stock available for issuance as of the date of this prospectus under our 2008 Incentive Plan.
(2) Assumes the underwriter’s over-allotment option has not been exercised.
MARKET PRICE
OF COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information
Market for Our Common Stock
Our common stock is traded on the NASDAQ Capital Market under the symbol “SINO.” The high and low common stock sales prices per share during the periods indicated were as follows:
| Quarter Ended/Ending | Sep. 30 | Dec. 31 (1) | Mar. 31 | June 30 | Year | |||||||||||||||
| Fiscal year 2015 | ||||||||||||||||||||
| Common stock price per share: | ||||||||||||||||||||
| High | $ | 4.69 | 2.339 | $ | 4.69 | |||||||||||||||
| Low | $ | 1.37 | 1.453 | $ | 1.37 | |||||||||||||||
| Fiscal year 2014 | ||||||||||||||||||||
| Common stock price per share: | ||||||||||||||||||||
| High | $ | 3.52 | $ | 2.90 | $ | 2.97 | $ | 3.00 | $ | 3.52 | ||||||||||
| Low | $ | 1.43 | $ | 1.57 | $ | 2.26 | $ | 2.01 | $ | 1.43 | ||||||||||
| Fiscal year 2013 | ||||||||||||||||||||
| Common Stock price per share: | ||||||||||||||||||||
| High | $ | 2.73 | $ | 2.49 | $ | 2.75 | $ | 1.89 | $ | 2.75 | ||||||||||
| Low | $ | 1.85 | $ | 1.30 | $ | 1.71 | $ | 1.24 | $ | 1.24 | ||||||||||
(1) As of November 10, 2014
| 19 |
On November 10, 2014, the reported closing price on the NASDAQ Capital Market of our common stock was $2.06 per share. As of November 10, 2014, we had seven (7) holders of record of our common stock. The number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities in security position listings maintained by depositories.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus. 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
Founded in the United States of America (the “US”) in 2001, we are a shipping agency, logistics and ship management services company. Our current service offerings consist of shipping agency services, shipping and chartering services, inland transportation management services and ship management services. We conduct our business primarily through our wholly-owned subsidiaries in China, Hong Kong, Australia, Canada and New York. Substantially all of our business is generated from clients located in the People’s Republic of China (the “PRC”), and our operations are primarily conducted in the PRC and Hong Kong.
Our subsidiary in China, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), a wholly owned foreign enterprise, purchased and owns 90% of Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai,” and, together with Trans Pacific Beijing are referred to collectively herein as “Trans Pacific”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, we previously provided shipping agency services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), a Chinese legal entity, which holds the licenses and permits necessary to operate shipping agency services in the PRC. Trans Pacific Beijing and Sino-China do not have a parent-subsidiary relationship. Trans Pacific Beijing has contractual arrangements with Sino-China and its shareholders that enable us to substantially control Sino-China. Through Sino-China, we have the ability to provide shipping agency services in all commercial ports in the PRC. During fiscal year 2014, we completed a number of cost reduction initiatives and reorganized our shipping agency business in the PRC. As a result of the business reorganization and to improve our operating margin, we do not provide shipping agency services through Sino-China as of September 30, 2014.
Our shipping agency business is operated by our subsidiaries in Hong Kong and Australia. As a general shipping agent, we serve ships coming to and departing from a number of countries, including China, Australia, South Africa, Brazil and Canada. The shipping and chartering services are operated by Sino-Global Shipping (HK) Ltd; the inland transportation management services are operated by Trans Pacific Beijing. As part of our strategy to expand our service platform, in September 2014, as approved by our Board of Directors, we acquired Longhe Ship Management (Hong Kong) Co., Limited (“LSM”), a ship management company that is based in Hong Kong.
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Business Segments
We currently deliver the following services: shipping agency and ship management services, shipping and chartering services, and inland transportation management services. Historically we were in the business of solely providing shipping agency services. With the support of our largest shareholder, Mr. Zhong Zhang and the company he controls, Tianjin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”), we expanded our service platform during fiscal year 2014 to include shipping and chartering services (launched during the quarter ended September 30, 2013) and inland transportation management services (launched during the quarter ended December 31, 2013). With the LSM acquisition, we added ship management services to our service platform in September 2014.
The following table presents summary information by segment for the three months ended September 30, 2014 and 2013:
| For the Three Months Ended September 30, 2014 | For the Three Months Ended September 30, 2013 | |||||||||||||||||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | Shipping Agency and Ship Management Services | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 1,659,291 | - | $ | 946,634 | $ | 2,605,925 | $ | 1,430,661 | $ | 1,887,000 | - | $ | 3,317,661 | ||||||||||||||||||
| Cost of revenues | $ | 1,283,505 | - | $ | 125,648 | $ | 1,409,153 | $ | 1,112,803 | $ | 1,275,000 | - | $ | 2,387,803 | ||||||||||||||||||
| Gross profit | $ | 375,786 | - | $ | 820,986 | $ | 1,196,772 | $ | 317,858 | $ | 612,000 | - | $ | 929,858 | ||||||||||||||||||
| Gross margin | 22.6 | % | - | 86.7 | % | 45.9 | % | 22.2 | % | 32.4 | % | - | 28.0 | % | ||||||||||||||||||
The following table presents summary information by segment for the fiscal years ended June 30, 2014 and 2013:
| For the Year Ended June 30, 2014 | For the Year Ended June 30, 2013 | |||||||||||||||||||||||||||||||
| Shipping Agency Service | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | Shipping Agency Service | Shipping and Chartering Services | Inland Transportation Management Services | Consolidated | |||||||||||||||||||||||||
| Revenues | $ | 7,523,983 | $ | 1,937,196 | $ | 2,183,213 | $ | 11,644,392 | $ | 17,331,759 | $ | - | $ | - | $ | 17,331,759 | ||||||||||||||||
| Cost of revenues | $ | 6,010,058 | 1,291,048 | $ | 312,353 | $ | 7,613,459 | $ | 15,402,743 | $ | - | $ | - | $ | 15,402,743 | |||||||||||||||||
| Gross profit | $ | 1,513,925 | 646,148 | $ | 1,870,860 | $ | 4,030,933 | $ | 1,929,016 | $ | - | $ | - | $ | 1,929,016 | |||||||||||||||||
| Gross margin | 20.1 | % | 33.4 | % | 85.7 | % | 34.6 | % | 11.1 | % | - | - | 11.1 | % | ||||||||||||||||||
Revenues
(1) Revenues from Shipping Agency and Ship Management Services
| · | Shipping Agency Services |
We provide two types of shipping agency services: loading/discharging services and protective services. For protective agency services, we charge fixed fees while our customers are responsible for the payment of port costs and expenses. For loading/discharging agency services, we receive the total amount from our customers and pay the port charges on our customers’ behalf. Under these circumstances, we generally require payments in advance from customers and bill them the balances within 30 days after the transactions are completed. We believe the most significant factors that directly or indirectly affect our shipping agency service revenues are:
| ¨ | the number of ships to which we provide port loading/discharging services; |
| ¨ | the size and types of ships we serve; |
| ¨ | the type of services we provide, for example loading/discharging, protective, owner’s affairs, shipping and chartering service; |
| ¨ | the rate of service fees we charge; |
| ¨ | the number of ports at which we provide services; and |
| ¨ | the number of customers we serve. |
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For the three months ended September 30, 2014 and 2013, our shipping agency revenues were $1,611,704 and $1,430,661, respectively. The revenue increase was due mainly to the increase in the total number of ships we served - from 64 for the three months ended September 30, 2013 to 70 for the same period in 2014.
| For the three months ended September 30, | ||||||||||||||||
| 2014 | 2013 | Change | % | |||||||||||||
| Number of ships served | ||||||||||||||||
| Loading/discharging | 15 | 14 | 1 | 7.1 | ||||||||||||
| Protective | 55 | 50 | 5 | 10.0 | ||||||||||||
| Total | 70 | 64 | 6 | 9.4 | ||||||||||||
During fiscal year 2014, our shipping agency business continued to be negatively impacted, we believe, by the softening of the Chinese economy and its import of iron ore as well as the decline in the number of ships to which we provided loading/discharging agency services and protective agency service. Moreover, during our fiscal year 2014, we completed a number of cost reduction initiatives and reorganized our shipping agency business in China. As a result of the above factors including the exit from our non-performing service arrangements including our shipping agency service relationship with Shourong, our shipping agency revenues decreased from $17.3 million for fiscal year 2013 to $7.5 million for fiscal year 2014. In addition, the number of ships we served decreased from 438 to 312 for the fiscal years ended June 30, 2013 and 2014, respectively.
| For the years ended June 30, | ||||||||||||||||
| 2014 | 2013 | Change | % | |||||||||||||
| Number of ships served | ||||||||||||||||
| Loading/discharging | 60 | 161 | (101 | ) | (62.7 | ) | ||||||||||
| Protective | 252 | 277 | (25 | ) | (9.0 | ) | ||||||||||
| Total | 312 | 438 | (126 | ) | (28.8 | ) | ||||||||||
Historically, our revenues have been primarily driven by the number of ships and customers we serve, provided that the service fees are determined by market competition. To stabilize our shipping agency business, we have shifted our focus to protective agency services, initiated actions to streamline our operations and reduce our overhead.
| · | Ship Management Services |
On September 8, 2014, we acquired LSM, a ship management services company based in Hong Kong from Mr. Deming Wang. LSM currently manages seven vessels and outsources the actual ship management duties (which include among other things, crew, technical and insurance arrangements) to Qingdao Longhe Ship Management Services Co., Ltd., a company controlled by Mr. Deming Wang. The ship management services generated revenues of $47,587 from September 8, 2014 to September 30, 2014.
As we acquired LSM following the end of the fiscal year 2014, we did not generate any revenues from our ship management services during fiscal 2014.
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(2) Revenues from Shipping and Chartering Services
During September 2013, we executed a shipping and chartering service agreement with the Zhiyuan Investment Groupwhereby we were engaged to assist in the transportation of approximately 51,000 tons of chromite ore from South Africa to China. The service agreement with the Zhiyuan Investment Group resulted in revenues of approximately $1.90 million and gross profit of approximately $0.60 million for the three months ended September 30, 2013, which also reflected the revenues and gross profit from our shipping and chartering services for fiscal 2014.We did not provide any shipping and chartering service to the Zhiyuan Investment Group or any other customers in the three months ended September 30, 2014.
(3) Revenues from Inland Transportation Management Services
In September 2013, we executed an inland transportation management service contract with the Zhiyuan Investment Group whereby we would provide certain advisory services to help control potential commodities loss during the transportation process. We did not report revenue from inland transportation management service segment for the three months ended September 30, 2013 because we only started providing such services to the Zhiyuan Investment Group in the three months ended December 31, 2013. For the three months ended September 30, 2014, our inland transportation management services generated revenues of approximately $0.95 million and gross profit of approximately $0.82 million.
Inland transportation management services generated revenues of approximately $2.2 million and gross profit of approximately $1.9for fiscal year 2014.
Operating Costs and Expenses
Our operating costs and expenses consist of cost of revenues, general and administrative expenses, and selling expenses. As a result of a change in service mix year over year toward lower cost services, we were able to reduce our total operating costs and expenses by approximately $930,000 for the three months ended September 30, 2014 as compared to the same period of 2013.
The following tables set forth the components of our costs and expenses for the periods indicated.
| For the three months ended September 30, | ||||||||||||||||||||||||
| 2014 | 2013 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 2,605,925 | 100.0 | % | 3,317,661 | 100.0 | % | (711,736 | ) | -21.5 | % | ||||||||||||||
| Cost of revenues | 1,409,153 | 54.1 | % | 2,387,803 | 72.0 | % | (978,650 | ) | -41.0 | % | ||||||||||||||
| Gross margin | 45.9 | % | 28.0 | % | 17.9 | % | ||||||||||||||||||
| General and administrative expenses | 939,805 | 36.1 | % | 896,164 | 27.0 | % | 43,641 | 4.9 | % | |||||||||||||||
| Selling expenses | 56,339 | 2.2 | % | 51,088 | 1.5 | % | 5,251 | 10.3 | % | |||||||||||||||
| Total Costs and Expenses | 2,405,297 | 92.3 | % | 3,335,055 | 100.5 | % | (929,758 | ) | -27.9 | % | ||||||||||||||
As a result of factors discussed elsewhere in this prospectus, we reduced our total operating costs and expenses by approximately $8.2 million for fiscal year 2014 as compared to the same period of 2013.
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The following tables set forth the components of our costs and expenses for the periods indicated.
| For the years ended June 30, | ||||||||||||||||||||||||
| 2014 | 2013 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 11,644,392 | 100.0 | % | 17,331,759 | 100.0 | % | (5,687,367 | ) | -32.8 | % | ||||||||||||||
| Cost of revenues | 7,613,459 | 65.4 | % | 15,402,743 | 88.9 | % | (7,789,284 | ) | -50.6 | % | ||||||||||||||
| Gross margin | 34.6 | % | 11.1 | % | 23.5 | % | ||||||||||||||||||
| General and administrative expenses | 3,470,669 | 29.8 | % | 3,878,569 | 22.4 | % | (407,900 | ) | -10.5 | % | ||||||||||||||
| Selling expenses | 260,134 | 2.2 | % | 253,987 | 1.5 | % | 6,147 | 2.4 | % | |||||||||||||||
| Total Costs and Expenses | 11,344,262 | 97.4 | % | 19,535,299 | 112.8 | % | (8,191,037 | ) | -41.9 | % | ||||||||||||||
| · | Costs of Revenues |
Our cost of revenues as a percentage of our revenues decreased from 72.0% for the three months ended September 30, 2013 to 54.1% for the three months ended September 30, 2014. The decrease was due mainly to the change in our service mix. For the three months ended September 31, 2014, our revenues came mainly from shipping agency services and inland transportation management services. However, for the same period in 2013, our revenues came mainly from shipping agency services and shipping and chartering services. The decline in our overall cost of revenues was due mainly to the nature of our inland transportation management services that feature lower overhead than our shipping and chartering services.
As a result of factors discussed elsewhere in this prospectus, our overall cost of revenues as a percentage of our total revenues decreased from 88.9% to 65.4% for fiscal years 2013 and 2014, respectively. Likewise, our gross margin increased from 11.1% to 34.6% for fiscal years 2013 and 2014, respectively. The improvement in our overall gross margin was due mainly to our cost reduction measures undertaken as part of our restructuring and the launch of the shipping and chartering service and the inland transportation management services during the first half of fiscal year 2014, as these new business segments feature lower overhead than our core shipping agency business.
| · | General and Administrative Expenses |
Our general and administrative expenses consist primarily of salaries and benefits, business development, office rental, meeting fees, legal, accounting and other professional services. The increase in our general and administrative expenses by approximately $44,000 for the three months ended September 30, 2014 as compared to the same period of 2013 was due mainly to the higher professional service fees as we engaged two consultants to assist us in the reorganization of our business. As a percentage of revenues, our general and administrative expenses increased from 27.0% for the three months ended September 30, 2013 to 36.1% for the three months ended September 30, 2014. The increase was attributed mainly to lower revenues during the three months ended September 30, 2014 as compared to the same period of 2013.
The decline in our general and administrative expenses for fiscal year 2014 as compared to the same period of 2013 was due primarily to tight budgetary control as we reorganized and streamlined our service platform. Our general and administrative expenses decreased from approximately $3.9 million to approximately $3.5 million for fiscal years 2013 and 2014, respectively. As a percentage of revenues, our general and administrative expenses increased from 22.4% to 29.8% for fiscal years 2013 and 2014, respectively. The increase was due to lower revenues in fiscal year 2014.
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| · | Selling Expenses |
Our selling expenses consist primarily of commissions for our operating staff to the ports at which we provide services. Our selling expenses slightly increased when comparing three months ended September 30, 2014 to the same period of 2013. The increase in our selling expenses was mainly due to higher commission rates.
Our selling expenses slightly increased by $6,147 for fiscal year 2014 as compared to the same period of 2013, mainly due to higher commission rates.
Critical Accounting Policies
We prepare our audited and the unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US 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.
We accounted for the business acquisition of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results 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 consolidated financial statements.
Revenue Recognition
| · | Revenues from shipping 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 shipping and chartering services are recognized upon performance of services as stipulated in the underlying contract. |
| · | Revenues from inland transportation management services are recognized when commodities are being released from the customer’s warehouse. |
Basis of Consolidation
The consolidated financial statements include the accounts of the parent and its subsidiaries. All significant inter-company transaction and balances are eliminated in consolidation. Sino-China is our VIE and we are the primary beneficiary. Our company through Trans Pacific entered into agreements with Sino-China, pursuant to which we receive 90% of Sino-China’s net income. We do not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. These agreements do not entitle us to any consideration if Sino-China incurs a net loss during its fiscal year. If Sino-China incurs a net loss during its fiscal year, we are not required to absorb such net loss. In accordance with the agreements, Sino-China pays consulting and marketing fees equal to 85% and 5%, respectively, of its net income to Trans Pacific, and Trans Pacific supplies the technology and personnel needed to service Sino-China. Sino-China was designed to operate in China for the benefit of our company.
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The accounts of Sino-China are consolidated in the accompanying consolidated financial statements pursuant to Accounting Standard Codification (“ASC”) 810-10, “Consolidation”. As a VIE, Sino-China’s sales are included in our total sales, its income (loss) from operations is consolidated with our company’s, and our net income (loss) from continuing operations before non-controlling interest in income (loss) includes all of Sino-China’s net income (loss). Our non-controlling interest in its income (loss) is then subtracted in calculating the net income (loss) attributable to our company. Because of the contractual arrangements, our company had a pecuniary interest in Sino-China that requires consolidation of our and Sino-China’s financial statements.
Accounts Receivable and Advances
Accounts receivable are recognized at net realizable value. We maintain allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments in the relevant time period. We review the accounts receivable on a periodic basis and record general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends. Receivables are considered past due after 365 days. Accounts are written off only after exhaustive collection efforts. Because of the worldwide financial crisis, we have experienced difficulties in collecting cash from some of our customers.
We generally obtain advance payment of our shipping agency fees prior to providing service to our clients. This significantly reduces the amount of accounts receivable when the shipping agency fees are recognized. To the extent our estimates are insufficient; we bill our clients for the balance which is expected to be paid within 30 days.
We use advance payments to pay a number of fees on behalf of our clients before their ships arrive in port, including harbor, berthing, mooring/unmooring, tonnage, immigration, quarantine and tug hire fees. We record the amounts we receive as Advances from Customers and the amounts we pay as Advances to Suppliers. We recognize revenues and expenses once the client’s ship leaves the harbor and the client pays any outstanding amounts. In some cases, a delay in receiving bills will require us to estimate the Service Revenues and Costs of Services in accordance with the rate and formulas approved by the Ministry of Communications. When this happens, we record the difference between Service Revenues (as recognized) and Advances from Customers as Accounts Receivable and the difference between Cost of Services and Advances to Suppliers as Accounts Payable. To the extent we recognize revenues and costs in this way, our Accounts Receivable and Accounts Payable will reflect this estimation until we receive the bills and information we require to adjust revenues and expenses to reflect our actual Service Revenues and Cost of Services. Any adjustment to actual from the estimated Revenues and Cost of Services recorded has been and is expected to be immaterial.
Translation of Foreign Currency
The accounts of our company and Sino-China are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Our functional currency is the U.S. dollar, while Trans Pacific and Sino-China report their financial position and results of operations in RMB. The accompanying consolidated financial statements are presented in U.S. dollars. Foreign currency transactions are translated into U.S. dollars 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 consolidated statements of operations. We translate foreign currency financial statements of Sino-China, Trans Pacific, Sino-Global HK and Sino-Global AUS 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 sheet dates and revenues and expenses are translated at average exchange rates in effect during the periods.
Taxation
Because we and Sino-China are incorporated in different jurisdictions, we file separate income tax returns. We are subject to income and capital gains taxes in the United States. Additionally, dividend payments made by our company are subject to withholding tax in the United States.
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We follow the provisions of ASC 740-10, “Accounting for Income Taxes”, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The implementation of ASC 740-10 resulted in no material liability for unrecognized tax benefits and no material change to the beginning retained earnings of our company. Our company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. We use the liability method of accounting for income taxes in accordance with 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 consolidated financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
2015 Trends
On balance, we expect difficult macroeconomic conditions in fiscal year 2014 to continue in fiscal year 2015; and we believe competition and rising labor costs in the PRC will continue to pressure our operating model. As a small company with limited resources, we expect to face an uphill battle when it comes to margin enhancement and cost containment. To attempt to generate consistent earnings, we will continue to attempt to leverage our business relationship with the Zhiyuan Investment Group and broaden our experience and expertise in the logistics services. With the LSM acquisition, we believe we have gained significant leverage to expand our service platform along the shipping industry value chain.
Results of Operations
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Revenues.
Our total revenues decreased by $711,736 or 21.5% from $3,317,661 for the three months ended September 30, 2013 to $2,605,925 for the comparable period in 2014. The decline was due mainly to no revenue from shipping and chartering services during the three months ended September 30, 2014, partially offset by revenue generated from inland transportation management services.
| · | Revenues from our shipping agency services increased by $181,043 from $1,430,661 for the three months ended September 30, 2013 to $1,611,704 for the same period in 2014. The increase was due mainly to the increase in the total number of ships we served - increased from 64 for the three months ended September 30, 2013 to 70 for the same period of 2014. We provided loading/discharging services to 15 ships and protective services to 55 ships during the three months ended September 30, 2014, as compared to 14 ships for loading/discharging services and 50 ships for protective services for the same period in 2013. |
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| · | Revenues from the newly acquired ship management services were $47,587. |
| · | We did not provide any shipping and chartering services during the three months ended September 30, 2014. For the same period in 2013, we reported revenues of $1,887,000 for providing such services to the Zhiyuan Investment Group. |
| · | For the three months ended September 30, 2014, we recognized revenues of $946,634 from our inland transportation management services. The inland transportation management services were launched in the quarter ended December 31, 2013. |
Total Operating Costs and Expenses. Our total operating costs and expenses decreased by $929,758 or 27.9% from $3,335,055 for the three months ended September 30, 2013 to $2,405,297 for the same period in 2014. This decrease was due primarily to a decrease in our overall cost of revenues, partially offset by higher general and administrative and selling expenses.
| · | Our cost of revenues decreased by 41.0% from $2,387,803 for the three months ended September 30, 2013 to $1,409,153 for the three months ended September 30, 2014. The decrease was due mainly to favorable service mix. For the three months ended September 31, 2014, our revenues came mainly from shipping agency services and inland transportation management services. However, for the same period in 2013, our revenues came mainly from the shipping agency services and the shipping and chartering services. The decline in our overall cost of revenues was due mainly to the nature of our inland transportation management services that feature lower overhead than our shipping and chartering services |
| · | Our general and administrative expenses increased by $43,641 or 4.9% from $896,164 for the three months ended September 30, 2013 to $939,805 for the three months ended September 30, 2014. This increase was mainly due to higher business development expenses of $63,942; recognition of stock based compensation for common stock issued to consultants of $71,689, partially offset by decreased office expenses of $53,783. |
| · | Our selling expenses increased by $5,251 or 10.3% from $51,088 for the three months ended September 30, 2013 to $56,339 for the three months ended September 30, 2014, mainly due to higher commission ratio. |
Operating Income. We had an operating income of $200,628 for the three months ended September 30, 2014, compared to an operating loss of $17,394 for the comparable period ended September 30, 2013. The turnaround was due mainly to higher gross profit margin from the inland transportation management services that were launched in the quarter ended December 31, 2013.
Financial Expense, Net. Our net financial expense was $62,382 for the three months ended September 30, 2014, compared to financial income of $23,867 for the three months ended September 30, 2013. We have operations in the U.S., Canada, Australia, Hong Kong and China. Our financial expense or income reflected the foreign currency exchange effect for each reporting period indicated.
Taxation. Our income tax benefit was $27,255 for the three months ended September 30, 2014, compared to $22,500 for the three months ended September 30, 2013. As we had a tax expense of $1,645 and deferred tax benefit of $28,900, the income tax benefit for the three months ended September 30, 2014 was $27,255. The income tax benefit for three months ended September 30, 2013 included an adjustment to decrease our valuation allowance for deferred tax assets of $22,500.
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Net income. As a result of the foregoing, we had net income of $165,501 for the three months ended September 30, 2014, compared to net income of $28,973 for the three months ended September 30, 2013. After deduction of non-controlling interest, net income attributable to Sino Global was $332,459 for the three months ended September 30, 2014, compared to net income of $275,394 for the three months ended September 30, 2013. With other comprehensive loss foreign currency translation, comprehensive income attributable to Sino-Global was $367,259 for the three months ended September 30, 2014, compared to comprehensive income of $263,510 for the three months ended September 30, 2013.
Fiscal Year Ended June 30, 2014 Compared to Fiscal Year Ended June 30, 2013
Revenues.Our shipping agency business continued to be negatively impacted by the softening of the Chinese economy and its import of iron ore. Our total revenues decreased by $5,687,367 or 32.8% from $17,331,759 for the fiscal year ended June 30, 2013 to $11,644,392 for fiscal year ended June 30, 2014. The number of ships we served decreased from 438 to 312 for the fiscal years ended June 30, 2013 and 2014, respectively.
For the fiscal year ended June 30, 2014, we provided protective services to 252 ships, as compared to 277 ships for the same period in 2013. In contrast, we only provided loading/discharging services to 60 ships for the fiscal year ended June 30, 2014 as compared to 161 ships for the same period in 2013.
The decline in revenues from the shipping agency business was partially compensated by our new revenue sources generated from our shipping and chartering services and inland transportation management services that were launched in the first and second quarter, respectively. For the year ended June 30, 2014, we recognized revenues of:
| · | $1,937,196 from our shipping and chartering business; and |
| · | $2,183,213 from our inland transportation management business. |
Total Operating Costs and Expenses.Our total operating costs and expenses decreased by $8,191,037 or 41.9% from $19,535,299 for the fiscal year ended June 30, 2013 to $11,344,262 for the fiscal year ended June 30, 2014. This decrease was primarily due to decreases in our costs of revenues and general and administrative expenses, as discussed below.
| Ÿ | Costs of Revenues.Our cost of revenues decreased by 50.6% from $15,402,743 for the fiscal year ended June 30, 2013 to $7,613,459 for the fiscal year ended June 30, 2014. The decline was primarily driven by lower cost generated from the shipping agency business, partially offset by the launch of the shipping and chartering services in the first quarter and inland transportation management services in the second quarter, which featured lower overhead and allowed our cost of revenues to decrease more quickly than our revenues. | |
| Ÿ | General and Administrative Expenses. Our general and administrative expenses decreased by $407,900 or 10.5% from $3,878,569 for the fiscal year ended June 30, 2013 to $3,470,669 for the fiscal year ended June 30, 2014. This decrease was mainly due to (1) decreased salaries and benefits for our staff of $114,951, (2) decreased meeting expense of $103,576, (3) decreased bad debt provision of $419,832. The decrease of general and administrative expenses was partially offset by an increase of $173,387 in travelling expenses and an increase of $113,515 in business development expenses. | |
| Ÿ | Selling Expenses.Our selling expenses increased by $6,147 or 2.4% from $253,987 for the fiscal year ended June 30, 2013 to $260,134 for the fiscal year ended June 30, 2014, mainly due to lower commission payments related to the sales decrease, partially offset by increased commissions payments as a result of higher commission ratio. |
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Operating Income.We had an operating income of $300,130 for the fiscal year ended June 30, 2014, compared to an operating loss of $2,203,540 for the comparable year ended June 30, 2013. The turnaround was due mainly to net profit from the newly developed shipping and chartering services as well as the inland transportation management services.
Financial Expense, Net. Our net financial expense was $50,170 for the fiscal year ended June 30, 2014, compared to $15,520 for the fiscal year ended June 30, 2013. The variance was due largely to the foreign exchange losses recognized in the financial statements consolidation.
Taxation. Our income tax expense was $79,823 for the fiscal year ended June 30, 2014, compared to $410,089 for the fiscal year ended June 30, 2013. As we had a tax expense of $138,623 and deferred tax benefit of $50,445, the income tax expense for the fiscal year ended June 30, 2014 was $79,823. The income tax expense for fiscal year 2013 included an adjustment to increase our valuation allowance for deferred tax assets of $413,900.
Net income (Loss).As a result of the foregoing, we had net income of $434,486 for the fiscal year ended June 30, 2014, compared to net loss of $2,576,896 for the fiscal year ended June 30, 2013. After deduction of non-controlling interest, net income attributable to Sino-Global was $1,586,353 for the fiscal year ended June 30, 2014, compared to net loss of $1,799,755 for the fiscal year ended June 30, 2013. With other comprehensive loss foreign currency translation, comprehensive income attributable to Sino-Global was $1,556,180 for the fiscal year ended June 30, 2014, compared to comprehensive loss of $1,761,673 for the fiscal year ended June 30, 2013.
Liquidity and Capital Resources
Cash Flows and Working Capital
We have financed our operations primarily through cash flows from operations and proceeds from issuing common stock. As ofSeptember 30, 2014, we had $3,553,187 in cash and cash equivalents as compared to $902,531 as of June 30, 2014. 50.2% of our cash in banks are located in New York, Canada, Australia and Hong Kong and 49.8% of cash in banks are located in China as compared to 67.6% and 32.4%, respectively, as of June 30, 2014. Such increase resulted from the payment received by us from the Zhiyuan Investment Group in September 2014.
The following table sets forth a summary of our cash flows for the periods indicated:
| For the three months ended September 30, | For the years ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net cash provided by (used in) operating activities | $ | 524,352 | $ | (1,030,634 | ) | $ | (1,242,471 | ) | $ | (4,361,613 | ) | |||||
| Net cash provided by (used in) investing activities | $ | 1,103,902 | $ | (3,399 | ) | $ | (1,361,034 | ) | $ | (50,931 | ) | |||||
| Net cash provided by financing activities | $ | 967,820 | $ | - | $ | 444,000 | $ | 3,026,536 | ||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 2,650,656 | $ | (1,062,294 | ) | $ | (2,146,300 | ) | $ | (1,384,502 | ) | |||||
| Cash and cash equivalents at the beginning of the period | $ | 902,531 | $ | 3,048,831 | $ | 3,048,831 | $ | 4,433,333 | ||||||||
| Cash and cash equivalents at the end of the period | $ | 3,553,187 | $ | 1,986,537 | $ | 902,531 | $ | 3,048,831 | ||||||||
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The following table sets forth a summary of our working capital for the periods so indicated:
| September 30, 2014 | June 30, 2014 | Diff. | % | |||||||||||||
| Total Current Assets | $ | 6,353,818 | $ | 4,957,798 | $ | 1,396,020 | 28.2% | |||||||||
| Total Current Liabilities | $ | 1,152,860 | $ | 1,230,795 | $ | (77,935 | ) | -6.3% | ||||||||
| Working Capital | $ | 5,200,958 | $ | 3,727,003 | $ | 1,473,955 | 39.5% | |||||||||
| Current Ratio | 5.51 | 4.03 | 1.48 | 36.8% | ||||||||||||
Operating Activities
Net cash provided by operating activities was $524,352 for the three months ended September 30, 2014, as compared to net cash used in operating activities of $1,030,634 for the comparable period in 2013. The increase in our operating cash inflows was mainly attributable to net income of $165,501, a decrease in due from related parties of $1,174,234 resulted from collection of outstanding receivables from the Zhiyuan Investment Group, partially offset by an increase in accounts receivable of $477,001, increase in other receivables of $296,828, and a decrease in accounts payable of $156,245.
Net cash used in operating activities was $1,242,471 for the year ended June 30, 2014, as compared to net cash used in operating activities of $4,361,613 for the comparable period in 2013. The decrease in our operating cash outflows was mainly attributable to net income of $434,486, a decrease in advance to suppliers of $223,290, a decrease in accounts receivable of $201,155, partially offset by an increase in due from related parties of $1,473,752, a decrease in advance from customers of $506,066, and recovery of doubtful accounts of $246,206 for the year ended June 30, 2014.
Investing Activities
Net cash provided by investing activities was $1,103,902 for the three months ended September 30, 2014, as compared to net cash used in investing activities of $3,399 for the same period in 2013. The change was due mainly to the collection of a short-term loan from our related party, the Zhiyuan Investment Group of $1,119,241.
Net cash used in investing activities was $1,361,034 compared to net cash used in investing activities of $50,931 for the fiscal years ended June 30, 2014 and 2013, respectively, due to acquisitions of fixed assets of $203,252 and loans to related party of $1,158,636 for the fiscal year ended June 30, 2014 compared to acquisitions of fixed assets of $67,116 and offset by proceeds from sale of fixed assets of $16,185 for the same period in 2013.
Financing Activities
Net cash provided by financing activities was $967,820 for the three months ended September 30, 2014, due to the net proceeds from the sale of 647,000 shares of our common stock in July 2014.
Net cash provided by financing activities was $444,000 for fiscal year 2014 which resulted mainly from the sale of 200,000 shares our common stock for $444,000 to Mr. Wang.
Working Capital
Total working capital amounted to $5,200,958 as at September 30, 2014 compared to $3,727,003 as at June 30, 2014. Total current assets increased by $1,396,020 or 28.2% from $4,957,798 as at June 30, 2014 to $6,353,818 as at September 30, 2014. Increase in total current assets is due mainly to increase in cash and cash equivalents of approximately $2.65 million, increase in accounts receivable of approximately $0.48 million, offset by decrease in due from related parties of approximately $2.30 million.
Current liabilities amounted to $1,152,860 as at September 30, 2014, in comparison to $1,230,795 as at June 30, 2014. The decrease was mainly attributable to decrease in accounts payable of $156,245 and decrease in accrued expenses of $35,808, offset by increase in advance from customers of $124,704.
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As a result of the overall increase in our current assets, the current ratio increased from 4.03 at June 30, 2014 to 5.51 at September 30, 2014.
We believe that current cash and cash equivalents, and the anticipated cash flow from our operations will be sufficient to meet our anticipated cash needs, including cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities or borrow from banks. However, financing may not be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash from working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that would restrict our operations and our ability to pay dividends”, “Risk Factor - Changesdividends to our shareholders.
Contractual Obligations and Commercial Commitments
We have leased certain office premisesunder operating leases through August 31, 2019. Below is a summary of our contractual obligations and commitments as of September 30, 2014:
| Amount | ||||
| Twelve months ending September 30, | ||||
| 2015 | $ | 155,463 | ||
| 2016 | 77,506 | |||
| 2017 | 64,122 | |||
| 2018 | 65,856 | |||
| 2019 | 67,641 | |||
| Thereafter | 5,649 | |||
| $ | 436,237 | |||
Company Structure
We conduct our operations primarily through our wholly-owned subsidiaries. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries and management fees paid by Sino-China, our variable interest entity. If our subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, Trans Pacific, our subsidiary in China, is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, wholly foreign-owned enterprises like Trans Pacific are required to set aside at least 10% of their after-tax profit each year to fund a statutory reserve until the amount of the reserve reaches 50% of such entity’s registered capital.
To the extent Trans Pacific does not generate sufficient after-tax profits to fund this statutory reserve, its ability to pay dividends to us may be limited. Although these statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, these reserve funds are not distributable as cash dividends except in the event of a solvent liquidation of the companies. Other than as described in the previous sentences, China’s politicalState Administration of Foreign Exchange (“SAFE”) has approved the company structure between our company and economic policies could harmTrans Pacific, and Trans Pacific is permitted to pay dividends to our business” and “Dividend Policy”.
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 shareholder’sshareholders’ equity or that are not reflected in ourconsolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that servesserve 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.
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Overview
We are a providershipping agency, logistics and ship management services company. Our current service offerings consist of shipping agency services, in China. We have officesshipping and chartering services, inland transportation management services and ship management services. Substantially all of our business is generated from our clients located in China, and our operations are primarily conducted in Ningbo,the PRC and Hong Kong.
Since our inception in 2001 and through fiscal year 2013, our sole business was providing shipping agency services. While we were able to consistently generate net revenues from such business we were not able to achieve profitability as our operating costs and expenses continued to be higher than our net revenues.
Commencing in the latter part of fiscal year 2013 and continuing through fiscal year 2014, we took various actions to restructure our business with the goal of achieving profitability. These actions included lowering our operating costs and expenses, reducing our dependency on our shipping agency business and hiring a new executive vice president and other consultants to assist us in implementing our business restructuring efforts.
Also during the first and second quarters of fiscal year 2014, we expanded our service platform by adding two new services: shipping and chartering services and inland transportation management services. These two new services were added to service certain specific business needs of the Zhiyuan Investment Group who is controlled by Mr. Zhang and who in April 2013, as approved by our Board of Directors and shareholders, purchased from us 1,800,000 shares of our common stock for approximately $3.0 million, resulting in Mr. Zhang becoming our largest shareholder.
We added our shipping and chartering service line to assist the Zhiyuan Investment Group in a specific project of transporting approximately 51,000 tons of chromite from South Africa to China. Thereafter, we added our inland transportation management service line to assist the Zhiyuan Investment Group in its efforts to control the potential commodities loss incurred during the transportation process.
As part of our strategy to expand our service platform, in September 2014, as approved by our Board of Directors, we acquired LSM, a ship management company based in Hong Kong from Mr. Wang, the owner of approximately 3.2% of our outstanding common stock. While to date the net revenues generated from such business have been immaterial, we believe that it is a good complement to our existing service platform. The acquisition of LSM will result in the issuance of between 20,000 and 200,000 shares of our common stock to Mr. Wang, depending on whether LSM reaches certain net income targets for the period July 4, 2014 through December 31, 2014.
Company History
We were incorporated as a New York corporation in February 2001 under the name “Sino-Global Shipping Consulting Ltd.” In September 2007, we reincorporated as a Virginia corporation under our current name Sino-Global Shipping America, Ltd.
Since our incorporation through fiscal year 2013, our sole business was to provide our customers with shipping agency services, primarily as a general agent. In fiscal year 2014, we entered into two new segments of the shipping business: shipping and chartering services and inland transportation management services. In September 2014, we added ship management services to our service platform with the acquisition of Longhe Ship Management (HK) Co., Ltd.
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The following diagram illustrates our corporate structure:
Trans Pacific Shipping Ltd. is our wholly owned subsidiary located in China which is the owner of 90% of the equity of Trans Pacific Logistic Shanghai Ltd. We refer to Trans Pacific Shipping Ltd. and Trans Pacific Logistics Shanghai Ltd. collectively as “Trans Pacific.”.
Until fiscal year 2014, because PRC laws and regulations restrict foreign ownership of entities providing shipping agency services, we conducted a substantial portion of our shipping agency services in the PRC through Sino-China, our VIE, which we control through contractual arrangements between Sino-China, its shareholders and Trans Pacific. Sino-China is headquartered in Beijing with branches in Qingdao, Tianjin, Beijing, QinhuangdaoXiamen and Fangchenggang and holds the licenses and permits necessary to operate and provide shipping services in the United StatesPRC. Through Sino-China, we are able to provide services in Flushing, New York to coordinate our clients’ shipping needs, including preparing documents, husbanding vessels, working through customs issues, coordinating matters with port authorities, overseeing and settling cargo claims, tracking shipments, recommending trucking, warehousing and complementary services.
In light of rising operating costs and expenses associated with doing business in China, asconsecutive years of operating losses reported by Sino-China, concerns raised by the US regulators over the last few years about VIE’s and our belief that the investing public may have a professional general/protecting agency. In the ports in whichnegative perception of publicly traded companies with VIE structures, we do not yet have an office, we appoint a local agentdecided to attend the vessels directly. See “Our Business - General”.
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Shipping Agency Business
We provide two types of customized general agency services to our customers: loading/discharging services and protective services. Generally, our loading/discharging services involve the appointment of local agents for the arrangement of ship's berthing/unberthing and loading/unloading operations; while our protective services focus mainly on the issuance of the document - Laytime Statement of Facts after completion of loading. For protective services, we charge customers fixed fees, and the customers are responsible for the payment of port costs and expenses. For loading/discharging services, our customers pay us an inclusive fee out of which we pay the port charges on our customers’ behalf. We generally require payments in advance from customers and bill them the balances within 30 days after the transactions are completed.
We believe the most significant factors that directly or indirectly affect our shipping agency service revenues are:
| · | the number of ships to which we provide port loading/discharging services; |
| · | the size and types of ships we serve; |
| · | the type of services we provide; |
| · | the rate of service fees we charge; |
| · | the number of ports at which we provide services; and |
| · | the number of customers we serve. |
During fiscal year 2014, we served a varietytotal of vessel sizes and types, including Handysize, Panamax, Capesize, Handysize, Roll-On/Roll-Off RORO, and VLCC class vessels. We have assisted clients with a variety of shipping requirements, including bulk and break-bulk general cargo, vehicle transport and312 ships: 60 related to loading/discharging services (loading raw materials such as crude oiliron ore or coal) from Brazilian, South African, Australian and oilCanadian ports to China); and 252 related to protective services where we served as owner's protecting agent for 30 Chinese ports.
In fiscal year 2014, our shipping agency business generated net revenues of approximately $7.5 million and gross profit of approximately $1.5 million. For the three months ended September 30, 2014, our shipping agency business generated net revenues of approximately $1.6 million and gross profit of approximately $350,000.
Shipping and Chartering Services
In September 2013, we entered into a shipping and chartering service agreement with the Zhiyuan Investment Group pursuant to which we assisted the Zhiyuan Investment Group in the transportation of approximately 51,000 tons of chromite ore from South Africa to China which resulted in net revenues of approximately $1.9 million and gross profit of approximately $0.6 million to us in fiscal year 2014. We did not provide any shipping and chartering services to any customers in the three months ended September 30, 2014.
Our shipping and chartering services include the arrangement of appropriate commercial vessels to transport our customer’s products and iron, manganesethe appointment of respective vessel and port agents. Fees for shipping and chartering services are usually based upon the material and tonnage to be shipped.
Inland Transportation Management Services
In September 2013, we entered into an inland transportation management service contract with the Zhiyuan Investment Group pursuant to which we agreed to provide certain advisory services designed to control potential commodities loss during the transportation process. Working closely with the Zhiyuan Investment Group’s logistics department, our inland transportation management services segment generated net revenues of approximately $2.2 million and gross profit of approximately $1.9 million in fiscal year 2014. For the three months ended September 30, 2014, our inland transportation management services generated revenues of approximately $0.95 million and gross profit of approximately $0.82 million.
Our inland transportation management services are focused on optimizing the local transportation process and controlling the potential commodities loss as they are being transported from port to warehouse to final customer destination. Generally this involves evaluating available transport services, usually rail or truck and determining which provides the most cost effective solution. The fees that we receive for these services are based upon the material and the tonnage shipped.
Together, shipping and chartering services and inland transportation management services accounted for 35.4% of our total revenues and 62.4% of our gross profit in fiscal year 2014.
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Ship Management Services
In September 2014, we acquired LSM, a ship management service company based in Hong Kong from Mr. Wang. LSM currently manages seven vessels and outsources the actual ship management duties (which include among other metal ores.
Sales and Marketing
To date, we do not have a formal sales and marketing plan, but rather have obtained our business through “word-of-mouth” and our existing business relationships in China.
Market Background
According to the National Bureau of Statistics of the PRC, China’s nominal GDP grew at a compound annual growth rate of 15.8% between 1980 and 2013 and reached RMB 56.9 trillion in 2013. Adjusted for inflation, China’s real GDP maintained an average annual growth rate of 9.9% between 1980 and 2013, significantly outpacing the world’s other major economies, such as the United States, Japan, India and Germany. Since 2010, China has been the world’s second largest economy behind the United States.
Source: National Bureau of Statistics of the PRC
Source: National Bureau of Statistics of the PRC
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Growth of foreign trade, including both exports and imports, has been a major component supporting China’s rapid economic expansion over the past thirty plus years. According to data compiled by National Bureau of Statistics and General Administration of Customs of the PRC, China adopted its open door trade policybecame the world’s biggest trading nation in 1978, inviting foreign investment in2012, with the total value of exports and imports reaching $3.87 trillion and surpassing those of the United States. In 2013, the total value of exports and imports for China China’s economy has steadily developed, both from new investments in Chinafurther increased 7.6% to $4.16 trillion, with exports growing 7.9% to $2.21 trillion and from increased international trade.imports growing 7.3% to $1.95 trillion. As a result of the rapid expansion of international trade between China and other countries, has expanded, the shipping industry in China has also grown.
Source: National Bureau of Statistics of the PRC; General Administration of Customs of the PRC
The evolution of the shipping agency industryand logistics businesses in the PRC has followed that of the shipping industry in general. China’s shipping industry with its relatively short modern history of only 60 plus years, is very different from its counterparts in the US and Europe, as highlighted by a lack of information transparency, lack of standardized port operations, and Chinese governmental restrictions on foreign shipping companies.
We believe that as a seasoned shipping agent and NASDAQ-listed company with extensive business relationships both in China and overseas, we are well positioned between the state-owned agency giants and local agents to provide our customers with economical yet customized general shipping agency services.
Customers
Since our initial public offering in 2008, our revenues have come primarily from a few key customers. Prior to the 1980s, China’srestructuring of our shipping agency industry was dominatedbusiness in fiscal year 2014, a significant portion of our revenues were driven by Shourong. In light of our strategic relationship with the Zhiyuan Investment Group that began with the signing of a single state-owned5-year global logistics service agreement in June 2013, we expanded our business platform to include shipping agency, Penavico. In 1985,and chartering services and inland transportation management services. Revenues from these two new services provided to the Zhiyuan Investment Group amounted to approximately $4.1 million or approximately 35% of total net revenues for fiscal year 2014. For the three months ended September 30, 2014, three customers, Tengda Northwest Ferroalloy Co., Ltd., BAO NYK Shipping Pte. Ltd., and the Zhiyuan Investment Group accounted for approximately 23%, 20% and 14% of our revenues, respectively; and for the same period in 2013, two customers, BAO NYK Shipping Pte. Ltd. and the Zhiyuan Investment Group accounted for approximately 57% and 21% of our revenues, respectively. For fiscal year 2014, two customers, the Zhiyuan Investment Group and BAO NYK Shipping Pte. Ltd. accounted for approximately 35% and 18% of our revenues, respectively. For fiscal year 2013, approximately 63% of our net revenues were from Shourong.
Vendors
Much of our operations consist of working directly with our customers to understand in detail their needs and expectations and then managing local vendors to ensure that our customers’ needs are met. For the three months ended September 30, 2014, three vendors, Monson Agencies Australia Pty. Ltd., Wilson, Sons, Agencia Maritima Ltda., and ACGI Shipping Inc. accounted for approximately 47%, 18% and 13% of the total cost of our revenues, respectively, and for the three months ended September 30, 2013, two vendors, China Cosco Bulk Shipping (Group) Co., Ltd. and Monson Agencies Australia Pty. Ltd. accounted for approximately 53% and 40% of the total cost of revenues, respectively. For fiscal year 2014, two vendors, Wilson, Sons, Agencia Maritima Ltda. and ACGI Shipping Inc. accounted for approximately 21% and 12% of the total cost of revenues, respectively; and for fiscal year 2013, two vendors, Tangshan Hengye Shipping Agent Co., Ltd. and China Shipping Agency Qinhuangdao Co., Ltd. accounted for approximately 22% and 10% of the total cost of our revenues.
Competition
The market segments that we serve do not have high entry barriers. As a second shipping agency, Sinoagent, was permitted to provide shipping agency services in China.
We believe that there are approximately 1,400hundreds of licensed shipping agencies in China. At present, the state-owned shipping agency companies, namely Penavico, Sinoagent, CSA and SinoagentCosa, still dominate China’s shipping agency industry, combining to generate approximately 85%majority of the revenues in the industry. The remaining approved shipping agencies in operation share the remaining 15% of revenues in the industry.
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• Penavico
.• Sinoagent
. Sinoagent was formed in 1985 as a specialized subsidiary of Sinotrans Limited Company (“Sinotrans”), a company that provides integrated ocean transportation, land transport, airfreight, warehousing, express services, shipping agency and freight forwarding services. Due to its relationship with Sinotrans, Sinoagent is able to provide a seamless, integrated set of services to its customers. Sinoagent is the second largest state-owned shipping agency and has approximately 30% of shipping agency market in China.• CSA. CSA, established in 1997, and an affiliate of China Shipping Group, specializes in the shipping agency business for both domestic and international vessels and other related businesses such as cargo agency and customs declaration. With its headquarters in Shanghai, CSA has set up more than 54 subsidiaries in major ports along the national coastline, the Yangtze River and the Pearl River of China. The subsidiaries undertake shipping agency business as well as cargo agency business and customs declaration etc. for both Chinese and foreign vessels navigating among the international lines and the vessels calling HK, Macao, Taiwan areas, and the coastlines and other water areas of China.
We believe that Penavico’s and Sinoagent’sthe three shipping agents’ primary strengths include the following:
• the establishment of a complete port network in mainland China;
• the presence of a large base of clients; and
• the availability of funding and financial support from state-owned financial institutions.
With respect to the shipping and chartering services and inland transportation management services, our competition are local companies that have good business relationships and a mature business platform. We are a new market entrant and until we master the tricks of the trade and enhance our operational efficiency, it is difficult to be profitable without the support of Zhiyuan.
Regulations on Foreign Exchange
Foreign Currency Exchange
. Pursuant to the Foreign Currency Administration Rules promulgated in 1996,Dividend Distribution
. The principal regulations governing divided distributions by wholly foreign-owned enterprises and Sino-foreign equity joint ventures include:• Wholly Foreign-Owned Enterprise Law (1986), as amended;
• Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended;
• Sino-Foreign Equity Joint Venture Enterprise Law (1979), as amended; and
• Sino-Foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as amended.
Under these regulations, wholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, these foreign-invested enterprises are required to set aside certain amounts of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends.
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Regulation of foreign exchange in certain onshore and offshore transactions
. Under recent notices issued by SAFE, PRC residents are required to register with and receive approvals from SAFE in connection with offshore investment activities. SAFE has stated that the purpose of these notices is to ensure the proper balance of foreign exchange and the standardization of cross-border flow of funds.In January 2005, SAFE issued a notice stating that SAFE approval is required for any sale or transfer by PRC residents of a PRC company’s assets or equity interests to foreign entities in exchange for the equity interests or assets of the foreign entities. The notice also states that, when registering with the foreign exchange authorities, a PRC company acquired by an offshore company must clarify whether the offshore company is controlled or owned by PRC residents and whether there is any share or asset link between or among the parties to the acquisition transaction.
In April 2005, SAFE issued another notice further explaining and expanding upon the January notice. The April notice clarified that, where a PRC company is acquired by an offshore company in which PRC residents directly or indirectly hold shares, such PRC residents must (i) register with the local SAFE branch regarding their respective ownership interests in the offshore company, even if the transaction occurred prior to the January notice, and (ii) file amendments to such registration concerning any material events of the offshore company, such as changes in share capital and share transfers. The April notice also expanded the statutory definition of the term “foreign acquisition,” making the notices applicable to any transaction that results in PRC residents directly or indirectly holding shares in the offshore company that has an ownership interest in a PRC company. The April notice also provided that failure to comply with the registration procedures set forth therein may result in the imposition of restrictions on the PRC company’s foreign exchange activities and its ability to distribute profits to its offshore parent company.
On October 21, 2005, SAFE issued a new public notice concerning PRC residents’ investments through offshore investment vehicles. This notice took effect on November 1, 2005 and replaces prior SAFE notices on this topic. According to the November 2005 notice:
• any PRC resident that created an off-shore holding company structure prior to the effective date of the November notice must submit a registration form to a local SAFE branch to register his or her ownership interest in the offshore company on or before May 31, 2006;
• any PRC resident that purchases shares in a public offering of a foreign company would also be required to register such shares an notify SAFE of any change of their ownership interest; and
• following the completion of an off-shore financing, any PRC shareholder may transfer proceeds from the financing into China for use within China.
In accordance with the October 2005 notice, on December 12, 2007, Mr. Cao Lei and Mr. Zhang MingweiCao obtained appropriate registration from their local SAFE offices.
Employees
As of December 31, 2007,September 30, 2014, we had 5416 employees, 528 of whom wereare based in China. Of the total, 12 were3 are in management, two were4 are in technical support, five were in sales and marketing, 16 wereoperations, 5 are in financial affairs, and 4 are in administration and 19 were in operation and disbursement.technical support. We believe that our relationsrelationship with our employees areis good. We have never had a work stoppage, and our employees are not subject to a collective bargaining agreement.
Properties
We currently operaterent four facilities in six facilities throughout China.the PRC, Hong Kong and the United States. Our PRC headquarters are locatedis in Beijing. See “Management’s DiscussionBeijing, and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Commercial Commitments.”
| Office | Address | Rental Term | Space | |||
| Beijing, PRC | Room YeQing Plaza No. 9, Wangjing Chaoyang District Beijing, PRC 100102 | Expires | ||||
1044 Northern Boulevard, Roslyn, New York | Expires | |||||
| Expires |
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Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
Directors, Executive Officers and Significant Employees
The following table sets forth information regarding our executive officers and directors as of the date of this prospectus:
| Name | Age | Position | ||||
| Anthony S. Chan | ||||||
| 50 | Acting Chief Financial Officer and Director | |||||
| Zhikang Huang | 37 | Chief Operating Officer | ||||
| Tieliang Liu | ||||||
| 54 | Independent Director | |||||
| Ming Zhu | 56 | |||||
Lei Cao,Chief Executive OfficersOfficer and Directors
Name | Age | Positions Held | Appointment Year | |||
| Mr. Cao Lei | 43 | Chief Executive Officer and Director | 2001 | |||
| Mr. Zhang Mingwei | 54 | Chief Financial Officer and Director | 2007 | |||
| Mr. Huang Zhi Kang | 30 | Vice President | 2002 | |||
| Ms. Liu Si Xia | 29 | Chief Operating Officer | 2003 | |||
| Mr. Dennis O. Laing | 62 | Director | 2007 | |||
| Mr. Charles Thomas Burke | 74 | Director | 2007 | |||
| Mr. Wang Jing | 58 | Director | 2007 |
Anthony S. Chan,acting Chief Financial Officer, Executive Vice President and Director. Mr. Chan has served as our acting Chief Financial Officer, Executive Vice President and a Directordirector since 2014. Mr. Chan is a seasoned CPA licensed in September 2007. He also currently serves as a professorNew York with over 25 years of professional experience in auditing and SEC reporting, mergers and acquisitions (M&A), SOX compliance, internal controls and risk management. Mr. Chan has advised and audited public companies and privately-held organization across various industries including manufacturing, shipping, media and publishing, entertainment, communications, insurance, and real estate. Prior to joining Sino-Global, Mr. Chan was an audit partner specializing in the delivery of assurance and advisory services to public companies with operations in China. From 2012 until 2013, he was an audit partner with UHY LLP. From 2011 until 2012, he was an audit partner at the School of Accounting at Tianjin University of Finance and Economics, a positionFriedman LLP. From 2007 through 2011, he assumed in August 2007. From May 2001 until December 2007, Mr. Zhang was a partner at Berdon LLP, an auditing firm. In addition, Mr. Chan was a former divisional CFO for a publicly traded company and had spent more than a decade at Big Four accounting firms delivering assurance and M&A consulting services. His international experience also includes providing financial due diligence for strategic and financial buyers on various cross-border opportunities in Baker Tillymainland China, Taiwan, Finland, Mexico, and Puerto Rico. Mr. Chan currently also serves as an international public accounting firm. From July 1994 to June 2003, he served asindependent director of Aoxin Tianli Group, Inc. (Nasdaq: ABAC), a Lecturer at Monash University in Australia. Mr. Zhang received a Bachelor’s degreemember of the Board of Directors of the New York State Society of Certified Public Accountants, and a Master’s degree in Accounting from Tianjin Universitymember of Finance and Economics. He also received a Master’s degree in Commerce fromthe editorial board for The University of Newcastle.CPA Journal.
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Zhikang Huang, Chief Operating Officer. Mr. Zhang is a Certified Management Accountant in Australia.
Jing Wang,Independent Director. Mr. Wang has served as a ship operator for Sky-Sailing Shipping Co., Ltd and World Shipping Group Co., Ltd. Ms. Liu Si Xia received her bachelor degree from Shanghai Maritime University in 2000.
Tieliang Liu,Independent Director. Dr. Liu has served as a salary during either of the previous two years of more than $100,000.
Name and principal position | Year | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | |||||||||||
| Mr. Cao Lei, Principal Executive Officer | 2007 | $ | 141,445 | — | — | $ | 141,445 | |||||||||
| 2006 | $ | 130,354 | — | — | $ | 130,354 | ||||||||||
Ming Zhu,Independent Director. Mr. Zhu has served as a member of the closing of this offering; however, we have not yet determined the number of options or the individuals to whom to grant such options. Any options granted as of the closing of this offering will have an exercise price of $[______] per option.
Staggered Board
Our First Amended and Restated Articles of Incorporation provides for a staggered term Board Committees
Committees of the interestBoard of any director in any such contract or transaction shall be disclosed by him at or prior to the consideration of the transaction and that the transaction meets the requirements of Virginia Code Section 13.1-691, which provides that such transactions are not voidable due to a director conflict of interest if one of the following three statements is true:
Our Board of Directors Observers
Audit Committee
The primary responsibility of the date that:
Our Board of Directors has adopted a written charter for approval. We have agreedthe Audit Committee which is available on the Company’s website (www.sino-global.com) or directly at the following link:http://media.corporate-ir.net/media_files/irol/22/221375/corpgov/AuditCommCharte09272008.pdf.
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Compensation Committee
The Compensation Committee’s principal responsibilities include:
| · | Making recommendations to our Board of Directors concerning executive management organization matters generally; |
| · | In the area of compensation and benefits, making recommendations to the Board of Directors concerning employees who are also directors of the Company, consult with the CEO on matters relating to other executive officers, and make recommendations to the Board of Directors concerning policies and procedures relating to executive officers; provided, however, that the Compensation Committee has full decision-making powers with respect to compensation for executive officers to the extent such compensation is intended to be performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code; |
| · | Making recommendations to our Board of Directors regarding all contracts of the Company with any officer for remuneration and benefits after termination of regular employment of such officer; |
| · | Making recommendations to our Board of Directors concerning policy matters relating to employee benefits and employee benefit plans, including incentive compensation plans and equity based plans; and |
| · | Administering our formal incentive compensation programs, including equity based plans. |
The current members of the Compensation Committee are Ming Zhu, Tieliang Liu, and Jing Wang, who is the Chairman of the Compensation Committee.
Corporate Governance Committee
The Corporate Governance Committee’s primary responsibilities include the following:
| · | Identify individuals qualified to become members of the Board of Directors and to make recommendations to the Board of Directors with respect to candidates for nomination for election at the next annual meeting of shareholders or at such other times when candidates surface and, in connection therewith, consider suggestions submitted by shareholders of the Company; |
| · | Determine and make recommendations to the Board of Directors with respect to the criteria to be used for selecting new members of the Board of Directors; |
| · | Oversee the process of evaluation of the performance of the Company’s Board of Directors and committees; |
| · | Make recommendations to the Board of Directors concerning the membership of committees of the Board and the chairpersons of the respective committees; |
| · | Make recommendations to the Board of Directors with respect to the remuneration paid and benefits provided to members of the Board in connection with their service on the Board or on its committees; and |
| · | Evaluate Board and committee tenure policies as well as policies covering the retirement or resignation of incumbent directors. |
The current members of the Corporate Governance Committee are Ming Zhu, who is the Chairman of the Corporate Governance Committee, Tieliang Liu and Jing Wang.
Director Independence
The Board of Directors maintains a majority of independent directors who are deemed to reimbursebe independent under the observers for their expenses for attendingdefinition of independence provided by NASDAQ Stock Market Rule 4200(a)(15).
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Involvement in Certain Legal Proceedings
To the best of our Board meetings,knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a maximum reimbursementfinding of $6,000 per meeting and $12,000 annually per observer. The observers will be requiredany violation of federal or state securities or commodities laws, any laws respecting financial institutions or insurance companies, any law or regulation prohibiting mail or wire fraud in connection with any business entity or been subject to certifyany disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization, except for matters that such travel expenses are not reimbursed bywere dismissed without sanction or settlement. None of our directors, director nominees or executive officers has been involved in any other party. No other compensation will be paid to the observers. As of the date of this prospectus, Mr. L. McCarthy Downs, III and Mr. Zhu Ming are serving as our underwriter’s observers to our Board of Directors.
Board Leadership Structure
Mr. Lei Cao currently holds both the positions of Chief Executive Officer and Chairman of the Board. The Board of Directors
We do not receive any compensation for their services. Non-employeehave a lead independent director because as a smaller public company, we believe it is in the Company’s best interest to allow the Company to benefit from the guidance from key members of management and because we believe our independent directors are entitledencouraged to receive $2,000 perfreely voice their opinions on a relatively small company board. We believe this leadership structure is appropriate because we are a smaller reporting company as such we deem it appropriate to be able to benefit from the guidance of Mr. Cao as both our Chief Executive Officer and Chairman of the Board.
Risk Oversight
Our Board of Directors meeting attended. In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for eachplays a significant role in our risk oversight. The Board of Directors meeting attended. These non-employeeis involved in the review and approval of all key transactions and makes all relevant Company decisions, including those relating to material contracts with the Zhiyuan Investment Group. As such, it is important for us to have our Chief Executive Officer serve on the Board as he plays a key role in the risk oversight of the Company. As a smaller reporting company with a small Board of Directors, we believe it is appropriate to have the involvement and input of all of our directors will be requiredin risk oversight matters.
The Summary Compensation Table below sets forth information regarding the compensation awarded to certify thator earned by our named executive officers for our fiscal years 2014 and 2013.
The following table shows the annual compensation paid by us to Mr. Lei Cao, our Principal Executive Officer, Mr. Anthony S. Chan, our Acting Chief Officer and Mr. Zhikang Huang, our Chief Operating Officer, for our fiscal years 2014 and 2013. No other executive officer had total compensation during either of such travel expenses are not reimbursed by any other party.fiscal year more than $100,000.
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Summary Compensation Table
| Name | Year | Salary | Bonus | Securities-based Compensation | All other compensation | Total | ||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||
| Lei Cao, Principal Executive Officer | 2014 | 180,000 | — | — | — | 180,000 | ||||||||||||||||||
| 2013 | 150,811 | — | — | — | 150,811 | |||||||||||||||||||
| Anthony S. Chan, Acting Chief Financial Officer | 2014 | 150,000 | 100,000 | (1) | — | — | 250,000 | |||||||||||||||||
| 2013 | — | — | — | — | — | (2) | ||||||||||||||||||
| Zhikang Huang, Chief Operating Officer | 2014 | 100,000 | — | — | — | 100,000 | ||||||||||||||||||
| 2013 | 60,000 | — | — | — | 60,000 | |||||||||||||||||||
| (1) | Represents a one-time hiring bonus. |
| (2) | Mr. Chan was hired in September 2013 and received no compensation in fiscal 2013. |
Outstanding Equity Awards of our Executive Officers
As of September 30, 2014, we had three named executive officers, Mr. Lei Cao, our Chief Executive Officer, Mr. Anthony S. Chan, our Acting Chief Financial Officer, and Mr. Zhikang Huang, our Chief Operating Officer.
Option Awards(1)
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised Unearned options (#) | Option exercise price ($) | Option expiration date | |||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
| Lei Cao, Principal Executive Officer | 36,000 | — | — | $ | 7.75 | May 19, 2018 | ||||||||||||||
| Anthony S. Chan, Acting Chief Financial Officer | — | — | — | — | — | |||||||||||||||
| Zhikang Huang, Chief Operating Officer | — | — | — | — | — | |||||||||||||||
| (1) | Our Company has not made any stock awards to any named executive officer. For this reason, we have excluded the following columns from this table: (g) Number of shares or units of stock that have not vested (#); (h) Market value of shares of units of stock that have not vested ($); (i) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#); and (j) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($). |
Employment Agreements
Sino-China has employment agreements with each of Mr. Lei Cao, Lei, Mr. Zhang Mingwei,Anthony S. Chan and Mr. Huang Zhi Kang and Ms. Liu Si Xia.Zhikang Huang. These employment agreements provide for employment of each of the employees for one-year terms currently all expiring on December 31, 2008. Under Chinese law, these employment agreements may only be terminated without cause and without penalty by providing noticethat extend automatically in the absence of non-renewal one monthtermination provided at least 60 days prior to the anniversary date on whichof the employment agreement are scheduled to expire.agreement. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement, we would need to pay such executive (a) in the employee one month’sabsence of a change of control, one-time the then applicable annual salary for each year we have employedof such executive or (b) in the employee. event of a change of control, one-and-a-half times the then applicable annual salary of such executive. In the event of termination due to death or disability, the payment is equal to two times the executive’s salary.
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We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.
Equity Compensation Plan Information
2014 Share Incentive Plan
In December 2013, our Board of Directors adopted the 2014 Share Incentive Plan (the “2014 Plan”), which was approved by shareholders at our 2014 Annual Meeting of Shareholders on January 21, 2014. The 2014 Plan provides for the grant of incentive stock options, nonqualified stock options and common stock awards. The plan authorizes a new pool of 10,000,000 shares of our common stock and securities exercisable for or convertible into our common stock.
The 2014 Plan is administered by the Compensation Committee of our Board of Directors. The 2014 Plan provides our Compensation Committee with flexibility to design compensatory awards that are responsive to our strategic and business needs. Subject to the terms of the 2014 Plan, the Compensation Committee has the discretion to determine the terms of each award. The Compensation Committee may delegate to one or more of our officers the authority to grant awards to individuals who are not our directors, executive officers or 5% shareholders.
2008 Incentive Plan
In 2008, our Board of Directors and shareholders approved the 2008 Incentive Plan. Our 2008 Incentive Plan established a pool for stock options for our employees. Options granted under our 2008 Incentive Plan vest at a rate of 20% per year for five years and have exercise prices equal to the market price of our common stock on the date the options are granted. The number of shares of our common stock that may be issued under our 2008 Incentive Plan is 302,903 shares.
The below table reflects, as of September 30, 2014, the number of shares of our common stock authorized by our shareholders to be issued (directly or by way of issuance of securities exercisable for or convertible into) as incentive compensation to our officers, directors, employees and consultants.
| Plan category | Number of vested shares or units of stock issued (a) | Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) | Weighted-average exercise price of outstanding options, warrants and rights (c) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b)) | ||||||||||||
| Equity compensation plans approved by security holders | 600,000 | 66,000 | $ | 6.88 | 9,636,903 | (1) | ||||||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||||||
| (1) | Pursuant to our 2008 Incentive Plan, we are authorized to issue options to purchase 302,903 shares of our common stock. All of the 66,000 outstanding options disclosed in the above table are taken from our 2008 Incentive Plan. Pursuant to our 2014 Plan, we are authorized to issue, in the aggregate, 10,000,000 shares of our common stock or other securities convertible or exercisable for common stock. We have not issued any options or convertible securities into our 2014 Plan; however, we issued 600,000 shares of our common stock to two consultants to our Company under our 2014 Plan. Accordingly, we may issue options to purchase 236,903 shares of our common stock under our 2008 Incentive Plan, and we may issue 9,400,000 shares of our common stock or other securities convertible or exercisable for our common stock under our 2014 Plan. |
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Limitation of Director and Officer Liability
Pursuant to our First Amended and Restated Articles of Incorporation and Bylaws, every director or officer and the personal representatives of the same shall be indemnified and secured harmless out of our assets and funds against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him or her in or about the conduct of our business or affairs or in the execution or discharge of his or her duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning us or our affairs in any court whether in Virginia or elsewhere. No such director or officer will be liable for: (a) the acts, receipts, neglects, defaults or omissions of any other such Director or officer or agent; or (b) any loss on account of defect of title to any of our property; or (c) account of the insufficiency of any security in or upon which any of our money shall be invested; or (d) any loss incurred through any bank, broker or other similar person; or (e) any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgment or oversight on his or her part; or (f) any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his or her office or in relation thereto, unless the same shall happen through his or her own dishonesty.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable as a matter of United States law.
Director Compensation(1)
| Name | Fees earned or paid in cash ($) | All other compensation ($)(2) | Total ($) | |||||||||
| Dennis O. Laing(3) | 20,000 | — | 20,000 | |||||||||
| Tieliang Liu | 20,000 | — | 20,000 | |||||||||
| Jing Wang | 20,000 | — | 20,000 | |||||||||
| Ming Zhu(4) | 0 | — | 0 | |||||||||
| (1) | This table does not include Mr. Lei Cao, our Principal Executive Officer, or Mr. Mingwei Zhang, our prior Principal Financial and Accounting Officer, who were both directors and named executive officers, because Mr. Cao’s compensation is fully reflected in the Summary Compensation Table and because Mr. Zhang received no payment solely because of his service as a director during fiscal year 2014. | |
| (2) | We did not grant any stock awards, option awards, non-equity incentive plan compensation awards or nonqualified deferred compensation earnings awards to any of our directors in fiscal year 2014; accordingly, we have excluded such columns from the above table. We granted options to purchase 10,000 shares of our common stock to each of Mr. Dennis Laing and Mr. Jing Wang on May 20, 2008. We granted options to purchase 10,000 shares of our common stock to Mr. Tieliang Liu on January 31, 2013. No value is reflected for the awards in this table because the grant date fair value of all grants was reflected in the year of the applicable grant. | |
| (3) | Mr. Laing retired as a director effective as of August 15, 2014. | |
| (4) | Mr. Ming Zhu joined our Board of Directors on August 15, 2014 and thus received no compensation as a director in fiscal 2014. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 2013, as approved by our Board of Directors and our shareholders, Mr. Zhang purchased 1,800,000 shares of our common stock for approximately $3 million, which as of the date of this prospectus represents approximately 29% of our issued and outstanding common stock, resulting in Mr. Zhang becoming our largest shareholder. As a result of Mr. Zhang’s desire to find business opportunities that would mutually benefit us and the Zhiyuan Investment Group, a company controlled by Mr. Zhang, which owns a number of businesses in China, in June 2013, we signed a 5-year Global Logistic Service Agreement with the Zhiyuan Investment Group and Tewoo. Thereafter, during the quarter ended September 30, 2013, we executed a shipping and chartering services agreement with the Zhiyuan Investment Group, pursuant to which we assisted the Zhiyuan Investment Group in the transportation of approximately 51,000 tons of chromite ore from South Africa to China; and in September 2013, we executed an inland transportation management service contract with the Zhiyuan Investment Group pursuant to which we agreed to provide certain advisory services and assist the Zhiyuan Investment Group in attempting to control its potential commodities losses during the transportation process. On a one time basis, we executed a one year short-term loan agreement with the Zhiyuan Investment Group, effective January 1, 2014, to facilitate the working capital needs of the Zhiyuan Investment Group. As of June 30, 2014, the net amount due to us from the Zhiyuan Investment Group was $2,920,950 consisting of funds borrowed from us pursuant to the short-term loan agreement and trade receivables due to us from the Zhiyuan Investment Group. In September 2014, we collected approximately $2.7 million from the Zhiyuan Investment Group, representing full repayment of all funds borrowed by the Zhiyuan Investment Group from us pursuant to the short-term loan agreement and the payment of approximately $1.6 million of outstanding trade receivables. During the three months ended September 30, 2014, we continued to provide inland transportation management services to the Zhiyuan Investment Group, and the net amount due to us from the Zhiyuan Investment Group for such services at September 30, 2014 was $627,951. In October 2014, we collected approximately $384,000 from the Zhiyuan Investment Group which reduced the outstanding trade receivables due to us from the Zhiyuan Investment Group.
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In May 2014, we signed a strategic agreement with Zhenghe, to jointly explore mutually beneficial business development opportunities. Zhenghe is a PRC company to which Mr. Wang is the majority shareholder. To demonstrate the commitment by Zhenghe to its business relationship with us, in June 2014, as approved by our Board of Directors, Mr. Wang, through a company owned by him, purchased 200,000 shares of our common stock for $444,000, resulting in Mr. Wang owning as of the date of this prospectus, approximately 3.2% of our outstanding common stock. Subsequently, and as part of our strategy to expand our service platform, in September 2014, as approved by our Board of Directors, we acquired LSM, a ship management company based in Hong Kong from Mr. Wang. While to date the net revenues generated from such business have been immaterial, we believe that ship management is a good complement to our existing service platform. The acquisition of LSM will result in the issuance of between 20,000 and 200,000 shares of our common stock to Mr. Wang, depending on whether LSM reaches certain net income targets for the period July 4, 2014 through December 31, 2014. LSM outsources the ship management services to Qingdao Longhe Ship Management Services Co., Ltd., a company controlled by Mr. Wang.
As of June 30, 2014 and 2013, the Company is owed $252,815 and $541,400, respectively, from Sino-G Trading Inc. (“Sino-G”), an entity that is owned by the brother-in-law of the Company’s CEO. Sino-G previously served as a funds transfer agent for the Company’s services in Tianjin, PRC. We expect the entire amount to be repaid without interest during fiscal year 2015.
SHAREHOLDERSThe following table sets forth information with respect toregarding the beneficial ownership of our common stock as of April 9, 2008the date of this prospectus, and as adjusted to reflect the sale of the shares offered by us inanticipated beneficial ownership percentages immediately following this offering, for of:
Each shareholder’s percentage ownership before the offering is based on 6,200,841 shares of our common stock and alloutstanding as of the date of this prospectus. Each shareholder’s percentage ownership after the offering is based on 9,598,899 shares of our executive officerscommon stock outstanding immediately after the completion of this offering. We have granted the underwriters an option to purchase up to an aggregate of 509,708 additional shares of our common stock to cover over-allotments, if any, and directors individually and as a group. the table below assumes no exercise of that option.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock subject to options or warrants that are exercisable or exercisable within 60 days of the securities.date of this prospectus are considered outstanding and beneficially owned by the person holding the options or warrants for the purposes of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as indicated below,disclosed in the footnotes to this table and subject to applicable community property laws, the persons namedwe believe that each shareholder identified in the table havepossesses sole voting and investment power with respect toover all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 1,800,000 shares outstandingthe shareholder. Except as of April 9, 2008 and [______] shares (minimum offering) and [______] shares (maximum offering) outstanding after completion of this offering. Our major common shareholders’ voting rights will not differ from other common shareholders’ rights. Theotherwise set forth below, the address of each of the below shareholdersbeneficial owner is c/o Sino-Global Shipping America, Ltd., 36-09 Main Street, Suite 9C-2, Flushing,1044 Northern Blvd, Roslyn, New York 11354.
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| Director and Executive Officers: | Number of Shares of Common Stock Beneficially Owned | Percentage of Shares Beneficially Owned | ||||||||||
| Before Offering (%) | After Offering (%) | |||||||||||
| Mr. Lei Cao(1) | 1,366,040 | 21.86 | 14.16 | |||||||||
| Mr. Anthony S. Chan | 0 | * | * | |||||||||
| Mr. Zhikang Huang | 0 | * | * | |||||||||
| Mr. Jing Wang (2) | 10,000 | * | * | |||||||||
| Mr. Tieliang Liu (3) | 2,000 | * | * | |||||||||
| Mr. Ming Zhu | 0 | * | * | |||||||||
| All Current Officers and Directors as a group (5 persons) | 1,378,040 | 22.05 | 14.28 | |||||||||
| 5% Shareholders | ||||||||||||
| Mr. Zhong Zhang(4) | 1,800,000 | 28.81 | 18.66 | |||||||||
| Mr. Daniel E. Kern(5) | 389,100 | 6.23 | 4.03 | |||||||||
______________
* Less than 1%.
| (1) | Includes 36,000 shares of our common stock issuable upon exercise of stock options owned by such person. |
| (2) | Consists of 10,000 shares of our common stock issuable upon exercise of stock options owned by such person. |
| (3) | Consists of 2,000 shares of our common stock issuable upon exercise of stock options owned by such person. |
| (4) | Mr. Zhong Zhang’s address is c/o Tianjin Zhiyuan Investment Group Co., Ltd, 10th Floor, Tianwu Huaqing Building, No.22, Jinrong Road, Dasi Industrial Park, Xiqing District Economic Development Zone, Tianjin City, P.R. China, 300385. |
| (5) | Mr. Kern’s address is 1027 Goldenrod Ave., Corona Del Mar, CA 92625. We have been advised that Mr. Kern owns 176,200 shares of our common stock in his name, 187,900 shares of our common stock in the Daniel E. Kern ROTH IRA, and 25,000 shares of our common stock through Kern Asset Management. We have been advised that Mr. Kern maintains sole voting and dispositive power of all of such shares of our common stock. |
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Name and Address | Title of Class | Amount of Beneficial Ownership | Percentage Ownership Before Offering | Percentage Ownership After Minimum Offering | Percentage Ownership After Maximum Offering | |||||||||||
| Mr. Cao Lei | common | [______] | [______] | [______] | [______] | |||||||||||
| Mr. Chi Tai Shen | common | 72,000 | 4.0 | [______] | [______] | |||||||||||
| Mr. Zhu Ming | common | 72,000 | 4.0 | [______] | [______] | |||||||||||
| Mr. Zhang Mingwei | common | 54,000 | 3.0 | [______] | [______] | |||||||||||
Mr. Mark A. Harris and Mrs. Roslyn O. Harris(1) | common | [______] | [______] | [______] | [______] | |||||||||||
Mr. Richard E. Watkins and Mrs. Sharon J. Watkins(1) | common | [______] | [______] | [______] | [______] | |||||||||||
Total | 1,800,000 | 100.0 | % | [______] | % | [______] | % | |||||||||
Our authorized capital stock consists of 10,000,00050,000,000 shares of our common stock, without par value per share, and 1,000,0002,000,000 shares of our preferred stock, without par value per share. As of the date of this prospectus, 1,800,0006,200,841 shares of our common stock are issued and outstanding, and no shares of our preferred stock have been issued. Our company may be obligated to purchase certain of theseare issued and outstanding shares of common stock on the terms and under the conditions described in greater detail in the section titled “Related Party Transactions - Loan to Mr. Cao.”outstanding. The following summary description relating to our capital stock does not purport to be complete and is qualified in its entirety by our First Amended and Restated Articles of Incorporation and Bylaws.
Common Stock
Holders of our common stock are entitled to cast one vote for each share on all matters submitted to a vote of shareholders, including the election of directors. The holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor and subject to any preference of any then authorized and issued shares of our preferred stock. See “Dividend Policy.” Such holders do not have any preemptive or other rights to subscribe for additional shares. All holders of shares of our common stock are entitled to share ratably in any assets for distribution to shareholders upon the liquidation, dissolution or winding up of our company, subject to any preference of any then authorized and issued preferred stock. There are no conversion, redemption or sinking fund provisions applicable to theour common stock. All outstanding shares of our common stock are fully paid and nonassessable.
Preferred Stock
Our First Amended and Restated Articles of Blank Check Preferred Stock
The options will have exercise prices equalprovisions of a particular series of our authorized preferred stock, as designated by our Board of Directors, may include restrictions on the payment of dividends on our common stock. Such provisions may also include restrictions on our ability to the fair market valuepurchase shares of our common stock onor to purchase or redeem shares of a particular series of our authorized preferred stock. Depending upon the datevoting rights granted to any series of grant. Any options granted asour authorized preferred stock, issuance thereof could result in a reduction in the voting power of the closingholders of this offering will have an exercise price of $[______] per option. In addition, the options will vest over five years (20% per year) and have terms of ten years.
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We have entered into an underwriting agreement with National Securities Corporation (the “underwriter”) pursuant to which the underwriter has beneficially ownedagreed to purchase from us [_________] shares of our common stock for least six months, including the holding period of any prior owner, except if the prior owner was one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
We have agreed to indemnify the underwriter and its officers, directors, principals, employees, affiliates and shareholders against certain liabilities, including civil liabilities under the Securities Act, of 1933, orresulting from this offering and to contribute to payments the underwriter may be required to make in respect of thosesuch liabilities.
The underwriter is offering the shares, subject to prior sale, when, as and if issued to and accepted by it, subject to approval of legal matters by its counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriter of officers’officer’s certificates and legal opinions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. The underwriter intends to offer our shares to its retail customers in states whereby we have qualified the issuance of such shares.
The underwriter has advised us that it proposes to initially offer the shares of our common stock to the public at $[__] per share. The underwriter proposes to offer the shares to certain dealers at the same price less a concession of not more than $[____] per share. After the initial offering of the shares, the underwriter may from time to time vary the offering prices and other selling terms.
Over-allotment Option to Purchase Additional Shares
We have granted to the underwriter an option to purchase up to _______ additional shares of our common stock from us at the same price to the public, atless the initial public offering price onsame underwriting discount, as set forth in the cover pagetable below. The underwriter may exercise this option any time during the 30-day period after the date of this prospectus.
Underwriter Discount and Expenses
The following table showssummarizes the public offering price, underwriting discount and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriter’s over-allotment option. We have also agreed to pay up to $125,000 of the out-of-pocket fees and expenses of the underwriter, which include the fees and expenses of counsel to the underwriter. The fees and expenses of the underwriter that we have agreed to reimburse are not included in the underwriting discount set forth in the table below. The underwriting discount was determined through arms’ length negotiations between us and the underwriter.
| TOTAL FEES | ||||||||||||
| Per Share Underwriting Discount | Without Exercise of Option to Purchase Additional Shares | With Full Exercise of Option to Purchase Additional Shares | ||||||||||
| Underwriting discount to be paid by us | $ | $ | $ | |||||||||
We estimate that the total expenses of the offering, excluding the underwriting discount, will be approximately $442,736. This includes an 8% selling discount plus $125,000 of fees and expenses of the underwriter. These expenses are payable by us.
After deducting fees due to the underwriter and our estimated offering expenses, we expect the net proceeds before expenses, to us.
Per Share | Minimum Offering | Maximum Offering | ||||||||
| Public offering price | $ | [______ | ] | $ | 6,750,000 | $ | 8,750,000 | |||
| Underwriting discount | $ | [______ | ] | $ | 472,500 | $ | 612,500 | |||
| Proceeds to us, before expenses | $ | [______ | ] | $ | 6,277,500 | $ | 8,137,500 | |||
| 50 |
Stabilization
To facilitate this offering, is a best-efforts offering, the NASDAQ Capital Market has indicated that it is unable to admit our common stock for listing until the completion of the offering and, consequently, the satisfaction of NASDAQ Capital Market listing standards. If so admitted, we expect our common stock to begin trading on the NASDAQ Capital Market on the day following the closing of this offering. If our common stock is eventually listed on the NASDAQ Capital Market, we will be subject to continued listing requirements and corporate governance standards. We expect these new rules and regulations to significantly increase our legal, accounting and financial compliance costs.
Passive Market Making
In connection with this offering, the underwriter (and any dealers that are members of the selling group) may also engage in passive market making transactions in the common stock. Passive market making consists of displaying bids limited by the prices of independent market levels or prevent or retard a declinemakers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of our common stock at a level above that which might otherwise prevail in the shares. The underwriter is not required to engage in these activities,open market and, if commenced, may end any of these activitiesbe discontinued at any time.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by the underwriter and the underwriter have agreedmay distribute prospectuses electronically. In those cases, prospective investors may view offering terms and a prospectus online and place orders online or through their financial advisors. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus, the accompanying prospectus or the registration statement of which this prospectus and the accompanying prospectus form a part, has not been approved or endorsed by us or the underwriter, and should not be relied upon by investors.
Other Relationships with the Underwriter
From time to indemnify eachtime in the ordinary course of business, the underwriter and its respective affiliates may in the future perform various commercial banking financial advisory, investment banking and other against certain liabilities, including liabilities underfinancial services for us for which it will receive customary fees and reimbursement of expenses.
Offer Restrictions Outside the Securities Act.
Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of our common stock offered in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of our common stock offered in this offering in any jurisdiction in which such an offer or a solicitation is unlawful.
Delivery of Shares of Common Stock
Delivery of shares of our common stock issued and sold in this offering will occur on or before [_________], 2014.
Transfer Agent and Registrar
The transfer agent and registrar for shares of our common stock is Computershare Inc. located in 350 Indiana Street, Suite 750, Golden CO, 80401 U.S. Our transfer agent’s phone number is 303-262-0678 and facsimile number is 312-601-2312.
| 51 |
Listing
Shares of our common stock are quoted on the NASDAQ Capital Market under U.S. law, including Virginia state law andthe trading symbol “SINO”.
Certain legal matters as to certain United States federal securities law will be passed onupon for bothus by Gusrae Kaplan Nusbaum PLLC, New York, New York. Duane Morris LLP is acting as counsel for the underwriter and our companyin connection with this offering. Certain legal matters as to Virginia law will be passed upon for us by Kaufman & Canoles, P.C., Richmond, Virginia. Certain legalGusrae Kaplan Nusbaum PLLC will rely upon Kaufman & Canoles, P.C. with respect to matters relating to the offering as to Chinese law will be passed upon for usgoverned by Kang Da Law Office, 703 CITIC Building, Jinguomenwai Street, Beijing, People’s Republic of China.
Our consolidated financial statements as of June 30, 20072014 and 2006,2013, and for each of the two years thenin the period ended appearingJune 30, 2014, included in this prospectus, have been so included herein and in the registration statement in reliance uponon the report of Friedman LLP, an independent registered public accounting firm, appearing elsewhere herein, and upongiven on the authority of thatsuch firm as experts in accounting and auditing.
We have filed with the SEC a registration statement on Form S-1 (previously SB-2) under the Securities Act of 1933 with respect to our shares of common stock offered byin this prospectus.offering. This prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. For further information regardingwith respect to us and the shares of our common stock, offered hereby, pleasewe refer you to the registration statement and to the exhibitsattached exhibits. With respect to each such document filed as partan exhibit to the registration statement, we refer you to the exhibit for a more complete description of the registration statement.
You may inspect our audited financial statements. This registration statement includingand the attached exhibits thereto, and all of our periodic reports may be inspectedschedules without charge at the Public Reference Roompublic reference facilities maintained by the SEC at 100 F Street, NE,N.E., Washington, D.C. 20549. You may obtain copies of theall or any part of our registration statement includingfrom the exhibits thereto, and all of our periodic reports afterSEC upon payment of the fees prescribed by the SEC. For additionalfees. You may obtain information regardingon the operation of the Public Reference Room, you may callpublic reference room by calling the SEC at 1-800-SEC-0330. The
Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also maintains aavailable from the SEC’s website atwww.sec.gov, which provides on-line access tocontains reports, proxy and information statements and other information regarding registrantsissuers that file electronically with the SEC at the address: http://www.sec.gov.
| SEC registration fee | $ | 467.27 | ||
| FINRA filing fee | 1,688.96 | |||
| NASDAQ listing fee | 50,000.00 | |||
| Blue Sky Fees | [______ | ] | ||
| Legal fees and expenses for Chinese counsel | [______ | ] | ||
| Legal fees and expenses for U.S. counsel | [______ | ] | ||
| Accounting fees and expenses | [______ | ] | ||
| Printing fees | [______ | ] | ||
| Total | $ | [______ | ] |
| 52 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE
| F-1 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 3,553,187 | $ | 902,531 | ||||
| Advances to suppliers | 28,612 | 8,482 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $443,711 and $443,858 as of September 30, 2014 and June 30, 2014, respectively | 959,033 | 481,885 | ||||||
| Other receivables, less allowance for doubtful accounts of $251,139 and $250,100 as of September 30, 2014 and June 30, 2014, respectively | 471,234 | 174,406 | ||||||
| Prepaid expenses – current | 461,462 | 216,729 | ||||||
| Due from related parties | 880,290 | 3,173,765 | ||||||
| Total Current Assets | 6,353,818 | 4,957,798 | ||||||
| Property and equipment, net | 266,454 | 294,722 | ||||||
| Prepaid expenses – noncurrent | 749,438 | 280,800 | ||||||
| Other long-term assets | 28,864 | 16,734 | ||||||
| Deferred tax assets | 192,800 | 163,900 | ||||||
| Total Assets | $ | 7,591,374 | $ | 5,713,954 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities | ||||||||
| Advances from customers | $ | 213,181 | $ | 88,477 | ||||
| Accounts payable | 242,511 | 398,756 | ||||||
| Accrued expenses | 142,069 | 177,877 | ||||||
| Other current liabilities | 555,099 | 565,685 | ||||||
| Total Current Liabilities | 1,152,860 | 1,230,795 | ||||||
| Total Liabilities | 1,152,860 | 1,230,795 | ||||||
| Commitments and Contingency | ||||||||
| Equity | ||||||||
| Preferred stock, 2,000,000 shares authorized, no par value, none issued. | - | - | ||||||
| Common stock, 50,000,000 shares authorized, no par value; 6,326,032 and 5,229,032 shares issued as of September 30, 2014 and June 30, 2014; 6,200,841 and 5,103,841 shares outstanding as of September 30, 2014 and June 30, 2014 | 13,385,477 | 11,662,157 | ||||||
| Additional paid-in capital | 1,144,842 | 1,144,842 | ||||||
| Treasury stock, at cost - 125,191 shares | (372,527 | ) | (372,527 | ) | ||||
| Accumulated deficit | (2,937,801 | ) | (3,270,260 | ) | ||||
| Accumulated other comprehensive income | 59,418 | 24,618 | ||||||
| Unearned stock-based compensation | (11,640 | ) | (11,640 | ) | ||||
| Total Sino-Global Shipping America Ltd. Stockholders' Equity | 11,267,769 | 9,177,190 | ||||||
| Non-Controlling Interest | (4,829,255 | ) | (4,694,031 | ) | ||||
| Total Equity | 6,438,514 | 4,483,159 | ||||||
| Total Liabilities and Equity | $ | 7,591,374 | $ | 5,713,954 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
| For the three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Net revenues | $ | 2,605,925 | $ | 3,317,661 | ||||
| Cost of revenues | (1,409,153 | ) | (2,387,803 | ) | ||||
| Gross profit | 1,196,772 | 929,858 | ||||||
| General and administrative expenses | (939,805 | ) | (896,164 | ) | ||||
| Selling expenses | (56,339 | ) | (51,088 | ) | ||||
| (996,144 | ) | (947,252 | ) | |||||
| Operating income (loss) | 200,628 | (17,394 | ) | |||||
| Financial (expense) income, net | (62,382 | ) | 23,867 | |||||
| Net income before provision for income taxes | 138,246 | 6,473 | ||||||
| Income tax benefit | 27,255 | 22,500 | ||||||
| Net income | 165,501 | 28,973 | ||||||
| Net loss attributable to non-controlling interest | (166,958 | ) | (246,421 | ) | ||||
| Net income attributable to Sino-Global Shipping America, Ltd. | $ | 332,459 | $ | 275,394 | ||||
| Comprehensive income | ||||||||
| Net income | $ | 165,501 | $ | 28,973 | ||||
| Foreign currency translation gain (loss) | 66,534 | (25,637 | ) | |||||
| Comprehensive income | 232,035 | 3,336 | ||||||
| Less: Comprehensive loss attributable to non-controlling interest | (135,224 | ) | (260,174 | ) | ||||
| Comprehensive income attributable to Sino-Global Shipping America Ltd. | $ | 367,259 | $ | 263,510 | ||||
| Earnings per share | ||||||||
| -Basic and diluted | $ | 0.06 | $ | 0.06 | ||||
| Weighted average number of common shares used in computation | ||||||||
| -Basic and diluted | 5,920,950 | 4,703,841 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Operating Activities | ||||||||
| Net income | $ | 165,501 | $ | 28,973 | ||||
| Adjustment to reconcile net income to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization | 55,560 | 27,575 | ||||||
| Amortization of stock-based compensation to consultants | 71,689 | - | ||||||
| (Recovery of) provision for doubtful accounts | (147 | ) | 108 | |||||
| Deferred tax benefit | (28,900 | ) | (22,500 | ) | ||||
| Changes in assets and liabilities | ||||||||
| (Increase) decrease in advances to suppliers | (20,130 | ) | 101,992 | |||||
| (Increase) decrease in accounts receivable | (477,001 | ) | 236,660 | |||||
| Increase in other receivables | (296,828 | ) | (375,498 | ) | ||||
| Increase in prepaid expenses | (113,060 | ) | (558 | ) | ||||
| Decrease in employee loan receivables | - | 5,338 | ||||||
| Increase in other long-term assets | (12,130 | ) | (7,522 | ) | ||||
| Decrease (increase) in due from related parties | 1,174,234 | (612,000 | ) | |||||
| Increase (decrease) in advances from customers | 124,704 | (407,030 | ) | |||||
| Decrease in accounts payable | (156,245 | ) | (33,359 | ) | ||||
| (Decrease) increase in accrued expenses | (35,808 | ) | 76,096 | |||||
| (Decrease) increase in other current liabilities | 72,913 | (48,909 | ) | |||||
| Net cash provided by (used in) operating activities | 524,352 | (1,030,634 | ) | |||||
| Investing Activities | ||||||||
| Acquisitions of property and equipment | (15,339 | ) | (3,399 | ) | ||||
| Collection of short-term loan from related party | 1,119,241 | - | ||||||
| Net cash provided by (used in) investing activities | 1,103,902 | (3,399 | ) | |||||
| Financing Activities | ||||||||
| Proceeds from issuance of common stock, net | 967,820 | - | ||||||
| Net cash provided by financing activities | 967,820 | - | ||||||
| Effect of exchange rate fluctuations on cash and cash equivalents | 54,582 | (28,261 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 2,650,656 | (1,062,294 | ) | |||||
| Cash and cash equivalents at beginning of period | 902,531 | 3,048,831 | ||||||
| Cash and cash equivalents at end of period | $ | 3,553,187 | $ | 1,986,537 | ||||
| Supplemental information: | ||||||||
| Income taxes paid | $ | 8,104 | $ | 7,949 | ||||
| Non-cash transactions of operating activities: | ||||||||
| Common stock issued for LSM acquisition and stock-based compensation to consultants | $ | 755,500 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States of America (“US”) in 2001, Sino-Global Shipping America, Ltd. (“Sino-Global” or the “Company”) is a shipping agency, logistics and ship management services company. The Company’s current service offerings consist of shipping agency services, shipping and chartering services, inland transportation management services and ship management services. The Company conducts its business primarily through its wholly-owned subsidiaries in China, Hong Kong, Australia, Canada and New York. Substantially all of the Company’s business is generated from clients located in the People’s Republic of China (the “PRC”), and its operations are primarily conducted in the PRC and Hong Kong.
The Company’s subsidiary in China, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), a wholly owned foreign enterprise, invested in one 90%-owned subsidiary, Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”. Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as “Trans Pacific”). As PRC laws and regulations restrict foreign ownership of shipping agency service businesses, the Company used to provide its shipping agency services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), a Chinese legal entity, which holds the licenses and permits necessary to operate shipping agency services in the PRC. Trans Pacific Beijing and Sino-China do not have a parent-subsidiary relationship. Trans Pacific Beijing has contractual arrangements with Sino-China and its shareholders that enable the Company to substantially control Sino-China. Through Sino-China, the Company has the ability to provide shipping agency services in all commercial ports in the PRC. During fiscal year 2014, the Company completed a number of cost reduction initiatives and reorganized its shipping agency business in the PRC. As a result of the business reorganization, the Company does not provide shipping agency services through Sino-China as of September 30, 2014.
The Company’s shipping agency business is operated by its subsidiaries in Hong Kong and Australia. As a general shipping agent, the Company serves ships coming to and departing from a number of countries, including China, Australia, South Africa, Brazil and Canada. The shipping and chartering services are operated by Sino-Global Shipping (HK) Ltd; the inland transportation management services are operated by Trans Pacific Beijing. As part of Sino-Global’s strategy to expand its service platform, the Company acquired Longhe Ship Management (Hong Kong) Co., Limited (“LSM”), a ship management company that is based in Hong Kong in September 2014.
| F-5 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 Exchange Commission (“SEC”). The financial statements include the accounts of all directly, indirectly owned subsidiaries and variable interest entity (VIE”). All material intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary to give a fair presentation have been included. Interim results are not necessarily indicative of results of a full year. Certain prior year balances were reclassified to conform to the current year presentation. These reclassifications have no material impact on the previously reported financial position, results of operations or cash flows.
(b) Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All intercompany transactions and balances are eliminated in consolidation. Sino-China is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary. The Company through Trans Pacific Beijing entered into agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s net income. Sino-China was designed to operate in China for the benefit of the Company. The Company does not receive any payment from Sino-China unless Sino-China recognizes net income during its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year. If Sino-China incurs a net loss during its fiscal year, the Company is not required to absorb such net loss.
As a VIE, Sino-China’s revenues are included in the Company’s total revenues, and its income (loss) from operations is consolidated with the Company’s. Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of the Company’s and Sino-China’s financial statements.
The Company has consolidated Sino-China’s operating results because the entities are under common control in accordance with 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 is the primary beneficiary of Sino-China. .
The carrying amount and classification of Sino-China's assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets are as follows:
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Total current assets | $ | 224,612 | $ | 173,273 | ||||
| Total assets | 446,401 | 419,048 | ||||||
| Total current liabilities | 278,795 | 312,521 | ||||||
| Total liabilities | 278,795 | 312,521 | ||||||
| F-6 |
(c) Revenue Recognition Policy
| Ÿ | Revenues from shipping 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. |
| Ÿ | Revenues from shipping and chartering services are recognized upon performance of services as stipulated in the underlying contract. |
| Ÿ | Revenues from inland transportation management services are recognized when commodities are being released from the customer’s warehouse. |
| Ÿ | Revenues from ship management services are recognized when the related contractual services are rendered. |
(d) 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 US dollars (“USD”) while Sino-China reports its financial position and results of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial statements are presented in US dollars. Foreign currency transactions are translated into USD using 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 foreign currency financial statements of Sino-China, Sino-Global Shipping Australia, Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada and Trans Pacific Beijing 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 sheet dates and revenues and expenses are translated at average exchange rates in effect during the year. Resulting translation adjustments are recorded as other comprehensive income (loss) and accumulated as a separate component of equity of the Company and also included in non-controlling interest.
The exchange rates as of September 30, 2014 and June 30, 2014 and for the three months ended September 30, 2014 and 2013 are as follows:
| September 30, | June 30, | Three months ended September 30, | ||||||||||||||
| 2014 | 2014 | 2014 | 2013 | |||||||||||||
| Foreign currency | BS | BS | PL | PL | ||||||||||||
| RMB:1USD | 6.1502 | 6.2043 | 6.1646 | 6.1266 | ||||||||||||
| 1AUD:USD | 1.1451 | 1.0609 | 1.0813 | 0.9154 | ||||||||||||
| 1HKD:USD | 7.7649 | 7.7503 | 7.7509 | 0.1289 | ||||||||||||
| 1CAD:USD | 1.1154 | 1.0672 | 1.0888 | 0.9625 | ||||||||||||
(e) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities 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 and the United States. As of September 30, 2014 and June 30, 2014, the Company’s uninsured bank balance was mainly maintained at financial institutions located in the PRC, totaled $1,757,201 and $262,885 respectively.
| F-7 |
(f) Accounts Receivable
Accounts receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts 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 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 365 days. Accounts are written off after exhaustive efforts at collection.
(g) Earnings per Share (“EPS”)
Basic earnings per share is computed by dividing net income attributable to holders of common shares by the weighted average number of common shares outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.
The effect of 66,000 stock options and 139,032 warrants for all periods presented were not included in the calculation of diluted EPS because they would be anti-dilutive as the exercise prices for such options and warrants were higher than the average market price for the three months ended September 30, 2014 and 2013.
(h) Risks and Uncertainties
The operations of the Company are primarily located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, 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 and legal environment and foreign currency exchange. The Company’s results may be adversely affected by exchanges 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. In addition, the Company only controls Sino-China through a series of agreements. If such agreements were cancelled, modified or otherwise not complied with, the Company may not be able to retain control of this consolidated entity and the impact could be material to the Company’s operations. Moreover, the Company’s ability to grow its business and maintain its profitability could be negatively affected by the nature and extent of services provided to its major customer, Tianjin Zhi Yuan Investment Group Co., Ltd. (“Zhiyuan Investment Group”).
| F-8 |
(i) Business Combinations
Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition.
(j) Recent Accounting Pronouncements
In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation: Topic 718. This amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In November 2014, FASB issued Accounting Standards Update No. 2014-16,Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity(a consensus of the FASB Emerging Issues Task Force). The amendments permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes. Public business entities are required to implement the new requirements in fiscal years (and interim periods within those fiscal years) beginning after December 15, 2015. All other types of entities are required to implement the new requirements in fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. The Company does not expect the adoption of ASU 2014-16 to have material impact on the Company's consolidated financial statement.
| F-9 |
3. ACQUISITION OF LONGHE SHIP MANAGEMENT COMPANY
On August 8, 2014, the Company entered into an agreement to acquire all of the equity of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) from Mr. Deming Wang to further broaden its service platform. Mr. Deming Wang is a shareholder of the Company who held approximately 3.6% of the shares of common stock of the Company at the time of the acquisition agreement. Under the terms of the acquisition agreement, the purchase price for the equity of LSM will be between 20,000 and 200,000 shares of common stock of the Company, depending on the net income of LSM from July 4, 2014 through December 31, 2014. The first payment due under the agreement was an escrow payment of 50,000 shares of common stock of the Company. On August 22, 2014, the Company issued such 50,000 shares to be held in escrow to Mr. Deming Wang, in connection with the acquisition of LSM. The purchase price is estimated using the net equity of LSM as of the closing date and it will be adjusted when the earnout payment has been finalized.
On September 8, 2014, the closing date, LSM’s total assets were $199,482, or 2.6% of the Company’s consolidated total assets; and its total liabilities were $26,655, or 2.3% of the Company’s consolidated total liabilities. The assets acquired consisted of cash of $23,289, account receivable of $47,409 and other receivable of $128,784, the liabilities consisted of accounts payable of $24,054, other accounts payable of $2,022 and accrued expenses of $579. The revenue was $47,587, or 1.8% of the Company’s consolidated total revenue reported since the closing date to September 30, 2014. LSM reported a net income of $23,178, or 7.0% of the net income attributable to Sino-Global from the closing date to September 30, 2014. No pro forma information was disclosed in the footnotes due to the immateriality of assets and liabilities acquired.
4. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable is as follows:
| September 30, 2014 | June 30, 2014 | |||||||
| Trade accounts receivable | $ | 1,402,744 | $ | 925,743 | ||||
| Less: allowances for doubtful accounts | (443,711 | ) | (443,858 | ) | ||||
| Accounts receivables, net | $ | 959,033 | $ | 481,885 | ||||
5. OTHER RECEIVABLES / OTHER CURRENT LIABILITIES
Other receivables represent mainly travel and business advances to employees; as well as guarantee deposit for ship owners. Other current liabilities represent mainly advance payments received from customers for reimbursable port agent charges to be incurred and other miscellaneous accrued liabilities.
| F-10 |
6. PREPAID EXPENSES
Prepaid expenses are as follows:
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Prepaid consultant fees (See note 8) | $ | 1,068,311 | $ | 468,000 | ||||
| Prepaid legal fees | 85,000 | 24,802 | ||||||
| Prepaid other | 57,589 | 4,727 | ||||||
| Total | 1,210,900 | 497,529 | ||||||
| Less current portion | 461,462 | 216,729 | ||||||
| Total noncurrent portion | $ | 749,438 | $ | 280,800 | ||||
7. PROPERTY AND EQUIPMENT, AT COST
Property and equipment are as follows:
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Land and building | $ | 218,860 | $ | 216,951 | ||||
| Motor vehicles | 716,609 | 710,148 | ||||||
| Computer equipment | 135,837 | 133,145 | ||||||
| Office equipment | 64,618 | 50,790 | ||||||
| Furniture and fixtures | 100,739 | 100,021 | ||||||
| System software | 129,258 | 128,178 | ||||||
| Leasehold improvement | 69,301 | 68,697 | ||||||
| Total | 1,435,222 | 1,407,930 | ||||||
| Less: Accumulated depreciation and amortization | 1,168,768 | 1,113,208 | ||||||
| Property and equipment, net | $ | 266,454 | $ | 294,722 | ||||
Depreciation and amortization expense for the three months ended September 30, 2014 and 2013 was $55,560 and $27,575, respectively.
8. EQUITY TRANSACTIONS
On June 27, 2014, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with National Securities Corporation (the “Underwriter”) relating to the registered offering of 572,000 shares of common stock, without par value per share. The price to the public in the offering was $1.76 per share. Under the terms of the Underwriting Agreement, the Company also granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 85,800 shares of common stock from the Company at the same price to cover over- allotments, if any. The Company closed the public offering on July 2, 2014 and the Underwriter purchased an additional 75,000 shares. The offering was made pursuant to our effective shelf registration statement on Form S-3 (Registration Statement No. 333-194211) declared effective by the Securities and Exchange Commission on April 15, 2014, as supplemented by an applicable prospectus supplement. The total number of shares sold in the offering was 647,000. The Company received total cash proceeds of approximately $1 million from this public offering.
The Company entered into management consulting and advisory services agreements with two consultants on June 6, 2014. In return for their services, as approved by the Company’s Board of Directors, a total of 600,000 shares of the Company’s common stock were issued to these two consultants. During June 2014, a total of 200,000 shares of the Company’s common stock were issued to the consultants as prepayment for their services. The value of their consulting services was determined using the fair value of the Company’s common stock of $2.34 per share when the shares were issued to the consultants. The remaining 400,000 shares of the Company's common stock were issued to the consultants on August 29, 2014 at $1.68 per share. Their service agreements are for the period July 1, 2014 to December 31, 2016; the related consulting fees have been and will be ratably charged to expense over the term of the agreements.
| F-11 |
On August 22, 2014, the Company issued 50,000 shares of the Company’s common stock to be held in escrow to Mr. Deming Wang, in connection with the acquisition of LSM (see Note 3, Acquisition of Longhe Ship Management Company).
9. NON-CONTROLLING INTEREST
Non-controlling interest consists of the following:
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Sino-China: | ||||||||
| Original paid-in capital | $ | 356,400 | $ | 356,400 | ||||
| Additional paid-in capital | 1,044 | 1,044 | ||||||
| Accumulated other comprehensive loss | (93,631 | ) | (64,872 | ) | ||||
| Accumulated deficit | (5,115,588 | ) | (5,006,843 | ) | ||||
| (4,851,775 | ) | (4,714,271 | ) | |||||
| Trans Pacific Logistics Shanghai Ltd. | 22,520 | 20,240 | ||||||
| Total | $ | (4,829,255 | ) | $ | (4,694,031 | ) | ||
10. COMMITMENTS
The Company leases certain office premises under operating leases through August 31, 2019. Future minimum lease payments under operating leases agreements are as follows:
| Amount | ||||
| Twelve months ending September 30, | ||||
| 2015 | $ | 155,463 | ||
| 2016 | 77,506 | |||
| 2017 | 64,122 | |||
| 2018 | 65,856 | |||
| 2019 | 67,641 | |||
| Thereafter | 5,649 | |||
| $ | 436,237 | |||
Rent expense for the three months ended September 30, 2014 and 2013 was $60,951 and $46,525, respectively.
| F-12 |
11. INCOME TAXES
Income tax expense for the three months ended September 30, 2014 and 2013 varied from the amount computed by applying the statutory income tax rate to income before taxes. A reconciliation between the expected federal income tax rate using the federal statutory tax rate of 35% to the Company’s effective tax rate is as follows:
| For the three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| % | % | |||||||
| U.S. expected federal income tax benefit | (35.0 | ) | (35.0 | ) | ||||
| U.S. state, local tax net of federal benefit | (10.9 | ) | (10.9 | ) | ||||
| U.S. permanent difference | 0.1 | 0.6 | ||||||
| U.S. temporary difference | 45.7 | 45.3 | ||||||
| Permanent difference related to other countries | 14.9 | 347.6 | ||||||
| Hong Kong statutory income tax rate | 16.5 | 16.5 | ||||||
| Hong Kong income tax benefit | (11.6 | ) | (16.5 | ) | ||||
| Total tax expense | 19.7 | 347.6 | ||||||
The U.S. temporary difference consisted mainly of unearned compensation amortization and provision for allowance for doubtful accounts.
The income tax benefit for the three months ended September 30, 2014 and 2013 are as follows:
| For the three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Current | ||||||||
| USA | $ | - | $ | - | ||||
| Hong Kong | 1,645 | - | ||||||
| China | - | - | ||||||
| 1,645 | - | |||||||
| Deferred | ||||||||
| USA | (28,900 | ) | (22,500 | ) | ||||
| China | - | - | ||||||
| (28,900 | ) | (22,500 | ) | |||||
| Total | $ | (27,255 | ) | $ | (22,500 | ) | ||
| F-13 |
Deferred tax assets are comprised of the following:
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| Allowance for doubtful accounts | $ | 224,000 | $ | 224,000 | ||||
| Stock-based compensation | 411,000 | 411,000 | ||||||
| Net operating loss | 1,293,000 | 1,004,000 | ||||||
| Total deferred tax assets | 1,928,000 | 1,639,000 | ||||||
| Valuation allowance | (1,735,200 | ) | (1,475,100 | ) | ||||
| Deferred tax assets, net - long-term | $ | 192,800 | $ | 163,900 | ||||
Operations in the USA have incurred a cumulative net operating loss of $4,159,442 as of September 30, 2014, which may be available to reduce future taxable income. This carry-forward will expire if not utilized by 2034. Deferred tax assets relating to the allowance for doubtful accounts, stock compensation expenses and net operating loss amounting to $224,000, $411,000 and $1,293,000 have been recorded respectively. 90% of the deferred tax assets balance has been provided as valuation allowance as of September 30, 2014 based on management’s estimate.
12. CONCENTRATIONS
Major Customers
For the three months ended September 30, 2014, three customers accounted for 23%, 20% and 14% of the Company’s revenues. For the three months ended September 30, 2013, two customers accounted for 57% and 21% of the Company’s revenues.
Major Suppliers
For the three months ended September 30, 2014, three suppliers accounted for 47%, 18% and 13% of the total cost of revenues. For the three months ended September 30, 2013, two suppliers accounted for 53% and 40% of the total cost of revenues.
| F-14 |
13. 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 financial statements for details on the Company's business segments.
The Company's chief operating decision maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has three operating segments: shipping agency and ship management services, shipping and chartering services, and in land transportation management services.
The following tables present summary information by segment for the three months ended September 30, 2014 and 2013, respectively:
| For the three months Ended September 30, 2014 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 1,659,291 | $ | $ | 946,634 | $ | 2,605,925 | |||||||||
| Cost of revenues | $ | 1,283,505 | $ | $ | 125,648 | $ | 1,409,153 | |||||||||
| Gross profit | $ | 375,786 | $ | $ | 820,986 | $ | 1,196,772 | |||||||||
| Depreciation and amortization | $ | 52,744 | $ | $ | 2,816 | $ | 55,560 | |||||||||
| Total capital expenditures | $ | 15,339 | $ | $ | - | $ | 15,339 | |||||||||
| Total assets | $ | 5,300,982 | $ | $ | 2,290,392 | $ | 7,591,374 | |||||||||
| For the three months Ended September 30, 2013 | ||||||||||||||||
| Shipping Agency and Ship Management Services | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 1,430,661 | $ | 1,887,000 | $ | $ | 3,317,661 | |||||||||
| Cost of revenues | $ | 1,112,803 | $ | 1,275,000 | $ | $ | 2,387,803 | |||||||||
| Gross profit | $ | 317,858 | $ | 612,000 | $ | $ | 929,858 | |||||||||
| Depreciation and amortization | $ | 27,342 | $ | 233 | $ | $ | 27,575 | |||||||||
| Total capital expenditures | $ | 3,399 | $ | - | $ | $ | 3,399 | |||||||||
| Total assets | $ | 6,024,155 | $ | 1,102,185 | $ | $ | 7,126,340 | |||||||||
14. RELATED PARTY TRANSACTIONS
In June 2013, the Company signed a 5-year global logistic service agreement with TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. and TianJin Zhi Yuan Investment Group Co., Ltd. (together “Zhiyuan”). TianJin Zhi Yuan Investment Group Co., Ltd. (“Zhiyuan Investment Group”) is owned by Mr. Zhong Zhang, the largest shareholder of the Company. During the quarter ended September 30, 2013, the Company executed a shipping and chartering services agreement with Zhiyuan Investment Group whereby it assisted in the transportation of approximately 51,000 tons of chromite ore from South Africa to China. In September 2013, the Company executed an inland transportation management service contract with Zhiyuan Investment Group whereby it would provide certain advisory services and help control its potential commodities loss during the transportation process. In addition, the Company executed a one-year short-term loan agreement with the Zhiyuan Investment Group, effective January 1, 2014, to facilitate the working capital needs of the Zhiyuan Investment Group on an as-needed basis. As at June 30, 2014, the net amount due from the Zhiyuan Investment Group was $2,920,950. In September 2014, the Company collected approximately $2.7 million from the Zhiyuan Investment Group, representing full repayment of the short-term loan and payment of approximately $1.6 million of outstanding trade receivable. During the three months ended September 30, 2014, the Company continued to provide inland transportation management services to the Zhiyuan Investment Group. The net amount due from the Zhiyuan Investment Group at September 30, 2014 was $627,951. In October 2014, the Company collected approximately $384,000 from the Zhiyuan Investment Group to reduce the outstanding trade receivable.
As at September 30, 2014 and June 30, 2014, the Company is owed $252,339 and $252,815, respectively, from Sino-G Trading Inc. (“Sino-G”), an entity that is owned by the brother-in-law of the Company’s CEO. Sino-G used to act as a funds transfer agent for the Company’s services in Tianjin, PRC. In accordance with a repayment agreement between the Company and Sino-G, the amount is expected to be repaid during fiscal year 2015.
| F-15 |
To the Board of Directors and Shareholders
Sino-Global Shipping America, Ltd.
We have audited the accompanying consolidated balance sheets of Sino-Global Shipping America, Ltd. and AffiliateAffiliates (the “Company”) as of June 30, 20072014 and 2006,2013, and the related consolidated related statements of operations and comprehensive income (loss), changes in equity, and cash flows and shareholders' equity for each of the two years then ended. Sino-Global Shipping America, Ltd.'sin the period ended June 30, 2014. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The companyCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sino-Global Shipping America, Ltd. and Affiliatethe Company as of June 30, 20072014 and 2006,2013, and the consolidated results of their operations and their cash flows for each of the two years thenin the period ended June 30, 2014 in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
New York, New York
September 15, 2014
June 30, | December 31, | ||||||||||||
Note | 2007 | 2006 | 2007 | ||||||||||
$ | $ | $ | |||||||||||
(Unaudited) | |||||||||||||
Assets | |||||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | 526,091 | 356,026 | 981,242 | ||||||||||
| Advances to suppliers | 3 | 586,641 | 278,957 | 176,271 | |||||||||
| Accounts receivable | 739,943 | 130,004 | 823,903 | ||||||||||
| Other receivables | 9 | 169,970 | 134,751 | 542,445 | |||||||||
| Prepaid expenses and other current assets | 4 | 12,976 | 9,913 | 13,510 | |||||||||
| Due from related party | 5 | 1,249,722 | 681,126 | - | |||||||||
Total current assets | 3,285,343 | 1,590,777 | 2,537,371 | ||||||||||
| Cash-Escrow | 5 | - | - | 1,250,000 | |||||||||
| Property and equipment, net | 6 | 467,218 | 214,896 | 591,438 | |||||||||
Total Assets | 3,752,561 | 1,805,673 | 4,378,809 | ||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||
| Current liabilities | |||||||||||||
| Loans payable, bank | 7 | 45,791 | 100,000 | - | |||||||||
| Advances from customers | 3 | 717,007 | 494,202 | 381,749 | |||||||||
| Accounts payable | 861,562 | 212,168 | 1,100,666 | ||||||||||
| Accrued expenses | 8 | 59,490 | 35,313 | 56,654 | |||||||||
| Income taxes payable | 11,987 | 684 | 30,307 | ||||||||||
| Other current liabilities | 9 | 92,911 | 414,981 | 282,008 | |||||||||
Total Liabilities | 1,788,748 | 1,257,348 | 1,851,384 | ||||||||||
| Non-controlling interest | 12 | 308,610 | (66,362 | ) | 313,683 | ||||||||
| Mandatorily redeemable stock | 11 | - | - | 1,250,000 | |||||||||
| Commitments and contingencies | 10 | - | - | - | |||||||||
Shareholders’ equity | |||||||||||||
| Capital stock | 11 | 1,880 | 1,880 | 1,625 | |||||||||
| Retained earnings | 1,653,323 | 612,807 | 962,117 | ||||||||||
| 1,655,203 | 614,687 | 963,742 | |||||||||||
Total Liabilities and Shareholders’ Equity | 3,752,561 | 1,805,673 | 4,378,809 | ||||||||||
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
| June 30, | ||||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 902,531 | $ | 3,048,831 | ||||
| Advances to suppliers | 8,482 | 231,772 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $443,858 and $690,065 as of June 30, 2014 and 2013, respectively | 481,885 | 3,142,203 | ||||||
| Other receivables, less allowance for doubtful accounts of $250,100 and $233,950 as of June 30, 2014 and June 30,2013, respectively | 174,406 | 142,206 | ||||||
| Deferred expense and other current assets | 497,529 | 12,488 | ||||||
| Prepaid taxes | - | 26,288 | ||||||
| Due from related parties | 3,173,765 | 541,377 | ||||||
| Total Current Assets | 5,238,598 | 7,145,165 | ||||||
| Property and equipment, net | 294,722 | 267,662 | ||||||
| Other long-term assets | 16,734 | 18,278 | ||||||
| Deferred tax assets | 163,900 | 105,100 | ||||||
| Total Assets | $ | 5,713,954 | $ | 7,536,205 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities | ||||||||
| Advances from customers | $ | 88,477 | $ | 710,172 | ||||
| Accounts payable | 398,756 | 3,219,240 | ||||||
| Accrued expenses | 177,877 | 51,352 | ||||||
| Other current liabilities | 565,685 | 424,141 | ||||||
| Total Current Liabilities | 1,230,795 | 4,404,905 | ||||||
| Total Liabilities | 1,230,795 | 4,404,905 | ||||||
| Commitments and Contingency | ||||||||
| Equity | ||||||||
| Preferred stock, 2,000,000 shares authorized, no par value, none issued. | - | - | ||||||
| Common stock, 50,000,000 shares authorized, no par value; 5,229,032 and 4,829,032 shares issued as of June 30, 2014 and 2013; 5,103,841 and 4,703,841 outstanding as of June 30, 2014 and 2013 | 11,662,157 | 10,750,157 | ||||||
| Additional paid-in capital | 1,144,842 | 1,144,842 | ||||||
| Treasury stock, at cost - 125,191 shares | (372,527 | ) | (372,527 | ) | ||||
| Accumulated deficit | (3,270,260 | ) | (4,856,613 | ) | ||||
| Accumulated other comprehensive income | 24,618 | 54,791 | ||||||
| Unearned Stock-based Compensation | (11,640 | ) | (15,520 | ) | ||||
| Total Sino-Global Shipping America Ltd. Stockholders' equity | 9,177,190 | 6,705,130 | ||||||
| Non-controlling Interest | (4,694,031 | ) | (3,573,830 | ) | ||||
| Total Equity | 4,483,159 | 3,131,300 | ||||||
| Total Liabilities and Equity | $ | 5,713,954 | $ | 7,536,205 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
For the years ended June 30, | For the six months ended December 31, | |||||||||||||||
Note | 2007 | 2006 | 2007 | 2006 | ||||||||||||
$ | $ | $ | $ | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenues | 10,090,879 | 8,924,786 | 8,144,189 | 5,044,732 | ||||||||||||
Costs and expenses | ||||||||||||||||
| Costs of services | (7,509,669 | ) | (6,391,123 | ) | (6,534,171 | ) | (3,719,890 | ) | ||||||||
| General and administrative expense | (1,165,332 | ) | (1,714,617 | ) | (908,511 | ) | (554,668 | ) | ||||||||
| Selling expense | (153,797 | ) | (192,825 | ) | (94,242 | ) | (74,728 | ) | ||||||||
| Other operating costs | (1,163 | ) | (10,110 | ) | (522 | ) | (759 | ) | ||||||||
| (8,829,961 | ) | (8,308,675 | ) | (7,537,446 | ) | (4,350,045 | ) | |||||||||
Operating Income | 1,260,918 | 616,111 | 606,743 | 694,687 | ||||||||||||
| Loss on disposal of investment | 13 | - | (2,491 | ) | - | - | ||||||||||
| Other income (expense), net | 14 | 22,125 | (35,912 | ) | 42,574 | (33,123 | ) | |||||||||
| 22,125 | (38,403 | ) | 42,574 | (33,123 | ) | |||||||||||
Net income before taxes | 1,283,043 | 577,708 | 649,317 | 661,564 | ||||||||||||
| Income taxes | 15 | (138,291 | ) | (21,227 | ) | (30,741 | ) | (63,134 | ) | |||||||
| Net Income from continuing operations before non-controlling interest in income | 1,144,752 | 556,481 | 618,576 | 598,430 | ||||||||||||
| Non-controlling interest in income | (104,237 | ) | (26,643 | ) | (60,037 | ) | (55,400 | ) | ||||||||
Net income | 1,040,516 | 529,838 | 558,539 | 543,030 | ||||||||||||
Earnings per share | ||||||||||||||||
| -Basic | 0.58 | 0.29 | 0.31 | 0.30 | ||||||||||||
| -Diluted | 0.58 | 0.29 | 0.31 | 0.30 | ||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||
| -Basic | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | ||||||||||||
| -Diluted | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | ||||||||||||
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the years ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| Net revenues | $ | 11,644,392 | $ | 17,331,759 | ||||
| Cost of revenues | (7,613,459 | ) | (15,402,743 | ) | ||||
| Gross profit | 4,030,933 | 1,929,016 | ||||||
| General and administrative expenses | (3,470,669 | ) | (3,878,569 | ) | ||||
| Selling expenses | (260,134 | ) | (253,987 | ) | ||||
| (3,730,803 | ) | (4,132,556 | ) | |||||
| Operating income (loss) | 300,130 | (2,203,540 | ) | |||||
| Financial expense, net | (50,170 | ) | (15,520 | ) | ||||
| Other income, net | 264,349 | 52,253 | ||||||
| 214,179 | 36,733 | |||||||
| Net income (loss) before provision for income taxes | 514,309 | (2,166,807 | ) | |||||
| Income tax expense | (79,823 | ) | (410,089 | ) | ||||
| Net income (loss) | 434,486 | (2,576,896 | ) | |||||
| Net loss attributable to non-controlling interest | (1,151,867 | ) | (777,141 | ) | ||||
| Net income (loss) attributable to Sino-Global Shipping America, Ltd. | $ | 1,586,353 | $ | (1,799,755 | ) | |||
| Comprehensive income (loss) | ||||||||
| Net income (loss) | $ | 434,486 | $ | (2,576,896 | ) | |||
| Foreign currency translation gain (loss) | 1,493 | (15,934 | ) | |||||
| Comprehensive income (loss) | 435,979 | (2,592,830 | ) | |||||
| Less: Comprehensive loss attributable to non-controlling interest | (1,120,201 | ) | (831,157 | ) | ||||
| Comprehensive income (loss) attributable to Sino-Global Shipping America Ltd. | $ | 1,556,180 | $ | (1,761,673 | ) | |||
| Earnings (loss) per share | ||||||||
| -Basic and diluted | $ | 0.34 | $ | (0.38 | ) | |||
| Weighted average number of common shares used in computation | ||||||||
| -Basic and diluted | 4,721,923 | 4,703,841 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
For the years ended June 30, | For the six months ended December 31, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Operating Activities | |||||||||||||
| Net income | 1,040,516 | 529,838 | 558,539 | 543,030 | |||||||||
Adjustment to reconcile net income to net cash provided by operating activities | |||||||||||||
| Depreciation | 90,602 | 31,644 | 73,482 | 35,016 | |||||||||
| Non-controlling interest in income | 104,237 | 26,643 | 60,037 | 55,400 | |||||||||
| Changes in assets and liabilities | |||||||||||||
| Decrease (increase) in advances to supplier | (307,684 | ) | (118,371 | ) | 410,370 | 192,802 | |||||||
| Decrease (increase) in accounts receivable | (609,939 | ) | 573 | (83,960 | ) | (224,196 | ) | ||||||
| Decrease (increase) in other receivables | (35,219 | ) | (95,078 | ) | (372,475 | ) | 29,836 | ||||||
| Decrease (increase) in prepaid expenses and other current assets | (3,063 | ) | 4,490 | (534 | ) | (5,453 | ) | ||||||
| Increase (decrease) in advances from customers | 222,805 | 219,158 | (335,258 | ) | 309,062 | ||||||||
| Increase in accounts payable | 649,394 | 59,556 | 239,104 | 214,393 | |||||||||
| Increase (decrease) in accrued expenses | 24,177 | 17,389 | (2,836 | ) | 4,442 | ||||||||
| Increase (decrease) in income taxes payable | 11,303 | (213 | ) | 18,320 | 59,821 | ||||||||
| (Decrease) increase in other current liabilities | (322,070 | ) | 43,458 | 189,097 | (329,637 | ) | |||||||
Net cash provided by operating activities | 865,059 | 719,087 | 753,886 | 884,516 | |||||||||
Investing Activities | |||||||||||||
| Capital expenditures and other additions | (342,924 | ) | (151,829 | ) | (197,702 | ) | (257,224 | ) | |||||
| Due from related party | (568,596 | ) | (498,126 | ) | 1,249,722 | (431,973 | ) | ||||||
| Cash escrow | - | - | (1,250,000 | ) | - | ||||||||
Net cash used in investing activities | (911,520 | ) | (649,955 | ) | (197,980 | ) | (689,197 | ) | |||||
Financing Activities | |||||||||||||
| Loans payable, bank | (54,209 | ) | - | (45,791 | ) | - | |||||||
| Capital Contribution of non-controlling interest | 226,928 | - | - | 226,928 | |||||||||
Net cash provided by (used in) financing activities | 172,719 | - | (45,791 | ) | 226,928 | ||||||||
| Effect of exchange rate change in cash | 43,807 | 1,314 | (54,964 | ) | 12,916 | ||||||||
Net increase in cash and cash equivalents | 170,065 | 70,446 | 455,151 | 435,163 | |||||||||
| Cash and cash equivalents at beginning of period | 356,026 | 285,580 | 526,091 | 356,026 | |||||||||
| Cash and cash equivalents at end of period | 526,091 | 356,026 | 981,242 | 791,189 | |||||||||
Supplemental cash flows disclosure | |||||||||||||
| Interest paid | 10,019 | 6,579 | 543 | 6,277 | |||||||||
| Income taxes paid | 134,870 | 24,562 | 34,366 | 12,858 | |||||||||
SINO-GLOBAL SHIPPING AMERICA LTD. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the years ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| Operating Activities | ||||||||
| Net income (loss) | $ | 434,486 | $ | (2,576,896 | ) | |||
| Adjustment to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Amortization of stock option expense | 3,880 | 139,615 | ||||||
| Depreciation and amortization | 155,657 | 198,825 | ||||||
| (Recovery of) provision for doubtful accounts | (246,206 | ) | 518,835 | |||||
| Deferred tax (benefit) expense | (50,445 | ) | 413,900 | |||||
| Gain on disposition of property and equipment | (385 | ) | (3,448 | ) | ||||
| Changes in assets and liabilities | ||||||||
| Decrease in advances to suppliers | 223,290 | 128,505 | ||||||
| Decrease in accounts receivable | 201,155 | 127,928 | ||||||
| Decrease in other receivables | 16,154 | 235,629 | ||||||
| (Increase) decrease in other current assets | (17,041 | ) | 74,984 | |||||
| Decrease in prepaid taxes | 26,288 | 1,068 | ||||||
| Decrease in other long-term assets | 1,544 | 6,964 | ||||||
| Increase in due from related parties | (1,473,752 | ) | - | |||||
| (Decrease) increase in advances from customers | (506,066 | ) | 406,735 | |||||
| Decrease in accounts payable | (230,745 | ) | (4,247,905 | ) | ||||
| Increase (decrease) in accrued expenses | 126,525 | (40,865 | ) | |||||
| Increase in other current liabilities | 93,190 | 254,513 | ||||||
| Net cash used in operating activities | (1,242,471 | ) | (4,361,613 | ) | ||||
| Investing Activities | ||||||||
| Acquisitions of property and equipment | (203,252 | ) | (67,116 | ) | ||||
| Proceeds from sale of fixed assets | 854 | 16,185 | ||||||
| Loan to related party | (1,158,636 | ) | - | |||||
| Net cash used in investing activities | (1,361,034 | ) | (50,931 | ) | ||||
| Financing Activities | ||||||||
| Proceeds from issuance of common stock | 444,000 | 3,040,412 | ||||||
| Decrease in non-controlling interest in majority-owned subsidiary | - | (13,876 | ) | |||||
| Net cash provided by financing activities | 444,000 | 3,026,536 | ||||||
| Effect of exchange rate fluctuations on cash and cash equivalents | 13,205 | 1,506 | ||||||
| Net decrease in cash and cash equivalents | (2,146,300 | ) | (1,384,502 | ) | ||||
| Cash and cash equivalents at beginning of year | 3,048,831 | 4,433,333 | ||||||
| Cash and cash equivalents at end of year | $ | 902,531 | $ | 3,048,831 | ||||
| Supplemental information: | ||||||||
| Income taxes paid | $ | 24,841 | $ | 26,400 | ||||
| Non-cash transactions of operating activities: | ||||||||
| Settlement of related accounts receivable and payable | $ | 2,589,739 | $ | - | ||||
| Common stock issued for unearned stock-based compensation | $ | 468,000 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Common stock | Retained earnings | Total | ||||||||
$ | $ | $ | ||||||||
| Balance as of July 1, 2005 | 1,880 | 82,969 | 84,849 | |||||||
| Shares issued, net: | ||||||||||
| Net income | - | 529,838 | 529,838 | |||||||
| Balance as of June 30, 2006 | 1,880 | 612,807 | 614,687 | |||||||
| Shares issued, net: | ||||||||||
| Net income | - | 1,040,516 | 1,040,516 | |||||||
| Balance as of June 30, 2007 | 1,880 | 1,653,323 | 1,655,203 | |||||||
| Shares issued, net: | ||||||||||
| Net income | 558,539 | 558,539 | ||||||||
| Mandatorily redeemable stock accrual | (255 | ) | (1,249,745 | ) | (1,250,000 | ) | ||||
| Balance as of December 31, 2007 (Unaudited) | 1,625 | 962,117 | 963,742 | |||||||
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Common stock | Additional paid-in capital | Treasury stock | Accumulated deficit | Accumulated other comprehensive income | Unearned stock-based compensation | Total stockholders' Equity | Non-controlling interest | Total Equity | ||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2012 | 3,029,032 | 7,709,745 | 1,191,796 | (372,527 | ) | (3,056,858 | ) | 16,709 | (202,089 | ) | 5,286,776 | (2,742,673 | ) | 2,544,103 | ||||||||||||||||||||||||||
| Issuance of common stock | 1,800,000 | 3,040,412 | 3,040,412 | 3,040,412 | ||||||||||||||||||||||||||||||||||||
| Stock options forfeited | (46,954 | ) | 46,954 | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of stock options | 139,615 | 139,615 | 139,615 | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | 38,082 | 38,082 | (54,016 | ) | (15,934 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | (1,799,755 | ) | (1,799,755 | ) | (777,141 | ) | (2,576,896 | ) | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2013 | 4,829,032 | $ | 10,750,157 | $ | 1,144,842 | $ | (372,527 | ) | $ | (4,856,613 | ) | $ | 54,791 | $ | (15,520 | ) | $ | 6,705,130 | $ | (3,573,830 | ) | $ | 3,131,300 | |||||||||||||||||
| Issuance of common stock | 400,000 | 912,000 | 912,000 | 912,000 | ||||||||||||||||||||||||||||||||||||
| Amortization of stock options | 3,880 | 3,880 | 3,880 | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | (30,173 | ) | (30,173 | ) | 31,666 | 1,493 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | 1,586,353 | 1,586,353 | (1,151,867 | ) | 434,486 | |||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2014 | 5,229,032 | $ | 11,662,157 | $ | 1,144,842 | $ | (372,527 | ) | $ | (3,270,260 | ) | $ | 24,618 | $ | (11,640 | ) | $ | 9,177,190 | $ | (4,694,031 | ) | $ | 4,483,159 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-20 |
SINO-GLOBAL SHIPPING AMERICA, LTD. AND AFFILIATE
1. BACKGROUND INFORMATION OF ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States of America (“US”) in New York on February 2, 2001.
Sino-Global’s principal geographic market is in the People’s Republic of China (“PRC”). The Company conducts its business primarily through its wholly-owned subsidiaries in China, Hong Kong, Australia, Canada and New York. The Company’s subsidiary in China, Trans Pacific Shipping Limited (“Trans Pacific Beijing”), a wholly owned foreign enterprise, invested in one 90%-owned subsidiary, Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”. Trans Pacific Beijing and Trans Pacific Shanghai are referred to collectively as “Trans Pacific”).
As PRC laws and regulations prohibit or restrict foreign ownership of shipping agency service businesses, the Company provides its shipping agency services in the PRC through Sino-Global Shipping Agency Ltd. (“Sino-China”), a Chinese legal entity, which holds the licenses and permits necessary to operate shipping services in the PRC. Sino-China is locatedheadquartered in Beijing and haswith branches in Ningbo, Qingdao, Tianjin, QinhuangdaoXiamen and Fangchenggang. Sino-China holds four local shipping service licenses in China to serve as a local shipping agent in Ningbo, Qingdao, Tianjin, and Fangchenggang. Sino-China has applied for a local shipping agent license in Qinhuangdao. The Company provides general shipping agency services in 76 ports in China.
During fiscal year 2014, the Company completed a number of cost reduction initiatives and reorganized its shipping agency business in the PRC. As a result of the business reorganization to improve its operating margin, the Company does not provide shipping agency services through Sino-China as of June 30, 2014. The Company’s shipping agency business is operated by its subsidiaries in Hong Kong and Australia. As a varietygeneral shipping agent, the Company serves ships coming to and departing from a number of contractual agreements.countries, including China, Australia, South Africa, Brazil, New Zealand and Canada. The shipping and chartering services are operated by the Company’s HK subsidiary; the inland transportation management services are operated by Trans Pacific Beijing.
| F-21 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Certain prior year balances were reclassified to conform to the current year presentation. These reclassifications have no material impact on the previously reported financial position, results of operations or cash flows.
(b) Basis of Consolidation
The agency relationship betweenconsolidated financial statements include the accounts of the Company, and Sino-Chinaits subsidiaries, and its branches is governed by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China.
As a VIE, Sino-China’s salesrevenues are included in the Company’s total sales,revenues, and its income (loss) from operations is consolidated with the Company’s, and the Company’s net income from continuing operations before non-controlling interest in income includes all of Sino-China’s net income. The Company’s non-controlling interest in its income is then subtracted in calculating the net income attributable to the Company.Company’s. Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of the Company’s and Sino-China’s financial statements.
The Company has consolidated Sino-China’s incomeoperating results because the entities are under common control in accordance with SFAS 141,ASC 805-10, “Business Combinations”. For this reason,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 included 90%substantial control over Sino-China. Management makes ongoing reassessments of Sino-China’s net incomewhether the Company is the primary beneficiary of Sino-China. .
The carrying amount and classification of Sino-China's assets and liabilities included in the Company’s net incomeConsolidated Balance Sheets are as discussed above as though the 2007 agreements were in effect from the inception of Sino-China, and only the 10% of Sino-China’s net income not paid to the Company represents the non-controlling interest in Sino-China’s income.follows:
| June 30, | June 30, | |||||||
| 2014 | 2013 | |||||||
| Total current assets | $ | 173,273 | $ | 145,307 | ||||
| Total assets | 419,048 | 326,480 | ||||||
| Total current liabilities | 312,521 | 324,334 | ||||||
| Total liabilities | 312,521 | 324,334 | ||||||
| F-22 |
(c) Fair Value of Financial Instruments
We follow 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 amounts reported in the consolidated financial statements forvalue of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair value due tovalues because of the short-term nature of these financial instruments.
(d) Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, fair value of stock options, 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, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
(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 US dollars (“$”USD”) while Sino-China reports its financial position and results of operations in Renminbi (“RMB”). The accompanying consolidated financial statements are presented in US dollars. Foreign currency transactions are translated into US dollars 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 consolidated statements of operations. The Company translates foreign currency financial statements of Sino-China, Sino-Global Shipping Australia, Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada and Trans Pacific Beijing in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 52,ASC 830-10, “Foreign Currency Translation”Matters”. Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheet dates and revenues and expenses are translated at average exchange rates in effect during the periods.year. Resulting translation adjustments are recorded as other comprehensive income (loss) and accumulated as a separate component of equity of the Company and also included in Non-controllingnon-controlling interest.
| F-23 |
The exchange rates for the years ended June 30, 2014 and June 30, 2013 are as follows:
| June 30, | ||||||||||||||||
| 2014 | 2013 | |||||||||||||||
| Foreign currency | Balance Sheet | Profits/Loss | Balance Sheet | Profits/Loss | ||||||||||||
| RMB:1USD | 6.2043 | 6.1374 | 6.1787 | 6.2458 | ||||||||||||
| 1AUD:USD | 1.0609 | 1.0898 | 0.9143 | 1.0266 | ||||||||||||
| 1HKD:USD | 7.7503 | 7.7552 | 0.1289 | 0.1289 | ||||||||||||
| 1CAD:USD | 1.0672 | 1.0704 | 0.9506 | 0.9956 | ||||||||||||
(f) Cash and Cash Equivalents
Cash and cash equivalents compriseconsist of cash on hand, and other highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities 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 and the United States. Balances inCash balances of $262,885 are not insured by the United StatesFederal Deposit Insurance Corporation or other programs.
(g) Accounts Receivable
Accounts receivable are insured uppresented at net realizable value. The Company maintains allowances for doubtful accounts 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 $100,000the collectability of individual 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 365 days. Accounts are written off after exhaustive efforts at each bank.
(h) Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and amortization.depreciation. Historical cost comprises its purchase price and any directly attributable costs of bringing the assets 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 | |
| 5-10 years | ||
| Furniture and office equipment | 3-5 years |
The carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such asset is less than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market 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 there were no impairments at the balance sheet dates.
| F-24 |
(i) Revenue recognition
· | Revenues from shipping 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 shipping and chartering services are recognized upon performance of services as stipulated in the underlying contract. |
| · | Revenues from inland transportation management services are recognized when commodities are being released from the customer’s warehouse. |
(j) Taxation
Because the Company reportsand its revenue on the gross amounts billed to customers based on several criteria: (1) the Company assumes all credit risk for the amounts billed to customers, (2) the Company has multiple suppliers for services ordered by customers and discretion to select the supplier that provides the services, and (3) the Company determines the nature, type or specifications of the services ordered by customers and the Company is responsible for fulfilling these services.
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 tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification,Company recognizes interest and penalties, onif any, related to unrecognized tax benefits as income taxes, accounting in interim periodstax expense. The Company had no uncertain tax positions as of June 30, 2014 and requires increased disclosures.
Income tax returns for the years prior to 2011 are no longer subject to examination by US tax authorities.
PRC Enterprise Income Tax
PRC domestic companiesenterprise income tax is calculated based on taxable income determined under PRC GAAP at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC and profits are generally subject to an enterprise income tax rate of 33%. Sino-China’s income tax is accrued at the end of every quarter based on taxes payable for the current period and paid in the following month.
PRC Business Tax and Surcharges
Revenues from services provided by Sino-China and its branchesTrans Pacific are subject to the PRC business tax of 5% and some surcharges.. Business tax and surcharges are paid on gross revenues generated from our shipping services.
In addition, under the PRC regulations, Sino-China is required to pay the city construction tax (7%) and education surcharges (3%) based on the calculated business tax payments.
Sino-China has complied with EITF 06-3 and reports its revenues net of PRC’s business tax and surcharges for all the periods presented in the consolidated statements of operations.
| F-25 |
(k) Earnings (Loss) per share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common shares by the weighted average number of common shares outstanding during the period.years. Diluted earnings (loss) per share reflectsreflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. Convertible, redeemable preference shares are included in the computation of diluted earnings per share on an “if-converted” basis, when the impact is dilutive. Contingent exercise price resets are accounted for in a manner similar to contingently issuable shares. Common share equivalents are excluded from the computation of diluted earnings (loss) per share if their effects would be anti-dilutive.
The effect of 66,000 stock options and 139,032 warrants for all periods presented were not included in the calculation of diluted EPS because they would be anti-dilutive as the exercise prices for such options and warrants were at least equal to reflect the recapitalizationclosing price of our common stock on June 30, 2014.
(l) Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with the FASB issued authoritative guidance which establishes standards for reporting comprehensive income (loss) and its component in financial statements. Comprehensive income (loss), as defined, includes all changes in equity during a period from non-owner sources.
(m) Stock-based Compensation
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.
(n) Risks and Uncertainties
The operations of the Company further discussedare primarily located in Note 11.the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, 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 and legal environment and foreign currency exchange. The Company’s results may be adversely affected by exchanges 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. In addition, the Company only controls Sino-China through a series of agreements. If such agreements were cancelled, modified or otherwise not complied with, the Company may not be able to retain control of this consolidated entity and the impact could be material to the Company’s operations.
| F-26 |
(o) Recent Accounting Pronouncements
In March 2008,April 2014, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued SFAS 161, “Disclosures about Derivative InstrumentsASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and Hedging Activities,most industry-specific guidance. The core principle of the guidance is that an amendmententity should recognize revenue to illustrate the transfer of FASB 133, Accountingpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for Derivative Instruments and Hedging Activities.” This statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparencythose goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial reporting. The Statementstatements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for financial statementsthe Company for fiscal years, and interim periods within those years beginning after NovemberDecember 15, 20082016. Management is evaluating the effect, if any, on the Company’s financial position and results of operations.
In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation: Topic 718. This amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company does not expected toexpect the adoption of this guidance will have ana significant impact on the Company’s consolidated financial statements.
3. ACCOUNTS RECEIVABLE / ACCOUNTS PAYABLE
In July and December 2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”, which is effective for annual periods beginning after December 15, 2008. Early adoption is prohibited, and, accordingly,2013, the Company has not yet adopted SFAS 160. The objectiveexecuted a total of this Statement isfour agreements (the “settlement agreements”) with a major customer to improvesettle the relevance, comparability,related accounts receivable and transparency ofpayable that were associated with the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards forCompany’s shipping agency business. In connection with the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company is currently assessing the impact of SFAS 160;settlement agreements, the Company believes the adoption of this standard will have a material effect on its consolidated shareholders’ equity. The Company’s shareholders’ equity will increase byreduce the amount of receivable from this major customer based on payments made by such customer directly to the non-controlling interest currentlyrespective local shipping agents. For the year ended June 30, 2014, such customer made a total payment of $2,589,739 to the respective local shipping agents; and the Company reduced its reported outside of equity. However,accounts receivable and payable accordingly.
| F-27 |
4. PROPERTY AND EQUIPMENT, AT COST.
Property and equipment are as follows:
| June 30, | June 30, | |||||||
| 2014 | 2013 | |||||||
| Land and building | $ | 216,951 | $ | 80,461 | ||||
| Motor vehicles | 710,148 | 731,372 | ||||||
| Computer equipment | 133,145 | 122,002 | ||||||
| Office equipment | 50,790 | 46,319 | ||||||
| Furniture and fixtures | 100,021 | 52,687 | ||||||
| System software | 128,178 | 123,391 | ||||||
| Leasehold improvement | 68,697 | 68,981 | ||||||
| Total | 1,407,930 | 1,225,213 | ||||||
| Less: Accumulated depreciation and amortization | 1,113,208 | 957,551 | ||||||
| Property and equipment, net | $ | 294,722 | $ | 267,662 | ||||
5. STOCK-BASED COMPENSATION
On January 31, 2013, the adoption of SFAS 160 is not expectedCompany issued options to have a material impact on the Company’s net income.
A summary of the options is presented in the table below:
| June 30, 2014 | June 30, 2013 | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Options outstanding, beginning of year | 102,000 | $ | 6.90 | 138,000 | $ | 7.43 | ||||||||||
| Granted | - | - | 10,000 | 2.01 | ||||||||||||
| Canceled, forfeited or expired | (36,000 | ) | $ | 7.75 | (46,000 | ) | 7.43 | |||||||||
| Options outstanding, end of year | 66,000 | $ | 6.88 | 102,000 | $ | 6.90 | ||||||||||
| Options exercisable, end of year | 58,000 | $ | 7.55 | 92,000 | $ | 7.75 | ||||||||||
Following is a summary of the status of options outstanding and exercisable at June 30, 2014:
| Outstanding Options | Exercisable Options | |||||||||||||||||
| Exercise Price | Number | Average Remaining Contractual Life | Average Exercise Price | Number | Average Remaining Contractual Life | |||||||||||||
| $ | 7.75 | 56,000 | 4.0 years | $ | 7.75 | 56,000 | 4.0 years | |||||||||||
| $ | 2.01 | 10,000 | 3.6 years | $ | 2.01 | 2,000 | 3.6 years | |||||||||||
| 66,000 | 58,000 | |||||||||||||||||
| F-28 |
The issuance of the Options is exempted from registration under the Securities Act of 1933, as amended (the “Act”). The Options will vest at a rate of 20% per year, with 20% vesting initially when granted. The Common Stock underlying the Options granted may be sold in compliance with Rule 144 under the Act. The term of the Options is 10 years and the exercise price of the 2013 options is $2.01 (10,000 options). Each Option may be exercised to purchase one share of 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 its earnings. It also requires entities to display the date of exercise.
The fair value of those assets and liabilities for whichshare-based compensation was estimated using the Company has chosen to useBlack-Scholes option pricing model. The aggregate fair value on the face of the balance sheet. SFAS No. 159$11,640 and $15,520 at June 30, 2014 and 2013, respectively, is effectivepresented as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement 157.“Unearned Stock-based Compensation”. The Company did not early adopt SFAS No. 159. The Company is currently assessingamortized stock option expenses of $3,880 and $139,615 for the impact of SFAS No. 159; however, the Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
The fair value establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. SFAS No. 157 will become effective for the Companyof 10,000 stock options granted in fiscal 2009. The Company is currently assessing the impact of SFAS No. 157; however, the Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
June 30, | December 31, | |||||||||
2007 | 2006 | 2007 | ||||||||
$ | $ | $ | ||||||||
(Unaudited) | ||||||||||
| Rent | 6,653 | 5,024 | 12,181 | |||||||
| Communication | 2,298 | 1,459 | - | |||||||
| Other prepaid expenses | 4,025 | 3,430 | 1,329 | |||||||
| 12,976 | 9,913 | 13,510 | ||||||||
| Black-Scholes Option Pricing Model for 2008 options | ||||
| Assumptions: | ||||
| Stock Price | $ | 7.75 | ||
| Strike Price | $ | 7.75 | ||
| Volatility | 173.84 | % | ||
| Risk-free Rate | 3.02 | % | ||
| Expected life | 5 yrs | |||
| Dividend Yield | 0.00 | % | ||
| Number of Options | 66,000 | |||
| Black-Scholes Option Pricing Model for 2013 options | ||||
| Assumptions: | ||||
| Stock Price | $ | 1.94 | ||
| Strike Price | $ | 2.01 | ||
| Volatility | 452.04 | % | ||
| Risk-free Rate | 0.88 | % | ||
| Expected life | 5 yrs | |||
| Dividend Yield | 0.00 | % | ||
| Number of Options | 10,000 | |||
In connection with the Private Sale, the investors were granted a right to sell the acquired shares of common stock to the Company in the event that such shares are not registered in accordance with federal and applicable state securities laws within 12 months of the Private Sale. During the term of this put right, the Company agreed to place $1,250,000 in an escrow account. To the extent that the Company completes the registration of the shares within 12 months of the Private Sale, the escrow agent will release the funds to the Company’s account upon closing of the initial public offering of the Company’s common stock. In the event that the Company does not register the shares within such time period, the escrow agent will pay the fundsstock on May 20, 2008, 139,032 warrants were issued to the investors in order to causeunderwriter as part of their compensation. Each warrant has the Companyright to purchase one share of common stock for an exercise price of $9.30 per share with a term of 10 years.
Following is a summary of the status of warrants outstanding and exercisable at June 30, 2014:
| Warrants Outstanding | Warrants Exercisable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||
| 139,032 | 139,032 | $ | 9.30 | 4.0 years | ||||
| F-29 |
6. EQUITY TRANSACTIONS
On April 19, 2013, the Company’s shareholders at the 2013 Annual Meeting of Shareholders voted and approved the issuance of 1,800,000 shares at price $1.71 per share to Mr. Zhang, a 90% shareholder in Tianjin Zhiyuan Investment Group Ltd.
At the 2014 Annual Meeting of Shareholders held on January 21, 2014, the Company’s shareholders voted to increase the number of authorized shares of common stock heldfrom 10 million to 50 million shares and the number of authorized shares of Preferred Stock from 1 million to 2 million shares. The Company filed its First Amended and Restated Articles of Incorporation with the Commonwealth of Virginia State Corporation Commission on February 10, 2014.
To strengthen the Company’s efforts in business reorganization, development and acquisitions as well as enterprise risk management and process flow enhancements, the Company entered into management consulting and advisory services agreements with two consultants on June 6, 2014. In return for their services, a total of 600,000 shares of the Company’s common stock have been issued to these two consultants. During June 2014, a total of 200,000 shares of the Company’s common stock were issued to the consultants as prepayment for their services. The value of their consulting services is determined using the fair value of the Company’s common stock of $2.34 per share when the shares were issued to the consultants. The remaining 400,000 shares of the Company's common stock were issued to the consultants on August 29, 2014. The service agreements are for the period July 1, 2014 to December 31, 2016.
On June 23, 2014, the Company sold 200,000 shares of its common stock at a price per share at $2.22 to Crystal Spring Holdings Limited, a company owned by the investors for an aggregate paymentMr. Deming Wang, a major shareholder of $1,250,000.
7. NON-CONTROLLING INTEREST
Non-controlling interest consists of the following:
| June 30, | June 30, | |||||||
| 2014 | 2013 | |||||||
| Sino-China: | ||||||||
| Original paid-in capital | $ | 356,400 | $ | 356,400 | ||||
| Additional paid-in capital | 1,044 | 1,044 | ||||||
| Accumulated other comprehensive loss | (64,872 | ) | (85,653 | ) | ||||
| Accumulated deficit | (5,006,843 | ) | (3,849,640 | ) | ||||
| (4,714,271 | ) | (3,577,849 | ) | |||||
| Trans Pacific Logistics Shanghai Ltd. | 20,240 | 4,019 | ||||||
| Total | $ | (4,694,031 | ) | $ | (3,573,830 | ) | ||
| F-30 |
8. COMMITMENTS AND CONTINGENCY
(a) Office leases
The Company leases certain office premises and Decemberapartments for employees under operating leases through August 31, 20072019. Future minimum lease payments under operating leases agreements are as follows:
June 30, | December 31, | |||||||||
2007 | 2006 | 2007 | ||||||||
$ | $ | $ | ||||||||
(Unaudited) | ||||||||||
| Land and building | 65,280 | 62,177 | 68,059 | |||||||
| Motor vehicles | 445,488 | 141,947 | 626,355 | |||||||
| Computer equipment | 53,175 | 39,887 | 61,463 | |||||||
| Office equipment | 15,147 | 11,017 | 17,831 | |||||||
| Furniture & Fixtures | 11,601 | 10,538 | 11,252 | |||||||
| System | 15,321 | 14,593 | 18,027 | |||||||
| Leasehold improvement | 17,071 | - | 17,797 | |||||||
| Total | 623,083 | 280,159 | 820,784 | |||||||
| Less: Accumulated depreciation and amortization | 155,865 | 65,263 | 229,346 | |||||||
| Property and equipment, net | 467,218 | 214,896 | 591,438 | |||||||
| Amount | ||||
| Twelve months ending June 30, | ||||
| 2015 | $ | 162,229 | ||
| 2016 | 92,569 | |||
| 2017 | 63,981 | |||
| 2018 | 65,711 | |||
| 2019 | 67,492 | |||
| Thereafter | 11,298 | |||
| $ | 463,280 | |||
Rent expense for the years ended June 30, 2007,2014 and 2013 was $205,753 and $214,066, respectively.
(b) Contingency
The Labor Contract Law of the People’s Republic of China requires employers to insure the liability of the severance payments if employees are terminated and have been working for the employers for at least two years prior to January 1, 2008. The employers will be liable for one month for severance pay for each year of the service provided by the employees. As of June 30, 2006, and for the six months ended December 31, 2007 were $9,824, $5,434 and $4,776, respectively.
June 30, | December 31, | |||||||||
2007 | 2006 | 2007 | ||||||||
$ | $ | $ | ||||||||
(Unaudited) | ||||||||||
| Accrued welfare benefits | 53,419 | 31,561 | 55,714 | |||||||
| Other surcharge and taxes payable | 6,071 | 3,752 | 940 | |||||||
| 59,490 | 35,313 | 56,654 | ||||||||
9. INCOME TAXES
Income tax expense under operating leases for the years ended June 30, 20072014 and 2006, and for2013 varied from the six-month periods ended December 31, 2007 and December 31, 2006, were $121,777, $115,857, $70,779, and $61,645, respectively.
| For the years ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| % | % | |||||||
| U.S. expected federal income tax benefit | (35.0 | ) | (35.0 | ) | ||||
| U.S. state, local tax net of federal benefit | (10.9 | ) | (10.9 | ) | ||||
| U.S. permanent difference | 0.3 | 1.2 | ||||||
| U.S. temporary difference | 45.5 | 44.7 | ||||||
| Permanent differences related to other countries | (0.9 | ) | 19.3 | |||||
| Other | 0.0 | (0.4 | ) | |||||
| Hong Kong statutory income tax rate | 16.5 | �� | 0.0 | |||||
| Total tax expense | 15.5 | 18.9 | ||||||
The U.S. temporary difference was mainly comprised of unearned compensation amortization and provision for allowance for doubtful accounts.
| F-31 |
Amount | ||||
$ | ||||
| Year ending June 30, | ||||
| 2008 | 82,000 | |||
| 2009 | 33,000 | |||
| 2010 | 6,000 | |||
| Thereafter | - | |||
| 121,000 | ||||
June 30, | December 31, | |||||||||
2007 | 2006 | 2007 | ||||||||
| Cao Lei | 178 | 178 | 1,357,382 | |||||||
| Chi Tai Shen | 8 | 8 | 72,000 | |||||||
| Zhu Ming | 8 | 8 | 72,000 | |||||||
| Zhang Mingwei | 6 | 6 | 54,000 | |||||||
| Mark A. Harris and Roslyn O. Harris | - | - | 122,309 | |||||||
| Richard E. Watkins and Sharon J. Watkins | - | - | 122,309 | |||||||
| 200 | 200 | 1,800,000 | ||||||||
June 30, | December 31, | |||||||||
2007 | 2006 | 2007 | ||||||||
$ | $ | $ | ||||||||
(Unaudited) | ||||||||||
| Paid-in capital | 357,444 | 130,515 | 357,444 | |||||||
| Accumulated other comprehensive income (loss) | 45,121 | 1,313 | (9,843 | ) | ||||||
| Deficit | (96,772 | ) | (201,008 | ) | (36,734 | ) | ||||
| Other adjustments | 2,817 | 2,818 | 2,816 | |||||||
| 308,610 | (66,362 | ) | 313,683 | |||||||
For the years ended June 30, | For the six months ended December 31, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
| Interest income | 3,861 | 1,655 | 346 | 1,985 | |||||||||
| Interest expense | (11,623 | ) | (14,750 | ) | (543 | ) | (6,278 | ) | |||||
| Bank charge | (6,925 | ) | (7,391 | ) | (6,709 | ) | (2,393 | ) | |||||
| Foreign translation | 36,812 | (15,426 | ) | 49,480 | (26,436 | ) | |||||||
| 22,125 | (35,912 | ) | 42,574 | (33,122 | ) | ||||||||
The income tax provisionsexpense (benefit) for the years ended June 30, 20072014 and 2013 are as follows:
| For the years ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| Current | ||||||||
| USA | $ | - | $ | (3,811 | ) | |||
| Hong Kong | 130,268 | - | ||||||
| Other countries | - | - | ||||||
| China | - | - | ||||||
| 130,268 | (3,811 | ) | ||||||
| Deferred | ||||||||
| USA | (50,330 | ) | 413,900 | |||||
| Hong Kong | - | - | ||||||
| Other countries | (115 | ) | - | |||||
| China | - | - | ||||||
| (50,445 | ) | 413,900 | ||||||
| Total | $ | 79,823 | $ | 410,089 | ||||
Deferred tax assets are comprised of the following:
| For the years ended June 30, | ||||||||
| 2014 | 2013 | |||||||
| Allowance for doubtful accounts | $ | 224,000 | $ | 301,000 | ||||
| Stock-based compensation | 411,000 | 307,000 | ||||||
| Net operating loss | 1,004,000 | 443,000 | ||||||
| Total deferred tax assets | 1,639,000 | 1,051,000 | ||||||
| Valuation allowance | (1,475,100 | ) | (945,900 | ) | ||||
| Deferred tax assets, net - long-term | $ | 163,900 | $ | 105,100 | ||||
Operations in the USA have incurred a cumulative net operating loss of approximately $3,465,850 as of June 30, 2006,2014, which may be available to reduce future taxable income. This carry-forward will expire if not utilized by 2034. Other deferred tax assets relating to the allowance for doubtful accounts, stock compensation expenses and net operating loss amounting to $224,000, $411,000 and $1,004,000 have been recorded respectively. 90% of the six months ended December 31, 2007 and December 31, 2006 aredeferred tax assets balance has been provided as follows:
valuation allowance as of June 30, 2014 based on management’s estimate.
| F-32 |
For the years ended June 30, | For the six months ended December 31, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
| Current | |||||||||||||
| USA | (63,039 | ) | (13,336 | ) | (25,894 | ) | (35,155 | ) | |||||
| China | (75,252 | ) | (7,891 | ) | (4,847 | ) | (27,979 | ) | |||||
| Deferred | - | - | - | - | |||||||||
| (138,291 | ) | (21,227 | ) | (30,741 | ) | (63,134 | ) | ||||||
10. CONCENTRATIONS
Major Customer
For the yearsyear ended June 30, 20072014, two customers accounted for approximately 35% and 2006, and for18% of the six-monthsCompany’s revenues. For the year ended December 31, 2007 and 2006,June 30, 2013, approximately 52%, 32%, 46% and 60%, respectively,63% of the Company’s revenues were from one customer. We provide services to this customer under an exclusive agency agreement that is terminable on three months’ notice and that expires on December 31, 2009. Any termination of this agency services agreement would materially harm our operations.
Major Suppliers
For the year ended June 30, 2007, an additional customer2014, two suppliers accounted for approximately 11%21% and 12% of the total cost of revenues, respectively. For the year ended June 30, 2013, two suppliers accounted for 22% and 10% of the cost of revenues, respectively.
11. 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 financial statements for details on the Company's business segments.
The Company's chief operating decision maker has been identified as the Chief Executive Officer who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has three operating segments: shipping agency service, shipping and chartering services, and inland transportation management services.
Historically, the Company engages primarily in the delivery of shipping agency services but during fiscal 2014, it has expanded its service delivery platform to include shipping and chartering services (launched during the quarter ended September 30, 2013) and inland transportation management services (launched during the quarter ended December 31, 2013). These new services are part of the Company’s revenue.strategic initiatives to diversify its service offering, broaden its service platform, and improve its operating profit.
The following tables present summary information by segment for the years ended June 30, 2014 and 2013, respectively:
| For the Year Ended June 30, 2014 | ||||||||||||||||
| Shipping Agency Service | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 7,523,983 | $ | 1,937,196 | $ | 2,183,213 | $ | 11,644,392 | ||||||||
| Cost of revenues | $ | 6,010,058 | $ | 1,291,048 | $ | 312,353 | $ | 7,613,459 | ||||||||
| Gross profit | $ | 1,513,925 | $ | 646,148 | $ | 1,870,860 | $ | 4,030,933 | ||||||||
| Depreciation and amortization | $ | 120,095 | $ | 875 | $ | 34,687 | $ | 155,657 | ||||||||
| Total capital expenditures | $ | 192,434 | $ | - | $ | 10,818 | $ | 203,252 | ||||||||
| Total assets | $ | 3,094,804 | $ | 425,410 | $ | 2,193,740 | $ | 5,713,954 | ||||||||
| For the Year Ended June 30, 2013 | ||||||||||||||||
| Shipping Agency Service | Shipping & Chartering Services | Inland Transportation Management Services | Total | |||||||||||||
| Revenues | $ | 17,331,759 | $ | - | $ | - | $ | 17,331,759 | ||||||||
| Cost of revenues | $ | 15,402,743 | $ | - | $ | - | $ | 15,402,743 | ||||||||
| Gross profit | $ | 1,929,016 | $ | - | $ | - | $ | 1,929,016 | ||||||||
| Depreciation and amortization | $ | 198,825 | $ | - | $ | - | $ | 198,825 | ||||||||
| Total capital expenditures | $ | 67,116 | $ | - | $ | - | $ | 67,116 | ||||||||
| Total assets | $ | 7,536,205 | $ | - | $ | - | $ | 7,536,205 | ||||||||
| F-33 |
12. RELATED PARTY TRANSACTIONS
In June 2013, the Company signed a 5-year global logistic service agreement with TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. and TianJin Zhi Yuan Investment Group Co., Ltd. (together “Zhiyuan”). TianJin Zhi Yuan Investment Group Co., Ltd. is owned by Mr. Zhong Zhang, the largest shareholder of the Company. For the year ended June 30, 2013, the Company had no business transaction with Zhiyuan. During the quarter ended September 30, 2013, the Company executed a shipping and chartering services agreement with Zhiyuan whereby it assisted in the transportation of approximately 51,000 tons of chromite ore from South Africa to China. In September 2013, the Company executed an inland transportation management service contract with Zhiyuan whereby it would provide certain advisory services and help control its potential commodities loss during the transportation process. In addition, the Company executed a one-year short-term loan agreement with Zhiyuan, effective January 1, 2014, to facilitate the working capital needs of Zhiyuan on an as-needed basis. As of June 30, 2014, the net amount due from Zhiyuan was $2,920,950, inclusive of a non-interest bearing short-term loan of $1,801,709.
As of June 30, 2014 and 2013, the Company is owed $252,815 and $541,400, respectively, from Sino-G Trading Inc. (“Sino-G”), an entity that is owned by the brother-in-law of the Company’s CEO. Sino-G previously served as a funds transfer agent for the Company’s services in Tianjin, PRC. The informationCompany expects the entire amount to be repaid without interest during fiscal year 2015.
13. SUBSEQUENT EVENTS
On June 27, 2014, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with National Securities Corporation (the “Underwriter”) relating to the registered offering of 572,000 shares of common stock, without par value per share. The price to the public in this prospectus is not completethe offering was $1.76 per share. Under the terms of the Underwriting Agreement, the Company also granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 85,800 shares of common stock from the Company at the same price to cover over-allotments, if any. The Company closed the public offering on July 2, 2014 and may be changed. We may not sell these securities until the Underwriter subsequently purchased an additional 75,000 shares. The offering was made pursuant to our effective shelf registration statement filed withon Form S-3 (Registration Statement No. 333-194211) declared effective by the Securities and Exchange Commission is effective. Thison April 15, 2014, as supplemented by an applicable prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securitiessupplement. The total number of shares sold in any state where the offer or sale is not permitted.
On August 8, 2014, the Company entered into an agreement to acquire all of the equity of Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) from timeMr. Deming Wang to time infurther broaden its service platform and ship management business. Mr. Deming Wang is a shareholder of the principal market on which our stock is traded at the prevailing market price or in negotiated transactions. We will not receive any proceeds from the sales by the selling shareholders.
On August 29, 2014, the Company issued in the aggregate 400,000 shares under the Company’s incentive plan to two consultants, as more fully described above under Note 6, Equity Transactions.
| F-34 |
____________ Shares of Common Stock
SINO-GLOBAL SHIPPING AMERICA, LTD.
PROSPECTUS
NATIONAL SECURITIES CORPORATION
Until _______ __, 2014, all dealers that it doeseffect transactions in these securities, whether or not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.
PART II
ITEM 24.
The expenses to be paid by the Registrant are as follows. All amounts, other than the SEC registration fee, the Nasdaq Capital Market fee and FINRA filing fee, are estimates.
| Amount to | ||||
| Be Paid | ||||
| SEC registration fee | $ | 976 | ||
| Nasdaq Capital Market additional listing fee | $ | 5,000 | ||
| FINRA filing fee | $ | 1,760 | ||
| Printing and engraving expenses | $ | 10,000 | ||
| Legal fees and expenses | $ | 300,000 | ||
| Accounting fees and expenses | $ | 70,000 | ||
| Transfer agent and registrar fees | $ | 5,000 | ||
| Miscellaneous | $ | 50,000 | ||
| Total | $ | 442,736 | ||
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13.1-697 of the Virginia Stock Corporation Act permits corporations to indemnify
| 1. | Conducted himself in good faith; and | ||
| 2. | Believed: | ||
| a. | In the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; and | ||
| b. | In all other cases, that his conduct was at least not opposed to its best interests; and | ||
| 3. | In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. | ||
Our articlesFirst Amended and Restated Articles of incorporationIncorporation contain the following provision relating to indemnification of our officers and directors:
The Corporation shall indemnify (a) any person who was, is or may become a party to any proceeding, including a proceeding brought by a shareholder in the right of the Corporation or brought by or on behalf of shareholders of the Corporation, by reason of the fact that he is or was a director or officer of the Corporation, or (b) any director or officer who is or was serving at the request of the Corporation as a director, trustee, partner or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability incurred by him in connection with such proceeding unless he engaged in willful misconduct or a knowing violation of criminal law. A person is considered to be serving an employee benefit plan at the Corporation’s request if his duties to the Corporation also impose duties on, or otherwise involve securities by, him to the plan or to participants in or beneficiaries of the plan. The Board of Directors is hereby empowered, by a majority vote of a quorum of disinterested Directors, to enter into a contract to indemnify any Director or officer in respect of any proceedings arising from any act or omission, whether occurring before or after the execution of such contract.
Expenses incurred by a person who is otherwise entitled to be indemnified by us in defending or investigating a threatened or pending action, suit or proceeding shall be paid by us in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by us.
Our bylawsBylaws provide that we may indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was our employee or agent or, while our employee or agent, is or was serving at our request as an employee or agent or trustee or another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, to the extent permitted by applicable law.
| II-1 |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 25.
| SEC registration fee | $ | 467.27 | ||
| FINRA filing fee | 1,688.96 | |||
| NASDAQ listing fee | 50,000.00 | |||
| Blue Sky Fees | [______ | ] | ||
| Legal fees and expenses for Chinese counsel | [______ | ] | ||
| Legal fees and expenses for U.S. counsel | [______ | ] | ||
| Accounting fees and expenses | [______ | ] | ||
| Printing fees | [______ | ] | ||
| Total | $ | [______ | ] |
Following are all issuances of securities by the registrant during the past three years we issued the following securities in transactions thatwhich were not registered under the Securities Act of 1933, as amended (the “Act”"Securities Act"):
| · | On June 23, 2014, the Company sold 200,000 shares of its common stock for $444,000 to Crystal Spring Holdings Limited, a company owned by Mr. Deming Wang, a major shareholder of Zhenghe. | |
| · | In connection with our September 2014 acquisition of LSM, 50,000 shares of our common stock which may be issued to Mr. Wang as the purchase price based upon LSM achieving certain net income targets, are being held in escrow and are treated as being issued and outstanding. The exact number of our shares Mr. Wang will be entitled to receive will be determined subsequent to December 31, 2014. |
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| Number | Exhibit | |
| 2.1 | Underwriting Agreement+ | |
| 3.1 | First Amended and Restated Articles of Incorporation of Sino-Global Shipping America, Ltd. | |
| (1) | ||
| 3.2 | Bylaws of Sino-Global Shipping America, Ltd. |
| 4.1 | Specimen Certificate for Common | |
| 5.1 | ||
| Canoles+ | ||
| 10.1 | ||
| Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. | ||
| Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. | ||
| Proxy Agreement by and among Lei Cao, | ||
| Equity Interest Pledge Agreement by and among Trans Pacific, Lei Cao |
| Exclusive Equity Interest Purchase Agreement by and among the |
| First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. | ||
| First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. |
| 10.8 | The Company’s 2008 Stock Incentive Plan. (2) | |
| 10.9 | The Company’s 2014 Stock Incentive Plan. (3) | |
| 14.1 | Code of Ethics of the Company.(4) | |
| 21.1 | List of | |
| subsidiaries of the Company.(5) | ||
| 23.1 | ||
| Consent of Kaufman & Canoles | ||
| 23.2 | Consent of Gusrae Kaplan Nusbaum PLLC+ | |
| 23.3 | Consent of Friedman LLP, Independent Registered Public Accounting firm. + | |
| 24.1 | Power of Attorney. (on signature page). |
| + | Filed herewith |
| * | To be filed by amendment |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 27, 2014. |
| (2) | Incorporated by reference to the Company’s Registration Statement on Form S-1 (File Nos. 333-150858 and 333-148611). |
(3) | Incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the SEC on April 23, 2014 (File No. 333-194211). |
| (4) | Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on September 29, 2008 (File No. 001-34024). |
| (5) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 30, 2014. |
| II-2 |
ITEM 28.
The Registrant hereby undertakes:
(a)
to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:(i)
include any prospectus required by section 10(a)(3) of the Securities Act;(ii)
reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and(iii)
include any additional or changed information with respect to the plan of distribution.(b)
that, for the purpose of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.(c)
to file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.(d)
that insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registration of expenses incurred or paid by a director, officer or controlling person to the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.(e)
that, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act, of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-1 and authorizedduly caused this registration statement to be signed on its behalf by the undersigned in the City of Beijing, The People’s Republic of China on April 9, 2008.
| SINO-GLOBAL SHIPPING AMERICA, LTD. | ||
| By: | /s/ Lei Cao | |
| Title: Chief Executive Officer | ||
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lei Cao and Anthony S. Chan, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and any and all related registration statements pursuant to Rule 462(b) of the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act as amended, this registration statement has been signed byof 1933, the following persons in the capacities statedand on April 9, 2008.
TITLE | DATE | |||
| /s/ Lei Cao | Chief Executive Officer and Director | November 17, 2014 | ||
| Lei Cao | (Principal Executive Officer) | |||
| /s/ Anthony S. Chan | Acting Chief Financial Officer | November 17, 2014 | ||
| Anthony S. Chan | (Principal Accounting and Financial Officer) and Director | |||
| /s/ Jing Wang | Director | November 17, 2014 | ||
| Jing Wang | ||||
/s/ | ||||
| Ming Zhu | ||||
| Director | ||||
| Tieliang Liu |
EXHIBIT INDEX
| Number | Exhibit | ||
| Agreement+ | ||
| 3.1 | First Amended and Restated Articles of Incorporation of Sino-Global Shipping America, Ltd. | |
| (1) | ||
| 3.2 | Bylaws of Sino-Global Shipping America, Ltd. | |
| (2) | ||
| 4.1 | Specimen Certificate for Common | |
| Stock. (2) | ||
| 5.1 | ||
| Canoles+ | ||
| 10.1 | ||
| Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. | ||
| Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. | ||
| Proxy Agreement by and among Lei Cao, | ||
| Equity Interest Pledge Agreement by and among Trans Pacific, Lei Cao | ||
| Exclusive Equity Interest Purchase Agreement by and among the | ||
| First Amended and Restated Exclusive Management Consulting and Technical Services Agreement by and between Trans Pacific and Sino-China. | ||
| First Amended and Restated Exclusive Marketing Agreement by and between Trans Pacific and Sino-China. | ||
| 10.8 | The Company’s 2008 Stock Incentive Plan. (2) | |
| 10.9 | The Company’s 2014 Stock Incentive Plan. (3) | |
| 14.1 | Code of Ethics of the Company.(4) | |
| 21.1 | List of | |
| subsidiaries of the Company.(5) | ||
| 23.1 | ||
| Consent of Kaufman & Canoles | ||
| 23.2 | Consent of Gusrae Kaplan Nusbaum PLLC+ | |
| 24.1 | Power of Attorney. (on signature page). |
| + | Filed herewith |
| * | To be filed by amendment |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 27, 2014. |
| (2) | Incorporated by reference to the Company’s Registration Statement on Form S-1 (File Nos. 333-150858 and 333-148611). |
(3) | Incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the SEC on April 23, 2014 (File No. 333-194211). |
| (4) | Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on September 29, 2008 (File No. 001-34024). |
| (5) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 30, 2014. |
| II-5 |