Unless the context otherwise requires, in this annual report
on Form 10-K (this “Report”):
Names of certain PRC companies provided
in this Report are translated or transliterated from their original PRC legal names. Discrepancies, if any, in any table between
the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This Report contains certain statements
that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Such forward-looking 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 typically are identified
by the use of terms such as “look,” “may,” “will,” “should,” “might,”
“believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words,
although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number
of business risks and uncertainties we face that could cause our actual results to differ materially from those projected or anticipated,
including but not limited to the following:
Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update
this forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release,
periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall
be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any
other updates.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United
States (the “U.S.”) in 2001, Sino-Global Shipping America, Ltd., a Virginia corporation (“Sino-Global”
or the “Company”), is a non-asset based global shipping and freight logistics integrated 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 logistics chain. The Company conducts its business primarily through its wholly-owned subsidiaries
in the U.S., the People’s Republic of China (the “PRC”) (including Hong Kong), Australia and Canada. The majority
of the Company’s business is generated from clients located in the PRC and the U.S.
The Company’ operates
in four segments including (1) inland transportation management services which are operated by its subsidiaries in the PRC, Hong
Kong and the U.S.; (2) freight logistics services which are operated by its subsidiaries in the PRC and the U.S.; (3) container
trucking services which are operated by its subsidiaries in the PRC and through a joint venture in the U.S. from January to December
2017; and (4) bulk cargo container services which are currently operated by its subsidiary in the U.S.
In order to increase
the Company’s operations in the U.S. and to enhance the Company’s competitiveness with information technology, 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 U.S. and the PRC for short-haul trucking
in the U.S. Upon the implementation of the application, the Company signed two significant agreements with COSCO Beijing International
Freight Co., Ltd. (“COSFRE Beijing”) and Sino-Trans Guangxi in December 2016. Pursuant to the agreement with COSFRE
Beijing, the Company will receive a percentage of the total amount of each transportation fee for the arrangement of inland transportation
services for COSFRE Beijing’s container shipments into U.S. ports. The Company has increased its business in the U.S. since
the launch of the short haul container truck services web-based platform. For the strategic cooperation framework agreement with
Sino-Trans Guangxi, which is a subsidiary of Sino-Trans Limited, the Company expects to utilize both parties’ existing resources
and establish an integrated logistics plan to provide an end-to-end supply chain solution for customers shipping soybeans and sulfur
products from the U.S. to southern PRC via container. On January 9, 2017, the Company entered into a strategic cooperation agreement
with China Ocean Shipping Agency Qingdao Co. Ltd. (“COSCO Qingdao”). COSCO Qingdao will utilize the Company’s
full-service logistics platform to arrange the transport of its container shipments into U.S. ports. Sino-Global will receive a
percentage of the total amount of each transportation fee in exchange for the arrangement of inland transportation services for
COSCO Qingdao’s container shipments into U.S. ports. The Board subsequently authorized the Company to upgrade its enterprise
resource planning system (ERP) in order to manage its operations in real time throughout its multiple locations and to integrate
with web applications.
On January 5, 2017,
the Company entered into a joint venture agreement with Jetta Global Logistics Inc. (“Jetta Global”) and formed a new
joint venture company named ACH Trucking Center Corp. (“ACH Center”). Along with the establishment of ACH Center, the
Company began providing short haul trucking transportation and logistics services to customers located in the New York and New
Jersey areas. The Company holds a 51% ownership stake in ACH Center. Although the establishment of ACH Center brought benefits
for the Company and Jetta Global, it could not satisfy long term development for both the Company and Jetta Global. The Company
signed a termination agreement with Jetta Global to terminate the joint venture agreement on December 4, 2017. As ACH Center’s
operating revenue was less than 1% of the Company’s consolidated revenue and the termination did not constitute a strategic
shift that would have a major effect on the Company’s operations and financial results, the results of operations for ACH
Center was not reported as discontinued operations.
On September 11, 2017,
the Company set up a new wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd. (“Sino Ningbo”), via
its wholly-owned entity, Sino-Global Shipping New York Inc. This subsidiary primarily engages in transportation management and
freight logistics services. Sino Ningbo’s operating results were included in the consolidated financial statements starting
the fourth quarter of fiscal year 2018.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“US GAAP”). The consolidated financial statements include the accounts of all directly, indirectly owned subsidiaries
and variable interest entity. All intercompany transactions and balances have been eliminated in consolidation.
(b) Basis of Consolidation
The 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., a PRC corporation (“Sino-China”), is
considered a variable interest entity (“VIE”), with the Company as the primary beneficiary. The Company, through Trans
Pacific Beijing, entered into certain agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s
net income. The Company does not receive any payments from Sino-China unless Sino-China recognizes net income during its fiscal
year. 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 any loss from operations is consolidated with that of the Company.
Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China that
requires consolidation of the financial statements of the Company and Sino-China.
The Company has consolidated
Sino-China’s operating results because the entities are under common control in accordance with ASC 805-10, “Business
Combinations”. The agency relationship between the Company and Sino-China and its branches is governed by a series of contractual
arrangements pursuant to which the Company has substantial control over Sino-China. Management makes ongoing reassessments of whether
the Company remains the primary beneficiary of Sino-China.
The carrying amount
and classification of Sino-China's assets and liabilities included in the Company’s consolidated balance sheets were as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
3,434,850
|
|
|
$
|
9,327,990
|
|
Total assets
|
|
|
3,992,131
|
|
|
|
9,472,651
|
|
Total current liabilities
|
|
|
21,979
|
|
|
|
4,517
|
|
Total liabilities
|
|
|
21,979
|
|
|
|
4,517
|
|
(c) Fair Value of Financial Instruments
The Company follows
the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 —
Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level 2 — Inputs
other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
Level 3 — Unobservable
inputs that reflect management’s assumptions based on the best available information.
The carrying value of
accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because of
the short-term nature of these instruments.
(d) Use of Estimates and Assumptions
The preparation of
the Company’s 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 based compensation, cost of revenues, allowance for doubtful accounts,
deferred income taxes, income tax expense and the useful lives of property and equipment. Since the use of estimates is an integral
component of the financial reporting process, actual results could differ from those estimates.
(e) Translation of Foreign Currency
The accounts of the
Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The Company’s functional currency is the
U.S. dollar (“USD”) while its subsidiaries in the PRC, including Sino-China, report their financial positions and results
of operations in Renminbi (“RMB”). The accompanying consolidated financial statements are presented in USD. Foreign
currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction. Generally,
foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements
of operations. The Company translates the 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. The 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 interests.
The exchange rates for
the years ended June 30, 2018 and 2017 are as follows:
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Foreign currency
|
|
Balance Sheet
|
|
|
Profits/Loss
|
|
|
Balance Sheet
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
6.6186
|
|
|
|
6.5047
|
|
|
|
6.7806
|
|
|
|
6.8126
|
|
AUD:1USD
|
|
|
1.3505
|
|
|
|
1.2903
|
|
|
|
1.3028
|
|
|
|
1.3267
|
|
HKD:1USD
|
|
|
7.8442
|
|
|
|
7.8243
|
|
|
|
7.8059
|
|
|
|
7.7651
|
|
CAD:1USD
|
|
|
1.3141
|
|
|
|
1.2697
|
|
|
|
1.2982
|
|
|
|
1.3270
|
|
(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 an original
maturity of three months or less when purchased. The Company maintains cash and cash equivalents with various financial institutions
mainly in the PRC, Australia, Hong Kong, Canada and the U.S. As of June 30, 2018, and 2017, cash balances of $6,205,960 and 6,246,337,
respectively, were maintained at financial institutions in the PRC, which were not insured by any of the Chinese authorities. As
of June 30, 2018, and 2017, cash balance of $848,657 and $2,462,792, respectively, were maintained at U.S. financial institutions,
and were insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations.
(g) Receivables and Allowance for Doubtful
Accounts
Accounts receivable
are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current
economic trends. Receivables are considered past due after 180 days. Accounts Receivable are written off against the allowances
only after exhaustive collection efforts.
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.
(h) Property and Equipment, net
Net property and equipment
are stated at historical cost less accumulated 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
|
Motor vehicles
|
5-10 years
|
Furniture and office equipment
|
3-5 years
|
Leasehold improvements
|
Shorter of lease term or useful
lives
|
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 value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved or based on independent appraisals. Management has determined that there were no impairments
at the balance sheet dates.
(i) Intangible Assets, net
Intangible assets
are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following estimated
useful lives:
Logistics
platform
|
3 years
|
The Company evaluates
intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. There
was no such impairment as of June 30, 2018.
(j) Revenue Recognition
|
●
|
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 logistics services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues from container trucking services are recognized when the related contractual services are rendered.
|
(k) Taxation
Because the Company
and its subsidiaries and Sino-China are incorporated in different jurisdictions, they file separate income tax returns. The Company
uses the liability method of accounting for income taxes in accordance with US Generally Accepted Accounting Principles (“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. A valuation allowance is provided
against deferred tax assets if it is more likely than not that the asset will not be utilized in the future.
The Company recognizes
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any,
related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of June 30, 2018 and
2017, respectively.
Income tax returns
for the years prior to 2014 are no longer subject to examination by US tax authorities.
On December 22, 2017,
the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate
tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased
in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent
fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign
subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the Company to re-measure
all U.S. deferred income tax assets and liabilities for temporary differences and net operating loss (“NOL”) carryforwards
and recorded a one-time transition tax expense.
PRC Enterprise Income Tax
PRC enterprise income
tax is calculated based on taxable income determined under the PRC Generally Accepted Accounting Principles (“PRC GAAP”)
at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax Laws of the PRC.
PRC Business Tax and Surcharges
Revenues from services
provided by the Company’s PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject to the PRC
business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services minus the costs
of services which are paid on behalf of the customers.
In addition, under
the PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay the city construction tax (7%) and
education surcharges (3%) based on the calculated business tax payments.
The Company’s
PRC subsidiaries and affiliates report revenues net of PRC’s business tax and surcharges for all the periods presented in
the consolidated statements of operations.
(l) Earnings (loss) per Share
Basic earnings (loss)
per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted average
number of common shares of the Company outstanding during the applicable period. Diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common shares of the Company were exercised or converted into
common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings per share if their
effects would be anti-dilutive.
For the year ended June
30, 2018 and 2017, the effect of potential shares of common stock of the Company was dilutive since the exercise prices for options
and warrants were lower than the average market price for the related periods. As a result, a total of 985,693 and 38,466 of unexercised
options and warrants were dilutive for the year ended June 30, 2018 and 2017, respectively, and were included in the computation
of diluted EPS.
(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 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 Zhiyuan
Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) and Tengda Northwest Ferroalloy Co., Ltd. (“Tengda
Northwest”).
(0) Recent Accounting Pronouncements
In May 2014, the FASB
issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic
606 (ASU 2014-09),
to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected
to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing
so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing
U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 permits Companies
using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical
expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of
initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional unaudited condensed
as defined per ASU 2014-09 (modified retrospective method). In August 2015, the FASB issued ASU No. 2015-14, “Deferral of
the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public
entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including
interim reporting periods within those periods), which means it will be effective for the Company’s fiscal year beginning
July 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue
versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations
in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations
and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance
obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued
ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the
guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December
2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are
not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.
The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity
of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. Preliminarily,
the Company plans to adopt Topic 606 in the first quarter of its fiscal year 2019 using the modified retrospective method, and
is continuing to evaluate the impact of its pending adoption of Topic 606 will have on its financial statements. The
Company believes that its current revenue recognition policies are generally consistent with the new revenue recognition
standards set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the
majority of the Company’s contracts. The Company does not believe the adoption of this ASU would have a material
effect on the Company’s financial statements.
In February 2016, the
FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”) which revises accounting for operating leases by a lessee,
among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right
to use the underlying asset for the lease term in the balance sheet. This update will be effective for public entities for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU
2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard.
The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease
classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain
transition adjustments, among other issues. In addition, in July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842),
Targeted Improvements,
which provides an additional (and optional) transition method to adopt the new leases standard. Under
the new transition method, a reporting entity would initially apply the new lease requirements at the effective date and recognize
a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue to report comparative
periods presented in the financial statements in the period of adoption in accordance with current U.S. GAAP (i.e., ASC 840, Leases)
and provide the required disclosures under ASC 840 for all periods presented under current U.S. GAAP. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company
plans to adopt these new guidance in the first quarter of fiscal year 2010 and is still evaluating the effect that this guidance
will have on the Company’s financial statements and related disclosures.
In August 2016, the
FASB issued 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.
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 does not believe the adoption
of this ASU would have a material effect on the Company’s financial statements.
In May 2017, the FASB
issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification accounting”
(“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting. For all entities that offer share based payment awards, ASU 2017-09
is effective for interim and annual reporting periods beginning after December 15, 2017. The Company does not believe the
adoption of this ASU would have a material effect on the Company’s financial statements.
In July 2017, the FASB
issued ASU 2017-11, “Earnings Per Share (Topic 260)”, Distinguishing Liabilities from Equity (Topic 480), Derivatives
and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified
as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the
instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified
instruments. The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480
that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The Company does not expect that the adoption of this guidance
will have a material impact on its consolidated financial statements.
In March 2018, the
FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax
Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB
118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate
tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for
many companies that operate internationally. The Company has evaluated the impact of the Act as well as the guidance of SAB 118
and incorporated the changes into the determination of a reasonable estimate of its deferred tax liability and appropriate disclosures
in the notes to its consolidated financial statements (See Note 9).
In June 2018, the FASB
issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
The guidance largely aligns the accounting for share-based payment awards issued to employees and nonemployees, whereby the existing
employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing),
with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue
to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be
used in lieu of an expected term in the option-pricing model for nonemployee awards. The ASU is effective for fiscal years beginning
after December 15, 2018, including interim periods within that fiscal year. The ASU is required to be applied on a prospective
basis to all new awards granted after the date of adoption. The Company is still evaluating the effect that this guidance
but does not expect the standard to have a material impact on its consolidated financial statements.
The Company does not
believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on
the Company’s consolidated financial statements.
Note 3. ACCOUNTS RECEIVABLE, NET
|
|
June 30,
|
|
|
June 30,
|
|
The Company’s net accounts receivable is as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
10,111,081
|
|
|
$
|
2,754,962
|
|
Less: allowances for doubtful accounts
|
|
|
(1,682,228
|
)
|
|
|
(185,821
|
)
|
Accounts receivables, net
|
|
$
|
8,428,853
|
|
|
$
|
2,569,141
|
|
Movement of allowance for doubtful accounts
is as follows:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
185,821
|
|
|
$
|
207,028
|
|
Provision for doubtful accounts
|
|
|
1,519,122
|
|
|
|
-
|
|
Less: write-off/recovery
|
|
|
(24,101
|
)
|
|
|
(18,912
|
)
|
Exchange rate effect
|
|
|
1,386
|
|
|
|
(2,295
|
)
|
Ending balance
|
|
$
|
1,682,228
|
|
|
$
|
185,821
|
|
For the year ended
June 30, 2018, the provision for doubtful accounts was $1,519,122. No provision was made in same period 2017.
Note 4. ADVANCES TO SUPPLIERS
|
|
June 30,
|
|
|
June 30,
|
|
The Company’s advances to suppliers – third parties are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deposit for ERP (1)
|
|
$
|
437,357
|
|
|
$
|
-
|
|
Deposit for IT infrastructure (2)
|
|
|
1,002,750
|
|
|
|
-
|
|
Freight fees (3)
|
|
|
564,365
|
|
|
|
29,960
|
|
Other
|
|
|
140,513
|
|
|
|
24,930
|
|
Total advances to suppliers-third parties
|
|
$
|
2,144,985
|
|
|
$
|
54,890
|
|
|
(1)
|
On December 27, 2017, with the approval of the Board, the Company signed a contract with Tianjin Anboweiye
Technology Ltd Co. (“Tianjin Anboweiye”), to develop a more complete ERP system based on the Company’s current
operations and projected future growth. In March 2018, the Company paid a deposit to start phase one of the development which includes
upgraded accounting and human resources modules, new order processing and customer relationship management system. The Company
paid a $437,357 deposit to Tianjin Anboweiye as of June 30, 2018. The total contract price for phase one amounted to RMB 4,000,000,
approximately USD 615,000. The project is currently in the planning and design stage. The Company expects the planning stage will
be completed in and will start development in October 2018. The remaining balance will be settled upon completion of services in
fiscal year 2021.
|
|
(2)
|
On June 22, 2018, the Company entered into contract to improve its IT infrastructure. The total
contract for the services is $1.2 million and the Company paid a deposit of $1.0 million. The contract includes four parts: $420,000
for hardware leasing of twelve months; $480,000 for onsite services and IT consulting for a two year period; $60,000 for operating
system set up and $240,000 for continuing integration and with the ERP system and data management for two years. The system is
expected to be installed in October 2018.
|
|
(3)
|
The prepaid freight fee is the Company’s advances made for various shipping cost for shipments in
July 2018.
|
|
|
June 30,
|
|
|
June 30,
|
|
The Company’s advances to suppliers – related party are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Freight fees
|
|
$
|
3,414,619
|
|
|
$
|
3,333,038
|
|
Total advances to suppliers-related party
|
|
$
|
3,414,619
|
|
|
$
|
3,333,038
|
|
On February 18, 2017,
the Company entered into a cooperative transportation agreement with a related party, Zhiyuan International Investment & Holding
Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Zhiyuan Hong Kong, which is jointly owned
by the Company’s largest shareholder along with China Minmetals Corporation and China Metallurgical Group Corporation, acts
as the general designer, general equipment provider and general service contractor in the upgrade and renovation project of Perwaja
Steel, located in Malaysia (the “Project”). The Company agreed to provide high-quality services, including the design
of a detailed transportation plan as well as execution and necessary supervision of the plan at Zhiyuan Hong Kong’s demand,
for which the Company will receive a 1% to 1.25% transportation fee incurred in the Project as a commission for its services rendered.
On July 7, 2017, the Company signed a supplemental agreement with the Buyer, to which the Company will cooperate with Zhiyuan Hong
Kong exclusively on the entire Project’s transportation needs with respect to transporting construction materials from manufacturers
to the port of Malaysia and to the factory site. Pursuant to the supplemental agreement, the Company agrees to make prepayments
to Zhiyuan Hong Kong for its share of packaging and transporting costs related to the Project; in return, the Company will receive
15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee. As of June 2018, the Company has completed its
services pursuant to the supplemental agreement and received a $ 575,115 service fee in June 2018. The Company also expects that
the entire advance will be reimbursed by October 2018.
Note 5. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s
prepaid expenses and other current assets are as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Consultant fees (1)
|
|
$
|
-
|
|
|
$
|
158,150
|
|
Advance to employees
|
|
|
355,294
|
|
|
|
64,160
|
|
Prepaid income taxes
|
|
|
800
|
|
|
|
41,891
|
|
Other (including prepaid insurance, rent, listing fees)
|
|
|
232,345
|
|
|
|
53,817
|
|
Deposit for leasehold improvement on IT infrastructure facility (2)
|
|
|
438,151
|
|
|
|
-
|
|
Total
|
|
|
1,026,590
|
|
|
|
318,018
|
|
Less: current portion
|
|
|
(588,439
|
)
|
|
|
(311,136
|
)
|
Total noncurrent portion
|
|
$
|
438,151
|
|
|
$
|
6,882
|
|
|
(1):
|
The Company entered into a management consulting services
agreement with a consulting company on November 12, 2015, pursuant to which the consulting company shall assist the Company with
its regulatory filings during the period from July 1, 2016 to June 30, 2018. In return for its services, as approved by the Board,
a total of $316,298 was paid to the consulting company. Consulting fees have been and will be ratably charged to expenses over
the terms of the above-mentioned agreements. The prepaid consulting fees had been fully amortized as of June 30, 2018 upon the
maturity of service period.
|
|
(2):
|
The Company paid a $438,151 deposit for leasehold improvements on its IT infrastructure facility including
upgrading the server room of its Shanghai office. The total project cost is approximately $615,000 and is expected to be completed
in October 2019.
|
Note 6. PROPERTY AND EQUIPMENT, NET
The Company’s
net property and equipment as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
$
|
203,371
|
|
|
$
|
198,512
|
|
Motor vehicles
|
|
|
598,094
|
|
|
|
542,471
|
|
Computer equipment
|
|
|
165,561
|
|
|
|
155,141
|
|
Office equipment
|
|
|
76,065
|
|
|
|
66,097
|
|
Furniture and fixtures
|
|
|
165,047
|
|
|
|
163,219
|
|
System software
|
|
|
120,485
|
|
|
|
117,733
|
|
Leasehold improvements
|
|
|
828,365
|
|
|
|
62,857
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,156,988
|
|
|
|
1,306,030
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,200,559
|
)
|
|
|
(1,118,657
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
956,429
|
|
|
$
|
187,373
|
|
Depreciation and amortization
expense for the years ended June 30, 2018 and 2017 were $57,975 and $49,367, respectively.
Note 7. INTANGIBLE ASSETS, NET
Net intangible assets
consisted of the following at:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(36,944
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Intangible asset, net
|
|
$
|
153,056
|
|
|
$
|
-
|
|
As part of the above-mentioned
intelligent logistics platform (see Note 4), four information applications were completed by Tianjin Anboweiye in November 2017
and placed into service, including route planning and route execution for customers in China. The platforms are being amortized
over three years. Amortization expense amounted to $36,944 for the year ended June 30, 2018.
Note 8. EQUITY
Stock issuance
On February 21, 2017,
the Company completed a sale of 1.5 million registered shares of its common stock, no par value, at a price of $3.18 per share
to three institutional investors for aggregate gross proceeds to the Company of $4.77 million. The Company’s net proceeds
from the offering, after deducting offering expenses and placement agent fees in the amount of $0.45 million, were approximately
$4.32 million. Sino-Global will use the net proceeds of the offering for working capital and general corporate purposes.
On March 12, 2018,
the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company sold to the investors in
a registered direct offering, an aggregate of 2,000,000 shares of the common stock of the Company, no par value per share, at a
price of $1.50 per share for aggregate gross proceeds of $3 million. The placement agent received a cash commission fee equal to
7.5% of the gross proceeds. The offering was closed on March 14, 2018. The offering of the 2 million shares is being made pursuant
to the Company’s effective shelf registration statement on Form S-3 (File No. 333-222098), which was originally filed with
the SEC on December 15, 2017, and was declared effective by the SEC on February 16, 2018. The Company agreed in the purchase agreement
that it would not issue any common stock for 60 calendar days following the closing of the offering and each of the Company’s
executive officers and directors agreed to a lock-up period of 60 days from the date of the purchase agreement.
Concurrently to the
registered direct offering closed on March 14, 2018, the Company sold the investors Series “A” warrants to purchase
up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share and Series “B” warrants
to purchase up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share. The sale of the Series
“A” warrants and Series “B” warrants is a private placement in reliance upon an exemption afforded under
Regulation D of the Securities Act. The Series “A” warrants shall be initially exercisable beginning on September 14,
2018, and expire five and a half (5.5) years from the date of issuance. The Series B warrants shall be initially exercisable beginning
on September 14, 2018, and expire thirteen (13) months from the date of issuance. The exercise price and the number of shares of
common stock issuable upon exercise of the Warrants are subject to adjustment in the event of stock splits or dividends, or other
similar transactions, but not as a result of future securities offerings at lower prices. Net proceeds to the Company from the
sale of the shares and the warrants after deducting offering expenses and placement agent fees are $2,585,091.
On April 26, 2018,
the Company filed a registration statement on Form S-1 (“S-1”) to register the resale of an aggregate of 4,000,000
shares of common stock underlying the Series A and B Warrants mentioned above. The S-1 was declared effective by the SEC on May
8, 2018.
The warrants are classified
as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s
own stock and require net share settlement. The fair value of the warrants of $1,074,140 is valued based on the Black-Scholes-Merton
model and is recorded as additional paid-in capital from common stock based on relative fair value of proceeds received using the
following assumptions:
|
|
Series A
|
|
|
Series B
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected life (years)
|
|
|
5.5
|
|
|
|
1.08
|
|
Risk-free interest rate
|
|
|
2.72
|
%
|
|
|
2.16
|
%
|
Expected volatility
|
|
|
110.31
|
%
|
|
|
73.88
|
%
|
Following is a summary
of the status of warrants outstanding and exercisable as of June 30, 2018:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2017
|
|
|
139,032
|
|
|
$
|
9.30
|
|
Issued
|
|
|
4,000,000
|
|
|
|
1.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(139,032
|
)
|
|
|
9.30
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2018
|
|
|
4,000,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Warrants Outstanding
|
|
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
|
Average
Remaining
Contractual Life
|
2018 Series A 2,000,000
|
|
|
-
|
|
|
$
|
1.75
|
|
|
5.21 years
|
2018 Series B 2,000,000
|
|
|
-
|
|
|
$
|
1.75
|
|
|
0.79 years
|
Stock based compensation
On June 6, 2014, the
Company entered into management consulting and advisory services agreements with two consultants, pursuant to which the consultants
should assist the Company in, among other things, financial and tax due diligence, business evaluation and integration, 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 to be 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 a 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. Their service agreements are for the period July 1, 2014 to December 31, 2016. The remaining
400,000 shares of the Company's common stock were then issued to the consultants on September 30, 2014 at $1.68 per share and were
valued at $1,140,000, and the service terms are from September 2014 to November 2016. Consulting expenses for the above services
were $0 and $218,045 for the years ended June 30, 2018 and 2017, respectively.
On May 5, 2015, the
Company entered into management consulting and advisory services agreements with three consultants, pursuant to which the consultants
assisted the Company in, among other things, review of time charter agreements; crew management advisory; development of permanent
and preventive maintenance standards related to dry dockings and ship repairs; development of regular technical and marine vessel
inspections and quality control procedures; and development and implementation of alternative remedial actions to address technical
problems that may arise. In return for their services, as approved by the Company’s Board of Directors, a total of 500,000
shares of the Company’s common stock were to be issued to these three consultants at $1.50 per share. Their service agreements
lasted for a period of 18 months, effective May 2015. These shares were valued at $750,000 and the related consulting fees have
been ratably charged to expense over the term of the agreements. Consulting expenses for the above services were $0 and $173,137
for the years ended June 30, 2018 and 2017, respectively
On December 9, 2015,
the Company entered into a consulting and advisory services agreement with a consultant, 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 to this
consultant for services to be rendered during the first half 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 additional 250,000 shares of common stock to this consultant
at $0.72 per share to cover the services from the seventh month to November 19, 2016. These shares were valued at $435,000 and
consulting expenses were $0 and $138,387 for the years ended June 30, 2018 and 2017, respectively.
In March 2017, the Company
entered into a consulting and advisory services agreement with consulting entity, who will provide management consulting services
that include marketing program designing and implementation and cooperative partner selection and management. The service period
is from March 2017 to February 2020. The Company issued 250,000 shares of common stock as the remuneration of the services, which
were issued as restricted shares at $2.53 per share on March 22, 2017 to the consultant. These shares were valued at
$632,500 and consulting expenses were $210,834 and $70,278 for the years ended June 30, 2018 and 2017, respectively.
On October 23, 2017,
the Company issued 130,000 shares to its employees of its restricted common stock valued at $2.80 per share. One quarter of the
total number of common shares shall become vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and August 16,
2018. These shares were valued at $364,000. $273,000 was recorded as compensation expense for the year ended June 30, 2018.
On October 27, 2017,
the Company issued 200,000 shares of restricted common stock on the grant date with a fair value of $548,000 to a consulting company
pursuant to a consulting agreement. The scope of services primarily covers advising on business development, strategic planning
and compliance during the one-year service period from October 17, 2017 to October 16, 2018. $411,000 was recorded as consulting
expenses for the year ended June 30, 2018.
On May 4, 2018, the
Company's board approved the issuance of 660,000 shares of its common stock under the 2014 Stock Incentive Plan to its management
team and Board of Directors. These shares were valued at $1.15 per share on grant date with a total fair value of $759,000. The
shares vested immediately and $759,000 was recorded as compensation expense for the year ended June 30, 2018.
On June 7, 2018, the
Company agreed to issue 400,000 shares of common stock with a fair value of $508,000 to a PRC attorney pursuant to a service agreement.
The scope of services primarily covers legal consultation in PRC during the two-year service period from July 2018 to June 2020.
The Company will start amortizing the value of these shares to legal expenses starting July 1, 2018.
$1,653,834 and $599,846
were charged to general and administrative expenses during the years ended June 30, 2018 and 2017, respectively.
Note 9. STOCK OPTIONS
The issuance of the
Company’s options is exempted from registration under the Securities Act of 1933, as amended (the “Act”). The
Common Stock underlying the Company’s options granted may be sold in compliance with Rule 144 of the Act. Each option may
be exercised to purchase one share of the common stock of the Company, no par value per share (the “Common Stock”).
Payment for the options may be made in cash or by exchanging shares of Common Stock at their fair market value. The fair market
value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date of exercise.
The term of the 10,000
options granted in 2013 is 10 years and the exercise price is $2.01. The fair value 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
amortized stock option expense of $0 and $3,880 for the years ended June 30, 2018 and 2017.
Pursuant to the Company’s
2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted options to purchase 150,000 shares of Common Stock to
two employees with a one-year vesting period, one half of which vested on October 26, 2016, and the other half 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 Common Stock on July
26, 2016. The grant date fair value of such options was $0.77 per share. The fair value 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, $ 9,665 and 106,315 were
recorded as general and administrative expenses related to these options for the years ended June 30, 2018 and 2017. In February
2017, 75,000 of these options were exercised by the two employees of the Company.
A summary of the options is presented in
the table below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2017
|
|
|
141,000
|
|
|
$
|
3.81
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
(56,000
|
)
|
|
|
7.75
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2018
|
|
|
85,000
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of June 30, 2018
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Following is a summary
of the status of options outstanding and exercisable at June 30, 2018:
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual Life
|
|
Average
Exercise
Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
2.01
|
|
|
|
10,000
|
|
|
4.59 years
|
|
$
|
2.01
|
|
|
|
10,000
|
|
|
4.59 years
|
$
|
1.10
|
|
|
|
75,000
|
|
|
3.07 years
|
|
$
|
1.10
|
|
|
|
75,000
|
|
|
3.07 years
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
Note 10. NON-CONTROLLING INTEREST
The Company’s
non-controlling interest consists of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Sino-China:
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
142,900
|
|
|
|
217,379
|
|
Accumulated deficit
|
|
|
(5,521,638
|
)
|
|
|
(5,421,578
|
)
|
|
|
|
(5,021,294
|
)
|
|
|
(4,846,755
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
208,466
|
|
|
|
46,047
|
|
ACH Trucking Center Corp.
|
|
|
-
|
|
|
|
31,929
|
|
Total
|
|
$
|
(4,812,828
|
)
|
|
$
|
(4,768,779
|
)
|
Note 11. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases
certain office premises and apartments for employees under various operating lease agreements with terms through April 16, 2020.
Rental expenses for the years ended June 30, 2018 and 2017 were $236,033 and $266,316, respectively.
Contractual Obligations:
The Company entered
into a contract to upgrade its ERP system. The total contract costs amounting to RMB 4,000,000, approximately USD 615,000, which
the Company made a deposit of $437,357. The remaining balance will be settled upon the completion of services in fiscal year 2021.
On June 22, 2018,
the Company entered into a contract to improve its IT infrastructure. The total contract price for the services is $1.2 million
and the Company paid a deposit of $1.0 million. The remaining $0.2 million will be paid upon completion of services in fiscal year
2020.
|
|
Leases
|
|
|
Contractual
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ending June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
206,883
|
|
|
$
|
|
|
|
$
|
206,883
|
|
2020
|
|
|
52,803
|
|
|
|
200,000
|
|
|
|
252,803
|
|
2021
|
|
|
|
|
|
|
177,643
|
|
|
|
177,643
|
|
|
|
$
|
259,686
|
|
|
$
|
377,643
|
|
|
$
|
637,329
|
|
Contingencies
The Labor Contract
Law of the PRC requires employers to insure the liability of the severance payments for terminated employees that have worked for
the employers for at least two years prior to January 1, 2008. 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, 2018 and 2017, the Company has estimated its severance payments
of approximately $58,543 and $48,713, respectively, which have not been reflected in its consolidated financial statements, because
management cannot predict what the actual payment, if any, will be in the future.
Sino-China has employment
agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for five-year terms
that extend automatically in the absence of termination provided at least 60 days prior to the anniversary date of the 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 (i) the remaining salary through the date of May 4, 2023, (ii) two times of the then applicable annual salary if there
has been no Change in Control, as defined in the employment agreements or three-and-half times of the then applicable annual salary
if there is a Change in Control.
From time to time,
the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named as a defendant
in a breach of service contract lawsuit in the amount of $225,000 filed with the California Superior Court on January 19, 2018.
The Company filed a motion with the court to force the plaintiff to arbitration rather than to litigate the dispute in court based
on the arbitration provision in the contract. The court approved to stay the case pending the resolution of the arbitration and
has scheduled a status conference for March 19, 2019. Management believes it is premature to assess the outcome of the pending
arbitration but believes it will not likely have a material effect on the Company’s consolidated operations or financial
position.
Note 12. INCOME TAXES
On December 22, 2017,
the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate
tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory federal rate of approximately
28% for the fiscal year ending June 30, 2018 is applied to the provision for income tax and a 21% rate for subsequent fiscal years.
As of June 30, 2018,
the Company re-measured deferred tax assets based on current effective rate of 21% at which these deferred tax amounts are expected
to reverse in the future.
In addition, the Company
is subject to a one-time transition tax for all untaxed foreign earnings of its foreign subsidiaries. Foreign earnings held in
the form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at a rate of 8%, net of certain
exemptions. This resulted in an approximate increase of $2,625,000 to the Company’s June 30, 2018 taxable income and the
Company applied its available NOL towards the transition tax.
The Company’s
income tax benefit (expense) for the years ended June 30, 2018 and 2017 are as follows:
|
|
For the years ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
USA
|
|
$
|
(120,448
|
)
|
|
$
|
-
|
|
Hong Kong
|
|
|
(91,545
|
)
|
|
|
(70,958
|
)
|
PRC
|
|
|
(622,765
|
)
|
|
|
(206,358
|
)
|
|
|
|
(834,758
|
)
|
|
|
(277,316
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(114,901
|
)
|
|
|
749,400
|
|
Total income tax benefit (expense)
|
|
$
|
(949,659
|
)
|
|
$
|
472,084
|
|
Income tax expense
for the years ended June 30, 2018 and 2017 varied from the amount computed by applying the statutory income tax rate to income
before taxes. Reconciliations between the expected federal income tax rates using the federal statutory tax rate of 34% for the
year ended June 30, 2017 and a blended rate of 28% for the year ended June 30, 2018 to the Company’s effective tax rate are
as follows:
|
|
For the years ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
U.S. statutory tax rate
|
|
|
28.0
|
|
|
|
34.0
|
|
Permanent difference*
|
|
|
70.4
|
|
|
|
3.9
|
|
Change in valuation allowance
|
|
|
(28.9
|
)
|
|
|
(39.9
|
)
|
Rate differential in foreign jurisdiction
|
|
|
(5.0
|
)
|
|
|
(13.1
|
)
|
|
|
|
64.5
|
|
|
|
(15.1
|
)
|
|
*
|
Permanent difference includes non-deductible stock compensation
expenses and transition tax.
|
The Company’s
deferred tax assets are comprised of the following:
|
|
For the years ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
540,000
|
|
|
$
|
106,000
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
790,000
|
|
Net operating loss
|
|
|
355,000
|
|
|
|
1,464,000
|
|
Total deferred tax assets
|
|
|
895,000
|
|
|
|
2,360,000
|
|
Valuation allowance
|
|
|
(260,500
|
)
|
|
|
(1,610,600
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
634,500
|
|
|
$
|
749,400
|
|
The Company’s
operations in the U.S. have incurred a cumulative net operating loss (“NOL”) of approximately $6,100,000 as of June
30, 2017 which may reduce future federal taxable income. During the year ended June 30, 2018, a total of approximately $4,587,000
of NOL was utilized and the tax benefit derived from such NOL was approximately $1,280,000. Approximately $2,626,000 of NOL was
applied to the transition tax discussed above and the rest was applied to current year taxable income. Federal NOL at June 30,
2018 was approximately $1,531,000 that are pre-2017 NOL expiring in 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. Management has provided
an allowance against the deferred tax assets balance as of June 30, 2018. The net decrease in valuation for June 30, 2018 amounted
to $1,350,100, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than
not to be realized. Management considers new evidence, both positive and negative, that could affect its future realization of
deferred tax assets. Due to the Company’s forecasted pretax income and continuing utilization of its NOL, management determined
that there is sufficient positive evidence to conclude that it is more likely than not that all of its deferred taxes are realizable.
The Company’s
taxes payable consists of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
531,337
|
|
|
$
|
520,436
|
|
Corporate income tax payable
|
|
|
2,104,232
|
|
|
|
1,290,832
|
|
Others
|
|
|
65,050
|
|
|
|
74,948
|
|
Total
|
|
$
|
2,700,619
|
|
|
$
|
1,886,216
|
|
Note 13. CONCENTRATIONS
Major Customer
For the year ended June
30, 2018, four customers accounted for 50%, 16%, 15% and 9% of the Company’s revenues, respectively. At June 30, 2018, one
of these four customers accounted for 100% of the Company’s accounts due from related parties (See Note 15) and the remaining
three customers accounted for approximately 92% of the Company’s accounts receivable.
For the year ended June
30, 2017, three customers accounted for 26%, 24% and 19% of the Company’s revenues, respectively. At June 30, 2017, one of
these three customers accounted for 100% of the Company’s accounts due from related parties (See Note 15) and the remaining
two customers accounted for approximately 63% of the Company’s accounts receivable.
Major Suppliers
For the year ended
June 30, 2018, two suppliers accounted for 64% and 18% of the total costs of revenue, respectively. For the year ended June 30,
2017, two suppliers accounted for 42% and 11% 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 detailing the Company's business segments.
The Company’s
chief operating decision maker is the Chief Executive Officer, who reviews the financial information of the separate operating
segments when making decisions about allocating resources and assessing the performance of the group. The Company has determined
that it has four operating segments: (1) inland transportation management services; (2) freight logistics services; (3) container
trucking services; (4) bulk cargo container services.
As stated in Note 1,
ACH Center’s operating revenue was less than 1% of the Company’s consolidated revenue for 2018 and the results of operations
for ACH Center was not reported as discontinued operations and was included in the container trucking services segment and freight
logistics services segment below.
The following tables
present summary information by segment for the years ended June 30, 2018 and 2017, respectively:
|
|
For the year ended June 30, 2018
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight
Logistic
Services
|
|
|
Container
Trucking
Services
|
|
|
Bulk Cargo
Container
Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
2,059,406
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,059,406
|
|
- Third parties
|
|
$
|
3,441,001
|
|
|
$
|
15,829,444
|
|
|
$
|
1,096,485
|
|
|
$
|
638,227
|
|
|
$
|
21,005,157
|
|
Total Revenues
|
|
$
|
5,500,407
|
|
|
$
|
15,829,444
|
|
|
$
|
1,096,485
|
|
|
$
|
638,227
|
|
|
$
|
23,064,563
|
|
Cost of revenues
|
|
$
|
874,760
|
|
|
$
|
13,519,486
|
|
|
$
|
696,998
|
|
|
$
|
494,449
|
|
|
$
|
15,585,693
|
|
Gross profit
|
|
$
|
4,625,647
|
|
|
$
|
2,309,958
|
|
|
$
|
399,487
|
|
|
$
|
143,778
|
|
|
$
|
7,478,870
|
|
Depreciation and amortization
|
|
$
|
72,954
|
|
|
$
|
1,902
|
|
|
$
|
20,063
|
|
|
$
|
-
|
|
|
$
|
94,919
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
778,182
|
|
|
$
|
44,595
|
|
|
$
|
-
|
|
|
$
|
822,777
|
|
|
|
For the year ended June 30, 2017
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight
Logistic
Services
|
|
|
Container
Trucking
Services
|
|
|
Bulk Cargo
Container
Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
2,746,423
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,746,423
|
|
- Third parties
|
|
$
|
3,012,177
|
|
|
$
|
4,815,450
|
|
|
$
|
871,563
|
|
|
$
|
-
|
|
|
$
|
8,699,190
|
|
Total Revenues
|
|
$
|
5,758,600
|
|
|
$
|
4,815,450
|
|
|
$
|
871,563
|
|
|
$
|
-
|
|
|
$
|
11,445,613
|
|
Cost of revenues
|
|
$
|
620,259
|
|
|
$
|
3,710,364
|
|
|
$
|
649,968
|
|
|
$
|
-
|
|
|
$
|
4,980,591
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
5,138,341
|
|
|
$
|
1,105,086
|
|
|
$
|
221,595
|
|
|
$
|
-
|
|
|
$
|
6,465,022
|
|
Depreciation and amortization
|
|
$
|
27,857
|
|
|
$
|
21,510
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
49,367
|
|
Total capital expenditures
|
|
$
|
61,359
|
|
|
$
|
1,053
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,412
|
|
Total assets as of:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Inland Transportation Management Services
|
|
$
|
18,338,099
|
|
|
$
|
15,552,593
|
|
Freight Logistics Services
|
|
|
161,667
|
|
|
|
1,704,946
|
|
Container Trucking Services
|
|
|
7,228,209
|
|
|
|
558,482
|
|
Bulk Cargo Container Services
|
|
|
429,852
|
|
|
|
-
|
|
Total Assets
|
|
$
|
26,157,827
|
|
|
$
|
17,816,021
|
|
Note 15. RELATED PARTY TRANSACTIONS
As of June 30,
2018 and 2017, the outstanding amounts due from related parties consist of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
2,319,993
|
|
|
$
|
1,715,130
|
|
Less: allowance for doubtful accounts
|
|
|
(231,999
|
)
|
|
|
-
|
|
Total
|
|
$
|
2,087,994
|
|
|
$
|
1,715,130
|
|
In June 2013, the Company
signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (the “Zhiyuan Investment
Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan Investment Group, “Zhiyuan”).
Zhiyuan Investment Group is owned by Mr. Zhang, the largest shareholder of the Company. In September 2013, the Company executed
an inland transportation management service contract with the Zhiyuan Investment Group whereby it would provide certain advisory
services and help control potential commodities loss during the transportation process. As a result of the inland transportation
management services provided to Zhiyuan, the Company generated revenue of $2,059,406 (8.9% of the Company’s total revenue
in 2018) and $2,746,423 (24% of the Company’s total revenue in 2017) for the years ended June 30, 2018 and 2017, respectively.
The amount due from Zhiyuan Investment Group as of June 30, 2018 was $2,319,993. The Company expects that the full amount will
be collected by March 2019. As of June 30, 2018, the Company provided a 10% allowance for doubtful accounts of the amount due from
Zhiyuan. Subsequently, the Company entered into a supplemental service agreement with Zhiyuan to extend the service period to September
1, 2019.
As of June 30, 2018 and 2017, the outstanding
amounts advances to suppliers-related party consist of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd.
|
|
|
3,414,619
|
|
|
|
3,333,038
|
|
Total
|
|
$
|
3,414,619
|
|
|
$
|
3,333,038
|
|
On February 18, 2017,
the Company entered into a cooperative transportation agreement with a related party, Zhiyuan Hong Kong which is owned by the Company’s
largest shareholder, jointly with China Minmetals Corporation and China Metallurgical Group Corporation, acts as the general designer,
general equipment provider and general service contractor in the upgrade and renovation project of Perwaja Steel, located in Malaysia
(the “Project”). The Company agreed to provide high-quality services, including the design of a detailed transportation
plan as well as execution and necessary supervision of the plan at Zhiyuan Hong Kong’s demand, in consideration for which
the Company will receive a 1% to 1.25% transportation fee incurred in the Project as a commission for its services rendered. On
July 7, 2017, the Company signed a supplemental agreement with the Buyer, to which the Company will cooperate with Zhiyuan Hong
Kong exclusively on the entire Project’s transportation needs with respect to transporting construction materials from manufacturers
to the port of Malaysia and to the factory site. Pursuant to the supplemental agreement, the Company agrees to make prepayments
to Zhiyuan Hong Kong for its share of packaging and transporting costs related to the Project; in return, the Company will receive
15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee. The Company has completed its services pursuant
to the supplemental agreement and received a $575,115 service fee in June 2018. The Company expects the entire advance will be
reimbursed by October 2018.
In December 2016,
the Company entered into a joint venture agreement with Jetta Global to form ACH Trucking Center to provide short-haul
trucking transportation and logistics services to customers located in the New York and New Jersey areas. ACH Logistic Inc.
(ACH Logistic) and Jetta Global are invested by the same owner and both of the companies provided freight logistics service
and container trucking service to the Company. For the year ended June 30, 2017, ACH Logistic and Jetta Global provided
services in the amount of $788,775 and $222,869 to the Company, respectively. As of June 30, 2017, the amount due to ACH
Logistic and Jetta Global was $131,262 and $75,061, respectively. All balances were paid in 2018.
Note 16. SUBSEQUENT EVENT
In July 2018, the Company
entered into a supplemental agreement with Tengda Northwest to extend the global logistic service period until July 3, 2019.
In August 2018, the
Company entered into a supplemental agreement with Zhiyuan to extend the inland transportation management service period until
September 1, 2019.
On September 3, 2018,
the Company entered into co-operation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd to set up a joint venture
in Hong Kong to engage in worldwide shipping agency and management business. The Company will have 51% ownership in the joint venture.
On September 21,
2018, the Company is authorized to issue a total of 430,000 shares of the common stock valued at $1.10 per share on grant
date with a total fair value of $473,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately.