NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Founded in the United
States (the “U.S.”) in 2001, Sino-Global Shipping America, Ltd., a Virginia corporation (“Sino-Global”
or the “Company”), is a global shipping and freight logistics integrated solution provider. The Company provides tailored
solutions and value-added services to its customers to drive efficiency and control in related steps throughout the entire shipping
and freight logistics chain. The Company conducts its business primarily through its wholly-owned subsidiaries in the People’s
Republic of China (the “PRC”) (including Hong Kong) and the U.S. where a majority of the Company’s clients are
located.
The Company operates
in four operating segments including (1) shipping agency and management services, which are operated by its subsidiary in Hong
Kong and the U.S.; (2) inland transportation management services, which are operated by its subsidiaries in the U.S.; (3) freight
logistics services, which are operated by its subsidiaries in the PRC and the U.S.; (4) container trucking services, which are
operated by its subsidiaries in the PRC and the U.S.
The Company developed
a mobile application which provides a full-service logistics platform for shipping operations between the U.S. and the PRC for
short-haul trucking in the U.S. and in December, 2016, it signed a significant agreement with Sino-Trans Guangxi Logistics Co.
Ltd. with a service period from July 1, 2017 to December 31, 2020. The Company has increased its business in the U.S. since the
launch of the short haul container truck services web-based platform. The board of the directors (the “Board”) of the
Company 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 September 11, 2017,
the Company set up a 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.
Starting with fiscal
year 2019, current trade dynamics make it more expensive for shipping carrier clients to cost-effectively move cargo into U.S.
ports, and as a result, the Company realized a lower shipping volumes and less utilization of its online platform, which has caused
the Company to shift its focus back to shipping agency business. The shipping agency industry in China has improved and the number
of shipping agencies in overall in the country has decreased, due to both price and the inability of competitors to embrace technology
as a resource in serving client needs.
On September 3, 2018,
the Company entered into a cooperation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd. to set up a joint venture
in Hong Kong named Bright Far East International Shipping Agency Co., Ltd., to engage in worldwide shipping agency operations.
The Company has a 51% equity interest in the joint venture. On May 23, 2019, Bright Far East International Shipping Agency Co.,
Ltd. incorporated in New York and terminated its registration in Hong Kong. There has been no major operation of the joint venture
for the three months ended September 30, 2019. Currently the Company is conducting the shipping agency business through its wholly-owned
Hong Kong subsidiary.
On April 10, 2019,
the Company entered into a cooperation agreement with Mr. Weijun Qin, the Chief Executive Officer of a shipping management company
in China, to set up a joint venture in New York named State Priests Management Ltd. (“State Priests”), in which the
Company will hold a 20% equity interest. On July 26, 2019, the Company signed a revised cooperation agreement with Mr. Weijun Qin
which changed the Company’s equity interest in State Priests from 20% to 90%. The Company has not provided any cash contribution
to the joint venture and there has been no operation of the joint venture pending the International Ship Safety Management Certificate
from the China Classification Society (the “Certificate”). Sino-Global Shipping New York Inc. started providing shipping
management related services that do not require certification which includes arranging and coordinating for ship maintenance and
inspection this quarter.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On November 6, 2019,
the Company signed a revised cooperation agreement with Mr. Weijun Qin to restructure their equity interest in State Priests. Due
to State Priests failed to timely obtain the necessary approval from related authorities, Mr. Weijun Qin agreed to exchange 80%
equity interest in Sea Continent Management Ltd. (“Sea Continent”), another entity Mr. Qin owns for the Company’s
90% equity interest in State Priests. The equity transfer has been consummated. Sea Continent already has the Certificate but has
no operations as of September 30, 2019. There has been no capital injection nor operations of State Priests and Sea Continent as
of November 6, 2019, therefore no gain or loss will be recognized in the transaction.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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”). The unaudited condensed 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. Interim results are not necessarily indicative of results to be expected for the full year. The information
included in this Form 10-Q should be read in conjunction with information included in the annual report on Form 10-K for the fiscal
year ended June 30, 2019 filed on September 30, 2019.
(b) Basis of Consolidation
The unaudited condensed
consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates. All significant intercompany
transactions and balances are eliminated in consolidation. 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 Shipping Ltd., entered into certain agreements with Sino-China, pursuant to which the Company receives 90% of Sino-China’s
net income. The Company does not receive any payments from Sino-China unless Sino-China recognizes net income during its fiscal
year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal year.
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 Accounting Standards Codification (“ASC”)
805-10, “Business Combinations”. The agency relationship between the Company and Sino-China and its branches is governed
by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China. Management makes
ongoing reassessments of whether the Company remains the primary beneficiary of Sino-China.
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,
|
|
|
|
2019
|
|
|
2019
|
|
Current assets
|
|
$
|
45,828
|
|
|
$
|
16,474
|
|
Deposits
|
|
|
1,589
|
|
|
|
1,655
|
|
Property and equipment, net
|
|
|
50,708
|
|
|
|
95,765
|
|
Total assets
|
|
$
|
98,125
|
|
|
$
|
113,894
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
$
|
29,908
|
|
|
$
|
30,175
|
|
Total liabilities
|
|
$
|
29,908
|
|
|
$
|
30,175
|
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(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 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, impairment loss, deferred income taxes, income tax expense and the useful lives of property and
equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ
from those estimates.
(e) Translation of Foreign Currency
The accounts of the
Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The Company’s functional currency is the
U.S. dollar (“USD”) while its subsidiaries in the PRC, including Sino-China, report their financial positions and results
of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial statements are presented
in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect at the time of the transaction.
Generally, foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated
statements of operations. The Company translates the foreign currency financial statements of Sino-China, Sino-Global Shipping
Australia Pty Ltd., Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada,
Inc., Trans Pacific Shipping Ltd. (“Trans Pacific Beijing”) and Trans Pacific Logistic Shanghai Ltd. (“Trans
Pacific Shanghai,” collectively with Trans Pacific Beijing, “Trans Pacific”) 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 sheets’ 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 loss and accumulated other comprehensive loss as a separate
component of equity of the Company, and also included in non-controlling interests.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The exchange rates
as of September 30, 2019 and June 30, 2019 and for the three months ended September 30, 2019 and 2018 are as follows:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
|
Three Months ended
September 30,
|
|
Foreign currency
|
|
Balance
Sheet
|
|
|
Balance
Sheet
|
|
|
2019
Profits/Loss
|
|
|
2018
Profits/Loss
|
|
RMB:1USD
|
|
|
7.1489
|
|
|
|
6.8657
|
|
|
|
7.0146
|
|
|
|
6.8027
|
|
AUD:1USD
|
|
|
1.4823
|
|
|
|
1.4238
|
|
|
|
1.4592
|
|
|
|
1.3678
|
|
HKD:1USD
|
|
|
7.8402
|
|
|
|
7.8130
|
|
|
|
7.8300
|
|
|
|
7.8452
|
|
CAD:1USD
|
|
|
1.3242
|
|
|
|
1.3092
|
|
|
|
1.3200
|
|
|
|
1.3069
|
|
(f) Cash
Cash consists 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 with various financial institutions mainly in the PRC, Australia,
Hong Kong, Canada and the U.S. As of September 30, 2019 and June 30, 2019, cash balances of $97,219 and $2,993,913, respectively,
were maintained at financial institutions in the PRC. $27,278 and $2,923,972 of these balances are not covered by insurance as
the deposit insurance system in China only insured each depositor at one bank for a maximum of approximately $70,000 (RMB 500,000).
As of September 30, 2019 and June 30, 2019, a cash balance of $40,746 and $122,017, respectively, were maintained at U.S. financial
institutions, and were insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations. The
Hong Kong Deposit Protection Board pays compensation up to a limit of HKD $500,000 (approximately $64,000) if the bank with which
an individual/a company holds its eligible deposit fails. As of September 30, 2019 and June 30, 2019, a cash balance of $1,111
and $4,384, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong Deposit Protection
Board.
(g) Notes receivable
Notes receivable represents
trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment. The notes are
non-interest bearing and normally paid within three to six months. The Company has the ability to submit request for payment to
the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee.
(h) Receivables and Allowance for Doubtful
Accounts
Accounts receivable
are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual receivable balances. In evaluating the collectability of individual receivable balances, the Company considers many
factors, including the age of the balances, customers’ historical payment history, their current credit-worthiness and current
economic trends. Receivables are generally considered past due after 180 days. The Company reserves 25%-50% of the customers balance
aged between 181 days to 1 year, 50%-100% of the customers balance over 1 year and 100% of the customers balance over 2 years.
Accounts receivable are written off against the allowances only after exhaustive collection efforts or over three years whichever
comes earlier.
Other receivables represent
mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee
payroll, guarantee deposits on behalf of ship owners as well as office lease deposits. Management reviews its receivables on a
regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account
balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection
is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts. For the three
months ended September 30, 2019 and 2018, the Company wrote off $1,763 and nil of other receivables, respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(i) 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
|
3-10 years
|
Computer and office equipment
|
1-5 years
|
Furniture and fixtures
|
3-5 years
|
System software
|
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. For the three months ended September 30, 2019 and 2018,
an impairment of $127,177 and nil were recorded, respectively.
(j) Intangible Assets, net
Intangible assets are
recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following estimated
useful lives:
Logistics platform
|
3 years
|
The Company evaluates
intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. For
the three months ended September 30, 2019 and 2018, an impairment of $200,455 and nil were recorded, respectively.
(k) Revenue Recognition
The Company recognizes
revenue which represents the transfer of goods and services to customers in an amount that reflects the consideration to which
the Company expects to be entitled in such exchange. The Company identifies contractual performance obligations and determines
whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to
a customer. The Company’s revenue streams are recognized at a point in time.
The Company uses a
five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including
variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the
performance obligation.
The Company continues
to derive its revenues from sales contracts with its customers with revenues being recognized upon performance of services. Persuasive
evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance
of the sales contract and there is no separate sales rebate, discount, or other incentive. The Company’s revenues are
recognized at a point in time after all performance obligations are satisfied.
As of September 30,
2019, the Company had outstanding contracts amounting to approximately $2.4 million, all of which is expected to be completed within
9 months from September 30, 2019.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Revenues by segments:
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Shipping and management agency services
|
|
$
|
500,000
|
|
|
$
|
-
|
|
Inland transportation management services
|
|
|
-
|
|
|
|
920,000
|
|
Freight logistics services
|
|
|
1,242,142
|
|
|
|
5,487,553
|
|
Container trucking services
|
|
|
44,084
|
|
|
|
91,980
|
|
Total
|
|
$
|
1,786,226
|
|
|
$
|
6,499,533
|
|
|
●
|
Revenues from shipping and management agency
services are recognized upon completion of services, which coincides with the date of departure of the relevant vessel from port.
Advance payments and deposits received from customers prior to the provision of services and recognition of the related revenues
are presented as advances from customers.
|
|
●
|
Revenues from inland transportation management services are recognized when commodities are being released from the customers’ warehouse.
|
|
●
|
Revenues from freight logistics services
are recognized when the related contractual services are rendered.
For certain freight logistic contracts
that the Company entered into with customer in first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging
the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the
customers, revenues related to this contracts are presented net of related costs. Gross revenue and gross cost of revenue related
to these contracts amounted to approximately $9.1 million and $8.5 million, respectively.
|
|
●
|
Revenues from container trucking services are recognized when the related contractual services are rendered.
|
(l) Taxation
Because the Company
and its subsidiaries and Sino-China were incorporated in different jurisdictions, they file separate income tax returns. The Company
uses the asset and liability method of accounting for income taxes in accordance with 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 September 30, 2019
and June 30, 2019, respectively.
Income tax returns
for the years prior to 2015 are no longer subject to examination by US tax authorities.
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.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 accompanying condensed consolidated statements of operations.
(m) Earnings (loss) per Share
Basic earnings (loss)
per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by the weighted average
number of common shares of the Company outstanding during the applicable period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to issue common shares of the Company were exercised or converted
into common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings per share if
their effects would be anti-dilutive.
For the three months
ended September 30, 2019 and 2018 there was no dilutive effect of potential shares of common stock of the Company because the Company
generated a net loss.
(n) Comprehensive Income (Loss)
The Company reports
comprehensive income (loss) in accordance with the authoritative guidance issued by Financial Accounting Standards Board (the “FASB”)
which establishes standards for reporting comprehensive income (loss) and its component in financial statements. Other comprehensive
income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of Stockholders’
equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment
resulting from the Company not using the U.S. dollar as its functional currencies.
(o) Stock-based Compensation
The Company accounts
for stock-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”,
which requires that stock-based payment transactions with employees be measured based on the grant-date fair value of the equity
instrument issued and recognized as compensation expense over the requisite service period. The Company records stock-based compensation
expense at fair value on the grant date and recognizes the expense over the employee’s requisite service period.
The Company accounts
for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based
Payments to Non-employees”. Under FASB ASC Topic 718 and FASB ASC Subtopic 505-50, stock compensation granted to non-employees
has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is
more reliably measured and is recognized as an expense as the goods or services are received.
Valuations of stock
based compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise
patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities
are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise
and employee terminations. The expected term of options granted represents the period of time that options granted are expected
to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve
in effect at the time of the grant.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(p) 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 environments 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.
(q) Liquidity
In assessing the Company’s
liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s
liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of September
30, 2019, the Company’s working capital was approximately $9.4 million and the Company had cash of approximately $0.1 million.
The Company plans to fund continuing operations through identifying new prospective joint venture partners and strategic alliance
opportunities for new revenue sources, and by reducing costs to improve profitability and replenish working capital. Although the
Company believes that it can realize its current assets in the normal course of business, the Company’s ability to fulfill
its current obligations will depend on the future realization of its current assets and the future revenues generated from its
operations.
The Company expects
to realize the balance of its current assets within the normal operating cycle of a twelve month period. If the Company is unable
to realize its current assets within the normal operating cycle of a twelve month period, the Company may have to consider supplementing
its available sources of funds through the following sources:
|
●
|
the Company will continuously seek
equity financing to support its working capital; On November 13, 2019, the Company entered into a cooperation agreement with
Shanming Liang, a director of Guangxi Jinqiao Industrial Group Co., Ltd., to cooperate and expand the bulk cargo container
services business. Shanming Liang agreed to purchase 1,000,000 shares of the Company’s common stock at a purchase price
of $1.00 per share for aggregate proceeds of $1.0 million. The Company and Mr. Liang further entered into a Share Purchase Agreement on November 14, 2019 to
lay out the details of the transaction aforementioned.
|
|
|
|
|
●
|
other available sources of financing from PRC banks and other financial institutions; and
|
|
|
|
|
●
|
financial support and credit guarantee commitments from the Company’s shareholders and directors.
|
Based on the above
considerations, the Company’s management is of the opinion that it has sufficient funds to meet the Company’s working
capital requirements and current liabilities as they become due one year from issuance of these financial statements. However,
there is no assurance that management will be successful in their plans. There are a number of factors that could potentially arise
that could undermine the Company’s plans, such as changes in the PRC government policy, economic conditions, and competitive
pricing in the industries that the Company operates in. If management is unable to execute this plan, there would likely be a material
adverse effect on the Company’s business. All of these factors raise substantial doubt about the ability of the Company to
continue as a going concern.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(r) Recent Accounting Pronouncements
Pronouncements adopted
In February
2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), to increase the transparency
and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding
lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02
is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach
to adoption assuming the Company will remain an emerging growth company at that date. Early adoption is permitted. In September
2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were
required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition of
a public business entity except for a requirement to include or the inclusion of its financial statements or financial information
in another entity’s filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15,
2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13
also amended that all components of a leveraged lease be recalculated from inception of the lease based on the revised after tax
cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded
and the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company adopted this ASU
in the first quarter of fiscal year 2020 using modified retrospective transition approach at the beginning of the period of adoption.
The Company recognized lease labilities of approximately $0.4 million, with corresponding right-of use (“ROU”) assets
of approximately the same amount based on the present value of the future minimum rental payments of leases, using a weighted average
discount rate of approximately 8.98%.
On July 1, 2019, the
Company adopted ASU 2018-07 where awards to nonemployees are measured by estimating the fair value of the equity instruments to
be issued. The ASU is required to be applied on a prospective basis to all new awards granted after the date of adoption.
On July 13, 2017,
the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives
and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such
as warrants, convertible debt or convertible preferred stock that contain down round features. Part II does not have
accounting impact. The ASU is effective for the Company for annual and interim reporting periods beginning July 1, 2019.
The Company adopted this ASU on July 1, 2019 and determined the adoption of this ASU did not have a material effect on the
Company’s unaudited condensed consolidated financial statements.
Pronouncements not yet adopted
In August 2018, the
FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements
in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations
process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure,
and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and
interim reporting periods beginning July 1, 2020. The Company does not believe the adoption of this ASU will have a material
effect on the Company’s unaudited condensed consolidated financial statements.
In May 2019, the FASB
issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit
losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in
Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification.
Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit
losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments—
Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders’ concerns by
providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost
basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing
an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may
reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users
with decision-useful information. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning July
1, 2020. The Company is currently evaluating the impact of this new standard on its unaudited condensed consolidated financial
statements and related disclosures.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The Company does not
believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on
the Company’s unaudited condensed consolidated financial statements.
(t) Reclassification
Certain prior year
amounts have been reclassified to conform to the current year presentation mainly reclassifying advance to suppliers to other receivables
(see Note 4 and 5). These reclassifications have no effect on the reported revenues, net loss or total assets.
Note 3. ACCOUNTS RECEIVABLE, NET
The Company’s
net accounts receivable is as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Trade accounts receivable
|
|
$
|
10,498,624
|
|
|
$
|
12,716,120
|
|
Less: allowances for doubtful accounts
|
|
|
(6,506,794
|
)
|
|
|
(5,670,274
|
)
|
Accounts receivable, net
|
|
$
|
3,991,830
|
|
|
$
|
7,045,846
|
|
Movement of allowance
for doubtful accounts is as follows:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Beginning balance
|
|
$
|
5,670,274
|
|
|
$
|
1,682,228
|
|
Provision for doubtful accounts
|
|
|
1,023,931
|
|
|
|
4,091,056
|
|
Less: write-off/recovery
|
|
|
(99,366
|
)
|
|
|
(88,882
|
)
|
Exchange rate effect
|
|
|
(88,045
|
)
|
|
|
(14,128
|
)
|
Ending balance
|
|
$
|
6,506,794
|
|
|
$
|
5,670,274
|
|
For the three months
ended September 30, 2019 and 2018, the provision for doubtful accounts was $1,023,931 and $951,832, respectively.
Note 4. OTHER RECEIVABLES, NET
The Company’s net other receivables
are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Advances to customers*
|
|
$
|
9,433,868
|
|
|
$
|
4,237,270
|
|
Cash advances
|
|
|
93,564
|
|
|
|
54,953
|
|
Security deposit
|
|
|
41,784
|
|
|
|
43,492
|
|
Other receivables, net
|
|
$
|
9,569,216
|
|
|
$
|
4,335,715
|
|
|
*
|
As of September 30, 2019, the Company entered into certain
contracts with customers (state-owned entities) where the Company’s services included freight costs and cost of commodities
to be shipped to customers’ designated locations. The Company prepaid the costs of commodities and recognized as advance
payments on behalf of its customers. These advance payments on behalf of the customers will be repaid to the Company when
either the contract terms are expired or the contracts are terminated by the Company.
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 5. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers
– third parties are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Freight fees (1)
|
|
$
|
55,953
|
|
|
$
|
123,767
|
|
Port fees
|
|
|
-
|
|
|
|
373
|
|
Total advances to suppliers-third parties
|
|
$
|
55,953
|
|
|
$
|
124,140
|
|
|
(1)
|
The
advanced freight fee is the Company’s prepayment made for various shipping costs for shipments from October to December
2019.
|
Note 6. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s
prepaid expenses and other assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Prepaid income taxes
|
|
$
|
45,624
|
|
|
$
|
35,129
|
|
Other (including prepaid insurance, rent, listing fees)
|
|
|
46,502
|
|
|
|
69,925
|
|
Deposit for ERP (1)
|
|
|
-
|
|
|
|
218,678
|
|
Prepaid leasing and service fees (2)
|
|
|
225,619
|
|
|
|
300,825
|
|
Total
|
|
|
317,745
|
|
|
|
624,557
|
|
Less: current portion
|
|
|
(92,126
|
)
|
|
|
(105,054
|
)
|
Total noncurrent portion
|
|
$
|
225,619
|
|
|
$
|
519,503
|
|
|
(1)
|
On
December 27, 2017, with the approval of the Board, the Company signed a contract with Tianjin Anboweiye Technology Ltd Co. (“Tianjin
Anboweiye”), to develop a more complete ERP system based on the Company’s existing operations and projected future
growth. In March 2018, the Company paid a deposit to start phase one of the development which includes upgraded accounting and
human resources modules, new order processing and customer relationship management system. The Company paid a $437,357 deposit
to Tianjin Anboweiye. The total contract price for phase one amounted to RMB 4,000,000, approximately $583,000. For the year ended
June 30, 2019, the Company prepaid $218,679 of software development costs incurred during the preliminary project stage, which
included planning and determining the functionality of the software. The Company integrated the shipping agencies business with
the current ERP platform and the first phase of the ERP system was placed in use in July 2019 and to be amortized over three years
(See Note 9).
|
|
(2)
|
On
June 22, 2018, the Company entered into a contract to improve its IT infrastructure. The total contract consideration for the
services is $1.2 million and the Company paid a deposit of approximately $1.0 million. The consideration is allocated as follows:
$420,000 for operating hardware leasing of twelve months; $480,000 for onsite services and IT consulting for a two-year period;
$60,000 for operating system set up and $240,000 for continuing integration with the ERP system and data management for two years.
For the three months ended September 30, 2019, the Company incurred $50,137 in IT for consulting costs, and $25,069 for continuing
integration of the ERP system and data management costs.
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 7. OTHER LONG-TERM ASSETS - DEPOSITS
The Company’s
other long-term assets – deposits are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Rental and utilities deposits
|
|
$
|
52,087
|
|
|
$
|
60,435
|
|
Freight logistics deposits (1)
|
|
|
2,876,446
|
|
|
|
2,994,271
|
|
Total other long-term assets - deposits
|
|
$
|
2,928,533
|
|
|
$
|
3,054,706
|
|
|
(1)
|
Certain
customers require the Company to pay certain deposits for the security of shipments and merchandise. These deposits are refundable
at the end of their respective contract term. Approximately $2.8 million (RMB 20 million) of the balance was paid to BaoSteel
Resources Co., Ltd. according to the agreement entered in March 2018. This refundable deposit is to cover any possible loss of
merchandise, as well as any non-performance on the part of the Company and its vendors. The deposit is expected be repaid to the
Company when either the contract terms are expired or the contract is terminated by the Company.
|
Note 8. PROPERTY AND EQUIPMENT, NET
The Company’s
net property and equipment as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Buildings
|
|
$
|
188,285
|
|
|
$
|
196,050
|
|
Motor vehicles*
|
|
|
510,656
|
|
|
|
700,724
|
|
Computer equipment*
|
|
|
96,008
|
|
|
|
162,865
|
|
Office equipment*
|
|
|
43,076
|
|
|
|
69,278
|
|
Furniture and fixtures*
|
|
|
70,857
|
|
|
|
167,143
|
|
System software*
|
|
|
106,646
|
|
|
|
116,339
|
|
Leasehold improvements
|
|
|
775,106
|
|
|
|
807,078
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,790,634
|
|
|
|
2,219,477
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,078,996
|
)
|
|
|
(1,229,567
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
711,638
|
|
|
$
|
989,910
|
|
Depreciation
and amortization expenses for the three months ended September 30, 2019 and 2018 were $120,520 and $9,882, respectively.
*For the three months
ended September 30, 2019 and 2018, an impairment of $127,177 and nil were recorded, respectively due to continued decrease in revenues
from the inland transportation management segment.
Note 9. INTANGIBLE ASSETS, NET
Net intangible assets
consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(116,111
|
)
|
|
|
(100,278
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
73,889
|
|
|
$
|
89,722
|
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
As part of the above-mentioned
intelligent logistics platform (see Note 6), four information applications were completed by Tianjin Anboweiye in December 2017
and placed into service, including route planning and route execution for customers in China. The platforms are being amortized
over three years. Amortization expenses amounted to $34,057 and $15,833 for the three months ended September 30, 2019 and 2018,
respectively.
In addition, first
phase of the ERP system was placed in use in July 2019 and is being amortized over three years. However, due to the continued decrease
in revenues from the inland transportation management segment, the Company recorded an impairment of $200,455 for the three months
ended September 30, 2019.
Note 10 – LEASES
The Company determines
if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating
or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease
term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset,
together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such
option which result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.
The Company
has several vehicle lease agreements and office lease agreements with lease terms ranging from two to three years. Upon adoption
of ASU 2016-02, the Company recognized lease labilities of approximately $0.4 million, with corresponding ROU assets of approximately
the same amount based on the present value of the future minimum rental payments of leases, using a weighted average discount rate
of 8.98%.
The Company’s
lease agreements do not contain any material residual value guarantees or material restrictive covenants. The leases generally
do not contain options to extend at the time of expiration and the weighted average remaining lease terms are 1.75 years.
For the three months
ended September 30, 2019 and 2018, rent expense amounted to approximately $80,000 and $56,000, respectively.
The three-year maturity
of the Company’s lease obligations is presented below:
Twelve Months Ending September 30,
|
|
Operating Lease Amount
|
|
|
|
|
|
|
2020
|
|
$
|
190,418
|
|
2021
|
|
|
173,687
|
|
2022
|
|
|
113,552
|
|
Total lease payments
|
|
|
477,657
|
|
Less: Interest
|
|
|
(55,729
|
)
|
Present value of lease liabilities
|
|
$
|
421,928
|
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 11. EQUITY
Stock issuance:
The Company’s
outstanding warrants are classified as equity since they qualify for exception from derivative accounting as they are considered
to be indexed to the Company’s own stock and require net share settlement. The fair value of the 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 the relative
fair value of proceeds received using the following assumptions:
|
|
Series A
|
|
Annual dividend yield
|
|
|
-
|
|
Expected life (years)
|
|
|
5.5
|
|
Risk-free interest rate
|
|
|
2.72
|
%
|
Expected volatility
|
|
|
110.31
|
%
|
Following is a summary
of the status of warrants outstanding and exercisable as of September 30, 2019:
|
|
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2019
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of September 30, 2019
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of September 30, 2019
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
Warrants Outstanding
|
|
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Life
|
2018 Series A, 2,000,000
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
|
3.96 years
|
Stock based compensation:
In March 2017, the
Company entered into a consulting and advisory services agreement with a consulting entity, which provides management consulting
services that include marketing program design and implementation and cooperative partner selection and management. The service
period began in March 2017 and will end in February 2020. The Company issued 250,000 shares of common stock as remuneration for
the services, which were issued as restricted shares at $2.53 per share on March 22, 2017 to the consultant. These shares
were valued at $632,500 and the consulting expense were $52,708 for both the three months ended September 30, 2019 and 2018.
On October 23, 2017,
the Company issued to its employees 130,000 shares of its restricted common stock valued at $2.80 per share. One quarter of the
total number of common shares became vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and August 16, 2018.
These shares were valued at $364,000. For the three months ended September 30, 2019 and 2018, $0 and $91,000 were recorded as compensation
expense respectively.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On October 27, 2017,
the Company issued 200,000 shares of restricted common stock on the grant date with an aggregated fair value of $548,000 to a consulting
company pursuant to a consulting agreement. The scope of services primarily covered advising on business development, strategic
planning and compliance during the one-year service period from October 17, 2017 to October 16, 2018. $0 and $137,000 were recorded
as compensation expense for three months ended September 30, 2019 and 2018, respectively.
On June 7, 2018, the
Company issued 400,000 shares of common stock with a fair value of $508,000 to a consulting entity pursuant to a service agreement.
The scope of services primarily covers legal consultation in PRC during the two-year service period from July 2018 to June 2020.
The consulting entity is entitled to be granted the common stock on a quarterly basis in eight equal instalments. The Company recorded
legal expense of $63,500 for both the three months ended September 30, 2019 and 2018.
On September 21, 2018,
the Company issued 430,000 shares of common stock valued at $1.10 per share on the grant date with an aggregated fair value of
$473,000 under the 2014 Stock Incentive Plan (the “Plan”) to three employees, vesting immediately. The Company recorded
compensation expense of $0 and $473,000 for the three months ended September 30, 2019 and 2018, respectively.
On April 8, 2019, the
Company entered into a consulting services agreement with a consulting entity, which provides management consulting and advisory
services. The scope of services primarily covered advising on business development, strategic planning and compliance during the
six months service period from April 8, 2019 to October 7, 2019. The Company issued 300,000 shares of common stock as remuneration
for the services, which were issued as restricted shares at $0.85 per share on April 16, 2019 to the consulting entity. These shares
were valued at $255,000. The Company recorded compensation expense of $127,500 for the three months ended September 30, 2019.
On July 1, 2019,
the Company issued 600,000 restricted shares of common stock with a fair value of $432,000 to a China-based company that
specializes in the port agency business and/or its designees pursuant to a consulting service agreement. The scope of
services primarily covers business consultation for one year from July 1, 2019 to June 30, 2020. The Company can terminate the agreement if they are not satisfy with the performance of the consulting
firm and the consulting firm should return all the issued shares. The Company recorded compensation expense of
$108,000 for the three months ended September 30, 2019.
Under a Board resolution
dated January 30, 2016, the Company’s CEO is authorized to grant to the employees up to one million shares under the Plan.
On July 22, 2019, the Company granted 90,000 shares of restricted common stock valued at $0.70 per share on the grant date with
an aggregated fair value of $63,000 under the Plan to one employee, vesting immediately. The Company recorded compensation expense
of $63,000 for the three months ended September 30, 2019.
During the three months
ended September 30, 2019 and 2018, $414,708 and $817,208 were recorded as stock-based compensation expense, respectively.
On August 26, 2019,
the Company issued 40,000 shares of common stock with an aggregated fair value of $28,800 to Chineseinvestors.com as settlement
of a breach of service contract lawsuit.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Stock Options:
A summary of the outstanding
options is presented in the table below:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2019
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of September 30, 2019
|
|
|
85,000
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of September 30, 2019
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Following is a summary
of the status of options outstanding and exercisable at September 30, 2019:
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
|
Average
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
2.01
|
|
|
|
10,000
|
|
|
3.34 years
|
|
$
|
2.01
|
|
|
|
10,000
|
|
|
3.34 years
|
$
|
1.10
|
|
|
|
75,000
|
|
|
1.82 years
|
|
$
|
1.10
|
|
|
|
75,000
|
|
|
1.82 years
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
Note 12. NON-CONTROLLING INTEREST
The Company’s
non-controlling interest consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Sino-China:
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
420,393
|
|
|
|
268,297
|
|
Accumulated deficit
|
|
|
(6,133,371
|
)
|
|
|
(6,066,145
|
)
|
|
|
|
(5,355,534
|
)
|
|
|
(5,440,404
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
203,185
|
|
|
|
266,782
|
|
Total
|
|
$
|
(5,152,349
|
)
|
|
$
|
(5,173,622
|
)
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 13. COMMITMENTS AND CONTINGENCIES
Contractual Obligations:
The Company entered
into a contract to upgrade its ERP system on December 27, 2017. The total contract costs amounted to RMB 4,000,000, or approximately
$560,000, of which the Company made a deposit of $437,357 during the year ended June 30, 2018. The remaining balance will be settled
upon the completion of services during fiscal year 2021.
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 during the year ended June 30, 2018. The remaining $0.2 million will be paid upon completion
of services during fiscal year 2020.
|
|
Amount
|
|
|
|
|
|
Twelve Months Ending September 30,
|
|
|
|
2020
|
|
$
|
200,000
|
|
2021
|
|
|
122,643
|
|
Total
|
|
$
|
322,643
|
|
Contingencies
The Labor Contract
Law of the PRC requires employers to insure the liability of the severance payments for terminated employees that have worked for
the employers for at least two years prior to January 1, 2008. 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, 2019 and June 30, 2019, the Company has estimated its severance
payments of approximately $95,000 and $94,000, respectively, which have not been reflected in its unaudited condensed consolidated
financial statements, because management cannot predict what the actual payment, if any, will be in the future.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Sino-Global has employment
agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for five-year terms
that extend automatically in the absence of termination notice provided at least 60 days prior to the anniversary date of the agreement.
If the Company fails to provide this notice or if the Company wishes to terminate an employment agreement in the absence of cause,
then the Company is obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement,
the Company would need to pay such executive (i) the remaining salary through the date of December 31, 2023, (ii) two times of
the then applicable annual salary if there has been no Change in Control, as defined in the employment agreements or three-and-half
times of the then applicable annual salary if there is a Change in Control.
From time to time,
the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named as a defendant
in a breach of service contract lawsuit in the amount of $225,000 filed with the California Superior Court on January 19, 2018.
The Company filed a motion with the court to force the plaintiff into arbitration rather than to litigate the dispute in court
based on the arbitration provision in the contract. The California Superior Court approved its motion to stay the case pending
the resolution of the arbitration. In Indianapolis, this matter was settled in exchange for 40,000 restrictive shares of common
stock of the Company to the plaintiff, by the execution of a settlement agreement by both parties on August 23, 2019 and the issuance
of 40,000 restricted shares on August 26, 2019. As a result, the arbitration in Indianapolis and the litigation in California has
been dismissed respectively.
Note 14. INCOME TAXES
The Company’s
income tax expenses for the three months ended September 30, 2019 and 2018 are as follows:
|
|
For the Three Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
U.S.
|
|
$
|
-
|
|
|
$
|
(30,597
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
(97,437
|
)
|
|
|
|
-
|
|
|
|
(128,034
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
-
|
|
|
|
194,500
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
Total income tax expense
|
|
$
|
-
|
|
|
$
|
66,466
|
|
The
Company’s deferred tax assets are comprised of the following:
|
|
September 30,
2019
|
|
|
June 30,
2019
|
|
Allowance for doubtful accounts
|
|
$
|
1,126,000
|
|
|
$
|
1,121,000
|
|
Net operating loss
|
|
|
1,293,000
|
|
|
|
1,024,000
|
|
Total deferred tax assets
|
|
|
2,419,000
|
|
|
|
2,145,000
|
|
Valuation allowance
|
|
|
(2,419,000
|
)
|
|
|
(2,145,000
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s
operations in the U.S. incurred a cumulative pre-2018 NOL of approximately $3,781,000 as of June 30, 2019 which may reduce future
federal taxable income. The NOL will expire in 2037 for the net operating losses generated prior to the year ended June 30, 2019.
During the three months ended September 30, 2019, approximately $985,000 of additional NOL was generated and the tax benefit derived
from such NOL was approximately $207,000. As of September 30, 2019, the Company’s cumulative NOL amounted to approximately
$4,766,000 which may reduce future federal taxable income, of which approximately $3,781,000 will expire in 2037 and the remaining
balance carried forward indefinitely.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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. Management considers new evidence, both positive
and negative, that could affect the Company’s future realization of 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.
The Company determined that it is more likely than not its deferred tax assets could not be realized due to uncertainty on future
earnings as a result of the deterioration of trade negotiation between US and China in 2019. The Company provided a 100% allowance
for its DTA as of September 30, 2019. The net increase in valuation for the three months ended September 30, 2019 amounted to approximately
$274,000 based on management’s reassessment of the amount of the Company’s deferred tax assets that are more likely
than not to be realized.
The Company’s
taxes payable consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
VAT tax payable
|
|
$
|
675,133
|
|
|
$
|
1,045,513
|
|
Corporate income tax payable
|
|
|
1,972,230
|
|
|
|
2,075,248
|
|
Others
|
|
|
62,648
|
|
|
|
64,134
|
|
Total
|
|
$
|
2,710,011
|
|
|
$
|
3,184,895
|
|
Note 15. CONCENTRATIONS
Major Customer
For the three months
ended September 30, 2019, three customers accounted for approximately 37.5%, 30.2% and 28.0% of the Company’s revenues, respectively.
As of September 30, 2019, all of these customers accounted for approximately 4.8% of the Company’s gross accounts receivable.
For the three months
ended September 30, 2018, three customers accounted for approximately 27.8%, 22.2% and 18.5% of the Company’s revenues, respectively.
At September 30, 2018, these three customers accounted for approximately 30.1% of the Company’s gross accounts receivable.
Major Suppliers
For the three months
ended September 30, 2019, one supplier accounted for approximately 66.6% of the total cost of revenues.
For the three months
ended September 30, 2018, four suppliers accounted for approximately 32.1%, 20.3%, 18.2% and 12.6% of the total cost of revenues,
respectively.
Note 16. SEGMENT REPORTING
ASC 280, “Segment
Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s
internal organizational structure as well as information about geographical areas, business segments and major customers in unaudited
condensed consolidated financial statements for detailing the Company’s business segments.
The Company’s
chief operating decision maker is the Chief Executive Officer, who reviews the financial information of the separate operating
segments when making decisions about allocating resources and assessing the performance of the group. The Company has determined
that it has four operating segments: (1) shipping agency and management services; (2) inland transportation management services;
(3) freight logistics services and (4) container trucking services.
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following tables
present summary information by segment for the three months ended September 30, 2019 and 2018, respectively:
|
|
For the Three Months Ended September 30, 2019
|
|
|
|
Shipping
Agency and Management Services
|
|
|
Inland
Transportation Management Services
|
|
|
Freight
Logistics
Services
|
|
|
Container Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
- Third parties
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
1,242,142
|
*
|
|
$
|
44,084
|
|
|
$
|
1,786,226
|
|
Total revenues
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
1,242,142
|
|
|
$
|
44,084
|
|
|
$
|
1,786,226
|
|
Cost of revenues
|
|
$
|
95,822
|
|
|
$
|
-
|
|
|
$
|
547,684
|
*
|
|
$
|
39,898
|
|
|
$
|
683,404
|
|
Gross profit
|
|
$
|
404,178
|
|
|
$
|
-
|
|
|
$
|
694,458
|
|
|
$
|
4,186
|
|
|
$
|
1,102,822
|
|
Depreciation and amortization
|
|
$
|
102,774
|
|
|
$
|
-
|
|
|
$
|
7,702
|
|
|
$
|
44,101
|
|
|
$
|
154,577
|
|
Total capital expenditures
|
|
$
|
4,538
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,538
|
|
Gross margin%
|
|
|
80.8
|
%
|
|
|
-
|
%
|
|
|
55.9
|
%
|
|
|
9.5
|
%
|
|
|
61.7
|
%
|
|
*
|
For certain freight logistics contracts that the Company
entered into with customer in first quarter of fiscal year 2020, the Company (i) acts as an agent in arranging the relationship
between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, revenues
related to these contracts are presented net of related costs. For the three months ended September 30, 2019, gross revenues and
gross cost of revenues related to these contracts amounted to approximately $9.1 million and $8.5 million, respectively.
|
|
|
For the Three Months Ended September 30, 2018
|
|
|
|
Shipping
Agency and Management
Services
|
|
|
Inland
Transportation Management Services
|
|
|
Freight
Logistics
Services
|
|
|
Container Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
-
|
|
|
$
|
322,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
322,000
|
|
- Third parties
|
|
$
|
-
|
|
|
$
|
598,000
|
|
|
$
|
5,487,553
|
|
|
$
|
91,980
|
|
|
$
|
6,177,533
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
920,000
|
|
|
$
|
5,487,553
|
|
|
$
|
91,980
|
|
|
$
|
6,499,533
|
|
Cost of revenues
|
|
$
|
-
|
|
|
$
|
59,874
|
|
|
$
|
4,965,992
|
|
|
$
|
57,966
|
|
|
$
|
5,083,832
|
|
Gross profit
|
|
$
|
-
|
|
|
$
|
860,126
|
|
|
$
|
521,561
|
|
|
$
|
34,014
|
|
|
$
|
1,415,701
|
|
Depreciation and amortization
|
|
$
|
-
|
|
|
$
|
20,488
|
|
|
$
|
476
|
|
|
$
|
4,751
|
|
|
$
|
25,715
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
830
|
|
|
$
|
830
|
|
Gross margin%
|
|
|
-
|
|
|
|
93.5
|
%
|
|
|
9.5
|
%
|
|
|
37.0
|
%
|
|
|
21.8
|
%
|
Total assets as of:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Shipping Agency and Management Services
|
|
$
|
3,118,858
|
|
|
$
|
3,549,093
|
|
Freight Logistic Services
|
|
|
15,545,582
|
|
|
|
17,017,696
|
|
Container Trucking Services
|
|
|
25,808
|
|
|
|
32,215
|
|
Total Assets
|
|
$
|
18,690,248
|
|
|
$
|
20,599,003
|
|
SINO-GLOBAL SHIPPING AMERICA, LTD. AND
AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 17. RELATED PARTY TRANSACTIONS
As of September 30,
2019 and June 30, 2019, the outstanding amounts due from a related party consist of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
525,239
|
|
|
$
|
897,739
|
|
Less: allowance for doubtful accounts
|
|
|
(52,524
|
)
|
|
|
(89,774
|
)
|
Total
|
|
$
|
472,715
|
|
|
$
|
807,965
|
|
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. The amount due from Zhiyuan Investment
Group as of September 30, 2019 was $525,239 and the Company provided a 10% allowance for doubtful accounts of the amount due from
Zhiyuan. For the three months ended September 30, 2019, the Company recovered $37,250 of allowance for doubtful accounts of the
amount due from Zhiyuan.
Note 18. SUBSEQUENT EVENTS
On October 3, 2019, the Company issued 230,000
shares of common stock valued at $0.68 per share on the grant date with an aggregated fair value of $156,400 under the Plan to
one employee, vesting immediately.
On October 14, 2019,
the Company entered into a consulting services agreement with a consulting entity, which provides management consulting and advisory
services. The scope of services primarily covered advising on business development, strategic planning and compliance during the
six months service period from October 14, 2019 to April 13, 2020. The Company issued 300,000 shares of common stock valued at
$222,000 as remuneration for the services. The shares bear a standard restrictive legend under the Securities Act of 1933,
as amended.
On November 6, 2019,
the Company signed a revised cooperation agreement with Mr. Weijun Qin to restructure their equity interest in State Priests. Due
to State Priests’ delayed approval from related authorities, Mr. Weijun Qin agreed to exchange 80% equity interest in Sea
Continent for the Company’s 90% equity interest in State Priests. The equity transfer has been consummated. Sea Continent
already has the Certificate but has no operations as of September 30, 2019.
On November 13, 2019,
the Company entered into a cooperation agreement with Shanming Liang, a director of Guangxi Jinqiao Industrial Group Co., Ltd.,
to cooperate and expand the bulk cargo container services business. Shanming Liang agreed to purchase 1,000,000 shares of the Company’s
common stock at a purchase price of $1.00 per share for aggregate proceeds of $1 million. The Company and Mr. Liang further entered
into a Share Purchase Agreement on November 14, 2019 to lay out the details of the transaction aforementioned.