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 lower shipping volumes and less utilization of its online platform, which has caused the
Company to shift its focus back to shipping agency business. The shipping agency industry in China has improved and the number
of shipping agencies in overall in the country has decreased, due to both price and the inability of competitors to embrace technology
as a resource in serving client needs.
On September 3, 2018,
the Company entered into a cooperation agreement with Ningbo Far-East Universal Shipping Agency Co., Ltd. to set up a joint venture
in Hong Kong named Bright Far East International Shipping Agency Co., Ltd., to engage in worldwide shipping agency operations.
The Company has a 51% equity interest in the joint venture. On May 23, 2019, Bright Far East International Shipping Agency Co.,
Ltd. incorporated in New York and terminated its registration in Hong Kong. There has been no major operation of the joint venture
for the three and nine months ended March 31, 2020. Currently the Company is conducting the shipping agency business through its
wholly-owned Hong Kong subsidiary.
On April 10, 2019, the
Company entered into a cooperation agreement with Mr. Weijun Qin, the Chief Executive Officer of a shipping management company
in China, to set up a joint venture in New York named State Priests Management Ltd. (“State Priests”), in which the
Company will hold a 20% equity interest. On July 26, 2019, the Company signed a revised cooperation agreement with Mr. Weijun
Qin which changed the Company’s equity interest in State Priests from 20% to 90%. The Company has not provided any cash
contribution to the joint venture and there has been no operation of the joint venture pending the International Ship Safety Management
Certificate from the China Classification Society (the “Certificate”). Sino-Global Shipping New York Inc. started
providing shipping management related services that do not require certification which includes arranging and coordinating for
ship maintenance and inspection this quarter.
On November 6, 2019, the
Company signed a revised cooperation agreement with Mr. Weijun Qin to restructure their equity interest in State Priests. Given
that 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 New York 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 March 31, 2020. There has been no capital injection nor operations of State Priests and
Sea Continent as of March 31, 2020, therefore no gain or loss has been recognized in the transaction.
On January 10, 2020, the
Company entered into a cooperation agreement with Mr. Shanming Liang, a shareholder of the Company, to set up a joint venture
in New York named LSM Trading Ltd., in which the Company will hold a 40% equity interest. No investment has been made by the Company
as of the date of this report. The new joint venture will facilitate the purchase agricultural related commodities in the U.S.
for customers in China and the Company will provide comprehensive supply chain and logistics solutions.
The outbreak of the novel
coronavirus (COVID-19) starting from late January 2020 in the PRC has spread rapidly to many parts of the world. In March 2020,
the World Health Organization declared the COVID-19 as a pandemic and has resulted in quarantines, travel restrictions, and the
temporary closure of stores and business facilities in China and the U.S. for the past few months. Given the rapidly expanding
nature of the COVID-19 pandemic, and because substantially all of the Company’s business operations and its workforce are
concentrated in China and the U.S., the Company’s business, results of operations, and financial condition have been adversely
affected for the three and nine months ended March 31, 2020.
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 the Company and include the assets, liabilities, revenues and expenses of the subsidiaries and VIEs. 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 the information included
in the annual report on Form 10-K for the fiscal year ended June 30, 2019 filed on September 30, 2019.
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.
As a VIE, Sino-China’s
revenues are included in the Company’s total revenues, and any income/loss from operations is consolidated with that of
the Company. Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary interest in Sino-China
that requires consolidation of the financial statements of the Company and Sino-China.
The Company has consolidated
Sino-China’s operating results because the entities are under common control in accordance with 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:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,072
|
|
|
$
|
11,691
|
|
Other receivables
|
|
|
299
|
|
|
|
309
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
4,474
|
|
Total current assets
|
|
|
5,371
|
|
|
|
16,474
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,605
|
|
|
|
1,655
|
|
Property and equipment, net
|
|
|
44,459
|
|
|
|
95,765
|
|
Total assets
|
|
$
|
51,435
|
|
|
$
|
113,894
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
$
|
39,835
|
|
|
$
|
30,175
|
|
Total liabilities
|
|
$
|
39,835
|
|
|
$
|
30,175
|
|
(b) 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.
(c) 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. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s
critical and significant accounting estimates. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates.
(d) Translation of Foreign Currency
The accounts of the Company
and its subsidiaries 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, Trans Pacific Shipping Ltd. and Trans Pacific Logistic Shanghai Ltd. report their financial positions
and results of operations in Renminbi (“RMB”), its subsidiary Sino-Global Shipping Australia Pty Ltd., reports its
financial positions and results of operations in Australian dollar (“AUD”), its subsidiary Sino-Global Shipping Hong
Kong reports its financial positions and results of operations in Hong Kong dollar (“HKD”) and its subsidiary Sino-Global
Shipping Canada, Inc. reports its financial positions and results of operations in Canadian Dollar (“CAD”). 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 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.
The exchange rates as
of March 31, 2020 and June 30, 2019 and for the three and nine months ended March 31, 2020 and 2019 are as follows:
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
Foreign currency
|
|
Balance
Sheet
|
|
|
Balance
Sheet
|
|
|
2020
Profits/Loss
|
|
|
2019
Profits/Loss
|
|
|
2020
Profits/Loss
|
|
|
2019
Profits/Loss
|
|
RMB:1USD
|
|
|
7.0799
|
|
|
|
6.8657
|
|
|
|
6.9798
|
|
|
|
6.7499
|
|
|
|
7.0130
|
|
|
|
6.8229
|
|
AUD:1USD
|
|
|
1.6285
|
|
|
|
1.4238
|
|
|
|
1.5209
|
|
|
|
1.4031
|
|
|
|
1.4810
|
|
|
|
1.3885
|
|
HKD:1USD
|
|
|
7.7509
|
|
|
|
7.8130
|
|
|
|
7.7716
|
|
|
|
7.8461
|
|
|
|
7.8091
|
|
|
|
7.8402
|
|
CAD:1USD
|
|
|
1.4118
|
|
|
|
1.3092
|
|
|
|
1.3417
|
|
|
|
1.3291
|
|
|
|
1.3272
|
|
|
|
1.3192
|
|
(e) Cash
Cash consists of cash
on hand and cash in bank which are unrestricted as to withdrawal or use. The Company maintains cash with various financial institutions
mainly in the PRC, Australia, Hong Kong, Canada and the U.S. As of March 31, 2020 and June 30, 2019, cash balances of $131,676
and $2,993,913, respectively, were maintained at financial institutions in the PRC. $42,189 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 March 31, 2020 and June 30, 2019, cash balances of $4,705 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 March 31, 2020 and June 30, 2019, cash balances
of $865 and $4,386, respectively, were maintained at financial institutions in Hong Kong and were insured by the Hong Kong Deposit
Protection Board. As of March 31, 2020 and June 30, 2019, amount of deposits the Company had covered by insurance amounted to
$96,313 and $198,165, respectively.
(f) 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.
(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 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. As the Company has focused
its development in the shipping management segment, its customer base will be more from smaller privately owned companies that
will pay more timely than state owned companies. The Company also considers the economic implications of COVID-19 on its estimates
of the allowance and made additional $3,121,416 and $4,428,108 of allowance for doubtful accounts and wrote off $3,255,938 of
accounts receivable for the three and nine months ended March 31, 2020. There was no write off for three and nine months ended
March 31, 2019. The Company recovered nil and $99,366 of accounts receivable for the three and nine months ended March 31, 2020.
There was no recovery for three and nine months ended March 31, 2019.
Other receivables represent
mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee
payroll, guarantee deposits on behalf of ship owners as well as office lease deposits. Management reviews its receivables on a
regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account
balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection
is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts. For the three
and nine months ended March 31, 2020, nil and $1,763 was written off against other receivables, respectively. There was no write
off for the three and nine months ended March 31, 2019.
(h) Property and Equipment, 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. There was no impairment for the three months ended March
31, 2020 and 2019. For the nine months ended March 31, 2020 and 2019, an impairment of $127,177 and nil were recorded, respectively.
(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 impairment for the three months ended March 31, 2020 and 2019. For the nine months ended March 31, 2020 and 2019, an impairment
of $200,455 and nil were recorded, respectively.
(j) 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 March 31, 2020,
the Company had outstanding contracts amounting to approximately $1.4 million, all of which is expected to be completed within
3 months from March 31, 2020.
Revenues by segments:
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Shipping and management agency services
|
|
$
|
500,000
|
|
|
$
|
956,583
|
|
|
$
|
1,500,000
|
|
|
$
|
1,845,653
|
|
Inland transportation management services
|
|
|
-
|
|
|
|
129,787
|
|
|
|
-
|
|
|
|
1,469,787
|
|
Freight logistics services
|
|
|
853,979
|
|
|
|
21,599,675
|
|
|
|
3,599,620
|
|
|
|
36,066,151
|
|
Container trucking services
|
|
|
-
|
|
|
|
87,094
|
|
|
|
61,709
|
|
|
|
406,368
|
|
Total
|
|
$
|
1,353,979
|
|
|
$
|
22,773,139
|
|
|
$
|
5,161,329
|
|
|
$
|
39,787,959
|
|
|
●
|
Revenues from shipping and management
agency services are recognized upon completion of services, which coincides with the date of departure of the relevant
vessel from port. Advance payments and deposits received from customers prior to the provision of services and recognition
of the related revenues are presented as advances from customers.
|
|
●
|
Revenues from inland
transportation management services are recognized when commodities are being released from the customers’ warehouse.
|
|
●
|
Revenues from freight logistics services
are recognized when the related contractual services are rendered.
For certain freight logistics contracts
that the Company entered into with customers starting in the first quarter of fiscal year 2020, the Company (i) acts as
an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control
the services rendered to the customers, revenues related to this contracts are presented net of related costs. For the
three months ended March 31, 2020, gross revenue and gross cost of revenue related to these contracts amounted to approximately
$2.0 million and $2.0 million, respectively. For the nine months ended March 31, 2020, gross revenue and gross cost of
revenue related to these contracts amounted to approximately $24.0 million and $22.5 million, respectively.
|
|
●
|
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 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 U.S. GAAP. Deferred taxes, if any, are recognized
for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts
in the 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 March 31, 2020 and
June 30, 2019.
Income tax returns for
the years prior to 2016 are no longer subject to examination by U.S. 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.
PRC Value Added Taxes and Surcharges
The Company is subject
to value added tax (“VAT”). Revenue from services provided by the Company’s PRC subsidiaries and affiliates,
including Sino-China and Trans Pacific are subject to VAT at rates ranging from 9% to 13%. Entities that are VAT general taxpayers
are allowed to offset qualified VAT paid to suppliers against their VAT liability. Net VAT liability is recorded in taxes payable
on the unaudited condensed consolidated balance sheets.
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 net VAT payments.
(l) Earnings (loss) per Share
Basic earnings (loss)
per share is computed by dividing net income (loss) attributable to holders of common stock of the Company by the weighted average
number of shares of common stock 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 stock of the Company were exercised or
converted into common stock of the Company. Common stock equivalents are excluded from the computation of diluted earnings per
share if their effects would be anti-dilutive.
For the three and nine
months ended March 31, 2020 and 2019, there was no dilutive effect of potential shares of common stock of the Company because
the Company generated a net loss.
(m) 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.
(n) 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 amended by ASU 2018-07. Under FASB ASC
Topic 718, stock compensation granted to non-employees has been determined as the fair value of the consideration received or
the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or
services are received.
Valuations of stock based
compensation are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns.
The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities
are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise
and employee terminations. The expected term of options granted represents the period of time that options granted are expected
to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve
in effect at the time of the grant.
(o) Risks and Uncertainties
The Company’s business,
financial position and results of operations may be influenced by the political, economic, health and legal environments in the
PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations
and significant risks not typically associated with companies in North America and Western Europe. These include risks associated
with, among others, the political, economic, health and legal 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.
In March 2020, the World
Health Organization declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because
substantially all of the Company’s business operations and our workforce are concentrated in China and United States, the
Company’s business, results of operations, and financial condition could be adversely affected for the rest of fiscal year
2020 and beyond.
(p) 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 March
31, 2020, the Company’s working capital was approximately $3.5 million and the Company had cash of approximately $0.1 million.
The Company plans to fund continuing operations through identifying new prospective joint venture partners and strategic alliance
opportunities for new revenue sources, and by reducing costs to improve profitability and replenish working capital. The Company’s
ability to 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 pursuant to a stock purchase agreement dated
November 14, 2019. The company received gross proceeds of $885,946 in the second and third quarters of fiscal year 2020. On
April 23, 2020, the Company received additional proceeds of $50,000. The rest of the payment is expected to be received by
the end of the first quarter of fiscal year 2021.
|
|
|
|
|
●
|
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 may not have sufficient funds to meet the Company’s working capital
requirements and current liabilities as they become due one year from issuance of these financial statements. There is no assurance
that management will be successful in their plans. There are a number of factors that could potentially arise that could undermine
the Company’s plans, such as changes in the PRC government policy, economic conditions, and competitive pricing in the industries
that the Company operates in. In addition, the recent outbreak of new coronavirus pandemic posed disruption and restrictions on
its operations and those of the Company’s customers which not only negatively impact the Company’s financial conditions
but also slowed down the macro-economic development worldwide. If management is unable to execute this plan, there would likely
be a material adverse effect on the Company’s business.
The management has considered
whether there is substantial doubt about its ability to continue as a going concern due to 1) the Company’s recurring losses
from operations, including approximately $5.9 million net loss attributable to the Company’s stockholders for the nine months
ended March 31, 2020, 2) accumulated deficit of approximately $12.8 million as of March 31, 2020, and 3) has negative operating
cash flows of approximately $3.6 million for the nine months ended March 31, 2020. All of these factors raise substantial doubt
about the ability of the Company to continue as a going concern.
(q) 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 $0.3 million, with corresponding right-of use (“ROU”) assets
of approximately the same amount based on the present value of the future minimum rental payments of leases, using a weighted
average discount rate of approximately 9.12%.
On July 1, 2019, the Company
adopted ASU 2018-07 where awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued.
The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards which superseded ASU 505-50.
The ASU is required to be applied on a prospective basis to all new awards granted after the date of adoption. The Company adopted
this ASU on July 1, 2019 and the adoption has no significant impact to the Company’s unaudited condensed consolidated financial
statements as a whole.
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. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date
of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit
losses standard. The new effective date for these preparers is for fiscal years beginning after July 1, 2023, including interim
periods within those fiscal years. The Company has not early adopted this update and it will become effective on July 1, 2023
assuming the Company will remain eligible to be smaller reporting company. The Company is currently evaluating the impact of this
new standard on Company's consolidated financial statements and related disclosures. The Company is currently evaluating the impact
of this new standard on its unaudited condensed consolidated financial statements and related disclosures.
In December 2019,
the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments
in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.
The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending
existing guidance. ASU 2019-12 is effective for the Company for annual and interim reporting periods beginning July 1, 2021. Early
adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for
which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period
should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity
that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of
this new standard on Company’s unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe
other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s
unaudited condensed consolidated financial statements.
(r) Reclassification
Certain prior year amounts
have been reclassified to conform to the current year presentation mainly reclassifying advances to suppliers to other receivables
(see Note 4 and 5). These reclassifications have no effect on the reported revenues, net loss or total assets.
Note 3. ACCOUNTS RECEIVABLE, NET
The Company’s net
accounts receivable are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Trade accounts receivable
|
|
$
|
8,405,601
|
|
|
$
|
12,716,120
|
|
Less: allowances for doubtful accounts
|
|
|
(6,659,929
|
)
|
|
|
(5,670,274
|
)
|
Accounts receivable, net
|
|
$
|
1,745,672
|
|
|
$
|
7,045,846
|
|
Movement of allowance
for doubtful accounts are as follows:
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
Beginning balance
|
|
$
|
5,670,274
|
|
|
$
|
1,682,228
|
|
Provision for doubtful accounts
|
|
|
4,428,108
|
|
|
|
4,091,056
|
|
Less: write-off/recovery
|
|
|
(3,355,304
|
)
|
|
|
(88,882
|
)
|
Exchange rate effect
|
|
|
(83,149
|
)
|
|
|
(14,128
|
)
|
Ending balance
|
|
$
|
6,659,929
|
|
|
$
|
5,670,274
|
|
For the three months ended
March 31, 2020 and 2019, the provision for doubtful accounts was $3,121,416 and $1,608,454, respectively. For the nine months
ended March 31, 2020 and 2019, the provision for doubtful accounts was $4,428,108 and $3,005,405, respectively. The Company recovered
nil and $99,366 of accounts receivable for the three and nine months ended March 31, 2020. There
was no recovery for three and nine months ended March 31, 2019. The Company wrote off $3,255,938 of accounts receivable for the
three and nine months ended March 31, 2020. There was no write off for three and nine months ended March 31, 2019.
Note 4. OTHER RECEIVABLES
The Company’s other receivables are as
follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Advances to customers*
|
|
$
|
9,983,979
|
|
|
$
|
4,237,270
|
|
Employee business advances
|
|
|
52,119
|
|
|
|
54,953
|
|
Security deposit
|
|
|
-
|
|
|
|
43,492
|
|
Total
|
|
|
10,036,098
|
|
|
|
4,335,715
|
|
Less: current portion
|
|
|
(6,486,140
|
)
|
|
|
(4,335,715
|
)
|
Total noncurrent portion
|
|
$
|
3,549,958
|
|
|
$
|
-
|
|
|
*
|
As of March 31,
2020, the Company entered into certain contracts with customers (state-owned entities) where the Company’s services
included freight costs and cost of commodities to be shipped to customers’ designated locations. The Company prepaid
the costs of commodities and recognized as advance payments on behalf of its customers. These advance payments on behalf of
the customers will be repaid to the Company when either the contract terms are expired or the contracts are terminated by
the Company. The Company is expected to execute the contracts by December 31, 2020 for the current portion which is within
12 months period from the date of the contracts were signed.
|
Note 5. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers –
third parties are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Freight fees (1)
|
|
$
|
112,037
|
|
|
$
|
123,767
|
|
Port fees
|
|
|
-
|
|
|
|
373
|
|
Total advances to suppliers-third parties
|
|
$
|
112,037
|
|
|
$
|
124,140
|
|
|
(1)
|
The advanced freight
fee is the Company’s prepayment made for various shipping costs for shipments from April to June 2020.
|
Note 6. PREPAID EXPENSES AND OTHER CURRENT
ASSETS
The Company’s prepaid
expenses and other assets are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Prepaid income taxes
|
|
$
|
48,924
|
|
|
$
|
35,129
|
|
Other (including prepaid insurance, rent, listing fees)
|
|
|
115,700
|
|
|
|
69,925
|
|
Deposit for ERP (1)
|
|
|
-
|
|
|
|
218,678
|
|
Prepaid leasing and service fees (2)
|
|
|
75,206
|
|
|
|
300,825
|
|
Total
|
|
|
239,830
|
|
|
|
624,557
|
|
Less: current portion
|
|
|
(239,830
|
)
|
|
|
(105,054
|
)
|
Total noncurrent portion
|
|
$
|
-
|
|
|
$
|
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 utilized $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). As of March 31, 2020, all executed portion of the contract has been fully paid.
On March 31, 2020, the Company and the vendor agreed
to terminate the unexecuted portions of the contract, as such, no payable nor contractual obligation existed as of March 31,
2020.
|
|
(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 March 31, 2020, the Company incurred $50,137 in IT for consulting costs, and $25,069 for continuing
integration of the ERP system and data management costs. For the nine months ended March 31, 2020, the Company incurred $150,412
in IT for consulting costs, and $75,206 for continuing integration of the ERP system and data management costs. As of March
31, 2020, all executed portion of the contract has been fully paid. On March 31, 2020, the Company and
the vendor agreed to terminate the unexecuted portions of the contract, as such, no payable
nor contractual obligation existed as of March 31, 2020.
|
Note 7. OTHER LONG-TERM ASSETS - DEPOSITS
The Company’s other
long-term assets – deposits are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Rental and utilities deposits
|
|
$
|
52,517
|
|
|
$
|
60,435
|
|
Freight logistics deposits (1)
|
|
|
2,904,285
|
|
|
|
2,994,271
|
|
Total other long-term assets - deposits
|
|
$
|
2,956,802
|
|
|
$
|
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:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Buildings
|
|
$
|
190,121
|
|
|
$
|
196,050
|
|
Motor vehicles*
|
|
|
515,870
|
|
|
|
700,724
|
|
Computer equipment*
|
|
|
96,677
|
|
|
|
162,865
|
|
Office equipment*
|
|
|
43,496
|
|
|
|
69,278
|
|
Furniture and fixtures*
|
|
|
71,548
|
|
|
|
167,143
|
|
System software*
|
|
|
107,686
|
|
|
|
116,339
|
|
Leasehold improvements
|
|
|
785,103
|
|
|
|
807,078
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,810,501
|
|
|
|
2,219,477
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,221,987
|
)
|
|
|
(1,229,567
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
588,514
|
|
|
$
|
989,910
|
|
Depreciation and amortization
expenses for the three months ended March 31, 2020 and 2019 were $67,320 and $28,200, respectively. Depreciation and amortization
expenses for the nine months ended March 31, 2020 and 2019 were $254,549 and $47,813, respectively.
|
*
|
For the three and nine months ended March 31, 2020, an impairment
of nil and $127,177 were recorded, respectively due to continued decrease in revenues from the inland transportation management
segment, no impairment was recorded for same period 2019.
|
Note 9. INTANGIBLE ASSETS, NET
Net intangible assets
consisted of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
Less: Accumulated amortization
|
|
|
(147,778
|
)
|
|
|
(100,278
|
)
|
Intangible assets, net
|
|
$
|
42,222
|
|
|
$
|
89,722
|
|
The full service logistics
platform was placed in services in December 2017. The platforms are being amortized over three years. Amortization expenses amounted
to $15,833 and $15,833 for the three months ended March 31, 2020 and 2019, respectively. Amortization expenses amounted to $65,723
and $47,500 for the nine months ended March 31, 2020 and 2019, respectively.
In addition, first phase
of the ERP system (see more details in Note 6) 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 nil and $200,455 for the three and nine months ended March 31, 2020, no impairment was recorded for same period 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 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 $0.3 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 approximately 9.12%. As of March
31, 2020, ROU assets and lease labilities amounted to $337,899 and $333,685 (including $156,190 from lease liabilities current
portion and $177,495 from lease liabilities noncurrent portion), respectively.
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 2.17 years.
For the three months ended
March 31, 2020 and 2019, rent expense amounted to approximately $65,000 and $58,000, respectively. For the nine months ended March
31, 2020 and 2019, rent expense amounted to approximately $223,000 and $171,000, respectively.
The three-year maturity
of the Company’s lease obligations is presented below:
Twelve Months Ending March 31,
|
|
Operating Lease Amount
|
|
|
|
|
|
2021
|
|
$
|
180,912
|
|
2022
|
|
|
153,185
|
|
2023
|
|
|
36,764
|
|
Total lease payments
|
|
|
370,861
|
|
Less: Interest
|
|
|
(37,176
|
)
|
Present value of lease liabilities
|
|
$
|
333,685
|
|
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 $881,750 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 March 31, 2020:
|
|
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2019
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of March 31, 2020
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of March 31, 2020
|
|
|
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
|
|
|
3.45 years
|
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 memorialize the transaction aforementioned. Pursuant
to the aforementioned agreement, the Company received proceeds of $885,946 in the second and third quarters of fiscal year 2020.
On April 23, 2020, the Company received proceeds of $50,000. The rest of the payment is expected to receive by the end of the
last quarter of fiscal year 2020.
On December 9, 2019, the
Company authorized the cancellation of the 175,497 of the Company’s treasury shares. The shares were cancelled as of March
31, 2020. The cancellation has no effect on the Company's total shareholders' equity and earnings per share.
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 was $35,139 and $140,556 for the three and nine months ended March 31, 2020, respectively.
$52,708 and $158,125 were recorded as compensation expense for the three and nine months ended March 31, 2019, respectively.
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 stock became vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and August 16, 2018. $0 and
$91,000 were recorded as compensation expense for the three and nine months ended March 31, 2019, respectively.
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 the three and nine months ended March 31, 2019, 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
compensation expense of $63,500 and $190,500 for the three and nine months ended March 31, 2020 and 2019, respectively. The rest
of shares were subsequently issued in the last quarter of fiscal year 2020.
On September 21, 2018,
the Company issued 430,000 shares of common stock valued at $1.10 per share on the grant date with an aggregated fair value of
$473,000 under the 2014 Stock Incentive Plan (the “Plan”) to three employees, vesting immediately. The Company recorded
compensation expense of $0 and $473,000 for the three and nine months ended March 31, 2019, respectively.
On December 11, 2018,
the Company issued 200,000 shares of common stock valued at $0.89 per share on the grant date with a fair value of $178,000 under
the 2014 Stock Incentive Plan to three employees, vesting immediately. The Company recorded compensation expense of $0 and $178,000
for the three and nine months ended March 31, 2019.
On November 7, 2018, the
Board of the Company approved the issuance of 50,000 shares of restricted common stock to a consultant pursuant to an existing
consulting agreement. The scope of services primarily covers advising on business development, strategic planning and corporate
finance. The grant’s fair value of approximately $65,000 was amortized during the remaining service period from November
3, 2018 to May 2, 2019. The Company recorded compensation expense of $32,500 and $54,167 for the three and nine months ended March
31, 2019.
On December 31, 2018,
the Board of the Company and the Compensation Committee of the Board (the “Committee”) approved (i) an increase in
the annual salaries of Lei Cao, Chief Executive Officer, Tuo Pan, acting Chief Financial Officer, and Zhikang Huang, Chief Operating
Officer (the “C-Level Executives”), effective January 1, 2019, and (ii) a one-time award of a total of 950,000 of
the common stock from the shares reserved under the Company’s 2014 Stock Incentive Plan (the “Plan”) to the
C-Level Executives, Chief Technology Officer, Yafei Li and the following members of the Board, effective December 31, 2018, for
their valuable contributions to the Company in fiscal 2018: Jing Wang, Tieliang Liu and Bradley A. Haneberg. The Committee recommended
and the Board determined to make the following stock grants under the Plan: (i) Chief Executive Officer, Lei Cao, is entitled
to a one-time stock award grant of 400,000 shares, (ii) acting Chief Financial Officer, Tuo Pan, is entitled to a one-time stock
award grant of 140,000 shares, (iii) Chief Operating Officer, Zhikang Huang, is entitled to a one-time stock award grant of 180,000
shares, (iv) Chief Technology Officer, Yafei Li is entitled to a one-time stock award grant of 80,000 shares, (v) Board member
Jing Wang is entitled to a one-time stock award grant of 50,000 shares, (vi) Board member Tieliang Liu is entitled to a one-time
stock award grant of 50,000 shares and (vii) Board member Bradley A. Haneberg is entitled to a one-time stock award grant of 50,000
shares. The Company recorded compensation expense of $0 and $731,500 for the three and nine months ended March 31, 2019.
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 $0 and $127,500 for the three and nine months ended
March 31, 2020, respectively.
On July 1, 2019, the
Company issued 600,000 restricted shares of common stock with a fair value of $432,000 to a China-based company that specializes
in the port agency business and/or its designees pursuant to a consulting service agreement. The scope of services primarily covers
business consultation for one year from July 1, 2019 to June 30, 2020. The Company can terminate the agreement if they are not
satisfy with the performance of the consulting firm and the consulting firm should return all the issued shares. The Company recorded
compensation expense of $108,000 and $324,000 for the three and nine months ended March 31, 2020, respectively. The rest of shares
were subsequently vested in the last quarter of fiscal year 2020.
Included in a Board resolution
dated January 30, 2016, the Company’s CEO is authorized to grant to the employees up to one million shares under the Plan.
On July 22, 2019, the Company granted 90,000 shares of restricted common stock valued at $0.70 per share on the grant date with
an aggregated fair value of $63,000 under the Plan to one employee, vesting immediately. The Company recorded compensation expense
of $0 and $63,000 for the three and nine months ended March 31, 2020, respectively.
On August 26, 2019, the
Company issued 40,000 shares of common stock valued at $0.72 per share on the grant date with an aggregated fair value of $28,800
to Chineseinvestors.com as settlement of a breach of service contract lawsuit. The Company recorded compensation expense of $28,800
for the three and nine months ended March 31, 2020, respectively.
On October 3, 2019, the
Company issued 230,000 shares of common stock valued at $0.68 per share on the grant date with an aggregated fair value of $156,400
under the Plan to one employee, vesting immediately. The Company recorded compensation expense of $0 and $156,400 for the three
and nine months ended March 31, 2020, respectively.
On October 14, 2019,
the Company entered into a consulting services agreement with a consulting entity, which provides management consulting and advisory
services. The scope of services primarily covered advising on business development, strategic planning and compliance during the
six months service period from October 14, 2019 to April 13, 2020. The Company issued 300,000 shares of common stock valued at
$222,000 as remuneration for the services. The shares bear a standard restrictive legend under the Securities Act of 1933,
as amended. The Company recorded compensation expense of $111,000 and $222,000 for the three and nine months ended March 31, 2020,
respectively.
During the three
months ended March 31, 2020 and 2019, $346,439 and $148,708 were recorded as stock-based compensation expense, respectively. During
the nine months ended March 31, 2020 and 2019, $1,252,756 and $2,013,292 were recorded as stock-based compensation expense, respectively.
Stock Options:
A summary of the outstanding
options is presented in the table below:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2019
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of March 31, 2020
|
|
|
85,000
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of March 31, 2020
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Following is a summary
of the status of options outstanding and exercisable at March 31, 2020:
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
|
Average
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
2.01
|
|
|
|
10,000
|
|
|
2.84 years
|
|
$
|
2.01
|
|
|
|
10,000
|
|
|
2.84 years
|
$
|
1.10
|
|
|
|
75,000
|
|
|
1.32 years
|
|
$
|
1.10
|
|
|
|
75,000
|
|
|
1.32 years
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
Note 12. NON-CONTROLLING INTEREST
The Company’s non-controlling
interest consists of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sino-China:
|
|
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
384,725
|
|
|
|
268,297
|
|
Accumulated deficit
|
|
|
(6,195,826
|
)
|
|
|
(6,066,145
|
)
|
|
|
|
(5,453,657
|
)
|
|
|
(5,440,404
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
(70,658
|
)
|
|
|
266,782
|
|
Total
|
|
$
|
(5,524,315
|
)
|
|
$
|
(5,173,622
|
)
|
Note 13. COMMITMENTS AND CONTINGENCIES
Contractual Obligations:
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 March 31, 2020 and June 30, 2019, the Company has estimated its severance
payments of approximately $80,000 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 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.
On January 22, 2019, Nasdaq
notified the Company that it did not comply with the minimum bid price of $1.00 per share (the “Minimum Bid Price”)
requirement in Listing Rule 5550(a)(2), and in accordance with Listing Rule 5810(c)(3)(A), was granted 180 calendar days, until
July 22, 2019, to regain compliance. Subsequently, on July 23, 2019, the Company was provided an additional 180 calendar day compliance
period, or until January 20, 2020, to demonstrate compliance. On January 21, 2020, the Company was notified of Nasdaq’s
delist determination as it had not regained compliance. On January 28, 2020, the Company requested a hearing, which was held on
February 27, 2020. On March 10, 2020, the Company received a letter from Nasdaq stating that the Nasdaq Hearings Panel (the “Panel”)
granted an exception to permit the Company to demonstrate compliance on or before May 8, 2020.
In response to current
volatile stock market conditions and decreases in the stock price of many companies, Nasdaq announced on April 17, 2020 that it
has temporarily provided relief from certain of its continued listing requirements for common stock and other securities. Among
other things, Nasdaq is tolling until June 30, 2020, the period for any non-compliant company to regain compliance with the requirement
to maintain a minimum closing bid price of $1 for at least 30 consecutive business days. As a result, the Company automatically
received an extension to demonstrate its compliance with the Nasdaq Minimum Bid Price requirement on or before July 23, 2020.
The shares of the Company continue to be listed on the Nasdaq Capital Market, subject to the condition listed above. The temporary
relief the Company received was based on Nasdaq Issuer Notification 2020-2, which provides additional time to issuers to return
to compliance with pricing related listing rules, including the Minimum Bid Price requirement.
Note 14. INCOME TAXES
On March 27, 2020, the
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted and signed into law and includes, among
other things, refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback
periods and alternative minimum tax credit refunds. The Company does not at present expect the provisions of the CARES Act to
have a material impact on its tax provision given the amount of net operating losses currently available.
The Company’s income
tax benefit (expenses) for the three and nine months ended March 31, 2020 and 2019 are as follows:
|
|
For the three months Ended
March 31
|
|
|
For the nine months Ended
March 31
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
-
|
|
|
$
|
1,191
|
|
|
$
|
-
|
|
|
$
|
(29,124
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
(9,395
|
)
|
|
|
-
|
|
|
|
(10,276
|
)
|
PRC
|
|
|
(189,510
|
)
|
|
|
(328,163
|
)
|
|
|
(204,257
|
)
|
|
|
(595,980
|
)
|
|
|
|
(189,510
|
)
|
|
|
(336,367
|
)
|
|
|
(204,257
|
)
|
|
|
(635,380
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
-
|
|
|
|
(220,700
|
)
|
|
|
-
|
|
|
|
(100,200
|
)
|
PRC
|
|
|
-
|
|
|
|
308,247
|
|
|
|
-
|
|
|
|
308,247
|
|
Total income tax benefit (expense)
|
|
$
|
(189,510
|
)
|
|
$
|
(248,820
|
)
|
|
$
|
(204,257
|
)
|
|
$
|
(427,333
|
)
|
The Company’s deferred
tax assets are comprised of the following:
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
Allowance for doubtful accounts
|
|
$
|
1,185,000
|
|
|
$
|
1,121,000
|
|
Net operating loss
|
|
|
1,565,000
|
|
|
|
1,024,000
|
|
Total deferred tax assets
|
|
|
2,750,000
|
|
|
|
2,145,000
|
|
Valuation allowance
|
|
|
(2,750,000
|
)
|
|
|
(2,145,000
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s operations
in the U.S. incurred a cumulative NOL of approximately $3,781,000 as of June 30, 2019 which may reduce future federal taxable
income. During the three and nine months ended March 31, 2020, approximately $512,000 and $1,977,000 of additional NOL was generated
and the tax benefit derived from such NOL was approximately $107,000 and $415,000, respectively. As of March 31, 2020, the Company’s
cumulative NOL amounted to approximately $5,758,000 which may reduce future federal taxable income, of which approximately $1,400,000
will expire in 2037 and the remaining balance carried forward indefinitely.
The Company periodically
evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets
by a valuation allowance to the extent it believes a portion will not be realized. 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 March 31, 2020. The net increase in valuation for the three and nine months ended March 31, 2020
amounted to approximately $150,000 and $605,000, respectively 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:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
VAT tax payable
|
|
$
|
1,032,755
|
|
|
$
|
1,045,513
|
|
Corporate income tax payable
|
|
|
2,193,923
|
|
|
|
2,075,248
|
|
Others
|
|
|
64,134
|
|
|
|
64,134
|
|
Total
|
|
$
|
3,290,812
|
|
|
$
|
3,184,895
|
|
Note 15. CONCENTRATIONS
Major Customers
For the three months ended
March 31, 2020, two customers accounted for approximately 62.2% and 36.9% of the Company’s revenues, respectively. For the
three months ended March 31, 2019, three customers accounted for 61.9%, 14.7% and 11.6% of the Company’s revenues, respectively.
For the nine months ended
March 31, 2020, three customers accounted for approximately 40.0%, 29.1% and 28.3% of the Company’s revenues, respectively. For
the nine months ended March 31, 2019, three customers accounted for approximately 35.4%, 16.4% and 13.3% of the Company’s
revenues, respectively.
As of March 31, 2020,
one customer accounted for approximately 85.9% of the Company’s accounts receivable. As of March 31, 2019, three customers
accounted for approximately 41.2% of the Company’s accounts receivable.
Major Suppliers
For the three months ended
March 31, 2020, two suppliers accounted for approximately 48.3% and 28.0% of the total cost of revenues, respectively. For the
three months ended March 31, 2019, four suppliers accounted for approximately 40%, 15.3%, 14.8%, and 10.5% of the total costs
of revenue, respectively.
For the nine months ended
March 31, 2020, four suppliers accounted for approximately 27.2%, 24.7%, 18.2% and 10.0% of the total cost of revenues, respectively.
For the nine months ended March 31, 2019, three suppliers accounted for approximately 24.3%, 12.5% and 10.4% of the total costs
of revenue, 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.
The following tables present
summary information by segment for the three and nine months ended March 31, 2020 and 2019, respectively:
|
|
For
the Three Months Ended March 31, 2020
|
|
|
|
Shipping
Agency and Management Services
|
|
|
Inland
Transportation
Management Services
|
|
|
Freight
Logistics
Services
|
|
|
Container
Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Related party
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
-
Third parties
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
853,979
|
*
|
|
$
|
-
|
|
|
$
|
1,353,979
|
|
Total
revenues
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
853,979
|
|
|
$
|
-
|
|
|
$
|
1,353,979
|
|
Cost
of revenues
|
|
$
|
67,841
|
|
|
$
|
-
|
|
|
$
|
821,266
|
*
|
|
$
|
-
|
|
|
$
|
889,107
|
|
Gross
profit
|
|
$
|
432,159
|
|
|
$
|
-
|
|
|
$
|
32,713
|
|
|
$
|
-
|
|
|
$
|
464,872
|
|
Depreciation
and amortization
|
|
$
|
79,732
|
|
|
$
|
-
|
|
|
$
|
3,421
|
|
|
$
|
-
|
|
|
$
|
83,153
|
|
Total
capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross
margin%
|
|
|
86.4
|
%
|
|
|
-
|
%
|
|
|
3.8
|
%
|
|
|
-
|
%
|
|
|
34.3
|
%
|
|
*
|
For certain freight
logistics contracts that the Company entered into with customers starting from first quarter of fiscal year 2020, the Company
(i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does
not control the services rendered to the customers, revenues related to these contracts are presented net of related costs.
For the three months ended March 31, 2020, gross revenues and gross cost of revenues related to these contracts amounted to
approximately $2.0 million and $2.0 million, respectively.
|
|
|
For the Three Months Ended March 31, 2019
|
|
|
|
Shipping
Agency and Management Services
|
|
|
Inland
Transportation Management Services
|
|
|
Freight
Logistic
Services
|
|
|
Container Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
-
|
|
|
$
|
36,380
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
36,380
|
|
- Third parties
|
|
$
|
956,583
|
|
|
$
|
93,407
|
|
|
$
|
21,599,675
|
|
|
$
|
87,094
|
|
|
$
|
22,736,759
|
|
Total revenues
|
|
$
|
956,583
|
|
|
$
|
129,787
|
|
|
$
|
21,599,675
|
|
|
$
|
87,094
|
|
|
$
|
22,773,139
|
|
Cost of revenues
|
|
$
|
862,970
|
|
|
$
|
48,750
|
|
|
$
|
20,098,417
|
|
|
$
|
65,058
|
|
|
$
|
21,075,195
|
|
Gross profit
|
|
$
|
93,613
|
|
|
$
|
81,037
|
|
|
$
|
1,501,258
|
|
|
$
|
22,036
|
|
|
$
|
1,697,944
|
|
Depreciation and amortization
|
|
$
|
-
|
|
|
$
|
39,109
|
|
|
$
|
476
|
|
|
$
|
4,448
|
|
|
$
|
44,033
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125,806
|
|
|
$
|
8,317
|
|
|
$
|
134,123
|
|
Gross margin%
|
|
|
9.8
|
%
|
|
|
62.4
|
%
|
|
|
7.0
|
%
|
|
|
25.3
|
%
|
|
|
7.5
|
%
|
|
|
For the Nine Months Ended March 31, 2020
|
|
|
|
Shipping
Agency and Management
Services
|
|
|
Inland
Transportation Management Services
|
|
|
Freight
Logistics
Services
|
|
|
Container Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
- Third parties
|
|
$
|
1,500,000
|
|
|
$
|
-
|
|
|
$
|
3,599,620
|
*
|
|
$
|
61,709
|
|
|
$
|
5,161,329
|
|
Total revenues
|
|
$
|
1,500,000
|
|
|
$
|
-
|
|
|
$
|
3,599,620
|
|
|
$
|
61,709
|
|
|
$
|
5,161,329
|
|
Cost of revenues
|
|
$
|
230,248
|
|
|
$
|
-
|
|
|
$
|
2,042,595
|
*
|
|
$
|
55,313
|
|
|
$
|
2,328,156
|
|
Gross profit
|
|
$
|
1,269,752
|
|
|
$
|
-
|
|
|
$
|
1,557,025
|
|
|
$
|
6,396
|
|
|
$
|
2,833,173
|
|
Depreciation and amortization
|
|
$
|
261,648
|
|
|
$
|
-
|
|
|
$
|
7,704
|
|
|
$
|
50,920
|
|
|
$
|
320,272
|
|
Total capital expenditures
|
|
$
|
6,979
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,979
|
|
Gross margin%
|
|
|
84.7
|
%
|
|
|
-
|
%
|
|
|
43.3
|
%
|
|
|
10.4
|
%
|
|
|
54.9
|
%
|
|
*
|
For certain freight
logistics contracts that the Company entered into with customers starting from first quarter of fiscal year 2020, the Company
(i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does
not control the services rendered to the customers, revenues related to these contracts are presented net of related costs.
For the nine months ended March 31, 2020, gross revenues and gross cost of revenues related to these contracts amounted to
approximately $24.0 million and $22.5 million, respectively.
|
|
|
For the Nine Months Ended March 31, 2019
|
|
|
|
Shipping
Agency and Management Services
|
|
|
Inland
Transportation Management Services
|
|
|
Freight
Logistic
Services
|
|
|
Container Trucking Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
-
|
|
|
$
|
433,380
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
433,380
|
|
- Third parties
|
|
$
|
1,845,653
|
|
|
$
|
1,036,407
|
|
|
$
|
36,066,151
|
|
|
$
|
406,368
|
|
|
$
|
39,354,579
|
|
Total revenues
|
|
$
|
1,845,653
|
|
|
$
|
1,469,787
|
|
|
$
|
36,066,151
|
|
|
$
|
406,368
|
|
|
$
|
39,787,959
|
|
Cost of revenues
|
|
$
|
1,672,010
|
|
|
$
|
128,624
|
|
|
$
|
32,562,075
|
|
|
$
|
352,915
|
|
|
$
|
34,715,624
|
|
Gross profit
|
|
$
|
173,643
|
|
|
$
|
1,341,163
|
|
|
$
|
3,504,076
|
|
|
$
|
53,453
|
|
|
$
|
5,072,335
|
|
Depreciation and amortization
|
|
$
|
-
|
|
|
$
|
79,935
|
|
|
$
|
1,427
|
|
|
$
|
13,951
|
|
|
$
|
95,313
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125,806
|
|
|
$
|
17,674
|
|
|
$
|
143,480
|
|
Gross margin%
|
|
|
9.4
|
%
|
|
|
91.2
|
%
|
|
|
9.7
|
%
|
|
|
13.2
|
%
|
|
|
12.7
|
%
|
Total assets as of:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Shipping Agency and Management Services
|
|
$
|
3,301,686
|
|
|
$
|
3,549,093
|
|
Freight Logistic Services
|
|
|
13,311,173
|
|
|
|
17,017,695
|
|
Container Trucking Services
|
|
|
25,225
|
|
|
|
32,215
|
|
Total Assets
|
|
$
|
16,638,084
|
|
|
$
|
20,599,003
|
|
Note 17. RELATED PARTY TRANSACTIONS
As of March 31, 2020 and
June 30, 2019, the outstanding amounts due from a related party consist of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
484,331
|
|
|
$
|
897,739
|
|
Less: allowance for doubtful accounts
|
|
|
(48,433
|
)
|
|
|
(89,774
|
)
|
Total
|
|
$
|
435,898
|
|
|
$
|
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 March 31, 2020 was $484,331 and the Company provided a 10% allowance for doubtful accounts of the amount due from
Zhiyuan. For the three months ended March 31, 2020, the Company recovered $0 of allowance for doubtful accounts of the amount
due from Zhiyuan. For the nine months ended March 31, 2020, the Company recovered $41,341 of allowance for doubtful accounts of
the amount due from Zhiyuan.
Note 18. SUBSEQUENT EVENTS
On April 6, 2020, the
Company entered into a share purchase agreement (the “Agreement”) with Mr. Kelin Wu (the “Seller”) and
Mandarine Ocean Ltd, a shipping company registered in the Marshall Islands (“Hanyang Shipping”), to acquire 75% of
the capital stock of Hanyang Shipping held by the Seller for an aggregate consideration of up to $3.75 million to be paid in cash
and the Company’s restricted shares of common stock. The payments consist of the following: (a) the Company will issue an
aggregate of 800,000 shares to the Seller within 30 days after this Agreement is signed and becomes effective. The exchange price
of the 800,000 shares will be equal to the 2 times the volume weighted average price during the 10 consecutive trading days prior
to and ending on the date agreement signed; (b) Up to $1.125 million in cash equivalent or restricted shares equivalent if Hanyang
Shipping’s audited net income before taxes reaches $1.5 million for the fiscal year ending June 30, 2021; and (c) Up to
$2.625 million in cash equivalent or restricted shares equivalent (including 800,000 shares already paid in the previous period)
if Hanyang Shipping’s audited net income before taxes reaches $3.5 million for the fiscal year ending June 30, 2022. Pursuant
to the agreement, if Hanyang Shipping could not achieve the results stated in (b) and (c), the Company shall withdraw and cancel
the 800,000 restricted shares that have been issued to the Seller or not pay the Seller any additional cash or restricted shares.
On June 17, 2020, the
parties entered into the First Amended and Restated Share Purchase Agreement (the “Amendment”) to amend the purchase
price to an aggregate consideration of up to $1.5 million and the Company’s restricted shares. The amended purchase price
consists of the following: (a) the Company will issue an aggregate of 800,000 shares to the Seller within 30 days after this Amendment
is signed and becomes effective. The exchange price of the 800,000 shares will be equal to the 2 times the volume weighted average
price during the 10 consecutive trading days prior to and ending on the date the agreement was signed; (b) Up to $0.5 million
in cash equivalent or restricted shares equivalent if Hanyang Shipping’s audited net income before taxes reaches $1.0 million
for the fiscal year ending June 30, 2021; The specific payment schedule is as follows;
|
●
|
If the Hanyang Shipping’s audited net income
before taxes is less than $0.55 million, the Company shall withdraw and cancel the 800,000 restricted shares that have been issued
to the seller;
|
|
●
|
If the Hanyang Shipping’s audited net income
before taxes exceeds $0.55 million but does not reach $0.65 million, the Company shall not pay the seller any additional cash
or stock;
|
|
●
|
If the Hanyang Shipping’s audited net income
before taxes reaches or exceeds $0.65 million but does not reach $0.8 million, the price will be in cash or stock an equivalent
of $0.25 million;
|
|
●
|
If the Hanyang Shipping’s audited net income
before taxes reaches or exceeds $0.8 million but does not reach $1.0 million, the price will be in cash or stock an equivalent
of $0.35 million;
|
|
●
|
If the Hanyang Shipping’s audited net income
before taxes reaches or exceeds $1.0 million, the price will be in cash or stock that is equal $0.5 million;
|
and (c) Up to $1.0 million
in cash equivalent or restricted shares equivalent (including 800,000 shares already paid in the previous period) if Hanyang Shipping’s
audited net income before taxes reaches $2.0 million for the fiscal year ending June 30, 2022. The specific payment schedule is
as follows:
|
●
|
If Hanyang Shipping’s audited net income before
taxes is less than $1.0 million, the Company shall not pay the seller any cash or stock;
|
|
●
|
If Hanyang Shipping’s audited net income before
taxes reaches or exceeds $1.0 million but does not reach $1.15 million, the price will be $0.35 million in cash or stock (including
800,000 shares already paid in the previous period);
|
|
●
|
If Hanyang Shipping’s audited net income before
taxes reaches or exceeds $1.15 million but does not reach $1.45 million, the price will be $0.45 million in cash or stock (including
800,000 shares already paid in the previous period);
|
|
●
|
If Hanyang Shipping’s audited net income before
taxes reaches or exceeds $1.45 million but does not reach $1.7 million, the price will be $0.6 million in cash or stock (including
800,000 shares already paid in the previous period);
|
|
●
|
If Hanyang Shipping’s audited net income before
taxes reaches or exceeds $1.7 million but does not reach $2.0 million, the price will be $0.75 million in cash or stock (including
800,000 shares already paid in the previous period);
|
|
●
|
If Hanyang Shipping’s audited net income before
taxes reaches or exceeds $2.0 million, the price will be $1.0 million in cash or stock (including 800,000 shares paid previously).
|
Pursuant to the Amendment,
if Hanyang Shipping could not achieve the results stated in (b) and (c), the Company will withdraw and cancel the 800,000 restricted
shares that have been issued to the Seller or not pay the Seller any additional cash or restricted shares.
On April 23, 2020, the
Company received a gross proceeds of $50,000 related to the 1,000,000 shares of the Company’s common stock issuance to Mr.
Shanming Liang (see Note 11). The remaining the payment is expected to be received by the end of the first quarter of fiscal year
2021.
On May 11, 2020, the Company
received loan proceeds in the amount of approximately $124,570 under the U.S. Small Business Administration (“SBA”)
Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security
Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly
payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower
uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.
The loan forgiveness amount will be reduced for any Economic Injury Disaster Loan (“EIDL”) advance that the Company
receives. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during
the eight-week period. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently
believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan and intends to file for loan forgiveness
after eight weeks after receipt of loan proceeds, there can be no assurance that the full amount of the loan will be forgiven.
On May 26, 2020, the Company
received an advance in the amount of $156,000 from under the SBA EIDL program administered by the SBA pursuant to the CARES Act.
Such advance amount will reduce the Company’s PPP loan forgiveness amount described above. In accordance with the requirements
of the CARES Act, the Company will use proceeds from the SBA loans primarily for working capital to alleviate economic injury
caused by disaster occurring in the month of January 31, 2020 and continuing thereafter. The SBA loans are scheduled to mature
on May 22, 2050 and have a 3.75% interest rate and are subject to the terms and conditions applicable to loans administered by
the SBA under the CARES Act. The monthly payable including principal and interest, of $731 commencing on May 22, 2021. The balance
of principal and interest will be payable 30 years from the date of May 22, 2020.
On June 1, 2020, the Company
entered into a general shipping agency service agreement (“service agreement”) with Mr. Kelin Wu, the controller of
Mandarine Bulk Ltd (“Mandarine Bulk”) and Seller of Hanyang Shipping. Pursuance to the service agreement, Mandarine
Bulk has appointed the Company as the sole general shipping agency for all its owned and operated ships with services including
ship management services, shipping agency services, ship brokerage services and other services required for ship operation.
On June 30, 2020, the
Company issued 250,000 shares of common stock valued at $0.61 per share on the grant date with a fair value of $152,500 under the
2014 Stock Incentive Plan to two employees, vesting immediately.