The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United States
(“US”) in 2001, Sino-Global Shipping America, Ltd. (“Sino-Global” or the “Company”) is a non-asset
based global shipping and freight logistic integrated solution provider. The Company provides tailored solutions and value added
services to its customers to drive effectiveness and control in related links throughout the entire shipping and freight logistic
chain. The Company conducts its business primarily through its wholly-owned subsidiaries in the U.S., China (including Hong Kong),
Australia and Canada. Currently, a significant portion of the Company’s business is generated from the clients located in
the People’s Republic of China (the “PRC”), and its operations are currently primarily conducted in the PRC.
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”.
The Company’s shipping
agency business was operated by its subsidiaries in China (including Hong Kong). The Company’s ship management services were
operated by its subsidiary in Hong Kong. The Company’s shipping and chartering services were operated by its subsidiary in the
US and subsidiaries in Hong Kong. The Company’s inland transportation management services are operated by its subsidiaries
in China and US. The Company’s freight logistic services are operated by its subsidiaries in the US.
In January 2016, the Company
formed a subsidiary, Sino-Global Shipping LA Inc. (“Sino LA”), for the purpose of expanding its business to provide
freight logistic services to importers who ship goods into the U.S. The Company expects to generate increased revenue from this
new service platform in the near future.
In the fiscal year of 2016,
affected by the worsening market conditions in the shipping industry, the Company’s shipping agency business segment suffered
a significant decrease due to a reduced number of ships served. Therefore, the Company has temporarily suspended its shipping agency
services business. Also, suffered by this market condition changes, the Company has temporarily suspended its ship management services.
In addition, in December 2015, the Company also temporarily suspended its shipping and chartering services business primarily as
a result of the termination of its previously contemplated vessel acquisition. As of September 30, 2016, the Company’s current
service offerings consist of inland transportation management services and freight logistic services.
In August 2016,
the Company’s Board of Directors (the “Board”) authorized management to move forward with the development
of a mobile application that will provide a full-service logistics platform between the US and China for short-haul trucking
in the US. The decision follows an extensive review by the Company's management team and Board in identifying Sino-Global's
key competitive advantages as an expert in global logistics between the US and China, and then leveraging that experience to
both address the needs of its customer base and provide solutions to current issues affecting logistics and supply chain.
The Company completed a market analysis and feasibility study related to building a mobile based logistics application
for short-haul trucking in US ports to better manage the over 25 million containers, or TEU moving between China and the US
each year.
Note 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 and Exchange Commission (“SEC”). All significant 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. The information in this Form 10-Q should be read in conjunction
with information included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2016 filed with
the SEC on September 19, 2016.
(b) Basis of Consolidation
The unaudited condensed
consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany
transactions and balances are eliminated in consolidation. Sino-Global Shipping Agency Ltd. (“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. 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 loss from operations is consolidated with that of the Company.
Because of the contractual arrangements, the Company had a pecuniary interest in Sino-China that requires consolidation of the
financial statements of the Company and Sino-China.
The Company has consolidated
Sino-China’s operating results because the entities are under common control in accordance with 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. As mentioned elsewhere in this report, due to the worsening market conditions
in the shipping industry, Sino-China’s shipping agency business suffered a significant decrease due to a reduced number of
ships served. Therefore, the Company has temporarily suspended this business.
The carrying amount and
classification of Sino-China's assets and liabilities included in the Company’s Unaudited Condensed Consolidated Balance
Sheets were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
30,713
|
|
|
$
|
31,128
|
|
Total assets
|
|
|
125,377
|
|
|
|
129,463
|
|
Total current liabilities
|
|
|
7,197
|
|
|
|
7,222
|
|
Total liabilities
|
|
|
7,197
|
|
|
|
7,222
|
|
(c) Use of Estimates and Assumptions
The preparation of the
unaudited condensed 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 unaudited condensed
consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of revenues, allowance
for doubtful accounts, deferred income taxes, and the useful lives of property and equipment.
Since the use of estimates
is an integral component of the financial reporting process, actual results could differ from those estimates.
(d) Revenue Recognition Policy
|
●
|
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 contracts.
|
|
●
|
Revenues from inland transportation management services are recognized when commodities are being released from the customers’ warehouse.
|
|
●
|
Revenues from ship management services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues from freight logistic services are recognized when the related contractual services are rendered.
|
(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 dollar
(“USD”) while its subsidiaries in China, including Sino-China report 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, Trans Pacific Beijing and Trans Pacific Shanghai
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 other comprehensive loss as a separate component of equity of the Company and also included in non-controlling interest.
The exchange rates as of
September 30, 2016 and June 30, 2016 and for the three months ended September 30, 2016 and 2015 are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
Three months ended September 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
Foreign currency
|
|
|
Balance Sheet
|
|
|
|
Balance Sheet
|
|
|
|
Profits/Loss
|
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
6.6714
|
|
|
|
6.6487
|
|
|
|
6.6668
|
|
|
|
6.3031
|
|
1AUD:USD
|
|
|
1.3044
|
|
|
|
1.3433
|
|
|
|
1.3194
|
|
|
|
1.3792
|
|
1HKD:USD
|
|
|
7.7558
|
|
|
|
7.7595
|
|
|
|
7.7565
|
|
|
|
7.7517
|
|
1CAD:USD
|
|
|
1.3119
|
|
|
|
1.2992
|
|
|
|
1.3045
|
|
|
|
1.3086
|
|
(f) 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 and June 30, 2016, cash balances of $2,855,598 and
$1,333,713, respectively, were maintained at financial institutions in the PRC, and are not insured by the Federal Deposit Insurance
Corporation or other programs.
(g) 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 receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current
economic trends. Receivables are considered past due after 365 days. Accounts Receivable is written off against the allowance after
exhaustive efforts at collection.
(h) 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 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 was not included in the calculation of diluted EPS because they would be
anti-dilutive.
The effect of 150,000
stock options was not included in the calculation of diluted EPS because such options were anti-dilutive.
(i) 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.
(j) Risks and Uncertainties
The Company’s business,
financial position 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 changes in the political, regulatory and social conditions in the PRC, and by changes in governmental
policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation, among other things. Moreover, 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 customers, Tianjin Zhi
Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) and Tengda Northwest Ferroalloy Co., Ltd. (“Tengda
Northwest”).
(k) Reclassifications
Certain prior year amounts
have been reclassified to conform to the current period presentation. These reclassifications have no effect on the results of
operations and cash flows.
(l) Recent Accounting Pronouncements
In August 2016, the Financial
Accounting Standards Board (the “FASB”) has issued Accounting Standards Update (ASU) No. 2016-15,
Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
to address diversity in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on
the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon
Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest
Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4)Proceeds from the Settlement
of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life
Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions;
and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities,
the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning
after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The amendments should be applied
using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively
for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The
Company is currently evaluating the impact of this new standard on its financial statements and related disclosures.
In October 2016, the FASB
has issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
. The amendments
require an entity to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs and remove the exception to postpone recognition until the asset has been sold to an outside party. The amendments are effective
for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods
within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning
after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early
adoption is permitted. The Company is currently evaluating the impact of this new standard on its financial statements and related
disclosures.
In October 2016, the FASB
has issued ASU No. 2016-17,
Consolidation (Topic 810): Interest Held through Related Parties That Are under Common Control
,
to provide guidance on the evaluation of whether a reporting entity is the primary beneficiary of a VIE by amending how a reporting
entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are
under common control. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted,
including adoption in an interim period. The Company is currently evaluating the impact of this new standard on its financial statements
and related disclosures.
Note 3. ADVANCES TO SUPPLIERS
The Company’s advances
to suppliers are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Freight fees (a)
|
|
$
|
3,610,846
|
|
|
$
|
2,192,910
|
|
Others
|
|
|
4,497
|
|
|
|
-
|
|
Total
|
|
$
|
3,615,343
|
|
|
$
|
2,192,910
|
|
(a) On June 10, 2016, the
Company entered into a Memorandum of Understanding (“MOU”) with Singapore Metals & Minerals Pte Ltd. (the “Buyer”)
and Galasi Jernsih Sdn BHD (the “Seller”), whereby the Buyer will be the bauxite purchaser for the 3,000,000 MT/year,
subject to the results of the tests satisfying the Buyer’s requirements. Both the Buyer and the Seller agree that the Company
shall be appointed as general agent to handle logistics and transportation including ocean shipping and inland transportation for
both sides, and all door to door transportation services for the shipping of the bauxite to be sold by the Seller and to be purchased
by the Buyer as referenced in this MOU. On the same day, the Company signed a supplementary agreement with the Buyer, which states
the Company should assist the Buyer in handling transportation service from the source mine to dock to help the Buyer to fulfill
the delivery favorably and close the deal smoothly. The Company agrees to make advance payments for freight charges on behalf of
the Buyer. As of September 30, 2016, the ending balance of this prepayment was $3,610,846. The Company expects the related advance
payments will be recognized as cost of sales during the next 12 months.
Note 4. ACCOUNTS RECEIVABLE, NET
The Company’s net
accounts receivable are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
876,025
|
|
|
$
|
2,540,052
|
|
Less: allowances for doubtful accounts
|
|
|
(97,534
|
)
|
|
|
(207,028
|
)
|
Accounts receivables, net
|
|
$
|
778,491
|
|
|
$
|
2,333,024
|
|
For the three months ended
September 30, 2016, recovery of doubtful accounts receivable was $109,693, because the Company fully collected the balance from
Tengda Northwest Ferroalloy Co., Ltd. For the three months ended September 30, 2015, recovery of doubtful accounts receivable was
$14,415.
Note 5. OTHER RECEIVABLES
Other receivables represent
mainly prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee payroll, guarantee
deposits on behalf of ship owners as well as office lease deposits with the landlords.
Note 6. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s prepaid
expenses and other current assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Consultant fees (1)
|
|
$
|
520,205
|
|
|
$
|
845,420
|
|
Advance to employees
|
|
|
105,520
|
|
|
|
105,137
|
|
Other
|
|
|
59,918
|
|
|
|
55,056
|
|
Total
|
|
|
685,643
|
|
|
|
1,005,613
|
|
Less current portion
|
|
|
562,723
|
|
|
|
826,631
|
|
Total noncurrent portion
|
|
$
|
122,920
|
|
|
$
|
178,982
|
|
(1): The Company entered
into management consulting and advisory services agreements with two consultants on June 6, 2014, pursuant to which the consultants
should assist the Company in, among other things, financial and tax due diligence, business evaluation and integration, and development
of pro forma financial statements. In return for their services, as approved by the Company’s Board of Directors, a total
of 600,000 shares of the Company’s common stock were issued to these two consultants. Their service agreements are for the
period from July 1, 2014 to December 31, 2016.
In addition, on May 5, 2015,
the Company entered into management consulting and advisory services agreements with three consultants, pursuant to which the consultants
should assist the Company in, among other things, review of time charter agreements; crew management advisory; development of permanent
and preventive maintenance standards related to dry dockings and ship repairs; development of regular technical and marine vessel
inspections and quality control procedures; and development and implementation of alternative remedial actions to address any technical
problems that may arise. In return for their services, as approved by the Company’s Board of Directors, a total of 500,000
shares of the Company’s common stock were to be issued to these three consultants. Their service agreements are for a period
of 18 months, effective May 2015. The value of their consulting services was determined using the fair value of the Company’s
common stock of $1.50 per share when the shares were issued to the consultants.
The Company entered into
another management consulting services agreement with a consulting company on November 12, 2015, pursuant to which the consulting
company should assist the Company for regulatory filings during the period from July 1, 2016 to June 30, 2018. In return for their
services, as approved by the Company’s Board of Directors, a total of RMB 2,100,000 ($316,298) was paid to this consulting
company.
On December 9, 2015, the
Company entered into a consulting and advisory services agreement, pursuant to which the consultant will assist the Company for
corporate restructuring, business evaluation and capitalization during the period from November 20, 2015 to November 19, 2016.
In return for such services, the Company issued 250,000 shares of the Company’s common stock for services to be rendered
during the first six months of the service period. Such shares were issued as restricted shares at $1.02 per share on December
9, 2015. On May 23, 2016, the Company issued an additional 250,000 shares of common stock at $0.72 per share to cover the services
from the seventh month to November 19, 2016.
The above-mentioned consulting
fees have been and will be ratably charged to expense over the terms of the above-mentioned agreements.
Note 7. PROPERTY AND EQUIPMENT, NET
The Company’s net
property and equipment as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Land and building
|
|
$
|
201,761
|
|
|
$
|
202,450
|
|
Motor vehicles
|
|
|
495,233
|
|
|
|
497,006
|
|
Computer equipment
|
|
|
156,672
|
|
|
|
156,890
|
|
Office equipment
|
|
|
59,741
|
|
|
|
59,899
|
|
Furniture and fixtures
|
|
|
164,442
|
|
|
|
164,701
|
|
System software
|
|
|
119,574
|
|
|
|
119,964
|
|
Leasehold improvement
|
|
|
63,886
|
|
|
|
64,105
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,261,309
|
|
|
|
1,265,015
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
1,098,550
|
|
|
|
1,088,648
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
162,759
|
|
|
$
|
176,367
|
|
Depreciation and amortization
expense for the three months ended September 30, 2016 and 2015 were $13,342 and $15,352, respectively.
Note 8. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued expenses and other
current liabilities represent mainly payroll and welfare payable, accrued expenses and other miscellaneous items.
Note
9.
SHARE-BASED COMPENSATION
The issuance of the Company’s
Options is exempted from registration under of the Securities Act of 1933, as amended (the “Act”). The Common Stock
underlying the Options granted may be sold in compliance with Rule 144 under the Act. 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
the date of exercise.
The term of the 56,000 options
granted in 2009 is 10 years and the exercise price of the 56,000 options issued in 2009 is $7.75. The fair value of the 56,000
stock options was estimated using the Black-Scholes option-pricing model with the following assumptions: volatility of 173.84%,
risk free interest rate of 3.02% and expected life of 5 years. The total fair value of the options was $413,107. In accordance
with the vesting periods, the Company recorded no operating expense-stock compensation for the three months ended September 30,
2016 and 2015.
The term of the 10,000 options
granted in 2013 is 10 years and the exercise price of the 10,000 options issued in 2013 is $2.01. The fair value of the 10,000
stock options was calculated at the grant date using the Black-Scholes option-pricing model with the following assumptions: volatility
of 452.04%, risk free interest rate of 0.88% and expected life of 5 years. The total fair value of the options was $19,400. In
accordance with the vesting periods, the Company recorded no operating expense-stock compensation for the three months ended September
30, 2016 and 2015.
Pursuant to the Company’s
2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted 150,000 options to purchase an aggregate of 150,000
shares of the Company's common stock to two employees with a one-year vesting period, one half of which vested on October 26, 2016,
and the other half vested on July 26, 2017. The exercise price of the 150,000 options is $1.10, which was equal to the share
price of the Company’s ordinary shares on July 26, 2016. The grand date fair value of such options was $0.77 per share. The
fair value of the 150,000 options was calculated using the Black-Scholes options pricing model with the following assumptions:
volatility of 99.68%, risk free interest rate of 1.15%, and expected life of 5 years. The total fair value of the options was $115,979.
In accordance with the vesting periods, $19,330 was recorded as part of operating expense-stock compensation for the 150,000 options
for the three months ended September 30, 2016. The Company recorded no operating expense-stock compensation for the three months
ended September 30, 2015.
A summary of the options
is presented in the table below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2016
|
|
|
66,000
|
|
|
$
|
6.88
|
|
Granted
|
|
|
150,000
|
|
|
|
1.10
|
|
Canceled, forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of September 30, 2016
|
|
|
216,000
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of September 30, 2016
|
|
|
62,000
|
|
|
$
|
7.19
|
|
Following is a summary of
the status of options outstanding and exercisable at September 30, 2016:
Outstanding Options
|
|
Exercisable Options
|
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual Life
|
|
Average Exercise
Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual Life
|
|
$
|
7.75
|
|
|
|
56,000
|
|
|
1.63 years
|
|
$
|
7.75
|
|
|
|
56,000
|
|
|
|
1.63 years
|
|
$
|
2.01
|
|
|
|
10,000
|
|
|
6.64 years
|
|
$
|
2.01
|
|
|
|
6,000
|
|
|
|
6.64 years
|
|
$
|
1.10
|
|
|
|
150,000
|
|
|
4.82 years
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
216,000
|
|
|
|
|
|
|
|
|
|
62,000
|
|
|
|
|
|
Following is a summary
of the status of warrants outstanding and exercisable at September 30, 2016:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
|
Average
Remaining
Contractual Life
|
|
139,032
|
|
|
|
139,032
|
|
|
$
|
9.30
|
|
|
1.63 years
|
Note 10. NON-CONTROLLING INTEREST
The Company’s non-controlling
interest consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Sino-China:
|
|
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
167,655
|
|
|
|
157,019
|
|
Accumulated deficit
|
|
|
(5,355,112
|
)
|
|
|
(5,349,210
|
)
|
|
|
|
(4,830,013
|
)
|
|
|
(4,834,747
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
25,275
|
|
|
|
27,400
|
|
Total
|
|
$
|
(4,804,738
|
)
|
|
$
|
(4,807,347
|
)
|
Note 11. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases certain
office premises and apartments for employees under operating leases through April 16, 2020. Future minimum lease payments under
operating lease agreements are as follows:
|
|
Amount
|
|
|
|
|
|
Twelve months ending September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
233,932
|
|
2018
|
|
|
132,999
|
|
2019
|
|
|
106,201
|
|
2020
|
|
|
22,468
|
|
|
|
$
|
495,600
|
|
Rent expense for the three
months ended September 30, 2016 and 2015 was $62,335 and $50,518, respectively.
Legal proceedings
During the quarter ended
December 31, 2015, a former Vice President of the Company, Mr. Alexander
Chen, filed a complaint with the U.S. Department
of Labor-Occupational Safety and Health Administration (“OSHA”) against the Company and three current or former executives.
Mr. Chen is seeking $350,000 plus attorney’s fees for the alleged retaliation and a purported breach of his employment agreement.
The Company has responded to the complaint filed with OSHA, providing argument and information supporting the Company’s position
that no violation of law in connection with Chen’s employment. As of the date of this report, the Company offered to settle
the complaint by $90,000 and has accrued $90,000 as the Company’s liability, which was expensed directly in the three months
ended September 30, 2016.
Contingency
The Labor Contract Law
of the PRC 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 September 30, 2016 and June 30, 2016, the Company has estimated its
severance payments of approximately $61,000 and $62,500, respectively, which has not been reflected in its consolidated financial
statements, because management cannot predict what the actual payment, if any, will be in the future.
Note 12. INCOME TAXES
The income tax expense for
the three months ended September 30, 2016 and 2015 are as follows:
|
|
For the three months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
$
|
(6,525
|
)
|
|
$
|
-
|
|
China
|
|
|
(65,096
|
)
|
|
|
(259,822
|
)
|
|
|
|
(71,621
|
)
|
|
|
(259,822
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
19,000
|
|
|
|
|
-
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(71,621
|
)
|
|
$
|
(240,822
|
)
|
The Company’s deferred
tax assets are comprised of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
65,000
|
|
|
$
|
65,000
|
|
Stock-based compensation
|
|
|
743,000
|
|
|
|
735,000
|
|
Net operating loss
|
|
|
3,570,000
|
|
|
|
3,752,000
|
|
Total deferred tax assets
|
|
|
4,378,000
|
|
|
|
4,552,000
|
|
Valuation allowance
|
|
|
(4,378,000
|
)
|
|
|
(4,552,000
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s operations
in the U.S. have incurred a cumulative net operating loss of approximately $7,966,000 and $8,629,000, respectively, as of September
30, 2016 and June 30, 2016, which may reduce future taxable income. During the three months ended September 30, 2016 the amount
of utilization of Federal Net Operating Losses (“NOL”) is $400,144 and the tax benefit derived from such NOL is $136,000,
in the corresponding period for the three months ended September 30, 2015 the utilization of NOL is nil and no tax benefit derived
from NOL. This carry-forward will expire if not utilized by 2036.
The Company periodically
evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets
by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing
the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation
of future income, the carry forward periods available for tax reporting purposes, and other relevant factors. Part of the Company’s
traditional business, such as shipping agency services and shipping & chartering services, is temporarily suspended. In addition,
the Company’s new business of mobile application is still in developing stage. Management concluded that the profitability
of the Company’s U.S. entities is difficult to be predicted, and accordingly a 100% valuation allowance has been provided
against the deferred tax assets balance as of September 30, 2016 based on management’s estimate. The net decrease in the
valuation allowance for the three months ended September 30, 2016 was $174,000 and the net increase in the valuation allowance
for the same period of 2015 was $171,000, respectively.
The Company’s taxes
payable consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
486,084
|
|
|
$
|
475,066
|
|
Corporate income tax payable
|
|
|
1,160,477
|
|
|
|
1,100,380
|
|
Others
|
|
|
66,776
|
|
|
|
61,751
|
|
Total
|
|
$
|
1,713,337
|
|
|
$
|
1,637,197
|
|
Note 13. CONCENTRATIONS
Major Customers
For the three months ended
September 30, 2016, three customers accounted for 44%, 33% and 13% of the Company’s revenues, respectively. At September
30, 2016, one of these three customers accounted for 100% of the Company’s due from related parties and the remaining two
customers accounted for approximately 83% of the Company’s accounts receivable, respectively. See Note 15.
For the three months ended
September 30, 2015, three customers accounted for approximately 28%, 19% and 13% of the Company’s revenues, respectively.
At September 30, 2015, one of these three customers accounted for approximately 87% of the Company’s due from related parties
balance and the remaining two customers accounted for 80% and 15% of the Company’s accounts receivable, respectively. See
Note 15.
Major Suppliers
For the three months ended
September 30, 2016, two suppliers accounted for 18% and 10% of the total cost of revenues, respectively. For the three months ended
September 30, 2015, two suppliers accounted for 43% and 29% of the total cost of revenues, respectively.
Note 14. 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 Office who reviews the financial information of separate operating segments
when making decisions about allocating resources and assessing performance of the group. As the Company has determined that it
has four operating segments: shipping agency & ship management services, shipping & chartering services, inland transportation
management services, and freight logistics services. However, due to the downturn of the shipping industry, the Company has decided
to temporarily suspend to provide shipping agency & ship management services, and shipping & chartering services.
The following tables present
summary information by segment for the three months ended September 30, 2016 and 2015, respectively:
|
|
For the three months Ended September 30, 2016
|
|
|
|
Shipping Agency &
Ship Management
Services
|
|
|
Shipping & Chartering
Services
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight Logistic
Services
|
|
|
Total
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,485,735
|
|
|
$
|
458,667
|
|
|
$
|
1,944,402
|
|
Cost of revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
104,001
|
|
|
$
|
202,338
|
|
|
$
|
306,339
|
|
Gross profit
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,381,734
|
|
|
$
|
256,329
|
|
|
$
|
1,638,063
|
|
Depreciation and amortization
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,972
|
|
|
$
|
5,370
|
|
|
$
|
13,342
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
For the three months Ended September 30, 2015
|
|
|
|
Shipping Agency &
Ship Management
Services
|
|
|
Shipping & Chartering
Services
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight Logistic
Services
|
|
|
Total
|
|
Revenues
|
|
$
|
1,059,385
|
|
|
$
|
446,218
|
|
|
$
|
1,193,615
|
|
|
$
|
-
|
|
|
$
|
2,699,218
|
|
Cost of revenues
|
|
$
|
847,613
|
|
|
$
|
204,510
|
|
|
$
|
188,553
|
|
|
$
|
-
|
|
|
$
|
1,240,676
|
|
Gross profit
|
|
$
|
211,772
|
|
|
$
|
241,708
|
|
|
$
|
1,005,062
|
|
|
$
|
-
|
|
|
$
|
1,458,542
|
|
Depreciation and amortization
|
|
$
|
9,910
|
|
|
$
|
176
|
|
|
$
|
5,266
|
|
|
$
|
-
|
|
|
$
|
15,352
|
|
Total capital expenditures
|
|
$
|
927
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
927
|
|
Total assets as of:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
Shipping Agency and Ship Management Services
|
|
$
|
-
|
|
|
$
|
1,271,948
|
|
Shipping & Chartering Services
|
|
|
-
|
|
|
|
534,896
|
|
Inland Transportation Management Services
|
|
|
9,331,229
|
|
|
|
7,247,300
|
|
Freight Logistic Services
|
|
|
163,112
|
|
|
|
-
|
|
Total Assets
|
|
$
|
9,494,341
|
|
|
$
|
9,054,144
|
|
Note 15. RELATED PARTY TRANSACTIONS
In June 2013, the Company
signed a five-year global logistic service agreement with TianJin Zhi Yuan Investment Group Co., Ltd. (the “Zhiyuan Investment
Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”).
Zhiyuan Investment Group is owned by Mr. Zhang, the largest shareholder of the Company. In September 2013, the Company executed
an inland transportation management service contract with the Zhiyuan Investment Group whereby it would provide certain advisory
services and help control its potential commodities loss during the transportation process. As a result of the inland transportation
management services provided to Zhiyuan, the Company generated revenue of $857,635 (44% of the Company’s total revenue) and
$753,597 (28% of the Company’s total revenue) for the three months ended September 30, 2016 and 2015, respectively. The amount
due from Zhiyuan Investment Group at June 30, 2016 was $1,622,519. During the three months ended September 30, 2016, the Company
continued to provide inland transportation management services to Zhiyuan and also collected approximately $1.4 million from Zhiyuan
to reduce the outstanding accounts receivable. As of September 30, 2016, the amount due from Zhiyuan was $1,117,695. Management
expects the receivable will be substantially collected in the second half of fiscal year 2017.