The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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 solutions provider. The Company
provides tailored solutions and value-added services for its customers to drive effectiveness and control in related links 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, including Hong Kong (the “PRC”), Australia and Canada. Currently,
a significant portion of the Company’s business is generated from clients located in the PRC and the U.S.
The
Company’s Chinese subsidiary, Trans Pacific Shipping Limited, a wholly-owned foreign enterprise (“Trans Pacific Beijing”),
is the 90% owner of Trans Pacific Logistics Shanghai Limited (“Trans Pacific Shanghai”). Trans Pacific Beijing and
Trans Pacific Shanghai are referred to collectively as “Trans Pacific”.
The
Company’s inland transportation management services are operated by its subsidiaries in the PRC, Hong Kong and the U.S.
The Company’s freight logistics services are operated by its subsidiaries in the PRC and the U.S. The Company’s container
trucking services are currently operated by its subsidiaries in the PRC and through a joint venture in the U.S. The Company’s
newly added bulk cargo container trucking services are currently operated by its subsidiary in the U.S. The Company has increased
its business in the U.S. since the launch of the short haul container truck services web-based platform.
In
August 2016, the Company’s Board of Directors (the “Board”) authorized management to move forward with the development
of a mobile application that will provide a full-service logistics platform between the U.S. and the PRC for short-haul trucking
in the U.S. Upon the completion of the platform, 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 will receive a percentage of the total amount of each transportation fee for the arrangement of inland transportation
services for COSFRE Beijing’s container shipments into U.S. ports. For the strategic cooperation framework agreement with
Sino-Trans Guangxi, which is a subsidiary of Sino-Trans Limited, the Company expects to utilize both parties’ existing resources
and establish 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 5, 2017, the Company entered into a joint venture agreement and formed a new joint venture company named ACH Trucking
Center Corp. (“ACH Center”) with Jetta Global Logistics Inc. (“Jetta Global”). Along with the establishment
of ACH Center, the Company began providing short haul trucking transportation and logistics services to customers located in the
New York and New Jersey areas. The Company holds a 51% ownership stake in ACH Center. Although the establishment of ACH Center
brought benefited for the Company and Jetta Global, it could not satisfy long term development for both the Company and Jetta
Global. The Company signed a termination agreement with Jetta Global to terminate the joint venture agreement on December 4, 2017.
As ACH Center’s operating revenue was less than 1% of the Company’s consolidated revenue and the termination did not
constitute a strategic shift that would have a major effect on the Company’s operations and financial results, the results
of operations for ACH Center was not reported as discontinued operations under the guidance of Accounting Standards Codification
205.
On
January 9, 2017, the Company entered into a strategic cooperation agreement with China Ocean Shipping Agency Qingdao Co. Ltd.
(“COSCO Qingdao”). COSCO Qingdao will utilize the Company’s full-service logistics platform to arrange the transportation
of its container shipments into U.S. ports. Sino-Global will receive a percentage of the total amount of each transportation fee
in exchange for the arrangement of inland transportation services for COSCO Qingdao’s container shipments into U.S. ports.
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, jointly 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, in consideration for which
the Company will receive a 1% to 1.25% transportation fee incurred in the Project as a commission for its services rendered (see
Note 3 and Note 16). On July 7, 2017, the Company signed a supplemental agreement with the Buyer, pursuant to which the Company
will cooperate with Zhiyuan Hong Kong exclusively on the entire Project’s transportation needs. Pursuant to the supplemental
agreement, the Company agrees to make prepayments to Zhiyuan Hong Kong for its share of packaging and transporting costs related
to the Project; in return, the Company will receive 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service
fee. The Project is expected to be completed in one to two years and the Company will collect its service fee in accordance with
Project completion.
On
September 11, 2017, the Company set up a new wholly-owned subsidiary, Ningbo Saimeinuo Supply Chain Management Ltd. (“Sino
Ningbo”), via the wholly-owned entity, Sino-Global Shipping New York Inc. This subsidiary primarily engages in supply chain
management and freight logistics services. Sino Ningbo plans to start business activities in the fourth quarter of fiscal year
2018.
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) for information pursuant to the rules and regulations
of the Securities Exchange Commission (“SEC”).
In
the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair
presentation have been included. Interim results are not necessarily indicative of results of a full year. The information in
this Form 10-Q should be read in conjunction with information included in the annual report for the fiscal year ended June 30,
2017 on Form 10-K filed with the SEC on September 27, 2017.
(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. A subsidiary is an entity in which the
Company, directly or indirectly, controls more than one half of the voting power or has the power to: govern the financial and
operating policies; appoint or remove the majority of the members of the board of directors; cast a majority of votes at the meeting
of the board of directors.
U.S. GAAP
provides guidance on the identification of variable interest entity (“VIE”) and financial reporting for entities over
which control is achieved through means other than voting interests. The Company evaluates each of its interests in an entity
to determine whether or not the investee is a VIE and, if so, whether the Company is the primary beneficiary of such VIE. In determining
whether the Company is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities
that most significantly affects the economic performance of the VIE, and (2) receives the economic benefits of the VIE that
could be significant to the VIE. If deemed the primary beneficiary, the Company consolidates the VIE. Sino-Global Shipping
Agency Ltd., a PRC corporation (“Sino-China”), is considered a 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. As mentioned elsewhere in this
report, due to the worsening market conditions in the shipping industry, Sino-China’s shipping agency business suffered
a significant decrease in revenue due to a reduced number of ships served. As a result, the Company has temporarily suspended
this business. Sino-China is also providing services in other related business segments of the Company.
The
carrying amount and classification of Sino-China’s assets and liabilities included in the Company’s unaudited condensed
consolidated balance sheets were as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
10,509,999
|
|
|
$
|
9,327,990
|
|
Total assets
|
|
|
10,650,688
|
|
|
|
9,472,651
|
|
Total current liabilities
|
|
|
12,785
|
|
|
|
4,517
|
|
Total liabilities
|
|
|
12,785
|
|
|
|
4,517
|
|
(c)
Fair Value of Financial Instruments
We
follow 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 U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the
Company’s unaudited condensed consolidated financial statements include revenue recognition, fair value of stock based compensation,
cost of revenues, allowance for doubtful accounts, deferred income taxes, and the useful lives of property and equipment. Since
the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
(e)
Translation of Foreign Currency
The
accounts of the Company and its subsidiaries, including Sino-China and each of its branches are measured using the currency of
the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional
currency is the U.S. dollar (“USD”) while its subsidiaries in the PRC, including Sino-China, report their financial
positions and results of operations in Renminbi (“RMB”). The accompanying unaudited condensed consolidated financial
statements are presented in USD. Foreign currency transactions are translated into USD using the fixed exchange rates in effect
at the time of the transaction. Generally, foreign exchange gains and losses resulting from the settlement of such transactions
are recognized in the unaudited condensed 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, Trans Pacific Shanghai and Sino Ningbo 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 March 31, 2018 and June 30, 2017 and for the three and nine months ended March 31, 2018 and 2017 are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Foreign currency
|
|
Balance Sheet
|
|
|
Balance Sheet
|
|
|
Profits/Loss
|
|
|
Profits/Loss
|
|
|
Profits/Loss
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
6.2753
|
|
|
|
6.7806
|
|
|
|
6.3589
|
|
|
|
6.8885
|
|
|
|
6.5482
|
|
|
|
6.7960
|
|
AUD:1USD
|
|
|
1.3020
|
|
|
|
1.3028
|
|
|
|
1.2722
|
|
|
|
1.3196
|
|
|
|
1.2799
|
|
|
|
1.3249
|
|
HKD:1USD
|
|
|
7.8448
|
|
|
|
7.8059
|
|
|
|
7.8268
|
|
|
|
7.7604
|
|
|
|
7.8164
|
|
|
|
7.7582
|
|
CAD:1USD
|
|
|
1.2896
|
|
|
|
1.2982
|
|
|
|
1.2640
|
|
|
|
1.3233
|
|
|
|
1.2627
|
|
|
|
1.3210
|
|
(f)
Cash and Cash Equivalents
Cash
and cash equivalents consist of cash on hand and other highly liquid investments which are unrestricted as to withdrawal or use,
and which have an original maturity of three months or less when purchased. The Company maintains cash and cash equivalents with
various financial institutions mainly in the PRC, Australia, Hong Kong, Canada and the U.S. As of March 31, 2018 and June 30,
2017, cash balances of $7,413,222 and $6,246,337, respectively, were maintained at financial institutions in the PRC, which were
not insured by any of the Chinese authorities. As of March 31, 2018 and June 30, 2017, cash balance of $2,077,680 and $2,462,792,
respectively, were maintained at U.S. financial institutions, and were insured by the Federal Deposit Insurance Corporation or
other programs subject to certain limitations.
(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 the asset’s
purchase price and any directly attributable costs of bringing the asset 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 life
|
The
carrying value of a long-lived asset is considered impaired by the Company when the anticipated undiscounted cash flows from such
asset are less than the asset’s 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 as of 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:
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 March 31, 2018.
(j)
Revenue Recognition
Revenue
is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred
or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured
|
●
|
Revenues
from inland transportation management services are recognized when commodities are being released from the customers’
warehouse.
|
|
●
|
Revenues
from freight logistics services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues
from container trucking services are recognized when the related contractual services are rendered.
|
|
●
|
Revenues
from bulk cargo container services are recognized when the related contractual services are rendered. Bulk cargo container
services included shipping of products, arranging cargo container shipping from U.S. to China port. Revenue is recognized
upon completion of shipping arrangements agreed with customers at customer’s designated port.
|
(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 asset and liability method of accounting for income taxes in accordance with U.S. GAAP. Deferred taxes, if
any, are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and
their reported amounts in the unaudited condensed consolidated financial statements. A valuation allowance is provided against
deferred tax assets if it is more likely than not that the asset will not be utilized in the future.
The
Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company recognizes interest
and penalties, if any, related to unrecognized tax benefits as income tax expense.
Income
tax returns for the years prior to 2014 are no longer subject to examination by U.S. 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 us to re-measure all U.S. deferred income tax assets and liabilities for temporary differences and net operating loss (“NOL”)
carryforwards and recorded one time income tax payable to be paid over 8 years.
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 minus the costs of services which
are paid on behalf of the customers.
Enterprises
or individuals who sell commodities, engage in services or selling of goods in the PRC are subject to a value added tax (“VAT”)
in accordance with PRC laws. All of the Company’s revenue generated in the PRC are subject to a VAT on the gross sales price.
The VAT rates are 6% and 11%, depending on the type of services provided. The Company is entitled to a deduction or offset for
VAT paid on the services rendered by the vendors against the VAT when the Company engage in services.
In
addition, under PRC regulations, the Company’s PRC subsidiaries and affiliates are required to pay city construction taxes
(7%) and education surcharges (3%) based on calculated business tax payments.
The
Company’s PRC subsidiaries and affiliates report revenues net of PRC’s VAT, business tax and surcharges for all the
periods presented in the consolidated statements of operations.
(l)
Earnings per Share
Basic
earnings per share is computed by dividing net income 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 and nine months ended March 31, 2018, the basic average shares outstanding and diluted average shares of the Company
outstanding were not the same because the effect of potential shares of common stock of the Company was dilutive since the exercise
prices for options were lower than the average market price for the related periods. For the three and nine months ended March
31, 2018, a total of 34,686 and 46,283 unexercised options were dilutive and were included, respectively, in the computation of
diluted earnings per share. For the three and nine months ended March 31, 2017, a total of 34,782 and 20,621 unexercised options
were dilutive, respectively, and were included in the computation of diluted EPS.
(m)
Comprehensive Income (loss)
The
Company reports comprehensive income (loss) in accordance with the Financial Accounting Standards Board (“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
Stock-based
payment transactions with employees are measured on the grant-date fair value of the equity instrument issued and recognized as
compensation expense over the requisite service period. 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)
Reclassification
Certain
prior periods amounts have been reclassified to conform to the current period presentation, including reclassification of $504,815
revenue and $504,815 cost of revenue from freight logistics service segment to bulk cargo container service segment. These reclassifications
have no effect on the results of operations and cash flows.
(q)
Recent Accounting Pronouncements
Revenue
Recognition:
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts
with Customers: Topic
606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP.
The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an
amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within
the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each separate performance obligation. ASU 2014-09 is effective for the Company in the first quarter of fiscal year 2018 using
either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical
expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of
initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional unaudited condensed
as defined per ASU 2014-09 (modified retrospective method). The Company is currently assessing the impact to its unaudited condensed
financial statements, and has not yet selected a transition approach.
Leases
:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease
amendments to the FASB Accounting Standard Codification. This ASU will be effective for us beginning in May 1, 2019. The Company
is currently in the process of evaluating the impact of the adoption of ASU 2016-2 on unaudited condensed financial statements.
Statement
of Cash Flows:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in
this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a
statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow
issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing
the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s
unaudited condensed financial statements and related disclosures.
Business
Combination
: In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic
805): Clarifying the Definition of a Business
(ASU 2017-01), which revises the definition of a business and provides
new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for
us in the fiscal year beginning after December 15, 2017 and interim periods within those periods on a prospective basis, and early
adoption is permitted. The Company does not expect the standard to have a material impact on its consolidated financial statements.
Stock-based
Compensation
: 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. The Company is currently assessing the impact of ASU 2017-09 on its unaudited condensed financial statements.
Stock-based
Compensation
: In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260)”, Distinguishing
Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification
analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether
certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes
equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify
existing disclosure requirements for equity-classified instruments. The amendments in Part II of this Update recharacterize the
indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope
exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company
does not expect that the adoption of this guidance will have a material impact on its unaudited condensed financial statements.
Revenue
Recognition and Leases
: In September 2017, the FASB issued ASU 2017-13, Revenue from Contracts with Customers (Topic 606)
and Leases (Topic 842). The main objective of this pronouncement is to clarify the effective date of the adoption of ASC Topic
606 and ASC Topic 842 and the definition of public business entity as stipulated in ASU 2014-09 and ASU 2016-02. ASU 2014-09 provides
that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to
adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual
reporting periods beginning after December 15, 2019. ASU 2016-12 requires that “a public business entity and certain other
specified entities adopt ASC Topic 842 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. All other entities are required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020”. ASU 2017-13 clarifies that the SEC would not object to certain
public business entities electing to use the non-public business entities effective dates for applying ASC 606 and ASC 842. ASU
2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition
of a public business entity except for a requirement to include or inclusion of its financial statements or financial information
in another entity’s filings with the SEC”. Management does not expect the adoption of ASU 2017-13 to have any material
impact on its financial positions and results of operations or cash flows.
Income
taxes
: In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification
and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and
Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act
changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and
may additionally have international tax consequences for many companies that operate internationally. The Company has evaluated
the impact of the Act as well as the guidance of SAB 118 and incorporated the changes into the determination of a reasonable estimate
of its deferred tax liability and appropriate disclosures in the notes to its consolidated financial statements (See Note 9).
The Company will continue to evaluate the impact this tax reform legislation may have on its results of operations, financial
position, cash flows and related disclosures.
Except
for the ASU’s described above, no ASU’s are expected to have a material impact on the unaudited condensed consolidated
financial statements upon adoption.
Note
3. ACCOUNTS RECEIVABLE, NET
The
Company’s net accounts receivable is as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
6,108,078
|
|
|
$
|
2,754,962
|
|
Less: allowances for doubtful accounts
|
|
|
(1,350,531
|
)
|
|
|
(185,821
|
)
|
Accounts receivables, net
|
|
$
|
4,757,547
|
|
|
$
|
2,569,141
|
|
Movement
of allowance for doubtful accounts is as follows:
|
|
Nine months ended
March 31,
2018
|
|
|
Year ended
June 30,
2017
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
185,821
|
|
|
$
|
207,028
|
|
Provision for doubtful accounts
|
|
|
1,182,832
|
|
|
|
-
|
|
Less: write-off/recovery
|
|
|
(24,638
|
)
|
|
|
(18,912
|
)
|
Exchange rate effect
|
|
|
6,516
|
|
|
|
(2,295
|
)
|
Ending balance
|
|
$
|
1,350,531
|
|
|
$
|
185,821
|
|
For
the three and nine months ended March 31, 2018, the provision for doubtful accounts increased by $586,547 and $1,182,832, respectively.
No provision was made in same period 2017.
Note
4. ADVANCES TO SUPPLIERS
The
Company’s advances to third - party suppliers are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Intelligent logistics system deposit
|
|
$
|
437,356
|
|
|
$
|
-
|
|
Freight fees
|
|
|
-
|
|
|
|
29,960
|
|
Others
|
|
|
4,781
|
|
|
|
24,930
|
|
Total advances to suppliers - third parties
|
|
$
|
442,137
|
|
|
$
|
54,890
|
|
On
December 27, 2017, with the approval of the Board of the Company, the Company signed a contract with Tianjin Anboweiye Technology
Ltd Co.(“Tianjin Anboweiye”), to develop a more complete and intelligent system based on the Company’s current
container trucking platform. The purpose is to help the Company make better connections with the system used by state-owned companies
in China, and to satisfy such state-owned companies’ demand for container trucks in the United States. The Company made
$437,356 as prepayment to Tianjin Anboweiye in March, 2018.
As
of March 31, 2018, advances to third-party suppliers were primarily related to freight logistics services.
The
Company’s advances to related-party suppliers are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Freight fees
|
|
$
|
3,601,421
|
|
|
$
|
3,333,038
|
|
Total advances to suppliers - related party
|
|
$
|
3,601,421
|
|
|
$
|
3,333,038
|
|
As
discussed in Note 1, on February 18, 2017, the Company entered into a cooperative transportation agreement with Zhiyuan Hong
Kong, which is owned by the Company’s largest shareholder. Pursuant to this agreement, the Company will be a supplier for
part of the project’s logistics solutions and, in return, the Company will receive a 1% to 1.25% fee incurred as a commission
for its services rendered. On July 7, 2017, the Company signed a supplemental agreement, pursuant to which the Company will cooperate
with Zhiyuan Hong Kong exclusively on the 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 agrees
to make prepayments to Zhiyuan Hong Kong for its share of packaging and transporting costs related to the Project; in return the
Company will receive 15% of the cost incurred in the Project from Zhiyuan Hong Kong as a service fee. The Company will complete
its services pursuant to the supplemental agreement and will receive approval from Zhiyuan Hong Kong that the related services
fees will be earned by June 2018. The Company also expects the entire advance will be collected by October 2018.
Note
5. PREPAID EXPENSES AND OTHER ASSETS
The
Company’s prepaid expenses and other current assets are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Consultant fees (1)
|
|
$
|
39,537
|
|
|
$
|
158,150
|
|
Advance to employees
|
|
|
74,199
|
|
|
|
64,160
|
|
Other (including prepaid insurance, rent , public relation services)
|
|
|
283,632
|
|
|
|
95,708
|
|
Total
|
|
|
397,368
|
|
|
|
318,018
|
|
Less: current portion
|
|
|
397,368
|
|
|
|
311,136
|
|
Total noncurrent portion
|
|
$
|
-
|
|
|
$
|
6,882
|
|
(1)
The Company entered into a management consulting services agreement with a consulting company on November 12, 2015, pursuant to
which the consulting company shall assist the Company with its regulatory filings during the period from July 1, 2016 to June
30, 2018. In return for its services, as approved by the Board, a total of RMB 2,100,000 ($316,298) was paid to the consulting
company. The above-mentioned consulting fees have been and will be ratably charged to expense over the terms of the above-mentioned
agreement.
Note
6. PROPERTY AND EQUIPMENT, NET
The
Company’s net property and equipment as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Land and Buildings
|
|
$
|
214,497
|
|
|
$
|
198,512
|
|
Motor vehicles
|
|
|
632,130
|
|
|
|
542,471
|
|
Computer equipment
|
|
|
161,440
|
|
|
|
155,141
|
|
Office equipment
|
|
|
88,392
|
|
|
|
66,097
|
|
Furniture and fixtures
|
|
|
169,234
|
|
|
|
163,219
|
|
System software
|
|
|
126,787
|
|
|
|
117,733
|
|
Leasehold improvements
|
|
|
386,629
|
|
|
|
62,857
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,779,109
|
|
|
|
1,306,030
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
1,242,827
|
|
|
|
1,118,657
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
536,282
|
|
|
$
|
187,373
|
|
Depreciation
expense for the three months ended March 31, 2018 and 2017 were $15,827 and $11,025, respectively.
Depreciation
expense for the nine months ended March 31, 2018 and 2017 were $42,291 and $36,432, respectively.
Note
7. INTANGIBLE ASSETS, NET
Net
intangible assets consisted of the following at:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Full service logistics platforms
|
|
$
|
190,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
190,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
21,111
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Intangible asset, net
|
|
$
|
168,889
|
|
|
$
|
-
|
|
As
part of the above-mentioned intelligent logistics platform (see Note 3), 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 amortized over five years.
Amortization
expense of intangible assets amounted to $15,833 and $nil for the three months ended March 31, 2018 and 2017, respectively, and
$21,111 and $nil for the nine months ended March 31, 2018 and 2017, respectively.
Note
8. STOCK OPTIONS
The
issuance of the Company’s options is exempted from registration under of the Securities Act of 1933, as amended (the “Act”).
The Common Stock underlying the Company’s options granted may be sold in compliance with Rule 144 under the 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 options granted in 2009 is for 10 years and the exercise price of the 56,000 options is $7.75 which vested over 5
years and were fully vested as of March 31, 2018. The fair value of the stock options was estimated using the Black-Scholes option-pricing
model.
The
term of the 10,000 options granted in 2013 is for 10 years and the exercise price of the options is $2.01. The fair value of the
10,000 stock options was calculated at the grant date using the Black-Scholes option-pricing model with the following assumptions:
volatility of 452.04%, risk free interest rate of 0.88% and expected life of 10 years. The total fair value of the options was
$19,400. These options are fully vested as of March 31, 2018.
Pursuant
to the Company’s 2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted options to purchase a total
of 150,000 shares of the Company’s Common Stock to two employees with a one-year vesting period, one half of which vested
on October 26, 2016, and the other half vested on July 26, 2017. The exercise price of the 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 of the options 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. In accordance with the vesting periods, $nil and $28,995 were expensed related to these options for the three months
ended March 31, 2018 and 2017, respectively. $9,665 and $77,320 were expensed related to these options for the nine months ended
March 31, 2018 and 2017, respectively. In February 2017, 75,000 of these options were exercised by the two employees.
Pursuant
to the Company’s 2014 Stock Incentive Plan, the Company granted a total of 800,000 options on December 14, 2016, to purchase
an aggregate of 800,000 shares of Common Stock to seven employees, with a vesting period from one to three years. The grant date
fair value of such options was $2.24 per option. The fair value of the options was calculated using the Black-Scholes options
pricing model with the following assumptions: volatility of 112.70%, risk free interest rate of 2.02%, with an expected life of
5 years. The total fair value of the options was $1,788,985. With the seven employees’ consent, the Company cancelled the
800,000 options, effective February 16, 2017 and nil was recorded for these options for the three and nine months ended March
31, 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, 2017
|
|
|
141,000
|
|
|
$
|
3.81
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, as of March 31, 2018
|
|
|
141,000
|
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, as of March 31, 2018
|
|
|
139,000
|
|
|
$
|
3.83
|
|
Following
is a summary of the status of options outstanding and exercisable as of March 31, 2018
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual Life
|
|
Average
Exercise
Price
|
|
|
Number
|
|
|
Average
Remaining
Contractual
Life
|
$
|
7.75
|
|
|
|
56,000
|
|
|
0.13 years
|
|
$
|
7.75
|
|
|
|
56,000
|
|
|
0.13 years
|
$
|
2.01
|
|
|
|
10,000
|
|
|
4.84 years
|
|
$
|
2.01
|
|
|
|
8,000
|
|
|
4.84 years
|
$
|
1.10
|
|
|
|
75,000
|
|
|
3.32 years
|
|
$
|
1.10
|
|
|
|
75,000
|
|
|
3.32 years
|
|
|
|
|
|
141,000
|
|
|
|
|
|
|
|
|
|
139,000
|
|
|
|
Note
9. EQUITY TRANSACTIONS
On
June 6, 2014, the Company entered into management consulting and advisory services agreements with two consultants, pursuant to
which the consultants assisted the Company in, among other things, financial and tax due diligence, business evaluation and integration,
and development of pro forma financial statements. In return for their services, as approved by the Company’s Board of Directors,
a total of 600,000 shares of the Company’s common stock were to be issued to these two consultants. In June 2014, 200,000
shares of the Company’s common stock were issued to the consultants as a prepayment for their services. The value of their
consulting services was determined using the fair value of the Company’s common stock of $2.34 per share when the shares
were issued to the consultants. Their service agreements were for the period July 1, 2014 to December 31, 2016. The remaining
400,000 shares of the Company’s common stock were then issued to the consultants on September 30, 2014 at $1.68 per share,
and the service terms are from September 2014 to November 2016. These shares were valued at $1,140,000 and the related consulting
fees have been ratably charged to expense over the term of the agreements. Consulting expenses for the above services were $nil
and $nil for the three months ended March 31, 2018 and 2017, respectively. Consulting expenses for the above services were $nil
and $218,045 for the nine months ended March 31, 2018 and 2017, respectively.
On
May 5, 2015, the Company entered into management consulting and advisory services agreements with three consultants, pursuant
to which the consultants assisted the Company in, among other things, review of time charter agreements; crew management advisory;
development of permanent and preventive maintenance standards related to dry dockings and ship repairs; development of regular
technical and marine vessel inspections and quality control procedures; and development and implementation of alternative remedial
actions to address technical problems that may arise. In return for their services, as approved by the Company’s Board of
Directors, a total of 500,000 shares of the Company’s common stock were to be issued to these three consultants at $1.50
per share. Their service agreements are for a period of 18 months, effective May 2015. These shares were valued at $750,000 and
the related consulting fees have been ratably charged to expense over the term of the agreements. Consulting expenses for the
above services were $nil and $ nil for the three months ended March 31, 2018 and 2017, respectively. Consulting expenses for the
above services were $nil and $173,137 for the nine months ended March 31, 2018 and 2017, respectively
On
December 9, 2015, the Company entered into a consulting and advisory services agreement with a consultant, pursuant to which the
consultant will assist the Company with corporate restructuring, business evaluation and capitalization during the period from
November 20, 2015 to November 19, 2016. In return for such services, the Company issued 250,000 shares of the Company’s
common stock to this consultant for services to be rendered during the first half of the service period. Such shares were issued
as restricted shares at $1.02 per share on December 9, 2015. On May 23, 2016, the Company issued an additional 250,000 shares
of common stock to this consultant at $0.72 per share to cover the services from the seventh month to November 19, 2016. These
shares were valued at $435,000. Consulting expenses were $nil and $ nil for the three months ended March 31, 2018 and 2017, respectively.
Consulting expenses were $nil and $138,387 for the nine months ended March 31, 2018 and 2017, respectively.
In
March 2017, the Company entered into a consulting and advisory services agreement with Jianwei Li, who will provide management
consulting services that include marketing program designing and implementation and cooperative partner selection and management.
The service period is from March 2017 to 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. Consulting expenses were $52,708 and $17,569 for the three months ended March 31, 2018 and 2017 respectively.
Consulting expenses were $158,125 and $17,569 for the nine months ended March 31, 2018 and 2017, respectively.
On
October 23, 2017, the Company issued 130,000 shares to its employees of its restricted common stock valued at $2.80 per share.
Quarter of the total number of common shares shall become 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 and $nil are recorded in the Company’s general
and administrative expenses for the three months ended March 31, 2018 and 2017, respectively. $182,000 and $nil are recorded in
the Company’s general and administrative expenses for the nine months ended March 31, 2018 and 2017, respectively.
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 covers advising on business development,
strategic planning and compliance during the one-year service period from October 17, 2017 to October 16, 2018. Consulting expenses
were $137,000 and $nil for the three months ended March 31, 2018 and 2017, respectively. Consulting expenses were $274,000 and
$nil for the nine months ended March 31, 2018 and 2017, respectively.
Total
consulting expenses were $280,709 and $17,569 for the three months ended March 31, 2018 and 2017, respectively. Total consulting
expenses were $432,125 and $547,138 for the nine months ended March 31, 2018 and 2017, respectively.
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 purchase 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 was closed on March 14, 2018. The offering of the shares
of the 2 million common stock is being 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 have agreed to a lock-up
period of 60 days from the date of the purchase agreement.
The
Company also agreed to sell to 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 are a private placement in reliance upon an exemption afforded under Regulation D of the Securities
Act. The Series “A” warrants shall be initially exercisable beginning on September 14, 2018, and expire five and a
half (5.5) years from the date of issuance. The Series B warrants shall be initially exercisable beginning on 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 is $2,585,091.
On
April 26, 2018, the Company filed a registration statement on Form 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 Black-Scholes-Merton model and is recorded as additional paid-in capital from common stock based on 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 March 31, 2018:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of June 30, 2017
|
|
|
139,032
|
|
|
$
|
9.30
|
|
Issued
|
|
|
4,000,000
|
|
|
|
1.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, as of March 31, 2018
|
|
|
4,139,032
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, as of March 31, 2018
|
|
|
139,032
|
|
|
$
|
9.30
|
|
Warrants Outstanding
|
|
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
|
Average
Remaining
Contractual Life
|
2008 Warrants
|
|
|
139,032
|
|
|
$
|
9.30
|
|
|
0.13 years
|
2018 Series A 2,000,000
|
|
|
-
|
|
|
$
|
1.75
|
|
|
5.50 years
|
2018 Series B 2,000,000
|
|
|
-
|
|
|
$
|
1.75
|
|
|
1.08 years
|
Note
10. NON-CONTROLLING INTEREST
The
Company’s non-controlling interest consists of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Sino-China:
|
|
|
|
|
|
|
Original paid-in capital
|
|
$
|
356,400
|
|
|
$
|
356,400
|
|
Additional paid-in capital
|
|
|
1,044
|
|
|
|
1,044
|
|
Accumulated other comprehensive income
|
|
|
(41,198
|
)
|
|
|
217,379
|
|
Accumulated deficit
|
|
|
(5,148,533
|
)
|
|
|
(5,421,578
|
)
|
|
|
|
(4,832,287
|
)
|
|
|
(4,846,755
|
)
|
Trans Pacific Logistics Shanghai Ltd.
|
|
|
123,728
|
|
|
|
46,047
|
|
ACH Trucking Center Corp.
|
|
|
-
|
|
|
|
31,929
|
|
Total
|
|
$
|
(4,708,559
|
)
|
|
$
|
(4,768,779
|
)
|
Note
11. COMMITMENTS AND CONTINGENCY
Lease
Obligations
The
Company leases certain office premises and apartments for employees under operating lease agreements with various terms through
April 16, 2020. Future minimum lease payments under the operating lease agreements are as follows:
|
|
Amount
|
|
Twelve months ending March 31,
|
|
|
|
|
|
|
|
2019
|
|
$
|
165,170
|
|
2020
|
|
|
81,666
|
|
|
|
$
|
246,836
|
|
Rental
expenses for the three months ended March 31, 2018 and 2017 were $59,183 and $66,642, respectively. Rental expenses for the nine
months ended March 31, 2018 and 2017 were $178,490 and $194,532, respectively.
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. Employers are liable for one month of severance
pay per year of service provided by employees. As of March 31, 2018 and June 30, 2017, the Company has estimated its severance
payments to be approximately $58,373 and $48,713, respectively. Such payments 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.
From
time to time, the Company is involved in routine litigation that arises in the ordinary course of business. The Company was named
a defendant in a breach of service contract lawsuit filed with the California Superior Court on January 19, 2018. Management believes
it is too early to predict the outcome of the pending lawsuit 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%
for subsequent fiscal years.
The
Company re-measured certain deferred tax assets based on blended rate of 28% at which these deferred tax amounts are expected
to reverse in the future and the re-measurement resulted in a tax expense of $120,400 being recognized during the three months
ended March 31, 2018.
In
addition, the Company recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting
in an increase in income tax expense of approximately $478,000 for the nine months ended March 31, 2018. The one-time transition
tax was calculated using the Company’s total post-1986 overseas earnings and profits which amounted to approximately $5.7
million. The one-time transition tax is taxed at the rate of 15.5% for the Company’s cash and cash equivalents and 8% for
the other assets and is to be paid over 8 years.
The
Company’s income tax benefit (expense) for the three and nine months ended March 31, 2018 and 2017 are as follows:
|
|
For the three months ended
March 31,
|
|
|
For the nine months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(60,162
|
)
|
|
$
|
-
|
|
Hong Kong
|
|
|
6,250
|
|
|
|
(36,966
|
)
|
|
|
(3,172
|
)
|
|
|
(71,067
|
)
|
China
|
|
|
(69,345
|
)
|
|
|
(47,738
|
)
|
|
|
(320,270
|
)
|
|
|
(158,649
|
)
|
One-time transition tax on accumulated foreign earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
(478,499
|
)
|
|
|
-
|
|
|
|
|
(63,095
|
)
|
|
|
(84,704
|
)
|
|
|
(862,103
|
)
|
|
|
(229,716
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
|
(153,000
|
)
|
|
|
387,900
|
|
|
|
920,700
|
|
|
|
387,900
|
|
Total income tax benefit (expense)
|
|
$
|
(216,095
|
)
|
|
$
|
303,196
|
|
|
$
|
58,597
|
|
|
$
|
158,184
|
|
The
Company recorded income tax expense of $216,095 and benefit of $303,196 in the three months ended March 31, 2018 and 2017. The
Company recorded income tax benefit of $58,597 and $158,184 in the nine months ended March 31, 2018 and 2017, respectively.
The
Company’s deferred tax assets are comprised of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
568,000
|
|
|
$
|
106,000
|
|
Stock-based compensation
|
|
|
687,000
|
|
|
|
790,000
|
|
Net operating loss
|
|
|
1,068,000
|
|
|
|
1,464,000
|
|
Total deferred tax assets
|
|
|
2,323,000
|
|
|
|
2,360,000
|
|
Valuation allowance
|
|
|
(652,900
|
)
|
|
|
(1,610,600
|
)
|
Deferred tax assets, net - long-term
|
|
$
|
1,670,100
|
|
|
$
|
749,400
|
|
The
Company’s operations in the U.S. for federal tax purposes have incurred a cumulative net operating loss (“NOL”)
of approximately $5,250,000 as of March 31, 2018, which may reduce federal future taxable income. For the three and nine months
ended March 31, 2018, approximately $317,000 and $954,000 of NOL was utilized, respectively.
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 March 31, 2018. The net increase in the valuation
allowance for the three months ended March 31, 2018 amounted to $140,000 and the net decrease in the valuation allowance for the
nine months ended March 31, 2018 amounted to $957,700, respectively 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 enactment of the Act, NOL could be carried forward
indefinitely and the Company has pretax income resulting in utilization of NOL in the current period, management determined that
there is sufficient positive evidence to conclude that it is more likely than not that all of its NOL are realizable.
The
Company’s taxes payable consists of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
VAT tax payable
|
|
$
|
558,452
|
|
|
$
|
520,436
|
|
Corporate income tax payable
|
|
|
2,213,939
|
|
|
|
1,290,832
|
|
Others
|
|
|
69,762
|
|
|
|
74,948
|
|
Total
|
|
|
2,842,153
|
|
|
|
1,886,216
|
|
Less: current portion
|
|
|
2,401,934
|
|
|
|
1,886,216
|
|
Income tax payable - noncurrent portion
|
|
$
|
440,219
|
|
|
$
|
-
|
|
Note 13.
CONCENTRATIONS
Major
Customers
For
the three months ended March 31, 2018, three customers accounted for 70%, 18% and 10% of the Company’s revenues, respectively.
As of March 31, 2018, one of these four customers accounted for 100% of the Company’s accounts due from related parties
and the remaining two customers accounted for approximately 84% of the Company’s accounts receivable.
For
the three months ended March 31, 2017, three customers accounted for 28%, 28% and 27% of the Company’s revenues, respectively.
At March 31, 2017, one of these three customers accounted for 27% of the Company’s accounts due from related parties and
the remaining two customers accounted for approximately 75% of the Company’s accounts receivable.
For
the nine months ended March 31, 2018, three customers accounted for 59%, 17% and 10% of the Company’s revenues, respectively.
As of March 31, 2018, one of these four customers accounted for 100% of the Company’s accounts due from related parties
and the remaining two customers accounted for approximately 84% of the Company’s accounts receivable.
For
the nine months ended March 31, 2017, three customers accounted for 33%, 33% and 16% of the Company’s revenues, respectively.
At March 31, 2017, one of these three customers accounted for 27% of the Company’s accounts due from related parties and
the remaining two customers accounted for approximately 75% of the Company’s accounts receivable.
Major
Suppliers
For
the three months ended March 31, 2018, two suppliers accounted for 82% and 15% of the total costs of revenue, respectively. For
the three months ended March 31, 2017, two suppliers accounted for 65% and 13% of the total costs of revenue.
For
the nine months ended March 31, 2018, two suppliers accounted for 48% and 6% of the total costs of revenue, respectively. For
the nine months ended March 31, 2017, one supplier accounted for 51% of the total costs of revenue, respectively.
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 six operating segments: (1) shipping agency and shipping management services; (2) shipping and chartering
services; (3) inland transportation management services; (4) freight logistics services; (5) container trucking services; (6)
bulk cargo container services. However, due to the downturn in the shipping industry, the Company has decided to suspend to its
shipping agency and shipping management services and shipping and chartering services.
As
stated in Note 1, ACH Center’s operating revenue was less than 1% of the Company’s consolidated revenue and the results
of operations for ACH Center was not reported as discontinued operations and was included in the container trucking services segment
and freight logistics services segment below. For the three and nine months ended March 31, 2018, revenue from ACH Center for
container trucking services amounted to $nil and $42,968 respectively, representing 0% and 6% of the segment’s revenue.
For the three and nine months ended March 31, 2018, gross profit from ACH Center for container trucking services amounted to $nil
and $4,297 respectively, representing 0% and 2% of the segment’ gross profit. For the three and nine months ended March
31, 2018, revenue from ACH Center for freight logistics services amounted to $nil and $46,937 respectively, representing 0% and
1% of the segment’s revenue. For the three and nine months ended March 31, 2017, gross profit from ACH Center for freight
logistics services amounted to $nil and $13,989 respectively, representing 0% and 2% of the segment’ gross profit.
The
following tables present summary information by segment for the three and nine months ended March 31, 2018 and 2017, respectively:
|
|
For the three months ended March 31, 2018
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight Logistics Services
|
|
|
Container Trucking Services
|
|
|
Bulk Cargo Container Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
501,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
501,000
|
|
- Third parties
|
|
$
|
934,872
|
|
|
$
|
3,577,293
|
|
|
$
|
187,005
|
|
|
$
|
-
|
|
|
$
|
4,699,170
|
|
Total revenues
|
|
$
|
1,435,872
|
|
|
$
|
3,577,293
|
|
|
$
|
187,005
|
|
|
$
|
-
|
|
|
$
|
5,200,170
|
|
Cost of revenues
|
|
$
|
91,276
|
|
|
$
|
3,195,492
|
|
|
$
|
118,667
|
|
|
$
|
-
|
|
|
$
|
3,405,435
|
|
Gross profit
|
|
$
|
1,344,596
|
|
|
$
|
381,801
|
|
|
$
|
68,338
|
|
|
$
|
-
|
|
|
$
|
1,794,735
|
|
Depreciation and amortization
|
|
$
|
26,268
|
|
|
$
|
475
|
|
|
$
|
4,917
|
|
|
$
|
-
|
|
|
$
|
31,660
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,929
|
|
|
$
|
-
|
|
|
$
|
10,929
|
|
|
|
For the three months ended March 31, 2017
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freights Logistic Services
|
|
|
Container Trucking Services
|
|
|
Bulk Cargo Container Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
762,777
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
762,777
|
|
- Third parties
|
|
$
|
771,063
|
|
|
$
|
827,908
|
|
|
$
|
385,863
|
|
|
$
|
-
|
|
|
$
|
1,984,834
|
|
Total revenues
|
|
$
|
1,533,840
|
|
|
$
|
827,908
|
|
|
$
|
385,863
|
|
|
$
|
-
|
|
|
$
|
2,747,611
|
|
Cost of revenues
|
|
$
|
79,983
|
|
|
$
|
699,578
|
|
|
$
|
352,652
|
|
|
$
|
-
|
|
|
$
|
1,132,213
|
|
Gross profit
|
|
$
|
1,453,857
|
|
|
$
|
128,330
|
|
|
$
|
33,211
|
|
|
$
|
-
|
|
|
$
|
1,615,398
|
|
Depreciation and amortization
|
|
$
|
5,655
|
|
|
$
|
5,370
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,025
|
|
Total capital expenditures
|
|
$
|
55,474
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,474
|
|
Prior
to second quarter of fiscal 2018, bulk cargo container services were included in our freight logistics services segment and were
operated by our New York subsidiary. As the Company develops this business line and to enable our CODM to better assess the financial
performance of the Company, we separated bulk cargo container services as a separate segment starting from last quarter. The Company
reclassified $504,815 of revenue from freight logistics services to bulk cargo container services for the nine months ended March
31, 2018 for better comparison.
|
|
For the nine months ended March 31, 2018
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight Logistics Services
|
|
|
Container Trucking
Services
|
|
|
Bulk Cargo Container Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
1,621,406
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,621,406
|
|
- Third parties
|
|
$
|
2,626,773
|
|
|
$
|
10,177,505
|
|
|
$
|
736,751
|
|
|
$
|
638,227
|
|
|
$
|
14,179,256
|
|
Total revenues
|
|
$
|
4,248,179
|
|
|
$
|
10,177,505
|
|
|
$
|
736,751
|
|
|
$
|
638,227
|
|
|
$
|
14,179,256
|
|
Cost of revenues
|
|
$
|
447,451
|
|
|
$
|
9,023,600
|
|
|
$
|
481,731
|
|
|
$
|
494,449
|
|
|
$
|
10,447,231
|
|
Gross profit
|
|
$
|
3,800,728
|
|
|
$
|
1,153,905
|
|
|
$
|
255,020
|
|
|
$
|
143,778
|
|
|
$
|
5,353,431
|
|
Depreciation and amortization
|
|
$
|
46,665
|
|
|
$
|
1,426
|
|
|
$
|
15,311
|
|
|
$
|
-
|
|
|
$
|
63,402
|
|
Total capital expenditures
|
|
$
|
-
|
|
|
$
|
326,508
|
|
|
$
|
53,409
|
|
|
$
|
-
|
|
|
$
|
379,917
|
|
|
|
For the nine months ended March 31, 2017
|
|
|
|
Inland
Transportation
Management
Services
|
|
|
Freight Logistics Services
|
|
|
Container Trucking Services
|
|
|
Bulk Cargo Container Services
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related party
|
|
$
|
2,229,180
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,229,180
|
|
- Third parties
|
|
$
|
2,241,998
|
|
|
$
|
1,803,641
|
|
|
$
|
545,742
|
|
|
$
|
-
|
|
|
$
|
4,591,381
|
|
Total revenues
|
|
$
|
4,471,178
|
|
|
$
|
1,803,641
|
|
|
$
|
545,742
|
|
|
$
|
-
|
|
|
$
|
6,820,561
|
|
Cost of revenues
|
|
$
|
271,784
|
|
|
$
|
1,068,951
|
|
|
$
|
448,613
|
|
|
$
|
-
|
|
|
$
|
1,789,348
|
|
Gross profit
|
|
$
|
4,199,394
|
|
|
$
|
734,690
|
|
|
$
|
97,129
|
|
|
$
|
-
|
|
|
$
|
5,031,213
|
|
Depreciation and amortization
|
|
$
|
20,322
|
|
|
$
|
16,110
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
36,432
|
|
Total capital expenditures
|
|
$
|
55,474
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,474
|
|
Total assets:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Inland Transportation Management Services
|
|
$
|
21,460,889
|
|
|
$
|
15,552,593
|
|
Freight Logistic Services
|
|
|
162,504
|
|
|
|
1,704,946
|
|
Container Trucking Services
|
|
|
1,538,860
|
|
|
|
558,482
|
|
Bulk Cargo Container Services
|
|
|
515,845
|
|
|
|
-
|
|
Total Assets
|
|
$
|
23,678,098
|
|
|
$
|
17,816,021
|
|
Note
15. OTHER RELATED PARTY TRANSACTIONS
As
of March 31, 2018 and June 30, 2017, the outstanding amounts due from related party consist of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Tianjin Zhiyuan Investment Group Co., Ltd.
|
|
$
|
2,499,493
|
|
|
$
|
1,715,130
|
|
Less: allowance for doubtful accounts
|
|
|
(249,949
|
)
|
|
|
-
|
|
Total
|
|
$
|
2,249,544
|
|
|
$
|
1,715,130
|
|
In
June 2013, the Company signed a five-year global logistics 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 $501,000 (10% of the Company’s total revenue) and $762,777 (28% of the Company’s total
revenue) for the three months ended March 31, 2018 and 2017, respectively. The Company generated revenue of $1,631,000 (10%
of the Company’s total revenue) and $2,229,180 (33% of the Company’s total revenue) for the nine months ended
March 31, 2018 and 2017, respectively. During the nine months ended March 31, 2018, the Company continued to provide inland
transportation management services to Zhiyuan and collected $846,536 from Zhiyuan. As of March 31, 2018, the Company provided
a 10% allowance for doubtful accounts of the amount due from Zhiyuan. The Company expects that the above balance will be
collected by March 2019.
As
of March 31, 2018 and June 30, 2017, the outstanding amounts of advance to suppliers-related party consist of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Zhiyuan International Investment & Holding Group (Hong Kong) Co., Ltd.
|
|
$
|
3,601,421
|
|
|
$
|
3,333,038
|
|
Total
|
|
$
|
3,601,421
|
|
|
$
|
3,333,038
|
|
On
February 18, 2017, Trans Pacific Beijing (subsidiary) and Sino China (VIE) (collectively, the “Seller”), a subsidiary
and VIE of the Company, entered into a Cooperative Transportation Agreement (the “Agreement”) with Zhiyuan International
Investment & Holding Group (Hong Kong) Co., Ltd. (the “Buyer” or “Zhiyuan Hong Kong”). Mr. Zhang is
the largest shareholder of the Company and has also invested in the Buyer. Pursuant to the Agreement, the Buyer, jointly 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 Indonesia, which is located in Malaysia
(the “Project”). The Seller shall be appointed as general agent to handle related logistics and transportation occurring
in the Project and in return the Company will receive a 1% to 1.25% fee incurred as a commission for its services rendered. On
July 7, 2017, the Company signed a supplemental agreement, pursuant to which the Company will cooperate with Zhiyuan Hong Kong
exclusively on the Project’s transportation needs with respect to transporting construction materials from manufacturers
to the port of Malaysia and to the factory site. The Company will complete its services pursuant to the supplemental agreement
and will receive approval from Zhiyuan Hong Kong that the related services fees will be earned by June 2018. The Company also
expects the entire advance will be collected by October 2018.
Note
16. SUBSEQUENT EVENTS
On
May 4, 2018, the Company's board approved issuance of 660,000 shares of its common stock under the 2014 Stock Incentive Plan
to its management team and the Board of directors. These shares are vested immediately and are valued at $1.15 per share on
grant date with a total fair value of $759,000.