U. S. Securities and Exchange Commission

Washington, D. C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File No. 0-55744

 

SINORAMA CORPORATION
(Exact Name of Registrant in its Charter)

 

Florida   81-3305510
(State or Other Jurisdiction of   (I.R.S. Employer I.D. No.)
incorporation or organization)    

 

La Plaza Swatow, Office 518, 998 Blvd. Saint-Laurent, Montreal, Quebec H2Z9Y9 Canada
(Address of Principal Executive Offices)

 

Issuer’s Telephone Number: 514-866-6888

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No    ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes  x      No  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨     No  x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

 

Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer ¨  Smaller reporting company x
Emerging growth company x      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

 

August 14, 2017

Common Voting Stock: 14,700,000

 

 

 

 

 

 

SINORAMA CORPORATION

QUARTERLY report on Form 10-Q

for the fiscal QUARTER ended JUNE 30, 2017

 

Table of Contents

 

    Page No
Part I Financial Information  
     
Item 1. Financial Statements (unaudited):  
  Consolidated Balance Sheets – June 30, 2017 and December 31, 2016 F-2
  Consolidated Statements of Operations and Comprehensive Income (Loss) - for the Three and Six Month Periods Ended June 30, 2017 and June 30, 2016 F-3
  Consolidated Statements of Cash Flows - for the Six Months Ended June 30, 2017 and June 30, 2016 F-4
  Notes to Consolidated Financial Statements F-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
     
Part II Other Information  
     
Item 1. Legal Proceedings 23
Items 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Mine Safety Disclosures 23
Item 5. Other Information 23
Item 6. Exhibits 23

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended June 30, 2017 are not necessarily indicative of the results that can be expected for the year ended December 31, 2017.

 

  F- 1  

 

 

SINORAMA CORPORATION

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

 

    June 30,     December 31,  
    2017     2016  
    (Unaudited)        
Assets                
Current Assets:                
Cash and cash equivalents   $ 4,699,269     $ 6,181,785  
Restricted cash     2,251,479       2,371,212  
Short term investment     1,130,848       210,148  
Accounts receivable     38,980       233,361  
Amount due from related parties     5,763,697       3,563,858  
Prepayments & deferred expenses     17,736,559       9,234,410  
Other receivable     584,163       728,887  
Total current assets     32,204,995       22,523,661  
                 
Long term deposits     2,186,970       2,065,019  
Property and equipment, net     248,769       235,173  
Total assets   $ 34,640,734     $ 24,823,853  
                 
Liabilities and shareholders’ equity                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 4,674,140     $ 3,373,444  
Customer deposits     34,311,622       22,772,259  
Payroll payable     116,026       123,644  
Amount due to related party     102,591       1,435,433  
Other payable     728,650       -  
Total current liabilities     39,933,029       27,704,780  
Total liabilities   $ 39,933,029     $ 27,704,780  
                 
Shareholders’ deficit                
Common stock; $0.001 par value, 100,000,000 shares authorized; 14,700,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively     14,700       14,700  
Additional paid-in capital     4,483,102       4,483,102  
Accumulated deficit     (6,109,970 )     (4,750,659 )
Accumulated other comprehensive income     182,144       387,917  
Total shareholders’ equity(deficit) of the Company     (1,430,024 )     135,060  
Non-controlling interest     (3,862,271 )     (3,015,987 )
Total shareholders’ deficit     (5,292,295 )     (2,880,927 )
Total liabilities and shareholders’ deficit   $ 34,640,734     $ 24,823,853  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 2  

 

 

SINORAMA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(EXPRESSED IN US DOLLARS)

(Unaudited)

 

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2017     2016     2017     2016  
                         
Revenue:                                
Asian Tours   $ 22,840,862     $ 20,173,032     $ 33,008,330     $ 27,725,535  
Bus Tours     2,873,007       1,679,660       3,574,858       2,166,422  
Third party product sales     2,243,998       1,891,217       4,451,283       3,664,380  
Total revenue     27,957,867       23,743,909       41,034,471       33,556,337  
Cost of Sales     24,438,656       20,116,848       36,288,578       29,248,824  
Gross Profit     3,519,211       3,627,061       4,745,893       4,307,513  
Operating costs and expenses:                                
Salaries and employee benefits     1,099,010       899,256       2,186,422       1,752,324  
Advertising and promotion     1,444,324       548,126       3,001,632       1,651,683  
Rent and occupancy charges     57,326       78,954       96,533       150,498  
Office and general     96,993       79,680       208,959       152,500  
Bank charge and interest     671,019       355,610       1,170,177       605,083  
Business taxes and licenses     7,590       448       7,590       448  
Professional fees     45,019       42,298       88,049       74,533  
Depreciation of property and equipment     13,222       18,134       26,780       18,134  
Insurance     19,278       6,767       27,723       9,027  
Other (income) expense     (137 )     1,004       2,887       4,210  
Total operating costs and expenses     3,453,644       2,030,277       6,816,752       4,418,440  
Income (loss) from operations before other income and income taxes     65,567       1,596,784       (2,070,859 )     (110,927 )
Other income     49,338       36,474       (2,683 )     45,074  
Income (loss) from operations before income taxes     114,905       1,633,258       (2,073,542 )     (65,853 )
Income tax     -       1,339       -       23,244  
Net income     114,905       1,631,919       (2,073,542 )     (89,097 )
Less: net income (loss) attributable to non-controlling interests     24,163       633.276       (714,231 )     23,378  
Net income (loss) attributable to the Company   $ 90,742     $ 998,643     $ (1,359,311 )   $ (112,475 )
Other comprehensive income (loss):                                
Foreign currency translation adjustment attributable to non-controlling interests     (167,255 )     67,744       (132,053 )     (8,822 )
Foreign currency translation adjustment attributable to the Company     (241,449 )     70,158       (205,773 )     (9,182 )
Comprehensive income (loss)   $ (293,799 )   $ 1,769,821     $ (2,411,368 )   $ (107,101 )
Less: Comprehensive income/loss attributable to non-controlling interests     (143,092 )     701,020       (846,284 )     14,556  
Comprehensive income (loss) attributable to the Company   $ (150,707 )   $ 1,068,801     $ (1,565,084 )   $ (121,657 )
Basic and diluted earnings per share   $ 0.01     $ 0.09     $ (0.09 )   $ (0.01 )
Weighted average number of shares outstanding     14,700,000       11,000,000       14,700,000       11,000,000  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

  F- 3  

 

 

SINORAMA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN US DOLLARS)

 

    Six Months Ended June 30,  
    2017     2016  
    (Unaudited)     (Unaudited)  
Cash Flows from Operating Activities                
Net loss   $ (2,073,542 )   $ (89,097 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation     26,780       18,134  
Interest     (289 )     -  
Changes in operating assets and liabilities:                
Accounts receivable     196,947       43,906  
Prepayments & deferred expenses     (7,957,570 )     (5,353,187 )
Other receivable     172,051       (87,685 )
Due from related parties     (2,106,759 )     (1,468,199 )
Accounts payable and accrued liabilities     991,221       1,472,054  
Customer deposits     10,343,476       2,747,253  
Payroll payable     (14,420 )     (30,106 )
Income taxes payable     -       511  
Other payable     -       (15,042 )
Due to related parties     (1,511,592 )     62,344  
Net cash used in operating activities     (1,933,697 )     (2,699,114 )
                 
Cash Flows from Investing Activities                
Short term investment     (1,014,958 )     -  
Proceeds from redemption of short term investment     126,431       722,756  
Interest     289       -  
Proceeds from redemption of long-term deposit     -       262,169  
Purchases of property and equipment     (31,816 )     (9,221 )
Net cash provided by (used in) investing activities     (920,054 )     975,704  
                 
Cash Flows from Financing Activities                
Share subscription deposits     728,650       -  
Net cash provided by financing activities     728,650       -  
                 
Effect of exchange rate fluctuation on cash and cash equivalents     522,852       258,805  
Net increase (decrease) in cash and cash equivalents     (1,602,249 )     (1,464,605 )
                 
Cash and cash equivalents, beginning of period     8,552,997       5,826,130  
Cash and cash equivalents, end of period   $ 6,950,748     $ 4,361,525  
                 
Supplemental disclosure of cash flow information                
Cash paid for income taxes   $ -     $ (23,244 )
Cash paid for interest     -       -  

   

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 4  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

Sinorama Corporation (the “Company” or “Sinorama”) was incorporated on June 30, 2016, under the laws of the State of Florida. On the same date, Sinorama issued 11,000,000 shares of its common stock in exchange for all of the outstanding shares of Sinorama Tours Co., Ltd., a Samoan corporation organized in June 2015 ("Sinorama Tours"). Sinorama Tours is a holding company with two operating subsidiaries:

 

· Vacances Sinorama Inc. (“Vacances Sinorama”), an integrated tour company incorporated in Quebec, Canada in December 2004. Vacances Sinorama provides Bus Tours, Asian Tours, Airline Tickets, Hotel Reservations, Cruises and other travel services to its customers worldwide. Vacances Sinorama facilitates travel commerce with online and offline travel businesses. Vacances Sinorama is servicing both business to customer (B2C) and business to business (“B2B”) in the travel marketplace.

 

· Sinorama Voyages (“Sinorama Voyages”), an integrated tour company incorporated in France in February 2012. Sinorama Voyages also provides Bus Tours, Asian Tours, Airline Tickets and other travel services to its customers worldwide. Sinorama Voyages facilitates travel commerce with online and offline travel businesses. Sinorama Voyages services both business to customer (B2C) and business to business (“B2B”) in the travel marketplace.

 

Sinorama Tours owns 66⅔% of Vacances Sinorama through Simon Qian Voyages, Inc., a wholly-owned subsidiary, and owns 51% of Sinorama Voyages directly. The other 33⅓% of Vacances Sinorama is owned by Qian Hong, the Chairman of Sinorama. The other 49% of Sinorama Voyages is owned by Yang Ming (39%) and Zhao Hongxi (10%). Zhao Hongxi is the Chief Financial Officer of Sinorama. 

 

The control of the entities was not changed by the acquisition on June 30, 2016, as all of the entities remained under the control of Qian Hong and his wife, Jing Wenjia. Accordingly, we have treated the combination, for accounting purposes, as a corporate restructuring (reorganization) of entities under common control, and thus the current capital structure has been retroactively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods to which such entities were under common control. Since all of the subsidiaries were under common control for the entirety of the six months ended June 30, 2017 and 2016, the results of these subsidiaries are included in the financial statements for both periods. Non-controlling interests in the subsidiaries are related parties and thus were not adjusted to fair value as a result of the reorganization.

 

Basis of presentation

 

The Company’s consolidated financial statements are expressed in U.S. dollars and are presented in accordance with the United States generally accepted accounting principles ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission (“SEC”).

 

Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Non-controlling interests represent the equity interest in Vacances Sinorama and Sinorama Voyages that are not attributable to the Company. Non-controlling interest is reported in the consolidated financial position within equity, separate from the Company’s equity, and net income or loss and comprehensive income or loss that are attributable to the Company and to the non-controlling interest are separately reported on the Statement of Operations.

 

  F- 5  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

 

Reclassification

 

The comparative figures have been reclassified to conform to current presentation.

 

Revenue recognition

 

The Company's revenues are primarily derived from sale of our self-developed products, including Bus Tour Products and Asian Tour Products. The Company also sells Third Party Products (airline tickets, hotels, etc.). Revenue is recognized only when persuasive evidence of an arrangement exists, the service has been performed, the price is fixed or determinable, and the collectability of the related fee is reasonably assured, in accordance with ASC 605, Revenue Recognition , ("ASC 605"). Specifically, contracts are signed to establish significant terms such as the price and specific services to be provided. The Company assesses the creditworthiness of our customers prior to signing the contracts to ensure collectability is reasonably assured. Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer advances and deposits.

 

Bus Tour Products Sales

 

Revenues from Bus Tours are recognized when customers depart from the trips. Revenues from Bus Tour services are recognized on a gross basis, which represent amounts charged to and received from customers. The Company is the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.

 

Asian Tour Products Sales

 

The Company recognize Asian Tour services revenues and other travel-related services such as visa processing services on the date that the tours or the flights depart, provided that evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain at the end of the period, and collection of the resulting receivable is reasonably assured. We require that full payment be made before flights depart.

 

Revenues from Asian Tour services are recognized on a gross basis, which represent amounts charged to and received from customers. The Company is the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.

 

Third Party Products Sales

 

Revenue from sales of the Third-Party Products reservations is recognized at the time of the booking of the reservation. Third-Party Products sales are non-refundable. Third-Party Products revenue is normally derived from airline tickets, hotel reservations, cruises, insurance, etc. The revenue from Third Party Products is recognized on a gross basis. The Company conducts a rigorous process in selecting travel products and services before selling these products to customers and independently determines the prices charged to customers for Third Party Products. The Company is the primary obligor in the arrangement and is responsible for the ultimate customer acceptance for all products and services rendered. Such commitment is also made in the contracts entered into with customers. The Company is the party retained and paid by customers. In situations of customer disputes, where the customer files a complaint or demands a refund, the Company assumes risks and responsibilities for the delivery of products and is responsible for refunding the customers their payments.

 

  F- 6  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand and bank deposits and other liquid investments, which are unrestricted as to withdrawal and use. All highly liquid investments with original stated maturity of three months or less are classified as cash equivalents. Cash and cash equivalents approximates or equals fair value due to their short-term nature. The Company’s cash and cash equivalents consist of cash on hand and cash in bank, including bank term deposits. As of June 30, 2017, and December 31, 2016, the cash on hand and cash in bank were $4,128,519 and $5,126,409, respectively. As of June 30, 2017, and December 31, 2016, the short-term deposits were $570,750 and $1,055,376, respectively, the interest rate was 0.2%, maturity was three months or less. Therefore, the total cash and cash equivalents, as of June 30, 2017 and December 31, 2016, were $4,699,269 and $6,181,785, respectively.

 

Restricted cash

 

In accordance with the Quebec Consumer Protection Act and the Travel Agents Act, the Company is required to deposit into trust certain customer deposits until suppliers are paid for their services. The Company can access the trust account only to administer it as trustee, and cannot use funds from this account for personal or corporate purposes until the supplier is paid. As of June 30, 2017, and December 31, 2016, the restricted cash in the trust account was $2,251,479 and $2,371,212, respectively.

 

Short term investments

 

Short-term investments are comprised of investments in financial products issued by banks or other financial institutions, which contain a fixed or variable interest rate and a term to maturity of greater than 3 months but less than 12 months. Such investments are generally not permitted to be redeemed early or are subject to non-interest for redemption prior to maturity. The Company classifies these investments as held-to-maturity as it has both the positive intent and ability to hold them until maturity. These investments are classified as short-term investments based on the maturity date. The short-term investments maturities are exceeding three months. As of June 30, 2017, and December 31, 2016, the short-term investments were $1,130,848 and $210,148, respectively, the interest rate was 0.95%, the maturity was exceeding three months but less than twelve months.

 

Fair Value Measurement

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements , for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

  F- 7  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

There were no transfers between level 1, level 2 or level 3 measurements during the six months ended June 30, 2017 and 2016.

 

Financial assets and liabilities of the Company are primarily comprised of cash and cash equivalents, restricted cash, short term investments, accounts receivable, amount due from related parties, other receivable, accounts payable, payroll payable, amount due to related party and other payable. As at June 30, 2017 and December 31, 2016, the carrying values of these financial instruments approximated to their fair values due to the short-term maturity of these instruments.

 

Accounts receivable

 

Accounts receivable are recognized and carried at original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful debts is made when the collection of the full amount is no longer probable. Bad debts are written off as incurred.

 

The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make payments on time. The Company reviews the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends.

 

The Company had nil bad debts for both the six months ended June 30, 2017 and for the year ended December 31, 2016. The balance of the allowance for doubtful account were nil as of June 30, 2017 and December 31, 2016.

 

Property and equipment

 

Property and equipment are stated at cost. Computer Equipment, Furniture & Fixtures and Office Equipment are depreciated using the declining balance depreciation method basis reflective of the useful lives of the assets. Leasehold Improvement are stated at cost and are depreciated using the straight-line method over the shorter of the estimated useful lives of the asset or the term of the related lease, as follows:

 

Computer Equipment Declining Balance Method at rate 30% per year
Furniture & Fixtures Declining Balance Method at rate 20% per year
Office Equipment Declining Balance Method at rate 20% per year
Leasehold Improvement 10 years

 

Repair and maintenance costs are charged to expenses as incurred, whereas the cost of renewals and betterment that extends the useful lives of property and equipment is capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statements of comprehensive income (loss).

 

Functional currency and foreign currency translation

 

As of June 30, 2017, and December 31, 2016, and for six months ended June 30, 2017 and 2016, all foreign subsidiaries use the local currency of their respective countries as their functional currency, which is the U.S. dollars for Sinorama and Sinorama Tours, and the Canadian dollar (“Canada dollar”) for Simon Qian Voyages and Vacances Sinorama, and the Euro (“€”) for Sinorama Voyages.

 

  F- 8  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

The Company’s reporting currency is U.S. dollars. Assets and liabilities of Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages are translated into U.S. dollars at the exchange rates set forth in the Bank of Canada at the balance sheet dates, revenues and expenses are translated into U.S. dollars at average exchange rates set forth in the Bank of Canada for the reporting periods, and shareholders' equity is translated at historical exchange rates. Gains and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss).

 

Realized gains and losses from foreign currency transactions are recognized in cost of sales on the consolidated statements of operations, unrealized gains and losses from foreign currency transactions are recognized as other income (expense) in the consolidated statements of operations.

 

The exchange rates used for foreign currency translation are as follows:

 

        June 30, 2017     June 30, 2016  
        (CAD to USD/EUR to USD)     (CAD to USD/EUR to USD)  
Assets and liabilities   period end exchange rate     0.7706/1.1415       0.7442/1.1113  
Revenue and expenses   period average exchange rate     0.7496/1.0838       0.7521/1.1163  

 

Income taxes

 

The Company has adopted ASC Topic 740, “ Income Taxes ,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

In July 2006, the FASB issued FIN 48(ASC 740-10), Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (ASC 740), which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.

 

The Company income tax expense was $Nil and $23,244 for the six months ended June 30, 2017 and 2016, respectively.

 

Earnings per share

 

The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings Per Share . ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding during the period.

 

  F- 9  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue ordinary common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stocks using the treasury stock method and the potential shares of converted common stock associated with the convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains or losses resulting from translating Simon Qian Voyages, Vacances Sinorama and Sinorama Voyages’ functional currency, the Canadian dollar and Euro dollar to its reporting currency, U.S. dollar.

 

Segment Information and Geographic Data

 

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable operating segments.

 

The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments consist of Vacances Sinorama (Canada), Sinorama Voyages (France) and Sinorama Corporation (USA). Although each reportable operating segment provides similar travel products and similar services, they are managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region. The accounting policies of the various segments are the same as those described in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in this report.

 

The Company evaluates the performance of its reportable operating segments based on net sales and operating income. Net sales for geographic segments are generally based on the location of customers and sales through the Company’s office located in those geographic locations. Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Advertising expenses and salaries and employee benefits are generally included in the geographic segment in which the expenditures are incurred. Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable operating segments. Costs excluded from segment operating income include income taxes and foreign currency translation adjustment. The Company does not include intercompany transfers between segments for management reporting purposes.

 

Summarized financial information by segment is as follows:

 

    Vacances
Sinorama
(Canada)
    Sinorama
Voyages
(France)
    Sinorama
Corporation
(USA)
    Total  
June 30, 2017
(Unaudited)
                               
Net sales     36,906,801       4,127,670       -       41,034,471  
Operating loss     (1,552,402 )     (452,063 )     (69,077 )     (2,073,542 )
Total assets     26,436,285       4,121,707       4,082,742       34,640,734  
June 30, 2016
(Unaudited)
                               
Net sales     25,392,779       8,163,558       -       33,556,337  
Operating loss     (404,561 )     338,708       -       (65,853 )
December 31, 2016                                
Total assets     17,716,759       3,646,925       3,460,169       24,823,853  

 

  F- 10  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

A reconciliation of the Company’s segment operating loss to the Consolidated Statements of Operations for the six months ended June 30, 2017 and 2016:

 

    Six Months Ended June 30,  
    2017 
(Unaudited)
    2016 
(Unaudited)
 
Segment operating loss   $ (2,073,542 )   $ (65,853 )
Income tax expense     -       23,244  
Net income (loss)     (2,073,542 )     (89,097 )
Foreign currency translation adjustment     (337,826 )     (18,004 )
Total comprehensive income (loss)   $ (2,411,368 )   $ (107,101 )

  

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, restricted cash, short term investments, accounts receivable, prepayments and other receivables arising from its normal business activities. The carrying amounts of these financial instruments represent the maximum amount of loss due to credit risk. The deposits placed with financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the Company may be unlikely to claim its deposits back in full. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The majority of sales are cash receipt in advance. For those credit sales, the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

Recently accounting pronouncements

 

In January 2016, the FASB issued ASU 2016-01 Financial Instruments Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Liabilities. ASU 2016-01 amends the guidance in US GAAP on classification, measurement and disclosure of financial instruments. It revises an entity’s accounting related to: 1) classification and measurement of investments in equity securities; 2) presentation of certain fair value changes for financial liabilities measured at fair value; and, 3) amends disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for years beginning after December 15, 2017 and early adoption is permitted. The adoption of ASU 2016-01 is not expected to have a material effect on the Company's consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 establishes new guidance for the recording and disclosure of assets and liabilities that arise from leasing activity. ASU 2016-02 will require most lessees to record lease assets and lease liabilities that arise from leases on the statement of financial condition and disclose qualitative and quantitative information related to lease transactions such as variable lease payments and options to renew and terminate leases. ASU 2016-02 is effective for years beginning after December 18, 2018 and early adoption is permitted. The Company is evaluating ASU 2016-02 to determine its impact, if any, on the consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendment in this update affect entities with transactions included within the scope of Topic 606, The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, the amendments in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples in the following key areas: 1) identifying performance obligations and 2) licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12 a proposed Update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, on September 30, 2015. The amendments do not change the core principles of the standard, but clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration and certain transition matters. This update becomes effective concurrently with ASU No. 2014-09. The Company is currently evaluating the effect of this new standard, including the transition method, to determine the impact on the Company's consolidated financial position, results of operations, cash flows, or related disclosures.

 

  F- 11  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). The standard is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of intellectual property. ASU 2016-16 will be effective for the Company beginning with the interim periods of fiscal 2018 and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining timing of adoption and assessing the impact of ASU 2016-16 on its consolidated financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU No. 2016-18 for the reporting period ending December 31, 2016 and was applied retrospectively. As a result of adoption of ASU No. 2016-18, the Company no longer presents the changes within restricted cash in the consolidated statements of cash flows.

 

In January 2017, the FASB issued Accounting Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.

 

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the instrument. This guidance shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.

 

As of the date of filing of this report, except for the above, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

 

NOTE 3. PREPAYMENTS & DEFERRED EXPENSES

 

Our travel suppliers require prepayments for reserving tour availabilities. The prepayment is record in prepayments and deferred expenses on the consolidated balance sheets. Deferred expenses include prepaid insurance, advertising fee. The Company prepayments and deferred expenses were $17,736,559 and $9,234,410 as of June 30, 2017 and December 31, 2016, respectively.

 

    June 30     December 31,  
    2017     2016  
    (Unaudited)        
Prepayments for tour products   $ 17,315,721     $ 9,183,114  
Prepaid expense     420,838       51,296  
Total Prepayments and deferred expenses   $ 17,736,559     $ 9,234,410  

 

  F- 12  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 4. OTHER RECEIVABLE

 

At June 30, 2017 and December 31, 2016, other receivable consists of the following:

 

    June 30     December 31,  
    2017     2016  
    (Unaudited)        
Tax on Value Added (TVA)   $ 197,499     $ 245,621  
Income tax receivable     223,845       376,611  
Air Canada     45,256       43,740  
Eva Airway Cor.     15,412       -  
China Eastern Airlines     53,817       4,000  
United     10,608       4,438  
Air China Ltd     23,118       22,265  
JL Travel Marketing     11,867       11,470  
Others     2,741       20,742  
Total other receivable   $ 584,163     $ 728,887  

 

NOTE 5. LONG TERM DEPOSITS

 

Long term deposits are the deposits made by the Company held at third institutions for operation purposes. As of June 30, 2017 and December 31, 2016, the Company had $1,141,500 and $1,055,307, respectively, in air ticket security deposits with CAGEP SARL, which is a member of the International Air Transport Association (IATA) and has the license to sell air tickets to Sinorama Voyages. The deposits with CAGEP SARL do not bear interest. As of June 30, 2017 and December 31, 2016, the Company had $763,930 and $738,555 in security deposits with JP Morgan Chase, which is the security deposit for credit card usage and does not bear interest. As of June 30, 2017 and December 31, 2016, the Company had $173,385 and $167,580 on deposit with OPC (Office of Consumer Protection) as a travel company bankruptcy guarantee. The deposit does not bear interest.

 

NOTE 6. PROPERTY AND EQUIPMENT

 

At June 30, 2017 and December 31, 2016, property and equipment, at cost, consist of:

 

    June 30,     December 31,  
    2017     2016  
    (Unaudited)        
Computer equipment   $ 28,311     $ 19,419  
Furniture & Fixture     19,273       5,688  
Office equipment     87,225       80,059  
Leasehold Improvement     382,654       362,880  
Total property and equipment at cost     517,463       468,046  
Accumulated depreciation     268,694       232,873  
Total property and equipment, net   $ 248,769     $ 235,173  

 

Depreciation expense were $26,780 and $18,134 for the six months ended June 30, 2017 and 2016, respectively.

 

  F- 13  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 7. CUSTOMER DEPOSITS

 

Customer deposits are the deposits made by all customers for reservations. The deposit must be paid in full by either check, debit card, credit card or cash before the reservation can be confirmed. Customers must pay the full purchase price three months before departure. Otherwise, the Company reserves the right to cancel the reservation and retain the full amount of the initial deposit. Cancellation of a reservation can only be made through the Company as the following conditions will apply: more than 90 days prior to the departure date: 50% refund of the balance per-person, including taxes and service charge. If it's marked “Final Sale”, the sale is non-refundable, nor changeable, nor transferable, whenever the purchase is made. Customer deposits are recognized as revenue on departure date, when services are provided to the customers. Customer deposits from all customers were $34,311,622 and $22,772,259 as of June 30, 2017 and December 31, 2016, respectively, and were recorded as a current liability in the consolidated balance sheets.

 

NOTE 8. OTHER PAYABLE

 

Sinorama Corporation has a plan of stock offering in 2017, from January 1, 2017 to June 30, 2017, there were $729,000 received by 16 prospective shareholders for 486,000 shares with the price of 1.5 USD per share.

 

As of June 30, 2017, the balance of other payable was $728,650.

 

NOTE 9. NON-CONTROLLING INTERESTS

 

Vacances Sinorama Inc. and Sinorama Voyages are the Company’s majority-owned subsidiaries, which are consolidated in the Company’s financial statements with a non-controlling interest recognized.

 

The 33.33% of Vacances Sinorama equity held by QIAN Hong is a non-controlling interest. ASC 810-10-45 provides that the ownership interest in a subsidiary that is held by owners other than the parent is a non-controlling interest. 66.67% of Vacances Sinorama is owned by Simon Qian Voyages Inc., a wholly-owned subsidiary of Sinorama Tours.

 

The 39% of Sinorama Voyages equity held by YANG Ming and the 10% of Sinorama Voyages equity held by ZHAO Hongxi are also non-controlling interests. 51% of Sinorama Voyages equity is held by Sinorama Tours.

 

ASC 810-10-50 requires that the Company separately disclose amounts attributable to shareholders’ equity and non-controlling interests in its financial statements.

 

NOTE 10. RELATED PARTY TRANSACTIONS

 

Amount due from related parties

 

Amount due from related parties consisted of the following as of the periods indicated: 

 

    June 30,     December 31,  
    2017     2016  
Name of related parties   (Unaudited)        
Sinorama Reisen GmbH   $ 1,916,475     $ 1,469,472  
Sinorama Holiday Inc.     2,035,679       1,154,894  
Sinorama Group LLC     1,503       1,453  
Sinorama Holiday Limited     1,809,707       935,418  
Others     333       2,621  
Total   $ 5,763,697     $ 3,563,858  

 

As of June 30, 2017 and December 31, 2016, the Company has a balance due from Sinorama Reisen GmbH, which is 65% owned by the Company's Chief Executive Officer (JING Wenjia), of $1,916,475 and $1,469,472, respectively. The amount is the prepayment for the supplier in China, in order to reserve tour availabilities. The prepayment is non-interest bearing, payable on demand.

 

  F- 14  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 10. RELATED PARTY TRANSACTIONS (CONTINUED)

 

As of June 30, 2017 and December 31, 2016, the Company has a balance due from Sinorama Holiday Inc., which is 40% owned by the Company's Chairman (QIAN Hong) and 20% owned by the Company's Chief Executive Officer (JING Wenjia), of $2,035,679 and 1,154,894, respectively. It was for purchasing travel products from Vacances Sinorama. It is non-interest bearing and due on demand.

 

As of June 30, 2017 and December 31, 2016, the Company had a balance due from Sinorama Group LLC., which is 100% owned by the Company's Chairman (QIAN Hong), of $1,503 and $1,453, respectively.

 

As of June 30, 2017 and December 31, 2016, the Company had a balance due from Sinorama Holiday Limited, which is 51% owned by the Company's Chairman (QIAN Hong), of $1,809,707 and $935,418, respectively. It was for purchasing travel products from Sinorama Vacances. It is non-interest bearing and due on demand.

 

Amount due to related parties

 

Amount due to related parties consisted of the following as of the periods indicated: 

 

    June 30,     December 31,  
    2017     2016  
Name of related parties   (Unaudited)        
Sinorama Travel Vancouver Inc.   $ 92,676     $ 1,423,231  
Simon Qian & Jing Wenjia     9,915       9,650  
Others     -       2,552  
    $ 102,591     $ 1,435,433  

 

As of June 30, 2017 and December 31, 2016, the Company had a balance due to Sinorama Travel Vancouver Inc., which is 51% owned by the Company's Chairman (QIAN Hong), of $92,676 and $1,423,231, respectively. Such payments were required by suppliers in China to be made in advance, in order to book tour availabilities. The amount is non-interest bearing and due on demand.

 

As of June 30, 2017 and December 31, 2016, the Company had a balance due to Simon Qian, who is the Chairman of the Company, and JING Wenjia, who is the Chief Executive Officer of the Company. The Company had a balance due to Simon Qian & Jing Wenjia of $9,915 and $9,650, respectively. It was temporary borrowings between the Company and management. It is non-interest bearing and due on demand.

  

Related parties’ transactions

 

Sales of travel product to related parties consisted of the following for the periods indicated:  

 

    June 30,     June 30,  
    2017     2016  
Name of related parties   (Unaudited)     (Unaudited)  
Sinorama Holiday Limited     2,211,530       1,490,770  
Sinorama Holiday Inc.     6,867,133       5,000,945  
Sinorama Travel Vancouver Inc.     819,848       1,763  
Total   $ 9,898,511     $ 6,493,478  

 

NOTE 11. CONTINGENCIES AND COMMITMENT

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. There was no contingency of this type as of June 30, 2017 or December 31, 2016.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There was no contingency of this type as of June 30, 2017 or December 31, 2016.

 

  F- 15  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 11. CONTINGENCIES AND COMMITMENT (CONTINUED)

 

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

In June, 2016 Vacances Sinorama leases office space under non-cancellable operating lease agreements. Under the terms of the lease, Vacances Sinorama paid approximately $61,669 in lease deposits, lease expense payments of approximately $18,120 per month. Under terms of the lease agreement, from June, 2017, Vacances Sinorama is committed to lease expense payments of approximately per month for 120 months as follows:

 

Period   Per month  
Jun-16   May-17     rent-free  
Jun-17   May-20     18,120  
Jun-20   May-21     19,932  
Jun-21   May-22     21,925  
Jun-22   May-23     24,118  
Jun-23   May-24     25,324  
Jun-24   May-25     26,590  
Jun-25   May-26     27,919  
Jun-26   May-27     29,315  

 

This office is used for the Information Technology Department, Electronic Commerce Department and Market Department and other departments.

 

Vacances Sinorama leases office space under non-cancellable operating lease agreements, to be used for the Airline Ticket Department, Asia Tour Department and others departments. The initial leases expired on various dates through 2016. Under the terms of those leases, Vacances Sinorama paid approximately $22,061 in lease deposits and committed to lease and management fee payments of approximately $12,080 per month for 60 months. In March 2016, Vacances Sinorama entered into a renewed lease agreement, which replaced its expired operating lease agreements. Under the current terms of the lease, Vacances Sinorama is committed to lease and management fee payments of approximately $15,515 per month for 60 months.

 

In July 2015, Vacances Sinorama entered into a new lease agreement for the Bus Tour Department office. Under the terms of the lease, Vacances Sinorama paid approximately $15,194 in lease deposits, and is committed to lease and management fee payments of approximately $5,134 per month for 60 months. 

 

In February, 2015, Sinorama Voyages leased office space under a non-cancellable operating lease agreement. Under the terms of the lease, Sinorama Voyages paid approximately $13,894 in lease deposits, and lease expense payments of approximately $4,869 per month. Under the terms of the lease agreement, from February, 2016, Sinorama Voyages was committed to lease expense payments of approximately $4,857 per month for 96 months.

 

Future annual minimum lease payments, for non-cancellable operating leases are as follows:

 

Year ending December 31   Amount $  
2017     202,942  
2018     496,483  
2019     496,483  
2020     496,483  
2021     505,543  

 

  F- 16  

 

 

SINORAMA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN US DOLLARS)

 

NOTE 12. BASIC AND DILUTED EARNINGS PER SHARE

 

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of share based awards, using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations is shown as follows: 

 

    Six Months Ended June 30,  
    2017     2016  
    (Unaudited)     (Unaudited)  
Numerator:                
Net income available to common stockholders   $ (1,359,311 )   $ (112,475 )
Denominator:                
Basic and diluted weighted-average number of shares outstanding     14,700,000       11,000,000  
Net income per share:                
Basic and diluted   $ (0.09 )   $ (0.01 )

 

NOTE 13. SUBSEQUENT EVENT

 

The Management of the Company determined that there were no other reportable subsequent events to be disclosed.

 

  F- 17  

 

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements: No Assurances Intended

 

In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Sinorama Corporation. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A, entitled “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016 Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

 

Business Description

 

Sinorama Corporation is an integrated travel producer and seller, with a team of 183 full time professionals and experienced employees. The Company provides Bus Tours, Asian Tours, as well as sales of Third-Party Products, such as airline tickets, hotels and other travel products. Sinorama Corporation has combined the traditional tourism industry model with E-Commerce, while covering a wide range of business. We offer travel products and services primarily through the agency method, online retail methods, and retail store sales methods.

 

Seasonality

 

Our quarterly results are likely to fluctuate because of seasonality in the leisure travel industry all over the world. Our business experiences fluctuations, reflecting seasonal variations in demand for leisure travel services. Sales of leisure travel products and services will increase in respect of holiday periods and decrease in respect of off-peak times and prices of leisure travel products and services are subject to fluctuation between peak seasons and low seasons. For example, we have historically experienced higher revenue from Bus Tours between May to October of the year, and lower revenue between November to April of the following year. We also have historically experienced higher revenue from Asian Tours between April to June and between September to November of the year, and lower revenue for the rest of the year, because many of our customers tend to travel during summer holidays. Consequently, our results of operations may fluctuate from quarter to quarter. Our rapid growth has tended to mask the seasonality of our business.

 

Plan of Operation

 

Over the next twelve months, we will concentrate on the following four areas to grow our operations:

 

●   Design new products – Seek to design additional new tour products to compete with competitors.

 

●   Advertising and Marketing  – Work with several marketing companies to develop brand identity, marketing materials, and update our web site. Utilize all available marketing venues and public relations opportunities to promote the Company and its tour services.

 

●  Offer tours all over the world  – We are committed to becoming the best Chinese tourism brand across the world. In the next year we plan to (1) serve 35,000 customers worldwide with our Asia Tours; and (2) organize 10,000 Americans to visit China.

 

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●   Language skills training -The Company plans to engage and train over 200 tour leaders in the European, American and Chinese markets, covering such languages as English, French, German, Spanish, Japanese and Korean.

 

Results of Operations

 

The following table shows key components of the results of operations during three months ended June 30, 2017 and 2016:

 

    Three Months Ended        
    June 30,     Change  
   

2017

(Unaudited)

   

2016

(Unaudited)

    $     %  
                         
Revenue:                                
Asian Tours   $ 22,840,862     $ 20,173,032     $ 2,667,830       13 %
Bus Tours     2,873,007       1,679,660       1,193,347       71 %
Third party product sales     2,243,998       1,891,217       352,781       19 %
Total revenue     27,957,867       23,743,909       4,213,958       18 %
Cost of Sales     24,438,656       20,116,848       4,321,808       21 %
Gross Profit     3,519,211       3,627,061       (107,850 )     (3 )%
Operating costs and expenses:                                
Salaries and employee benefits     1,099,010       899,256       199,754       22 %
Advertising and promotion     1,444,324       548,126       896,198       164 %
Rent and occupancy charges     57,326       78,954       (21,628 )     (27 )%
Office and general     96,993       79,680       17,313       22 %
Bank charge and interest     671,019       355,610       315,409       89 %
Business taxes and licenses     7,590       448       7,142       1,594 %
Professional fees     45,019       42,298       2,721       6 %
Depreciation of property and equipment     13,222       18,134       (4,912 )     (27 )%
Insurance     19,278       6,767       12,511       185 %
Other expense     (137 )     1,004       (1,141 )     (114 )%
Total operating costs and expenses     3,453,644       2,030,277       1,423,367       70 %
Profit from operations before other income and income taxes     65,567       1,596,784       (1,531,217 )     (96 )%
Other income(expense)     49,338       36,474       12,864       35 %
Profit from operations before income taxes     114,905       1,633,258       (1,518,353 )     (93 )%
Income tax     -       1,339       (1,339 )     (100 )%
Net income     114,905       1,631,919       (1,517,014 )     (93 )%
Comprehensive loss(income)   $ (293,799 )   $ 1,769,821     $ (2,063,620 )     (117 )%

 

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The following table shows key components of the results of operations during six months ended June 30, 2017 and 2016:

 

    Six Months Ended        
    June 30,     Change  
   

2017

(Unaudited)

   

2016

(Unaudited)

    $     %  
                         
Revenue:                                
Asian Tours   $ 33,008,330     $ 27,725,535     $ 5,282,795       19 %
Bus Tours     3,574,858       2,166,422       1,408,436       65 %
Third party product sales     4,451,283       3,664,380       786,903       21 %
Total revenue     41,034,471       33,556,337       7,478,134       22 %
Cost of Sales     36,288,578       29,248,824       7,039,754       24 %
Gross Profit     4,745,893       4,307,513       438,380       10 %
Operating costs and expenses:                                
Salaries and employee benefits     2,186,422       1,752,324       434,098       25 %
Advertising and promotion     3,001,632       1,651,683       1,349,949       82 %
Rent and occupancy charges     96,533       150,498       (53,965 )     (36 )%
Office and general     208,959       152,500       56,459       37 %
Bank charge and interest     1,170,177       605,083       565,094       93 %
Business taxes and licenses     7,590       448       7,142       1,594 %
Professional fees     88,049       74,533       13,516       18 %
Depreciation of property and equipment     26,780       18,134       8,646       48 %
Insurance     27,723       9,027       18,696       207 %
Other expense     2,887       4,210       (1,323 )     (31 )%
Total operating costs and expenses     6,816,752       4,418,440       2,398,312       54 %
Losses from operations before other income and income taxes     (2,070,859 )     (110,927 )     (1,959,932 )     1,767 %
Other income(expense)     (2,683 )     45,074       (47,757 )     (106 )%
Losses from operations before income taxes     (2,073,542 )     (65,853 )     (2,007,689 )     3,049 %
Income tax     -       23,244       (23,244 )     (100 )%
Net loss     (2,073,542 )     (89,097 )     (1,984,445 )     2,227 %
Comprehensive loss(income)   $ (2,411,368 )   $ (107,101 )   $ (2,304,267 )     2,1521 %

 

Our revenue increased by 18% in the second quarter of 2017 and by 22% in the first half of 2017, compared to the like periods of 2016. The overall growth rate was much lower than we experienced during the entirety of 2016, primarily due to a significant fall-off in revenue from our French operations. Whereas net sales by our Canadian operations increased 46% from the first half of 2016 to the first half of 2017, net sales by our French operations fell 48% in the same periods. The significant fall-off in revenue from our French operations mainly due to a series of terrorist attacks in Europe and French election of 2017 held in peak period of customer reservation.

 

Although Bus Tours reported the largest percentages of revenue growth, 71% in the second quarter and 65% in the first half of 2017, bus tours represent only a modest portion of our business: 10% of second quarter revenue and less than 9% of revenue in the first half of 2017. Our Asian Tours, which produce the majority of our revenue, generated 13% growth in the second quarter and 19% growth in the first half of 2017. Second quarter revenue growth of 13% resulted from a 22% increase in customers taking Asian Tours; the first half revenue growth of 19% resulted from a 30% increase in the number of customers. The 8.3% reduction in revenue per customer for our Asian Tours experienced in the first half of 2017 reflected our efforts to expand volume by offering very competitive sales prices.

 

Despite the increase in revenue from 2016 to 2017, our gross profit fell by 3% in the second quarter of 2017, as gross margin fell from 15.2% in the second quarter of 2016 to 12.6% in the second quarter of 2017. Likewise, gross margin fell from 12.8% in the first half of 2016 to 11.6% in the first half of 2017, such that the 22% increase in revenue yielded only a 10% increase in gross profit. These reductions in gross margin were the result of a calculated decision to promote the Sinorama brand as a location for better service and lower prices than that offered by competitive travel agencies. We plan to continue to price our products aggressively until we reach a level of market share at which we can operate profitably even with a small gross margin but can also reduce the pressure on our prices without losing our competitive advantage.

 

Our operating expenses increased by 70% in the second quarter and 54% in the first half of 2017, compared to the same periods of 2016. The increases were due to our decision to devote capital resources to the expansion of our operations. We added 31 employees during the first half of 2017, which caused salaries and employee benefits to increase by $434,098, or 25%. That increase in employee head-count, however, allowed us to promote the benefits of our customer service, particularly our expansive ability to provide customer service in multiple languages, which we look to as the foundation for our acquisition of market share.

 

The most significant increase in operating expenses, however, occurred in advertising and promotion expense: an increase of 164% to $1,444,324 in the second quarter of 2017 and 82% in the first half of 2017. While the 22% increase in our revenue from the first half of 2016 to the first half of 2017 can be, in large part, attributed to the increase in marketing efforts, we expect to see benefits from 2017 advertising expenses accruing in coming years, as we are aggressively planting an awareness of our brand in the public consciousness. Since travel is more often a planned expenditure than an impetuous one, much of the goal of our advertising expenditures has been to cause potential customers to remember us when the time comes for their travel decision. This process requires, therefore, that we make investments today in brand promotion that will only fully flower in future years.

 

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Among the other significant additions to our operating costs and expenses in the first half of 2017 were:

 

· a 93% increase in bank charges and interest, to $1,170,177, most of which is attributable to credit card fees, which increased as our sales increased; and

 

· a 37% increase in office and general expense, to $208,959, attributable to the increase in our personnel and overall expansion of our operations; and

 

After deducting our total operating e xpenses ($3,453,644 in the second quarter of 2017 and $6,816,752 in the first half of 2017), adjusting for a relatively minor amount of other income (expense), and taking into account a small amount of income tax accrued in 2016, we recorded net income of $114,905 in the second quarter of 2017 (compared to $1,631,919 in the second quarter of 2016) and a net loss of $2,073,542 for the first half of 2017 (compared to a net loss of $89,097 in the first half of 2016). However, Sinorama Corporation owns, indirectly, only 66.7% of Vacances Sinorama and only 51% of Sinorama Voyages. As a result, the share of the net income and net loss incurred by those subsidiaries that is allocable to the minority interest is deducted from our income or loss as net income or net loss attributable to non-controlling interest. The remainder, the portion attributable to the Company, was net income of $90,742 ($.01 per share) for the second quarter of 2017 and a net loss of $1,359,311 (loss of $.09 per share) for the first half of 2017, compared to net income attributable of $998,643 and net loss of $112,475 in the three and six months ended June 30, 2016.

 

Our reporting currency is the U.S. dollar. The local currencies of our operating subsidiaries, the Canadian dollar and the Euro, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period being reported upon, and assets and liabilities are translated at the unified exchange rate quoted by the Bank of Canada on the balance sheet date. Translation adjustments resulting from this process are included in other comprehensive income. For three and six months ended June 30, 2017, foreign currency translation adjustments of $(241,449) and $(205,773), respectively, have been reported as other comprehensive loss attributable to the Company in the consolidated statement of operations and comprehensive loss.  

 

Liquidity and Capital Resources

 

As of June 30, 2017, the Company had $6,950,748 in cash and cash equivalents (include $2,251,479 in cash restricted by Canadian laws that require travel agents to maintain certain deposits relative to their unfulfilled sales). At the same time, we had a working capital deficit of $7,728,034, which had increased by $2,546,915 during the first six months of 2017. The primary factors determining our working capital deficit at June 30, 2017 were customer deposits of $34,311,622 representing prepayment by customers of tours they have booked, partially offset by our prepayment and deferred expense asset totaling $17,736,559, most of which represents our prepayment to vendors for those tours. Customer deposits exceed our prepayments because we generally require customers to deposit the full cost of a trip some time in advance of departure, but our vendors do not require us to pay in full until the customer disembarks from the tour. The difference of $16,575,063 between customer deposits and Company prepayments will have to be funded by cash flow from future operations, at least to the extent of the $9,624,315 by which it exceeds our June 30, 2017 cash resources.

 

Our operations used $1,933,697 in cash during the first six months of 2017. The use of cash reflects our strategic decision to utilize our cash resources to fund promotion of our brand and improvements in customer service, so as to achieve a significant position in the travel market. The cash from customer deposits was used to pay prepayments, cost of sales and operating expenses.

 

 

In the first six months of 2016, the use of $2,699,144 in cash for operations was primarily the result of an aberration in our customary business model, as we increased our customer deposits by only $2,747,253 but made prepayments of $5,353,187. Such a disparity can result from the timing of reservations and tours, but is uncommon.

 

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The Company's operations require very little in fixed assets - at June 30, 2017 the total of fixed assets was $248,769. This enables the Company to devote its cash resources to operations, with cash used in purchase of property and equipment being only $31,816 in the first half of 2017 and $9,221 in the first half of 2016.

 

We anticipate that our future liquidity requirements will arise from the need to fund our growth and pay current obligations. For the near term, we expect our operations to continue to use cash. Therefore, the primary sources of funding for our cash requirements are expected to be funds obtained from equity offerings and/or debt financing. However, we have no commitments at this time for such financing, and we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, so as to remain a going concern.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet items reasonably likely to have a material effect on our financial condition. 

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluations of Disclosure Controls and Procedures

 

Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

As of June 30, 2017, our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2017, as a result of the following material weaknesses:

 

· lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;

 

· inadequate segregation of duties consistent with control objectives; and

 

· ineffective controls over period end financial disclosure and reporting processes.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this report, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2016.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We did not sell or issue any shares of unregistered securities during the three months period ended June 30, 2017.

  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable

 

ITEM 5. OTHER INFORMATION

 

Not applicable

 

ITEM 6. EXHIBITS

 

INDEX TO EXHIBITS

 

Exhibit   Description
31.1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SINORAMA CORPORATION. (Registrant)

 

Signature   Title   Date
         
/s/ JING Wenjia   Chief Executive Officer   August 14, 2017
 JING Wenjia   (Principal Executive Officer)    
         
/s/ ZHAO Hongxi   Chief Financial Officer   August 14, 2017
 ZHAO Hongxi   (Principal Financial Officer)    

 

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