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 three operating segments including (1) shipping agency and management services, which are operated by its subsidiary in the
U.S.; (2) freight logistics services, which are operated by its subsidiary in the PRC; (3) container trucking services, which are
operated by its subsidiary in the U.S.
The Company continues
to focus back on shipping agency and management business for fiscal year 2021, as current trade dynamics and the COVID-19 outbreak
have negatively impacted shipping carrier clients with higher their cost to move cargo into U.S. ports. The shipping agency industry
in China has improved and the number of shipping agencies overall the country has decreased, due to both price and the inability
of competitors to embrace technology as a resource in serving client needs.
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. There has been no capital injection
nor operations of State Priests and Sea Continent, therefore no gain or loss has been recognized in the transaction. Sea Continent
already has the Certificate but has no operations as of September 30, 2020.
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 holds 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.
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. On June 17, 2020, the Company and Mr. Wu 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.
On September 3, 2020,
the Company and Mr. Wu signed a Termination Agreement to terminate the Amendment mutually. Neither party will owe the other party
any termination penalty in connection with the Termination Agreement.
After the close of
the stock market on July 7, 2020, the Company effected a l-for-5 reverse stock split of its common stock in order to satisfy continued
listing requirements of its common stock on the NASDAQ Capital Market. The reverse stock split was approved by the Company’s
board of directors and stockholders and was intended to allow the company to meet the minimum share price requirement of $1.00
per share for continued listing on the NASDAQ Capital Market. As a result all common stock share amounts included in this filing
have been retroactively reduced by a factor of five, and all common stock per share amounts have been increased by a factor of
five. Amounts affected include common stock outstanding, including those that have resulted from the stock options, and warrants
that convert to common stock.
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 months ended September 30, 2020. The situation remains highly uncertain for any further outbreak or resurgence
of the COVID-19. It is therefore difficult for the Company to estimate the impact on the business or operating results that might
be adversely affected by any further outbreak or resurgence of COVID-19.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Restatements
This financial statements
contain restatements to correct an error in accounting estimate of allowance for other receivable.
The impact of these restatements on the
financial statements is reflected in the following table:
|
|
As of September 30, 2020
|
|
Consolidated Balance Sheets:
|
|
Original
|
|
|
Restatement
|
|
|
Restated
|
|
Other receivables, net - non current
|
|
|
5,204,740
|
|
|
|
(5,204,740
|
)
|
|
|
-
|
|
Total Assets
|
|
|
11,648,401
|
|
|
|
(5,204,740
|
)
|
|
|
6,443,661
|
|
Accumulated deficit
|
|
|
(19,559,908
|
)
|
|
|
(4,595,477
|
)
|
|
|
(24,155,385
|
)
|
Accumulated other comprehensive loss
|
|
|
(803,990
|
)
|
|
|
(88,789
|
)
|
|
|
(892,779
|
)
|
Non-controlling Interest
|
|
|
(6,235,376
|
)
|
|
|
(520,474
|
)
|
|
|
(6,755,850
|
)
|
Total Equity (Deficiency)
|
|
|
5,201,880
|
|
|
|
(5,204,740
|
)
|
|
|
(2,860
|
)
|
|
|
For the Three Months Ended
September 30, 2020
|
|
Consolidated Statements of Operations:
|
|
Original
|
|
|
Restatement
|
|
|
Restated
|
|
Provision for doubtful accounts, net of recovery
|
|
|
5,087,732
|
|
|
|
(5,106,085
|
)
|
|
|
(18,353
|
)
|
Total operating income (expenses)
|
|
|
4,315,368
|
|
|
|
(5,106,085
|
)
|
|
|
(790,717
|
)
|
Operating income (loss)
|
|
|
4,356,941
|
|
|
|
(5,106,085
|
)
|
|
|
(749,144
|
)
|
Net income (loss)
|
|
|
4,357,629
|
|
|
|
(5,106,085
|
)
|
|
|
(748,456
|
)
|
Net income (loss) attributable to non-controlling interest
|
|
|
495,943
|
|
|
|
(510,608
|
)
|
|
|
(14,665
|
)
|
Net income (loss) attributable to Sino-Global Shipping America, Ltd.
|
|
|
3,861,686
|
|
|
|
(4,595,477
|
)
|
|
|
(733,791
|
)
|
(b) 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”) 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.
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. Sino-China was designed to operate in China for the
benefit of the Company. The Company does not receive any payment from Sino-China unless Sino-China recognizes net income during
its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China incurs a net loss during its fiscal
year. If Sino-China incurs a net loss during its fiscal year, the Company is not required to absorb such net loss.
As a VIE, Sino-China’s
revenues are included in the Company’s total revenues, and 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 in accordance with Accounting Standards Codification (“ASC”) 810-10, “Consolidation”.
The agency relationship between the Company and Sino-China and its branches is governed by a series of contractual arrangements
pursuant to which the Company has substantial control over Sino-China. Management makes ongoing reassessments of whether the Company
remains the primary beneficiary of Sino-China.
The carrying amount
and classification of Sino-China’s assets and liabilities included in the Company’s unaudited condensed consolidated
balance sheets were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
5,075
|
|
|
$
|
5,022
|
|
Total current assets
|
|
|
5,075
|
|
|
|
5,022
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,673
|
|
|
|
1,608
|
|
Property and equipment, net
|
|
|
39,319
|
|
|
|
41,171
|
|
Total assets
|
|
$
|
46,067
|
|
|
$
|
47,801
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
$
|
41,534
|
|
|
$
|
39,919
|
|
Total liabilities
|
|
$
|
41,534
|
|
|
$
|
39,919
|
|
(c) Fair Value of Financial Instruments
The Company follows
the provisions of ASC 820, Fair Value Measurements and Disclosures, which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 — Observable
inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 — Inputs
other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
Level 3 — Unobservable
inputs that reflect management’s assumptions based on the best available information.
The carrying value
of accounts receivable, other receivables, other current assets, and current liabilities approximate their fair values because
of the short-term nature of these instruments.
(d) Use of Estimates and Assumptions
The preparation of
the Company’s unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates
are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company’s unaudited
condensed consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of revenues,
allowance for doubtful accounts, impairment loss, deferred income taxes, income tax expense and the useful lives of property and
equipment. 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.
(e) 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 September 30, 2020 and June 30, 2020 and for the three months ended September 30, 2020 and 2019 are as follows:
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
|
Three Months ended
September 30,
|
|
Foreign currency
|
|
Balance
Sheet
|
|
|
Balance
Sheet
|
|
|
2020
Profits/Loss
|
|
|
2019
Profits/Loss
|
|
RMB:1USD
|
|
|
6.7905
|
|
|
|
7.0651
|
|
|
|
6.9217
|
|
|
|
7.0146
|
|
AUD:1USD
|
|
|
1.3964
|
|
|
|
1.4514
|
|
|
|
1.3992
|
|
|
|
1.4592
|
|
HKD:1USD
|
|
|
7.7500
|
|
|
|
7.7505
|
|
|
|
7.7506
|
|
|
|
7.8300
|
|
CAD:1USD
|
|
|
1.3323
|
|
|
|
1.3617
|
|
|
|
1.3325
|
|
|
|
1.3200
|
|
(f) 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 September 30, 2020 and June 30, 2020, cash balances of $69,260
and $97,836, respectively, were maintained at financial institutions in the PRC. Nil and $8,780 of these balances are not covered
by insurance as the deposit insurance system in China only insured each depositor at one bank for a maximum of approximately $70,000
(RMB 500,000). As of September 30, 2020 and June 30, 2020, cash balances of $940,193 and $25,739, respectively, were maintained
at U.S. financial institutions, $684,272 and nil, respectively, of these balances are uninsured by the Federal Deposit Insurance
Corporation as it only insured deposits up to $250,000. The Hong Kong Deposit Protection Board pays compensation up to a limit
of HKD 500,000 (approximately $64,000) if the bank with which an individual/a company holds its eligible deposit fails. As of September
30, 2020 and June 30, 2020, cash balances of $1,944 and $2,029, respectively, were maintained at financial institutions in Hong
Kong and were insured by the Hong Kong Deposit Protection Board. As of September 30, 2020 and June 30, 2020, cash balances of $943
and $1,116, respectively, were maintained at Australia financial institutions, and were insured as the Australian government guarantees
deposits up to AUD 250,000 (approximately $172,000). As of September 30, 2020 and June 30, 2020, amount of deposits the Company
had covered by insurance amounted to $328,068 and $117,940, respectively.
(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 $30,757 and $1,023,931 of allowance for doubtful accounts of accounts receivable for the three
months ended September 30, 2020. The Company recovered $2,404 and $99,366 of accounts receivable for the three months ended September
30, 2020 and 2019, respectively.
Other receivables represent
mainly customer advances, prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee
payroll, guarantee deposits on behalf of ship owners as well as office lease deposits. Management reviews its receivables on a
regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account
balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection
is not probable. Other receivables are written off against the allowances only after exhaustive collection efforts. For the three
months ended September 30, 2019, $1,763 was written off against other receivables, respectively. There was no write off for the
three months ended September 30, 2020.
(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. For the three months ended September 30, 2020 and 2019,
an impairment of nil and $127,177 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. For
the three months ended September 30, 2020 and 2019, an impairment of nil and $200,455 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.
Contract
balances
The
Company records receivables related to revenue when the Company has an unconditional right to invoice and receive payment.
Deferred
revenue consists primarily of customer billings made in advance of performance obligations being satisfied and revenue being recognized.
As of September 30,
2020, the Company had outstanding contracts amounting to approximately $0.9 million, all of which is expected to be completed within
3 months from September 30, 2020.
The Company’s
disaggregated revenue streams are described as follows:
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Shipping and management agency services
|
|
$
|
206,845
|
|
|
$
|
500,000
|
|
Freight logistics services
|
|
|
929,954
|
|
|
|
1,242,142
|
|
Container trucking services
|
|
|
-
|
|
|
|
44,084
|
|
Total
|
|
$
|
1,136,799
|
|
|
$
|
1,786,226
|
|
|
●
|
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 deferred revenue.
|
|
●
|
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 September
30, 2019, gross revenue and gross cost of revenue related to these contracts amounted to approximately $9.1 million and $8.5 million,
respectively. There was no such transaction for the three months ended September 30, 2020.
|
|
●
|
Revenues from container trucking services are recognized when the related contractual services are rendered.
|
Disaggregated information of revenues by
geographic locations are as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
PRC
|
|
$
|
929,954
|
|
|
$
|
1,242,142
|
|
U.S.
|
|
|
206,845
|
|
|
|
544,084
|
|
Total revenues
|
|
$
|
1,136,799
|
|
|
$
|
1,786,226
|
|
(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 unaudited condensed consolidated financial statements. A valuation allowance is provided against deferred tax assets if
it is more likely than not that the asset will not be utilized in the future.
The Company recognizes
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any,
related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of September 30, 2020
and June 30, 2020.
Income tax returns
for the years prior to 2017 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 months
ended September 30, 2020 and 2019 there was no dilutive effect of potential shares of common stock of the Company.
(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 the workforce are concentrated in China and United States, the Company’s business,
results of operations, and financial condition have been adversely affected for the three months ended September 30, 2020. The
situation remains highly uncertain for any further outbreak or resurgence of the COVID-19. It is therefore difficult for the Company
to estimate the impact on the business or operating results that might be adversely affected by any further outbreak or resurgence
of COVID-19.
(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 September
30, 2020, the Company’s working capital deficit was approximately $3.6 million and the Company had cash of approximately
$1.0 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.
Management believes
that the Company will require a minimum of approximately $1.6 million cash over the next twelve months to operate at our current
level, either from revenues or funding. Based on our current revenue and expense projection, the Company believes it will generate
at least the same amount of revenue in the coming year compared to the current year as the Company and the market are both recovering
from the impact of the pandemic. In addition, the Company entered into certain securities purchase agreement with certain non-U.S.
Persons to purchase 860,000 shares of series A convertible preferred stock in November 2020. The aggregate proceeds was approximately
$1.4 million. If the Company’s revenue does not achieve its expected level, the Company will also be implementing cost saving
measures to reduce its operating cash outflow.
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 had considered supplementing
its available sources of funds through the following sources:
|
●
|
the Company will continuously seek equity financing to support its working capital; On September 17, 2020, the Company entered into certain securities purchase agreement with certain non-U.S. Persons to purchase 720,000 Shares at a per share purchase price of $1.46 for aggregate proceeds of approximately $1.05 million. The full amount of proceeds have been received. On November 2 and November 3, 2020, the Company entered into certain securities purchase agreement with certain non-U.S. Persons to purchase 860,000 shares of series A convertible preferred stock at a per share purchase price of $1.66 for aggregate proceeds of approximately $1.43 million. The Company has received the full amount of payment in November 2020.
|
|
|
|
|
●
|
other available sources of financing from PRC banks and other financial institutions; and
|
|
|
|
|
●
|
financial support and credit guarantee commitments from the Company’s shareholders and directors.
|
Based on the above
considerations, the Company’s management is of the opinion that it has sufficient funds to meet the Company’s future
liquidity requirements for at least twelve months from issuance of these unaudited condensed consolidated financial statements.
The Company’s management has considered whether there is a going concern issue due to the Company’s continuing losses.
Based upon the continuing equity financing from investors and credit guarantee support from its shareholders to provide the necessary
funds to the Company to continue its operations should the need arise, the management of the Company believes that it has alleviated
the going concern issue.
(q) Recent Accounting Pronouncements
Pronouncements 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. The Company adopted this ASU on July 1, 2020 and the adoption
has no significant impact to the Company’s unaudited condensed consolidated financial statements as a whole.
Pronouncements not yet adopted
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 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.
In August 2020,
the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.
The amendments in this Update to address issues identified as a result of the complexity associated with applying generally accepted
accounting principles for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective
for the Company for annual and interim reporting periods beginning July 1, 2022. Early adoption is permitted, but no earlier than
fiscal years beginning after July 1, 2021, including interim periods within those fiscal years. 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. The Company is currently evaluating the impact of this new standard on Company’s unaudited condensed
consolidated financial statements and related disclosures.
In October 2020, the
FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs”.
The amendments in this Update represent changes to clarify the Codification. The amendments make the Codification easier to understand
and easier to apply by eliminating inconsistencies and providing clarifications. ASU 2020-08 is effective for the Company for annual
and interim reporting periods beginning July 1, 2021. Early application is not permitted. All entities should apply the amendments
in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt
securities. These amendments do not change the effective dates for Update 2017-08. 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.
Note 3. ACCOUNTS RECEIVABLE, NET
The Company’s
net accounts receivable are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Trade accounts receivable
|
|
$
|
3,478,558
|
|
|
$
|
3,453,439
|
|
Less: allowances for doubtful accounts
|
|
|
(2,390,816
|
)
|
|
|
(2,297,491
|
)
|
Accounts receivable, net
|
|
$
|
1,087,742
|
|
|
$
|
1,155,948
|
|
Movement of allowance
for doubtful accounts are as follows:
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
Beginning balance
|
|
$
|
2,297,491
|
|
|
$
|
5,670,274
|
|
Provision for doubtful accounts, net of recovery
|
|
|
28,353
|
|
|
|
4,896,640
|
|
Less: write-off
|
|
|
-
|
|
|
|
(8,220,754
|
)
|
Exchange rate effect
|
|
|
64,972
|
|
|
|
(48,669
|
)
|
Ending balance
|
|
$
|
2,390,816
|
|
|
$
|
2,297,491
|
|
For the three months
ended September 30, 2020 and 2019, the provision for doubtful accounts was $30,757 and $1,023,931, respectively. The Company recovered
$2,404 and $99,366 of accounts receivable for the three months ended September 30, 2020 and 2019, respectively.
Note 4. OTHER RECEIVABLES, NET (RESTATED)
The Company’s other receivables are
as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Advances to customers*
|
|
$
|
10,409,480
|
|
|
$
|
10,004,893
|
|
Employee business advances
|
|
|
7,227
|
|
|
|
51,334
|
|
Total
|
|
|
10,416,707
|
|
|
|
10,056,227
|
|
Less: allowances for doubtful accounts
|
|
|
(10,409,792
|
)
|
|
|
(10,005,193
|
)
|
Other receivables, net
|
|
$
|
6,915
|
|
|
$
|
51,034
|
|
*
|
As of September 30 and June 30, 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. As aforementioned customers were negatively impacted by the pandemic and required additional time to execute existing contracts, they required additional time to pay. Due to significant uncertainty on whether the delayed contracts will be executed timely. As such, the Company had provided an allowance due to contract delay and recorded allowances of approximately $10.0 million.
|
Movement of allowance
for doubtful accounts are as follows:
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
Beginning balance
|
|
$
|
10,005,193
|
|
|
$
|
-
|
|
Provision for doubtful accounts, net of recovery
|
|
|
-
|
|
|
|
10,055,203
|
|
Less: write-off
|
|
|
-
|
|
|
|
(1,763
|
)
|
Exchange rate effect
|
|
|
404,599
|
|
|
|
(48,247
|
)
|
Ending balance
|
|
$
|
10,409,792
|
|
|
$
|
10,005,193
|
|
The Company wrote off
nil and $1,763 of other receivables for the three months ended September 30, 2020 and 2019, respectively.
Note 5. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers
– third parties are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Freight fees (1)
|
|
$
|
58,906
|
|
|
$
|
48,875
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
advanced freight fee is the Company’s prepayment made for various shipping costs for shipments from October to December
2020.
|
Note
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The
Company’s prepaid expenses and other assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Prepaid income taxes
|
|
$
|
48,924
|
|
|
$
|
48,924
|
|
Other (including prepaid professional fees, rent, listing fees)
|
|
|
22,290
|
|
|
|
41,458
|
|
Total
|
|
$
|
71,214
|
|
|
$
|
90,382
|
|
Note
7. OTHER LONG-TERM ASSETS - DEPOSITS
The
Company’s other long-term assets – deposits are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Rental and utilities deposits
|
|
$
|
72,076
|
|
|
$
|
64,663
|
|
Freight logistics deposits (1)
|
|
|
3,027,209
|
|
|
|
2,910,327
|
|
Total other long-term assets - deposits
|
|
$
|
3,099,285
|
|
|
$
|
2,974,990
|
|
(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 restricted deposit is expected
be repaid to the Company when either the contract terms are expired by March 2023 or the contract is terminated by the Company.
|
Note
8. PROPERTY AND EQUIPMENT, NET
The
Company’s net property and equipment as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Buildings
|
|
$
|
198,223
|
|
|
$
|
190,518
|
|
Motor vehicles*
|
|
|
538,879
|
|
|
|
516,999
|
|
Computer equipment*
|
|
|
100,793
|
|
|
|
97,172
|
|
Office equipment*
|
|
|
45,349
|
|
|
|
43,587
|
|
Furniture and fixtures*
|
|
|
74,597
|
|
|
|
71,697
|
|
System software*
|
|
|
112,275
|
|
|
|
107,911
|
|
Leasehold improvements
|
|
|
818,559
|
|
|
|
786,745
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,888,675
|
|
|
|
1,814,629
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,412,451
|
)
|
|
|
(1,291,339
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
476,224
|
|
|
$
|
523,290
|
|
Depreciation
and amortization expenses for the three months ended September 30, 2020 and 2019 were $67,886 and $120,520, respectively.
*
|
For
the three months ended September 30, 2019, an impairment of $127,177 was recorded due to continued decrease in revenues from
the inland transportation management segment, no impairment was recorded for same period 2020.
|
Note
9. INTANGIBLE ASSETS, NET
Net
intangible assets consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
Less: Accumulated amortization
|
|
|
(179,444
|
)
|
|
|
(163,611
|
)
|
Intangible assets, net
|
|
$
|
10,556
|
|
|
$
|
26,389
|
|
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 $34,057 for the three months ended September 30, 2020 and 2019, respectively.
In
addition, first phase of the ERP system was placed in use in July 2019 and is being amortized over three years. However, due to
the continued decrease in revenues from the inland transportation management segment, the Company recorded an impairment of $200,455
for the three months ended September 30, 2019. No impairment was recorded for same period 2020.
Note
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Salary and reimbursement payable
|
|
$
|
941,061
|
|
|
$
|
795,855
|
|
Professional fees payable
|
|
|
640,564
|
|
|
|
629,524
|
|
Credit card payable
|
|
|
219,657
|
|
|
|
217,940
|
|
Total
|
|
$
|
1,801,282
|
|
|
$
|
1,643,319
|
|
Note
11. LOANS PAYABLE
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
(or an extended 24-week covered period) 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 before December 2020, there can be no assurance that the
full amount of the loan will be forgiven. As of September 30, 2020, $124,570 of loan payable remains outstanding.
On
May 26, 2020, the Company received an advance in the amount of $155,900 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. $5,900 of the loan
will be forgiven. As of September 30, 2020, $155,900 of loan payable remains outstanding. Interest expense for the three months
ended September 30, 2020 for this loan was $1,402.
Loan
repayment schedule for the EIDL loans is as follows:
Twelve Months Ending September 30,
|
|
Loan Amount
|
|
|
|
|
|
2021
|
|
$
|
3,655
|
|
2022
|
|
|
8,772
|
|
2023
|
|
|
8,772
|
|
2024
|
|
|
8,772
|
|
2025
|
|
|
8,772
|
|
Thereafter
|
|
|
215,645
|
|
Total loan payments
|
|
$
|
254,388
|
|
Note
12. 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 liabilities 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 8.98%. As of September 30, 2020, ROU assets and lease liabilities amounted to $263,132
and $319,630 (including $213,348 from lease liabilities current portion and $106,282 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
1.71 years.
For
the three months ended September 30, 2020 and 2019, rent expense amounted to approximately $76,000 and $80,000, respectively.
The
three-year maturity of the Company’s lease obligations is presented below:
Twelve Months Ending September 30,
|
|
Operating Lease Amount
|
|
|
|
|
|
2021
|
|
$
|
232,057
|
|
2022
|
|
|
111,446
|
|
Total lease payments
|
|
|
343,503
|
|
Less: Interest
|
|
|
(23,873
|
)
|
Present value of lease liabilities
|
|
$
|
319,630
|
|
Note
13. EQUITY
Stock
issuance:
On
September 17, 2020, the Company entered into certain securities purchase agreement with certain “non-U.S. Persons”
as defined in Regulation S of the Securities Act of 1933, as amended, pursuant to which the Company agreed to sell an aggregate
of 720,000 shares of the Company’s common stock, no par value, and warrants (the “Warrants”) to purchase 720,000
Shares at a per share purchase price of $1.46 (the “Offering”). The net proceeds to the Company from such Offering
were approximately $1.05 million. The Warrants will be exercisable on March 16, 2021 at an exercise price of $1.825 for cash (the
“Warrant Shares”). The Warrants may also be exercised cashlessly if at any time after March 16, 2021, there is no
effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares. The Warrants
will expire on March 16, 2026. The Warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other
similar transactions. The Warrants contain a mandatory exercise right for the Company to force exercise the Warrants if the Company’s
common stock trades at or above $4.38 for 20 consecutive trading days, provided, among other things, that the shares issuable
upon exercise of the are registered or may be sold pursuant to Rule 144 and the daily trading volume exceeds 60,000 shares of
Common Stock per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.
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
were recorded as additional paid-in capital from common stock
Following
is a summary of the status of warrants outstanding and exercisable as of September 30, 2020:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2020
|
|
|
400,000
|
|
|
$
|
8.75
|
|
Issued
|
|
|
720,000
|
|
|
|
1.83
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of September 30, 2020
|
|
|
1,120,000
|
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of September 30, 2020
|
|
|
1,120,000
|
|
|
$
|
4.30
|
|
Warrants Outstanding
|
|
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Life
|
2018 Series A, 400,000
|
|
|
400,000
|
|
|
$
|
8.75
|
|
|
2.95 years
|
2020 warrants, 720,000
|
|
|
720,000
|
|
|
$
|
1.83
|
|
|
5.46 years
|
On
December 9, 2019, the Company authorized the cancellation of the 35,099 of the Company’s treasury shares. The shares were
cancelled as of June 30, 2020. The cancellation has no effect on the Company’s total shareholders’ equity and earnings per share.
After
the close of the stock market on July 7, 2020, the Company effected a l-for-5 reverse stock split of its common stock in order
to satisfy continued listing requirements of its common stock on the NASDAQ Capital Market. The reverse stock split was approved
by the Company’s board of directors and stockholders and was intended to allow the company to meet the minimum share price
requirement of $1.00 per share for continued listing on the NASDAQ Capital Market. As a result all common stock share amounts
included in this filing have been retroactively reduced by a factor of five, and all common stock per share amounts have been
increased by a factor of five. Amounts affected include common stock outstanding, including those that have resulted from the
stock options, and warrants that convert to common stock.
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 50,000 shares of common stock as remuneration
for the services, which were issued as restricted shares at $12.65 per share on March 22, 2017 to the consultant. These
shares were valued at $632,500 and the consulting expense was $52,708 for the three months ended September 30, 2019.
On
June 7, 2018, the Company issued 80,000 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 installments.
The Company recorded compensation expense of $63,500 for the three months ended September 30, 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 60,000 shares of common stock as
remuneration for the services, which were issued as restricted shares at $4.25 per share on April 16, 2019 to the consulting entity.
These shares were valued at $255,000. The Company recorded compensation expense of $127,500 for the three months ended September
30, 2019.
On
July 1, 2019, the Company issued 120,000 restricted shares of common stock with a fair value of $432,000 to a China-based company
that specializes in the port agency business and/or its designees pursuant to a consulting service agreement. The scope of services
primarily covers business consultation for one year from July 1, 2019 to June 30, 2020. The Company can terminate the agreement
if they are not satisfy with the performance of the consulting firm and the consulting firm should return all the issued shares.
The Company recorded compensation expense of $108,000 for the three months ended September 30, 2019.
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 18,000 shares of restricted common stock valued at $3.50 per share
on the grant date with an aggregated fair value of $63,000 under the Plan to one employee, vesting immediately. The Company recorded
compensation expense of $63,000 for the three months ended September 30, 2019.
During
the three months ended September 30, 2020 and 2019, nil and $414,708 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
|
|
|
17,000
|
|
|
$
|
6.05
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2020
|
|
|
17,000
|
|
|
$
|
6.05
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of June 30, 2020
|
|
|
17,000
|
|
|
$
|
6.05
|
|
Following
is a summary of the status of options outstanding and exercisable at September 30, 2020:
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
|
Average
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
10.05
|
|
|
|
2,000
|
|
|
2.33 years
|
|
$
|
10.05
|
|
|
|
2,000
|
|
|
2.33 years
|
$
|
5.50
|
|
|
|
15,000
|
|
|
0.82 years
|
|
$
|
5.50
|
|
|
|
15,000
|
|
|
0.82 years
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
Note
14. NON-CONTROLLING INTEREST (RESTATED)
The
Company’s non-controlling interest consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Sino-China:
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
221,344
|
|
|
|
376,398
|
|
Accumulated deficit
|
|
|
(6,202,641
|
)
|
|
|
(6,199,188
|
)
|
|
|
|
(5,623,853
|
)
|
|
|
(5,465,346
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
(1,131,997
|
)
|
|
|
(1,077,015
|
)
|
Total
|
|
$
|
(6,755,850
|
)
|
|
$
|
(6,542,361
|
)
|
Note
15. COMMITMENTS AND CONTINGENCIES
Contingencies
The
Labor Contract Law of the PRC requires employers to insure the liability of the severance payments for terminated employees that
have worked for the employers for at least two years prior to January 1, 2008. The employers will be liable for one month for
severance pay for each year of the service provided by the employees. As of September 30, 2020 and June 30, 2020, the Company
has estimated its severance payments of approximately $92,000 and $84,000, 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.
Note
16. INCOME TAXES (RESTATED)
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 expenses for the three months ended September 30, 2020 and 2019 was nil for both period.
The
Company’s deferred tax assets are comprised of the following:
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,331,000
|
|
|
$
|
1,329,000
|
|
PRC
|
|
|
3,005,000
|
|
|
|
2,888,000
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,906,000
|
|
|
|
1,756,000
|
|
PRC
|
|
|
1,491,000
|
|
|
|
1,490,000
|
|
Total deferred tax assets
|
|
|
7,733,000
|
|
|
|
7,463,000
|
|
Valuation allowance
|
|
|
(7,733,000
|
)
|
|
|
(7,463,000
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s operations in the U.S. incurred a cumulative U.S. federal NOL of approximately $6,456,000 as of June 30, 2020
which may reduce future federal taxable income. During the three months ended September 30, 2020, approximately $549,000 of additional
NOL was generated and the tax benefit derived from such NOL was approximately $115,000, respectively. As of September 30, 2020,
the Company’s cumulative NOL amounted to approximately $7,005,000 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’s operations in China incurred a cumulative NOL of approximately $5,961,000 as of June 30, 2020 which may reduce
future taxable income. During the three months ended September 30, 2020, approximately $3,000 of additional NOL was generated
and the tax benefit derived from such NOL was approximately $1,000. As of September 30, 2020, the Company’s cumulative NOL
amounted to approximately $5,964,000 which may reduce future taxable income, of which approximately $675,000 start expiring from
2023 and the remaining balance of NOL will be expired by 2026.
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 and the outbreak of COVID-19 in 2020. The Company
provided a 100% allowance for its DTA as of September 30, 2020. The net increase in valuation for the three months ended September
30, 2020 amounted to approximately $270,000 based on management’s reassessment of the amount of the Company’s deferred
tax assets that are more likely than not to be realized.
The
Company’s taxes payable consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
VAT tax payable
|
|
$
|
1,079,450
|
|
|
$
|
1,037,620
|
|
Corporate income tax payable
|
|
|
2,265,579
|
|
|
|
2,180,727
|
|
Others
|
|
|
64,533
|
|
|
|
62,001
|
|
Total
|
|
$
|
3,409,562
|
|
|
$
|
3,280,348
|
|
Note 17.
CONCENTRATIONS
Major
Customers
For
the three months ended September 30, 2020, two customers accounted for approximately 81.3% and 18.2% of the Company’s revenues,
respectively. As of September 30, 2020, two customers accounted for approximately 91.9% and 7.4% of the Company’s accounts
receivable, net.
For
the three months ended September 30, 2019, three customers accounted for approximately 37.5%, 30.2% and 28.0% of the Company’s
revenues, respectively. As of September 30, 2019, all of these customers accounted for approximately 4.8% of the Company’s
gross accounts receivable.
Major
Suppliers
For
the three months ended September 30, 2020, three suppliers accounted for approximately 52.6%, 26.8% and 15.7% of the total costs
of revenue, respectively.
For
the three months ended September 30, 2019, one supplier accounted for approximately 66.6% of the total cost of revenues.
Note 18.
SEGMENT REPORTING (RESTATED)
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 three operating segments: (1) shipping agency and management services; (2) freight logistics services and
(3) container trucking services.
The
following tables present summary information by segment for the three months ended September 30, 2020 and 2019, respectively:
|
|
For the Three Months Ended September 30, 2020
|
|
|
|
Shipping
Agency and
Management
Services
|
|
|
Freight
Logistics
Services
|
|
|
Container
Trucking
Services
|
|
|
Total
|
|
Net revenues
|
|
$
|
206,845
|
|
|
$
|
929,954
|
|
|
$
|
-
|
|
|
$
|
1,136,799
|
|
Cost of revenues
|
|
$
|
176,968
|
|
|
$
|
918,258
|
|
|
$
|
-
|
|
|
$
|
1,095,226
|
|
Gross profit
|
|
$
|
29,877
|
|
|
$
|
11,696
|
|
|
$
|
-
|
|
|
$
|
41,573
|
|
Depreciation and amortization
|
|
$
|
80,269
|
|
|
$
|
3,450
|
|
|
$
|
-
|
|
|
$
|
83,719
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross margin%
|
|
|
14.4
|
%
|
|
|
1.3
|
%
|
|
|
-
|
%
|
|
|
3.7
|
%
|
|
|
For the Three Months Ended September 30, 2019
|
|
|
|
Shipping
Agency and
Management
Services
|
|
|
Freight
Logistics
Services
|
|
|
Container
Trucking
Services
|
|
|
Total
|
|
Net revenues
|
|
$
|
500,000
|
|
|
$
|
1,242,142
|
*
|
|
$
|
44,084
|
|
|
$
|
1,786,226
|
|
Cost of revenues
|
|
$
|
95,822
|
|
|
$
|
547,684
|
*
|
|
$
|
39,898
|
|
|
$
|
683,404
|
|
Gross profit
|
|
$
|
404,178
|
|
|
$
|
694,458
|
|
|
$
|
4,186
|
|
|
$
|
1,102,822
|
|
Depreciation and amortization
|
|
$
|
102,774
|
|
|
$
|
7,702
|
|
|
$
|
44,101
|
|
|
$
|
154,577
|
|
Total capital expenditures
|
|
$
|
4,538
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,538
|
|
Gross margin%
|
|
|
80.8
|
%
|
|
|
55.9
|
%
|
|
|
9.5
|
%
|
|
|
61.7
|
%
|
*
|
For
certain freight logistics contracts that the Company entered into with 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 September 30, 2019, gross revenues and gross cost of revenues related to these contracts
amounted to approximately $9.1 million and $8.5 million, respectively. There was no such transaction for the three months
ended September 30, 2020.
|
Total
assets as of:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Shipping Agency and Management Services
|
|
$
|
3,153,654
|
|
|
$
|
2,531,074
|
|
Freight Logistic Services
|
|
|
3,268,441
|
|
|
|
3,176,165
|
|
Container Trucking Services
|
|
|
21,567
|
|
|
|
30,863
|
|
Total Assets
|
|
$
|
6,443,661
|
|
|
$
|
5,738,102
|
|
The
Company’s operations are primarily based in the PRC and U.S, where the Company derives all of their revenues. Management
also review unaudited condensed consolidated financial results by business locations.
Disaggregated
information of revenues by geographic locations are as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
PRC
|
|
$
|
929,954
|
|
|
$
|
1,242,142
|
|
U.S.
|
|
|
206,845
|
|
|
|
544,084
|
|
Total revenues
|
|
$
|
1,136,799
|
|
|
$
|
1,786,226
|
|
Note
19. RELATED PARTY TRANSACTIONS
As
of June 30, 2020 and 2019, the outstanding amounts due from a related party consist of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
384,331
|
|
|
$
|
484,331
|
|
Less: allowance for doubtful accounts
|
|
|
(38,433
|
)
|
|
|
(48,433
|
)
|
Total
|
|
$
|
345,898
|
|
|
$
|
435,898
|
|
In
June 2013, the Company signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (the
“Zhiyuan Investment Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan
Investment Group, “Zhiyuan”). Zhiyuan Investment Group is owned by Mr. Zhang, the largest shareholder of the Company.
In September 2013, the Company executed an inland transportation management service contract with the Zhiyuan Investment Group
whereby it would provide certain advisory services and help control potential commodities loss during the transportation process.
The amount due from Zhiyuan Investment Group as of September 30, 2020 was $384,331 and the Company provided a 10% allowance for
doubtful accounts of the amount due from Zhiyuan. For the three months ended September 30, 2020 and 2019, the Company recovered
$10,000 and $37,250, respectively, of allowance for doubtful accounts of the amount due from Zhiyuan.
As
of September 30, 2020 and June 30, 2020, the Company had payable to the CEO of $10,561 and $6,279 and to the Acting CFO of $12,000
and $26,570 which were included in other payable, respectively. These payments were made on behalf of the Company for the daily
business operational activities.
Note
20. SUBSEQUENT EVENTS
On
October 15, 2020, the Company received from the Nasdaq a letter (the “Nasdaq Letter”) indicating that it is not in
compliance with Nasdaq Marketplace Rule 5550(b)(1), which requires companies listed on the Nasdaq Capital Market to maintain a
minimum of $2,500,000 in stockholders’ equity for continued listing. On its annual report for the period ended June 30,
2020, the Company reported stockholders’ equity of negative $357,900 and, as a result, does not currently satisfy Nasdaq
Marketplace Rule 5550(b)(1). Nasdaq’s letter provides the Company 45 calendar days, or until November 30, 2020, to submit
a plan to regain compliance. If the plan is accepted, the Company can be granted up to 180 calendar days from October 15, 2020
to evidence compliance. There can be no guarantee that the Company will be able to regain compliance with the continued listing
requirement of Nasdaq Marketplace Rule 5550(b)(1) or that its plan will be accepted by Nasdaq. The Company is currently evaluating
its available options to resolve the deficiency and regain compliance with the Nasdaq minimum stockholder equity requirement.
On
October 23, 2020, the Company deregistered Longhe Ship Management (Hong Kong) Co., Limited (“LSM”) which is 100% own
by Sino-Global Shipping (HK) Ltd. (Hong Kong). LSM has not been in operation or carried on business after June 30, 2018. The result
of operations of LSM was immaterial for the three months ended September 30, 2020 and 2019.
On
November 2 and November 3, 2020, the Company entered into securities purchase agreements with certain “non-U.S. Persons”
as defined in Regulation S of the Securities Act of 1933, as amended, pursuant to which the Company agreed to sell an aggregate
of 860,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), each convertible into
one share of common stock, no par value, of Company (“Common Stock”), upon the terms and subject to the limitations
and considerations set forth in the Certificate of Designation of the Series A Preferred Stock, and warrants (the “Warrants”)
to purchase up to 1,032,000 shares of Common Stock (the “Offering”). The purchase price for each share of Series A
Preferred Stock and accompanying Warrants is $1.66. The net proceeds to the Company from this Offering will be approximately $1.43
million, not including any proceeds that may be received upon cash exercise of the Warrants. The Warrants will be exercisable
six (6) months following the date of issuance at an exercise price of $1.99 for cash (the “Warrant Shares”). The Warrants
may also be exercised cashlessly if at any time after the six-month anniversary of the issuance date, there is no effective registration
statement registering, or no current prospectus available for, the resale of the Warrant Shares. The Warrants will expire five
and a half (5.5) years from the date of issuance. The Warrants are subject to anti-dilution provisions to reflect stock dividends
and splits or other similar transactions. The Warrants contain a mandatory exercise right for the Company to force exercise of
the Warrants if the closing price of the Common Stock equals or exceeds $5.97 for twenty (20) consecutive trading days, provided,
among other things, that the shares issuable upon exercise of the Warrants are registered or may be sold pursuant to Rule 144
and the daily trading volume exceeds 60,000 shares of Common Stock per trading day on each trading day in a period of 20 consecutive
trading days prior to the applicable date. The Company has received the full amount of payment in November 2020.