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 non-asset based global shipping and freight logistics integrated solution provider. The Company
provides tailored solutions and value-added services to its customers to drive effectiveness and control in related steps throughout
the entire shipping and freight logistics chain. The Company conducts its business primarily through its wholly-owned subsidiaries
in the U.S., the People’s Republic of China (the “PRC”) (including Hong Kong), Australia and Canada. The majority
of the Company’s business is generated from clients located in the PRC and the U.S.
The
Company operates in three segments including (1) inland transportation management services which are operated by its subsidiaries
in the PRC, Hong Kong and the U.S.; (2) freight logistics services which are operated by its subsidiaries in the PRC and the U.S.;
and (3) container trucking services which are operated by its subsidiaries in the PRC and the U.S.
In
order to increase the Company’s operations in the U.S. and to enhance the Company’s competitiveness with information
technology, in August 2016, the Company’s Board of Directors (the “Board”) authorized management to move forward
with the development of a mobile application that would provide a full-service logistics platform for shipping operations between
the U.S. and the PRC for, among other things, short-haul trucking in the U.S. Upon the implementation of the application, the
Company signed two significant agreements with COSCO Beijing International Freight Co., Ltd. (“COSFRE Beijing”) and
Sino-Trans Guangxi in December 2016. Pursuant to the agreement with COSFRE Beijing, the Company receives a percentage of the transportation
fees for the arrangement of inland transportation services for COSFRE Beijing’s container shipments into U.S. ports. The
Company has increased its business in the U.S. since the launch of the short haul container truck services web-based platform.
For the strategic cooperation framework agreement with Sino-Trans Guangxi, which is a subsidiary of Sino-Trans Limited, the Company
established an integrated logistics plan to provide an end-to-end supply chain solution for customers shipping soybeans and sulfur
products from the U.S. to southern PRC via container. On January 9, 2017, the Company entered into a strategic cooperation agreement
with China Ocean Shipping Agency Qingdao Co. Ltd. (“COSCO Qingdao”). COSCO Qingdao now utilizes the Company’s
full-service logistics platform to arrange the transport of its container shipments into U.S. ports. Sino-Global receives a percentage
of the transportation fees in exchange for the arrangement of inland transportation services for COSCO Qingdao’s container
shipments into U.S. ports. The Board subsequently authorized the Company to upgrade its enterprise resource planning system (ERP)
in order to manage its operations in real time throughout its multiple locations and to integrate with web applications.
On
September 11, 2017, the Company set up a new wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd. (“Sino
Ningbo”), via its wholly-owned entity, Sino-Global Shipping New York Inc. This subsidiary primarily engages in transportation
management and freight logistics services. Sino Ningbo’s operating results were included in the consolidated financial statements
starting the fourth quarter of fiscal year 2018.
On
September 3, 2018, the Company entered into a co-operation 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 and management operations. The Company has 51% ownership stake in the joint venture.
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”). The unaudited condensed consolidated financial statements
include the accounts of all directly, indirectly owned subsidiaries and variable interest entity. All intercompany transactions
and balances have been eliminated in consolidation.
(b)
Basis of Consolidation
The
unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and its affiliates.
All significant intercompany transactions and balances are eliminated in consolidation. Sino-Global Shipping Agency Ltd., a PRC
corporation (“Sino-China”), is considered a variable interest entity (“VIE”), with the Company as the
primary beneficiary. The Company, through Trans Pacific Beijing, entered into certain agreements with Sino-China, pursuant to
which the Company receives 90% of Sino-China’s net income. The Company does not receive any payments from Sino-China unless
Sino-China recognizes net income during its fiscal year. These agreements do not entitle the Company to any consideration if Sino-China
incurs a net loss during its fiscal year. If Sino-China incurs a net loss during its fiscal year, the Company is not required
to absorb such net loss.
As
a VIE, Sino-China’s revenues are included in the Company’s total revenues, and any loss from operations is consolidated
with that of the Company. Because of contractual arrangements between the Company and Sino-China, the Company has a pecuniary
interest in Sino-China that requires consolidation of the financial statements of the Company and Sino-China.
The
Company has consolidated Sino-China’s operating results because the entities are under common control in accordance with
ASC 805-10, “Business Combinations”. The agency relationship between the Company and Sino-China and its branches is
governed by a series of contractual arrangements pursuant to which the Company has substantial control over Sino-China. Management
makes ongoing reassessments of whether the Company remains the primary beneficiary of Sino-China.
The
carrying amount and classification of Sino-China's assets and liabilities included in the Company’s unaudited condensed
consolidated balance sheets were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
16,292
|
|
|
$
|
3,434,850
|
|
Total assets
|
|
|
125,897
|
|
|
|
3,992,131
|
|
Total current liabilities
|
|
|
30,609
|
|
|
|
21,979
|
|
Total liabilities
|
|
|
30,609
|
|
|
|
21,979
|
|
(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 consolidated financial statements include revenue recognition, fair value of stock based compensation, cost of
revenues, allowance for doubtful accounts, deferred income taxes, income tax expense, the useful lives of property and equipment
and intangible assets. Since the use of estimates is an integral component of the financial reporting process, actual results
could differ from those estimates.
(e)
Translation of Foreign Currency
The
accounts of the Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of
the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional
currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Sino-China, report their financial
positions and results of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial
statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect
at the time of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions
are recognized in the consolidated statements of operations. The Company translates the foreign currency financial statements
of Sino-China, Sino-Global Shipping Australia, Sino-Global Shipping Hong Kong, Sino-Global Shipping Canada, Trans Pacific Beijing
and Trans Pacific Shanghai in accordance with ASC 830-10, “Foreign Currency Matters”. Assets and liabilities are translated
at current exchange rates quoted by the People’s Bank of China at the balance sheet dates and revenues and expenses are
translated at average exchange rates in effect during the year. The resulting translation adjustments are recorded as other comprehensive
income (loss) and accumulated other comprehensive loss as a separate component of equity of the Company, and also included in
non-controlling interests.
The
exchange rates as of September 30, 2018 and June 30, 2018 and for the three months ended September 30, 2018 and 2017 are as follows:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
Three
months ended
September 30,
|
Foreign
currency
|
|
Balance
Sheet
|
|
|
Balance
Sheet
|
|
|
2018
Profits/Loss
|
|
|
2017
Profits/Loss
|
|
RMB:1USD
|
|
|
6.8678
|
|
|
|
6.6186
|
|
|
|
6.8027
|
|
|
|
6.6704
|
|
AUD:1USD
|
|
|
1.3842
|
|
|
|
1.3505
|
|
|
|
1.3678
|
|
|
|
1.2669
|
|
HKD:1USD
|
|
|
7.8281
|
|
|
|
7.8442
|
|
|
|
7.8452
|
|
|
|
7.8147
|
|
CAD:1USD
|
|
|
1.2901
|
|
|
|
1.3141
|
|
|
|
1.3069
|
|
|
|
1.2537
|
|
(f)
Cash
Cash
consists of cash on hand and deposits placed with banks which are unrestricted as to withdrawal and use or have a term deposit
of three months or less. The Company maintains cash with various financial institutions mainly in the PRC, Australia, Hong Kong,
Canada and the U.S. As of September 30, 2018 and June 30, 2018, cash balances of $239,535 and $6,205,960, respectively, were maintained
at financial institutions in the PRC, which were not insured by any of the Chinese authorities. As of September 30, 2018 and June
30, 2018, cash balance of $167,283 and $848,657, 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 USD $64,000) if the bank with which an individual/a company
hold its eligible deposit fails. As of September 30, 2018 and June 30, 2018, cash balance of $552,133 and $9,601, respectively,
were maintained at financial institutions in Hong Kong and approximately $64,000 were insured by the Hong Kong Deposit Protection
Board.
(g)
Receivables and Allowance for Doubtful Accounts
Accounts
receivable are presented at net realizable value. The Company maintains allowances for doubtful accounts and for estimated losses.
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt
as to the collectability of individual receivable balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balances, customers’ historical payment history, their current
credit-worthiness and current economic trends. Receivables are considered past due after 180 days. Accounts Receivable are written
off against the allowances only after exhaustive collection efforts.
Other
receivables represent mainly prepaid employee insurance and welfare benefits, which will be subsequently deducted from the employee
payroll, guarantee deposits on behalf of ship owners as well as office lease deposits.
(h)
Property and Equipment, net
Net
property and equipment are stated at historical cost less accumulated depreciation. Historical cost comprises its purchase price
and any directly attributable costs of bringing the assets to its working condition and location for its intended use. Depreciation
is calculated on a straight-line basis over the following estimated useful lives:
Buildings
|
20
years
|
Motor
vehicles
|
5-10
years
|
Furniture and office equipment
|
3-5 years
|
Leasehold improvements
|
Shorter of lease term or useful lives
|
The
carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such
asset is less than its carrying value. If impairment is identified, a loss is recognized based on the amount by which the carrying
value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved or based on independent appraisals. Management has determined that there were no
impairments at the balance sheet dates.
(i)
Intangible Assets, net
Intangible
assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the following
estimated useful lives:
Logistics
platform
|
3 years
|
The
Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might
be impaired. There was no such impairment as of September 30, 2018.
(j)
Revenue Recognition
On
July 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers
(FASB ASC Topic 606) using the modified retrospective method for contracts that were not completed as of June 30, 2018. This did
not result in an adjustment to the retained earnings upon adoption of this new guidance as the Company’s revenue was recognized
based on the amount of consideration expected to receive in exchange for satisfying the performance obligations.
The
core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent 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. This will require the Company to identify contractual performance obligations and determine 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
ASU requires the use of a new 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 application of the five-step model to the revenue streams compared
to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company
evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using
the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.
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.
|
●
|
Revenues
from inland transportation management services are recognized when commodities are being released from the customers’
warehouse.
|
|
●
|
Revenues
from ship management services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues
from freight logistic services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues
from container trucking services are recognized when the related contractual services are rendered.
|
(k)
Taxation
Because
the Company and its subsidiaries and Sino-China are incorporated in different jurisdictions, they file separate income tax returns.
The Company uses the liability method of accounting for income taxes in accordance with US Generally Accepted Accounting Principles
(“US GAAP”). Deferred taxes, if any, are recognized for the future tax consequences of temporary differences between
the tax basis of assets and liabilities and their reported amounts in the 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, 2018 and June 30 2018, respectively.
Income
tax returns for the years prior to 2015 are no longer subject to examination by US tax authorities.
On
December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act,
the U.S. corporate tax rate decreased from 35% to 21%. As the Company has a June 30 fiscal year-end, the lower corporate income
tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30,
2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation
of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has
caused the Company to re-measure all U.S. deferred income tax assets and liabilities for temporary differences and net operating
loss (“NOL”) carryforwards and recorded a one-time transition tax expense.
PRC
Enterprise Income Tax
PRC
enterprise income tax is calculated based on taxable income determined under the PRC Generally Accepted Accounting Principles
(“PRC GAAP”) at 25%. Sino-China and Trans Pacific are registered in PRC and governed by the Enterprise Income Tax
Laws of the PRC.
PRC
Business Tax and Surcharges
Revenues
from services provided by the Company’s PRC subsidiaries and affiliates, including Sino-China and Trans Pacific are subject
to the PRC business tax of 5%. Business tax and surcharges are paid on gross revenues generated from shipping agency services
minus the costs of services which are paid on behalf of the customers.
In
addition, under the PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay the city construction
tax (7%) and education surcharges (3%) based on the calculated business tax payments.
The
Company’s PRC subsidiaries and affiliates report revenues net of PRC’s business tax and surcharges for all the periods
presented in the consolidated statements of operations.
(l)
Earnings (loss) per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) attributable to holders of common shares of the Company by
the weighted average number of common shares of the Company outstanding during the applicable period. Diluted earnings per share
reflect the potential dilution that could occur if securities or other contracts to issue common shares of the Company were exercised
or converted into common shares of the Company. Common share equivalents are excluded from the computation of diluted earnings
per share if their effects would be anti-dilutive.
For
the three months ended September 30, 2018 there was no dilutive effect of potential shares of common stock of the Company because
the Company generated a net loss. For the three months ended September 30, 2017, the effect of potential shares of common stock
of the Company was dilutive since the exercise prices for options and warrants were lower than the average market price for the
related periods. As a result, a total of 52,090 of unexercised options and warrants were dilutive for the three months ended September
30, 2017 and were included in the computation of diluted EPS.
(m)
Comprehensive Income (loss)
The
Company reports comprehensive income (loss) in accordance with the FASB issued authoritative guidance which establishes standards
for reporting comprehensive income (loss) and its component in financial statements. Comprehensive income (loss), as defined,
includes all changes in equity during a period from non-owner sources.
(n)
Stock-based Compensation
Valuations
are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair
value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based
on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee
terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding.
The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the
time of the grant.
(o)
Risks and Uncertainties
The
Company’s business, financial position and results of operations may be influenced by the political, economic, and legal
environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject
to special considerations and significant risks not typically associated with companies in North America and Western Europe. These
include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and
by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other things. Moreover, the Company’s ability to
grow its business and maintain its profitability could be negatively affected by the nature and extent of services provided to
its major customers, Tianjin Zhiyuan Investment Group Co., Ltd. (the “Zhiyuan Investment Group”) and Tengda Northwest
Ferroalloy Co., Ltd. (“Tengda Northwest”).
(p)
Recent Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”) which revises accounting for operating
leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing
its right to use the underlying asset for the lease term in the balance sheet. This update will be effective for public entities
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB
issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new
leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee
reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on
an index or rate and certain transition adjustments, among other issues. In addition, in July 2018, the FASB issued ASU 2018-11,
Leases
(Topic 842), Targeted Improvements,
which provides an additional (and optional) transition method to adopt the new leases
standard. Under the new transition method, a reporting entity would initially apply the new lease requirements at the effective
date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, continue
to report comparative periods presented in the financial statements in the period of adoption in accordance with current U.S.
GAAP (i.e., ASC 840, Leases) and provide the required disclosures under ASC 840 for all periods presented under current U.S.
GAAP. A modified retrospective transition approach is required for lessees for capital and operating leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain
practical expedients available. The Company plans to adopt these new guidance in the first quarter of fiscal year 2020 and is
still evaluating the effect that this guidance will have on the Company’s unaudited condensed consolidated financial statements
and related disclosures.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement
of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment
Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant
in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination;
(4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies,
including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests
in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments
are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective
transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues,
the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company does not believe
the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.
On July 1, 2018, the Company has adopted this ASU.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification
accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or conditions
of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment
awards, ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017. On July 1, 2018,
the Company has adopted this ASU. The Company does not believe the adoption of this ASU would have a material effect on the Company’s
unaudited condensed consolidated financial statements.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. The guidance largely aligns the accounting for share-based payment awards issued to employees and nonemployees,
whereby the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively
a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee
awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term
will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The ASU is effective for
fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The ASU is required to be applied
on a prospective basis to all new awards granted after the date of adoption. The Company is still evaluating the effect that
this guidance but does not expect the standard to have a material impact on its unaudited condensed consolidated financial statements.
The
Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a
material effect on the Company’s unaudited condensed consolidated financial statements.
(q)
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year presentation mainly reclassifying advance to suppliers
to prepaid expenses – long term (see Note 4 and 5). These reclassifications have no effect on the reported revenues, net
income or total assets.
Note
3. ACCOUNTS RECEIVABLE, NET
The Company’s net accounts receivable is as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
13,836,120
|
|
|
$
|
10,111,081
|
|
Less: allowances for doubtful accounts
|
|
|
(2,635,206
|
)
|
|
|
(1,682,228
|
)
|
Accounts receivables, net
|
|
$
|
11,200,914
|
|
|
$
|
8,428,853
|
|
Movement
of allowance for doubtful accounts is as follows:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,682,228
|
|
|
$
|
185,821
|
|
Provision for doubtful accounts
|
|
|
955,897
|
|
|
|
1,519,122
|
|
Less: write-off/recovery
|
|
|
-
|
|
|
|
(24,101
|
)
|
Exchange rate effect
|
|
|
(2,919
|
)
|
|
|
1,386
|
|
Ending balance
|
|
$
|
2,635,206
|
|
|
$
|
1,682,228
|
|
For
the three months ended September 30, 2018, provision for doubtful accounts was $951,832. For the same period in 2017, recovery
of doubtful accounts was $24,536, due to collection of accounts receivable which the Company made a provision during previous
period.
Note
4. ADVANCES TO SUPPLIERS
The Company’s advances to suppliers – third parties are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Freight fees (1)
|
|
$
|
1,492,091
|
|
|
$
|
564,365
|
|
Other
|
|
|
-
|
|
|
|
140,513
|
|
Total advances to suppliers-third parties
|
|
$
|
1,492,091
|
|
|
$
|
704,878
|
|
(1)
|
The
prepaid freight fee is the Company’s advances made for various shipping costs for shipments from October to December
of 2018.
|
The Company’s advances to suppliers – related party are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Freight fees
|
|
$
|
-
|
|
|
$
|
3,414,619
|
|
Total advances to suppliers-related party
|
|
$
|
-
|
|
|
$
|
3,414,619
|
|
On
February 18, 2017, the Company entered into a cooperative transportation agreement with a related party, Zhiyuan International
Investment & Holding Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Zhiyuan Hong
Kong, which is jointly owned by the Company’s largest shareholder along with China Minmetals Corporation and China Metallurgical
Group Corporation, acts as the general designer, general equipment provider and general service contractor in the upgrade and
renovation project of Perwaja Steel, located in Malaysia (the “Project”). The Company agreed to provide high-quality
services, including the design of a detailed transportation plan as well as execution and necessary supervision of the plan at
Zhiyuan Hong Kong’s demand, for which the Company will receive a 1% to 1.25% of the transportation fee incurred in the Project
as a commission for its services rendered. On July 7, 2017, the Company signed a supplemental agreement with the Buyer, in which
the Company agreed to cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs with respect
to transporting construction materials from manufacturers to the port of Malaysia and to the factory site. Pursuant to the supplemental
agreement, the Company agreed to make prepayments to Zhiyuan Hong Kong for its share of packaging and transporting costs related
to the Project; in return, the Company received 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee.
The Company has completed its services pursuant to the supplemental agreement and received a $575,115 service fee in June 2018.
The entire advance was reimbursed to the Company in September 2018.
Note
5. PREPAID EXPENSES
and other assets
The
Company’s prepaid expenses and other assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Advance to employees
|
|
$
|
280,652
|
|
|
$
|
355,294
|
|
Prepaid income taxes
|
|
|
-
|
|
|
|
800
|
|
Other (including prepaid insurance, rent, listing fees)
|
|
|
173,206
|
|
|
|
232,345
|
|
Deposit for leasehold improvement on IT infrastructure facility (1)
|
|
|
422,252
|
|
|
|
438,151
|
|
Deposit for ERP (2)
|
|
|
437,357
|
|
|
|
437,357
|
|
Deposit for IT infrastructure (3)
|
|
|
1,002,750
|
|
|
|
1,002,750
|
|
Total
|
|
|
2,316,217
|
|
|
|
2,466,697
|
|
Less: current portion
|
|
|
(453,858
|
)
|
|
|
(588,439
|
)
|
Total noncurrent portion
|
|
$
|
1,862,359
|
|
|
$
|
1,878,258
|
|
(1)
|
The
Company paid a $422,252 deposit for leasehold improvements on its IT infrastructure facility including upgrading the server
room of its Shanghai office. The total project cost is approximately $580,000 and is expected to be completed in October 2019.
|
|
|
(2)
|
On
December 27, 2017, with the approval of the Board, the Company signed a contract with Tianjin Anboweiye Technology Ltd
Co. (“Tianjin Anboweiye”), to develop a more complete ERP system based on the Company’s current operations
and projected future growth. In March 2018, the Company paid a deposit to start phase one of the development which includes
upgraded accounting and human resources modules, new order processing and customer relationship management system. The
Company paid a $437,357 deposit to Tianjin Anboweiye. The total contract price for phase one amounted to RMB 4,000,000,
approximately USD 580,000. The project is currently in the planning and design stage. The Company expects the planning
stage will be completed in March 2019 and will then start the development stage. The remaining balance will be settled
upon completion of services in fiscal year 2021.
|
(3)
|
On June 22, 2018,
the Company entered into contract to improve its IT infrastructure. The total contract consideration for the services is $1.2
million and the Company paid a deposit of $1.0 million. The consideration is allocated as follows: $420,000 for hardware leasing
of twelve months; $480,000 for onsite services and IT consulting for a two-year period; $60,000 for operating system set up,
and $240,000 for continuing integration with the ERP system and data management for two years. The system is currently in
the installation stage but is not yet completed.
|
Note
6. OTHER LONG-TERM ASSETS - DEPOSITS
The
Company’s other long-term assets – deposits are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Rental and utilities deposits
|
|
$
|
59,820
|
|
|
$
|
59,777
|
|
Freight logistic deposits (1)
|
|
|
2,993,362
|
|
|
|
83,526
|
|
Total other long-term assets - deposits
|
|
$
|
3,053,182
|
|
|
$
|
143,303
|
|
|
(1)
|
Certain
customers require the Company to pay deposits for the security of the shipments and merchandise. These deposits are refundable
at the end of the contract terms. Approximately $2.91 million (RMB 20 million) was paid to BaoSteel Resources Co., Ltd. (“BaoSteel”)
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.
|
Note
7. PROPERTY AND EQUIPMENT, NET
The
Company’s net property and equipment as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
$
|
195,991
|
|
|
$
|
203,371
|
|
Motor vehicles
|
|
|
575,518
|
|
|
|
598,094
|
|
Computer equipment
|
|
|
162,907
|
|
|
|
165,561
|
|
Office equipment
|
|
|
74,112
|
|
|
|
76,065
|
|
Furniture and fixtures
|
|
|
162,270
|
|
|
|
165,047
|
|
System software
|
|
|
116,305
|
|
|
|
120,485
|
|
Leasehold improvements (1)
|
|
|
798,307
|
|
|
|
828,365
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,085,410
|
|
|
|
2,156,988
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,177,112
|
)
|
|
|
(1,200,559
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
908,298
|
|
|
$
|
956,429
|
|
|
(1)
|
The
Company completed its leasehold improvement for its new Ningbo office in June, 2018. The Company subsequently entered into a renegotiation
of the lease term with the lessor and the leasehold improvement is subject to inspection and approval by the lessor. The office
is not currently in use and thus no amortization expenses for the leasehold improvement was recorded for the period ended September
30, 2018.
|
Depreciation
and amortization expense for the three months ended September 30, 2018 and 2017 were $9,882 and $13,203, respectively.
Note
8. INTANGIBLE ASSETS, NET
Net
intangible assets consisted of the following at:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(52,778
|
)
|
|
|
(36,944
|
)
|
|
|
|
|
|
|
|
|
|
Intangible asset, net
|
|
$
|
137,222
|
|
|
$
|
153,056
|
|
As
part of the above-mentioned intelligent logistics platform (see Note 4), four information applications were completed by Tianjin
Anboweiye in November 2017 and placed into service, including route planning and route execution for customers in China. The platforms
are being amortized over three years. Amortization expense amounted to $15,833 and $0 for the three months ended September 30,
2018 and 2017, respectively.
Note
9. EQUITY
Stock
issuance:
On
March 12, 2018, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company sold to
the investors in a registered direct offering, an aggregate of 2,000,000 shares of the common stock of the Company, no par value
per share, at a price of $1.50 per share for aggregate gross proceeds of $3 million. The placement agent received a cash commission
fee equal to 7.5% of the gross proceeds. The offering closed on March 14, 2018. The offering of the 2 million shares was made
pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-222098), which was originally
filed with the SEC on December 15, 2017, and was declared effective by the SEC on February 16, 2018. The Company agreed in the
purchase agreement that it would not issue any common stock for 60 calendar days following the closing of the offering and each
of the Company’s executive officers and directors agreed to a lock-up period of 60 days from the date of the purchase agreement.
Concurrently
with the registered direct offering closed on March 14, 2018, the Company sold the investors Series “A” warrants to
purchase up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share and Series “B”
warrants to purchase up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share. The sale
of the Series “A” warrants and Series “B” warrants is a private placement in reliance upon an exemption
afforded under Regulation D of the Securities Act. The Series “A” warrants are exercisable as of September 14, 2018,
and expire five and a half (5.5) years from the date of issuance. The Series B warrants are exercisable as of September 14, 2018,
and expire thirteen (13) months from the date of issuance. The exercise price and the number of shares of common stock issuable
upon exercise of the Warrants are subject to adjustment in the event of stock splits or dividends, or other similar transactions,
but not as a result of future securities offerings at lower prices. Net proceeds to the Company from the sale of the shares and
the warrants after deducting offering expenses and placement agent fees were $2,585,091.
On
April 26, 2018, the Company filed a registration statement on Form S-1 (“S-1”) to register the resale of an aggregate
of 4,000,000 shares of common stock underlying the Series A and B Warrants mentioned above. The S-1 was declared effective by
the SEC on May 8, 2018.
The
warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed
to the Company’s own stock and require net share settlement. The fair value of the warrants of $1,074,140 is valued based
on the Black-Scholes-Merton model and is recorded as additional paid-in capital from common stock based on the relative fair value
of proceeds received using the following assumptions:
|
|
Series
A
|
|
|
Series
B
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected life (years)
|
|
|
5.5
|
|
|
|
1.08
|
|
Risk-free interest rate
|
|
|
2.72
|
%
|
|
|
2.16
|
%
|
Expected volatility
|
|
|
110.31
|
%
|
|
|
73.88
|
%
|
Following
is a summary of the status of warrants outstanding and exercisable as of September 30, 2018:
|
|
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2018
|
|
|
4,000,000
|
|
|
$
|
1.75
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of September 30, 2018
|
|
|
4,000,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of September 30, 2018
|
|
|
4,000,000
|
|
|
$
|
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
|
|
|
4.96
years
|
2018 Series B 2,000,000
|
|
|
2,000,000
|
|
|
$
|
1.75
|
|
|
0.54 years
|
Stock
based compensation:
In
March 2017, the Company entered into a consulting and advisory services agreement with consulting entity, who provides management
consulting services that include marketing program design and implementation and cooperative partner selection and management.
The service period began March 2017 and will end February 2020. The Company issued 250,000 shares of common stock as the 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 consulting expense were $52,708 and $52,709 for three months ended September 30, 2018 and 2017,
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 shares became vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and
August 16, 2018. These shares were valued at $364,000. $91,000 was recorded as compensation expense for the three months
ended September 30, 2018.
On
October 27, 2017, the Company issued 200,000 shares of restricted common stock on the grant date with a fair value of $548,000
to a consulting company pursuant to a consulting agreement. The scope of services primarily covered advising on business development,
strategic planning and compliance during the one-year service period from October 17, 2017 to October 16, 2018. $137,000 was recorded
as compensation expense for the three months ended September 30, 2018.
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 Company recorded legal expense of $63,500 for the three months ended September 30, 2018.
On
September 21, 2018, the Company issued 430,000 shares of common stock valued at $1.10 per share on the grant date with a fair
value of $473,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately. The Company recorded compensation
expense of $473,000 for the three months ended September 30, 2018.
$817,208
and $62,374 were charged to general and administrative expenses during the three months ended September 30, 2018 and 2017, respectively.
Stock
Options:
The
issuance of the Company’s options is exempted from registration under the Securities Act of 1933, as amended (the “Securities
Act”). The Common Stock underlying the Company’s options granted may be sold in compliance with Rule 144 of the Securities
Act. Each option may be exercised to purchase one share of the common stock of the Company, no par value per share (the “Common
Stock”). Payment for the options may be made in cash or by exchanging shares of Common Stock at their fair market value.
The fair market value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date
of exercise.
The
term of the 10,000 options granted in 2013 is 10 years and the exercise price is $2.01. The total fair value of the options was
$19,400. All options were vested as of June 30, 2018.
Pursuant
to the Company’s 2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted options to purchase 150,000
shares of Common Stock to two employees with a one-year vesting period, one half of which vested on October 26, 2016, and the
other half on July 26, 2017. The exercise price of the 150,000 options is $1.10, which was equal to the share price of the Company’s
Common Stock on July 26, 2016. The grant date fair value of such options was $0.77 per share. The fair value was calculated using
the Black-Scholes options pricing model with the following assumptions: volatility of 99.68%, risk free interest rate of 1.15%,
and expected life of 5 years. The total fair value of the options was $115,979. 75,000 of these options were exercised in February
2017. In accordance with the vesting periods, $0 and 9,665 were recorded as general and administrative expenses related to these
options for the three months ended September 30, 2018 and 2017, respectively.
A
summary of the options is presented in the table below:
|
|
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Options outstanding, as of June 30, 2018
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of September 30, 2018
|
|
|
85,000
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of September 30, 2018
|
|
|
85,000
|
|
|
$
|
1.21
|
|
Following
is a summary of the status of options outstanding and exercisable at September 30, 2018:
Outstanding
Options
|
|
Exercisable
Options
|
Exercise
Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
|
Average
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
2.01
|
|
|
|
10,000
|
|
|
4.34
years
|
|
$
|
2.01
|
|
|
|
10,000
|
|
|
4.34
years
|
$
|
1.10
|
|
|
|
75,000
|
|
|
2.82 years
|
|
$
|
1.10
|
|
|
|
75,000
|
|
|
2.82 years
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
Note
10. NON-CONTROLLING INTEREST
The
Company’s non-controlling interest consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Sino-China:
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
266,213
|
|
|
|
142,900
|
|
Accumulated deficit
|
|
|
(5,559,616
|
)
|
|
|
(5,521,638
|
)
|
|
|
|
(4,935,959
|
)
|
|
|
(5,021,294
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
229,856
|
|
|
|
208,466
|
|
Total
|
|
$
|
(4,706,103
|
)
|
|
$
|
(4,812,828
|
)
|
Note
11. COMMITMENTS AND CONTINGENCIES
Lease
Obligations
The
Company leases certain office premises and apartments for employees under various operating lease agreements with terms through
April 16, 2020. Rental expenses for the three months ended September 30, 2018 and 2017 were $56,358 and $64,862, respectively.
Contractual
Obligations:
The
Company entered into a contract to upgrade its ERP system. The total contract costs amounting to RMB4,000,000, approximately $580,000,
which the Company made a deposit of $437,357 during the year ended June 30, 2018. The remaining balance will be settled upon the
completion of services during fiscal year 2021.
On
June 22, 2018, the Company entered into a contract to improve its IT infrastructure. The total contract price for the services
is $1.2 million and the Company paid a deposit of $1.0 million during the year ended June 30, 2018. The remaining $0.2 million
will be paid upon completion of services during fiscal year 2020.
|
|
Leases
|
|
|
Contractual
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ending September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
200,646
|
|
|
$
|
|
|
|
$
|
200,646
|
|
2020
|
|
|
28,954
|
|
|
|
200,000
|
|
|
|
228,954
|
|
2021
|
|
|
|
|
|
|
142,643
|
|
|
|
142,643
|
|
|
|
$
|
229,600
|
|
|
$
|
342,643
|
|
|
$
|
572,243
|
|
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, 2018 and June 30, 2018, the Company
has estimated its severance payments of approximately $58,746 and $58,543, 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-China
has employment agreements with each of Mr. Lei Cao, Ms. Tuo Pan and Mr. Zhikang Huang. These employment agreements provide for
five-year terms that extend automatically in the absence of termination provided at least 60 days prior to the anniversary date
of the agreement. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause,
then we are obligated to provide at least 30 days’ prior notice. In such case during the initial term of the agreement,
we would need to pay such executive (i) the remaining salary through the date of May 4, 2023, (ii) two times of the then applicable
annual salary if there has been no Change in Control, as defined in the employment agreements or three-and-half times of the then
applicable annual salary if there is a Change in Control.
From
time to time, the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named
as a defendant in a breach of service contract lawsuit in the amount of $225,000 filed with the California Superior Court on January
19, 2018. The Company filed a motion with the court to force the plaintiff to arbitration rather than to litigate the dispute
in court based on the arbitration provision in the contract. The court approved to stay the case pending the resolution of the
arbitration and has scheduled a status conference for March 19, 2019. Management believes it is premature to assess the outcome
of the pending arbitration but believes it will not likely have a material effect on the Company’s consolidated operations
or financial position.
Note
12. INCOME TAXES
On
December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act,
the U.S. corporate tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory
federal rate of approximately 28% for the fiscal year ending June 30, 2018 is applied to the provision for income tax and a 21%
rate for subsequent fiscal years.
As
of September 30, 2018, the Company re-measured deferred tax assets based on the current effective rate of 21% at which these deferred
tax amounts are expected to reverse in the future.
The
Company’s income tax benefit (expense) for the three months ended September 30, 2018 and 2017 are as follows:
|
|
For the Three Months Ended September 30
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(30,597
|
)
|
|
$
|
(60,162
|
)
|
Hong Kong
|
|
|
-
|
|
|
|
(4,309
|
)
|
PRC
|
|
|
(97,437
|
)
|
|
|
(132,058
|
)
|
|
|
|
(128,034
|
)
|
|
|
(196,529
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
194,500
|
|
|
|
(99,900
|
)
|
Total income tax benefit (expense)
|
|
$
|
66,466
|
|
|
$
|
(296,429
|
)
|
The
Company’s deferred tax assets are comprised of the following:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
793,000
|
|
|
$
|
540,000
|
|
Net operating loss
|
|
|
416,000
|
|
|
|
355,000
|
|
Total deferred tax assets
|
|
|
1,209,000
|
|
|
|
895,000
|
|
Valuation allowance
|
|
|
(380,000
|
)
|
|
|
(260,500
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
829,000
|
|
|
$
|
634,500
|
|
The
Company’s operations in the U.S. have incurred a cumulative pre-2017 net operating loss (“NOL”) of approximately
$1,531,000 as of June 30, 2018 which may reduce future federal taxable income. The NOL will expire in 2036. During the three months
ended September 30, 2018, a total of approximately $230,000 of NOL was generated and the tax benefit derived from such NOL was
approximately $48,000.
The
Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the
deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many
factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings
experience, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant factors.
Management has provided an allowance against the deferred tax assets balance as of September 30, 2018. The net increase in valuation
for September 30, 2018 amounted to $119,500, on the basis of management’s reassessment of the amount of its deferred tax
assets that are more likely than not to be realized. Management considers new evidence, both positive and negative, that could
affect its future realization of deferred tax assets. Due to the Company’s forecasted pretax income and continuing utilization
of its NOL, management determined that there is sufficient positive evidence to conclude that it is more likely than not that
all of its deferred taxes are realizable.
The
Company’s taxes payable consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
505,444
|
|
|
$
|
531,337
|
|
Corporate income tax payable
|
|
|
2,090,155
|
|
|
|
2,104,232
|
|
Others
|
|
|
63,348
|
|
|
|
65,050
|
|
Total
|
|
$
|
2,658,947
|
|
|
$
|
2,700,619
|
|
Note 13.
CONCENTRATIONS
Major
Customer
For
the three months ended September 30, 2018, three customers accounted for 27.8%, 22.2% and 18.5% of the Company’s revenues,
respectively. At September 30, 2018, these three customers accounted for approximately 30.1% of the Company’s accounts receivable.
For
the three months ended September 30, 2017, three customers accounted for 47%, 16% and 11% of the Company’s revenues, respectively.
As of September 30, 2017, one of these three customers accounted for 100% of the Company’s accounts due from related parties
and the remaining two customers accounted for approximately 64% of the Company’s accounts receivable.
Major
Suppliers
For
the three months ended September 30, 2018, four suppliers accounted for 32.1%, 20.3%, 18.2% and 12.6% of the total costs of revenue,
respectively.
For
the three months ended September 30, 2017, one supplier accounted for 61% of the total costs of revenue.
Note 14.
SEGMENT REPORTING
ASC
280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent
with the Company's internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for detailing the Company's business segments.
The
Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial information of the separate
operating segments when making decisions about allocating resources and assessing the performance of the group. The Company has
determined that it has three operating segments: (1) inland transportation 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, 2018 and 2017, respectively:
|
|
For the Three Months ended September 30, 2018
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight
Logistic
Services
|
|
|
Container
Trucking
Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
322,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
322,000
|
|
- Third parties
|
|
$
|
598,000
|
|
|
$
|
5,487,553
|
|
|
$
|
91,980
|
|
|
$
|
6,177,533
|
|
Total Revenues
|
|
$
|
920,000
|
|
|
$
|
5,487,553
|
|
|
$
|
91,980
|
|
|
$
|
6,499,533
|
|
Cost of revenues
|
|
$
|
59,874
|
|
|
$
|
4,965,992
|
|
|
$
|
57,966
|
|
|
$
|
5,083,832
|
|
Gross profit
|
|
$
|
860,126
|
|
|
$
|
521,561
|
|
|
$
|
34,014
|
|
|
$
|
1,415,701
|
|
Depreciation and amortization
|
|
$
|
20,488
|
|
|
$
|
476
|
|
|
$
|
4,751
|
|
|
$
|
25,715
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
830
|
|
|
$
|
830
|
|
|
|
For the Three Months ended September 30, 2017
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight
Logistic
Services
|
|
|
Container
Trucking
Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
565,160
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
565,160
|
|
- Third parties
|
|
$
|
853,306
|
|
|
$
|
3,508,704
|
|
|
$
|
452,841
|
|
|
$
|
4,814,851
|
|
Total Revenues
|
|
$
|
1,418,466
|
|
|
$
|
3,508,704
|
|
|
$
|
452,841
|
|
|
$
|
5,380,011
|
|
Cost of revenues
|
|
$
|
182,150
|
|
|
$
|
3,140,592
|
|
|
$
|
343,176
|
|
|
$
|
3,665,918
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
1,236,316
|
|
|
$
|
368,112
|
|
|
$
|
109,665
|
|
|
$
|
1,714,093
|
|
Depreciation and amortization
|
|
$
|
7,661
|
|
|
$
|
475
|
|
|
$
|
5,067
|
|
|
$
|
13,203
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
5,077
|
|
|
$
|
-
|
|
|
$
|
5,077
|
|
Total
assets as of:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Inland Transportation Management Services
|
|
$
|
14,305,487
|
|
|
$
|
18,338,099
|
|
Freight Logistic Services
|
|
|
90,709
|
|
|
|
161,667
|
|
Container Trucking Services
|
|
|
7,747,419
|
|
|
|
7,228,209
|
|
Bulk Cargo Container Services
|
|
|
188,944
|
|
|
|
429,852
|
|
Total Assets
|
|
$
|
22,332,559
|
|
|
$
|
26,157,827
|
|
Note
15. RELATED PARTY TRANSACTIONS
As
of September 30, 2018 and June 30, 2018, the outstanding amounts due from a related party consist of the
following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
1,512,589
|
|
|
$
|
2,319,993
|
|
Less: allowance for doubtful accounts
|
|
|
(151,259
|
)
|
|
|
(231,999
|
)
|
Total
|
|
$
|
1,361,330
|
|
|
$
|
2,087,994
|
|
In
June 2013, the Company signed a five-year global logistic service agreement with Tianjin Zhiyuan Investment Group Co., Ltd. (the
“Zhiyuan Investment Group”) and TEWOO Chemical & Light Industry Zhiyuan Trade Co., Ltd. (together with Zhiyuan
Investment Group, “Zhiyuan”). Zhiyuan Investment Group is owned by Mr. Zhang, the largest shareholder of the Company.
In September 2013, the Company executed an inland transportation management service contract with the Zhiyuan Investment Group
whereby it would provide certain advisory services and help control potential commodities loss during the transportation process.
As a result of the inland transportation management services provided to Zhiyuan, the Company generated revenue of $322,000 (5.0%
of the Company’s total revenue for the three months ended September 30, 2018). The amount due from Zhiyuan Investment Group
as of September 30, 2018 was $1,512,589. The Company expects that the full amount will be collected by March 2019. As of September
30, 2018, the Company provided a 10% allowance for doubtful accounts of the amount due from Zhiyuan. The Company entered into
a supplemental service agreement with Zhiyuan to extend the service period to September 1, 2019.
As
of September 30, 2018 and June 30, 2018, the outstanding amounts advances to suppliers-related party consist of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd.
|
|
|
-
|
|
|
|
3,414,619
|
|
Total
|
|
$
|
-
|
|
|
$
|
3,414,619
|
|
On
February 18, 2017, the Company entered into a cooperative transportation agreement with a related party, Zhiyuan Hong Kong (the
“Buyer”) which is owned by the Company’s largest shareholder, jointly with China Minmetals Corporation and China
Metallurgical Group Corporation, and which acted as the general designer, general equipment provider and general service contractor
in the upgrade and renovation project of a facility owned by Perwaja Steel, located in Malaysia (the “Project”). The
Company agreed to provide high-quality services, including the design of a detailed transportation plan as well as execution and
necessary supervision of the plan at Zhiyuan Hong Kong’s demand, in consideration for which the Company received a 1% to
1.25% transportation fee incurred in the Project as a commission for its services rendered. On July 7, 2017, the Company signed
a supplemental agreement with the Buyer, in which the Company agreed to cooperate with the Buyer exclusively on the entire Project’s
transportation needs with respect to transporting construction materials from manufacturers to the port of Malaysia and to the
factory site. Pursuant to the supplemental agreement, the Company agreed to make prepayments to the Buyer for its share of packaging
and transporting costs related to the Project; in return, the Company received 15% of the cost incurred in the Project from the
Buyer as a service fee. The Company has completed its services pursuant to the supplemental agreement and received a $575,115
service fee in June 2018. The entire advance was reimbursed in September 2018.
Note
16. SUBSEQUENT EVENTS
On
November 1, 2018, the Company signed a five-year strategic cooperation agreement with a Hong Kong listed Company, Sinco Pharmaceuticals
Holdings Ltd (“Sinco”) pursuant to which both Companies will contribute their resources and expertise to develop
cold chain logistics in China.
On November 7, 2018, the Board approved a Share Purchase Agreement with the Chairman of Sinco, an accredited investor, pursuant
to which the Company agreed to sell shares of its common stock for the aggregate gross proceeds of $1 million to the Company.
The Share Purchase Agreement was entered into on November 8, 2018. The per share price and number of shares to be issued is equal
to 120% of the average closing price of the common stock on NASDAQ Stock Market over the five consecutive trading-day period immediately
prior to the closing of the transaction.
On
November 7, 2018, the Board 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 date fair value of approximately $65,000 will be amortized during the remaining service
period from November 3, 2018 to May 2, 2019.